-----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, LN3kBTI9NP+6MDFt6AdmwLPKwJPNFQdSxyOqTajkKS8bv1r/RSrvslUwa75PPF16 pyyWl5rYKMN4ZYrXcx10Ew== 0000950129-02-001676.txt : 20020415 0000950129-02-001676.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950129-02-001676 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EGL INC CENTRAL INDEX KEY: 0001001718 STANDARD INDUSTRIAL CLASSIFICATION: ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO [4731] IRS NUMBER: 760094895 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27288 FILM NUMBER: 02597640 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-K 1 h95091e10-k.txt EGL INC - FISCAL YEAR END DECEMBER 31, 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 COMMISSION NO. 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 incorporation or organization) Identification No.) 15350 VICKERY DRIVE 77032 HOUSTON, TEXAS (Zip Code) (Principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 618-3100 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NOT APPLICABLE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001 PAR VALUE RIGHTS TO PURCHASE SERIES A PREFERRED STOCK (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] At February 28, 2002, the aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was approximately $401 million based on the closing price of such stock on such date of $10.67. At February 28, 2002, the number of shares outstanding of registrant's Common Stock was 47,830,628 (net of 1,117,285 treasury shares). DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement for the Registrant's 2002 Annual Meeting of Shareholders to be held on May 22, 2002 are incorporated by reference in Part III of this Form 10-K. Such definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2001. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PART I Item Business.................................................... 1. 1 Item Properties.................................................. 2. 17 Item Legal Proceedings........................................... 3. 18 Item Submission of Matters To a Vote of Security Holders......... 4. 19 PART II Item Market for Registrant's Common Stock and Related Shareholder 5. Matters..................................................... 19 Item Selected Financial Data..................................... 6. 21 Item Management's Discussion and Analysis of Financial Condition 7. and Results of Operations................................... 22 Item Quantitative and Qualitative Disclosures about Market 7A. Risk........................................................ 41 Item Financial Statements and Supplementary Data................. 8. 43 Item Changes in and Disagreements with Accountants on Accounting 9. and Financial Disclosure.................................... 43 PART III Item Directors and Executive Officers of the Registrant.......... 10. 43 Item Executive Compensation...................................... 11. 43 Item Security Ownership of Certain Beneficial Owners and 12. Management.................................................. 43 Item Certain Relationships and Related Transactions.............. 13. 43 PART IV Item Exhibits, Financial Statement Schedules, and Reports on Form 14. 8-K......................................................... 43
i PART I ITEM 1. BUSINESS GENERAL EGL, Inc. is a leading global transportation, supply chain management and information services company dedicated to providing flexible logistics solutions on a price competitive basis. Our services include air and ocean freight forwarding, customs brokerage, local pick up and delivery service, materials management, warehousing, trade facilitation and procurement and integrated logistics and supply chain management services. We provide value-added services in addition to those customarily provided by traditional air freight forwarders, ocean freight forwarders and customs brokers. These services are designed to provide global logistics solutions for customers in order to streamline their supply chain, reduce their inventories, improve their logistics information and provide them with more efficient and effective domestic and international distribution strategies in order to enhance their profitability. Our merger with Circle International Group, Inc. in October 2000 significantly expanded our international forwarding, customs brokerage and logistics operations. The merger with Circle was treated as a pooling of interests for accounting and financial reporting purposes. Accordingly, all of our prior period consolidated financial statements have been restated to include the results of operations, financial position and cash flows of Circle. See note 2 of the notes to our consolidated financial statements. We believe we are one of the largest forwarders of domestic and international air freight based in the United States. We now have a network of approximately 400 facilities, agents and distribution centers located in over 100 countries on six continents featuring advanced information systems designed to maximize cargo management efficiency and customer satisfaction. Each of our facilities is linked by a real-time, online communications network that speeds the two-way flow of shipment data and related logistics information between origins and destinations around the world. We conduct our operations primarily under the name "EGL Eagle Global Logistics." We were formerly known as Eagle USA Airfreight, Inc. Our name was changed to EGL, Inc. in February 2000 to reflect our increasing globalization, broader spectrum of services and long-term growth strategy. Our businesses that have historically operated under the name "Circle International Group" or a similar name have changed or are in the process of changing their names, where possible, to EGL Eagle Global Logistics or a similar name. We trade on the Nasdaq Stock Market under the symbol "EAGL" and were incorporated in Texas in 1984. INDUSTRY OVERVIEW As business requirements for efficient and cost-effective distribution services have increased, so have the importance and complexity of effectively managing freight transportation. Businesses increasingly strive to minimize inventory levels, perform manufacturing and assembly operations in different locations and distribute products to numerous destinations. As a result, companies frequently want expedited or time-definite shipment services. Time-definite shipments are delivered at a specific time and are typically not expedited, which results in a lower rate than for an expedited shipment. Customers have two principal alternatives: an air freight forwarder or a fully integrated carrier. An air freight forwarder procures shipments from customers and arranges transportation of the cargo on a carrier. An air freight forwarder may also arrange pick up from the shipper to the carrier and delivery of the shipment from the carrier to the recipient. Air freight forwarders often tailor shipment routing to meet the customer's price and service requirements. Fully integrated carriers provide pick up and delivery service, primarily through their own captive fleets of trucks and aircraft. Because air freight forwarders select from various transportation options in routing customer shipments, they are often able to serve customers less expensively and with greater flexibility than integrated carriers. In addition to the high fixed expenses associated with owning, operating and maintaining fleets of aircraft, trucks and related equipment, integrated carriers often impose significant restrictions on delivery schedules and shipment weight, size and type. Air freight 1 forwarders, however, generally handle shipments of any size and can offer a variety of customized shipping options. Most air freight forwarders, like EGL, focus on heavier cargo and do not generally compete with integrated shippers of primarily smaller parcels, including Federal Express Corporation, Airborne Freight Corporation, DHL Worldwide Express, Inc. and the United States Postal Service. Several integrated carriers, like Emery Air Freight Corporation ("Emery") and BAX Global, Inc. ("BAX"), do focus on shipments of heavy cargo in competition with forwarders. On occasion, integrated shippers serve as a source of cargo space to forwarders. Additionally, most air freight forwarders do not generally compete with the major commercial airlines, which, to some extent, depend on forwarders to procure shipments and supply freight to fill cargo space on their scheduled flights. The air freight forwarding industry is highly fragmented. Many companies in the industry are able to meet only a portion of their customers' required transportation service needs. Some national domestic air freight forwarders rely on networks of terminals operated by franchisees or agents. We believe that the development and operation of company-owned terminals and staff under the supervision of our management have enabled us to maintain a greater degree of financial and operational control and service quality than franchise-based networks. We believe that the most important competitive factors in our industry are quality of service, including reliability, responsiveness, expertise and convenience, scope of operations, geographic coverage, information technology and price. AIR FREIGHT FORWARDING SERVICES Our air freight forwarding operations include expedited domestic forwarding within the United States and international forwarding. Our total air freight forwarding revenues in 2001 were $1.3 billion of which 36.4% were derived from domestic air freight forwarding within the United States and 63.6% were derived from international air freight forwarding. Our air freight forwarding and related logistics services include the following: - domestic freight forwarding, - global freight forwarding, - inland transportation of freight from point of origin to distribution center or the carrier's cargo terminal and from our terminal in the destination city to the recipient (pick up and delivery), - cargo assembly, - export packing and vendor shipment consolidation, - receiving and breaking down consolidated air freight lots and arranging for distribution of the individual shipments, - charter arrangement and handling, - electronic transmittal of logistics documentation, - electronic purchase order/shipment tracking, - expedited document delivery to overseas destinations for customs clearance, and - procurement of cargo insurance. We neither own nor operate any aircraft and, consequently, place no restrictions on delivery schedules or shipment size. We arrange for transportation of our customers' shipments via commercial airlines and air cargo carriers. All of our air shipments can be accommodated by either narrow-body or wide-body aircraft. We select the carrier for a shipment based on route, departure time, available cargo capacity and cost. We currently have regularly scheduled dedicated charters of three cargo airplanes under a lease agreement to service specific transportation lanes. During the past year, we have reduced the number of regularly scheduled 2 dedicated charters from 14 to 3. As needed, we charter cargo aircraft for use in other transportation lanes. The number of these dedicated charters varies from time to time depending upon seasonality, freight volumes and other factors. In July 2000, we purchased a 24.5% equity interest in Miami Air International, Inc., a privately held domestic and international charter passenger and freight airline, to obtain access to an additional source of reliable freight charter capacity. In connection with the transaction, Miami Air and EGL entered into an aircraft charter agreement whereby Miami Air agreed to provide aircraft charter services to EGL for a three-year term in exchange for a fee. There are currently three operating aircraft subject to the aircraft charter agreement. We are negotiating with Miami Air to eliminate or reduce the costs of operating the three aircraft. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes thereto included elsewhere in this report. We generate air freight forwarding revenues by acting primarily as an indirect air carrier and, to a lesser extent, as an authorized cargo sales agent. As an indirect air carrier, we obtain shipments from our customers, consolidate shipments bound for a particular destination, determine the best means to transport the shipment to its destination, select the direct carrier (an airline) on which the consolidated lot is to move and tender each consolidated lot as a single shipment to the direct carrier for transportation to a destination. At the destination, we or our agent receive the consolidated lot, break it into its component shipments and distribute the individual shipments to the consignees. Our rates are based on a charge per pound/kilogram. We ordinarily charge the shipper a rate less than the rate that the shipper would be charged by an airline. Due to the high volume of freight we manage, we generally obtain lower rates per pound/kilogram from airlines than the rates we charge our customers for individual shipments. This rate differential is the primary source of our air freight forwarding net revenue. Our practice is to make prompt adjustments in our rates to match changes in airline rates. As an authorized cargo sales agent of most airlines worldwide, we also arrange for the transportation of individual shipments and receive a commission from the airline for arranging the shipment. In addition, we provide the shipper with ancillary services, such as export documentation, for which we receive a separate fee. When acting in this capacity, we do not consolidate shipments or have responsibility for shipments once they have been tendered to the airline. We conduct our agency air freight forwarding operations from the same facilities as our indirect carrier operations and serve the same regions of the world. Local transportation services are performed either by independent cartage companies or, in the United States and Canada, primarily by our local pick up and delivery operations. See "Business -- Domestic Local Delivery Services." If delivery schedules permit, we will typically use lower-cost, overland truck transportation services, including those obtained through our domestic truck brokerage operations. See "Business -- Domestic Truck Brokerage Services." We draw on our logistical expertise to provide forwarding services that are tailored to meet customer needs and, in addition to regularly scheduled service, we offer customized schedules. In addition, our services are customized to address each client's individual shipping requirements, generally without restrictions on shipment weight, size or type. Once the customer's requirements for an individual shipment have been established, we proactively manage the execution of the shipment to ensure satisfaction of the customer's requirements. In 2001, our principal air freight forwarding customers included shippers of: - computers and other electronic and high-technology equipment, - automotive and aerospace components, - trade show exhibit materials, - telecommunications equipment, - pharmaceuticals, 3 - printed and publishing materials, - oil and gas equipment, - machinery and machine parts, and - apparel and entertainment equipment. Our air freight forwarding business is not dependent on any one customer or industry. We provide services to global or multinational customers as well as regional customers. In 2001, approximately 60% of our net revenue was attributable to air freight forwarding. In January 2002, we expanded our historical relationship with DHL Airways. For several years, DHL has provided us with capacity in its system in the United States. As part of the expanded arrangement, DHL provided additional capacity to our domestic freight forwarding operations and expanded its use of our ground network in selected routes. Our expanded arrangement with DHL provides us with broader coverage in the United States, allowing arrivals in key markets by 7:00 a.m. The expanded arrangement also enhances our ability to pursue market share aggressively. We believe it is important that our cost of transportation remain flexible without compromising our capability of providing heavy cargo lift and service to our customers. DOMESTIC LOCAL DELIVERY SERVICES In the United States and Canada, we provide same-day local pick up and delivery services, both for shipments for which we are acting as an air freight forwarder as well as for third-party customers requiring pick up and delivery within the same metropolitan area. We believe that these services provide an important complement to our air freight forwarding services by allowing for quality control over the critical pick up and delivery segments of the transportation process as well as allowing for prompt, updated information on the status of a customer's shipment at each step in the shipment process. We focus on providing local pick up and delivery services to accounts with a relatively high volume of business, which we believe provides a greater potential for profitability than a broader base of small, infrequent customers. During the last several years, we upgraded the information system used by our local pick up and delivery operations. These improvements included bar code and signature scanners that allow for enhanced tracking of shipments and access by shippers of receipt signatures for proof of delivery information. In October 2000, we implemented a new, enhanced system of dispatching for our local pick up and delivery operations. Our local pick up and delivery operations commenced service in Houston, Texas in 1989 and in recent years has rapidly expanded. As of December 31, 2001, local delivery services were offered in 87 of the 90 cities in the United States and Canada in which our terminals were located. On-demand pick up and delivery services are available 24 hours a day, seven days a week. In most locations, delivery drivers are independent contractors who operate their own vehicles. Our Houston, Texas operations include a number of company-owned or leased trailers, trucks and other ground equipment primarily to service specific customer accounts. Local pick up and delivery revenues were $237.5 million during 2001 and $221.5 million during 2000. Approximately $160.1 million of these revenues during 2001 and $163.4 million of these revenues during 2000 were attributable to our air freight forwarding operations and were eliminated upon consolidation. The remaining pick up and delivery revenues were attributable to local delivery services for third-party, non-forwarding business. A substantial majority of the total costs of providing for local pick up and delivery of our freight forwarding shipments in 2001 and 2000 were attributable to our own local pick up and delivery services. Revenues from domestic local delivery services, net of intercompany revenues, are included in air freight forwarding revenues. DOMESTIC TRUCK BROKERAGE SERVICES We have established truck brokerage operations in the United States to provide logistical support to our forwarding operations and, to a lesser extent, provide truckload service to selected customers. Our truck brokerage services locate and secure capacity when overland transportation is the most efficient means of meeting customer delivery requirements, especially in cases of air freight customers choosing the economy 4 delivery option. We use internal truck brokerage operations to meet delivery requirements without having to rely on third-party truck brokerage services. Additionally, by providing for our own truck brokerage, we have been able to achieve greater efficiencies and utilize purchasing power over transportation providers. We do not own a significant number of the trucks used in our truck brokerage operations and, instead, primarily use carriers or independent owner-operators of trucks and trailers on an as-needed basis. We use our relationships with a number of independent trucking companies to obtain truck and trailer space. As with local pick up and delivery services, we view our truck brokerage services primarily as a means of maintaining quality control and enhancing customer service of our core air freight forwarding business, as well as a means of capturing a portion of profits that would otherwise be earned by third parties. Revenues from domestic truck brokerage, net of intercompany revenues, are included in air freight forwarding revenues. OCEAN FREIGHT FORWARDING AND CONSOLIDATION As a global ocean freight forwarder, we arrange for the shipment of freight by ocean carriers and act as the agent of the shipper or the importer. Our ocean freight forwarding and related logistics services include inland transportation from point of origin to distribution facility or port of export, cargo assembly, packing and consolidation, warehousing, electronic transmittal of documentation and shipment tracking, expedited document delivery, pre-alert consignee notification and cargo insurance. A number of our facilities provide protective cargo packing, crating and specialized handling services for retail goods, government-specification cargo, consumer goods, hazardous cargo, heavy machinery and assemblies and perishable cargo. Other facilities are equipped to handle equipment and material from multiple origins to overseas "turn-key" projects, such as manufacturing facilities or government installations. We do not own or operate ships or assume carrier responsibility, preferring to retain the flexibility to tailor logistics, services and options to customer requirements. Our compensation for ocean freight forwarding services is derived principally from commissions paid by shipping lines and from forwarding and documentation fees paid by customers, who are either shippers or consignees. In 2001, approximately 3% of our net revenue was attributable to international ocean freight forwarding, including commissions, forwarding fees and associated ancillary services. Our global operations as an indirect ocean carrier or NVOCC (non-vessel operating common carrier) are similar in some respects to our air freight consolidation operations. We procure customer freight, consolidate shipments bound for a particular destination, determine the routing, select the ocean carrier or charter a ship, and tender each consolidated lot as a single shipment to the direct carrier for transportation to a distribution point. As a NVOCC, we generally derive our revenue from the spread between the rate charged to our customer and the ocean carrier's charge to us for carrying the shipment, in addition to charging for other ancillary services related to the movement of the freight. Because of the volume of freight we control and consolidate, we are generally able to obtain lower rates from ocean carriers than the rate the shipper would be able to procure. In 2001, ocean freight consolidation and associated ancillary services contributed approximately 6% of our net revenue. CUSTOMS BROKERAGE We function as a customs broker at approximately 60 locations in the United States and in over 300 international locations through our network of offices and agents. In our capacity as a customs broker, we prepare and file all formal documentation required for clearance through customs agencies, obtain customs bonds, in many cases facilitate the payment of import duties on behalf of the importer, arrange for payment of collect freight charges and assist the importer in obtaining the best commodity classifications and in qualifying for duty drawback refunds. Our customs brokers and support staff have substantial knowledge of the complex tariff laws and customs regulations governing the payment of duty, as well as valuation and import restrictions in their respective countries. Within the United States, we employ a significant number of personnel holding individual customs broker licenses. 5 We rely both on company-designed and third-party computer technology for customs brokerage activities performed on behalf of our clients. We employ the Automated Brokerage Interface information system, providing an online link with the United States Customs Service. In several global trading centers, in addition to the United States, our offices are connected electronically to customs agencies for expedited preclearance of goods and centralized import management. Such online interface with customs agencies speeds freight release and provides nationwide control of clearances at multiple ports and airports of entry. We work with importers to design cost-effective import programs that utilize our distribution and logistics services and computer technology. Such services include: - electronic document preparation, - cargo routing from overseas origins to ports and airports of entry, - bonded warehousing, - distribution of the cleared cargo to inland locations, and - duty drawback. In many United States and overseas locations, our bonded warehouses enable importers to defer payment of customs duties and coordinate release of cargo with their production or distribution schedules. Goods are stored under customs service supervision until the importer is ready to withdraw or re-export them. We receive storage charges for these in-transit goods and fees for related ancillary services. We also offer Free Trade Zone management and duty drawback services to provide customers with additional tools to maintain cost-effective import programs. As a customs broker operating in the United States, we are licensed by the U.S. Treasury and regulated by the U.S. Customs Service. Our fees for acting as a customs broker in the United States are not regulated, and we do not have a fixed fee schedule for customs brokerage services. Instead, fees are generally based on the volume of business transacted for a particular customer, and the type, number and complexity of services provided. In addition to fees, we bill the importer for amounts that we have paid on the importer's behalf, including duties, collect freight charges and similar payments. In 2001, approximately 17% of our net revenue was attributable to customs brokerage services. LOGISTICS AND OTHER SERVICES Customers increasingly demand more than the simple movement of freight from their transportation suppliers. To meet these needs, suppliers seek to customize their services, by, among other things, providing information on the status of materials, components and finished goods throughout the logistics pipeline and performance reports on and proof of delivery for each shipment. We provide a range of logistics services, distribution and materials management services, international insurance services, global project management services and trade facilitation services. In 2001, approximately 14% of our net revenue was attributable to logistics and other services. Logistics Services We use our logistics expertise to maximize the efficiency and performance of forwarding and other transportation services to our customers. In addition, we provide transportation consulting services and make our expertise and resources available to assist customers in balancing their transportation needs against budgetary constraints by developing logistics plans. We staff and manage the shipping departments of some of our customers that outsource their transportation management function and seek to provide outsourcing services to other customers in the future. We also provide other ancillary services, including electronic data interchange, customized shipping reports, computerized tracking of shipments, air charters, cargo assembly and protective packing and crating. 6 We have established Eagle Exhibitor Services, an internal group that focuses on the special needs of exhibitors in the trade show industry. In addition to air freight forwarding and charter services, this group provides special exhibit handling, by-appointment delivery, caravan services and short-term warehousing. Distribution and Materials Management Services We offer a full range of customized distribution and materials management services in connection with the transportation of cargo. These services are provided in a number of our owned and leased logistics facilities in many locations throughout the world. During 2001, we continued our program of improving existing facilities and constructing new warehouse and distribution facilities to meet customer needs. Our distribution and materials management services include inventory control, order processing, import and export freight staging, protective and specialized packing and crating, pick-and-pack operations, containerization, consolidation and deconsolidation and special handling for perishables, hazardous materials and heavy-lift equipment. For import shipments, we provide bonded warehouse services and, in certain locations, Free Trade Zone services. These warehouse and distribution services complement the other transportation services, including the information systems tools, that form part of the integrated logistics solutions we offer to customers. Insurance Another service offered to customers is the arrangement of international insurance in connection with our air freight and ocean freight forwarding operations. Insurance coverage is frequently tailored to a customer's shipping program and is procured for the customer as a component of our integrated logistics. We also arrange for surety bonds for importers as part of our customs brokerage activities. Global Projects We have global project divisions in North America and the United Kingdom to meet the special requirements of global project management and heavy lift movements. In addition to logistics advice and traditional ocean and air transportation services, the project divisions provide on-site assistance, vessel chartering services and consulting regarding large-scale project movements. Trade Facilitation Services Our EGL Trade Services, Inc. subsidiary specializes in providing procurement, financial and distribution management services to multinational customers. EGL Trade Services purchases both raw materials for manufacturing and finished goods for distribution, then coordinates their global deployment, as directed by the customer. EGL Trade Services delivers its services through custom-designed Vendor and Distribution Hub programs. Through EGL Trade Services, we are able to seamlessly coordinate a customer's procurement, logistics, transportation and distribution activities within a single supply chain program. This enables us to optimize customer supply chains by streamlining the material, information and financial flows through integration of the specific supply chain processes and elimination of redundant transactions. INFORMATION SYSTEMS A primary component of our business strategy is the continued development of advanced information systems. We have invested substantial management and financial resources in the development of our information systems in an effort to provide accurate and timely information to our management and customers. We believe that our systems have been instrumental in the productivity of our personnel, tracking of revenue and costs and the quality of our operations and service and have resulted in substantial reductions in paperwork and expedited the entry, processing, retrieval and internal dissemination of critical information. These systems also enable us to provide customers with accurate and up-to-date information on the status of their shipments, through whatever medium they request, which has become increasingly important. We will continue to develop and upgrade our information systems. In connection with the acquisition of Circle in October 2000, we began an initiative to upgrade and standardize our operations, financial and information 7 systems on a global basis. See "Factors That May Affect Future Results and Financial Condition -- We may face difficulties in integrating the operations of Circle International Group, Inc." Worldport Our integrated information system -- Worldport -- includes logistics information, management information and accounting systems for our North America domestic operations. The central computer located at our headquarters in Houston, Texas is accessible from computer terminals located at all of our North America facilities. The Worldport system provides a comprehensive source of information for managing the logistics of our sourcing and distribution activities. Specifically, the Worldport system permits us to track the flow of a particular shipment from the pick up order through the transportation process to the point of delivery. Through the system, we can also access daily financial information for a particular terminal, a particular division, customer or service or a given shipment. Worldport permits online entry and retrieval of shipment, pricing, scheduling and tracking data and integrates with our management information and accounting systems. Worldport's electronic data interchange also allows for importing of dispatch information, proof of delivery information, status updates, electronic invoicing, funds exchange and file exchange. Worldport also provides our sales force with margin information on customers and shipments, thereby enhancing our ability to bid aggressively for future forwarding business and to avoid committing to unprofitable shipments. Worldport can provide our management with reports customized to meet their information requirements. The expansion of our local pick up and delivery service has further improved our logistics system by enabling shipment data to be input remotely from pick up through delivery. We have implemented the use of remote handheld bar code and signature scanners for use by our pick up and delivery operations. We have implemented the use of handheld bar code dock scanners in our air freight operations. Worldport is integrated with both of these scanners to automatically supply the proof of delivery or shipment status information to the system. This information is then made available to all online locations as well as customers' dial-in facilities, allowing for enhanced tracking of shipments and viewing by shippers of receipt signatures. Delivery receipts are electronically imaged and centrally stored to increase both internal and customer efficiencies. Talon We have focused our efforts on the development and enhancement of "Talon," our international operating system. Talon is intended to provide enhanced features for international operations, including document production, electronic customs filing of shipper export declarations via the U.S. Customs Automated Export System, agent settlements, real-time global tracking and tracing and multi-currency accounting. Upon completion of the Circle merger, we decided to implement enhancements to Talon to improve its operational efficiency. The Talon system is intended to replace the multiple operating systems being used by Circle at the time of the acquisition. Due to the continued weakness in the U.S. economy, during 2001 we decided to slow the enhancements to the Talon system and, for the foreseeable future, we will continue to use the international operating systems that Circle was using prior to the merger. Eagle Advisor, EGLNet and Eagle TRAK Customers and management can obtain shipment information through Eagle Advisor -- our extranet client/server application software program. Customers can download this software to their personal computers from our Internet home page. Through Eagle Advisor, customers can access our password-protected Web site. Worldport and the Circle systems transmit data to this Web site. The customer's shipment data is then automatically transmitted to its personal computer via the Internet. Eagle Advisor allows customers and management to track and trace shipments, obtain imaged proof of delivery information and generate customized shipment reports. Our corporate Intranet, "EGLNet," contains internal training portals to key airline Internet sites, sales and marketing information and other tools for our offices. In addition to Eagle Advisor, the "Eagle TRAK" option on our Internet home page allows customers to obtain shipment tracing information via the Internet. 8 Eagle-Ship Our systems also include Eagle-Ship, which allows customers to automate their shipping processes and consolidate their shipping systems. For customers using Eagle-Ship, we provide a dedicated personal computer, printer and bar code scanner that allow the customer's shipping dock personnel to process and weigh boxes, record the shipment, produce customized box labels and print an EGL house airway bill or bill of lading. Eagle-Ship also provides customers with weight analysis, tariff reporting, assistance in consolidation of like orders and price comparison among shipping options. Eagle-Ship enables our customers to process shipments for many carriers with one personal computer and to compare the cost and service options of various carriers, consolidate Eagle-Ship label printing and generate reports that profile the customer's shipping activity. Eagle-Ship is designed to run shipping systems for UPS, Federal Express and other small parcel carriers and can be customized to run the systems of up to 99 air and truck carriers. We believe that Eagle-Ship gives us a competitive advantage among a growing number of customers that are resistant to the proliferation of dedicated shipper systems because of the cost, complexity and dock space required to maintain a separate personal computer for each carrier. We also believe that the use of Eagle-Ship should lead to increased use of our services by helping to ensure that customers will allocate dock space to Eagle-Ship rather than to multiple systems from other carriers. Although Eagle-Ship does provide customers with assistance in selecting competitors for our shipping services, we believe that much of that information, like that relating to Federal Express, is used in the delivery of documents and small packages, which constitute a small portion of our cargoes, and that, overall, Eagle-Ship will demonstrate to customers the advantages of our services in comparison to our more direct competitors. We believe that Eagle-Ship enhances our ability to market to national accounts. MARKETING AND CUSTOMERS We market services through a global organization consisting of approximately 640 full-time sales people and customer service representatives supported by the sales efforts of senior management, regional managers, regional operation managers, terminal managers and our national services center. Managers at each terminal are responsible for customer service and coordinate reporting of customers' requirements and expectations with the regional managers and sales staff. In addition, regional managers are responsible for the financial performance of the stations in their region. Our employees are available 24 hours a day to respond to customer inquiries. In the fourth quarter of 2001, we realigned our North American organization to provide a more customer-focused approach. Our U.S. operations were reorganized and the number of regions was reduced from five to three. The realignment was intended to re-deploy experienced field managers into sales roles and to create further cost synergies. As part of the realignment, our major global customers were assigned a dedicated senior sales and operations manager focused on customizing global solutions and services. Additionally, each of our seven major industry groups were assigned a dedicated sales manager intended to develop industry specific solutions. The reductions in the number of regions enabled senior managers to be redeployed from region positions to the larger metropolitan areas (or "A" markets) to focus on local accounts. We have increased our emphasis on obtaining high-revenue national and international accounts with multiple shipping locations. These accounts typically impose numerous requirements on those competing for their freight business, including electronic data interchange and proof of delivery capabilities, the ability to generate customized shipping reports and a nationwide network of terminals. These requirements often limit the competition for these accounts to integrated carriers and a very small number of forwarders. We believe that our recent growth and development has enabled us to more effectively compete for and obtain these accounts. Our customers include large manufacturers and distributors of computers and other electronic and high-technology equipment, printed and publishing materials, automotive and aerospace components, trade show exhibit materials, telecommunications equipment, machinery and machine parts, apparel and entertainment equipment. For the year ended December 31, 2001, no customer accounted for greater than 10% of our revenues. Adverse conditions in the industries of our customers could cause us to lose a significant customer or experience a decrease in the shipment volume. Either of these events could negatively impact us. We expect 9 that demand for our services, and consequently results of operations, will continue to be sensitive to domestic and global economic conditions and other factors beyond our control. REGULATION We do not believe that transportation- and customs-related regulatory compliance have had a material adverse impact on operations to date. However, failure to comply with the applicable regulations or to maintain required permits or licenses could result in substantial fines or revocation of our operating permits or authorities. We cannot give assurance as to the degree or cost of future regulations on our business. Some of the regulations affecting our operations are described below. Air Freight Forwarding Our air freight forwarding business is subject to regulation, as an indirect air cargo carrier, under the Federal Aviation Act by the U.S. Department of Transportation, although air freight forwarders are exempted from most of the Federal Aviation Act's requirements by the Economic Aviation Regulations. Our foreign air freight forwarding operations are subject to similar regulation by the regulatory authorities of the respective foreign jurisdictions. The air freight forwarding industry is subject to regulatory and legislative changes that can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and the costs of providing, services to customers. Domestic Local Delivery Services and Domestic Truck Brokerage Services Our delivery operations are subject to various state and local regulations and, in many instances, require permits and licenses from state authorities. In addition, some of our delivery operations are regulated by the Surface Transportation Board. These federal, state and local authorities have broad powers, including the power to approve specified mergers, consolidations and acquisitions, and to regulate the delivery of some types of shipments and operations within particular geographic areas. The Surface Transportation Board has the power to regulate motor carrier operations, to approve some rates, charges and accounting systems and to require periodic financial reporting. Interstate motor carrier operations are also subject to safety requirements prescribed by the U.S. Department of Transportation. In some potential locations for our delivery operations, state and local permits and licenses may be difficult to obtain. Our truck brokerage operations subject us to regulation as a property broker by the Surface Transportation Board, and we have obtained a property broker license and surety bond. Ocean Freight Forwarding The Federal Maritime Commission, or FMC, regulates our ocean forwarding operations. The FMC licenses ocean freight forwarders. Indirect ocean carriers (non-vessel operating common carriers) are subject to FMC regulation, under the FMC tariff filing and surety bond requirements, and under the Shipping Act of 1984, particularly those terms proscribing rebating practices. Customs Brokerage Our United States customs brokerage operations are subject to the licensing requirements of the U.S. Treasury and are regulated by the U.S. Customs Service. We have received our customs brokerage license from the U.S. Customs Service and additional related approvals. Our foreign customs brokerage operations are licensed in and subject to the regulations of their respective countries. Logistics and Other Services Some portions of our warehouse operations require: - registration under the Gambling Act of 1962 and a license or registration by the U.S. Department of Justice, - authorizations and bonds by the U.S. Treasury, - a license by the Bureau of Alcohol, Tobacco & Firearms of the U.S. Treasury, and - approvals by the U.S. Customs Service. 10 Environmental In the United States, we are subject to federal, state and local provisions relating to the discharge of materials into the environment or otherwise for the protection of the environment. Similar laws apply in many foreign jurisdictions where we operate or may operate in the future. Although current operations have not been significantly affected by compliance with these environmental laws, governments are becoming increasingly sensitive to environmental issues, and we cannot predict what impact future environmental regulations may have on our business. We do not anticipate making any material capital expenditures for environmental control purposes during the remainder of the current or succeeding years. EMPLOYEES We had approximately 8,600 employees at December 31, 2001, including approximately 640 sales personnel and customer service representatives. None of our employees are currently covered by a collective bargaining agreement. We have experienced no work stoppages and consider our relations with employees to be good. We also had contracts with approximately 1,200 independent owner/operators of local delivery services (many with multiple trucks and drivers) as of December 31, 2001. The independent owner/operators own, operate and maintain the vehicles they use in their work for us and may employ qualified drivers of their choice. Our owned or leased vehicles were driven by approximately 230 of our employees as of December 31, 2001. We pay our entire sales force and most of our operations personnel what we believe is significantly more than the industry average through the use of incentive and commission programs. We offer a broad-based compensation plan to these employees. Sales personnel are paid a gross commission based on the net revenue of shipments sold. Operations personnel and management are paid bonuses based on the profitability of their locations as well as on our overall profitability. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning our executive officers as of March 31, 2002:
NAME AGE POSITION - ---- --- -------- James R. Crane........................ 48 Chairman of the Board of Directors, President and Chief Executive Officer Elijio V. Serrano..................... 44 Chief Financial Officer E. Joseph Bento....................... 39 Chief Marketing Officer John C. McVaney....................... 43 Executive Vice President, Logistics Ronald E. Talley...................... 50 Chief Operating Officer, Domestic
James R. Crane. Mr. Crane has served as our President, Chief Executive Officer and a director since he founded EGL in March 1984. Elijio V. Serrano. Mr. Serrano joined us as Chief Financial Officer in October 1999 and has served as a director since 2000. From 1998 to 1999, he served as Vice President and General Manager for a Geco-Prakla business unit at Schlumberger Limited, an international oilfield services company. From 1992 to 1998, Mr. Serrano served as controller for various Schlumberger business units. From 1982 to 1992, he served in various financial management positions within the Schlumberger organization. E. Joseph Bento. Mr. Bento was appointed Chief Marketing Officer in September 2000. Mr. Bento also served as President -- North America from September 2000 to November 2001. He joined us in February 1992 as an account executive. From March 1994 to December 1994, he served as a sales manager in Los Angeles, and from January 1995 to September 1997, he served as Regional Sales Manager (West Coast). From June 1994 to May 1995, he also served as station manager in Los Angeles. Prior to assuming his current position, Mr. Bento held the position of Executive Vice President of Sales and Marketing from March 1999 to August 2000 and Vice President of Sales and Marketing from October 1997 to February 1999. 11 John C. McVaney. Mr. McVaney has served as Executive Vice President, Logistics since January 1998. Mr. McVaney joined us as a station manager in 1995 and later served as Regional Vice President for the southeast region. From 1992 to 1995, he served as regional manager for Nationsway Transport Service, Inc. From 1989 to 1992, Mr. McVaney served as National Account Manager for St. Johnsbury Trucking Company, Inc. During 1989, he was President and sole owner of B&C of New Orleans, Inc., a transportation company. Mr. McVaney has over 20 years of transportation experience. Ronald E. Talley. Mr. Talley was appointed Chief Operating Officer, Domestic in December 1997. He joined us in 1990 as a station manager and later served as a regional manager. In 1996, he served as a Senior Vice President of Eagle Freight Services, and our truck brokerage and charter operations, and most recently, he has served as Senior Vice President of our air and truck operations. Prior to joining us, Mr. Talley served as a station manager at Holmes Freight Lines from 1982 to 1990. From 1979 to 1982, Mr. Talley held a variety of management positions with Trans Con Freight Lines. From 1969 to 1979, Mr. Talley served in several management positions at Roadway Express. FORWARD-LOOKING STATEMENTS The statements contained in all parts of this document (including the portion, if any, appended to this Form 10-K) that are not historical facts are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those relating to the following: - the realignment of sales organization including its effects and cost synergies, - the DHL arrangement (including its effect, timing, DHL's use of our ground network, time of arrival in markets and cost savings), - our ability to enter into alternative financing arrangements with respect to certain terminal and warehouse facilities, or to obtain alternative financing for those facilities, prior to November 2002; - the effect and benefits of the Circle merger, - our asset based credit facility, - expectations or arrangements for our leased planes and the effects thereof, - the expected completion and/or effects of the integration plan, - the termination of joint venture/agency agreements and our ability to recover assets in connection therewith, - our plan to reduce costs (including the scope, timing, impact and effects thereof), cost management efforts and potential annualized costs savings, - past and planned headcount reductions (including the scope, timing, impact and effects thereof), - consolidation of field offices (including the scope, timing and effects thereof), - anticipated future recoveries from actual or expected sublease agreements, - the sensitivity of demand for our services to domestic and global economic conditions, - ability to fund operations, - expectations regarding an economic recovery in the U.S. and general economic conditions, - expected growth, - construction of new facilities, - the development, implementation and integration of any of our information systems, - the results, timing, outcome or effect of matters relating to the Commissioner's Charge (including the settlement thereof) or other litigation and our intentions or expectations of prevailing with respect thereto, - future operating expenses, - future margins, - use of credit facility proceeds, 12 - fluctuations in currency valuations, - fluctuations in interest rates, - our Miami Air investment and credit support, including any future results or plans relating to Miami Air or its planes, - future acquisitions and any effects, benefits, results, terms or other aspects of such acquisitions, - 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 - future expectations and outlook 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. Forward-looking statements in this Form 10-K (including the portion, if any, appended to the Form 10-K) are also identifiable by use of the following words and other similar expressions, among others: - - "anticipate," - "intend," - - "believe," - "may," - - "budget," - "might," - - "could," - "plan," - - "estimate," - "predict," - - "expect," - "project," and - - "forecast," - "should."
Our actual results may differ significantly from the results discussed in the forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, the matters discussed in the subsection entitled "Factors That May Affect Future Results and Financial Condition" below, our accounting policies, our future financial and operating results, financial condition, cash needs and demand for our services, actions by customers, suppliers and other third parties, success in plans with respect to information systems, success of cost reduction efforts, as well as other factors detailed in this document and our other filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. We undertake no responsibility to update for changes related to these or any other factors that may occur subsequent to this filing. FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION You should read carefully the following factors and all other information contained in this report. If any of the risks and uncertainties described below or elsewhere in this report actually occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our common stock could decline, and an investor may lose all or part of his investment. We may not be successful in growing either internally or through acquisitions. Our growth strategy primarily focuses on internal growth in domestic and international freight forwarding, local pick up and delivery, customs brokerage and truck brokerage business and, to a lesser extent, on acquisitions. Our ability to grow will depend on a number of factors, including: - existing and emerging competition, - ability to open new terminals, - ability to operate profitably in the face of competitive pressures, - the recruitment, training and retention of operating and management employees, 13 - the strength of demand for our services, - the availability of capital to support our growth, and - the ability to identify, negotiate and fund acquisitions when appropriate. Acquisitions involve risks, including those relating to: - the integration of acquired businesses, including different information systems, - the retention of prior levels of business, - the retention of employees, - the diversion of management attention, - the amortization of acquired intangible assets, and - unexpected liabilities. We cannot assure you that we will be successful in implementing any of our business strategies or plans for future growth. Events impacting the volume of international trade and international operations could adversely affect our international operations. Our international operations are directly related to and dependent on the volume of international trade, particularly trade between the United States and foreign nations. This trade as well as our international operations are influenced by many factors, including: - economic and political conditions in the United States and abroad, - major work stoppages, - exchange controls, the Euro conversion and currency fluctuations, - wars, other armed conflicts and terrorism, and - United States and foreign laws relating to tariffs, trade restrictions, foreign investment and taxation. Trade-related events beyond our control, such as a failure of various nations to reach or adopt international trade agreements or an increase in bilateral or multilateral trade restrictions, could have a material adverse effect on our international operations. Our operations also depend on availability of carriers that provide cargo space for international operations. Our business has been and could continue to be adversely impacted by negative conditions in the United States economy or the industries of our principal customers. Demand for our services has been adversely impacted by negative conditions in the United States economy or the industries of our customers. A substantial number of our principal customers are in the automotive, personal computer, electronics, telecommunications and related industries and their business has been adversely affected, particularly during the past year. These customers collectively account for a substantial percentage of our revenues. Continued adverse conditions or worsening conditions in the industries of our customers could cause us to lose a significant customer or experience a decrease in the shipment volume and business levels of our customers. Either of these events could negatively impact our financial results. Adverse economic conditions outside the United States can also have an adverse effect on our customers and our business. We expect that demand for our services, and consequently our results of operations, will be sensitive to domestic and global economic conditions and other factors beyond our control. 14 The terrorist attacks on September 11, 2001 have created economic, political and regulatory uncertainties, some of which may materially harm our business and prospects and our ability to conduct business in the ordinary course. The terrorist attacks that took place in the United States on September 11, 2001 have adversely affected many businesses, including our business. The national and global responses to these terrorist attacks, many of which are still being formulated, may materially adversely affect us in ways we cannot currently predict. Some of the possible future effects include reduced business activity by our customers, changes in security measures or regulatory requirements for air travel and reductions in available commercial flights that may make it more difficult for us to arrange for the transport of our customers' freight and increased credit and business risk for customers in industries that were severely impacted by the attacks. Our ability to serve our customers depends on the availability of cargo space from third parties. Our ability to serve our customers depends on the availability of air and sea cargo space, including space on passenger and cargo airlines and ocean carriers that service the transportation lanes that we use. Shortages of cargo space are most likely to develop around holidays and in especially heavy transportation lanes. In addition, available cargo space could be reduced as a result of decreases in the number of passenger airlines or ocean carriers serving particular transportation lanes at particular times. This could occur as a result of economic conditions, transportation strikes, regulatory changes and other factors beyond our control. Our future operating results could be adversely affected by significant shortages of suitable cargo space and associated increases in rates charged by passenger airlines or ocean carriers for cargo space. We may lose business to competitors. Competition within the freight industry is intense. We compete in North America primarily with fully integrated carriers, including BAX, Emery and smaller freight-forwarders. Internationally, we compete primarily with the major European based freight forwarders, Expeditors International, BAX, Emery and other freight forwarders. We expect to encounter continued competition from those forwarders that have a predominantly international focus and have established international networks, including those based in the United States and Europe. We also expect to continue to encounter competition from other forwarders with nationwide networks, regional and local forwarders, passenger and cargo air carriers, trucking companies, cargo sales agents and brokers, and carriers and associations of shippers organized for the purpose of consolidating their members' shipments to obtain lower freight rates from carriers. As a customs broker and ocean freight forwarder, we encounter strong competition in every port in which we do business, often competing with large domestic and foreign firms as well as local and regional firms. Our inability to compete successfully in our industry could cause us to lose customers or lower the volume of our shipments. Our success depends on the efforts of our founder and other key managers and personnel. Our founder, James R. Crane, continues to serve as President, Chief Executive Officer and Chairman of the board of directors. We believe that our success is highly dependent on the continuing efforts of Mr. Crane and other executive officers and key employees, as well as our ability to attract and retain other skilled managers and personnel. The loss of the services of any of our key personnel could have a material adverse effect on us. We are subject to claims arising from our pick up and delivery operations. We use the services of thousands of drivers in connection with our local pick up and delivery operations. From time to time, these drivers are involved in accidents. Although most of these drivers are independent contractors, we could be held liable for their actions. Claims against us may exceed the amount of insurance coverage. A material increase in the frequency or severity of accidents, liability claims or workers' compensation claims, or unfavorable resolutions of claims, could materially adversely affect us. In addition, significant increases in insurance costs as a result of these claims could reduce our profitability. 15 We could incur additional expenses or taxes if the independent owner/operators we use in connection with our local pick up and delivery operations are found to be "employees" rather than "independent contractors." The Internal Revenue Service, state authorities and other third parties have at times successfully asserted that independent owner/operators in the transportation industry, including those of the type we use in connection with our local pick up and delivery operations, are "employees" rather than "independent contractors." Although we believe that the independent owner/operators we use are not employees, the IRS, state authorities or others could challenge this position, and federal and state tax or other applicable laws, or interpretations of applicable laws, could change. If they do, we could incur additional employee benefit-related expenses and could be liable for additional taxes, penalties and interest for prior periods and additional taxes for future periods. Our failure to comply with governmental permit and licensing requirements could result in substantial fines or revocation of our operating authorities, and changes in these requirements could adversely affect us. Our operations are subject to various state, local, federal and foreign regulations that in many instances require permits and licenses. Our failure to maintain required permits or licenses, or to comply with applicable regulations, could result in substantial fines or revocation of our operating authorities. Moreover, government deregulation efforts, "modernization" of the regulations governing customs clearance and changes in the international trade and tariff environment could require material expenditures or otherwise adversely affect us. Our settlement with the U.S. Equal Employment Opportunity Commission relating to discrimination allegations is subject to challenge and does not affect the claims asserted in the purported class action lawsuit. Our settlement with the U.S. Equal Employment Opportunity Commission relating to discrimination allegations is subject to challenge and appeal. If a challenge or appeal is successful, any modifications to the settlement or the reassertion of the original charges could have a material adverse effect on us. In addition, the purported class action lawsuit relating to discrimination allegations could result in the payment of substantial amounts and subject us to significant non-monetary requirements which could have a material adverse effect on us. We may face difficulties in integrating the operations of Circle International Group, Inc. We have incurred significant charges in connection with our acquisition of Circle during 2000 and 2001. Our management team does not have experience with the combined business and does not have experience managing international operations of a scope comparable to that of Circle. We may not be able to integrate the operations of Circle without a loss of key officers, employees, agents, joint venturers, customers or suppliers, a loss of revenues, an increase in operating or other costs or other difficulties. In particular, we may experience difficulties integrating our information technology systems with Circle's financial and operational information technology systems. We may also experience difficulties with obtaining required governmental licenses and approvals. In addition, we may not be able to realize any operating efficiencies, synergies or other benefits expected from the merger. Any costs or delays incurred in connection with integrating the operations of Circle could have an adverse effect on our business, results of operations or financial condition. In addition, the combined company may experience the difficulties associated with being a larger entity, including increased difficulties of coordination, complexities concerning the integration of information systems, difficulties relating to increased size and scale and increased risk of unionization of workforce. 16 Our chairman beneficially owns approximately 22.5% of our outstanding common stock and has the greatest influence of any of our stockholders. James R. Crane beneficially owns approximately 22.5% of our outstanding common stock. Based on the ownership positions of our current stockholders, his ability to influence matters submitted to a vote of stockholders is greater than any other stockholder. Provisions of our charter, bylaws and shareholder rights plan and of Texas law may delay or prevent transactions that would benefit stockholders. Our articles of incorporation and bylaws and Texas law contain provisions that may have the effect of delaying, deferring or preventing a change of control. These provisions, among other things: - authorize our board of directors to set the terms of preferred stock, - provide that any stockholder who wishes to propose any business or to nominate a person or persons for the election as director at any meeting of stockholders may do so only if advance notice is given to our corporate secretary, - restrict the ability of stockholders to take action by written consent, and - restrict our ability to engage in transactions with some 20% stockholders. Because of these provisions, persons considering unsolicited tender offers or other unilateral takeover proposals may be more likely to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. In addition, we have adopted a shareholder rights plan that will cause substantial dilution to any person or group that attempts to acquire us without the approval of our board of directors. The provisions of our charter, bylaws and shareholder rights plan may make it more difficult for our stockholders to benefit from transactions that are opposed by an incumbent board of directors. Our Miami Air investment and credit support exposure are subject to uncertainties. The impact of the events of September 11 on the airline industry and the weak economy have resulted in a decline in Miami Air's business and led Miami Air to attempt to renegotiate its loan obligations and lease commitments with its creditors. Uncertainties with respect to Miami Air, including those relating to Miami Air's business and negotiation with its creditors, may affect the carrying value of our $6.1 million common stock investment in Miami Air (the result of which may be an impairment charge). In addition, we may be required to perform on our outstanding credit support under the $7 million standby letter of credit on behalf of Miami Air (the result of which may be the recognition of a related loss). The status of our lease obligations for Miami Air cargo planes is also uncertain. ITEM 2. PROPERTIES The properties used in our domestic and foreign operations consist principally of air and ocean freight forwarding offices, customs brokerage offices and warehouse and distribution facilities. Our freight forwarding terminal locations are typically located at or near major metropolitan airports and occupy between 1,000 and 160,000 square feet of leased or owned space and typically consist of offices, warehouse space, bays for loading and unloading and facilities for packing. Terminals are managed by a station manager who is assisted by operation managers. We also have locations that are limited to sales and administrative activities. The leased terminals are under noncancelable leases that expire on various dates through 2025. From time to time, we may expand or relocate terminals to accommodate growth. 17 The following table sets forth certain information as of December 31, 2001 concerning the number of our domestic and foreign facilities and freight handling terminals:
OWNED LEASED TOTAL ----- ------ ----- North America............................................... 4 153 157 South America............................................... -- 15 15 Europe and Middle East...................................... 11 116 127 Asia and South Pacific...................................... 13 76 89 Corporate................................................... -- 1 1 -- --- --- Total............................................. 28 361 389
As of December 31, 2001, our corporate office occupied approximately 166,000 square feet of space in a facility located in Houston, Texas. During the fourth quarter of 2001, we sold the former Circle headquarters building in San Francisco, California. For information regarding the consolidation of facilities at our operating locations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- Transaction, restructuring and integration costs -- Future lease obligations" and note 3 of the notes to our consolidated financial statements. For further information regarding our lease commitments, see notes 13 and 14 of the notes to our consolidated financial statements. ITEM 3. LEGAL PROCEEDINGS In December 1997, the U.S. Equal Employment Opportunity Commission ("EEOC") issued a Commissioner's Charge pursuant to Sections 706 and 707 of Title VII of the Civil Rights Act of 1964, as amended ("Title VII"). In the Commissioner's Charge, the EEOC charged us and certain of our 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 (1) 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, (2) failures to investigate, (3) failures to maintain proper records and (4) failures to file accurate reports. The Commissioner's Charge states that the persons aggrieved include all Blacks, Hispanics, Asians and females who are, have been or might be affected by the alleged unlawful practices. On May 12, 2000, four individuals filed suit against us alleging gender, race and national origin discrimination, as well as sexual harassment. This lawsuit was filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia, Pennsylvania. The EEOC was not initially a party to the Philadelphia litigation. In July 2000, four additional individual plaintiffs were allowed to join the Philadelphia litigation. We filed an Answer in the Philadelphia case and extensive discovery was conducted. The individual plaintiffs sought to certify a class of approximately 1,000 of our current and former employees and applicants. The plaintiff's initial motion for class certification was denied in November 2000. On December 29, 2000, the EEOC filed a Motion to Intervene in the Philadelphia litigation, which was granted by the Court in Philadelphia on January 31, 2001. In addition, the Philadelphia Court also granted our motion that the case be transferred to the United States District Court for the Southern District of Texas -- Houston Division where we had previously initiated litigation against the EEOC due to what we believed to have been inappropriate practices by the EEOC in the issuance of the Commissioner's Charge and in the subsequent investigation. Subsequent to the settlement of the EEOC action described below, the claims of one of the eight named plaintiffs were ordered to binding arbitration at our request. We recognized a charge of $7.5 million in the fourth quarter of 2000 as an estimated cost of defending and settling the asserted claims. On October 2, 2001, we and the EEOC announced the filing of a Consent Decree settlement. This settlement resolves all claims of discrimination and/or harassment raised by the EEOC's Commissioner's Charge mentioned above. Under the Consent Decree, we agreed to pay $8.5 million into a fund that will compensate individuals who claim to have experienced discrimination. The settlement covers (1) claims by applicants arising between December 1, 1995 and December 31, 2000; (2) disparate pay claims arising 18 between January 1, 1995 and April 30, 2000; (3) promotion claims arising between December 1, 1995 and December 31, 1998; and (4) all other adverse treatment claims arising between December 31, 1995 and December 31, 2000. In addition, we agreed to contribute $0.5 million to establish a Leadership Development Program. The Program will provide training and educational opportunities for women and minorities already employed by us and will also establish scholarships and work study opportunities at educational institutions. In entering the Consent Decree, we have not made any admission of liability or wrongdoing. The Consent Decree was approved by the District Court in Houston on October 1, 2001. It will become effective following the exhaustion of any appeals by any individual plaintiffs or potential claimants. There is currently one appeal pending before the United States Court of Appeals for the Fifth Circuit, which challenges the entry of the Consent Decree. We do not expect a ruling on this appeal for the next four to six months. During the quarter ended September 30, 2001, we accrued $10.1 million related to the settlement, which includes the $8.5 million payment into the fund and $0.5 million to the leadership development program described above, administrative costs, legal fees and other costs associated with the EEOC litigation and settlement. It is unclear whether some or all of the seven remaining individual plaintiffs will attempt to participate under the Consent Decree or whether they will elect to continue to pursue their claims on their own. To the extent any of the individual plaintiffs or any other persons who might otherwise be covered by the settlement opt out of the settlement, we intend to continue to vigorously defend against their allegations. We currently expect to prevail in our defense of any remaining individual claims. There can be no assurance as to what the amount of time it will take to resolve the appeal relating to the settlement of the Commissioner's Charge and the other lawsuits and related issues or the degree of any adverse effect these matters may have on our financial condition and results of operations. A substantial settlement payment or judgment could result in a significant decrease in our working capital and liquidity and recognition of a loss in our consolidated statement of operations. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and note 12 of the notes to our consolidated financial statements for a discussion of commitments and contingencies. From time to time we are a party to various legal proceedings arising in the ordinary course of business. Except as described above, we are not currently a party to any material litigation and are not aware of any litigation threatened against us, which we believe would have a material adverse effect on our business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of our fiscal year ended December 31, 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS Our common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol EAGL. The following table sets forth the quarterly high and low closing sales prices for each indicated quarter of 2001 and 2000.
QUARTER ENDED HIGH LOW - ------------- ------ ------ March 31, 2000.............................................. $46.75 $21.25 June 30, 2000............................................... 32.13 20.38 September 30, 2000.......................................... 37.63 26.75 December 31,2000............................................ 35.63 19.50 March 31, 2001.............................................. $31.38 $22.00 June 30, 2001............................................... 25.71 14.56 September 30, 2001.......................................... 16.00 7.45 December 31, 2001........................................... 17.50 8.40
19 The closing price for our common stock was $10.67 on February 28, 2002. There were approximately 391 stockholders of record (excluding brokerage firms and other nominees) of our common stock as of February 28, 2002. Since our initial public offering in November 1995, EGL has not paid cash dividends on our common stock, although Circle had regularly declared semiannual dividends prior to the merger of EGL and Circle. It is the current intention of our management to retain earnings to finance the growth of our business in lieu of paying dividends. Our bank credit agreement prohibits us from declaring or paying any cash dividends without the bank's consent. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Other factors affecting our liquidity and capital resources" for a discussion of our repurchases of our common stock. In December 2001, we issued $100 million aggregate principal amount of 5% convertible subordinated notes to Credit Suisse First Boston Corporation, as initial purchaser, in a "Rule 144A Offering," pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. Our net proceeds from the issuance and sale of the notes were approximately $96.7 million after deducting the discount to the initial purchaser and estimated expenses of the offering. We used all of the net proceeds to repay a portion of our borrowings under our then existing amended and restated credit facility. The notes bear interest at an annual rate of 5%, payable on June 15 and December 15 of each year beginning June 15, 2002. The notes mature on December 15, 2006. The notes are convertible at any time four trading days prior to maturity into shares of our common stock at a conversion price of approximately $17.4335 per share, subject to certain adjustments. This is equivalent to a conversion rate of 57.3608 shares per $1,000 principal amount of notes. Upon conversion, a noteholder will not receive any cash representing accrued interest, other than in the case of a conversion in connection with an optional redemption. We may redeem the notes on or after December 20, 2004 at specified redemption prices, plus accrued and unpaid interest to, but excluding, the redemption date. Upon a change in control, a noteholder may require us to purchase its notes at 100% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the purchase date. 20 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data that have been derived from our consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and notes thereto, included elsewhere in this report.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 2001 2000 1999(1) 1998(1) 1997(1) ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Revenues......................... $1,671,994 $1,861,206 $1,409,250 $1,154,761 $1,008,756 Net revenues..................... 644,183 719,512 587,075 485,506 406,195 Operating income (loss)(2)(3)(4)................ (57,569) 9,892 72,862 56,306 58,072 Net income (loss)................ (40,177) (722) 51,710 39,547 43,130 Basic earnings (loss) per share(5)....................... $ (0.84) $ (0.02) $ 1.14 $ 0.88 $ 0.99 Basic weighted average shares outstanding(5)................. 47,558 46,600 45,504 45,141 43,511 Diluted earnings (loss) per share(5)....................... $ (0.84) $ (0.02) $ 1.11 $ 0.85 $ 0.95 Diluted weighted average shares outstanding(5)................. 47,558 46,600 46,481 46,321 45,214 BALANCE SHEET DATA (at year end): Working capital.................. $ 210,169 $ 240,484 $ 231,533 $ 181,336 $ 160,909 Total assets..................... 817,179 904,225 775,694 651,142 541,270 Long-term indebtedness, net of current portion................ 103,774 91,051 32,244 21,558 27,702 Stockholders' equity............. 366,091 403,767 401,455 338,758 281,476
Revenue. Revenue decreased $189.2 million, or 10.2%, to $1,672.0 million in 2001 compared to $1,861.2 million in 2000 primarily due to decreases in air freight forwarding revenue. Net revenue, which represents revenue less freight transportation costs, decreased $75.3 million, or 10.5%, to $644.2 million in 2001 compared to $719.5 million in 2000. Operating expenses. Total operating expenses (personnel and other selling, general and administrative expenses) were not reduced commensurate with the decline in revenue during the early part of 2001 in anticipation of improved activity levels. Additionally, actions taken during 2000 to add additional warehouse and dock space in anticipation of continued market share gains and growth in activity resulted in higher occupancy related expenses that came on line during 2001. We also added significant information technology ("IT") related consultant expenses during 2001 to develop an integration plan and to begin the integration of the EGL and Circle IT systems. The combination of a delay in implementing reductions in personnel related expenses consistent with the lower activity levels, the addition of warehouse and dock space that started in 2000, and higher IT related expenses contributed toward our losses in 2001. - --------------- (1) In July 2000, we decided to change our fiscal year end to December 31 beginning with the December 31, 2000 year end. Prior to 2000, our fiscal years ended on September 30. In October 2000, we completed a merger with Circle International Group, Inc. accounted for as a pooling of interests. The statement of operations data has been prepared by combining our results of operations for the years ended September 30, 1999, 1998 and 1997 with Circle's results of operations for the years ended December 31, 1999, 1998 and 1997. The balance sheet data has been prepared by combining our financial results as of September 30, 1999, 1998 and 1997 with Circle's financial results as of December 31, 1999, 1998 and 21 1997. The periods have been labeled year ended December 31 to be more consistent with our current year-end. The stand-alone results of operations of EGL for the three months ended December 31, 1999 have been omitted from the information presented. EGL stand-alone revenues, net revenues, operating income, net income and basic and diluted earnings per share for the period October 1, 1999 through December 31, 1999 were $187.4 million, $78.2 million, $15.7 million, $9.9 million, $0.35 and $0.33, respectively. Unaudited pro forma revenues, net revenues, operating income, net income and basic and diluted earnings per share for the year ended December 31, 1999 depicting the combined results of EGL and Circle as if EGL had a fiscal year ended December 31, 1999 are $1,451.7 million, $601.9 million, $75.6 million, $53.9 million, $1.18 and $1.14, respectively. (2) 2001 and 2000 include transaction, integration and restructuring charges related to the merger with Circle totaling $14.0 million or $8.5 million net of tax ($0.18 per diluted share) and $67.4 million or $49.9 million net of tax ($1.07 per diluted share), respectively. See notes 2 and 3 of the notes to our consolidated financial statements for a discussion of the Circle merger and other acquisitions made in 2000 and 1999. (3) 1998 includes special charges of $10.7 million or $8.1 million net of tax ($0.17 per diluted share) recorded by the former Circle entity. (4) 2001 includes a charge of $10.1 million or $6.2 million net of tax ($0.13 per diluted share) related to the EEOC legal settlement. See note 12 of the notes to our consolidated financial statements. (5) Net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period, adjusted to include the following: (a) the retroactive restatement giving effect to the 3-for-2 stock split in August 1999, and (b) the weighted average of common stock equivalents issuable upon exercise of stock options, less the number of shares that could have been repurchased with the exercise proceeds using the treasury stock method. There were no common stock equivalents included in the diluted weighted average share calculation for the years ended December 31, 2001 and 2000, as their effect is anti-dilutive given our net loss for those periods. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this report. In addition, for information on our critical accounting policies and the judgment made in their application, please read "Critical Accounting Polices" beginning on page 38. MERGER On October 2, 2000, we completed a merger with Circle International Group, Inc. by issuing approximately 17.9 million shares of our common stock for all of the outstanding common stock of Circle. Each share of Circle common stock was exchanged for one share of our common stock. Circle is a leader in providing transportation and integrated logistics services for the international movement of goods and the furnishing of value-added information, distribution and inventory management services to customers worldwide. Circle is principally engaged in international air and ocean freight forwarding, customs brokerage and logistics. The merger was accounted for as a pooling of interests and, accordingly, all of our prior period consolidated financial statements have been restated to include the results of operations, financial position and cash flows of Circle. No goodwill or other fair value adjustments to assets and liabilities were recorded in connection with the merger. RESULTS OF OPERATIONS Our principal services are air freight forwarding, ocean freight forwarding, and customs brokerage and other value-added logistics services. The following table provides certain statement of operations data attributable to EGL's principal services during the periods indicated. Revenue for air freight and ocean freight consolidations (indirect shipments) includes the cost of transporting such freight, whereas net revenue does not. Revenue for air freight and ocean freight agency or direct shipments, customs brokerage and import 22 services, includes only the fees or commissions for these services. A comparison of net revenue best measures the relative importance of our principal services.
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------- 2001 2000 1999(1) --------------------- --------------------- --------------------- % OF % OF % OF AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES ---------- -------- ---------- -------- ---------- -------- (IN THOUSANDS, EXCEPT PERCENTAGES) Revenues: Air freight forwarding....... $1,296,026 77.5 $1,465,438 78.7 $1,112,280 78.9 Ocean freight forwarding..... 176,470 10.6 184,602 9.9 137,024 9.7 Customs brokerage and other..................... 199,498 11.9 211,166 11.4 159,946 11.4 ---------- ----- ---------- ----- ---------- ----- Revenues....................... $1,671,994 100.0 $1,861,206 100.0 $1,409,250 100.0 ========== ===== ========== ===== ========== =====
% OF NET % OF NET % OF NET AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES ---------- -------- ---------- -------- ---------- -------- Net revenues: Air freight forwarding....... $ 386,171 59.9 $ 473,397 65.8 $ 379,602 64.6 Ocean freight forwarding..... 58,514 9.1 53,462 7.4 49,194 8.4 Customs brokerage and other..................... 199,498 31.0 192,653 26.8 158,279 27.0 ---------- ----- ---------- ----- ---------- ----- Net revenues................... $ 644,183 100.0 $ 719,512 100.0 $ 587,075 100.0 ========== ===== ========== ===== ========== ===== Operating expenses: Personnel costs.............. 383,211 59.5 378,461 52.6 302,373 51.5 Other selling, general and administrative expenses... 294,488 45.7 256,270 35.6 211,840 36.1 EEOC legal settlement.......... 10,089 1.5 7,500 1.0 -- -- Transaction, restructuring and integration costs............ 13,964 2.2 67,389 9.4 -- -- ---------- ----- ---------- ----- ---------- ----- Operating income (loss)........ (57,569) (8.9) 9,892 1.4 72,862 12.4 Nonoperating income (expense), net.......................... (8,442) (1.3) 2,549 0.3 11,158 1.9 ---------- ----- ---------- ----- ---------- ----- Income (loss) before provision (benefit) for income taxes... (66,011) (10.2) 12,441 1.7 84,020 14.3 Provision (benefit) for income taxes........................ (25,834) (4.0) 13,163 1.8 32,310 5.5 ---------- ----- ---------- ----- ---------- ----- Net income (loss).............. $ (40,177) (6.2) $ (722) (0.1) $ 51,710 8.8 ========== ===== ========== ===== ========== =====
- --------------- (1) On July 2, 2000, we changed our fiscal year end from September 30 to December 31, effective with the calendar year ended December 31, 2000. A three-month transition period from October 1, 1999 to December 31, 1999 precedes the start of the 2000 fiscal year. The financial data set forth for "1999" have been prepared by combining our financial data for the year ended September 30, 1999 with Circle's financial data for the year ended December 31, 1999. The financial data set forth for "2000" are for the 12 months ended December 31, 2000. Accordingly, EGL's stand-alone results of operations for the three months ended December 31, 1999 were $187.4 million, $78.2 million, $15.7 million, $9.9 million, $0.35 and $0.33, respectively. Unaudited pro forma revenues, net revenues, operating income, net income and basic and diluted earnings per share for the year ended December 31, 1999 depicting the combined results of EGL and Circle as if EGL had a fiscal year ended December 31, 1999 are $1,451.7 million, $601.9 million, $75.6 million, $53.9 million, $1.18 and $1.14, respectively. 23 2001 Compared to 2000 Revenue. Revenue decreased $189.2 million, or 10.2%, to $1,672.0 million in 2001 compared to $1,861.2 million in 2000 primarily due to decreases in air freight forwarding revenue. Net revenue, which represents revenue less freight transportation costs, decreased $75.3 million, or 10.5%, to $644.2 million in 2001 compared to $719.5 million in 2000. Air freight forwarding revenue. Air freight forwarding revenue decreased $169.4 million, or 11.6%, to $1,296.0 million in 2001 compared to $1,465.4 million in 2000 primarily as a result of volume decreases in North America and Asia. The volume decreases in North America were primarily attributable to the weakened U.S. economy. North America was also adversely affected by the shift from air expedited shipments (next flight out, next day or second day time definite shipments) to economy ground deferred shipments (third and fourth day). Air freight forwarding net revenue decreased $87.2 million, or 18.4%, to $386.2 million in 2001 compared to $473.4 million in 2000. The air freight forwarding margin (net revenue as a percentage of revenue) declined to 29.8% in 2001 as compared to 32.3% for 2000 due to a softening of the U.S. economy, primarily in the technology, telecommunications and automotive industries, and the resulting shift from air expedited shipments to economy ground deferred shipments which generate lower revenue and lower margins. The air freight forwarding margin was also adversely impacted in 2001 by the fixed costs of transportation related to 14 charter aircraft leases mainly utilized in North America which were carrying less freight than targeted operating levels as a result of the factors discussed in the previous sentence. In June 2001, we paid $2.0 million to terminate one of our air charter lease agreements. In mid-August 2001, we negotiated agreements to reduce our exposure to future losses on leased aircraft. A lease for two of the aircraft was terminated with no financial penalty, and we agreed to sublease five aircraft on another lease to a third party at rates below our contractual commitment, which resulted in a charge in 2001 of approximately $2.3 million. As of December 31, 2001, we were obligated under one lease agreement for four aircraft that expires during 2003. Although Asia experienced lower revenues from lower activity, the air freight forwarding net revenue margin for Asia improved due to better buying opportunities from carriers. Ocean freight forwarding revenue. Ocean freight forwarding revenue decreased $8.1 million, or 4.4%, to $176.5 million in 2001 compared to $184.6 million in 2000 primarily as a result of volume decreases in North America and Asia. Ocean freight forwarding net revenue increased $5.0 million, or 9.4%, to $58.5 million in 2001 compared to $53.5 million in 2000 due to increased direct activity volumes in Europe, coupled with lower transportation costs in Asia, North America and Europe for consolidation services. Activity from expanded operations in France resulting from a joint venture with the Mory Group contributed to the improved results in Europe. The ocean freight forwarding margin increased to 33.2% in 2001 compared to 29.0% in 2000 primarily due to an increase in the number of shipments moving on a direct basis rather than through consolidation services and, to a lesser extent, better buying opportunities on consolidation activity. Customs brokerage and other revenue. Customs brokerage and other revenue, which includes warehousing, distribution and other logistics services, decreased $11.7 million, or 5.5%, to $199.5 million in 2001 compared to $211.2 million in 2000, while net customs brokerage and other revenue increased $6.8 million, or 3.5%, to $199.5 million in 2001 compared to $192.7 million in 2000. Customs brokerage revenue was lower in 2001 due to a decrease in inbound traffic in all geographic segments except Europe and Middle East. Activity from substantially expanded operations in France and Ireland and the opening of a wholly owned subsidiary in South Africa significantly contributed to the higher revenues in the Europe and Middle East segment. Warehousing and distribution revenue increased as a result of new and expanded warehousing customers mainly in North America partially offset by a decline in activity in Asia. Operating expenses. Total operating expenses (personnel and other selling, general and administrative expenses, excluding EEOC legal costs and transaction, restructuring and integration costs) were not reduced commensurate with the decline in revenue during the early part of 2001 in anticipation of improved activity levels. Additionally, actions taken during 2000 to add additional warehouse and dock space in anticipation of continued market share gains and growth in activity resulted in higher occupancy related expenses that came on line during 2001. We also added significant IT related consultant expenses during 2001 to develop an 24 integration plan and to begin the integration of the EGL and Circle IT systems. The combination of a delay in implementing reductions in personnel related expenses consistent with the lower activity levels, the addition of warehouse and dock space that started in 2000 and higher IT related expenses contributed to our losses in 2001. Personnel costs include all compensation expenses, including those relating to sales commissions and salaries and to headquarters employees and executive officers. Personnel costs increased $4.7 million, or 1.2%, to $383.2 million in 2001 compared to $378.5 million in 2000. As a percentage of net revenue, personnel costs were 59.5%, in 2001 compared to 52.6% in 2000. Our history of rapid revenue growth has historically required us to increase our headcount at a fast pace to prepare for increased levels of activity to maintain our high level of customer service. As a result, employee headcount increased throughout 2000 and into early 2001 in anticipation of efforts to integrate and grow in connection with the EGL/Circle merger. When freight shipments began to slow toward the end of the first quarter of 2001, we attempted to alleviate the impact of the slowdown by implementing a furlough program in March 2001. With no strong signs of a near-term economic rebound, we reduced our headcount during the remainder of 2001 to bring it in line with then current activity levels. During 2001, approximately 980 regular full-time and contract employees were released, including the former Circle headquarters employees. These reductions represented approximately 17% of our U.S. workforce. In the Europe and Middle East region, headcount was increased by 11% due to new and expanded operations in France, Ireland and South Africa. The associated compensation expenses were the main cause of the increase in our total personnel costs. We implemented a temporary salary reduction for five pay periods during the first quarter of 2002 for salaried personnel in the U.S. in an effort to decrease personnel costs during our seasonally slow first quarter. Other selling, general and administrative expenses, excluding EEOC legal costs and transaction, restructuring and integration costs, increased $38.2 million, or 14.9%, to $294.5 million in 2001 compared to $256.3 million in 2000. As a percentage of net revenue, other selling, general and administrative expenses, excluding EEOC legal costs and transaction, restructuring and integration costs, were 45.7% in 2001 compared to 35.6% in 2000. This increase is due to an overall increase in the level of our activities during 2000 and the first nine months of 2001 without the corresponding net revenue growth in 2001 due to the reduced shipping volumes and the shift from air expedited shipments to economy ground deferred shipments which generate lower revenue at lower margins, but with a similar cost structure. EEOC legal settlement. In 2001, we entered into an agreement to settle a claim with the EEOC and recorded a charge of $10.1 million during the third quarter, which included $8.5 million placed into a settlement fund, $0.5 million to establish a leadership development program, legal fees, administrative costs and other costs associated with the litigation and settlement. The $10.1 million charge was in addition to the $7.5 million charge we recognized in 2000 for the estimated costs of defending against these claims. Transaction, restructuring and integration costs. Primarily in connection with the Circle merger, we recorded merger-related costs of $14.0 million, or $8.5 million after tax, during 2001 and $67.4 million, or 25 $49.9 million after tax, during 2000. The categories of costs incurred, the actual cash payments made in 2001 and 2000 and the accrued balances at December 31, 2001 and 2000 are summarized below (in thousands):
AMOUNTS PAID/ ACCRUED BALANCE REVISIONS TO AMOUNTS PAID/ ACCRUED BALANCE WRITTEN OFF IN AT DECEMBER 31, NEW CHARGES ESTIMATES WRITTEN OFF IN AT DECEMBER 31, TOTAL 2000 2000 2001 2001 2001 2001 ------- -------------- --------------- ----------- ------------ -------------- --------------- Cash costs: Transaction costs... $ 9,774 $ (9,774) $ -- $ -- $ -- $ -- $ -- Severance costs..... 8,377 (2,110) 6,267 3,345 (398) (8,301) 913 Future lease obligations, net of expected sublease income... 11,105 (1,042) 10,063 1,917 2,746 (7,763) 6,963 Termination of joint venture/agency agreements........ 9,322 (4,110) 5,212 (3,000) (1,209) 1,003 Charter lease obligation, net of sublease income... -- -- -- 2,287 -- (2,287) -- Integration costs... 8,214 (4,780) 3,434 7,564 -- (10,998) -- ------- -------- ------- ------- ------- -------- ------ Subtotal cash cost.............. 46,792 (21,816) 24,976 15,113 (652) (30,558) 8,879 ------- -------- ------- ------- ------- -------- ------ Noncash............... 20,597 (20,597) -- -- (497) 497 -- ------- -------- ------- ------- ------- -------- ------ Total........ $67,389 $(42,413) $24,976 $15,113 $(1,149) $(30,061) $8,879 ======= ======== ======= ======= ======= ======== ======
Transaction costs. Transaction costs of $9.8 million incurred in 2000 include investment banking, legal, accounting and printing fees and other costs directly related to the merger. Severance costs. Severance costs were recorded for certain employees at the former Circle headquarters and former Circle management at certain international locations who were terminated or notified of their termination under our integration plan prior to December 31, 2000. As of December 31, 2000, we no longer employed approximately 60 of the 150 employees included in the integration plan we established in connection with the Circle acquisition. The termination of substantially all of the remaining 90 employees occurred in the first quarter of 2001. Additional severance costs of approximately $3.2 million were recorded during the year ended December 31, 2001. Also, during January 2001, we announced an additional reduction in our workforce of approximately 125 additional employees. The charge for this workforce reduction is approximately $0.1 million and was recorded during the first quarter of 2001. Future lease obligations. Future lease obligations consist of our remaining lease obligations under noncancelable operating leases at domestic and international locations that we are in the process of vacating and consolidating due to excess capacity resulting from having multiple facilities in certain locations. The provisions of our integration plan include the consolidation of facilities of approximately 80 of our operating locations. As of December 31, 2001, consolidation of facilities has been completed at substantially all of these locations with the remaining locations expected to be completed by the end of the first quarter of 2002. During the second half of 2001, we determined the estimated consolidation dates for several of the remaining facilities and recorded an additional charge of $1.9 million. All lease costs for facilities being consolidated are charged to operations until the date that we vacate each facility. Amounts recorded for future lease obligations under our integration plan are net of approximately $31.3 million in anticipated future recoveries from actual or expected sublease agreements. Sublease income has been anticipated under the integration plan only in locations where sublease agreements have been executed as of December 31, 2001 or are deemed probable of execution during the first half of 2002. There is a risk that subleasing transactions will not occur within the same timing or pricing assumptions made by us or at all, which could result in future revisions to these estimates. During the year ended December 31, 2001, we 26 recorded an additional charge of $4.7 million based on revised estimates for future recoveries from actual or expected sublease agreements that were or are expected to be less favorable than anticipated due to the weakened U.S. economy. In addition, during the fourth quarter of 2001, we decided to utilize two of the facilities in our logistics operations as we determined the expected return on operations was greater than the sublease income we expected to obtain in these two markets. Therefore, we reversed the $2.0 million reserve established for these facilities. Termination of joint venture/agency agreements. Costs to terminate joint venture/agency agreements represents contractually obligated costs incurred to terminate selected joint venture and agency agreements with certain of our former business partners along with assets that are not expected to be fully recoverable as a result of our decision to terminate these agreements. In conjunction with our integration plan, during the year ended December 31, 2001, we completed the termination of joint venture and agency agreements in Brazil, Chile, Panama, Venezuela, Taiwan and South Africa. We completed the termination of joint venture agreements in South Africa and Taiwan on more favorable terms than originally expected and revised the related estimate by reducing the expected charge by $3.0 million. Charter lease obligation. In August 2001, we negotiated agreements to reduce our exposure to future losses on leased aircraft. A lease for two of the aircraft was terminated with no financial penalty. We subleased five aircraft to a third party at rates below our contractual commitment and recorded a charge of approximately $2.3 million in the third quarter of 2001 for the excess of our commitment over the sublease income through the end of the lease term. As of December 31, 2001, we are obligated under one lease agreement with Miami Air (one of our equity method investees) for four aircraft. This agreement expires during 2003. Integration costs. Integration costs of approximately $7.6 million and $8.2 million were incurred during 2001 and 2000, respectively, and include the costs of changing legal registrations in various jurisdictions, changing signs and logos at our major facilities around the world, and other integration costs. These costs have been expensed as incurred. Approximately $3.4 million of this amount was unpaid at December 31, 2000. Noncash charge. The noncash charge of $20.6 million in 2000 consists of assets not expected to be recoverable, which include: (a) fixed assets at various locations that will no longer be used in our ongoing operations after we consolidate those locations; (b) computer hardware and software at the former Circle operations that will no longer be used as these assets are not compatible with our existing information technology strategy; and (c) assets not expected to be fully recoverable as a result of our decision to terminate certain joint venture/agency agreements. In 2001, we revised these estimates by approximately $0.5 million for assets that were determined to be recoverable since they will continue to be used in operations. Operating income (loss). An operating loss of $57.6 million was incurred in 2001 as compared to operating income of $9.9 million for 2000. The decrease in operating income was primarily due to the 2001 decline in net revenues of $75.3 million and the $38.2 million increase in other selling general and administrative expenses, offset by a $53.4 million reduction in transaction, restructuring and integration costs. Nonoperating income (expense), net. Nonoperating expense, net of $8.4 million was incurred in 2001 as compared to nonoperating income, net of $2.5 million in 2000. During 2001, nonoperating expense, net resulted from a lower level of interest income resulting from reduced short-term investments that were liquidated to fund expansion activities and support operations, higher interest expense from increased borrowings, losses from unconsolidated affiliates and no benefit of net foreign exchange gains. These were partially offset by a $2.3 million gain recognized on recording the market value of an investment that became marketable during the second quarter of 2001 and a lower expense for recognition of minority interests. Effective tax rate. The effective income tax rate for 2001 was 39.1% compared to 105.8% for 2000. The 2000 effective tax rate was adversely impacted by the transaction, restructuring and integration charges discussed in note 3 of the notes to our consolidated financial statements. The effective tax rate for 2000 excluding these charges was 38.4%. Our effective tax rate fluctuates primarily due to changes in the level of pre-tax income in foreign countries that have different rates. 27 2000 Compared to 1999 Revenue. Revenue increased $451.9 million, or 32.1%, to $1,861.2 million in 2000 compared to $1,409.3 million in 1999 primarily due to increases in air freight forwarding revenue. Net revenue, which represents revenue less freight transportation costs, increased $132.4 million, or 22.6%, to $719.5 million in 2000 compared to $587.1 million in 1999. Both revenue and net revenue growth benefited from acquisitions completed during December 1999 and January 2000. Air freight forwarding revenue. Air freight forwarding revenue increased $353.1 million, or 31.7%, to $1,465.4 million in 2000 compared to $1,112.3 million in 1999 primarily as a result of volume increases in North America and, to a lesser extent, Asia Pacific and South America. Air freight forwarding net revenue increased $93.8 million, or 24.7%, to $473.4 million in 2000 compared to $379.6 million in 1999. The increase in North America resulted from the addition of significant national account customers throughout 2000, substantial increases in activity levels and expedited shipments for technology and telecommunications customers and the effect of the acquisitions of two Canadian freight forwarding companies in January 2000. See "-- Acquisitions -- CTI and Fastair." Air freight forwarding revenue and net revenue reported by CTI and Fastair in 2000 were $57.1 million and $19.0 million, respectively. The increase in Asia Pacific resulted from the consolidation of a formerly unconsolidated affiliate in Taiwan. For the twelve months ended December 31, 2000, Taiwan reported air freight forwarding revenue and net revenue of $66.2 million and $6.3 million, respectively. South America benefited from our acquisition of Compass Cargo Limitada, a privately held air freight forwarder in Chile in December 1999 which contributed air freight forwarding revenue and net revenue of $20.4 million and $1.5 million, respectively, for the year ended December 31, 2000. The air freight forwarding margin declined to 32.3% in 2000 compared to 34.1% in 1999 due to higher carrier costs, which included fuel surcharges and start-up costs associated with a new dedicated leased aircraft servicing the U.S.-Asia market. Ocean freight forwarding revenue. Ocean freight forwarding revenue increased $47.6 million, or 34.7%, to $184.6 million in 2000 compared to $137.0 million in 1999, while ocean freight forwarding net revenue increased $4.3 million, or 8.7%, to $53.5 million in 2000 compared to $49.2 million in 1999. The increases were principally due to volume increases in Asia Pacific and Europe. The ocean freight forwarding margin declined to 29.0% in 2000 compared to 35.9% in 1999 primarily due to the conversion of direct shipments to consolidations and higher carrier costs. Customs brokerage and other revenue. Customs brokerage and other revenue, which includes warehousing, distribution and other logistics services, increased $51.3 million, or 32.1%, to $211.2 million in 2000 compared to $159.9 million in 1999, while net customs brokerage and other revenue increased $34.4 million, or 21.7%, to $192.7 million in 2000 compared to $158.3 million in 1999. Customs brokerage revenue increased due to increased inbound traffic in North America and Europe. Warehousing and distribution revenue increased as a result of expanded warehousing facilities. Operating expenses. Personnel costs include all compensation expenses, including those relating to sales commissions and salaries and to headquarters employees and executive officers. Personnel costs increased $76.1 million, or 25.2%, to $378.5 million in 2000 compared to $302.4 million in 1999. As a percentage of net revenue, personnel costs were 52.6% in 2000 compared to 51.5% in 1999. This increase was due to increased staffing needs associated with the opening of new terminals, the effect of acquisitions, expanded operations at existing terminals and increased commissions resulting from higher revenues and expanded corporate infrastructure. Other selling, general and administrative expenses, excluding EEOC legal costs and transaction, restructuring and integration costs, increased $44.5 million, or 21.0%, to $256.3 million in 2000 compared to $211.8 million in 1999 due to an overall increase in the level of our activities in 2000 and increased expenses attributable to acquisitions. In addition, during the fourth quarter of 2000, we increased the provision for doubtful accounts by approximately $3.4 million to reserve for certain bad debts associated with the closure of an unprofitable logistics facility and the termination of foreign agent relationships. 28 EEOC legal settlement. During 2000 we reserved $7.5 million for legal expenses to contest EEOC and related charges. See Item 3, "Legal Proceedings." Operating income. Operating income decreased $63.0 million, or 86.4%, to $9.9 million in 2000 compared to $72.9 million in 1999 primarily due to $67.4 million of transaction, restructuring and integration costs recorded in the fourth quarter of 2000 in connection with the Circle merger. Nonoperating income, net. Nonoperating income, net decreased $8.7 million, or 77.7%, to $2.5 million in 2000 compared to $11.2 million in 1999. Our 1999 nonoperating income, net included a $4.5 million gain on the sale of securities further discussed in note 11 of the notes to our consolidated financial statements. During 2000, income from unconsolidated affiliates declined $2.3 million due primarily to the change in reporting of Taiwan from an unconsolidated affiliate where we owned 50% in prior years to a consolidated subsidiary with a minority interest of 49%. In addition, nonoperating income, net decreased due to a lower level of interest income resulting from reduced short-term investments that were liquidated to fuel expansion activity and higher interest expense from increased borrowings. Effective tax rate. The effective income tax rate for 2000 was 105.8% compared to 38.5% for 1999. The 2000 effective tax rate was adversely impacted by the transaction, restructuring and integration charges discussed in note 3 of the notes to our consolidated financial statements. The effective tax rate for 2000 excluding these charges was 38.4%. Our effective tax rate fluctuates primarily due to changes in the level of pre-tax income in foreign countries that have different rates. LIQUIDITY AND CAPITAL RESOURCES General Our ability to satisfy our debt obligations, fund working capital and make capital expenditures depends upon our future performance, which is subject to general economic conditions and other factors, some of which are beyond our control. We substantially reduced operating costs between the second and third quarter of 2001 and worked to diversify our customer base. Additionally, we made significant efforts to collect outstanding customer accounts receivable amounts and were able to use the cash from these collections to avoid additional net borrowings on our line of credit during the latter part of 2001. If we achieve significant near-term revenue growth, we may experience a need for increased working capital financing as a result of the difference between our collection cycles and the timing of our payments to vendors. We make significant disbursements on behalf of our customers for transportation costs (primarily ocean) and customs duties. The billings to customers for these disbursements, which are several times the amount of revenue and fees derived from these transactions, are not recorded as revenue and expense on our statement of operations; rather, they are reflected in our trade receivables and trade payables. Growth in the level of this activity or lengthening of the period of time between incurring these costs and being reimbursed by our customers for these costs may negatively affect our liquidity. 2001 Compared to 2000 Cash provided by operating activities. Net cash provided by operating activities was $23.5 million in 2001 compared to cash provided by operating activities of $33.4 million in 2000. The decrease in 2001 was primarily due to the loss incurred in 2001 and transaction, integration and restructuring costs paid during 2001 as compared to income and corresponding cash flows that were produced in 2000, partially offset by cash provided by collections of receivables, net of other working capital uses. Cash used in investing activities. Cash used in investing activities in 2001 was $23.2 million compared to $94.8 million in 2000. Capital expenditures were $64.9 million during 2001 as compared to $70.4 million during 2000, a $5.5 million decrease. These expenditures were mainly due to information technology initiatives and general facilities expansion in North America. Acquisitions of businesses including the buyout of certain joint venture agreements in foreign locations accounted for $4.6 million of cash used as compared to $28.7 million in 2000. The sale and sale-leaseback of real estate and the sale of other assets resulted in cash proceeds of $37.3 million in 2001. 29 Cash provided by financing activities. Cash provided by financing activities in 2001 was $19.0 million compared to $48.3 million used in financing activities in 2000. Net proceeds from the sale of 5% convertible subordinated notes were $96.9 million in 2001. Proceeds from this sale were used to repay amounts borrowed against the revolving line of credit of $82.0 million, resulting in net borrowings of $14.5 million in 2001 as compared to net borrowings of $43.6 million in 2000. Proceeds from the exercise of stock options were $3.3 million in 2001 compared to $18.9 million in 2000. We expended $10.5 million to purchase treasury stock in 2000. We did not purchase any treasury stock in 2001. 2000 Compared to 1999 Cash provided by operating activities. Net cash provided by operating activities was $33.4 million in 2000 compared to $33.6 million in 1999. The decrease in 2000 was primarily due to an increase in net working capital. Net working capital increased $9.0 million during 2000 principally due to expansion activities and the timing of receipts and disbursements. Cash used in investing activities. Cash used in investing activities in 2000 was $94.8 million compared to $41.3 million in 1999. We incurred capital expenditures of $70.4 million during 2000. These expenditures were mainly due to information technology initiatives and general facilities expansion in North America. Cash paid for acquisitions in 2000, net of cash acquired, was $28.7 million. See note 2 of the notes to our consolidated financial statements for a discussion of business combinations. Cash provided by financing activities. Cash provided by financing activities in 2000 was $48.3 million compared to $1.9 million in 1999. Long-term notes payable increased $58.8 million due primarily to a $56.0 million increase in the revolving line of credit, which had a balance of $81.0 million at December 31, 2000 compared to a $25.0 million balance in commercial paper at December 31, 1999. Proceeds from the exercise of stock options were $18.9 million in 2000 compared to $11.1 million in 1999. Other factors affecting our liquidity and capital resources Convertible subordinated notes. In December 2001, we issued $100 million aggregate principal amount of 5% convertible subordinated notes. The notes bear interest at an annual rate of 5%. Interest is payable on June 15 and December 15 of each year, beginning June 15, 2002. The notes mature on December 15, 2006. The notes are convertible at any time four trading days prior to maturity into shares of our common stock at a conversion price of approximately $17.4335 per share, subject to certain adjustments. This is equivalent to a conversion rate of 57.3608 shares per $1,000 principal amount of notes. Upon conversion, a noteholder will not receive any cash representing accrued interest, other than in the case of a conversion in connection with an optional redemption. We may redeem the notes on or after December 20, 2004 at specified redemption prices, plus accrued and unpaid interest to, but excluding, the redemption date. Upon a change in control, a noteholder may require us to purchase its notes at 100% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the purchase date. The notes are general unsecured obligations of EGL. The notes are subordinated in right of payment to all of our existing and future senior indebtedness as defined in the indenture. We and our subsidiaries are not prohibited from incurring senior indebtedness or other debt under the indenture. The notes impose some restrictions on mergers and sales of substantially all of our assets. Credit agreement. Effective December 20, 2001, we amended and restated our existing credit agreement. The amended and restated credit facility, which was amended effective as of March 7, 2002, is with a syndicate of three financial institutions, with Bank of America, N.A. as collateral and administrative agent for the lenders, and matures on December 20, 2004. The amended and restated credit facility provides a revolving line of credit of up to the lesser of: - $75 million, which will be increased to $100 million if an additional $25 million of the revolving line of credit commitment is syndicated to other financial institutions, or 30 - an amount equal to: - up to 85% of the net amount of our billed and posted eligible accounts receivable and the billed and posted eligible accounts receivable of our wholly owned domestic subsidiaries and our operating subsidiary in Canada, subject to some exceptions and limitations, plus - up to 85% of the net amount of our billed and unposted eligible accounts receivable and billed and unposted eligible accounts receivable of our wholly owned domestic subsidiaries owing by account debtors located in the United States, subject to a maximum aggregate availability cap of $10 million, plus - up to 50% of the net amount of our unbilled, fully earned and unposted eligible accounts receivable and unbilled, fully earned and unposted eligible accounts receivable of our wholly owned domestic subsidiaries owing by account debtors located in the United States, subject to a maximum aggregate availability cap of $10 million, minus - reserves from time to time established by Bank of America in its reasonable credit judgment. The aggregate of the four sub-bullet points above is referred to as our eligible borrowing base. The amended and restated credit facility includes a $50 million letter of credit subfacility. We had $17.3 million in standby letters of credit outstanding as of December 31, 2001 under this facility. The maximum amount that we can borrow at any particular time may be less than the amount of our revolving credit line because we are required to maintain a specified amount of borrowing availability under the amended and restated credit agreement based on our eligible borrowing base. The required amount of borrowing availability is currently $40 million, which amount is subject to adjustment to $25 million if certain post-closing conditions are satisfied. The required amount of borrowing availability is subject to further adjustment to $15 million if our EBITDA is (1) $9.7 million for the fiscal quarter ended December 31, 2001, (2) $9.8 million for the fiscal quarter ending March 31, 2002 or (3) $13.2 million for the fiscal quarter ending June 30, 2002. The amount of borrowing availability is determined by subtracting the following from our eligible borrowing base: - our borrowings under the amended and restated credit facility, and - our accounts payable and the accounts payable of all of our domestic subsidiaries and our Canadian operating subsidiary that remain unpaid more than the longer of (i) sixty days from their respective invoice dates or (ii) thirty days from their respective due dates. For each tranche of principal borrowed under the revolving line of credit, we may elect an interest rate of either: - LIBOR, plus an applicable margin of 2.50%, which is subject to adjustment after June 30, 2002 to: - 2.00% if the amount available to be borrowed under the line of credit, which we call our borrowing availability, is greater than or equal to $65 million, - 2.25% if the borrowing availability is less than $65 million, but greater than or equal to $45 million, - 2.50% if the borrowing availability is less than $45 million, but greater than or equal to $25 million, and - 2.75% if the borrowing availability is less than $25 million, or - the prime rate announced by Bank of America, plus, if the borrowing availability is less than $25 million, an applicable margin of 0.25%. We refer to borrowings bearing interest based on LIBOR as a LIBOR tranche and to other borrowings as a prime rate tranche. The interest on a LIBOR tranche is payable on the last day of the interest period (one, two or three months, as selected by us) for such LIBOR tranche. The interest on a prime rate tranche is payable monthly. 31 A termination fee would be payable upon termination of the amended and restated credit facility during the first two years after the closing thereof, in the amount of 0.50% of the total revolving line commitment if the termination occurs on or before the first anniversary of the closing and 0.25% of the total revolving line commitment if the termination occurs after the first anniversary, but on or before the second anniversary of such closing (unless terminated in connection with a refinancing arranged or underwritten by Bank of America or its affiliates). We are subject to certain covenants under the terms of the amended and restated credit facility, including, but not limited to, (a) maintenance at the end of each fiscal quarter of a minimum specified adjusted tangible net worth and (b) quarterly and annual limitations on capital expenditures of $12 million per quarter or $48 million cumulative per year. The amended and restated credit facility also places restrictions on additional indebtedness, dividends, liens, investments, acquisitions, asset dispositions, change of control and other matters, is secured by substantially all of our assets, and is guaranteed by all domestic subsidiaries and our Canadian operating subsidiary. In addition, we will be subject to additional restrictions, including restrictions with respect to distributions and asset dispositions, if our eligible borrowing base falls below $40 million. Events of default under the amended and restated credit facility include, but are not limited to, the occurrence of a material adverse change in our operations, assets or financial condition or our ability to perform under the amended and restated credit facility or that any of our domestic subsidiaries or our Canadian operating subsidiary. No amounts were outstanding under this agreement as of March 28, 2002. See note 6 of the notes to our consolidated financial statements for a discussion of our credit agreement prior to December 20, 2001. Other bank lines of credit and guarantees. We maintain a $10 million bank line of credit, in addition to the $50 million sublimit under our amended and restated credit facility, to secure customs bonds and bank letters of credit to guarantee certain transportation expenses in foreign locations. At December 31, 2001, we were contingently liable for approximately $6.7 million, under outstanding letters of credit and guarantees related to our $10 million line of credit. Our ability to borrow under bank lines of credit and to maintain bank letters of credit is subject to the limitations on additional indebtedness contained in our amended and restated credit facility discussed above. Additionally several of our foreign operations guarantee amounts associated with our custom brokerage services. As of December 31, 2001, these outstanding guarantees approximated $15.6 million. Sale-leaseback. On December 31, 2001, we terminated an operating lease agreement relating to our corporate headquarters facility in Houston, Texas and purchased the property covered by this agreement for $8.1 million. In connection with the termination of the lease agreement and the purchase of the property, we entered into a transaction whereby we sold this property and certain other properties in Houston and Denver owned by us with a net book value of $17.2 million to an unrelated third party for $18.6 million, net of closing costs of $0.8 million. Mr. Crane also conveyed his ownership in a building adjacent to the Houston facility directly to the buyer and received approximately $5.8 million in proceeds. Mr. Crane's investment in the building was approximately $5.8 million. One of our subsidiaries then leased these properties for a term of 16 years, with options to extend the initial term for up to an additional 15 years. Under the terms of the new lease agreement, the quarterly lease payment is approximately $0.9 million, which amount is subject to escalation after the first two years based on increases in the Consumer Price Index. Synthetic lease agreements. We have entered into two operating lease arrangements that involve a special purpose entity that acquired title to properties, paid for the construction costs and leased to us real estate at some of our terminal and warehouse facilities. This kind of leveraged financing structure is commonly referred to as a "synthetic lease." A synthetic lease is a form of lease financing that qualifies for operating lease accounting treatment and under generally accepted accounting principles is not reflected in our balance sheet. Thus, the obligations are not recorded as debt and the underlying properties are not recorded as assets on our balance sheet. Under a synthetic lease, our rental payments (which approximate interest amounts under the synthetic lease financing) 32 are treated as operating rent commitments and are excluded from our aggregate debt maturities. A synthetic lease is generally preferable to a conventional real estate lease since the lessee benefits from attractive interest rates, the ability to claim depreciation under tax laws and the ability to participate in the development process. Master operating synthetic Lease. On April 3, 1998, we entered into a five-year $20 million master operating synthetic lease agreement with two unrelated parties for financing the acquisition, construction and development of terminal and warehouse facilities throughout the United States as designated by us. The lease facility was funded by a financial institution and is secured by the properties to which it relates. Construction was completed during 2000 on five terminal facilities. Under the terms of the master operating synthetic lease agreement, average monthly lease payments, including monthly interest costs based upon LIBOR plus 145 basis points, begin upon the completion of the construction of each financed facility. The monthly lease obligations currently approximate $0.1 million per month. A balloon payment equal to the outstanding lease balances, which were initially equal to the cost of the facility, is due in November 2002. As of December 31, 2001, the aggregate lease balance was approximately $14.1 million. If these facilities were consolidated in our financial statements, we would reflect an increase in property and equipment and in indebtedness of approximately $14.1 million and the annual depreciation expense would increase by approximately $0.4 million. We intend to enter into alternative financing arrangements for these facilities prior to November 2002. The master operating synthetic lease agreement contains 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 synthetic lease agreement as amended on February 11, 2002 restricts us from incurring debt in an amount greater than $30 million, except pursuant to a single credit facility involving a commitment of not more than $110 million and $100 million of 5% convertible subordinated notes. We have an option, exercisable at anytime during the lease term, and under particular circumstances may be obligated, to acquire the financed facilities for an amount equal to the outstanding lease balance. If we do not exercise the purchase option, and do not otherwise meet our obligations, we are 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, up to a maximum of $13.7 million. We expect that the amount of any deficiency payment would be expensed. We may also have to find other suitable facilities to operate in or potentially be subject to a reduction in revenues and other operating activities. Other synthetic lease and related capital lease. During 1998, Circle entered into two lease agreements related to one of its domestic terminal facilities. One of the lease agreement relates to the land and is currently being accounted for as a synthetic operating lease. We are required to make bi-annual payments of $0.1 million for 10 years under the synthetic lease. At December 31, 2001, the lease balance was approximately $9.5 million. A second agreement relates to the building and improvements and is accounted for as a capital lease rather than as a synthetic lease. Therefore, the fixed asset and related liability for the second lease are included in our balance sheet. Property under the capital lease is amortized over the lease term. As of December 31, 2001, the carrying value of property held under the building and improvements lease was $3.7 million, which is net of $1.9 million of accumulated amortization. Computer system upgrades. We are in the process of developing and implementing computer system solutions for operational and financial systems. As of December 31, 2001, we had capitalized $20.9 million related to the development of these systems. This amount is currently not being depreciated. Once placed in service, depreciation related to the systems will be charged. Miami Air. Please read "-- Certain Relationships and Related Transactions -- Miami Air" for information on our investment in Miami Air, including Miami Air's efforts to renegotiate its loan obligations and lease commitments with its creditors given the status of the airline industry as a result of the events of September 11 and the weak economy. 33 Share repurchase. In January 2000, our board of directors authorized the repurchase of up to one million shares of our outstanding common stock. In April 2000, our board of directors increased the authorization to three million shares. Our 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, our board of directors terminated the share repurchase authorization, at which time we had repurchased an aggregate of 449,500 shares for a total of $10.5 million under the authorization. Stock options. As of December 31, 2001, we had outstanding non-qualified stock options to purchase an aggregate of 5.9 million shares of common stock at exercise prices equal to the fair market value of the underlying common stock on the dates of grant (prices ranging from $5.50 to $33.81). At the time a non- qualified stock option is exercised, we 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 fiscal years ended December 31, 2001 and December 31, 2000 of non-qualified stock options to purchase an aggregate of 0.5 million and 1.2 million shares of common stock, we are entitled to a federal income tax deduction of approximately $7.8 million and $17.0 million, respectively. We have recognized a reduction of our federal and state income tax liability of approximately $3.0 million and $5.0 million in 2001 and 2000. Accordingly, we recorded an increase to 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 the exercises will occur, the amount of any deductions, and our ability to fully utilize any tax deductions. DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS A summary of payments due by period of our contractual obligations and commercial commitments as of December 31, 2001 are shown in the tables below (in thousands). A more complete description of these obligations and commitments is included in the notes to our consolidated financial statements as referenced below.
LESS THAN 1-3 4-5 AFTER CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS - ----------------------- -------- --------- -------- ------- -------- Long-term debt.................... $111,724 $ 7,950 $ 2,605 $ 267 $100,902 Capital lease obligations......... 3,309 608 1,216 608 877 Operating leases.................. 359,731 51,537 105,437 82,470 120,287 -------- ------- -------- ------- -------- Total contractual obligations..... $474,764 $60,095 $109,258 $83,345 $222,066 ======== ======= ======== ======= ========
As of December 31, 2001, we had approximately $48.3 million of standby letters of credit and surety bonds maturing in less than one year, approximately $7.0 million of standby letters of credit and surety bonds maturing in one to three years and no standby letters of credit and surety bonds maturing in more than three years. As of December 31, 2001, we also had $1.9 million of other commercial commitments without a maturity. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Aircraft Leasing Companies James R. Crane, our Chairman of the Board, President and Chief Executive Officer, holds interests in two entities (one of which is 50% owned and one of which is wholly owned by Mr. Crane) that lease passenger aircraft to us. From time to time, our employees use these aircraft in connection with travel associated with our business, for which we make payments to those entities. Under our arrangement with Mr. Crane during the period from January 1, 2001 through July 31, 2001, we reimbursed Mr. Crane for approximately $0.1 million per month in monthly lease obligations for a total of $0.8 million. In August 2001, we revised our agreement with Mr. Crane whereby we are now charged for actual company usage of the aircraft on an hourly 34 basis and are billed on a periodic basis. During the period August 1, 2001 through December 31, 2001, we reimbursed Mr. Crane $0.05 million for hourly usage of the aircraft. Investment in Miami Air International, Inc. In July 2000, we purchased 24.5% of the outstanding common stock of Miami Air International, Inc., a privately held domestic and international passenger and freight charter airline headquartered in Miami, Florida, for approximately $6.3 million in cash in a stock purchase transaction. Our 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 EGL, James R. Crane and Frank J. Hevrdejs, a member of our 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. In connection with the Miami Air investment, Miami Air and EGL 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 EGL for a three-year term, and we caused a $7 million standby letter of credit to be issued in favor of certain creditors for Miami Air to assist Miami Air in financing the conversion of its aircraft. Miami Air agreed to pay EGL an annual fee equal to 3.0% of the face amount of the letter of credit and to reimburse EGL for any payments owed by EGL in respect of the letter of credit. As of December 31, 2001 Miami Air had no funded debt under the line of credit that is supported by the EGL letter of credit. However, Miami Air had outstanding $2.8 million in letters of credit that were supported by the EGL letter of credit. There were previously four aircraft subject to the aircraft charter agreement. During 2001, we paid Miami Air approximately $11.8 million under the aircraft charter agreement for use of four 727 cargo airplanes under an aircraft, crew, maintenance and insurance, or ACMI, arrangement. The payments were based on market rates in effect at the time the lease was entered into. In late February 2002, EGL and Miami Air mutually agreed to ground one of these aircraft because of the need for maintenance on that plane. We are negotiating with Miami Air to reduce the costs of operating the remaining three aircraft and are further exploring opportunities to reduce our dependence on those planes. We have been made aware of Miami Air's efforts to renegotiate its loan obligations and lease commitments with their creditors given the status of the airline industry as a result of the events of September 11 and the weak economy. If Miami Air is not able to successfully reach agreement with its creditors, or if its business continues to decline, we would expect to reassess the carrying value of our $6.1 million common stock investment in Miami Air (the result of which may be an impairment charge) and may be required to perform on our credit support ($2.8 million outstanding as of March 28, 2002 against a $7 million standby letter of credit) on behalf of Miami Air (the result of which may be the recognition of a related loss). The weak economy and events of September 11 significantly reduced the demand for cargo plane services, particularly 727 cargo planes. As a result, the market value of these planes declined dramatically. Miami Air has made EGL aware that the amounts due their bank (which are secured by seven 727 planes) is significantly higher than the market value of those planes. In addition, Miami Air has outstanding operating leases for 727 and 737 airplanes at above current market rates, including two planes that are expected to be delivered in 2002. Miami Air has indicated that they are in discussions with the bank to obtain debt concessions on the seven 727 planes, to buy out the lease on a 727 cargo plane and to reduce the rates on the 737 passenger planes. An offer from a third party to purchase three of the 727 cargo planes being leased by EGL is also being evaluated by Miami Air. If the three 727 cargo planes are sold, EGL expects that it would be released from its lease obligations. Miami Air has informed EGL that its creditors have indicated a willingness to make concessions. There can be no assurance as to the amount, timing or terms of such concessions, if any. Miami Air is interested in exiting the 727 business to concentrate primarily on 737 passenger business. Miami Air believes its business model is viable if it is able to: (1) exit the 727 business -- this 35 division's cost structure, pricing and scale are no longer competitive; (2) obtain concessions from its bank and lessors, and (3) focus on 737 passenger business. Miami Air, each of the private investors and the continuing Miami Air stockholders also entered into a stockholders agreement under which: - Mr. Crane and Mr. Hevrdejs are obligated to purchase up to approximately $1.7 million and $0.5 million, respectively, worth of Miami Air's Series A preferred stock upon demand by the board of directors of Miami Air, - each of EGL and Mr. Crane has the right to appoint one member of Miami Air's board of directors, and - 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. As of February 28, 2002, directors appointed to Miami Air's board include a designee of Mr. Crane, Mr. Elijio Serrano (our Chief Financial Officer) and two others. The Series A preferred stock, if issued, (1) will not be convertible, (2) will have a 15.0% annual dividend rate and (3) will be subject to mandatory redemption in July 2006 or upon the prior occurrence of specified events. The original charter transactions between Miami Air and EGL were negotiated with Miami Air's management at arms length at the time of our original investment in Miami Air. Miami Air's pre-transaction Chief Executive Officer has remained in that position and as a director following the transaction and together with other original Miami Air investors, remained as substantial shareholders of Miami Air. Other private investors in Miami Air have participated with our directors in other business transactions unrelated to Miami Air. For additional information, please also read "-- Liquidity and Capital Resources -- Other factors affecting our liquidity and capital resources -- Miami Air." EGL Subsidiaries in Spain and Portugal In 1999, Circle sold a 49% interest in two Circle subsidiaries in Spain and Portugal to Peter Gibert, who relocated to Barcelona, Spain. Mr. Gibert currently serves as the managing director of both subsidiaries and is one of our directors. Circle's outside advisors determined the methodology for determining the value of the subsidiaries, which was deemed to be fair by a third-party valuation expert. The agreed purchase price was $1.3 million, paid one-third at closing, and the balance to be paid in equal installments 18 and 36 months following closing. The two installment payments were evidenced by a promissory note bearing interest at six percent (6%) and secured by a pledge of Mr. Gibert's interest in the subsidiaries. The loan balance as of December 31, 2001 was $0.4 million. In addition, the purchase agreement provides Mr. Gibert with the right at his option to require Circle, and now EGL, to purchase his interest in the subsidiaries at a price based on the same valuation methodology. After December 31, 2005 (or earlier under certain circumstances), we have the right to require Mr. Gibert to sell his entire interest in the subsidiaries at a price based on the valuation methodology. Consulting Agreement In connection with Peter Gibert stepping down as Chief Executive Officer of Circle and relocating to Spain in 1999, Mr. Gibert entered into a consulting agreement with Circle pursuant to which he agreed to provide sales, marketing, strategic planning, acquisition, training and other assistance as reasonably requested wherever Circle has operations, other than in the United States, Spain and Portugal. The consulting agreement provided for annual compensation in the first year of $0.4 million and annual compensation in the second and third years of $0.3 million per year. The consulting agreement, which has a three-year term that commenced January 1, 1999, also prohibits Mr. Gibert, directly or indirectly, from competing against Circle during the term of the consulting agreement, plus six months thereafter. 36 Upon returning to Circle as Interim Chief Executive Officer in May 2000, Mr. Gibert agreed to suspend the term of the consulting agreement until he was no longer an employee of Circle, which occurred in November 2000 as a result of our merger with Circle. The original term of the consulting agreement has been extended for a period equal to the period during which the consulting agreement was suspended. This arrangement was extended in June 2001 until May 31, 2004. Source One Spares Mr. Crane, our Chairman, President and Chief Executive Officer, is a director and 24.9% shareholder of Source One Spares, Inc., a company specializing in the "just-in-time" delivery of overhauled flight control, actuation and other rotable airframe components to commercial aircraft operators around the world. In May 1999, we began subleasing a portion of our warehouse space in Houston, Texas and London, England to Source One Spares pursuant to a five-year sublease, which terminated in 2002. Rental income was approximately $0.1 million for the year ended December 31, 2001. During 2001, we billed Source One Spares approximately $0.5 million for freight forwarding services. Sale-Leaseback In connection with a sale-leaseback agreement entered into by us, Mr. Crane conveyed his ownership in a building adjacent to the Houston facility directly to a third party buyer. We then leased the property directly from the buyer. See "-- Other factors affecting our liquidity and capital resources." ACQUISITIONS Eagle Transfer, Inc. and S. Boardman (Air Services) Limited On April 3, 1998, we acquired substantially all of the operating assets and assumed some liabilities of Eagle Transfer, Inc., a privately held international freight forwarder/consolidator based in Miami, Florida. Despite the similarity in names, EGL and Eagle Transfer had no prior affiliation. On April 14, 1998, we acquired all of the outstanding stock of S. Boardman (Air Services) Limited, a privately held full services forwarder based in London, England. The aggregate purchase price for the two 1998 acquisitions was approximately $5.4 million, including $4.3 million in cash plus 41,999 shares of common stock valued at $0.8 million. The agreements also specify maximum contingent earnout payments in the aggregate of $2.0 million in cash plus $2.3 million in common stock, if specified performance benchmarks are met during the three-year period following the acquisitions. The acquisitions were accounted for as purchases. Accordingly, in each case the purchase price was allocated based upon the estimated fair market value of the net assets acquired with the excess being recorded as goodwill. The results of operations for the acquired operations were included in the consolidated statement of operations from the acquisition date forward. Through December 31, 2001, contingent payments of $2.0 million in cash and our common stock had been recorded and recognized as additional goodwill in connection with the 1998 acquisitions. Compass Cargo Limitada On December 15, 1999, we completed the acquisition of Compass Cargo Limitada, a privately held air freight forwarder in Chile for an aggregate purchase price of $1.2 million in cash at closing. The results of operations for Compass Cargo Limitada were included in the consolidated statement of operations from the acquisition date forward. CTI and Fastair On January 7, 2000, we completed the acquisitions of two commonly controlled freight forwarding companies in Canada, Commercial Transport International (Canada) Ltd. and Fastair Cargo Systems Ltd., for an aggregate purchase price of approximately $21.3 million in cash paid at closing and approximately $4.9 million to be paid in cash in three annual installments beginning in 2001. The agreement also provided for an earnout. The agreement was amended in December 2000 to provide that the remaining earnout payments will consist of (a) shares of our common stock with a value of $3.5 million, which shares were issued in 2001, 37 and (b) eight quarterly installments of $0.1 million beginning in December 2000 if CTI and Fastair achieve certain budgeted results for the previous quarter. Through December 31, 2001, contingent payments of $6.4 million had been recorded and recognized as additional goodwill in connection with this acquisition. If CTI and Fastair achieve only a portion of the budgeted results for a particular quarter, then the related quarterly installment will be reduced pro rata; provided, that if CTI and Fastair thereafter achieve the annual budgeted results, the last quarterly installment for the fiscal year in question will be increased by the amount of any previous decreases during the fiscal year in question. Each of these acquisitions were accounted for as a purchase and the results of operations for the acquired businesses are included in consolidated statement of operations from the acquisition date forward. Miami Air International, Inc. In July 2000, we purchased 24.5% of the outstanding common stock of Miami Air International, Inc., a privately held domestic and international charter airline headquartered in Miami, Florida, for approximately $6.3 million in cash in a stock purchase transaction. For additional information, see "-- Certain Relationships and Related Transactions" above. Circle International Group, Inc. On October 2, 2000, we completed the acquisition of Circle. The merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes and as a pooling of interests for accounting and financial reporting purposes. As a result of the merger, each share of Circle's common stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by Circle, EGL or the special purpose merger subsidiary) has been converted to the right to receive one validly issued, fully paid and nonassessable share of our common stock. In the aggregate, we issued 17.9 million shares of our common stock in exchange for issued and outstanding shares of Circle common stock and assumed options exercisable for 1.1 million shares of our common stock. The exchange ratio of one share of our common stock for each share of Circle common stock was determined by arms-length negotiations between us and Circle. See note 2 of the notes to our consolidated financial statements. SEASONALITY Historically, our operating results have been subject to a limited degree to seasonal trends when measured on a quarterly basis. The first quarter, ending March 31, has traditionally been the weakest, and the third quarter, ending September 30, has traditionally been the strongest. This pattern is the result of, or is influenced by, numerous factors, including climate, national holidays, consumer demand, economic conditions and a myriad of other similar and subtle forces. In addition, this historical quarterly trend has been influenced by the growth and diversification of our terminal network. We cannot accurately forecast many of these factors, nor can we estimate accurately the relative influence of any particular factor. As a result, there can be no assurance that historical patterns, if any, will continue in future periods. CRITICAL ACCOUNTING POLICIES Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management considers many factors in selecting appropriate operational and financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. 38 Among the factors, but not fully inclusive of all factors that may be considered by management in these processes are: - the range of accounting policies permitted by U.S. generally accepted accounting principles, - management's understanding of the company's business -- both historical results and expected future results, - the extent to which operational controls exist that provide high degrees of assurance that all desired information to assist in the estimation is available and reliable or whether there is greater uncertainty in the information that is available upon which to base the estimate, - expectations of the future performance of the economy -- domestically, globally and within various sectors that serve as principal customers and suppliers of goods and services, - expected rates of change, sensitivity and volatility associated with the assumptions used in developing estimates, - whether historical trends are expected to be representative of future trends, - future estimates of cash flows to be produced by various assets and groups of assets, - how long assets are expected to remain productive before they must be replaced or undergo substantial repairs, - what the fair market value of an asset or liability may be at a point in time when there is no established trading market where the specific asset or liability can be readily sold or settled, - expectations regarding the financial viability of counterparties to business transactions with us and the counterparties' ability, willingness and whether they actually will perform in accordance with their business obligations under the terms of the arrangements, - in some circumstances management judgment must be applied to interpret what the provisions of commercial arrangements obligate the parties to do and estimates are sometimes required of the efforts and cost necessary to meet those obligations or to resolve disputes among the parties, including the costs related to resolving litigation, - expectations of future income for financial and income tax reporting purposes to evaluate the recoverability of certain assets, and - and the categorization and allocation of costs among different categories reported in the financial statements, as well as estimates of reasonable pricing assumptions used in our segment reporting analysis. The estimation process often times may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that lies within that range of reasonable estimates -- which may result in the selection of estimates which could be viewed as conservative or aggressive by others -- based upon the quantity, quality and risks associated with the variability that might be expected from the future outcome and the factors considered in developing the estimate. Management attempts to use its business and financial accounting judgment in selecting the most appropriate estimate, however, actual results could and will differ from those estimates. Revenue recognition Revenue and freight consolidation costs are recognized at the time the freight departs the terminal of origin, one of the permissible methods authorized by Emerging Issues Task Force Issue No. 91-9 Revenue and Expense Recognition for Freight Services in Process. This method generally results in recognition of revenue and gross profit earlier than methods that do not recognize revenue until a proof of delivery is received. Customs brokerage and other revenues are recognized upon completing the documents necessary for customs clearance or completing other fee-based services. Revenue recognized as an indirect air carrier or an 39 ocean freight consolidator includes the direct carrier's charges to EGL for carrying the shipment. Revenue recognized in other capacities includes only the commission and fees received. In December 1999, the SEC issued Staff Accounting Bulleting (SAB) No. 101, Revenue Recognition in Financial Statements, and related interpretative guidelines in November 2000. The provisions of SAB No. 101 had no material impact on our financial statements. Computer software We account for internally developed software using the guidelines of the American Institute of Certified Public Accountants Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This standard requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. This SOP also requires that costs related to the preliminary project stage, data conversion and the post-implementation/operation stage of an internal-use computer software development project be expensed as incurred. Upon retirement or sale of assets, the cost of such assets and accumulated depreciation are removed from the accounts and the gain or loss, if any, is credited or charged to income. We have incurred substantial costs during 2001 and 2000 related to a number of information systems projects that were being developed during that time period. Inherent in the capitalization of those projects are the assumptions that after considering the technological and business issues related to their development, such development efforts will be successfully completed and that benefits to be provided by the completed projects will exceed the costs capitalized to develop the systems. Management believes that all projects capitalized at December 31, 2001 and 2000 will be successfully completed and will result in benefits recoverable in future periods. Goodwill and other intangibles Goodwill, representing the excess of purchase price over the fair value of net assets acquired, and other intangible assets are amortized on a straight-line basis over the period of expected benefit, not exceeding 40 years. Goodwill is a residual amount and is determined after numerous estimates are made regarding the fair values of assets and liabilities included in a business combination, and therefore, indirectly affected by management's estimates and judgments. Accumulated amortization as of December 31, 2001 and 2000, was $15.7 million and $19.0 million, respectively. Impairment of assets The carrying value of long-lived assets, including goodwill, is reviewed periodically based on the projected undiscounted cash flows of the related asset or the business unit over the remaining amortization period. If the cash flow analysis indicates that the carrying amount of an asset exceeds related undiscounted cash flows, the carrying value will be reduced to the estimated fair value of the assets or the present value of the expected future cash flows. Substantial judgment is necessary in the determination as to whether an event or circumstances have occurred that may trigger an impairment analysis and in determination of the related cash flows from the asset. Estimating cash flows related to long-lived assets is a difficult and subjective process that applies historical experience and future business expectations to revenues and related operating costs of assets. Should impairment appear to be necessary, subjective judgment must be applied to estimate the fair value of the asset, for which there may be no ready market, which oftentimes results in the use of discounted cash flow analysis and judgmental selection of discount rates to be used in the discounting process. Other critical accounting policies See note 1 of the notes to our consolidated financial statements for further information on our critical accounting policies and the judgment made in their application. 40 NEW ACCOUNTING PRONOUNCEMENTS See note 1 of the notes to our consolidated financial statements for a description of new accounting pronouncements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our cash flows and net income are subject to fluctuations due to changes in exchange rates. We attempt to limit our exposure to changing foreign exchange rates through operational actions. We provide services to customers in locations throughout the world and, as a result, operate with many functional currencies including the key currencies of North America, Latin America, Asia, the South Pacific and Europe. This diverse base of local currency costs serves to partially counterbalance the effect of potential changes in the value of our local currency denominated revenues and expenses. Short-term exposures to changing foreign currency exchange rates are related primarily to intercompany transactions. The duration of these exposures is minimized through the use of an intercompany netting and settlement system that settles the majority of intercompany obligations two times per month. As of December 31, 2001, we had no amounts outstanding under our line of credit. Our lease payments on certain financed facilities are tied to market interest rates. At December 31, 2001, a 10% rise in the base rate for these financing arrangements would not have a material impact on operating income in 2001. We have not purchased any material futures contracts nor have we purchased or held any material derivative financial instruments for trading purposes during 2001. In the second quarter of 2000, we 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 in the second quarter of 2001. Such contracts were nominally insignificant. In April 2001, we entered into a three year interest rate swap agreement, which was designated as a cash flow hedge, to reduce our exposure to fluctuations in interest rates on $70 million of our LIBOR-based revolving credit facility or any substitutive debt agreements we enter into. In December 2001, we issued $100 million of 5% convertible subordinated notes due December 15, 2006. The proceeds from these notes substantially retired the LIBOR-based debt outstanding under the then-existing revolving credit agreement. The interest rate on the convertible notes is fixed; therefore, the variability of the future interest payments has been eliminated. The swap agreement no longer qualifies for cash flow hedge accounting and has been undesignated as of December 7, 2001. The net loss on the swap agreement included in other comprehensive income (loss) as of December 7, 2001 was $2.0 million and will be amortized to interest expense over the remaining life of the swap agreement and changes in fair value of the swap agreement will be recorded in interest expense. 41 EXCHANGE RATE SENSITIVITY The following tables provide comparable information about our non-functional currency components of balance sheet items by currency, and presents such information in U.S. dollar equivalents at December 31, 2001 and 2000. These tables summarize information on transactions that are sensitive to foreign currency exchange rates, including non-functional currency-denominated receivables and payables. The net amount that is exposed to changes in foreign currency rates is then subjected to a 10% change in the value of the functional currency versus the non-functional currency. NON-FUNCTIONAL CURRENCY EXPOSURE IN U.S. DOLLAR EQUIVALENTS AS OF DECEMBER 31, 2001 (IN THOUSANDS)
FOREIGN EXCHANGE GAIN/(LOSS) IF FUNCTIONAL CURRENCY NET EXPOSURE ------------------------- ---------------------------------- APPRECIATES DEPRECIATES NON-FUNCTIONAL CURRENCY ASSET LIABILITY LONG/(SHORT) BY 10% BY 10% - ----------------------- ------- --------- ------------ ----------- ----------- United States dollar........... $10,095 $ 1,134 $ 8,961 $ 896 $(896) Singaporean dollar............. 2,890 9,094 (6,204) (620) 620 Hong Kong dollar............... 6,430 1,438 4,992 499 (499) European Union euro............ 6,449 2,832 3,617 362 (362) Brazilian reals................ 4,296 7,164 (2,868) (287) 287 Taiwanese dollar............... 14,037 10,794 3,243 324 (324) Chilean pesos.................. 430 3,099 (2,669) (267) 267 Indian rupee................... 4,197 3,526 671 67 (67) British pound.................. 3,524 3,415 109 11 (11) All others..................... 8,068 11,119 (3,051) (305) 305 ------- ------- ------- ----- ----- Totals............... $16,219 $21,159 $(4,940) $(494) $ 494 ======= ======= ======= ===== =====
NON-FUNCTIONAL CURRENCY EXPOSURE IN U.S. DOLLAR EQUIVALENTS AS OF DECEMBER 31, 2000 (IN THOUSANDS)
FOREIGN EXCHANGE GAIN/(LOSS) IF FUNCTIONAL CURRENCY NET EXPOSURE ------------------------- ---------------------------------- APPRECIATES DEPRECIATES NON-FUNCTIONAL CURRENCY ASSET LIABILITY LONG/(SHORT) BY 10% BY 10% - ----------------------- ------- --------- ------------ ----------- ----------- United States dollar.................... $18,322 $18,727 $ (405) $ (40) $ 40 Singaporean dollar...................... 2,250 1,442 808 81 (81) Japanese yen............................ 1,061 396 665 66 (66) British pound........................... 1,584 6,995 (5,411) (541) 541 German mark............................. (854) 1,341 (2,195) (220) 220 French franc............................ 852 160 692 69 (69) Australian dollar....................... 417 118 299 30 (30) All others.............................. 3,591 1,231 2,360 236 (236) ------- ------- ------- ----- ----- Totals........................ $27,223 $30,410 $(3,187) $(319) $ 319 ======= ======= ======= ===== =====
42 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted in a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference to information under the caption "Proposal 1 -- Election of Directors" and to the information under the caption "Section 16(a) Reporting Delinquencies" in our definitive Proxy Statement (the "2002 Proxy Statement") for our annual meeting of shareholders to be held on May 22, 2002. The 2002 Proxy Statement will be filed with the SEC not later than 120 days subsequent to December 31, 2001. Pursuant to Item 401(b) of Regulation S-K, the information required by this item with respect to our executive officers is set forth in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the 2002 Proxy Statement, which will be filed with the SEC not later than 120 days subsequent to December 31, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the 2002 Proxy Statement, which will be filed with the SEC not later than 120 days subsequent to December 31, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the 2002 Proxy Statement, which will be filed with the SEC not later than 120 days subsequent to December 31, 2001. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements
ITEM PAGE - ---- ---- Report of Independent Accountants........................... F-2 Independent Auditors' Report................................ F-3 Consolidated Balance Sheet as of December 31, 2001 and 2000...................................................... F-4 Consolidated Statement of Operations for the Years Ended December 31, 2001, 2000 and 1999.......................... F-5 Consolidated Statement of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999.......................... F-6 Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999.................... F-8 Notes to Consolidated Financial Statements.................. F-9
43 (a)(2) Financial Statement Schedules All schedules for which provision is made in the applicable regulations of the Commission have been omitted because they are not required under the relevant instructions or because the required information is given in the consolidated financial statements or notes thereto. (a)(3) Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- *2.1 -- 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 EGL's Current Report on Form 8-K filed on July 5, 2000 and incorporated herein by reference). *3.1 -- Second Amended and Restated Articles of Incorporation of EGL, as amended (filed as Exhibit 3(i) to EGL's Form 8-A/A filed with the Securities and Exchange Commission on September 29, 2000 and incorporated herein by reference). *3.2 -- Statement of Resolutions Establishing the Series A Junior Participating Preferred Stock of EGL (filed as Exhibit 3(ii) to EGL's Form 10-Q for the fiscal quarter ended June 30, 2001 and incorporated herein by reference). *3.3 -- Amended and Restated Bylaws of EGL, as amended (filed as Exhibit 3(ii) to EGL's Form 10-Q for the fiscal quarter ended June 30, 2000 and incorporated herein by reference). *4.1 -- Rights Agreement dated as of May 23, 2001 between EGL, Inc. and Computershare Investor Services, L.L.C., as Rights Agent, which includes as Exhibit B the form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Common Stock. (filed as Exhibit 4.1 to the EGL's Form 10-Q for the fiscal quarter ended September 30, 2001 and incorporated herein by reference). *4.2 -- Indenture dated December 7, 2001 between EGL and JPMorgan Chase Bank, as trustee (filed as Exhibit 4.1 to EGL's Current Report on Form 8-K filed on December 10, 2001 and incorporated herein by reference). *4.3 -- First Supplemental Indenture dated December 7, 2001 between EGL and JPMorgan Chase Bank, as trustee (filed as Exhibit 4.2 to EGL's Current Report on Form 8-K filed on December 10, 2001 and incorporated herein by reference). *4.4 -- Form of 5% Convertible Subordinated Note due December 15, 2006 (filed as Exhibit 4.3 to EGL's Current Report on Form 8-K filed on December 10, 2001 and incorporated herein by reference). *4.5 -- Registration Rights Agreement dated December 7, 2001 between EGL and Credit Suisse First Boston Corporation (filed as Exhibit 4.4 to EGL's Current Report on Form 8-K filed on December 10, 2001 and incorporated herein by reference). +*10.1 -- Long-Term Incentive Plan, as amended and restated effective July 26, 2000 (filed as Exhibit 10(ii) to EGL's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 and incorporated herein by reference). +*10.2 -- 1995 Non-employee Director Stock Option Plan (filed as Exhibit 10.2 to EGL's Registration Statement on Form S-1, Registration No. 33-97606 and incorporated herein by reference). +*10.3 -- 401(k) Profit Sharing Plan (filed as Exhibit 10.3 to EGL's Registration Statement on Form S-1, Registration No. 33-97606 and incorporated herein by reference). +*10.4 -- Circle International Group, Inc. 1994 Omnibus Equity Incentive Plan (filed as Exhibit 10.11 to Annual Report on Form 10-K of Circle (SEC File No. 0-8664) for the fiscal year ended December 31, 1993 and incorporated herein by reference). +*10.5 -- Amendment No. 1 to Circle International Group, Inc. 1994 Omnibus Equity Incentive Plan (filed as Exhibit 10.11.1 to Annual Report on Form 10-K of Circle (SEC File No. 9-8664) for the fiscal year ended December 31, 1995 and incorporated herein by reference).
44
EXHIBIT NUMBER DESCRIPTION ------- ----------- +*10.6 -- Circle International Group, Inc. Employee Stock Purchase Plan (filed as Exhibit 99.1 to the Registration Statement on Form S-8 of Circle (SEC Registration No. 333-78747) filed on May 19, 1999 and incorporated herein by reference). +*10.7 -- Circle International Group, Inc. 1999 Stock Option Plan (filed as Exhibit 99.1 to the Form S-8 Registration Statement of Circle (SEC Registration No. 333-85807) filed on August 24, 1999 and incorporated herein by reference). +*10.8 -- Form of Nonqualified Stock Option Agreement for Circle International Group, Inc. 2000 Stock Option Plan (filed as Exhibit 4.8 to Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (SEC Registration No. 333-42310) filed on October 2, 2000 and incorporated herein by reference). *10.9 -- Shareholders' Agreement dated as of October 1, 1994 among EGL and Messrs. Crane, Swannie, Seckel and Roberts (filed as Exhibit 10.4 to EGL's Registration Statement on Form S-1, Registration No. 33-97606 and incorporated herein by reference). *10.10 -- Form of Indemnification Agreement (filed as Exhibit 10.6 to EGL's Registration Statement on Form S-1, Registration No. 33-97606 and incorporated herein by reference). 10.11A -- Credit Agreement dated December 20, 2001 between EGL and Bank of America, N.A., and the other financial institutions named therein. 10.11B -- First Amendment to Credit Agreement dated March 7, 2002 between EGL and Bank of America, N.A., and the other financial institutions named therein. +*10.12 -- Employment Agreement dated as of October 1, 1996 between EGL and James R. Crane (filed as Exhibit 10.7 to EGL's Annual Report on Form 10-K for the fiscal year ended September 30, 1996 and incorporated herein by reference). +*10.13 -- Employment Agreement dated as of September 24, 1998 between EGL and John C. McVaney (filed as Exhibit 10.9 to EGL's Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and incorporated herein by reference). +*10.14 -- Employment Agreement dated as of May 19, 1998 between EGL and Ronald E. Talley (filed as Exhibit 10.10 to EGL's Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and incorporated herein by reference). +*10.15 -- Employment Agreement dated as of October 19, 1999 between EGL and Elijio Serrano (filed as Exhibit 10.11 to EGL's Annual Report on Form 10-K for the fiscal year ended September 30, 1999 and incorporated herein by reference). +*10.16 -- Employee Stock Purchase Plan, as amended and restated effective July 26, 2000 (filed as Exhibit 10(iii) to EGL's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 and incorporated herein by reference). 10.17A -- Lease Agreement dated as of December 31, 2001 between iStar Eagle LP, as landlord, and EGL Eagle Global Logistics, LP, as tenant. 10.17B -- Guaranty dated as of December 31, 2001 among iStar Eagle LP, EGL Eagle Global Logistics, LP and EGL, Inc. *10.18A -- Master Lease and Development Agreement dated as of April 3, 1998 between Asset XVI Holdings Company, L.L.C. and Eagle USA Airfreight, Inc. (filed as Exhibit 10(iii) A to EGL's Quarterly Report on Form 10-Q to the quarter ended June 30, 1998 and incorporated herein by reference). *10.18B -- Master Participation Agreement dated as of April 3, 1998 among Asset XVI Holdings Company, L.L.C., Eagle USA Airfreight, Inc. and Bank One, Texas, N.A. (filed as Exhibit 10(iii) B to EGL's Quarterly Report on Form 10-Q to the quarter ended June 30, 1998 and incorporated herein by reference). *10.18C -- Loan Agreement dated as of April 3, 1998 between Asset Holdings Company, L.L.C. and Bank One, Texas, N.A. (filed as Exhibit 10(iii) C to EGL's Quarterly Report on Form 10-Q to the quarter ended June 30, 1998 and incorporated herein by reference).
45
EXHIBIT NUMBER DESCRIPTION ------- ----------- *10.18D -- Appendix I to Master Participation Agreement, Master Lease and Development Agreement and Loan Agreement (filed as Exhibit 10(iii) D to EGL's Quarterly Report on Form 10-Q to the quarter ended June 30, 1998 and incorporated herein by reference). *10.18E -- First Amendment to Master Participation Agreement, Master Lease and Development Agreement, and Loan Agreement dated as of April 3, 1998 among Asset XVI Holdings Company, L.L.C., Eagle USA Airfreight, Inc. and Bank One, Texas, N.A. (filed as Exhibit 10.19E to EGL's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). *10.18F -- Amendment to Master Participation Agreement dated as of April 1, 1999 among Asset XVI Holdings Company, L.L.C., Eagle USA Airfreight, Inc. and Bank One, Texas, N.A. (filed as Exhibit 10.19F to EGL's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). *10.18G -- Second Amendment to Participation Agreement, Lease Agreement and Loan Agreement dated as of October 20, 2000 among Asset XVI Holdings Company, L.L.C., EGL and Bank One, NA. (filed as Exhibit 10.19G to EGL's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). 10.18H -- Third Amendment to Master Participation Agreement, Lease Agreement and Loan Agreement dated December 20, 2001 between EGL Asset XVI Holdings Company and Bank One, N.A. +*10.19 -- Consulting Agreement dated as of January 1, 1999 between Zita Logistics, Ltd. and Circle International European Holdings Limited (filed as Exhibit 10.4.3 to Circle's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference). 12 -- Ratio of Earnings to Fixed Charges. 21 -- Subsidiaries of EGL. 23.1 -- Consent of PricewaterhouseCoopers LLP. 23.2 -- Consent of Deloitte & Touche LLP.
- --------------- * Incorporated by reference as indicated. + Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K. (b) On December 3, 2001, EGL filed a current Report on Form 8-K, which was dated December 3, 2001, to furnish certain information under Item 9 thereof. On December 10, 2001, EGL filed a current Report on Form 8-K, which was dated December 10, 2001, to file certain information under Item 5 thereof. 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on our behalf by the undersigned, thereunto duly authorized. EGL, INC. By: /s/ JAMES R. CRANE -------------------------------------- James R. Crane Chairman, President and Chief Executive Officer Date: March 29, 2002 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME CAPACITY DATE - ---- -------- ---- /s/ JAMES R. CRANE Chairman, President and Chief March 29, 2002 - ----------------------------------------------------- Executive Officer (Principal James R. Crane Executive Officer) /s/ ELIJIO V. SERRANO Chief Financial Officer and March 29, 2002 - ----------------------------------------------------- Director (Principal Financial and Elijio V. Serrano Accounting Officer) /s/ FRANK J. HEVRDEJS Director March 29, 2002 - ----------------------------------------------------- Frank J. Hevrdejs /s/ NEIL E. KELLEY Director March 29, 2002 - ----------------------------------------------------- Neil E. Kelley /s/ NORWOOD W. KNIGHT-RICHARDSON Director March 29, 2002 - ----------------------------------------------------- Norwood W. Knight-Richardson /s/ REBECCA A. MCDONALD Director March 29, 2002 - ----------------------------------------------------- Rebecca A. McDonald
47 EGL, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000
PAGE ---- Report of Independent Accountants........................... F-2 Independent Auditors' Report................................ F-3 Consolidated Balance Sheet as of December 31, 2001 and F-4 2000...................................................... Consolidated Statement of Operations for the Years Ended F-5 December 31, 2001, 2000 and 1999.......................... Consolidated Statement of Cash Flows for the Years Ended F-6 December 31, 2001, 2000 and 1999.......................... Consolidated Statement of Stockholders' Equity for the Years F-8 Ended December 31, 2001, 2000 and 1999.................... Notes to Consolidated Financial Statements.................. F-9
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of EGL, Inc. In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheet and the related consolidated statements of operations, cash flows and stockholders' equity present fairly, in all material respects, the financial position of EGL, Inc. and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of the Company and Circle International Group, Inc. on October 2, 2000 in a transaction accounted for as a pooling of interests, as described in Note 2 to the consolidated financial statements. We did not audit the financial statements of Circle International Group, Inc., which statements reflect total revenues of 58% and net income of 45% of the related consolidated totals for the year ended December 31, 1999. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Circle International Group, Inc., is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Houston, Texas March 28, 2002 F-2 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders, EGL, Inc.: We have audited the consolidated statements of operations, stockholders' equity and cash flows of Circle International Group, Inc. and subsidiaries for the year ended December 31, 1999 (not presented herein). These financial statements are the responsibility of Circle's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations, stockholders' equity and cash flows of Circle International Group, Inc. and subsidiaries for the year ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP San Francisco, California March 29, 2000 F-3 EGL, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 2001 AND 2000
2001 2000 -------- -------- (IN THOUSANDS, EXCEPT PAR VALUES) ASSETS Current assets: Cash and cash equivalents................................. $ 77,440 $ 60,001 Restricted cash........................................... 5,413 -- Short-term investments and marketable securities.......... 3,442 13,056 Trade receivables, net of allowance of $11,628 and $14,115................................................. 365,505 497,461 Other receivables......................................... 10,868 7,498 Deferred income taxes..................................... 29,897 21,646 Income tax receivable..................................... 3,125 2,128 Other current assets...................................... 29,411 10,996 -------- -------- Total current assets............................... 525,101 612,786 Property and equipment, net................................. 152,922 153,345 Investments in unconsolidated affiliates.................... 46,018 52,717 Goodwill, net............................................... 78,901 76,254 Other assets, net........................................... 14,237 9,123 -------- -------- Total assets....................................... $817,179 $904,225 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable............................................. $ 7,950 $ 3,429 Trade payables and accrued transportation costs........... 216,073 260,802 Accrued salaries and related costs........................ 27,982 29,068 Accrued restructuring, merger and integration costs....... 8,879 24,976 Other liabilities......................................... 54,048 54,027 -------- -------- Total current liabilities.......................... 314,932 372,302 Deferred income taxes....................................... 19,155 23,343 Notes payable............................................... 103,774 91,051 Other noncurrent liabilities................................ 6,194 2,980 -------- -------- Total liabilities.................................. 444,055 489,676 -------- -------- Minority interests.......................................... 7,033 10,782 -------- -------- Commitments and contingencies (Notes 12, 13 and 14) Stockholders' equity: Preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued Common stock, $0.001 par value, 200,000 shares authorized; 50,065 and 49,803 shares issued; 48,939 and 48,411 shares outstanding...................................... 49 48 Additional paid-in capital................................ 156,543 150,131 Retained earnings......................................... 264,712 304,889 Accumulated other comprehensive loss...................... (37,045) (27,729) Unearned compensation..................................... (635) (1,300) Treasury stock, 1,126 and 1,392 shares held............... (17,533) (24,195) Obligation to deliver common stock........................ -- 1,923 -------- -------- Total stockholders' equity......................... 366,091 403,767 -------- -------- Total liabilities and stockholders' equity......... $817,179 $904,225 ======== ========
The accompanying notes are an integral part of these financial statements. F-4 EGL, INC. CONSOLIDATED STATEMENT OF OPERATIONS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues................................................. $1,671,994 $1,861,206 $1,409,250 Cost of transportation................................... 1,027,811 1,141,694 822,175 ---------- ---------- ---------- Net revenues............................................. 644,183 719,512 587,075 Operating expenses: Personnel costs........................................ 383,211 378,461 302,373 Other selling, general and administrative expenses..... 294,488 256,270 211,840 EEOC legal settlement.................................... 10,089 7,500 -- Merger related transaction, restructuring and integration costs (Note 3)............................. 13,964 67,389 -- ---------- ---------- ---------- Operating income (loss).................................. (57,569) 9,892 72,862 Nonoperating income (expense), net....................... (8,442) 2,549 11,158 ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes.................................................. (66,011) 12,441 84,020 Provision (benefit) for income taxes..................... (25,834) 13,163 32,310 ---------- ---------- ---------- Net income (loss)........................................ $ (40,177) $ (722) $ 51,710 ========== ========== ========== Net income (loss) per share: Basic.................................................. $ (0.84) $ (0.02) $ 1.14 Diluted................................................ (0.84) (0.02) 1.11 Weighted average common shares outstanding: Basic.................................................. 47,558 46,600 45,504 Diluted................................................ 47,558 46,600 46,481
The accompanying notes are an integral part of these financial statements. F-5 EGL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999 -------- -------- -------- (IN THOUSANDS) Cash flows from operating activities: Net income (loss)......................................... $(40,177) $ (722) $ 51,710 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 33,033 30,009 22,334 Impairment of assets due to merger..................... (497) 20,597 -- Provision for doubtful accounts........................ 13,629 9,060 10,091 Amortization of unearned compensation.................. 803 605 Deferred income tax benefit............................ (12,453) (11,259) (2,725) Amortization of deferred debt expense.................. 1,279 -- -- Interest capitalization................................ (854) -- -- Tax effect of stock options exercised.................. 2,956 4,991 4,454 Gain on sale of assets................................. (2,657) (755) (5,228) Equity in (earnings) losses of affiliates, net of dividends received................................... 3,100 (1,714) (3,156) Minority interests, net of dividends paid.............. 313 146 338 Transfer to restricted cash............................ (5,413) -- -- Other.................................................. 65 (5,545) 2,202 Changes in assets and liabilities: (Increase) decrease in trade receivables............... 98,726 (89,179) (82,900) (Increase) decrease in other receivables............... (5,309) 10,790 (938) (Increase) decrease in other assets and liabilities.... (20,837) 1,189 (2,736) Increase (decrease) in payables and other accrued liabilities.......................................... (26,561) 40,172 40,134 Increase (decrease) in accrued restructuring, merger and integration costs................................ (15,600) 24,976 -- -------- -------- -------- Net cash provided by operating activities............ 23,546 33,361 33,580 -------- -------- -------- Cash flows from investing activities: Capital expenditures...................................... (64,866) (70,449) (41,906) Purchases of marketable securities........................ -- -- (24,438) Proceeds from sales/maturities of marketable securities... 6,740 7 24,731 Proceeds from sale-leaseback transaction.................. 16,667 -- -- Proceeds from sales of property and equipment............. 20,654 2,710 5,868 Net proceeds from sales (purchases) of short-term investments............................................ -- 8,383 (436) Acquisitions of businesses, net of cash acquired.......... (4,637) (28,664) (5,098) Disposal of consolidated subsidiary....................... (819) -- -- Cash received from disposal of a unconsolidated subsidiary............................................. 3,062 -- -- Investment in equity method investee...................... -- (6,300) -- Other..................................................... -- (452) -- -------- -------- -------- Net cash used in investing activities................ (23,199) (94,765) (41,279) -------- -------- --------
F-6 EGL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999 -------- -------- -------- (IN THOUSANDS) Cash flows from financing activities: Issuance (repayment) of notes payable..................... $(82,383) $ 43,634 $ 10,618 Net proceeds from convertible debt offering............... 96,875 -- -- Issuance of common stock, net of related costs............ 1,236 1,334 256 Proceeds from exercise of stock options................... 3,319 18,942 11,106 Treasury stock purchases.................................. -- (10,478) (14,845) Dividends paid............................................ -- (4,764) (4,645) Other..................................................... -- (362) (634) -------- -------- -------- Net cash provided by financing activities.............. 19,047 48,306 1,856 -------- -------- -------- Effect of exchange rate changes on cash..................... (1,955) (5,586) (412) -------- -------- -------- Cash flow from EGL on a stand-alone basis for the three months ended December 31, 1999 (Note 18).................. -- -- 3,163 -------- -------- -------- Increase (decrease) in cash and cash equivalents............ 17,439 (18,684) (3,092) -------- -------- -------- Cash and cash equivalents, beginning of the year............ 60,001 78,685 81,777 -------- -------- -------- Cash and cash equivalents, end of the year.................. $ 77,440 $ 60,001 $ 78,685 ======== ======== ======== Supplemental cash flow information: Cash paid for interest.................................... $ 8,552 $ 4,891 $ 2,951 Cash paid for income taxes................................ 9,704 29,934 28,301 Cash received from income tax refund...................... 27,456 -- -- Noncash transactions: Issuance of stock for acquisitions..................... 3,503 200 -- Mortgages assumed in acquisitions...................... -- 5,818 -- Property acquired under capital lease.................. -- -- 4,366 Issuance of notes payable for acquisition.............. -- 5,939 -- Obligation to deliver common stock..................... -- 1,923 -- Exchange of investment as payment of a liability....... 2,234 -- --
The accompanying notes are an integral part of these financial statements. F-7 EGL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
ACCUMU- LATED OBLIGA- COMMON COMPRE- OTHER TREASURY TION TO STOCK ADDITIONAL HENSIVE COMPRE- UNEARNED STOCK DELIVER ------------- PAID-IN RETAINED INCOME HENSIVE COMPEN- ---------------- COMMON SHARES AMOUNT CAPITAL EARNINGS (LOSS) LOSS SATION SHARES AMOUNT STOCK TOTAL ------ ------ ---------- -------- -------- ------- -------- ------ -------- ------- -------- (IN THOUSANDS) Balance at December 31, 1998......................... 45,820 $46 $101,051 $251,038 $(13,377) $ -- -- $ -- $ -- $338,758 Comprehensive income: Net income................... -- -- -- 51,710 $ 51,710 -- -- -- -- 51,710 Change in value of marketable securities, net............ -- -- -- -- 39 39 -- -- -- -- 39 Foreign currency translation adjustments................ -- -- -- -- (2,507) (2,507) -- -- -- -- (2,507) -------- Comprehensive income.......... $ 49,242 ======== Exercise of stock options with related tax benefit.......... 1,052 1 15,853 -- -- -- -- -- -- 15,854 Purchase of treasury stock.... -- -- -- -- -- -- (1,045) (14,845) -- (14,845) Issuance of shares under stock purchase plan................ -- -- -- -- -- -- 23 275 -- 275 Cash dividends................ -- -- -- (4,682) -- -- -- -- -- (4,682) EGL stand-alone activity for the three months ended December 31, 1999 (Note 18).. 351 -- 6,709 9,960 184 -- -- -- -- 16,853 ------ --- -------- -------- -------- ------- ------ -------- ------- -------- Balance at December 31, 1999......................... 47,223 47 123,613 308,026 (15,661) -- (1,022) (14,570) -- 401,455 Comprehensive loss: Net loss..................... -- -- -- (722) $ (722) -- -- -- -- -- (722) Change in value of marketable securities, net............ -- -- -- -- 2 2 -- -- -- -- 2 Foreign currency translation adjustments................ -- -- -- -- (12,070) (12,070) -- -- -- -- (12,070) -------- Comprehensive loss........... $(12,790) ======== Issuance of shares under employee stock purchase plan......................... 26 -- 681 -- -- -- 26 653 -- 1,334 Issuance of common stock for other acquisitions........... -- -- -- -- -- -- 9 200 1,923 2,123 Exercise of stock options and restricted stock awards with related tax benefit.......... 1,162 1 25,837 -- -- (1,905) 45 -- -- 23,933 Purchase of treasury stock.... -- -- -- -- -- -- (450) (10,478) -- (10,478) Cash dividends................ -- -- -- (2,415) -- -- -- -- -- (2,415) Amortization of unearned compensation................. -- -- -- -- -- 605 -- -- -- 605 ------ --- -------- -------- -------- ------- ------ -------- ------- -------- Balance at December 31, 2000......................... 48,411 48 150,131 304,889 (27,729) (1,300) (1,392) (24,195) 1,923 403,767 Comprehensive loss: Net loss..................... -- -- -- (40,177) $(40,177) -- -- -- -- -- (40,177) Change in value of marketable securities, net............ -- -- -- -- (29) (29) -- -- -- -- (29) Change in value of cash flow hedge...................... -- -- -- -- (2,024) (2,024) -- -- -- -- (2,024) Foreign currency translation adjustments................ -- -- -- -- (7,263) (7,263) -- -- -- -- (7,263) -------- Comprehensive loss........... $(49,493) ======== Issuance of shares under employee stock purchase plan......................... -- -- -- -- -- -- 70 1,236 -- 1,236 Issuance of common stock for other acquisitions........... -- -- -- -- -- -- 196 5,426 (1,923) 3,503 Exercise of stock options and restricted stock awards with related tax benefit.......... 528 1 6,412 -- -- (138) -- -- -- 6,275 Amortization of unearned compensation................. -- -- -- -- -- 803 -- -- -- 803 ------ --- -------- -------- -------- ------- ------ -------- ------- -------- Balance at December 31, 2001......................... 48,939 $49 $156,543 $264,712 $(37,045) $ (635) (1,126) $(17,533) $ -- $366,091 ====== === ======== ======== ======== ======= ====== ======== ======= ========
The accompanying notes are an integral part of these financial statements. F-8 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 NOTE 1 -- ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES EGL, Inc. (EGL or the Company) is an international transportation and logistics company. The Company's principal lines of business are air freight forwarding, ocean freight forwarding, customs brokerage and other value-added services such as warehousing, distribution and insurance. The Company provides services through offices around the world as well as through its worldwide network of exclusive and nonexclusive agents. In October 2000, the Company merged with Circle International Group, Inc. (Circle) and expanded its operations to over 100 countries on six continents (see Note 2). The principal markets for all lines of business are North America, Europe and Asia with significant operations in the Middle East, South America and South Pacific (see Note 16). On February 21, 2000, the Company's stockholders approved changing the Company's name to EGL, Inc. from Eagle USA Airfreight, Inc. in recognition of EGL's increasing globalization, broader spectrum of services and long-term growth strategy. CHANGE IN FISCAL YEAR END On July 2, 2000, the Company changed its fiscal year end from a twelve-month period ending September 30 to a twelve-month period ending December 31. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements of EGL have been prepared to give retroactive effect to the merger with Circle in October 2000, which was accounted for as a pooling of interests. The companies had differing year-ends prior to 2000. Therefore, the Company's statements of operations, cash flows and stockholders' equity reflect the consolidation of EGL's former fiscal year ended September 30,1999 with Circle's year ended December 31, 1999. This period has been labeled year ended December 31, 1999 to be more consistent with our current year-end. EGL's results for the three months ended December 31, 1999 have been omitted from the accompanying consolidated statement of operations and presented as summary adjusting items in the statements of cash flows and stockholders' equity. EGL's results of operations, cash flows and stockholders' equity activity for the three months ended December 31, 1999 are presented on a stand-alone basis in Note 18. The accompanying consolidated financial statements include EGL and all of its wholly-owned subsidiaries. Investments in 50% or less owned affiliates, over which the Company has significant influence, are accounted for by the equity method. All significant intercompany balances and transactions have been eliminated in consolidation. The Company has reclassified certain prior year amounts to conform with the current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management considers many factors in selecting appropriate operational and financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. Among the factors, but not fully inclusive of all factors that may be considered by management in these processes are: the range of accounting policies permitted by U.S. generally accepted accounting principles; management's understanding of the Company's business - both historical results and expected future results; the extent to which operational controls exist that provide high degrees of assurance that all desired information to assist in the estimation is available and reliable or whether there is greater uncertainty in the information that is available upon which to base the estimate; expectations of the future performance of the F-9 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 economy -- domestically, globally and within various sectors that serve as principal customers and suppliers of goods and services; expected rates of change, sensitivity and volatility associated with the assumptions used in developing estimates; and whether historical trends are expected to be representative of future trends. The estimation process often times may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that lies within that range of reasonable estimates -- which may result in the selection of estimates which could be viewed as conservative or aggressive by others -- based upon the quantity, quality and risks associated with the variability that might be expected from the future outcome and the factors considered in developing the estimate. Management attempts to use its business and financial accounting judgment in selecting the most appropriate estimate, however, actual results could and will differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates market value. RESTRICTED CASH During 2001, as part of the settlement with the EEOC the Company is required to place certain amounts on deposit in a financial institution for the Class Fund and Leadership Development Fund. The total amount included in restricted cash related to the settlement with the EEOC was $3.0 million as of December 31, 2001 (see Note 12). Additionally, the Company has certain requirements related to security deposits that are restricted from withdrawal for a specified timeframe and therefore are classified as restricted cash. SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES At December 31, 2001 and 2000, the Company had short-term investments in commercial paper, certificates of deposits, U.S. Treasury Bills and Tax Exempt Municipal Bonds with a carrying value of $3.4 million and $13.1 million, respectively. All outstanding securities at December 31, 2001 mature in less than one year. These investments are stated at amortized cost, which approximates fair market value. By policy, the Company invests primarily in high-grade marketable securities. All marketable securities are defined as available-for-sale securities under the provisions of the Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Unrealized holding gains or losses have been recorded by the Company as a component of other comprehensive income and loss at each balance sheet date. As such, changes in the fair value of available for sale securities, net of deferred taxes, are excluded from income and presented in the stockholders' equity section of the balance sheet under the caption "Accumulated other comprehensive loss." TRADE RECEIVABLES Management establishes reserves on trade receivables based on the expected ultimate recovery of these receivables. Management considers many factors including historical customer collection experience, general and specific economic trends and known specific issues related to individual customers, sectors and transactions that might impact collectibility. Trade receivables include disbursements made by EGL on behalf of its customers for transportation costs and customs duties. As the billings to customers for these disbursements may be several times the amount of revenue and fees derived from these transactions and are not recorded as revenue and expense on the Company's statement of operations, the inability to collect such amounts could result in losses greater than the revenues recognized when such amounts were believed to be collectible. F-10 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 PROPERTY AND EQUIPMENT Property and equipment are stated at cost. The cost of property held under capital leases is equal to the lower of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease. Depreciation is computed principally by the straight-line method at rates based on the estimated useful lives of the various classes of property. Estimates of useful lives are based upon a variety of factors including durability of the asset, the amount of usage that is expected from the asset, the rate of technological change and the Company's business plans for the asset. Should the Company change its plans with respect to the use and productivity of property and equipment, it may require a change in the useful life of the asset or incur a charge to reflect the difference between the carrying value of the asset and the proceeds expected to be realized upon the asset's sale or abandonment. Expenditures for maintenance and repairs are expensed as incurred and significant major improvements are capitalized. COMPUTER SOFTWARE The Company accounts for internally developed software using the guidelines of the American Institute of Certified Public Accountants Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This standard requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. This SOP also requires that costs related to the preliminary project stage, data conversion and the post-implementation/operation stage of an internal-use computer software development project be expensed as incurred. Upon retirement or sale of assets, the cost of such assets and accumulated depreciation are removed from the accounts and the gain or loss, if any, is credited or charged to income. The Company has incurred substantial costs during 2001 and 2000 related to a number of information systems projects that were being developed during that time period. Inherent in the capitalization of those projects are the assumptions that after considering the technological and business issues related to their development, such development efforts will be successfully completed and that benefits to be provided by the completed projects will exceed the costs capitalized to develop the systems. Management believes that all projects capitalized at December 31, 2001 and 2000 will be successfully completed and will result in benefits recoverable in future periods. INTEREST CAPITALIZATION The Company is in the process of constructing several computer systems for future use. Interest associated with these assets is capitalized and included in the cost of the asset in accordance with SFAS No. 34, Capitalization of Interest Cost. The amount capitalized is calculated based upon the Company's current incremental borrowing rate and was $854,000 in 2001. GOODWILL AND OTHER INTANGIBLES Goodwill, representing the excess of purchase price over the fair value of net assets acquired, and other intangible assets are amortized on a straight-line basis over the period of expected benefit, not exceeding 40 years. Goodwill is a residual amount and is determined after numerous estimates are made regarding the fair values of assets and liabilities included in a business combination, and therefore, indirectly affected by management's estimates and judgments. Accumulated amortization as of December 31, 2001 and 2000, was $15.7 million and $19.0 million, respectively. F-11 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 IMPAIRMENT OF ASSETS The carrying value of long-lived assets, including goodwill, is reviewed periodically based on the projected undiscounted cash flows of the related asset or the business unit over the remaining amortization period. If the cash flow analysis indicates that the carrying amount of an asset exceeds related undiscounted cash flows, the carrying value will be reduced to the estimated fair value of the assets or the present value of the expected future cash flows. Substantial judgment is necessary in the determination as to whether an event or circumstances have occurred that may trigger an impairment analysis and in determination of the related cash flows from the asset. Estimating cash flows related to long-lived assets is a difficult and subjective process that applies historical experience and future business expectations to revenues and related operating costs of assets. Should impairment appear to be necessary, subjective judgment must be applied to estimate the fair value of the asset, for which there may be no ready market, which oftentimes results in the use of discounted cash flow analysis and judgmental selection of discount rates to be used in the discounting process. FOREIGN CURRENCY TRANSLATION Assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at year-end rates of exchange and income and expenses are translated at average rates during the year. Adjustments resulting from translating financial statements into U.S. dollars are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income (loss) in the accompanying consolidated statement of stockholders' equity. Gains and losses from foreign currency transactions are included in net income at the time of the transaction. REVENUE RECOGNITION Revenue and freight consolidation costs are recognized at the time the freight departs the terminal of origin, one of the permissible methods authorized by Emerging Issues Task Force Issue No. 91-9 Revenue and Expense Recognition for Freight Services in Process. This method generally results in recognition of revenue and gross profit earlier than methods that do not recognize revenue until a proof of delivery is received. Customs brokerage and other revenues are recognized upon completing the documents necessary for customs clearance or completing other fee-based services. Revenue recognized as an indirect air carrier or an ocean freight consolidator includes the direct carrier's charges to EGL for carrying the shipment. Revenue recognized in other capacities includes only the commission and fees received. In December 1999, the SEC issued Staff Accounting Bulleting (SAB) No. 101, Revenue Recognition in Financial Statements, and related interpretative guidelines in November 2000. The provisions of SAB No. 101 had no material impact on the Company's financial statements. STOCK-BASED COMPENSATION The Company accounts for stock-based awards to employees and non-employee directors using the intrinsic value method prescribed in Accounting Principles Board No. 25, Accounting for Stock Issued to Employees and its interpretations as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. The intrinsic value method used by the Company generally results in no compensation expense being recorded related to stock option grants made by the Company because those grants are typically made with option exercise prices equal to fair market value at the date of option grant. This method is used by the vast majority of public reporting companies. The application of the alternative fair value method under SFAS 123, which estimates the fair value of the option awarded to the employee, would result in compensation expense being recognized over the period of time that the employee's rights in the option vest. The impact of using the fair value method would result in including additional compensation expense and lower net income levels in the Company's consolidated statement of operations, as disclosed in Note 9. F-12 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 TAXES ON INCOME The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Deferred tax liabilities and assets are determined based on temporary differences between the bases of assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary based upon the judgment of management to reduce deferred tax assets to the amount expected to be realized and could be necessary based upon estimates of future profitability and expenditure levels over specific time horizons in particular tax jurisdictions. During the current year, the Company reclassified certain prior year deferred tax amounts on the balance sheet to conform with the current year presentation. 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 options to issue common stock were exercised. Stock options and shares related to convertible notes issued in December 2001 are the only potentially dilutive share equivalents the Company has outstanding for the periods presented. No shares related to options or the convertible notes were included in diluted earnings per share for the years ended December 31, 2001, and 2000 as their effect would have been antidilutive as the Company incurred a net loss during those periods. For the year ended December 31, 1999, incremental shares of 977,000 were used in the calculation of diluted earnings per share; options for 1.4 million shares were excluded from the diluted earnings per share computation because their effect was antidilutive. COMPREHENSIVE INCOME In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. Under SFAS No. 130, companies are required to report in the financial statements, in addition to net income, comprehensive income, including, as applicable, foreign currency items, minimum pension liability adjustments, unrealized gains and losses on certain investments in debt and equity securities, the effects of qualifying hedging activities and changes in stockholders' equity that are not the result of transactions with stockholders. The Company's components of other comprehensive income (loss) are foreign currency translation adjustments, any change in the value of marketable securities and changes in the fair value of cash flow hedges. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values presented throughout these financial statements have been estimated using appropriate valuation methodologies and market information available at December 31, 2001 and 2000. However, ready trading markets do not exist for all of these items and considerable judgment is required in interpreting market data to develop estimates of fair value and the estimates presented are not necessarily indicative of the amounts that EGL could realize in a current market exchange. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair values. Additionally, the fair values presented throughout these financial statements have not been estimated since December 31, 2001. Current estimates of fair value may differ significantly from the amounts presented. The following method and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents, restricted cash, short-term investments and marketable securities -- The carrying amount approximates fair value because of the short maturity of those instruments. F-13 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 Borrowings -- The fair value of the Company's convertible subordinated notes was estimated based upon the closing price of the Company's stock on December 31, 2001. The Company's other long-term debt approximates fair value based upon the Company's current incremental borrowing rates for similar types of borrowing arrangements. Foreign currency forward contracts -- The fair value is estimated based on the U.S. dollar equivalent at the contract exchange rate. Any gain or loss is largely offset by a change in the value of the underlying transaction, and is recorded as an unrealized foreign exchange gain or loss until the contract maturity date. Such amounts are insignificant. Interest rate swap agreement -- The fair value of interest rate swaps (used for hedging purposes) is the estimated amount that the Company would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates. Letters of credit -- The Company utilizes letters of credit to back certain financing instruments and payment obligations. The letters of credit reflect fair values as a condition of their underlying purpose and are subject to fees competitively determined. Synthetic leases -- The fair value of the Company's synthetic leases approximates fair value based upon the Company's current incremental borrowing rates for similar types of financing arrangements. The carrying amounts and fair values of financial instruments at December 31, 2001 and 2000 are as follows:
CARRYING AMOUNT FAIR VALUE ------------------ ----------------- 2001 2000 2001 2000 -------- ------- ------- ------- (IN THOUSANDS) Cash and cash equivalents..................... $ 77,440 $60,001 $77,440 $60,001 Restricted cash............................... 5,413 -- 5,413 -- Short-term investments and marketable securities.................................. 3,442 13,056 3,442 13,056 Convertible subordinated notes................ 100,000 -- 80,018 -- Other long-term debt.......................... 3,774 91,051 3,774 91,051 Interest rate swap agreement.................. 2,028 -- 2,028 -- Off balance sheet financial instruments: Letters of credit........................... 24,000 17,200 24,000 17,200 Synthetic leases............................ 24,000 21,400 24,000 21,400
RISKS AND UNCERTAINTIES The Company's operations are influenced by many factors, including the global economy, international laws and currency exchange rates. The impact of some of these risk factors is reduced by having customers in a wide range of industries located throughout the world. However, contractions in the more significant economies of the world (either countries or industrial sectors) could have a substantial negative impact on the rate of the Company's growth and its profitability. The availability and affordability of airlift and other transportation capacity could also significantly influence the Company's operations. Acts of war or terrorism could influence these areas of risk and the Company's operations. Doing business in foreign locations subjects the Company to various risks and considerations typical to foreign enterprises including, but not limited to, economic and political conditions in the United States and abroad, currency exchange rates, tax laws and other laws and trade restrictions. F-14 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 CONCENTRATION OF CREDIT RISK The Company's customers include retailing, wholesaling, manufacturing, electronics and telecommunications companies, as well as international agents throughout the world. Management believes that concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base and their dispersion across many different industries and geographic regions. The Company performs ongoing credit evaluation of its customers to minimize credit risk. The Company's investment policies restrict investments to low-risk, highly liquid securities and the Company performs periodic evaluations of the relative credit standing of the financial institutions with which it deals. DERIVATIVE INSTRUMENTS Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and SFAS No. 138. These statements require the Company to recognize all derivative instruments on the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of the foreign currency exposure of a net investment in a foreign operation. The effect of adoption of this pronouncement at January 1, 2001 was immaterial. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of the interest rate or foreign currency exposure of a change. For derivative instruments that are designated and qualify as a hedge of a net investment in a foreign operation currency, the gain or loss is reported in other comprehensive income as part of the cumulative translation adjustment to the extent it is effective. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. The Company uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Company formally designates and documents the financial instrument as a hedge of a specific underlying exposure when it is entered into, as well as the risk, management objectives and strategies for undertaking the hedge transaction. Derivatives are recorded in the balance sheet at fair value in either other assets or other liabilities. The earnings impact resulting from the derivative instruments is recorded in the same line item within the statement of earnings as the underlying exposure being hedged. The Company also formally assesses, both at inception and at least quarterly thereafter, whether the derivative instruments that are used in hedging transactions are effective at offsetting changes in either the fair value or cash flows of the related underlying exposures. The ineffective portion of a derivative instrument's change in fair value is immediately recognized in earnings as nonoperating income (expense), net. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. SFAS 141 supersedes Accounting Principles Board Opinion No. 16, Business Combinations. SFAS 141 requires that the purchase method of accounting be used F-15 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 for all business combinations initiated after June 30, 2001, establishes specific criteria for the recognition of intangible assets separately from goodwill and requires unallocated negative goodwill arising from transactions to be written off immediately as an extraordinary gain, and for pre-existing transactions to be recognized as the cumulative effect of a change in accounting principle. The Company did not have any business combinations after June 30, 2001; therefore, the required portion of the adoption of this standard had no effect on the Company's 2001 results. SFAS 142 supersedes Accounting Principles Board Opinion No. 17, Intangible Assets. SFAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. SFAS 142 requires that goodwill and indefinite lived intangible assets will no longer be amortized; goodwill will be tested for impairment at least annually at the reporting unit level; intangible assets deemed to have an indefinite life will be tested for impairment at least annually; and the amortization of intangible assets with finite lives will no longer be limited to forty years. The Company is required to adopt this standard and will disclose the results of the implementation of this standard in the Company's first quarter 2002 Form 10-Q. In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and that the associated long-lived asset retirement costs are capitalized. The Company will adopt SFAS 143 beginning January 1, 2003 and does not believe that it will have a material impact on its results of operations and financial position. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 supersedes FASB Statement No. 121, Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions. The Company will adopt SFAS 144 as of January 1, 2002 and is currently determining the impact, if any; it will have on its results of operations and financial position. NOTE 2 -- BUSINESS COMBINATIONS On October 2, 2000, EGL completed its merger with Circle pursuant to the terms and conditions of the Agreement and Plan of Merger dated as of July 2, 2000 (the Merger Agreement). EGL issued 17.9 million shares of EGL common stock in exchange for all issued and outstanding shares of Circle common stock and assumed options exercisable for 1.1 million shares of EGL common stock. The exchange ratio of one share of EGL common stock for each share of Circle common stock was determined by arms-length negotiations between EGL and Circle. The Merger qualified as a tax-free reorganization for U.S. federal income tax purposes and as a pooling of interests for accounting and financial reporting purposes. The Company's financial statements have been restated to include the operations of Circle for all periods presented. The presentation of the year ended December 31, 1999 reflected the consolidation of EGL's year ended September 30, 1999 with Circle's year ended December 31, 1999. EGL's results for the three months ended December 31, 1999 have been omitted from the accompanying consolidated statement of operations and presented as summary adjusting items in the statement of cash flows and stockholders' equity. EGL's results of operations, cash flows and stockholders' equity activity for the three months ended December 31, 1999 are presented on a stand-alone basis in Note 18. EGL and Circle had no significant intercompany F-16 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 transactions prior to the merger and no material adjustments were necessary to conform the accounting policies of EGL and Circle. The Company entered into five business combination transactions between January 1, 1999 and December 31, 2001 which have been accounted for using the purchase method of accounting, with the related results of operations being included in the Company's consolidated financial statements from the date of acquisition forward. The aggregate consideration paid for these acquisitions totaled $44.6 million, comprised of $33.3 million in cash, $5.9 million notes payable and stock consideration valued at approximately $5.4 million. The Company recognized $41.8 million in goodwill in connection with these acquisitions, and is amortizing those amounts over the related estimated useful lives ranging between 20 and 40 years. Two of the acquisitions provided for the payment of additional contingent consideration if certain post-acquisition performance criteria are satisfied for periods as long as three years which could aggregate as much as $7.9 million in cash and Company common stock. All contingent payments on acquisitions made by the Company are accounted for as adjustments to goodwill and are recorded at the time that the amounts of the payments are determinable by the Company. Through December 31, 2001, the Company had recognized $7.8 million in additional contingent consideration on these acquisitions paid in cash and the Company's common stock. Certain of the transactions resulted in the sellers retaining a minority interest, for which the Company has a buyout option. The pro forma effect on revenues and net income of the Company assuming each of these acquisitions were consummated at the beginning of the year of acquisition would have been immaterial. NOTE 3 -- MERGER TRANSACTION, RESTRUCTURING AND INTEGRATION COSTS TRANSACTION AND INTEGRATION COSTS As result of the merger with Circle, as discussed in Note 2, the Company incurred and expensed transaction and integration costs during the years ended December 31, 2001 and 2000. Merger related transaction costs of $9.8 million were incurred in 2000 and included investment banking, legal, accounting, printing fees and other costs directly related to the merger. During the years ended December 31, 2001 and 2000, integration costs of approximately $7.6 million and $8.2 million, respectively, were incurred and included the costs of legal registrations in various jurisdictions, changing signs and logos at major facilities around the world, and other integration costs. Approximately $3.4 million of this amount was unpaid at December 31, 2000. RESTRUCTURING CHARGES During the years ended December 31, 2001 and 2000, the Company recorded $6.4 million and $49.4 million, respectively, of restructuring charges primarily as result of the Company's plan (the Reorganization Plan or the Plan) to integrate the former EGL and Circle operations and to eliminate duplicate facilities as a result of the merger. The principal components of the Plan involve the termination of certain employees at the former Circle's headquarters and various international locations, elimination of duplicate facilities at the former Circle headquarters, elimination of duplicate facilities in the United States and certain international locations, and the termination of selected joint venture and agency agreements at certain of the Company's international locations. With the exception of payments to be made for remaining future lease obligations, the terms of the Plan were substantially completed as of December 31, 2001. The charges incurred under the Reorganization Plan for the years ended December 31, 2001 and 2000 and the remaining portion of the unpaid accrued charges as of December 31, 2001 and 2000 are as follows: F-17 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000
ADDITIONAL INCOME STATEMENT CHARGE FOR THE YEAR ENDED DECEMBER 31, 2001 INCOME ACCRUED ------------------- ACCRUED STATEMENT LIABILITY REVISIONS LIABILITY CHARGE ASSET DECEMBER 31, NEW TO PAYMENTS/ DECEMBER 31, Q4 2000 PAYMENTS WRITE-DOWNS 2000 CHARGES ESTIMATES REDUCTIONS 2001 --------- -------- ----------- ------------ ------- --------- ---------- ------------ (IN THOUSANDS) Severance costs............. $ 8,377 $(2,110) $ -- $ 6,267 $3,345 $ (398) $ (8,301) $ 913 Future lease obligations, net of subleasing income.................... 11,105 (1,042) -- 10,063 1,917 2,746 (7,763) 6,963 Assets not expected to be recoverable............... 18,284 -- (18,284) -- -- (497) 497 -- Termination of joint venture/ agency agreements................ 11,635 (4,110) (2,313) 5,212 (3,000) (1,209) 1,003 Charter lease obligation, net of subleasing income.................... -- -- -- -- 2,287 -- (2,287) -- ------- ------- -------- ------- ------ ------- -------- ------ $49,401 $(7,262) $(20,597) $21,542 $7,549 $(1,149) $(19,063) $8,879 ======= ======= ======== ======= ====== ======= ======== ======
SEVERANCE COSTS Severance costs were recorded for certain employees at the former Circle headquarters and former Circle management at certain international locations who were terminated or notified of their termination under the Plan prior to December 31, 2000. As of December 31, 2000, approximately 60 of the 150 employees included in the Reorganization Plan were no longer employed by the Company. The termination of substantially all of the remaining 90 employees occurred in the first quarter of 2001. Additional severance costs of approximately $3.2 million were recorded during the year ended December 31, 2001. Also, during January 2001 the Company announced an additional reduction in the Company's workforce of approximately 125 additional employees. The charge for this workforce reduction is approximately $0.1 million and was recorded during the first quarter of 2001. FUTURE LEASE OBLIGATIONS Future lease obligations consist of the Company's remaining lease obligations under noncancelable operating leases at domestic and international locations that the Company is in the process of vacating and consolidating due to excess capacity resulting from the Company having multiple facilities in certain locations. The provisions of the Plan include the consolidation of facilities at approximately 80 of the Company's operating locations. As of December 31, 2001, consolidation of facilities has been completed at substantially all of these locations with the remaining locations expected to be completed by the end of the first quarter of 2002. During the second quarter of 2001, the Company determined the estimated consolidation dates for several of the remaining facilities and recorded an additional charge of $1.9 million. All lease costs for facilities being consolidated are charged to operations until the date that the Company vacates each facility. Amounts recorded for future lease obligations under the Plan are net of approximately $31.3 million in anticipated future recoveries from actual or expected sublease agreements. Sublease income has been anticipated under the Plan only in locations where sublease agreements have been executed as of December 31, 2001 or are deemed probable of execution during the first half of 2002. There is a risk that subleasing transactions will not occur within the same timing or pricing assumptions made by the Company, or at all, which could result in future revisions to these estimates. During the year ended December 31, 2001, the Company recorded an additional charge of $4.7 million based on revised estimates for future recoveries from actual or expected sublease agreements that were or are expected to be less favorable than anticipated due to F-18 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 the weakened U.S. economy. In addition, during the fourth quarter of 2001, the Company decided to utilize two of the facilities in its logistics operations as the Company determined the expected return on operations was greater than the sublease income it could obtain in these two markets. The $2.0 million reserve established for these facilities was reversed. ASSETS NOT EXPECTED TO BE RECOVERABLE During 2000, the Company recorded a charge for assets not expected to be recoverable which primarily consisted of fixed assets at the various locations that are being consolidated under the Plan and will no longer be used in the Company's ongoing operations. In 2001, the Company revised this estimate by approximately $497,000 for assets that were determined to be recoverable since they will continue to be used in operations. TERMINATION OF JOINT VENTURE/AGENCY AGREEMENTS Costs to terminate joint venture/agency agreements represents contractually obligated costs incurred to terminate selected joint venture and agency agreements with certain of the Company's former business partners along with assets that are not expected to be fully recoverable as a result of the Company's decision to terminate these agreements. In conjunction with the Company's Reorganization Plan, during the year ended December 31, 2001, the Company completed the termination of joint venture and agency agreements in Brazil, Chile, Panama, Venezuela, Taiwan and South Africa. The Company completed the termination of joint venture agreements in South Africa and Taiwan on more favorable terms than originally expected and revised the related estimate by reducing the expected charge by $3.0 million. CHARTER LEASE OBLIGATION In August 2001, the Company negotiated agreements to reduce its exposure to future losses on leased aircraft. A lease for two of the aircraft was terminated with no financial penalty. The Company subleased five aircraft to a third party at rates below the Company's contractual commitment and recorded of a charge of approximately $2.3 million in the third quarter of 2001 for the excess of the Company's commitment over the sublease income through the end of the lease term. As of December 31, 2001, the Company is obligated under one lease agreement with Miami Air (one of its equity method investees) for four aircraft. This agreement expires June 30, 2003. NOTE 4 -- PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31:
ESTIMATED USEFUL LIVES 2001 2000 ------------- -------- -------- Land............................................... $ 14,923 $ 17,115 Software........................................... 1 to 5 years 57,099 29,092 Buildings and improvements......................... 5 to 50 years 72,807 104,841 Equipment and furniture............................ 3 to 10 years 119,956 103,157 -------- -------- 264,785 254,205 Less -- accumulated depreciation................... 111,863 100,860 -------- -------- $152,922 $153,345 ======== ========
The Company is in the process of developing and implementing computer system solutions for its operational, human resource and financial systems. As of December 31, 2001, the Company had capitalized F-19 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 $20.9 million related to the development of these systems. This amount is included in the software amount above and is currently not being depreciated. Once placed in service, depreciation related to the system will be charged. Additionally, one of the Company's foreign subsidiaries is in the process of constructing new warehouse and terminal facilities. At December 31, 2001, $168,000 related to this construction is included in buildings and improvements. The Company expects to expend approximately $1 million on the construction of this asset. As of December 31, 2001, the Company has total outstanding commitments to construct office, warehouse and terminal facilities and to develop software for $1.3 million. The Company sold the former Circle headquarters facility in December 2001 for $12.3 million and recognized a pretax gain of $1.6 million included as a reduction of other selling, general and administrative expenses in the accompanying consolidated statement of operations. In December 2001, the Company sold and leased back its corporate headquarters, terminal and warehouse facilities in Houston and a terminal facility in Denver to a third party. See Note 14. NOTE 5 -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES Investments in net assets of unconsolidated affiliated companies were $46.0 million and $52.7 million at December 31, 2001 and 2000, respectively. The largest components are a 40% investment in TDS Logistics Inc. (TDS) of $39.6 million and $42.7 million as of December 31, 2001 and 2000, respectively, and a 24.5% investment in Miami Air International, Inc. (Miami Air) of $6.1 million as of December 31, 2001 and 2000. The TDS investment balance includes the excess of purchase price over net assets of $24.1 million and $24.9 million as of December 31, 2001 and 2000, respectively, which is being amortized over 37 years. The Miami Air investment balance includes the excess of purchase price over net assets of $5.2 million and $5.5 million as of December 31, 2001 and 2000, respectively, which is being amortized over 25 years. The unaudited results of operations and financial position of TDS and Miami Air are summarized below (in thousands): TDS Condensed Statement of Operations information for the years ended December 31:
2001 2000 1999 -------- ------- ------- Revenue................................................ $100,690 $82,244 $63,486 Income (loss) from operations.......................... (7,736) 6,624 13,884 Net income (loss)...................................... (4,413) 6,115 8,947 EGL 40% equity interest in TDS earnings (loss)......... (1,765) 2,446 3,579 Amortization of investment premium and other adjustments.......................................... (1,004) (760) (760) -------- ------- ------- Amount included in EGL nonoperating income (expense)... $ (2,769) $ 1,686 $ 2,819 ======== ======= =======
F-20 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 Condensed Balance Sheet information at December 31:
2001 2000 ------- ------- Current assets.............................................. $40,539 $41,943 Noncurrent assets........................................... 63,377 60,136 Current liabilities......................................... 50,908 27,230 Noncurrent liabilities...................................... 14,998 30,429 Minority interest........................................... 163 -- Stockholders' equity........................................ 37,847 44,420
MIAMI AIR In July 2000, the Company purchased 24.5% of the outstanding common stock of Miami Air, a privately held domestic and international passenger and freight charter airline headquartered in Miami, Florida, for approximately $6.3 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. The Company's Chairman, CEO and President and a member of EGL's board of directors also purchased 19.2% and 6.0% of Miami Air, respectively. See Note 15 for additional information related to Miami Air. Condensed Statement of Operations information for the year ended December 31, 2001 and for the period from July 2000 (date of EGL investment) to December 31, 2000:
2001 2000 -------- ------- Revenue..................................................... $113,937 $51,471 Loss from operations........................................ (4,580) (95) Loss before change in accounting principle.................. (7,380) (766) Change in accounting principle.............................. 8,667 -- Net income (loss)........................................... 1,287 (766) EGL 24.5% equity interest in Miami Air earnings (loss)...... 315 (187) Amortization of investment premium and other adjustments.... (292) -- -------- ------- Amount included in EGL nonoperating income (expense)........ $ 23 $ (187) ======== =======
Condensed Balance Sheet information at December 31:
2001 2000 ------- ------- Current assets.............................................. $10,676 $13,844 Noncurrent assets........................................... 33,453 40,045 Current liabilities......................................... 19,660 26,817 Noncurrent liabilities...................................... 20,569 23,803 Stockholders' equity........................................ 3,899 3,268
F-21 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 NOTE 6 -- BORROWINGS Borrowings as of December 31, 2001 and 2000 consist of the following amounts:
2001 2000 -------- ------- Convertible subordinated notes.............................. $100,000 $ -- Revolving line of credit.................................... -- 81,000 Notes payable............................................... 11,724 13,480 -------- ------- 111,724 94,480 Less -- current portion..................................... 7,950 3,429 -------- ------- Long-term borrowings........................................ $103,774 $91,051 ======== =======
CONVERTIBLE SUBORDINATED NOTES In December 2001, the Company issued $100 million aggregate principal amount of 5% convertible subordinated notes. The notes bear interest at an annual rate of 5%. Interest is payable on June 15 and December 15 of each year, beginning June 15, 2002. The notes mature on December 15, 2006. Deferred financing fees incurred in connection with the transaction totalled $3.2 million through December 31, 2001 and are being amortized over five years as a component of interest expense. The notes are convertible at any time four trading days prior to maturity into shares of our common stock at a conversion price of approximately $17.4335 per share, subject to certain adjustments, which was a premium of 20.6% of the stock price at the issuance date. This is equivalent to a conversion rate of 57.3608 shares per $1,000 principal amount of notes. Upon conversion, a noteholder will not receive any cash representing accrued interest, other than in the case of a conversion in connection with an optional redemption. The shares that are potentially issuable will impact the Company's diluted earning per share calculation in future periods by approximately 5.7 million shares. The Company may redeem the notes on or after December 20, 2004 at specified redemption prices, plus accrued and unpaid interest to, but excluding, the redemption date. Upon a change in control, a noteholder may require the Company to purchase its notes at 100% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the purchase date. The notes are general unsecured obligations of the Company. The notes are subordinated in right of payment to all of the Company's existing and future senior indebtedness as defined in the indenture. The Company and its subsidiaries are not prohibited from incurring senior indebtedness or other debt under the indenture. The notes impose some restrictions on mergers and sales of substantially all of the Company's assets. CREDIT AGREEMENTS On January 5, 2001, the Company entered into an agreement (the Credit Facility) with various financial institutions, with Bank of America, N.A. (the Bank) serving as administrative agent, to replace its previous credit facility. The Credit Facility provided a $150 million revolving line of credit and included a $30 million sublimit for the issuance of letters of credit and a $15 million sublimit for a swing line loan. The Credit Facility was scheduled to mature on January 5, 2004. The Company was subject to certain covenants under the terms of the Credit Facility. The Company was in violation of several of these covenants at various times during 2001. As a result, the Credit Facility was amended on June 28, 2001 and again on November 9, 2001. In connection with the November 9, 2001 amendment, the borrowing capacity of the Credit Facility was F-22 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 reduced and the Company wrote off approximately $694,000 of deferred debt costs associated with the Credit Facility. Effective December 20, 2001, the Company amended and restated the Credit Facility. The amended and restated credit facility (Restated Credit Facility), which was amended effective as of March 7, 2002, is with a syndicate of three financial institutions, with the Bank as collateral and administrative agent for the lenders, and matures on December 20, 2004. The Restated Credit Facility provides a revolving line of credit of up to the lesser of: - $75 million, which will be increased to $100 million if an additional $25 million of the revolving line of credit commitment is syndicated to other financial institutions, or - an amount equal to: - up to 85% of the net amount of the Company's billed and posted eligible accounts receivable and the billed and posted eligible accounts receivable of its wholly owned domestic subsidiaries and its operating subsidiary in Canada, subject to some exceptions and limitations, plus - up to 85% of the net amount of the Company's billed and unposted eligible accounts receivable and billed and unposted eligible accounts receivable of its wholly owned domestic subsidiaries owing by account debtors located in the United States, subject to a maximum aggregate availability cap of $10 million, plus - up to 50% of the net amount of the Company's unbilled, fully earned and unposted eligible accounts receivable and unbilled, fully earned and unposted eligible accounts receivable of its wholly owned domestic subsidiaries owing by account debtors located in the United States, subject to a maximum aggregate availability cap of $10 million, minus - reserves from time to time established by the Bank in its reasonable credit judgment. The aggregate of the four sub-bullet points above is referred to as the Company's eligible borrowing base. The Restated Credit Facility includes a $50 million letter of credit subfacility. The Company had $17.3 million in standby letters of credit outstanding as of December 31, 2001 under this facility. The maximum amount that the Company can borrow at any particular time may be less than the amount of its revolving credit line because the Company is required to maintain a specified amount of borrowing availability under the Restated Credit Facility based on the Company's eligible borrowing base. The required amount of borrowing availability is currently $40 million, which amount is subject to adjustment to $25 million if certain post-closing conditions are satisfied. The required amount of borrowing availability is subject to further adjustment to $15 million if the Company's EBITDA is (1) $9.7 million for the fiscal quarter ended December 31, 2001, (2) $9.8 million for the fiscal quarter ending March 31, 2002 or (3) $13.2 million for the fiscal quarter ending June 30, 2002. The amount of borrowing availability is determined by subtracting the following from the Company's eligible borrowing base: (a) the Company's borrowings under the Restated Credit Facility; and (b) the Company's accounts payable and the accounts payable of all of its domestic subsidiaries and its Canadian operating subsidiary that remain unpaid more than the longer of (i) sixty days from their respective invoice dates or (ii) thirty days from their respective due dates. For each tranche of principal borrowed under the revolving line of credit, the Company may elect an interest rate of either LIBOR plus an applicable margin of 2.50%, which is subject to adjustment after June 30, 2002 to 2.00% to 2.75%, which varies based upon availability under the line, or the prime rate announced by the Bank, plus, if the borrowing availability is less than $25 million, an applicable margin of 0.25%. F-23 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 The Company refers to borrowings bearing interest based on LIBOR as a LIBOR tranche and to other borrowings as a prime rate tranche. The interest on a LIBOR tranche is payable on the last day of the interest period (one, two or three months, as selected by the Company) for such LIBOR tranche. The interest on a prime rate tranche is payable monthly. A termination fee would be payable upon termination of the Restated Credit Facility during the first two years after the closing thereof, in the amount of 0.50% of the total revolving line commitment if the termination occurs on or before the first anniversary of the closing and 0.25% of the total revolving line commitment if the termination occurs after the first anniversary, but on or before the second anniversary of such closing (unless terminated in connection with a refinancing arranged or underwritten by the Bank or its affiliates). The Company is subject to certain covenants under the terms of the Restated Credit Facility, including, but not limited to, (a) maintenance at the end of each fiscal quarter of a minimum specified adjusted tangible net worth and (b) quarterly and annual limitations on capital expenditures of $12 million per quarter or $48 million cumulative per year. The Restated Credit Facility also places restrictions on additional indebtedness, dividends, liens, investments, acquisitions, asset dispositions, change of control and other matters, is secured by substantially all of the Company's assets, and is guaranteed by all domestic subsidiaries and the Company's Canadian operating subsidiary. In addition, the Company will be subject to additional restrictions, including restrictions with respect to distributions and asset dispositions, if the Company's eligible borrowing base falls below $40 million. Events of default under the Restated Credit Facility include, but are not limited to, the occurrence of a material adverse change in the Company's operations, assets or financial condition or its ability to perform under the Restated Credit Facility or that any of the Company's domestic subsidiaries or its Canadian operating subsidiary. During 2000, the Company maintained a $120 million revolving line of credit with the Bank as administrative agent under an agreement entered into on January 13, 2000 which was replaced by the Credit Facility entered into on January 5, 2001 discussed herein. The revolving line of credit bore interest at variable rates and included unused commitment fees and letter of credit fees, each of which was calculated on the basis of a ratio of consolidated debt to consolidated EBITDA, and were due quarterly. The Company was also subject to certain covenants under the terms of this agreement. Outstanding borrowings under the revolving line of credit were classified as long term at December 31, 2000 due to the Company's ability and intent to refinance these borrowings on a long-term basis. Additionally, $50,000 of debt issue costs were written off prior to December 31, 2000 due to the Company's intent to refinance. As of December 31, 2001 and 2000, the Company had available, unused borrowing capacity of $57.7 million and $30.7 million, respectively. OTHER BANK LINES OF CREDIT AND GUARANTEES The Company maintains a $10 million bank line of credit, in addition to the $50 million sublimit under the Restated Credit Facility, to secure customs bonds and bank letters of credit to guarantee certain transportation expenses in foreign locations. At December 31, 2001 and 2000, the Company was contingently liable for approximately $6.7 million and $8.9, respectively, under outstanding letters of credit and guarantees related to its $10 million line of credit. The Company's ability to borrow under bank lines of credit and to maintain bank letters of credit is subject to the limitations on additional indebtedness contained in the Restated Credit Facility discussed above. F-24 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 Additionally, several of the Company's foreign operations guarantee amounts associated with the Company's custom brokerage services. As of December 31, 2001 these outstanding guarantees approximated $15.6 million. Future scheduled principal payments on debt are as follows: 2002........................................................ $ 7,950 2003........................................................ 2,275 2004........................................................ 330 2005........................................................ 267 2006 and beyond............................................. 100,902 -------- Total............................................. $111,724 ========
CASH FLOW HEDGING STRATEGY In April 2001, the Company entered into a three year interest rate swap agreement, which was designated as a cash flow hedge, to reduce its exposure to fluctuations in interest rates on $70 million of its LIBOR-based revolving credit facility or any substitutive debt agreements the Company enters into. Accordingly, the change in the fair value of the swap agreement is recorded in other comprehensive income (loss). In December 2001, the Company issued $100 million of 5% convertible subordinated notes due December 15, 2006. The proceeds from these notes substantially retired the LIBOR based debt outstanding under the then-existing revolving credit agreement. The interest rate on the convertible notes is fixed; therefore, the variability of the future interest payments has been eliminated. The swap agreement no longer qualifies for cash flow hedge accounting and has been undesignated as of December 7, 2001. The net loss on the swap agreement included in other comprehensive income (loss) as of December 7, 2001, was $2.0 million and will be amortized to interest expense over the remaining life of the swap agreement and subsequent changes in the fair value of the swap agreement will be recorded in interest expense. NOTE 7 -- TAXES ON INCOME Taxes on income include the following for the year ended December 31 (in thousands):
2001 2000 1999 -------- -------- -------- Federal: Current............................................ $(24,095) $ 10,612 $ 19,344 Deferred........................................... (4,421) (9,689) (2,394) State: Current............................................ (3,826) 1,488 3,638 Deferred........................................... (904) (1,284) (83) Foreign: Current............................................ 7,479 12,340 12,053 Deferred........................................... (67) (304) (248) -------- -------- -------- Total provision (benefit).................. $(25,834) $ 13,163 $ 32,310 ======== ======== ========
F-25 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 Significant components of the Company's net deferred tax (asset) liability are as follows at December 31 (in thousands):
2001 2000 -------- ------- Deferred tax liabilities: Undistributed earnings of foreign subsidiaries and equity affiliates............................................. $ 14,704 $13,604 Depreciation/amortization................................. 4,451 9,739 -------- ------- $ 19,155 $23,343 ======== ======= Deferred tax assets: Foreign tax credits....................................... $ 9,180 $ 4,479 Net operating losses and alternative minimum tax credits................................................ 3,373 -- Bad debts................................................. 1,385 3,244 Accrued liabilities....................................... 13,536 12,454 Other..................................................... 2,423 1,469 -------- ------- 29,897 21,646 -------- ------- Net deferred tax (asset) liability................ $(10,742) $ 1,697 ======== =======
Excess foreign tax credits have been reclassed from the deferred tax liability on undistributed foreign earnings. Taxes on income were different than the amount computed by applying the statutory income tax rate. Such differences are summarized as follows for the year ended December 31 (in thousands):
2001 2000 1999 -------- ------- ------- Tax computed at statutory rate.......................... $(23,104) $ 4,354 $29,407 Increases (decreases) resulting from: Foreign taxes......................................... 601 275 (3,114) Nondeductible merger related costs.................... -- 5,015 -- Other nondeductible items............................. 559 1,481 2,215 State taxes on income, net of federal income tax effect............................................. (3,075) 511 2,311 Other................................................... (815) 1,527 1,491 -------- ------- ------- Total provision (benefit)..................... $(25,834) $13,163 $32,310 ======== ======= =======
Taxes on income include deferred income taxes on undistributed earnings (not considered permanently reinvested) of consolidated foreign subsidiaries, net of applicable foreign tax credits. The Company does not provide for United States income taxes on certain specific foreign subsidiaries' undistributed earnings intended to be permanently reinvested in foreign operations. At December 31, 2001, cumulative earnings of consolidated foreign subsidiaries designated as permanently reinvested were approximately $11.0 million for which the related tax impact would approximate $4.0 million. F-26 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 Sources of pretax income (loss) are summarized as follows for the year ended December 31 (in thousands):
2001 2000 1999 -------- -------- ------- Domestic.............................................. $(90,125) $(20,804) $56,968 Foreign............................................... 24,114 33,245 27,052 -------- -------- ------- Total....................................... $(66,011) $ 12,441 $84,020 ======== ======== =======
As a result of stock option exercises for the years ended December 31, 2001, 2000 and 1999 of non-qualified stock options to purchase an aggregate of 528,000, 1.2 million and 1.1 million shares of common stock, respectively, the Company is entitled to a federal income tax deduction of approximately $7.8 million, $17.0 million and $17.5 million, respectively, with a related reduction in its tax obligations of approximately $3.0 million, $5.0 million and $4.5 million; respectively. Accordingly, the Company recorded an increase to additional paid-in capital and a reduction in current taxes payable pursuant to the provisions of SFAS 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 such amounts, although there can be no assurance as to whether or not such exercises will occur, the amount of any deductions or the Company's ability to fully utilize such tax deductions. At December 31, 2001, the company has a net operating loss for domestic income tax purposes of approximately $5.4 million that is available over a 19-year carryforward period. The Company also has generated excess foreign tax credits of approximately $9.1 million that expire in the years 2003, 2004, and 2005. NOTE 8 -- STOCKHOLDERS' EQUITY During the year ended December 31, 1999, the Company's Board of Directors authorized the repurchase of up to 1.8 million shares of the Company's common stock in the open market. This authorization expired during December 1999. During the year ended December 31, 2000 the Board of Directors authorized a repurchase of up to an additional 3.0 million shares. The Company terminated this authorization on July 2, 2000. During the years ended December 31, 2000 and 1999, the Company purchased 450,000 and 1.0 million shares of common stock for $10.5 million and $14.8 million, respectively, under these plans. During the years ended December 31, 2001, 2000 and 1999, 266,000, 80,000 and 23,000 shares, respectively, were reissued to satisfy, or help offset increases in shares resulting from, purchases under the Company's Stock Purchase Plan (Note 9), payment of additional consideration for previous acquisitions (Note 2) and restricted stock awards. As of December 31, 2001, 2000 and 1999, 1.1 million, 1.4 million, and 1.0 million shares were held in treasury, respectively. The Company accounts for treasury stock using the cost method. In January 2000, the Company agreed to issue 45,000 shares of restricted common stock to an employee. The Company recorded these shares as unearned compensation of $1.9 million at the date of the award based on the quoted fair market value of the shares at the time the award was granted. This amount is being amortized over the three-year vesting period of the award. As of December 31, 2001, 30,000 shares outstanding under this award were vested. Prior to the merger as discussed in Note 2, Circle historically paid cash dividends of $0.27 per common share with cash dividends of $0.135 per share declared on a semi-annual basis in June and December of each year. As of December 31, 1999, dividends of $2.3 million were declared and paid in March 2000. In June 2000, Circle declared an additional cash dividend of $0.135 per share totaling $2.4 million, which was paid in September 2000. Since the completion of the merger, the Company has not declared any additional dividends and is restricted from doing so under its credit agreement. F-27 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 As of December 31, 2000, the Company had an outstanding obligation to issue approximately 55,000 shares of common stock in connection with the Fastair and CTI acquisitions as discussed in Note 2. These shares were issued during March 2001. As of December 31, 2001, the Company had no outstanding obligations to deliver common stock for these acquisitions. NOTE 9 -- EMPLOYEE BENEFIT AND STOCK OPTION PLANS DEFINED CONTRIBUTION PLAN The Company maintains the EGL, Inc. 401(k) Plan (the EGL Plan) pursuant to which the Company provides up to dollar for dollar discretionary matching of employee tax-deferred savings, up to a maximum of 5% of eligible compensation. Each participant vests in the Company's contribution over the course of five years at a vesting rate of 20% per year. During the years ended December 31, 2001, 2000 and 1999 the Company recorded charges of $1.0 million, $4.0 and $4.9 million, respectively, related to discretionary contributions to this plan. Prior to the Circle acquisition, as discussed in Note 2, Circle maintained the Circle International Group Savings Plan and Trust (the Circle Plan). Effective January 1, 2001, participants under the Circle Plan became eligible to participate in the EGL Plan. Effective May 1, 2002, the Company expects that the Circle Plan will be merged into the EGL Plan. DEFINED BENEFIT PLANS Certain of our international subsidiaries sponsor defined benefit pension plans covering most full-time employees. Benefits are based on the employee's years of service and compensation. The Company's plans are funded in conformity with the funding requirements of applicable government regulations of the country in which the plans are located. These foreign plans are not subject to the United States Employee Retirement Income Security Act of 1974 "ERISA". The Company's obligation related to these plans at December 31, 2001 and 2000 was approximately $18 million and $17 million, respectively. The yearly costs associated with these plans are approximately $3 million each year. STOCK PURCHASE PLANS During the year ended December 31, 1999, the Company initiated an employee stock purchase plan in order to provide eligible employees of the Company and its participating subsidiaries, including subsidiaries based outside of the United States, with the opportunity to purchase the Company's common stock through payroll deductions. Employees may purchase common stock under this plan during a six-month offering period based on a formula provided in the plan document, which generally allows the Company's employees to purchase common stock at 85% of quoted fair market value. Under this plan, 550,000 shares are authorized for purchase. During the years ended December 31, 2001, 2000, and 1999, 70,000, 52,000, and 23,000 shares of common stock were purchased under this plan at an average price of $17.65, $25.12, and $11.96 per share, respectively. STOCK OPTION PLANS The Company has six option plans whereby certain officers, directors, and employees may be granted options, appreciation rights or awards related to the Company's common stock. Circle Stock Option Plans The 1982 Stock Option Plan and 1990 Stock Option Plan provide for the granting of non-qualified or incentive stock options to officers and key employees for a maximum of 956,000 common shares at not less than fair market value on the date of the grant. Under these plans, stock options are generally issued with the F-28 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 restriction that no option may be exercised before three years from date of grant or later than eight years from date of grant. The 1999 Stock Option Plan permits the grant of nonqualified stock options in order to promote the success and enhance the value of the Company by linking the personal interests of the participants to those of the Company's stockholders, and by providing participants with an incentive for outstanding performance. The plan was authorized for a maximum of 125,000 common shares. Stock options under this plan are generally issued at an option price at not less than fair market value on the date of the grant. To date, no incentive or non-qualified stock options were granted below fair market value. Under this plan, stock options are generally issued with the restriction that no option may be exercised before one year from date of grant and not later than ten years from date of grant. The 1994 Omnibus Equity Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock awards, performance unit awards and performance share awards to key employees and consultants of the Company. The plan was originally authorized for a maximum of 2.0 million common shares, and was amended in May 1998 to increase the maximum to 2.5 million common shares. Stock options under this plan are generally issued at an option price at not less than fair market value on the date of the grant. No incentive or non-qualifying stock options were granted below fair market value. Under this plan, stock options are generally issued with the restriction that no option may be exercised before one year from date of grant and not later than ten years from date of grant. The 1982 Stock Option Plan, 1990 Stock Option Plan, 1994 Omnibus Equity Incentive Plan and the 1999 Stock Option Plan were plans created by Circle prior to the merger with EGL. Options outstanding pursuant to these plans are exercisable in shares of EGL common stock and were automatically accelerated upon consummation of the merger with EGL. No new options were granted under these plans. EGL Plan The Long-Term Incentive Plan permits the grant of stock options at an exercise price equal to the fair market value of the common stock on the date of grant. The plan is authorized for a maximum of 12.2 million shares. Options granted under the plan generally vest ratably over a five-year or seven-year period from date of grant (or 100% upon death). Vested options granted to date generally terminate seven years from date of grant. Additional awards may be granted under the Long-Term Incentive Plan in the form of cash, stock, or stock appreciation rights. The stock appreciation right awards may consist of the right to receive payment in cash or common stock. Any award may be subject to certain conditions, including continuous service with the Company or achievement of certain business objectives. There have been no awards of this kind under the Long-Term Incentive Plan. EGL Director Plan The Director Plan provides for automatic stock option grants to non-employee directors at the time they join the Board and annually thereafter. These grants vest within one year from the date of grant and terminate ten years from date of grant. The plan was authorized for a maximum of 300,000 shares. F-29 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 Transactions Summary A summary of stock option transactions for each of the three years ended December 31, 2001 follows (in thousands, except option price):
WEIGHTED AVERAGE OPTIONS OPTION PRICE ------- ------------ Outstanding at December 31, 1998............................ 6,507 $16.01 Granted................................................... 1,504 21.58 Exercised................................................. (908) 13.45 Cancelled................................................. (1,004) 11.56 ------ Outstanding at December 31, 1999............................ 6,099 17.77 Granted................................................... 1,975 24.75 Exercised................................................. (1,162) 16.57 Cancelled................................................. (875) 21.59 ------ Outstanding at December 31, 2000............................ 6,037 20.45 Granted................................................... 839 9.23 Exercised................................................. (528) 6.55 Cancelled................................................. (487) 23.09 ------ Outstanding at December 31, 2001............................ 5,861 20.05 ======
Options vested at December 31, 2001, 2000 and 1999 totaled 2.8 million shares, 2.5 million shares and 2.1 million shares, respectively. The following table summarizes information about stock options outstanding at December 31, 2001 (in thousands, except option price):
OUTSTANDING EXERCISABLE ----------------------------- ------------------- AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE PRICES NUMBER LIFE PRICE NUMBER PRICE - --------------- ------ --------- -------- -------- -------- $5.50-$17.54.......................... 1,464 4.92 $11.39 629 $13.96 $17.58-$19.29......................... 399 4.99 18.45 291 18.41 $19.42-$20.13......................... 1,353 3.21 19.44 774 19.42 $20.42-$33.81......................... 2,645 5.37 25.40 1,152 24.94 ----- ---- ------ ----- ------ $5.50-$33.81.......................... 5,861 4.73 $20.05 2,846 $20.34 ===== ==== ====== ===== ======
As discussed in Note 1, the Company applies APB No. 25 and related interpretations in accounting for its stock option plans. No compensation cost has been recognized for these plans. The weighted-average fair values of options granted during 2001, 2000, and 1999 were $5.85, $13.26 and $10.45, respectively. If compensation cost for the Company's option plans had been determined based upon the fair value at the grant dates for awards under these plans consistent with the method set forth under SFAS No. 123, the Company's net income (loss) for the years ended December 31, 2001, 2000 and 1999 would have been reduced (increased) by $3.0 million, $9.6 million and $6.7 million, respectively. Diluted earnings (loss) per share for fiscal 2001, 2000 and 1999 would have been reduced (increased) by $0.06, $0.21 and $0.14, respectively. F-30 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 The fair value of each option granted is estimated on the date of grant using the Black-Scholes options-repricing model with the following weighted average assumptions used for grants:
YEAR ENDED DECEMBER 31, ------------------------ 2001 2000 1999 ------ ------ ------ Expected volatility......................................... 59.00% 55.00% 57.00% Risk-free interest rate..................................... 4.40% 6.08% 5.44% Dividend yield.............................................. 0.00% 0.19% 0.41% Expected life of option (years)............................. 4.85 4.80 4.60
NOTE 10 -- SHAREHOLDERS' RIGHTS PLAN On May 23, 2001, the Company's Board of Directors declared a dividend of one Right to purchase preferred stock (Right) for each outstanding share of Company common stock to shareholders of record at the close of business on June 4, 2001. Each right initially entitles the registered holder to purchase from the Company a fractional share consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $.001 per share, at a purchase price of $120 per fractional share, subject to adjustment. The Rights generally will not become exercisable until ten days after a public announcement that a person or group has acquired 15% or more of Company common stock (thereby becoming an "Acquiring Person") or the commencement of a tender or exchange offer that would result in an Acquiring Person (the earlier of such dates being called the "Distribution Date"). James R. Crane will not become an Acquiring Person unless and until he and his affiliates becomes the beneficial owner of 49% or more of the Common Stock. Rights will be issued with all shares of Company common stock issued from the record date to the Distribution Date. Until the Distribution Date, the Rights will be evidenced by the certificates representing Company common stock and will be transferable only with our common stock. Generally, if any person or group becomes and Acquiring Person, each right, other than Rights beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter entitle its holder to purchase, at the Rights' then current exercise price, shares of the Company's common stock having a market value of two times the exercise price of the Right. If, after there is an Acquiring Person, and the Company or a majority of its assets is acquired in certain transactions, each Right not owned by an Acquiring Person will entitle its holder to purchase, at a discount, shares of common stock of the acquiring entity (or its parent) in the transaction. At any time until ten days after a public announcement that the rights have been triggered, the Company will generally be entitled to redeem the Rights for $.01 and to amend the rights in any manner other than to change the redemption price. Certain subsequent amendments are also permitted. The Rights expire on June 4, 2011. F-31 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 NOTE 11 -- NONOPERATING INCOME (EXPENSE), NET Nonoperating income (expense), net, includes the following for the year ended December 31:
2001 2000 1999 -------- ------- ------- Interest income........................................ $ 2,651 $ 3,427 $ 4,982 Interest expense, net of capitalized interest.......... (10,543) (5,197) (2,986) Income (expense) from unconsolidated subsidiaries, net.................................................. (3,145) 1,599 3,922 Rental income.......................................... 492 685 143 Gains (losses) on sales of equity securities........... 2,303 -- 4,519 Minority interests..................................... (1,161) (1,654) (920) Net foreign exchange gains............................. 55 2,801 1,151 Other.................................................. 906 888 347 -------- ------- ------- Total........................................ $ (8,442) $ 2,549 $11,158 ======== ======= =======
During the quarter ended December 31, 1999, the Company sold approximately 30% of its investment in the equity securities of Equant N.V., an international data network service provider, for net proceeds and a pre-tax gain of approximately $4.5 million. The remaining shares held in a trust, became marketable in the second quarter of 2001 and a gain of $2.3 million was recognized. These shares were exchanged for payment of a portion of the Company's liability with its international data network service provider. NOTE 12 -- EEOC LEGAL SETTLEMENT In December 1997, the U.S. Equal Employment Opportunity Commission (EEOC) issued a Commissioner's Charge pursuant to Sections 706 and 707 of Title VII of the Civil Rights Act of 1964, as amended (Title VII). 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 Blacks, Hispanics, Asians and females who are, have been or might be affected by the alleged unlawful practices. On May 12, 2000, four individuals filed suit against EGL alleging gender, race and national origin discrimination, as well as sexual harassment. This lawsuit was filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia, Pennsylvania. The EEOC was not initially a party to the Philadelphia litigation. In July 2000, four additional individual plaintiffs were allowed to join the Philadelphia litigation. The Company filed an Answer in the Philadelphia case and extensive discovery was conducted. The individual plaintiffs sought to certify a class of approximately 1,000 current and former EGL employees and applicants. The plaintiff's initial motion for class certification was denied in November 2000. On December 29, 2000, the EEOC filed a Motion to Intervene in the Philadelphia litigation, which was granted by the Court in Philadelphia on January 31, 2001. In addition, the Philadelphia Court also granted EGL's motion that the case be transferred to the United States District Court for the Southern District of Texas -- Houston Division where EGL had previously initiated litigation against the EEOC due to what EGL believes to have been inappropriate practices by the EEOC in the issuance of the Commissioner's Charge and in the subsequent investigation. Subsequent to the settlement of the EEOC action described below, the claims of one of the eight named plaintiffs were ordered to binding arbitration at EGL's request. The Company F-32 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 recognized a charge of $7.5 million in the fourth quarter of 2000 for its estimated cost of defending and settling the asserted claims. On October 2, 2001, the EEOC and EGL announced the filing of a Consent Decree settlement. This settlement resolves all claims of discrimination and/or harassment raised by the EEOC's Commissioner's Charge mentioned above. Under the Consent Decree, EGL has agreed to pay $8.5 million into a fund (the Class Fund) that will compensate individuals who claim to have experienced discrimination. The settlement covers (1) claims by applicants arising between December 1, 1995 and December 31, 2000; (2) disparate pay claims arising between January 1, 1995 and April 30, 2000; (3) promotion claims arising between December 1, 1995 and December 31, 1998; and (4) all other adverse treatment claims arising between December 31, 1995 and December 31, 2000. In addition, EGL will contribute $500,000 to establish a Leadership Development Program (the Leadership Development Fund). This Program will provide training and educational opportunities for women and minorities already employed at EGL and will also establish scholarships and work study opportunities at educational institutions. In entering the Consent Decree, EGL has not made any admission of liability or wrongdoing. The Consent Decree was approved by the District Court in Houston on October 1, 2001. It will become effective following the exhaustion of any appeals by any individual plaintiffs or potential claimants. There is currently one appeal pending before the United States Court of Appeals for the Fifth Circuit which challenges the entry of the Consent Decree. We do not expect a ruling on this appeal for the next four to six months. During the quarter ended September 30, 2001, the Company accrued $10.1 million related to the settlement, which includes the $8.5 million payment into the fund and $500,000 into the leadership development program described above, administrative, legal fees and other costs associated with the EEOC litigation and settlement. The Consent Decree settlement provides that the Company establish and maintain segregated accounts for the Class Fund and Leadership Development Fund. The Company is required to make an initial deposit of $2.5 million to the Class Fund within 30 days after the Consent Decree has been approved and fund the remaining $6.0 million of the Class Fund in equal installments of $2.0 million each on or before the fifth day of the first month of the calendar quarter (January 5th, April 5th and October 5th) which will occur immediately after the effective date of the Consent Decree. The Leadership Development Fund will be funded fully at the time of the first quarterly payment as discussed above. As of December 31, 2001, the Company had funded $2.5 million into the Class Fund and $500,000 into the Leadership Development Fund. This amount is included as restricted cash in the accompanying consolidated balance sheet. Total related accrued liabilities included in the accompanying consolidated balance sheet at December 31, 2001 were $14.3 million. It is unclear whether some or all of the seven remaining individual plaintiffs will attempt to participate under the Consent Decree or whether they will elect to continue to pursue their claims on their own. To the extent any of the individual plaintiffs or any other persons who might otherwise be covered by the settlement opt out of the settlement, the Company intends to continue to vigorously defend itself against their allegations. The Company currently expects to prevail in its defense of any remaining individual claims. There can be no assurance as to what the amount of time it will take to resolve the appeal relating to the settlement of the Commissioner's Charge and the other lawsuits and related issues or the degree of any adverse effect these matters may have on our financial condition and results of operations. A substantial settlement payment or judgment could result in a significant decrease in our working capital and liquidity and recognition of a loss in our consolidated statement of operations. NOTE 13 -- COMMITMENTS AND CONTINGENCIES In addition to property at one of its freight operations facilities acquired under a capital lease, the Company has a number of operating lease agreements, principally for freight operation facilities and office space. These leases are non-cancelable and expire on various dates through 2025. The following is a summary F-33 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 of future minimum payment obligations under non-cancelable leases with remaining lease terms in excess of one year as of December 31, 2001.
CAPITAL OPERATING LEASES LEASES ------- --------- 2002........................................................ $ 608 $ 51,537 2003........................................................ 608 57,870 2004........................................................ 608 47,567 2005........................................................ 608 41,235 2006 and thereafter......................................... 877 161,522 ------ -------- Total minimum lease payments...................... 3,309 $359,731 ======== Less -- amounts representing interest....................... (474) ------ Present value of net minimum lease payments................. 2,835 Less -- current obligations................................. (390) ------ Noncurrent obligations...................................... $2,445 ======
Included in the above summary of minimum future lease payment obligations are leases on freight operations facilities and office space. The obligations related to approximately 80 of these facilities has been accrued in the Company's restructuring charges for the years ended December 31, 2001 and 2000. As of December 31, 2001, 13 of these leases with an aggregate remaining lease liability of $12.1 million have been subleased to third parties with aggregate future sublease payments due to the Company under these agreements of $12.4 million. As of December 31, 2001, the Company has outstanding commitments to construct office, warehouse and terminal facilities and to develop software for $1.3 million. The Company also has a commitment to purchase $1.9 million in warehouse equipment. Rent expense under non-cancelable operating leases was $63.4 million, $40.6 million and $32.6 million for the years ended December 31, 2001, 2000 and 1999, respectively, which is net of sublease income of $1.2 million, $700,000 and $1.6 million, respectively. The carrying value of property held under the capital leases as of December 31, 2001 was $3.7 million, which is net of $1.9 million of accumulated amortization. AGREEMENTS WITH CHARTER AIRLINES The Company has lease agreements with certain charter airlines for cargo aircraft for utilization in our domestic and international heavy-cargo overnight air network. These agreements contain guaranteed monthly minimum use requirements of the aircraft by us. Certain of these agreements contain provisions, which allow for early termination or modification of the agreements to provide for an increase in or reduction of the amount of aircraft available for our use at our discretion. Due to the softening of the overnight airfreight market, in mid-August 2001 the Company negotiated agreements to reduce its exposure to future losses on charter aircraft leases. A lease for two of the aircraft was terminated with no financial penalty and the Company completed an agreement to sublease five of the leased aircraft to a third party at rates below the Company's current contractual commitment and recorded a charge of approximately $2.3 million in the third quarter of 2001. Total lease expense for these aircraft recognized by the Company in its statement of operations for the year ended December 31, 2001 approximated $58.7 million. As of December 31, 2001, the Company was obligated under one lease agreement for four aircraft with Miami Air International, Inc., a F-34 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 related party (See Note 15). Based upon the charter agreement in place and aircraft currently being used, the Company expects to incur $1.8 million per month during the years ended December 31, 2002 and 2003. This agreement expires June 30, 2003. LITIGATION In addition to the EEOC matter (Note 12), the Company is party to routine litigation incidental to its business, which primarily involve other employment matters or claims for goods lost or damaged in transit or improperly shipped. Many of the other lawsuits to which the Company is a party are covered by insurance and are being defended by Company's insurance carriers. The Company has established reserves for these other matters and it is management's opinion that the resolution of such litigation will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. NOTE 14 -- OFF BALANCE SHEET FINANCING SALE/LEASEBACK AGREEMENT On December 31, 2001, the Company terminated an operating lease agreement relating to its corporate headquarters facility in Houston, Texas and purchased the property covered by this agreement for $8.1 million. In connection with the termination of the lease agreement and the purchase of the property, the Company entered into a transaction whereby it sold this property and certain other properties in Houston and Denver owned by the Company with a net book value of $17.2 million to an unrelated third party for $18.6 million, net of closing costs of $771,000. Mr. Crane also conveyed his ownership in a building adjacent to the Houston facility directly to the buyer and received approximately $5.8 million in proceeds. Mr. Crane's investment in the building was approximately $5.8 million. One of the Company's subsidiaries then leased these properties for a term of 16 years, with options to extend the initial term for up to 15 years. Under the terms of the new lease agreement, the quarterly lease payment is approximately $865,000, which amount is subject to escalation after the first two years based on increases in the Consumer Price Index. These amounts are included in the table of future minimum lease payments in Note 13. A gain of $641,000 on the sale of the properties has been deferred as of December 31, 2001 and will be recognized over the term of the lease agreement. SYNTHETIC LEASE AGREEMENTS The Company has entered into two operating lease arrangements that involve a special purpose entity that acquired title to properties, paid for the construction costs and leased to the Company real estate at some of the Company's terminal and warehouse facilities. This kind of leveraged financing structure is commonly referred to as a "synthetic lease." A synthetic lease is a form of lease financing that qualifies for operating lease accounting principles and under generally accepted accounting treatment is not reflected in the Company's balance sheet. Thus, the obligations are not recorded as debt and the underlying properties are not recorded as assets on the Company's balance sheet. Under a synthetic lease, the Company's rental payments (which approximate interest amounts under the synthetic lease financing) are treated as operating rent commitments and are excluded from the Company's aggregate debt maturities. A synthetic lease is generally preferable to a conventional real estate lease since the lessee benefits from attractive interest rates, the ability to claim depreciation under tax laws and the ability to participate in the development process. MASTER OPERATING SYNTHETIC LEASE On April 3, 1998, the Company entered into a five-year $20 million master operating synthetic lease agreement with two unrelated parties for financing the acquisition, construction and development of terminal and warehouse facilities throughout the United States as designated by the Company. The lease facility was F-35 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 funded by a financial institution and is secured by the properties to which it relates. Construction was completed during 2000 on five terminal facilities. Under the terms of the master operating synthetic lease agreement, average monthly lease payments, including monthly interest costs based upon LIBOR plus 145 basis points, begin upon the completion of the construction of each financed facility. The monthly lease obligations currently approximate $112,000 per month. A balloon payment equal to the outstanding lease balances, which were initially equal to the cost of the facility, is due in November 2002. As of December 31, 2001 and 2000, the aggregate lease balance was approximately $14.1 million and $14.3 million, respectively. If these facilities were consolidated in these financial statements, the Company would reflect an increase in property and equipment and indebtedness of approximately $14.1 million and the annual depreciation expense would be approximately $360,000. The master operating synthetic lease agreement contains 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 synthetic lease agreement, as amended on February 11, 2002, restricts the Company from incurring debt in an amount greater than $30 million, except pursuant to a single credit facility involving a commitment of not more than $110 million and $100 million of 5% convertible subordinated notes. The Company has an option, exercisable at anytime during the lease term, and under particular circumstances may be obligated, to acquire the 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, the Company 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, up to a maximum of $13.7 million. The Company expects that the amount of any deficiency payment would be expensed. The Company may also have to find other suitable facilities to operate in or potentially be subject to a reduction in revenues and other operating activities. OTHER SYNTHETIC LEASE AND RELATED CAPITAL LEASE During 1998, Circle entered into two lease agreements related to one of its domestic terminal facilities. One of the lease agreements relates to land and is currently being accounted for as a synthetic operating lease. The Company is required to make bi-annual payments of $139,000 for 10 years which are included in the table of future lease commitments in Note 13. At December 31, 2001, the lease balance was approximately $9.5 million. A second agreement relates to the building and improvements and is accounted for as capital lease rather than as a synthetic lease. Therefore, the fixed asset and related liability for the second lease are included in the accompanying consolidated balance sheet. Property under the capital lease is amortized over the lease term. As of December 31, 2001, the carrying value of property held under the building and improvements lease was $3.7 million, which is net of $1.9 million of accumulated amortization. NOTE 15 -- RELATED PARTY TRANSACTIONS In connection with the Miami Air investment (see Note 5), 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. The Company caused a $7 million standby letter of credit to be issued in favor of certain creditors for Miami Air to assist Miami Air in financing the conversion of its aircraft. Miami Air 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. As of December 31, 2001, Miami Air had no funded debt under the line of F-36 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 credit that is supported by the $7 million standby letter of credit. However, Miami Air had outstanding $2.8 million in letters of credit that were supported by the $7 million standby letter of credit. There were previously four aircraft subject to the aircraft charter agreement. During 2001 and 2000, the Company paid Miami Air approximately $11.8 million and $1.4 million, respectively, under the aircraft charter agreement for use of four 727 cargo airplanes under an aircraft, crew, maintenance and insurance, or ACMI, arrangement. The payments were based on market rates in effect at the time the lease was entered into. In late February 2002, EGL and Miami Air mutually agreed to ground one of these aircraft because of the need for maintenance on that plane. The Company is negotiating with Miami Air to reduce the costs of operating the remaining three aircraft and is further exploring opportunities to reduce its dependence on those planes. At December 31, 2001, the Company's accounts payable included $142,000 payable to Miami Air. There were no unpaid balances to Miami Air at December 31, 2000. The Company is aware of Miami Air's efforts to renegotiate its loan obligations and lease commitments with their creditors given the status of the airline industry as a result of the events of September 11 and the weak economy. If Miami Air is not able to successfully reach agreement with its creditors, or if its business continues to decline, the Company would expect to reassess the carrying value of its $6.1 million common stock investment in Miami Air, the result of which may be an impairment charge, and the Company may be required to perform on its outstanding credit support under the $7 million standby letter of credit on behalf of Miami Air and recognize a related loss. The weak economy and events of September 11 significantly reduced the demand for cargo plane services, particularly 727 cargo planes. As a result, the market value of these planes declined dramatically. Miami Air has made EGL aware that the amounts due their bank (which are secured by seven 727 planes) is significantly higher than the market value of those planes. In addition, Miami Air has outstanding operating leases for 727 and 737 airplanes at above current market rates, including two planes that are expected to be delivered in 2002. Miami Air has indicated that they are in discussions with the bank to obtain debt concessions on the seven 727 planes, to buy out the lease on a 727 cargo plane and to reduce the rates on the 737 passenger planes. An offer from a third party to purchase three of the 727 cargo planes being leased by the Company is also being evaluated by Miami Air. If the three 727 cargo planes are sold, the Company expects that it would be released from its lease obligations. Miami Air has informed the Company that its creditors have indicated a willingness to make concessions. There can be no assurance as to the amount, timing or terms of such concessions, if any. Miami Air is interested in exiting the 727 business to concentrate primarily on 737 passenger business. Miami Air believes its business model is viable if it is able to: (1) exit the 727 business -- this division's cost structure, pricing and scale are no longer competitive; (2) obtain concessions from its bank and lessors, and (3) focus on 737 passenger business. Miami Air, each of the private investors and the continuing Miami Air stockholders also entered into a stockholders agreement under which Mr. Crane (Chairman, President and CEO) and Mr. Hevrdejs (a director of the Company) are obligated to purchase up to approximately $1.7 million and $500,000, respectively, worth of Miami Air's Series A preferred stock upon demand by the board of directors of Miami Air. The Company and Mr. Crane both have the right to appoint one member of Miami Air's board of directors. Additionally, 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. As of February 28, 2002, directors appointed to Miami Air's board include a designee of Mr. Crane, Mr. Elijio Serrano (the Company's Chief Financial Officer) and two others. The Series A preferred stock, if issued, (1) will not be convertible, (2) will have a 15.0% annual dividend rate and (3) will be subject to mandatory redemption in July 2006 or upon the prior occurrence of specified events. The original charter transactions between Miami Air and the Company were negotiated with Miami Air's management at arms length at the time of the Company's original investment in Miami Air. Miami Air's pre-transaction Chief Executive Officer has remained in that position F-37 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 and as a director following the transaction and together with other original Miami Air investors, remained as substantial shareholders of Miami Air. Other private investors in Miami Air have participated with the Company's directors in other business transactions unrelated to Miami Air. 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, which terminated in 2002. The customer is partially owned by Mr. Crane. Rental income was approximately $105,000, $685,000 and $143,000 for the years ended December 31, 2001, 2000 and 1999, respectively. In addition, the Company billed this customer approximately $511,000, $515,000 and $1.2 million for freight forwarding services during the years ended December 31, 2001, 2000 and 1999. In conjunction with its business activities, the Company periodically utilizes an aircraft owned by an entity that is controlled by Mr. Crane. Prior to November 1, 2000, the Company was charged for its actual usage on an hourly basis. Total amounts paid by the Company under this arrangement for the ten-month period ended October 31, 2000 and the year ended December 31, 1999 was approximately $1.4 million and $700,000, respectively. On October 30, 2000, the Company's Board of Directors approved a change in this arrangement whereby the Company would reimburse Mr. Crane for the $112,000 monthly lease obligation on this aircraft and the Company would bill Mr. Crane for any use of this aircraft unrelated to the Company's business on an hourly basis. During the period from November 1, 2000 to December 31, 2000, the Company reimbursed Mr. Crane for $224,000 in monthly lease payments on the aircraft and billed Mr. Crane $53,000 for his use of the aircraft that was unrelated to the Company's operations. During the period January 1, 2001 through July 31, 2001, the Company reimbursed Mr. Crane $800,000 in lease payments and related costs on the aircraft. In August 2001, Mr. Crane and the Company revised their agreement whereby the Company is now charged for actual usage of the plane on an hourly basis and is billed on a periodic basis. During the period August 1, 2001 through December 31, 2001, the Company reimbursed Mr. Crane approximately $49,000 for hourly usage of the aircraft. In connection with a sale-leaseback agreement entered into by the Company, Mr. Crane conveyed his ownership in a building adjacent to the Houston facility directly to a third part buyer. The Company then leased the property directly from the buyer. See Note 14 for further discussion. In April 1999, Circle sold a 49% interest in its two previously wholly owned subsidiaries in Spain and Portugal for $1.3 million to Peter Gibert, a Director of the Company who was the former Chief Executive Officer of Circle. The purchase price was paid one-third at closing, with the balance due in equal installments in October 2000 and April 2002 and interest accruing on the unpaid balance at 6%. Under the terms of the sale agreement, Mr. Gibert has the option to require the Company to purchase this interest at the fair value of these entities at the time the option is exercised and the Company has the option to repurchase these interests after December 31, 2005. The Company has deferred the recognition of the gain of this transaction of $866,000 and has recorded this amount in minority interest. In connection with Mr. Gibert stepping down as Chief Executive Officer of Circle and relocating to Spain in 1999, Mr. Gibert entered into a consulting agreement with Circle pursuant to which he agreed to provide sales, marketing, strategic planning, acquisition, training and other assistance as reasonably requested wherever Circle has operations, other than in the United States, Spain and Portugal. The consulting agreement provided for annual compensation in the first year of $375,000 and annual compensation in the second and third years of $275,000 per year. The consulting agreement, which has a three-year term that commenced January 1, 1999, also prohibits Mr. Gibert, directly or indirectly, from competing against Circle during the term of the consulting agreement, plus six months thereafter. Upon returning to Circle as Interim Chief Executive Officer in May 2000, Mr. Gibert agreed to suspend the term of the consulting agreement until he was no longer an employee of Circle, which occurred in F-38 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 November 2000 as a result of the Company's merger with Circle. The original term of the consulting agreement has been extended for a period equal to the period during which the consulting agreement was suspended. This arrangement was extended in June 2001 to May 31, 2004. NOTE 16 -- BUSINESS SEGMENT INFORMATION SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" establishes standards for the way that public companies report selected information about segments in their financial statements. The Company is organized functionally in geographic operating segments. Accordingly, management focuses its attention on revenues, net revenues, income from operations and identifiable assets associated with each of these geographical areas when evaluating effectiveness of geographic management.
EUROPE & ASIA & NORTH SOUTH MIDDLE SOUTH AMERICA AMERICA EAST PACIFIC ELIMINATIONS CONSOLIDATED ---------- ------- -------- -------- ------------ ------------ Year ended December 31, 2001: Total revenue.............. $1,050,780 $59,780 $251,995 $360,378 $(50,939) $1,671,994 Transfers between regions................. (16,679) (5,533) (15,731) (12,996) 50,939 -- ---------- ------- -------- -------- -------- ---------- Revenues from customers.... $1,034,101 $54,247 $236,264 $347,382 $ -- $1,671,994 ---------- ------- -------- -------- -------- ---------- Net revenue................ $ 431,414 $13,392 $113,669 $ 85,708 $ 644,183 ---------- ------- -------- -------- ---------- Income (loss) from operations.............. $ (86,306) $(1,038) $ 9,948 $ 19,827 $ (57,569) ---------- ------- -------- -------- ---------- Total assets............... $ 527,678 $19,149 $152,285 $118,067 $ 817,179 ---------- ------- -------- -------- ---------- Year ended December 31, 2000: Total revenue.............. $1,205,261 $49,058 $226,463 $416,497 $(36,073) $1,861,206 Transfers between regions................. (9,241) (4,481) (10,290) (12,061) 36,073 -- ---------- ------- -------- -------- -------- ---------- Revenues from customers.... $1,196,020 $44,577 $216,173 $404,436 $ -- $1,861,206 ---------- ------- -------- -------- -------- ---------- Net revenue................ $ 518,638 $15,561 $ 99,676 $ 85,637 $ 719,512 ---------- ------- -------- -------- ---------- Income (loss) from operations.............. $ (14,966) $(5,553) $ 13,401 $ 17,010 $ 9,892 ---------- ------- -------- -------- ---------- Total assets............... $ 530,678 $41,000 $173,294 $159,253 $ 904,225 ---------- ------- -------- -------- ---------- Year ended December 31, 1999: Total revenue.............. $ 921,608 $19,134 $200,909 $295,306 $(27,707) $1,409,250 Transfers between regions................. (4,895) (3,523) (7,839) (11,450) 27,707 -- ---------- ------- -------- -------- -------- ---------- Revenues from customers.... $ 916,713 $15,611 $193,070 $283,856 $ -- $1,409,250 ---------- ------- -------- -------- -------- ---------- Net revenue................ $ 403,779 $11,900 $ 92,808 $ 78,588 $ 587,075 ---------- ------- -------- -------- ---------- Income (loss) from operations.............. $ 41,928 $(1,735) $ 14,224 $ 18,445 $ 72,862 ---------- ------- -------- -------- ---------- Total assets............... $ 454,142 $21,150 $152,104 $148,298 $ 775,694 ---------- ------- -------- -------- ----------
F-39 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 Revenue from transfers between regions represents approximate amounts that would be charged if the services were provided by an unaffiliated company. Total regional revenue is reconciled with total consolidated revenue by eliminating inter-regional revenue. The Company is domiciled in the U.S. and had revenues from external customers in the U.S. of $993 million in 2001, $1,099 million in 2000 and $890 million in 1999. The U.S. had long lived assets of $162 million, $123 million and $100 million at the end of 2001, 2000 and 1999, respectively. The Company charges its subsidiaries and affiliates for management and overhead services rendered in the United States on a cost recovery basis. The following tables show the approximate amounts of revenue and net revenue attributable to the Company's principal services during each of the three years in the period ended December 31, 2001.
2001 2000 1999 ---------- ---------- ---------- Revenue: Air freight forwarding......................... $1,296,026 $1,465,438 $1,112,280 Ocean freight forwarding....................... 176,470 184,602 137,024 Customs brokerage and other.................... 199,498 211,166 159,946 ---------- ---------- ---------- Total.................................. $1,671,994 $1,861,206 $1,409,250 ========== ========== ========== Net revenue: Air freight forwarding......................... $ 386,171 $ 473,397 $ 379,602 Ocean freight forwarding......................... 58,514 53,462 49,194 Customs brokerage and other.................... 199,498 192,653 158,279 ---------- ---------- ---------- Total.................................. $ 644,183 $ 719,512 $ 587,075 ========== ========== ==========
NOTE 17 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
QUARTER ENDED ---------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2001 2001 2001 2001 --------- -------- ------------- ------------ Revenues............................. $422,319 $409,201 $414,992 $425,482 Net revenues......................... 159,190 146,032 171,444 167,517 Operating income (loss).............. (14,309) (35,778) (10,958)(a) 3,476 Income (loss) before provision (benefit) for income taxes......... (15,270) (37,373) (14,020) 652 Net income (loss).................... (9,051) (23,172) (8,775) 821 Basic earnings (loss) per share...... (0.19) (0.49) (0.18) 0.02 Diluted earnings (loss) per share.... (0.19) (0.49) (0.18) 0.02
F-40 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000
QUARTER ENDED ---------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2000 2000 2000 2000 --------- -------- ------------- ------------ Revenues............................. $404,912 $450,779 $490,716 $514,799 Net revenues......................... 161,702 179,076 191,895 186,839 Operating income (loss).............. 12,803 23,061 29,050 (55,022)(b) Income (loss) before provision (benefit) for income taxes......... 13,778 24,292 29,733 (55,362) Net income (loss).................... 8,456 14,983 18,311 (42,472) Basic earnings (loss) per share...... 0.18 0.32 0.39 (0.91) Diluted earnings (loss) per share.... 0.18 0.32 0.38 (0.91) Dividends per share.................. -- 0.135 -- --
- --------------- (a) Includes a pretax charge of $10.1 million related to the Company's settlement of its EEOC dispute and $6.3 million related to integration costs associated with the Circle merger and revisions of its restructuring activities. See Notes 3 and 12. (b) Includes a pretax charge of $67.4 million of transaction, restructuring and integration charges related to the merger of EGL and Circle. NOTE 18 -- FINANCIAL INFORMATION FOR EGL STAND-ALONE QUARTER ENDED DECEMBER 31, 1999 As previously discussed in Note 1, the consolidated statement of operations, cash flows and stockholders' equity do not include the three months ended December 31, 1999 for EGL on a stand alone basis. Amounts for the three-month period ended December 31, 1999 are recorded as adjustments to the accompanying F-41 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 consolidated financial statements. The consolidated results of operations and cash flows for EGL, Inc. and its subsidiaries (excluding Circle) for the three months ended December 31, 1999 are as follows:
THREE MONTHS ENDED DECEMBER 31, 1999 ------------------- Revenues.................................................... $187,365 Cost of transportation...................................... 109,195 -------- Net revenues.............................................. 78,170 -------- Operating expenses: Personnel costs........................................... 40,121 Other selling, general and administrative expenses........ 22,376 -------- 62,497 -------- Operating income............................................ 15,673 Interest and other income, net.............................. 655 -------- Income before provision for income taxes.................... 16,328 Provision for income taxes.................................. 6,368 -------- Net income.................................................. 9,960 Other comprehensive income: Foreign currency translation.............................. 184 -------- Comprehensive income........................................ $ 10,144 ======== Basic earnings per share.................................... $ 0.35 ======== Basic weighted-average common shares outstanding............ 28,592 ======== Diluted earnings per share.................................. $ 0.33 ======== Diluted weighted-average common and common equivalent shares outstanding............................................... 29,953 ========
There were no significant unusual items, charges or adjustments recorded by EGL in the above income statement for the three months ended December 31, 1999. F-42 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000
THREE MONTHS ENDED DECEMBER 31, 1999 ------------------- Cash flows from operating activities: Net income................................................ $ 9,960 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization.......................... 1,785 Provision for doubtful accounts........................ 1,141 Deferred income tax expense............................ 18 Tax effect of stock options exercised.................. 3,143 Changes in assets and liabilities: Increase in trade accounts receivable.................. (21,654) Increase in other assets............................... (2,103) Increase in accounts payable and accrued liabilities... 1,829 Minority interest...................................... 171 -------- Net cash used in operating activities............. (5,710) -------- Cash flows from investing activities: Acquisition of business, net of cash acquired............. (1,190) Maturity of investments................................... 11,319 Capital expenditures...................................... (3,880) Payment of contingent consideration for acquisition....... (1,250) Other..................................................... 133 -------- Net cash provided by investing activities......... 5,132 -------- Cash flows form financing activities: Proceeds from exercise of stock options................... 3,557 -------- Net cash provided by financing activities......... 3,557 -------- Effect of exchange rate changes on cash..................... 184 -------- Net increase in cash and cash equivalents................... 3,163 Cash and cash equivalents, beginning of period.............. 35,175 -------- Cash and cash equivalents, end of period.................... $ 38,338 ========
In addition, due to the method of combination of prior period financial statements, the accompanying consolidated statement of stockholders' equity for the year ended December 31, 1999 includes an adjustment to record all activity effecting stockholders' equity for EGL, Inc. for the quarter ended December 31, 1999. In F-43 EGL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2001 AND 2000 addition to net income and effects of foreign currency translation of $10.0 million and $184,000, respectively, which are described above, the adjustments for the quarter ended December 31, 1999 include: Common stock: Exercise of stock options (351 shares).................... Additional paid-in capital: Exercise of stock options................................. $3,557 Issuance of shares under stock purchase plan.............. (2) Tax benefit from exercise of stock options................ 3,154 ------ Total............................................. $6,709 ======
F-44 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- *2.1 -- 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 EGL's Current Report on Form 8-K filed on July 5, 2000 and incorporated herein by reference). *3.1 -- Second Amended and Restated Articles of Incorporation of EGL, as amended (filed as Exhibit 3(i) to EGL's Form 8-A/A filed with the Securities and Exchange Commission on September 29, 2000 and incorporated herein by reference). *3.2 -- Statement of Resolutions Establishing the Series A Junior Participating Preferred Stock of EGL (filed as Exhibit 3(ii) to EGL's Form 10-Q for the fiscal quarter ended June 30, 2001 and incorporated herein by reference). *3.3 -- Amended and Restated Bylaws of EGL, as amended (filed as Exhibit 3(ii) to EGL's Form 10-Q for the fiscal quarter ended June 30, 2000 and incorporated herein by reference). *4.1 -- Rights Agreement dated as of May 23, 2001 between EGL, Inc. and Computershare Investor Services, L.L.C., as Rights Agent, which includes as Exhibit B the form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Common Stock. (filed as Exhibit 4.1 to the EGL's Form 10-Q for the fiscal quarter ended September 30, 2001 and incorporated herein by reference). *4.2 -- Indenture dated December 7, 2001 between EGL and JPMorgan Chase Bank, as trustee (filed as Exhibit 4.1 to EGL's Current Report on Form 8-K filed on December 10, 2001 and incorporated herein by reference). *4.3 -- First Supplemental Indenture dated December 7, 2001 between EGL and JPMorgan Chase Bank, as trustee (filed as Exhibit 4.2 to EGL's Current Report on Form 8-K filed on December 10, 2001 and incorporated herein by reference). *4.4 -- Form of 5% Convertible Subordinated Note due December 15, 2006 (filed as Exhibit 4.3 to EGL's Current Report on Form 8-K filed on December 10, 2001 and incorporated herein by reference). *4.5 -- Registration Rights Agreement dated December 7, 2001 between EGL and Credit Suisse First Boston Corporation (filed as Exhibit 4.4 to EGL's Current Report on Form 8-K filed on December 10, 2001 and incorporated herein by reference). +*10.1 -- Long-Term Incentive Plan, as amended and restated effective July 26, 2000 (filed as Exhibit 10(ii) to EGL's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 and incorporated herein by reference). +*10.2 -- 1995 Non-employee Director Stock Option Plan (filed as Exhibit 10.2 to EGL's Registration Statement on Form S-1, Registration No. 33-97606 and incorporated herein by reference). +*10.3 -- 401(k) Profit Sharing Plan (filed as Exhibit 10.3 to EGL's Registration Statement on Form S-1, Registration No. 33-97606 and incorporated herein by reference). +*10.4 -- Circle International Group, Inc. 1994 Omnibus Equity Incentive Plan (filed as Exhibit 10.11 to Annual Report on Form 10-K of Circle (SEC File No. 0-8664) for the fiscal year ended December 31, 1993 and incorporated herein by reference). +*10.5 -- Amendment No. 1 to Circle International Group, Inc. 1994 Omnibus Equity Incentive Plan (filed as Exhibit 10.11.1 to Annual Report on Form 10-K of Circle (SEC File No. 9-8664) for the fiscal year ended December 31, 1995 and incorporated herein by reference). +*10.6 -- Circle International Group, Inc. Employee Stock Purchase Plan (filed as Exhibit 99.1 to the Registration Statement on Form S-8 of Circle (SEC Registration No. 333-78747) filed on May 19, 1999 and incorporated herein by reference).
EXHIBIT NUMBER DESCRIPTION ------- ----------- +*10.7 -- Circle International Group, Inc. 1999 Stock Option Plan (filed as Exhibit 99.1 to the Form S-8 Registration Statement of Circle (SEC Registration No. 333-85807) filed on August 24, 1999 and incorporated herein by reference). +*10.8 -- Form of Nonqualified Stock Option Agreement for Circle International Group, Inc. 2000 Stock Option Plan (filed as Exhibit 4.8 to Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (SEC Registration No. 333-42310) filed on October 2, 2000 and incorporated herein by reference). *10.9 -- Shareholders' Agreement dated as of October 1, 1994 among EGL and Messrs. Crane, Swannie, Seckel and Roberts (filed as Exhibit 10.4 to EGL's Registration Statement on Form S-1, Registration No. 33-97606 and incorporated herein by reference). *10.10 -- Form of Indemnification Agreement (filed as Exhibit 10.6 to EGL's Registration Statement on Form S-1, Registration No. 33-97606 and incorporated herein by reference). 10.11A -- Credit Agreement dated December 20, 2001 between EGL and Bank of America, N.A., and the other financial institutions named therein. 10.11B -- First Amendment to Credit Agreement dated March 7, 2002 between EGL and Bank of America, N.A., and the other financial institutions named therein. +*10.12 -- Employment Agreement dated as of October 1, 1996 between EGL and James R. Crane (filed as Exhibit 10.7 to EGL's Annual Report on Form 10-K for the fiscal year ended September 30, 1996 and incorporated herein by reference). +*10.13 -- Employment Agreement dated as of September 24, 1998 between EGL and John C. McVaney (filed as Exhibit 10.9 to EGL's Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and incorporated herein by reference). +*10.14 -- Employment Agreement dated as of May 19, 1998 between EGL and Ronald E. Talley (filed as Exhibit 10.10 to EGL's Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and incorporated herein by reference). +*10.15 -- Employment Agreement dated as of October 19, 1999 between EGL and Elijio Serrano (filed as Exhibit 10.11 to EGL's Annual Report on Form 10-K for the fiscal year ended September 30, 1999 and incorporated herein by reference). +*10.16 -- Employee Stock Purchase Plan, as amended and restated effective July 26, 2000 (filed as Exhibit 10(iii) to EGL's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 and incorporated herein by reference). 10.17A -- Lease Agreement dated as of December 31, 2001 between iStar Eagle LP, as landlord, and EGL Eagle Global Logistics, LP, as tenant. 10.17B -- Guaranty dated as of December 31, 2001 among iStar Eagle LP, EGL Eagle Global Logistics, LP and EGL, Inc. *10.18A -- Master Lease and Development Agreement dated as of April 3, 1998 between Asset XVI Holdings Company, L.L.C. and Eagle USA Airfreight, Inc. (filed as Exhibit 10(iii) A to EGL's Quarterly Report on Form 10-Q to the quarter ended June 30, 1998 and incorporated herein by reference). *10.18B -- Master Participation Agreement dated as of April 3, 1998 among Asset XVI Holdings Company, L.L.C., Eagle USA Airfreight, Inc. and Bank One, Texas, N.A. (filed as Exhibit 10(iii) B to EGL's Quarterly Report on Form 10-Q to the quarter ended June 30, 1998 and incorporated herein by reference). *10.18C -- Loan Agreement dated as of April 3, 1998 between Asset Holdings Company, L.L.C. and Bank One, Texas, N.A. (filed as Exhibit 10(iii) C to EGL's Quarterly Report on Form 10-Q to the quarter ended June 30, 1998 and incorporated herein by reference). *10.18D -- Appendix I to Master Participation Agreement, Master Lease and Development Agreement and Loan Agreement (filed as Exhibit 10(iii) D to EGL's Quarterly Report on Form 10-Q to the quarter ended June 30, 1998 and incorporated herein by reference).
EXHIBIT NUMBER DESCRIPTION ------- ----------- *10.18E -- First Amendment to Master Participation Agreement, Master Lease and Development Agreement, and Loan Agreement dated as of April 3, 1998 among Asset XVI Holdings Company, L.L.C., Eagle USA Airfreight, Inc. and Bank One, Texas, N.A. (filed as Exhibit 10.19E to EGL's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). *10.18F -- Amendment to Master Participation Agreement dated as of April 1, 1999 among Asset XVI Holdings Company, L.L.C., Eagle USA Airfreight, Inc. and Bank One, Texas, N.A. (filed as Exhibit 10.19F to EGL's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). *10.18G -- Second Amendment to Participation Agreement, Lease Agreement and Loan Agreement dated as of October 20, 2000 among Asset XVI Holdings Company, L.L.C., EGL and Bank One, NA. (filed as Exhibit 10.19G to EGL's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). 10.18H -- Third Amendment to Master Participation Agreement, Lease Agreement and Loan Agreement dated December 20, 2001 between EGL Asset XVI Holdings Company and Bank One, N.A. +*10.19 -- Consulting Agreement dated as of January 1, 1999 between Zita Logistics, Ltd. and Circle International European Holdings Limited (filed as Exhibit 10.4.3 to Circle's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference). 12 -- Ratio of Earnings to Fixed Charges. 21 -- Subsidiaries of EGL. 23.1 -- Consent of PricewaterhouseCoopers LLP. 23.2 -- Consent of Deloitte & Touche LLP.
- --------------- * Incorporated by reference as indicated. + Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K. EX-10.11.A 3 h95091ex10-11_a.txt CREDIT AGREEMENT Exhibit 10.11A [COPY OF EXECUTION VERSION] CREDIT AGREEMENT Dated as of December 20, 2001 among THE FINANCIAL INSTITUTIONS NAMED HEREIN, as the Lenders, BANK OF AMERICA, N. A., as the Agent, and EGL, INC. and CERTAIN OF ITS SUBSIDIARIES PARTY HERETO, as Borrowers and Loan Parties and CERTAIN OF ITS SUBSIDIARIES PARTY HERETO, as Loan Parties BANK OF AMERICA, NATIONAL ASSOCIATION BANC OF AMERICA SECURITIES LLC Sole Lead Arrangers and Syndication Agents TABLE OF CONTENTS ARTICLE 1 LOANS AND LETTERS OF CREDIT ................................................................. 1 Section 1.1 Total Facility ................................................................. 1 Section 1.2 Revolving Loans ................................................................ 1 Section 1.3 Reserved ....................................................................... 5 Section 1.4 Letters of Credit and Credit Support ........................................... 5 Section 1.5 Bank Products .................................................................. 10 ARTICLE 2 INTEREST AND FEES ........................................................................... 11 Section 2.1 Interest ....................................................................... 11 Section 2.2 Continuation and Conversion Elections .......................................... 11 Section 2.3 Maximum Interest Rate .......................................................... 13 Section 2.4 Reserved ....................................................................... 14 Section 2.5 Unused Line Fee ................................................................ 14 Section 2.6 Letter of Credit Fee ........................................................... 14 Section 2.7 Other Fees ..................................................................... 15 Section 2.8 Collections Administration ..................................................... 15 ARTICLE 3 PAYMENTS AND PREPAYMENTS .................................................................... 15 Section 3.1 Revolving Loans ................................................................ 15 Section 3.2 Termination of Total Facility .................................................. 15 Section 3.3 Payments from Distributions or Loans from Subsidiaries ......................... 16 Section 3.4 Payments from Asset Dispositions ............................................... 16 Section 3.5 LIBOR Rate Loan Prepayments .................................................... 17 Section 3.6 Payments by the Borrowers ...................................................... 17 Section 3.7 Payments as Revolving Loans .................................................... 17 Section 3.8 Apportionment, Application, and Reversal of Payments ........................... 17 Section 3.9 Indemnity for Returned Payments ................................................ 18 Section 3.10 The Agent's and the Lenders' Books and Records; Monthly Statements ............. 18 ARTICLE 4 TAXES, YIELD PROTECTION, AND ILLEGALITY ..................................................... 19 Section 4.1 Taxes .......................................................................... 19 Section 4.2 Illegality ..................................................................... 20 Section 4.3 Increased Costs and Reduction of Return ........................................ 20 Section 4.4 Funding Losses ................................................................. 21 Section 4.5 Inability to Determine Rates ................................................... 21 Section 4.6 Certificates of the Agent ...................................................... 22 Section 4.7 Survival ....................................................................... 22 Section 4.8 Replacement of Affected Lender ................................................. 22 ARTICLE 5 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES ........................................... 23 Section 5.1 Books and Records .............................................................. 23 Section 5.2 Financial Information .......................................................... 23 Section 5.3 Notices to the Lender .......................................................... 26 Section 5.4 Revisions or Updates to Schedules .............................................. 29
i ARTICLE 6 GENERAL WARRANTIES AND REPRESENTATIONS ...................................................... 29 Section 6.1 Authorization, Validity, and Enforceability of this Agreement and the other Loan Documents; No Conflicts ................................................... 29 Section 6.2 Validity and Priority of Security Interest ..................................... 30 Section 6.3 Reserved ....................................................................... 30 Section 6.4 Corporate Name; Prior Transactions ............................................. 30 Section 6.5 Capitalization; Subsidiaries; Organization and Qualification ................... 30 Section 6.6 Financial Statements and Projections ........................................... 31 Section 6.7 Solvency ....................................................................... 32 Section 6.8 Debt ........................................................................... 32 Section 6.9 Distributions .................................................................. 32 Section 6.10 Real Estate; Leases ............................................................ 32 Section 6.11 Proprietary Rights ............................................................. 32 Section 6.12 Trade Names .................................................................... 33 Section 6.13 Litigation ..................................................................... 33 Section 6.14 Labor Disputes ................................................................. 33 Section 6.15 Environmental Laws ............................................................. 33 Section 6.16 No Violation of Law ............................................................ 35 Section 6.17 No Default ..................................................................... 35 Section 6.18 ERISA Compliance; Foreign Plans ................................................ 35 Section 6.19 Taxes .......................................................................... 36 Section 6.20 Regulated Entities ............................................................. 36 Section 6.21 Use of Proceeds; Margin Regulations ............................................ 36 Section 6.22 No Material Adverse Change ..................................................... 36 Section 6.23 Full Disclosure ................................................................ 37 Section 6.24 Material Agreements ............................................................ 37 Section 6.25 Bank Accounts .................................................................. 37 Section 6.26 Governmental Authorization ..................................................... 37 Section 6.27 Investment Property ............................................................ 37 Section 6.28 Common Enterprise .............................................................. 38 Section 6.29 Convertible Subordinated Debt Documents ........................................ 38 ARTICLE 7 AFFIRMATIVE AND NEGATIVE COVENANTS .......................................................... 38 Section 7.1 Taxes and Other Obligations .................................................... 38 Section 7.2 Legal Existence and Good Standing .............................................. 39 Section 7.3 Compliance with Law and Agreements; Maintenance of Licenses .................... 39 Section 7.4 Maintenance of Property; Inspection of Property; Appraisals .................... 39 Section 7.5 Insurance ...................................................................... 40 Section 7.6 Insurance and Condemnation Proceeds ............................................ 40 Section 7.7 Environmental Laws ............................................................. 41 Section 7.8 Compliance with ERISA and Similar Foreign Laws ................................. 43 Section 7.9 Mergers, Consolidations, or Sales .............................................. 43 Section 7.10 Distributions; Capital Change; Restricted Investments .......................... 44 Section 7.11 Transactions Affecting Collateral or Obligations ............................... 44 Section 7.12 Guaranties ..................................................................... 44
ii Section 7.13 Debt ........................................................................... 45 Section 7.14 Prepayment ..................................................................... 45 Section 7.15 Transactions with Affiliates ................................................... 45 Section 7.16 Investment Banking and Finder's Fees ........................................... 45 Section 7.17 Business Conducted ............................................................. 46 Section 7.18 Liens .......................................................................... 46 Section 7.19 Sale and Leaseback Transactions ................................................ 46 Section 7.20 New Subsidiaries ............................................................... 46 Section 7.21 Fiscal Year .................................................................... 47 Section 7.22 Capital Expenditures ........................................................... 47 Section 7.23 Minimum Adjusted Tangible Net Worth ............................................ 47 Section 7.24 Use of Proceeds ................................................................ 48 Section 7.25 Bank as Depository ............................................................. 48 Section 7.26 Proceeds from Asset Dispositions by Consolidated Members other than Borrowers .. 48 Section 7.27 Guaranties ..................................................................... 48 Section 7.28 Agent's Liens .................................................................. 48 Section 7.29 Further Assurances ............................................................. 49 Section 7.30 Proceeds from Surplus Cash Deposits ............................................ 49 Section 7.31 Excess Collections, Investments, Etc ........................................... 49 Section 7.32 Collections of Accounts ........................................................ 49 Section 7.33 Availability Without Regard to Line Constraint ................................. 49 Section 7.34 Subordinated Debt .............................................................. 50 Section 7.35 Foreign Credit Debt ............................................................ 50 ARTICLE 8 CONDITIONS OF LENDING ....................................................................... 50 Section 8.1 Conditions Precedent to Making of Loans on the Closing Date .................... 50 Section 8.2 Conditions Precedent to Each Loan .............................................. 55 ARTICLE 9 DEFAULT; REMEDIES ........................................................................... 56 Section 9.1 Events of Default .............................................................. 56 Section 9.2 Remedies ....................................................................... 59 ARTICLE 10 TERM AND TERMINATION ....................................................................... 61 Section 10.1 Term and Termination ........................................................... 61 ARTICLE 11 AMENDMENTS; WAIVERS; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS ............................... 61 Section 11.1 Amendments and Waivers ......................................................... 61 Section 11.2 Assignments; Participations .................................................... 63 ARTICLE 12 THE AGENT.... .............................................................................. 65 Section 12.1 Appointment and Authorization .................................................. 65 Section 12.2 Delegation of Duties ........................................................... 66 Section 12.3 Liability of the Agent ......................................................... 66 Section 12.4 Reliance by the Agent .......................................................... 66
iii Section 12.5 Notice of Default .............................................................. 66 Section 12.6 Credit Decision ................................................................ 67 Section 12.7 Indemnification ................................................................ 67 Section 12.8 The Agent in Individual Capacity ............................................... 68 Section 12.9 Successor Agent ................................................................ 68 Section 12.10 Withholding Tax ................................................................ 68 Section 12.11 Collateral Matters ............................................................. 70 Section 12.12 Restrictions on Actions by the Lenders; Sharing of Payments .................... 71 Section 12.13 Agency for Perfection .......................................................... 72 Section 12.14 Payments by the Agent to the Lenders ........................................... 72 Section 12.15 Settlement ..................................................................... 72 Section 12.16 Letters of Credit; Intra-Lender Issues ......................................... 76 Section 12.17 Concerning the Collateral and the Related Loan Documents ....................... 78 Section 12.18 Field Audit and Examination Reports; Disclaimer by the Lenders ................. 78 Section 12.19 Relation Among the Lenders ..................................................... 79 Section 12.20 Rights of the Agent as UK Security Trustee ..................................... 79 ARTICLE 13 MISCELLANEOUS .............................................................................. 79 Section 13.1 No Waivers; Cumulative Remedies ................................................ 79 Section 13.2 Severability ................................................................... 79 Section 13.3 Governing Law; Choice of Forum ................................................. 79 Section 13.4 Waiver of Jury Trial ........................................................... 80 Section 13.5 Survival of Representations and Warranties ..................................... 81 Section 13.6 Other Security and Guaranties .................................................. 81 Section 13.7 Fees and Expenses .............................................................. 81 Section 13.8 Notices ........................................................................ 82 Section 13.9 Waiver of Notices .............................................................. 83 Section 13.10 Binding Effect ................................................................. 83 Section 13.11 Indemnity of the Agent and the Lenders by the Loan Parties ..................... 83 Section 13.12 Limitation of Liability ........................................................ 84 Section 13.13 Final Agreement ................................................................ 84 Section 13.14 Counterparts ................................................................... 85 Section 13.15 Captions ....................................................................... 85 Section 13.16 Right of Setoff ................................................................ 85 Section 13.17 Confidentiality ................................................................ 85 Section 13.18 Conflicts with other Loan Documents ............................................ 86 Section 13.19 Joint and Several Liability .................................................... 86 Section 13.20 Contribution and Indemnification Among the Borrowers ........................... 88 Section 13.21 Agency of the Parent for Each Other Loan Party ................................. 88 Section 13.22 Additional Loan Parties ........................................................ 88 Section 13.23 Express Waivers By Loan Parties In Respect of Cross Guaranties and Cross Collateralization .............................................................. 89 Section 13.24 Payment Currency ............................................................... 90 Section 13.25 Judgment Currency .............................................................. 90 Section 13.26 Amendment and Restatement ...................................................... 91 Section 13.27 Designated Senior Debt ......................................................... 91
iv EXHIBITS AND SCHEDULES EXHIBITS Exhibit A - Form of Revolving Loan Note Exhibit B - Form of Borrowing Base Certificate Exhibit C - Form of Notice of Borrowing Exhibit D - Form of Notice of Continuation/Conversion Exhibit E - Form of Assignment and Acceptance Exhibit F - Form of Compliance Certificate SCHEDULES Schedule 6.4 - Legal Names Schedule 6.5 - Consolidated Members; Capitalization; Organization; Location; Qualification Schedule 6.8 - Debt Schedule 6.9 - Distributions Schedule 6.10 - Real Estate; Leases Schedule 6.11 - Proprietary Rights Schedule 6.12 - Trade Names Schedule 6.13 - Litigation Schedule 6.14 - Labor Matters Schedule 6.15 - Environmental Matters Schedule 6.18 - ERISA Matters Schedule 6.19 - Taxes Schedule 6.24 - Material Agreements Schedule 6.25 - Bank Accounts Schedule 6.27 - Investment Property Schedule 7.15 - Affiliate Transactions Schedule A-1 - Commitments Schedule A-2 - Permitted Liens Schedule A-3 - Restricted Investments Schedule A-4 - Domestic Subsidiaries Schedule A-5 - Canada Subsidiaries Schedule A-6 - Dormant Guarantors v CREDIT AGREEMENT This Credit Agreement, dated as of December 20, 2001 ("Agreement"), among the financial institutions from time to time parties hereto (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), Bank of America, N.A., with an office at 901 Main Street, Sixth Floor, Dallas, Texas 75202, as collateral and administrative agent for the Lenders (in such capacity, the "Agent"), and EGL, Inc., a Texas corporation, and each of its Subsidiaries party hereto. RECITALS: A. The Loan Parties have requested the Lenders to make available to the Borrowers a revolving line of credit for loans and letters of credit in the aggregate principal amount of up to $100,000,000, which extensions of credit the Borrowers will use for the purposes permitted by Section 7.24. B. Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings ascribed thereto in Annex A which is attached hereto and incorporated herein. The rules of construction contained in Annex A shall govern the interpretation of this Agreement, and all Annexes, Exhibits, and Schedules attached hereto are incorporated herein by reference. C. The Lenders have agreed to make available to the Borrowers a revolving credit and letter of credit facility upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the Lenders, the Agent, and the Loan Parties hereby agree as follows. ARTICLE 1 LOANS AND LETTERS OF CREDIT Section 1.1 Total Facility. Subject to all of the terms and conditions of this Agreement, the Lenders agree to make available a total credit facility of up to $100,000,000 (the "Total Facility") for use by any one or more of the Borrowers from time to time during the term of this Agreement. The Total Facility shall be composed of a revolving line of credit consisting of Revolving Loans and Letters of Credit and Credit Support as described in Section 1.2, and Section 1.4. Section 1.2 Revolving Loans. (a) Amounts. Subject to the satisfaction of the conditions precedent set forth in Article 8, each Lender severally, but not jointly, agrees, upon a Borrower's request from time to time on any Business Day during the period from the Closing Date to the Termination Date, to make revolving loans (the "Revolving Loans") to the Borrowers in amounts not to exceed such Lender's Pro Rata Share of the Availability, except for Non-Ratable Loans and CREDIT AGREEMENT - Page 1 Agent Advances. The Lenders, however, in their unanimous discretion, may elect to make Revolving Loans or issue or arrange to have issued Letters of Credit or Credit Support in excess of the Availability or the Borrowing Base on one or more occasions, but if they do so, neither the Agent nor the Lenders shall be deemed thereby to have changed the limits of the Availability or the Borrowing Base or to be obligated to exceed such limits on any other occasion. If the Aggregate Revolver Outstandings would exceed the Availability after giving effect to any Borrowing, the Lenders may refuse to make or may otherwise restrict the making of Revolving Loans and the issuance of Letters of Credit and Credit Support as the Lenders determine until such excess has been eliminated, subject to the Agent's authority, in its sole discretion, to make Agent Advances pursuant to the terms of Section 1.2(j). (b) Revolving Loan Notes. The Borrowers shall execute and deliver to each Lender a note to evidence the Revolving Loans of that Lender (each a "Revolving Loan Note" and, collectively, the "Revolving Loan Notes"). Each Revolving Loan Note shall be in the principal amount of the Lender's Pro Rata Share of the Revolving Loan Commitments, dated as of the Closing Date or the date of any assignment of a portion of any Lender's Revolving Loans, and substantially in the form of Exhibit A. Each Revolving Loan Note shall represent the obligation of the Borrowers to pay the amount of the applicable Lender's Pro Rata Share of the Revolving Loan Commitments, or, if less, such Lender's Pro Rata Share of the aggregate unpaid principal amount of all Revolving Loans to the Borrowers together with interest thereon as prescribed in this Section 1.2. The entire unpaid balance of the Revolving Loans and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Termination Date. (c) Procedure for Borrowing. (i) Except as otherwise provided in this Section 1.2(c), each Borrowing of Revolving Loans shall be made upon a Borrower's irrevocable written notice delivered to the Agent in the form of a notice of borrowing in the form attached hereto as Exhibit C (a "Notice of Borrowing"), which must be received by the Agent prior to 11:00 a.m. (Dallas, Texas time) (y) three (3) Business Days prior to the requested Funding Date, in the case of LIBOR Rate Revolving Loans and (z) on the requested Funding Date, in the case of Base Rate Revolving Loans, specifying: (A) the amount of the Borrowing, which in the case of LIBOR Rate Revolving Loans shall be in an amount that is not less than $1,000,000 or an integral multiple of $500,000 in excess thereof or in the case of Base Rate Revolving Loans shall be in an amount that is not less than $100,000 or an integral multiple of $100,000 in excess thereof; (B) the requested Funding Date, which shall be a Business Day; (C) whether the Revolving Loans requested are to be Base Rate Revolving Loans or LIBOR Rate Revolving Loans; provided that if such Borrower fails to specify whether any Revolving Loans are to be Base Rate CREDIT AGREEMENT - Page 2 Revolving Loans or LIBOR Rate Revolving Loans, such request shall be deemed a request for Base Rate Revolving Loans; (D) the duration of the Interest Period if the requested Revolving Loans are to be LIBOR Rate Revolving Loans; provided that if such Borrower fails to select the duration of the Interest Period with respect to any requested LIBOR Rate Revolving Loans, such Borrower shall be deemed to have requested such Revolving Loans be made as LIBOR Rate Revolving Loans with an Interest Period of one month in duration; and (E) whether the proceeds of such Borrowing are to be deposited to the Designated Account or sent by wire transfer to a third party, in which case such Borrower shall provide the Agent with wire transfer instructions satisfactory to the Agent; provided, however, that with respect to the Borrowing to be made on the Closing Date, such Borrowing will consist of Base Rate Revolving Loans only. With respect to any request for Base Rate Revolving Loans, in lieu of delivering a Notice of Borrowing, a Borrower may give the Agent telephonic notice of such request for advances to the Designated Account not later than the required time specified in this clause (i). The Agent at all times shall be entitled to rely on such telephonic notice in making any such Revolving Loans, regardless of whether any written confirmation is received by the Agent. (ii) Whenever a check or other item is presented to the Bank for payment against the Designated Account in an amount greater than the then available balance in such account, the presentation of such check or other item shall be deemed to constitute a request by the applicable Borrower for a Borrowing of a Base Rate Revolving Loan in an amount equal to the excess of such check or other item over such available balance. (iii) Unless payment is otherwise timely made under this Agreement, the becoming due of any amount required to be paid by the Borrowers under this Agreement (including, without limitation, under Section 1.4(e) and Section 3.7) shall be deemed to constitute a request by the Parent for a Borrowing of a Base Rate Revolving Loan in an amount equal to the amount then due. (iv) The Borrowers shall have no right to request a LIBOR Rate Revolving Loan while a Default or an Event of Default exists. (d) Disbursement; Reliance upon Authority. The Borrowers shall deliver to the Agent, prior to the Closing Date, a notice setting forth the deposit account maintained with the Bank (the "Designated Account") to which the Agent is authorized by the Borrowers to transfer the proceeds of the Revolving Loans requested hereunder. The Borrowers may designate a replacement deposit account from time to time by written notice to the Agent. CREDIT AGREEMENT - Page 3 Any designation by the Borrowers of the Designated Account must be reasonably acceptable to the Agent. The Agent is entitled to rely conclusively on any individual's request for Revolving Loans on behalf of a Borrower, so long as the proceeds thereof are to be transferred to the Designated Account or according to such other instructions as may be provided to the Agent pursuant to Section 1.2(c)(E). The Agent shall have no duty to verify the identity of any individual representing himself or herself as a person authorized by any Borrower to make such requests on its behalf. (e) No Liability. The Agent shall not incur any liability to the Loan Parties as a result of acting upon any notice referred to in Section 1.2(c) and Section 1.2(d), which the Agent reasonably believes to have been given by an officer or other person duly authorized by a Borrower to request Revolving Loans on its behalf or for otherwise acting under this Section 1.2. The crediting of Revolving Loans to the Designated Account, or wire transfer to such Person as a Borrower shall direct, shall conclusively establish the obligation of the Borrowers to repay such Revolving Loans as provided herein. (f) Notice Irrevocable. Any Notice of Borrowing (or telephonic notice in lieu thereof) made pursuant to Section 1.2(c) shall be irrevocable and the Borrowers shall be bound to borrow the funds requested therein in accordance therewith. (g) The Agent's Election. Promptly after receipt of a Notice of Borrowing (or telephonic notice in lieu thereof), the Agent shall elect in its discretion to have the terms of Section 1.2(h) or the terms of Section 1.2(i) apply to such requested Borrowing. If the Bank declines in its sole discretion to make a Non-Ratable Loan pursuant to Section 1.2(i), the terms of Section 1.2(h) shall apply to the requested Borrowing. (h) Making of Revolving Loans. If the Agent elects to have the terms of this Section 1.2(h) apply to a requested Borrowing, then promptly after receipt of a Notice of Borrowing or telephonic notice in lieu thereof, the Agent shall notify the Lenders by telecopy, telephone, or e-mail of the requested Borrowing. Each Lender shall transfer its Pro Rata Share of the requested Borrowing to the Agent in immediately available funds, to the account from time to time designated by the Agent, not later than 12:00 noon (Dallas, Texas time) on the applicable Funding Date. After the Agent's receipt of all proceeds of such requested Borrowing, the Agent shall make the proceeds of such requested Borrowing available to the applicable Borrower on the applicable Funding Date by transferring same day funds to the Designated Account; provided, however, that except as may otherwise be provided by this Agreement the amount of Revolving Loans so made on any date shall not exceed the Availability on such date. (i) Making of Non-Ratable Loans. If the Agent elects, with the consent of the Bank, to have the terms of this Section 1.2(i) apply to a requested Borrowing, the Bank shall make a Revolving Loan in the amount of such requested Borrowing available to the Borrowers on the applicable Funding Date by transferring same day funds to the Designated Account. Each Revolving Loan made solely by the Bank pursuant to this Section 1.2(i) is referred to hereinafter as a "Non-Ratable Loan", and such Revolving Loans are collectively CREDIT AGREEMENT - Page 4 referred to as the "Non-Ratable Loans." Each Non-Ratable Loan shall be subject to all the terms and conditions applicable to other Revolving Loans except that all payments thereon shall be payable to the Bank solely for its own account. Subject to Section 11.1(a), the Agent shall not request the Bank to make any Non-Ratable Loan if (A) the Agent has received written notice from any Lender that one or more of the applicable conditions precedent set forth in Article 8 will not be satisfied on the requested Funding Date for the applicable Borrowing, or (B) the requested Borrowing would exceed the Availability on the applicable Funding Date. The Non-Ratable Loans shall be secured by the Agent's Liens in and to the Collateral and shall constitute Base Rate Revolving Loans and Obligations hereunder. (j) Agent Advances. Subject to the limitations set forth below, the Agent is authorized by the Borrowers and the Lenders, from time to time in the Agent's sole discretion, (A) after the occurrence of a Default or an Event of Default, or (B) at any time that any of the other conditions precedent set forth in Article 8 have not been satisfied, to make Base Rate Revolving Loans to the Borrowers or any of them, on behalf of the Lenders in an aggregate amount outstanding at any time not to exceed ten percent (10.0%) of the Borrowing Base which the Agent, in its reasonable business judgment, deems necessary or desirable (1) to preserve or protect the Collateral, or any portion thereof, (2) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, or (3) to pay any other amount chargeable to the Borrowers pursuant to the terms of this Agreement, including costs, fees, and expenses as described in Section 13.7 (any of such advances are herein referred to as "Agent Advances"); provided that the Majority Lenders may at any time revoke the Agent's authorization to make Agent Advances. Any such revocation must be in writing and shall become effective prospectively upon the Agent's receipt thereof. Absent such revocation, the Agent's determination that the making of an Agent Advance is required for any such purposes shall be conclusive. The Agent Advances shall be secured by the Agent's Liens in and to the Collateral and shall constitute Base Rate Revolving Loans and Obligations hereunder. Section 1.3 Reserved. Section 1.4 Letters of Credit and Credit Support. (a) Agreement to Issue or Cause to Issue. Subject to the terms and conditions of this Agreement, the Agent agrees (i) to cause the Letter of Credit Issuer to issue for the account of any of the Borrowers (whether one or more) one or more commercial/documentary and standby letters of credit (each a "Letter of Credit" and collectively, the ""Letters of Credit") and/or (ii) to provide credit support or other enhancement to an alternate issuer acceptable to the Agent, which issues a Letter of Credit for the account of a Borrower (any such credit support or enhancement being herein referred to as a "Credit Support") from time to time during the term of this Agreement. (b) Amounts; Outside Expiration Date. The Agent shall not have any obligation to issue or cause to be issued any Letter of Credit or Credit Support at any time if: (i) the maximum face amount of the requested Letter of Credit or Credit Support is greater than the CREDIT AGREEMENT - Page 5 Unused Letter of Credit Subfacility at such time; (ii) the maximum undrawn amount of the requested Letter of Credit or Credit Support and all commissions, fees, and charges due from such Borrower in connection with the opening thereof would exceed the Availability at such time; or (iii) such Letter of Credit or Credit Support has an expiration date later than thirty (30) days prior to the Stated Termination Date or more than twelve (12) calendar months from the date of issuance for standby letters of credit and six (6) calendar months from the date of issuance for commercial/documentary letters of credit. (c) Other Conditions. In addition to being subject to the satisfaction of the applicable conditions precedent contained in Article 8, the obligation of the Agent to cause to be issued any Letter of Credit or Credit Support is subject to the following conditions precedent having been satisfied in a manner reasonably satisfactory to the Agent: (i) the Borrowers shall have delivered to the Letter of Credit Issuer, at such times and in such manner as the Letter of Credit Issuer may prescribe, an application in form and substance satisfactory to the Letter of Credit Issuer and reasonably satisfactory to the Agent for the issuance of the Letter of Credit or Credit Support and such other documents as may be required pursuant to the terms thereof, and the form, terms, and purpose of the proposed Letter of Credit or Credit Support shall be satisfactory to the Agent and the Letter of Credit Issuer (provided that in the event any term of such application or any other document is inconsistent with the terms of this Agreement and the Letter of Credit Issuer is either the same Person as the Agent or any Lender, then the terms of this Agreement shall be controlling); and (ii) as of the date of issuance, no order of any court, arbitrator, or Governmental Authority shall purport by its terms to enjoin or restrain money center banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit or letter of credit for which the proposed Credit Support has been requested, and no law, rule, or regulation applicable to money center banks generally and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over money center banks generally shall prohibit, or request that the proposed Letter of Credit Issuer refrain from, the issuance of letters of credit generally or the issuance of such proposed Letters of Credit or Credit Support. (d) Issuance of Letters of Credit and Credit Support. (i) Request for Issuance. Any Borrower that wishes to cause the issuance of a Letter of Credit or any Credit Support must notify the Agent of such request for issuance at least three (3) Business Days prior to the proposed issuance date. Such notice shall be irrevocable and must specify the original face amount of the Letter of Credit or Credit Support requested, the Business Day of issuance of such requested Letter of Credit or Credit Support, whether such Letter of Credit or Credit Support may be drawn in a single or in partial draws, the Business Day on which the requested Letter of Credit or Credit Support is to expire, the purpose for which such CREDIT AGREEMENT - Page 6 Letter of Credit or Credit Support is to be issued, and the beneficiary of the requested Letter of Credit or Credit Support. The applicable Borrower shall attach to such notice the proposed form of the Letter of Credit or letter of credit for which such Credit Support is requested. (ii) Responsibilities of the Agent; Issuance. The Agent shall determine, as of the Business Day immediately preceding the requested issuance date of the Letter of Credit or Credit Support set forth in the notice from a Borrower pursuant to Section 1.4(d)(i), (A) the amount of the Unused Letter of Credit Subfacility and (B) the Availability as of such date. If the face amount of the requested Letter of Credit or Credit Support is not greater than the Unused Letter of Credit Subfacility and the amount of such requested Letter of Credit or Credit Support and all commissions, fees, and charges due from the Borrower in connection with the opening thereof does not exceed the Availability, the Agent shall cause the Letter of Credit Issuer to issue the requested Letter of Credit or Credit Support on the requested issuance date so long as the other conditions hereof are met. (iii) Extensions and Amendments. The Agent shall not be obligated to cause the Letter of Credit Issuer to extend or amend any Letter of Credit or Credit Support issued pursuant hereto unless the requirements of this Section 1.4 are met as though a new Letter of Credit or Credit Support were being requested and issued. With respect to any Letter of Credit or Credit Support which contains any "evergreen" or automatic renewal provision, each Lender shall be deemed to have consented to any such extension or renewal unless such Lender shall have provided to the Agent, written notice that it declines to consent to any such extension or renewal at least thirty (30) days prior to the date on which the Letter of Credit Issuer is entitled to decline to extend or renew the Letter of Credit or Credit Support, provided that, notwithstanding the foregoing, if all of the requirements of this Section 1.4 are met and no Default or Event of Default has occurred and is continuing, no Lender may decline to consent to any such extension or renewal. (e) Payments Pursuant to Letters of Credit and Credit Support. The Borrowers agree to reimburse the Letter of Credit Issuer immediately for any draw under any Letter of Credit and the Agent, for the account of the Lenders (as applicable) upon any payment pursuant to any Credit Support, and to pay the Letter of Credit Issuer the amount of all other charges and fees payable to the Letter of Credit Issuer under or in connection with any Letter of Credit immediately when due, irrespective of any claim, setoff, defense, or other right which any Borrower may have at any time against the Letter of Credit Issuer or any other Person. Each drawing under any Letter of Credit or Credit Support shall constitute a request by the Borrower at whose request such Letter of Credit or Credit Support was issued for a Borrowing of a Base Rate Revolving Loan in the amount of such drawing. The Funding Date with respect to such Borrowing shall be the date of such drawing. CREDIT AGREEMENT - Page 7 (f) Indemnification; Exoneration; Power of Attorney. (i) Indemnification. In addition to amounts payable as elsewhere provided in this Section 1.4, each Loan Party agrees to protect, indemnify, pay, and save the Lenders, the Agent and the Letter of Credit Issuer harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges, and expenses (including attorneys' fees) which any Lender, the Agent or the Letter of Credit Issuer may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit or the provision of any Credit Support or enhancement in connection therewith other than any such amount arising from the Lenders', the Agent's, or the Letter of Credit Issuer's, as applicable, gross negligence or intentional misconduct. The Loan Parties' obligations under this Section 1.4(f) shall survive payment of all other Obligations. (ii) Assumption of Risk by the Loan Parties. As among the Loan Parties, the Lenders, the Agent and the Letter of Credit Issuer, the Loan Parties assume all risks of the acts and omissions of, or misuse of any of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Lenders, the Agent and the Letter of Credit Issuer shall not be responsible for: (A) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any document submitted by any Person in connection with the application for and issuance of and presentation of drafts with respect to any of the Letters of Credit, even if it should prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged; (B) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) the failure of the beneficiary of any Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (D) errors, omissions, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, or otherwise, whether or not they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (G) the misapplication by the beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; (H) any consequences arising from causes beyond the control of the Lenders or the Agent, including any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Authority or (I) the Letter of Credit Issuer's honor of a draw for which the draw or any certificate fails to comply in any respect with the terms of the Letter of Credit, provided, that the forgoing shall not absolve the Letter of Credit Issuer for any matter described in this clause (I) caused by the Letter of Credit Issuer's gross negligence or intentional misconduct. None of the foregoing shall affect, impair, or prevent the vesting of any rights or powers of the Agent, any Lender or the Letter of Credit Issuer under this Section 1.4(f). CREDIT AGREEMENT - Page 8 (iii) Exoneration. Without limiting the foregoing, no action or omission whatsoever by the Agent or any Lender (excluding any Lender in its capacity as the Letter of Credit Issuer) under or in connection with any of the Letters of Credit or Credit Support or any related matters shall result in any liability of the Agent or any Lender to any Loan Party, or relieve such Loan Party of any of its obligations hereunder to any such Person. (iv) Rights Against Letter of Credit Issuer. Nothing contained in this Agreement is intended to limit any Borrower's rights, if any, with respect to the Letter of Credit Issuer which arise as a result of the letter of credit application and related documents executed by and between such Borrower and the Letter of Credit Issuer. (v) Account Party. Each Borrower hereby authorizes and directs the Letter of Credit Issuer to name any Consolidated Member, excluding Unrestricted Subsidiaries, as the "Account Party" in any Letter of Credit and to deliver to the Agent all instruments, documents, and other writings and property received by the Letter of Credit Issuer pursuant to each such Letter of Credit, and to accept and rely upon the Agent's instructions and agreements with respect to all matters arising in connection with each such Letter of Credit or the application therefor. (vi) Power of Attorney. In connection with all Inventory financed for a Loan Party by any Letter of Credit, each Loan Party hereby appoints the Agent, or the Agent's designee, as its attorney, with full power and authority: (A) to sign and/or endorse such Loan Party's name upon any warehouse or other receipts; (B) to sign such Loan Party's name on bills of lading and other negotiable and non-negotiable documents; (C) to clear Inventory through customs in the Agent's such Loan Party's name, and to sign and deliver to customs officials powers of attorney in such Loan Parties' name for such purpose; (D) to complete in such Loan Party's or the Agent's name, any order, sale, or transaction, obtain the necessary documents in connection therewith, and collect the proceeds thereof; and (E) to do such other acts and things as are necessary in order to enable the Agent to obtain possession or control of such Inventory and to obtain payment of the Obligations. Neither the Agent nor its designee, as such Loan Party's attorney, will be liable for any acts or omissions, nor for any error of judgment or mistakes of fact or law other than for gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable until all Obligations have been paid and satisfied. (vii) Control of Inventory. In connection with all Inventory of a Loan Party financed by Letters of Credit, the Loan Parties will, at the Agent's request, instruct all suppliers, carriers, forwarders, customs brokers, warehouses, or others receiving or holding cash, checks, Inventory, documents, or instruments in which the Agent holds a security interest to deliver them to the Agent and/or subject to the Agent's order, and if they shall come into any Loan Parties' possession, to deliver them, upon request, to the Agent in their original form. Loan Parties shall also, at the Agent's CREDIT AGREEMENT - Page 9 request, designate the Agent as the consignee on all bills of lading and other negotiable and non-negotiable documents. (g) Supporting Letter of Credit; Cash Collateral. If, notwithstanding the provisions of Section 1.4(b) and Section 10.1, any Letter of Credit or Credit Support is outstanding upon the termination of this Agreement, then upon such termination the Borrowers shall deposit with the Agent, for the benefit of the Agent and the Lenders, with respect to each Letter of Credit or Credit Support then outstanding, as the Agent in its discretion shall specify, either (i) a standby letter of credit (a "Supporting Letter of Credit") in form and substance satisfactory to the Agent, issued by an issuer satisfactory to the Agent in an amount equal to the greatest amount for which such Letter of Credit or such Credit Support may be drawn plus any fees and expenses associated with such Letter of Credit or such Credit Support, under which Supporting Letter of Credit the Agent is entitled to draw amounts necessary to reimburse the Agent and the Lenders for payments to be made by the Agent and the Lenders under such Letter of Credit or Credit Support and any fees and expenses associated with such Letter of Credit or Credit Support or (ii) cash in an amount necessary to reimburse the Agent and the Lenders for payments to be made by the Agent and the Lenders under such Letter of Credit or Credit Support and any fees and expenses associated with such Letter of Credit or Credit Support. Such Supporting Letter of Credit or deposit of cash shall be held by the Agent, for the benefit of the Agent and the Lenders, as security for, and to provide for the payment of, the aggregate undrawn amount of such Letters of Credit or such Credit Support remaining outstanding. Section 1.5 Bank Products. The Loan Parties may request and the Agent may, in its sole and absolute discretion, arrange for any Consolidated Member, excluding Unrestricted Subsidiaries, to obtain Bank Products from the Bank or the Bank's Affiliates although the Loan Parties are not required to do so except as required by Section 7.25. To the extent Bank Products are provided by an Affiliate of the Bank, the Loan Parties agree to indemnify and hold the Agent, the Bank, and the Lenders harmless from any and all costs and obligations now or hereafter incurred by the Agent, the Bank, or any of the Lenders which arise from any indemnity given by the Agent to its Affiliates related to such Bank Products; provided, however, nothing contained herein is intended to limit any Consolidated Member's rights, with respect to the Bank or its Affiliates, if any, which arise as a result of the execution of documents by and between such Consolidated Member and the Bank or its Affiliates which relate to Bank Products. The agreement contained in this Section shall survive termination of this Agreement. Each Loan Party acknowledges and agrees that the obtaining of Bank Products from the Bank or the Bank's Affiliates (a) is in the sole and absolute discretion of the Bank or the Bank's Affiliates, and (b) is subject to all rules and regulations of the Bank or the Bank's Affiliates. CREDIT AGREEMENT - Page 10 ARTICLE 2 INTEREST AND FEES Section 2.1 Interest. (a) Interest Rates. All outstanding Obligations shall bear interest on the unpaid principal amount thereof (including, to the extent permitted by law, on accrued interest thereon not paid when due) from the date made until paid in full in cash at a rate determined by reference to the Base Rate or the LIBOR Rate, as applicable, plus the Applicable Margin as set forth below, but not to exceed the Maximum Rate. Any of the Loans may be converted into, or continued as LIBOR Rate Loans, subject to and in the manner provided in Section 2.2. If at any time Loans are outstanding with respect to which a Borrower has not delivered to the Agent a notice specifying the basis for determining the interest rate applicable thereto in accordance herewith, such Loans shall be Base Rate Loans and bear interest at a rate determined by reference to the Base Rate until notice to the contrary has been given to the Agent in accordance with this Agreement and such notice has become effective. Except as otherwise provided herein, the outstanding Obligations shall bear interest as follows: (i) For all Base Rate Revolving Loans and other Obligations (other than LIBOR Rate Loans) at a fluctuating per annum rate equal to the lesser of (A) the Base Rate, plus the Applicable Margin or (B) the Maximum Rate; and (ii) For all LIBOR Rate Revolving Loans at a per annum rate equal to the lesser of (A) the LIBOR Rate, plus the Applicable Margin or (B) the Maximum Rate. Each change in the Base Rate shall be reflected in the interest rate described in clause (i) preceding as of the effective date of such change. Subject to Section 2.3, all interest charges shall be computed on the basis of a year of 360 days and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). (b) Default Rate. During the existence of any Default or Event of Default if the Agent or the Majority Lenders in their discretion so elect, then, while any such Default or Event of Default exists, the Obligations shall bear interest at a rate per annum equal to the lesser of (i) the Default Rate applicable thereto or (ii) the Maximum Rate. (c) Interest Periods. After giving effect to any Borrowing, conversion, or continuation of any LIBOR Rate Loan, there may not be more than five (5) different Interest Periods in effect hereunder. Section 2.2 Continuation and Conversion Elections. (a) A Borrower may upon irrevocable written notice to the Agent in accordance with Section 2.2(b): CREDIT AGREEMENT - Page 11 (i) elect, as of any Business Day, in the case of Base Rate Loans to convert any such Base Rate Loans (or any part thereof in an amount not less than $1,000,000, or that is in an integral multiple of $500,000 in excess thereof) into LIBOR Rate Loans; or (ii) elect, as of the last day of the applicable Interest Period, to continue any LIBOR Rate Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $1,000,000, or that is in an integral multiple of $500,000 in excess thereof) as LIBOR Rate Loans; provided, that if at any time the aggregate amount of LIBOR Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $1,000,000, such LIBOR Rate Loans shall, effective as of the expiration date of the applicable Interest Period, automatically convert into Base Rate Loans; provided, further, that if the notice shall fail to specify the duration of the Interest Period, such Interest Period shall be one month. (b) The Borrowers shall deliver a notice of continuation/conversion in the form of Exhibit D (a "Notice of Continuation/Conversion") to the Agent not later than 11:00 a.m. (Dallas, Texas time) at least three (3) Business Days in advance of the Continuation/Conversion Date, if the Loans are to be converted into or continued as LIBOR Rate Loans and specifying: (i) the proposed Continuation/Conversion Date; (ii) the Loans and the aggregate amount of such Loans to be converted or continued; (iii) the type of Loans resulting from the proposed conversion or continuation; and (iv) the duration of the requested Interest Period, provided, however, the Borrower may not select an Interest Period that ends after the Stated Termination Date. (c) If upon the expiration of any Interest Period applicable to LIBOR Rate Loans, the Borrowers have failed to timely select a new Interest Period to be applicable to such LIBOR Rate Loans or if any Default or Event of Default then exists, the Borrowers shall be deemed to have elected to convert such LIBOR Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Agent will promptly notify each Lender of its receipt of a Notice of Continuation/Conversion. All conversions and continuations shall be made ratably according CREDIT AGREEMENT - Page 12 to the respective outstanding principal amounts of the Loans with respect to which such notice was given held by each Lender. Section 2.3 Maximum Interest Rate. If the Interest Rate, absent the limitation set forth in this Section 2.3, would have exceeded the Maximum Rate, then the Interest Rate shall be the Maximum Rate, and, if in the future, the Interest Rate would otherwise be less than the Maximum Rate, then the Interest Rate shall remain at the Maximum Rate until such time as the amount of interest paid hereunder equals the amount of interest which would have been paid if the same had not been limited by the Maximum Rate. In the event that, upon payment in full of the Obligations, the total amount of interest paid or accrued under the terms of this Agreement is less than the total amount of interest which would, but for this Section 2.3, have been paid or accrued if the Interest Rate otherwise set forth in this Agreement had at all times been in effect, then the Borrowers shall, to the extent permitted by applicable law, pay the Agent, for the account of the Lenders, an amount equal to the excess of (a) the lesser of (i) the amount of interest which would have been paid or accrued if the Maximum Rate had, at all times, been in effect or (ii) the amount of interest which would have been paid or accrued had the interest rate otherwise set forth in this Agreement, at all times, been in effect over (b) the amount of interest actually paid or accrued under this Agreement. The Agent, each Lender, and each Borrower acknowledges, agrees, and declares that it is its intention to expressly comply with all Requirements of Law in respect of limitations on the amount or rate of interest that can legally be contracted for, charged, or received under or in connection with the Loan Documents. Notwithstanding anything to the contrary contained in any Loan Document (even if any such provision expressly declares that it controls all other provisions of the Loan Documents), in no contingency or event whatsoever shall the amount of interest (including the aggregate of all charges, fees, benefits, or other compensation which constitutes interest under any Requirement of Law) under the Loan Documents paid by any Borrower, received by the Agent, the Letter of Credit Issuer, or any Lender, agreed to be paid by any Borrower, or requested or demanded to be paid by the Agent, the Letter of Credit Issuer, or any Lender, exceed the Maximum Rate, and all provisions of the Loan Documents in respect of the contracting for, charging, or receiving compensation for the use, forbearance, or detention of money shall be limited as provided by this Section 2.3. In the event any such interest is paid to the Agent, the Letter of Credit Issuer, or any Lender by the Borrowers, or any of them, in an amount or at a rate which would exceed the Maximum Rate, the Agent, the Letter of Credit Issuer, or such Lender, as the case may be, shall automatically apply such excess to any unpaid amount of the Obligations other than interest, in inverse order of maturity, or if the amount of such excess exceeds said unpaid amount, such excess shall be paid to the paying Borrowers or Borrower, as applicable. All interest paid, or agreed to be paid, by any Borrower, or taken, reserved, or received by the Agent, the Letter of Credit Issuer, or any Lender, shall be amortized, prorated, spread, and allocated in respect of the Obligations throughout the full term of this Agreement. Notwithstanding any provision contained in any of the Loan Documents, or in any other related documents executed pursuant hereto, neither the Agent, the Letter of Credit Issuer, nor any Lender shall ever be entitled to charge, receive, take, reserve, collect, or apply as interest any amount which, together with all other interest under the Loan Documents would result in a rate of interest under the Loan Documents in excess of the Maximum Rate and, in the event the Agent, the Letter of Credit Issuer, or any Lender ever charges, receives, takes, reserves, collects, or applies any amount in respect of the Borrowers, or any of them, that otherwise would, together with all other interest under the Loan Documents, be in excess of the Maximum Rate, such CREDIT AGREEMENT - Page 13 amount shall automatically be deemed to be applied in reduction of the unpaid principal balance of the Obligations and, if such principal balance is paid in full, any remaining excess shall forthwith be paid to the applicable Borrowers or Borrower. The Borrowers, the Agent, the Letter of Credit Issuer, and the Lenders shall, to the maximum extent permitted under any Requirement of Law, (A) characterize any non-principal payment as a standby fee, commitment fee, prepayment charge, delinquency charge, expense, or reimbursement for a third-party expense rather than as interest and (B) exclude prepayments, acceleration, and the effects thereof. Nothing in any Loan Document shall be construed or so operate as to require or obligate the Borrowers, or any of them, to pay any interest, fees, costs, or charges greater than is permitted by any Requirement of Law. Subject to the foregoing, the Borrowers hereby agree that the actual effective rate of interest from time to time existing under the Loan Documents, including all amounts agreed to by the Borrowers or charged or received by the Agent, the Letter of Credit Issuer, or the Lenders pursuant to and in accordance with the Loan Documents, which may be deemed to be interest under any Requirement of Law, shall be deemed to be a rate which is agreed to and stipulated by the Borrowers and the Lenders in accordance with Requirements of Law. Section 2.4 Reserved. Section 2.5 Unused Line Fee. Subject to Section 2.3, until the Loans have been paid in full and this Agreement terminated, the Borrowers agree to pay to the Agent, for the account of the Lenders, in accordance with their respective Pro Rata Shares, on the first day of each calendar month and on the Termination Date, an unused line fee (the "Unused Line Fee") equal to the Unused Line Fee Percentage multiplied by the amount by which the Maximum Revolver Amount exceeded the sum of the average daily outstanding amount of the Revolving Loans and the average daily undrawn face amount of all outstanding Letters of Credit and Credit Support during the immediately preceding month or shorter period if calculated for the first month after the Closing Date or on the Termination Date. Subject to Section 2.3 the Unused Line Fee shall be computed on the basis of a 360 day year for the actual number of days elapsed. For purposes of calculating the Unused Line Fee pursuant to this Section 2.5, any payment received by the Agent (if received prior to 2:00 p.m. Dallas, Texas time) shall be deemed to be credited to the Borrowers' Loan Account on the date such payment is received by the Agent. Section 2.6 Letter of Credit Fee. Subject to Section 2.3, the Borrowers agree to pay to the Agent, for the account of the Lenders, in accordance with their respective Pro Rata Shares, for each Letter of Credit or Credit Support, a fee (the "Letter of Credit Fee") equal to the Letter of Credit Fee Percentage, or during the existence of any Default or Event of Default the Default Rate with respect to Letters of Credit, multiplied by the undrawn face amount of each Letter of Credit or Credit Support, plus all out-of-pocket costs, fees, and expenses incurred by the Letter of Credit Issuer in connection with the application for, processing of, issuance of, or amendment to any Letter of Credit or Credit Support, which costs, fees, and expenses shall include a "fronting fee" in an amount equal to one-eighth percent (0.125%) of the face amount of such Letter of Credit or Credit Support, payable to the Letter of Credit Issuer on the date of issuance of each Letter of Credit or Credit Support. The Letter of Credit Fee shall be payable monthly in arrears on the first day of each month following any month in which a Letter of Credit or Credit Support was issued and/or in which a Letter of Credit or Credit Support remained outstanding and on the Termination Date. Subject to CREDIT AGREEMENT - Page 14 Section 2.3, the Letter of Credit Fee shall be computed on the basis of a 360 day year for the actual number of days elapsed. Section 2.7 Other Fees. The Borrowers agree to pay the Agent all other fees and expenses as set forth in the Agent's Letter. Section 2.8 Collections Administration. In order to reimburse the Agent or the Bank, as applicable, for the cost of delays in the collection and clearance of remittances, the Borrowers shall pay to the Agent or the Bank, as applicable, for its own account, respectively, interest at the rate applicable to Base Rate Loans for one Business Day on the amount of all uncollected funds applied to the Revolving Loans or transferred to the Designated Account as provided by Section 2.11(f) of the Security Agreement. ARTICLE 3 PAYMENTS AND PREPAYMENTS Section 3.1 Revolving Loans. The Borrowers shall repay the outstanding principal balance of the Revolving Loans, together with all other Obligations, including all accrued and unpaid interest thereon, on the Termination Date. The Borrowers may prepay the Revolving Loans at any time and reborrow subject to the terms of this Agreement; provided that with respect to any LIBOR Rate Revolving Loans prepaid prior to the expiration date of the Interest Period applicable thereto, the Borrowers shall pay to the Agent, for the account of the Lenders, the amounts described in Section 4.4. In addition, and without limiting the generality of the foregoing, upon demand the Borrowers shall pay to the Agent, for account of the Lenders, the amount, if any and without duplication, by which the Aggregate Revolver Outstandings exceeds the lesser of the Borrowing Base or the Maximum Revolver Amount. Accrued interest on the Revolving Loans shall be due and payable in arrears (a) in the case of Base Rate Revolving Loans, on the first day of each calendar month and on the Termination Date and (b) in the case of LIBOR Rate Revolving Loans and with respect to each such Revolving Loan (i) on the last day of the Interest Period with respect thereto and (ii) on the Termination Date. Section 3.2 Termination of Total Facility. (a) The Borrowers may reduce the Maximum Revolver Amount to an amount equal to $75,000,000 at any time effective upon five (5) Business Days prior written notice thereof to the Agent and the Lenders, provided that any such reduction (i) shall be in a single reduction and (ii) shall be permanent. The Lenders shall have no obligation at any time to increase the Maximum Revolver Amount following any such reduction. (b) The Borrowers may terminate this Agreement upon at least thirty (30) days prior written notice thereof to the Agent and the Lenders, upon (a) the payment in full of all outstanding Revolving Loans, together with accrued and unpaid interest thereon, and the cancellation and return of all outstanding Letters of Credit and Credit Support (or alternatively, with respect to each such Letter of Credit or Credit Support, the furnishing to CREDIT AGREEMENT - Page 15 the Agent, in the Agent's discretion, of a Supporting Letter of Credit or cash deposit, in each case in amounts and in the manner required by Section 1.4(g)), (b) the payment of the early termination fee set forth in the following sentence, (c) the payment in full in cash of all reimbursable expenses and other Obligations together with accrued and unpaid interest thereon, and (e) any amount due under Section 3.5. Subject to Section 2.3, if this Agreement is terminated at any time prior to the Stated Termination Date, whether pursuant to this Section or pursuant to Section 9.2, the Borrowers shall pay to the Agent, for the account of the Lenders, an early termination fee determined in accordance with the following table:
========================================================================= Period during which early Early Termination Fee termination occurs ========================================================================= On or prior to the first Anniversary 0.50% of the Total Facility Date ========================================================================= After the first Anniversary Date 0.25% of the Total Facility but on or prior to the second Anniversary Date =========================================================================
Notwithstanding the foregoing, no such early termination fee shall be payable in the event this Agreement is terminated in connection with refinancing of the Obligations in a transaction in which the Bank or any of its Affiliates provides or arranges replacement financing or acts as underwriter or arranger of any public offering of debt or equity securities of the Parent. Section 3.3 Payments from Distributions or Loans from Subsidiaries. All proceeds or other cash payments received by a Borrower constituting proceeds of a Distribution, loan, or other advance to such Borrower, other than such proceeds which are Revolving Loan proceeds loaned from one Borrower to another Borrower, shall be paid to the Agent, promptly upon such receipt, for (i) application to the Revolving Loans if Availability Without Regard to Line Constraint, at the time of such receipt, is equal to or less than $40,000,00 or (ii) transfer to the Designated Account if Availability Without Regard to Line Constraint, at the time of such receipt, is greater than $40,000,00. Section 3.4 Payments from Asset Dispositions. All Net Proceeds of any Asset Disposition by a Consolidated Member received by (i) a Borrower (other than proceeds of the sale by a Loan Party of Equipment, in the ordinary course of business, which are simultaneously reinvested in acquiring replacement Equipment of like kind, in the ordinary course of business) shall be paid to the Agent, promptly upon such receipt, for (A) application to the Revolving Loans if Availability Without Regard to Line Constraint, at the time of such receipt, is equal to or less than $40,000,000 or (B) transfer to the Designated Account if Availability Without Regard to Line Constraint, at the time of such receipt, is greater than $40,000,00, or (ii) a Loan Party other than a Borrower shall be deposited, promptly upon receipt, to a bank account of such Loan Party subject to a Blocked Account Agreement (or in the case of a Loan Party other than a Borrowing Base Party, as may otherwise be agreed by the Agent in its sole discretion) and the requirements of Section 7.26. No provision CREDIT AGREEMENT - Page 16 contained in this Section 3.4 shall constitute a consent to an asset disposition that is otherwise not permitted by the terms of this Agreement. Section 3.5 LIBOR Rate Loan Prepayments. In connection with any prepayment, if any LIBOR Rate Loans are prepaid prior to the expiration date of the Interest Period applicable thereto, the Borrowers shall pay to the Agent, for the benefit of the Lenders, the amounts described in Section 4.4. Section 3.6 Payments by the Borrowers. (a) All payments to be made by the Borrowers shall be made without setoff, recoupment, or counterclaim. Without in any way limiting Section 2.11 of the Security Agreement, except as otherwise expressly provided herein, all payments by the Borrowers shall be made to the Agent for the account of the Lenders, to the account designated by the Agent and shall be made in Dollars and in immediately available funds, no later than 2:00 p.m. (Dallas, Texas time) on the date specified herein. Any payment received by the Agent after such time shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of Interest Period, whenever any payment is due on a day other than a Business Day, such payment shall be due on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. Section 3.7 Payments as Revolving Loans. At the election of the Agent, all payments of principal, interest, reimbursement obligations in connection with Letters of Credit and Credit Support, fees, premiums, reimbursable expenses (including, without limitation, all reimbursement for expenses pursuant to Section 13.7), and other sums payable hereunder, may be paid from the proceeds of Revolving Loans made hereunder whether made following a request by the Borrowers pursuant to Section 1.2 or a deemed request as provided in this Section 3.7. The Borrowers hereby irrevocably authorize the Agent to charge the Loan Account for the purpose of paying all amounts from time to time due hereunder, including, without limitation, reimbursing expenses pursuant to Section 13.7, and agree that all such amounts charged shall constitute Revolving Loans (including Non-Ratable Loans and Agent Advances) and that all such Revolving Loans shall be deemed to have been requested pursuant to Section 1.2. Section 3.8 Apportionment, Application, and Reversal of Payments. Principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Loans to which such payments relate held by each Lender) and payments of the fees shall, as applicable, be apportioned ratably among the Lenders, except for fees payable solely to the Agent and the Letter of Credit Issuer and except as provided in Section 11.1(b). All payments shall be remitted to the Agent and all such payments not relating to principal or interest of specific Loans, or not constituting payment of specific fees, and all proceeds of any Loan Party's Accounts or any other Collateral received by the Agent, shall be applied, ratably, subject to the provisions of this Agreement, first, to pay any fees, indemnities, or expense reimbursements then due to the Agent CREDIT AGREEMENT - Page 17 from the Obligated Parties, second, to pay any fees or expense reimbursements then due to the Lenders from the Obligated Parties, third, to pay interest due in respect of the Loans, including Non-Ratable Loans and Agent Advances, fourth, to pay or prepay principal of the Non-Ratable Loans and the Agent Advances, fifth, to pay or prepay principal of the Revolving Loans (other than Non-Ratable Loans and Agent Advances) and unpaid reimbursement obligations in respect of Letters of Credit and Credit Support, sixth, to pay an amount to the Agent equal to all outstanding Letter of Credit Obligations to be held as cash collateral for such Obligations, and seventh, to the payment of any other Obligation including any amounts relating to Bank Products due to the Agent or any Lender. Notwithstanding anything to the contrary contained in this Agreement, unless so directed by a Borrower, or unless an Event of Default is in existence, neither the Agent nor any Lender shall apply any payment which it receives to any LIBOR Rate Loan, except (a) on the expiration date of the Interest Period applicable to any such LIBOR Rate Loan, or (b) in the event, and only to the extent, that there are no outstanding Base Rate Loans and, in any event, the Borrowers shall pay the LIBOR breakage losses in accordance with Section 4.4. The Agent and the Lenders shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Obligations in accordance with the terms of this Agreement. Section 3.9 Indemnity for Returned Payments. If after receipt of any payment which is applied to the payment of all or any part of the Obligations, the Agent, any Lender, the Bank, or any Affiliate of the Bank is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason, then the Obligations or part thereof intended to be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment or proceeds had not been received by the Agent or such Lender and the Borrowers shall be liable to pay to the Agent and the Lenders, and each Borrower hereby indemnifies the Agent and the Lenders and holds the Agent and the Lenders harmless for the amount of such payment or proceeds surrendered. The provisions of this Section 3.9 shall be and remain effective notwithstanding any contrary action which may have been taken by the Agent or any Lender in reliance upon such payment or application of proceeds, and any such contrary action so taken shall be without prejudice to the Agent's and the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment or application of proceeds having become final and irrevocable. The provisions of this Section 3.9 shall survive the termination of this Agreement. Section 3.10 The Agent's and the Lenders' Books and Records; Monthly Statements. The Agent shall record the principal amount of the Loans owing to each Lender, the undrawn face amount of all outstanding Letters of Credit and Credit Support and the aggregate amount of unpaid reimbursement obligations outstanding with respect to the Letters of Credit and Credit Support from time to time on its books. In addition, each Lender may note the date and amount of each payment or prepayment of principal of such Lender's Loans in its books and records. Failure by the Agent or any Lender to make any such notation shall not affect the obligations of any Obligated Party with respect to the Loans, the Letters of Credit, or any Credit Support. The Loan Parties agree that the Agent's and each Lender's books and records showing the Obligations and the transactions pursuant to this Agreement and the other Loan Documents shall be admissible in any action or proceeding arising therefrom, and shall constitute presumptive proof thereof, irrespective of whether any CREDIT AGREEMENT - Page 18 Obligation is also evidenced by a promissory note or other instrument. The Agent will provide to the Borrowers a monthly statement of Loans, payments, and other transactions pursuant to this Agreement. Absent manifest error, such statement shall be deemed correct, accurate, and binding on the Loan Parties and an account stated (except for reversals and reapplications of payments made as provided in Section 3.8 and corrections of errors discovered by the Agent), unless a Borrower notifies the Agent in writing to the contrary within thirty (30) days after such statement is rendered. In the event a timely written notice of objections is given by a Borrower, only the items to which exception is expressly made will be considered to be disputed. ARTICLE 4 TAXES, YIELD PROTECTION, AND ILLEGALITY Section 4.1 Taxes. (a) Any and all payments by the Loan Parties or any of them, to the Agent or any Lender under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, subject to Section 12.10(e), the Loan Parties shall pay all Other Taxes. (b) The Loan Parties agree to indemnify and hold harmless the Agent and each Lender for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 4.1) paid by the Agent or any Lender and any liability (including penalties, interest, additions to tax, and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within thirty (30) days after the date the Agent or any Lender makes written demand therefor. (c) If the Loan Parties shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to the Agent or any Lender, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including, without limitation, deductions and withholdings applicable to additional sums payable under this Section 4.1) the Agent or such Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Loan Parties shall make such deductions and withholdings; (iii) the Loan Parties shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with any applicable Requirement of Law; and (iv) the Loan Parties shall also pay to the Agent, for the account of each CREDIT AGREEMENT - Page 19 Lender, or each Lender at the time interest is paid, all additional amounts which the respective Lender specifies as necessary to preserve the after-tax yield such Lender would have received if such Taxes or Other Taxes had not been imposed. (d) Within thirty (30) days after the date of any payment by the Loan Parties of Taxes or Other Taxes, the Loan Parties shall furnish the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Agent. (e) If the Loan Parties are required to pay additional amounts to the Agent or any Lender pursuant to Section 4.1(c), then the applicable Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its lending office so as to eliminate any such additional payment by the Loan Parties which may thereafter accrue, if such change in the judgment of such Lender is not otherwise disadvantageous to such Lender. Section 4.2 Illegality. (a) If any Lender determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for such Lender or its applicable lending office to make LIBOR Rate Loans, then, on notice thereof by such Lender to the Borrowers through the Agent, any obligation of such Lender to make LIBOR Rate Loans shall be suspended until such Lender notifies the Agent and the Borrowers that the circumstances giving rise to such determination no longer exist. (b) If a Lender determines that it is unlawful to maintain any LIBOR Rate Loan, the Borrowers shall, upon receipt of notice of such fact and demand from such Lender (with a copy to the Agent), prepay in full such LIBOR Rate Loans of such Lender then outstanding, together with accrued and unpaid interest thereon and amounts required under Section 4.4, either on the last day of the Interest Period thereof, if such Lender may lawfully continue to maintain such LIBOR Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBOR Rate Loans. If the Borrowers are required to so prepay any LIBOR Rate Loans, then concurrently with such prepayment, the Borrowers shall borrow from the affected Lender, in the amount of such repayment, a Base Rate Loan. Section 4.3 Increased Costs and Reduction of Return. (a) If any Lender determines that due to either (i) the introduction of or any change in the interpretation of any law or regulation or (ii) the compliance by such Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding, or maintaining any LIBOR Rate Loans, then, subject to Section 2.3, the Borrowers shall be liable for, and shall from time to time, upon CREDIT AGREEMENT - Page 20 demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs. (b) If any Lender shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by such Lender or any corporation or other entity controlling such Lender with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation or other entity controlling such Lender and (taking into consideration such Lender's or such corporation's or other entity's policies with respect to capital adequacy and such Lender's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits, or obligations under this Agreement, then, subject to Section 2.3, upon demand of such Lender to the Borrowers through the Agent, the Borrowers shall pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender for such increase. Section 4.4 Funding Losses. The Borrowers shall reimburse each Lender and hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of: (a) the failure of the Borrowers to make on a timely basis any payment of principal of any LIBOR Rate Loan; (b) the failure of the Borrowers to borrow, continue, or convert a Loan after any Borrower has given (or is deemed to have given) a Notice of Borrowing or a Notice of Continuation/Conversion (except as permitted by Section 4.5); or (c) the prepayment or other payment (including after acceleration thereof) of any LIBOR Rate Loans on a day that is not the last day of the relevant Interest Period; including any such loss of anticipated profit and any loss or expense arising from the liquidation or reemployment of funds obtained by such Lender to maintain its LIBOR Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. The Borrowers shall also pay any customary administrative fees charged by any Lender in connection with the foregoing. Upon the occurrence of any prepayment or payment described in clause (c) preceding, the Borrowers shall pay to the Agent, for the benefit of the Lenders, a prepayment fee in an amount reasonably determined by the Agent. Section 4.5 Inability to Determine Rates. If the Agent determines that for any reason adequate and reasonable means do not exist for determining the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan, or that the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan does not adequately and fairly CREDIT AGREEMENT - Page 21 reflect the cost to the Lenders of funding such Loan, the Agent will promptly so notify the Borrowers and each Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Rate Loans hereunder shall be suspended until the Agent revokes such notice in writing. Upon receipt of a notice pursuant to the first sentence of this Section, the Borrowers may revoke any Notice of Borrowing or Notice of Continuation/Conversion then submitted by any of them. If the Borrowers do not revoke such Notice of Borrowing or Notice of Continuation/Conversion, the Lenders shall make, convert, or continue the Loans, as proposed by the Borrowers, in the amount specified in the applicable notice submitted by a Borrower, but such Loans shall be made, converted, or continued as Base Rate Loans instead of LIBOR Rate Loans. Section 4.6 Certificates of the Agent. If any Lender claims reimbursement or compensation under this Article 4, the Agent shall determine the amount thereof and shall deliver to the Borrowers (with a copy to the affected Lender) a certificate setting forth in reasonable detail the amount payable to the affected Lender, and such certificate shall be conclusive and binding on the Borrowers in the absence of manifest error. Section 4.7 Survival. The agreements and obligations of the Loan Parties in this Article 4 shall survive the payment of all other Obligations. Section 4.8 Replacement of Affected Lender. Within thirty (30) days after receipt by the Borrowers of written notice and demand from any Lender for any payment under the terms of Section 4.1 or Section 4.3 then, subject to this Section 4.8, the Borrowers may, at their option, notify the Agent and such Lender (the "Affected Lender") of the Borrowers' intention to obtain, at the Borrowers' sole expense, a replacement Lender (the "Replacement Lender") to purchase the Affected Lender's Loans and its obligations under the Loan Documents. Subject to this Section 4.8, the Borrowers shall, within thirty (30) days following the delivery of such notice from the Borrowers, cause the Replacement Lender to purchase (and the Affected Lender hereby agrees to sell and convey to such Replacement Lender) the Loans and other obligations of the Affected Lender and assume the Affected Lender's Commitment and obligations hereunder in accordance with the terms of an Assignment and Acceptance for cash in an aggregate amount equal to the aggregate unpaid principal of the Loans and other Obligations held by such Affected Lender, all unpaid interest and fees accrued thereon or with respect thereto, and all other Obligations owed to such Affected Lender, including amounts owed under Section 4.1 or Section 4.3. Notwithstanding the foregoing, (a) the Borrowers shall continue to be obligated to pay to the Affected Lender in full all amounts then demanded and due under Section 4.1 or Section 4.3 in accordance with the terms of this Agreement, (b) neither the Agent nor any Lender shall have any obligation to find a Replacement Lender, (c) the Replacement Lender must be acceptable to the Agent in its reasonable discretion, and (d) the Bank may not be replaced under this Section 4.8 without its consent. If the Borrowers elect to replace any Affected Lender, the Borrowers must replace all Affected Lenders as set forth in this Section, each such replacement to occur within a reasonable period of time not to exceed sixty (60) days from the date such Affected Lender requested any payment under Section 4.1 or Section 4.3. CREDIT AGREEMENT - Page 22 ARTICLE 5 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES Section 5.1 Books and Records. The Borrowers shall maintain, at all times, correct and complete books, records, and accounts in which complete, correct, and timely entries are made of their transactions in accordance with GAAP applied consistently with the audited Financial Statements required to be delivered pursuant to Section 5.2(a). The Borrowers shall, by means of appropriate entries, reflect in such accounts and in all Financial Statements proper liabilities and reserves for all taxes and proper provision for depreciation and amortization of property and bad debts, all in accordance with GAAP. The Loan Parties shall maintain at all times books and records pertaining to the Collateral in such detail, form, and scope as the Agent or any Lender shall reasonably require, including, but not limited to, records of (a) all payments received and all credits and extensions granted with respect to the Accounts, (b) the return, rejection, repossession, stoppage in transit, loss, damage, or destruction of any Inventory, and (c) all other dealings affecting the Collateral. Section 5.2 Financial Information. The Loan Parties shall promptly furnish to the Agent, all such information regarding any Consolidated Member's financial and business affairs as the Agent or any Lender (through the Agent) shall reasonably request. Without limiting the foregoing, the Loan Parties will furnish, or cause to be furnished, to the Agent the following, in sufficient copies for distribution by the Agent to each Lender, in such detail as the Agent or the Lenders (through the Agent) shall request: (a) The Loan Parties will furnish, or cause to be furnished, as soon as available, but in any event not later than ninety (90) days after the close of each Fiscal Year, consolidated audited and consolidating unaudited balance sheets and statements of income, consolidated cash flow, and consolidated and consolidating stockholders' equity for the Consolidated Members for such Fiscal Year, and the accompanying notes thereto, setting forth in each case in comparative form figures for the previous Fiscal Year, all in reasonable detail, fairly presenting the financial position and the results of operations of the Consolidated Members as at the date thereof and for the Fiscal Year then ended, and prepared in accordance with GAAP. Such Financial Statements shall be examined in accordance with generally accepted auditing standards by and, in the case of such Financial Statements performed on a consolidated basis, accompanied by a report thereon, unqualified in any respect, of independent certified public accountants of national standing selected by the Parent. Each Loan Party hereby authorizes the Agent to communicate directly with its certified public accountants and, by this provision, authorizes those accountants to disclose to the Agent any and all financial statements and other supporting financial documents and schedules relating to the Consolidated Members and to discuss directly with the Agent the finances and affairs of the Consolidated Members, provided, that if no Default or Event of Default has occurred and continues in existence, the Parent shall have received written notice and a reasonable opportunity to be present in connection with any such communications. CREDIT AGREEMENT - Page 23 (b) The Loan Parties will furnish or cause to be furnished, (i) as soon as available, but in any event not later than thirty (30) days after the end of each month other than any month which is the end of a fiscal year or fiscal quarter of the Parent, consolidated unaudited balance sheets of the Consolidated Members as at the end of such month and consolidated unaudited statements of income and cash flow for the Consolidated Members for such month and for the period from the beginning of the Fiscal Year to the end of such month and (ii) as soon as available, but in any event not later than forty five (45) days after the end of each fiscal quarter other than the fiscal quarter which is the end of a fiscal year of the Parent, consolidating unaudited balance sheets of the Consolidated Members as at the end of such fiscal quarter and consolidating unaudited statements of income for such fiscal quarter and for the period from the beginning of the Fiscal Year to the end of such fiscal quarter, and consolidated unaudited balance sheets of the Consolidated Members as at the end of such fiscal quarter and consolidated unaudited statements of income and cash flow for the Consolidated Members for such fiscal quarter and for the period from the beginning of the Fiscal Year to the end of such fiscal quarter, in each case all in reasonable detail, fairly presenting the financial position and results of operations of the Consolidated Members as at the date thereof and for such periods, and, in each case, in comparable form, figures for the corresponding period in the prior Fiscal Year and prepared in accordance with GAAP (other than for presentation of footnotes and subject to normal year-end audit adjustments) applied consistently with the audited Financial Statements required to be delivered pursuant to Section 5.2(a). The Parent shall certify by a certificate signed by its chief financial officer, chief accounting officer, or treasurer that all such Financial Statements have been prepared in accordance with GAAP (other than presentation of footnotes) and present fairly, subject to normal year-end adjustments, the financial position of the Consolidated Members as at the dates thereof and its results of operations for the periods then ended. (c) Reserved. (d) The Loan Parties will furnish or cause to be furnished, with each of the annual audited Financial Statements delivered pursuant to Section 5.2(a), and with each of the unaudited Financial Statements for any fiscal quarter ending March 31, June 30, or September 30 delivered pursuant to Section 5.2(b), a certificate of the chief financial officer, chief accounting officer, or treasurer of the Parent in the form of Exhibit F (a "Compliance Certificate") (i) setting forth in reasonable detail the calculations required to establish the Loan Parties' compliance with the covenants set forth in Section 7.22 and Section 7.23 during the period covered by such Financial Statements and as at the end thereof and (ii) stating that, except as explained in reasonable detail in such certificate, (A) all of the representations and warranties of the Loan Parties contained in this Agreement and the other Loan Documents are correct and complete in all material respects as at the date of such certificate as if made at such time, except for those that speak as of a particular date, (B) the Loan Parties are, at the date of such certificate, in compliance in all material respects with all of their respective covenants and agreements in this Agreement and the other Loan Documents, (C) no Default or Event of Default then exists or existed during the period covered by such Financial Statements, (D) describing and analyzing in reasonable detail all material trends, changes, and developments in each and all such Financial Statements, and CREDIT AGREEMENT - Page 24 (E) explaining the variances of the figures in the corresponding budgets and prior Fiscal Year Financial Statements. If such certificate discloses that a representation or warranty is not correct or complete, or that a covenant has not been complied with, or that a Default or Event of Default existed or exists, such certificate shall set forth what action the Loan Parties have taken or propose to take with respect thereto. (e) The Loan Parties will furnish, or cause to be furnished, no sooner than sixty (60) days and not less than thirty (30) days prior to the beginning of each Fiscal Year, annual forecasts prepared by the Parent during such time period (to include forecasted consolidated and consolidating balance sheets and statements of income and consolidated cash flow) for the Consolidated Members as at the end of and for each month of such Fiscal Year. (f) Without limiting Section 5.3(l), the Loan Parties will furnish, or cause to be furnished, promptly after filing with the PBGC, the IRS, or any other Governmental Authority, a copy of each annual report or other material filing filed with respect to each Plan or Foreign Plan of any Consolidated Member. (g) The Loan Parties will furnish, or cause to be furnished, (i) promptly upon the filing thereof, copies of all material reports, if any, to or other documents filed by any Consolidated Member with the Securities and Exchange Commission under the Exchange Act, to the extent required to be filed with any Governmental Authority pursuant to any Requirement of Law requiring public disclosure, (ii) promptly upon receipt or sending thereof, all reports, notices, and statements sent or received by any Consolidated Member to or from the holders of any equity interests of any Consolidated Member or of any Debt of any Consolidated Member, and (iii) promptly upon receipt or sending thereof, all material reports, notices, and statements sent or received by any Consolidated Member to or from the trustee under any indenture under which any Debt is issued. (h) The Loan Parties will furnish, or cause to be furnished, as soon as available, but in any event not later than fifteen (15) days after any Consolidated Member's receipt thereof, a copy of all management reports and management letters prepared by any independent certified public accountants of any Consolidated Member. (i) The Loan Parties will furnish, or cause to be furnished, promptly after their preparation, copies of any and all proxy statements, financial statements, and reports which the Parent makes available to its shareholders or any holder of any Debt. (j) If requested by the Agent, the Loan Parties will furnish, or cause to be furnished, promptly after filing with the IRS, a copy of each tax return filed by any Consolidated Member. (k) The Parent shall provide, or cause to be provided, to the Agent the following on or before the twentieth (20th) day of each calendar month or on a more frequent basis if requested by the Agent or required to redetermine Availability: (A) a schedule of each Borrowing Base Party's Accounts created since the last such schedule and a Borrowing Base CREDIT AGREEMENT - Page 25 Certificate, in each case in form reasonably satisfactory to the Agent, (B) an aging of each Borrowing Base Party's Accounts together with a reconciliation (including without limitation, reconciliation of ineligibles) to the previous calendar month end's accounts receivable balance of such Borrowing Base Party's Accounts and to its general ledger; (C) an aging of each Borrowing Base Party's accounts payable; (D) upon the Agent's request, copies of invoices in connection with each Borrowing Base Party's Accounts, customer statements, credit memos, remittance advices and reports, deposit slips, and shipping and delivery documents in connection with each Borrowing Base Party's Accounts and for Equipment acquired by each Loan Party, purchase orders, and invoices; (E) upon the Agent's request, a statement of the balance of each of the Intercompany Accounts; (F) such other reports as to the Collateral as the Agent shall reasonably request from time to time; and (G) with the delivery of each of the foregoing, a certificate of the Loan Parties executed by a Responsible Officer of the Parent on behalf of all of the Loan Parties certifying as to the accuracy and completeness of the foregoing. If any of the Loan Parties' records or reports of the Collateral are prepared by an accounting service or other agent, each Loan Party hereby authorizes, and shall cause each Loan Party to authorize, such service or agent to deliver such records, reports, and related documents to the Agent, for distribution to the Lenders. (l) The Canada Subsidiaries will furnish, or cause to be furnished, within thirty (30) days of the last day of each fiscal quarter, copies of bank statements for each deposit account of each such Canada Subsidiary received by such Canada Subsidiary since the prior such delivery. (m) The Loan Parties will furnish, or cause to be furnished, such additional information as the Agent and/or any Lender may from time to time reasonably request regarding the financial and business affairs of any Consolidated Member. Section 5.3 Notices to the Lender. The Loan Parties shall notify the Agent and the Lenders in writing of the following matters at the following times: (a) immediately after becoming aware of any Default or Event of Default; (b) immediately after becoming aware of the assertion by any holder or holders of more than 1% of the Capital Stock of the Parent or the holder of any Debt in excess of $5,000,000 of any Loan Party or $5,000,000 of any other Consolidated Member that a default exists with respect thereto or that any Consolidated Member is not in compliance with the terms thereof, or the written threat or commencement by such holder of any enforcement action because of such asserted default or non-compliance; (c) immediately after becoming aware of any event or circumstance which could have, or has resulted in, a Material Adverse Effect; (d) immediately after becoming aware of any pending or threatened (in writing) action, suit, proceeding, or counterclaim by any Person, or any pending or threatened CREDIT AGREEMENT - Page 26 investigation by a Governmental Authority, which could reasonably be expected to have, or has resulted in, a Material Adverse Effect; (e) immediately after becoming aware of any pending or threatened (in writing) strike, work stoppage, unfair labor practice claim, or other labor dispute affecting any Consolidated Member which could reasonably be expected to have, or has resulted in, a Material Adverse Effect; (f) immediately after becoming aware of any violation of any law, statute, regulation, or ordinance of a Governmental Authority affecting any Consolidated Member which could reasonably be expected to have, or has resulted in, a Material Adverse Effect; (g) immediately after receipt of any notice of any violation by any Consolidated Member of any Environmental Law which could reasonably be expected to have, or has resulted in, a Material Adverse Effect or that any Governmental Authority has asserted in writing that any Consolidated Member is not in compliance with any Environmental Law or is investigating any Consolidated Member's compliance therewith; (h) immediately after receipt of any written notice that any Consolidated Member is or may be liable to any Person as a result of the Release or threatened Release of any Contaminant or that any Consolidated Member is subject to investigation by any Governmental Authority evaluating whether any remedial action is needed to respond to the Release or threatened Release of any Contaminant which, in either case, is reasonably likely to give rise to liability in excess of $2,000,000; (i) immediately after receipt of any written notice of the imposition of any Environmental Lien against any property of any Obligated Party; (j) any change in any Loan Party's name as it appears in the state of its organization, state of organization, type of entity, organizational identification number, locations of Collateral, or trade names under which such Loan Party will sell Inventory or create Accounts, or to which instruments in payment of Accounts may be made payable, in each case at least thirty (30) days prior thereto; (k) within ten (10) Business Days after any Loan Party or any ERISA Affiliate knows or has reason to know, that an ERISA Event or a prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the Code) has occurred, and, when known, any action taken or threatened by the IRS, the DOL, or the PBGC with respect thereto; (l) upon request, or, in the event that such filing reflects a significant change with respect to the matters covered thereby which could reasonably be expected to have, or have resulted in, a Material Adverse Effect, within three (3) Business Days after the filing thereof with the PBGC, the DOL, or the IRS, as applicable, copies of the following: (i) each annual report (form 5500 series), including Schedule B thereto, filed with the PBGC, the DOL, or the IRS with respect to each Plan, (ii) a copy of each funding waiver request filed with the CREDIT AGREEMENT - Page 27 PBGC, the DOL, or the IRS with respect to any Plan and all communications received by any Loan Party or any ERISA Affiliate from the PBGC, the DOL, or the IRS with respect to such request, and (iii) a copy of each other filing or notice filed with the PBGC, the DOL, or the IRS, with respect to each Plan by either any Loan Party or any ERISA Affiliate; (m) upon request, copies of each actuarial report for any Plan or Multi-employer Plan and annual report for any Multi-employer Plan, and within three (3) Business Days after receipt thereof by any Loan Party or any ERISA Affiliate, copies of the following: (i) any notices of the PBGC's intention to terminate a Plan or to have a trustee appointed to administer such Plan; (ii) any unfavorable determination letter from the IRS regarding the qualification of a Plan under Section 401(a) of the Code; or (iii) any notice from a Multi-employer Plan regarding the imposition of withdrawal liability in excess of $1,000,000; (n) within three (3) Business Days after the occurrence thereof: (i) any changes in the benefits of any existing Plan or Foreign Plan which increase any Consolidated Member's annual costs with respect thereto by an amount in excess of $1,000,000, or the establishment of any new Plan or Foreign Plan or the commencement of contributions to any Plan or Foreign Plan to which any Consolidated Member or any ERISA Affiliate was not previously contributing; or (ii) any failure by any Consolidated Member or any ERISA Affiliate to make a required installment or any other required payment to a Plan or Foreign Plan in excess of $1,000,000 under Requirements of Law on or before the due date for such installment or payment; (o) within three (3) Business Days after any Consolidated Member or any ERISA Affiliate knows or has reason to know that any of the following events has or will occur: (i) a Multi-employer Plan has been or will be terminated, become insolvent, or involved in a reorganization; (ii) the administrator or plan sponsor of a Multi-employer Plan intends to terminate a Multi-employer Plan; or (iii) any Consolidated Member or any ERISA Affiliate knows or has reason to know that a liability will be asserted or incurred with respect to a Multi-employer Plan which is not asserted or incurred in the ordinary course of ongoing operations of such Multi-employer Plan; (p) promptly upon the Agent's request, or, in the event that a filing referenced in this clause (p) reflects a significant change with respect to the matters covered thereby, within three (3) Business Days of the filing thereof with any Governmental Authority, copies of the following: (i) each filing report or notice filed with any Governmental Authority with respect to each Foreign Plan; (ii) any notices received from a Governmental Authority or relating to or concerning either the funding status of any Foreign Plan or any claims against any Consolidated Member regarding any Foreign Plan; (q) immediately upon becoming aware of any default or event of default (howsoever defined) or other breach or failure to perform under (a) any Subordinated Debt or Subordinated Debt Documents or (b) any claim is asserted against a Loan Party or other Consolidated Member alleging any occurrence described in clause (a) preceding; and CREDIT AGREEMENT - Page 28 (r) immediately upon commencement of any proceedings contesting any tax, fee, assessment, or other governmental charge in excess of $5,000,000. Each notice given under this Section shall describe the subject matter thereof in reasonable detail, and shall set forth the action that any Consolidated Member or any ERISA Affiliate, as applicable, has taken or proposes to take with respect thereto. Section 5.4 Revisions or Updates to Schedules. Should any of the information or disclosures provided on any of the schedules originally attached hereto become outdated or incorrect in any material respect, the Borrowers shall deliver to the Agent and the Lenders, concurrently with the next Compliance Certificate required to be delivered pursuant to Section 5.2(d), such revisions or updates to such schedule(s) whereupon such schedules shall be deemed to be amended by such revisions or updates, as may be necessary or appropriate to update or correct such schedule(s), provided that, notwithstanding the foregoing, (i) no such revisions or updates to Schedule 6.10, 6.11 or 6.27 shall be deemed to have amended, modified, or superseded any such schedules as originally attached hereto, or to have cured any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such schedules, unless and until the Agent shall have received all agreements, certificates, and documents reasonably required to evidence and perfect the Agent's Liens in any Collateral listed on any such Schedule and (ii) without limiting any other provision of this Agreement, no such revisions or updates to Schedules 6.8, 6.13, 6.14, 6.15, 6.18, A-2, A-3, A-4, A-5 and A-6 shall be deemed to have amended, modified, or superseded any such schedules as originally attached hereto, or to have cured any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such schedules, unless and until the Agent and the Majority Lenders shall have accepted in writing such revisions or updates to any such schedules. ARTICLE 6 GENERAL WARRANTIES AND REPRESENTATIONS Each Loan Party warrants and represents to the Agent and the Lenders that except as set forth in the Schedules to this Agreement as they may be modified from time to time pursuant to Section 5.4, and except as hereafter disclosed to and accepted by the Majority Lenders in writing: Section 6.1 Authorization, Validity, and Enforceability of this Agreement and the other Loan Documents; No Conflicts. Each Obligated Party has the power and authority to execute, deliver, and perform this Agreement and the other Loan Documents to which it is a party, to incur the Obligations, and to grant to the Agent Liens upon the Collateral. Each Obligated Party has taken all necessary action (including obtaining approval of its stockholders, partners, general partner(s), members, or other applicable equity owners, if necessary) to authorize its execution, delivery, and performance of this Agreement and the other Loan Documents to which it is a party. This Agreement and the other Loan Documents have been duly executed and delivered by each Loan Party or other Obligated Party, and constitute the legal, valid, and binding obligations of each Loan Party or other Obligated Party, enforceable against it in accordance with their respective terms without defense, setoff, or counterclaim, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws at the time in effect affecting the rights of creditors CREDIT AGREEMENT - Page 29 generally and subject to general principles of equity whether applied by a court of law or equity. Each Loan Party's or other Obligated Party's execution, delivery, and performance of this Agreement and the other Loan Documents to which it is a party do not and will not conflict with, or constitute a violation or breach of, or constitute a default under, or result in or require the creation or imposition of any Lien upon the property of any Loan Party or other Obligated Party by reason of the terms of (a) any contract, mortgage, Lien, lease, agreement, indenture, document, or instrument (including, without limitation, the Subordinated Debt Documents or the Synthetic Lease Transaction Documents, or any agreements entered into in connection therewith, respectively) to which such Loan Party or other Obligated Party is a party or which is binding upon it, (b) any Requirement of Law applicable to such Loan Party or other Obligated Party, or (c) the certificate or articles of incorporation, bylaws, limited liability company or limited partnership agreement, or other organizational or constituent documents, as the case may be, of such Loan Party or other Obligated Party. The Borrowers' incurrence of the Obligations as provided by this Agreement is not prohibited under the terms of any Subordinated Debt Documents or the Synthetic Lease Transaction Documents. Section 6.2 Validity and Priority of Security Interest. The provisions of this Agreement and the other Loan Documents create legal and valid Liens on all the Collateral in favor of the Agent, for the benefit of the Agent and the Lenders, and such Liens constitute perfected and continuing Liens on the Collateral, securing the Obligations, enforceable against the Obligated Party and all third parties, and having priority over all other Liens on the Collateral (a) except in the case of Liens described in clauses (b), (c), (d), (e), (f), (g) and (i) of the definition of Permitted Liens to the extent any such Liens would have priority over the Agent's Liens pursuant to any Requirement of Law and (b) except for Liens in certificated vehicles, and Liens perfected only by possession to the extent the Agent has not obtained or does not maintain possession of such Collateral. Section 6.3 Reserved. Section 6.4 Corporate Name; Prior Transactions. Except as set forth on Schedule 6.4, other than the legal name in which it has executed the Loan Documents no Loan Party has during the past five (5) years been known by or used any other corporate or fictitious name, or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or acquired any of its property outside of the ordinary course of business. Section 6.5 Capitalization; Subsidiaries; Organization and Qualification. Schedule 6.5 is a correct and complete list of the name and relationship to the Parent of each and all of the Parent's Subsidiaries. Schedule 6.5 sets forth, as of the Closing Date, a true and complete listing of each class of each Obligated Party's authorized Capital Stock, of which all of such issued shares are validly issued, outstanding, fully paid and non-assessable, and owned beneficially and of record by the Persons identified on Schedule 6.5. Each Consolidated Member is duly incorporated, formed, or organized and validly existing in good standing under the laws of its state or other jurisdiction of incorporation, formation, or organization set forth on Schedule 6.5. The location of the chief executive office of each Obligated Party is at the address set forth with respect to each Obligated Party on Schedule 6.5. Each Consolidated Member is duly licensed or qualified to do business and in good standing (as applicable) in each of the jurisdictions in which the nature of the business CREDIT AGREEMENT - Page 30 transacted by it or the nature of the property owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified could not reasonably be expected to have a Material Adverse Effect and (c) has all requisite corporate, partnership or limited liability company power and authority to conduct its business and own its property. The Subsidiaries of the Parent listed in Schedule 6.5 constitute all of the Subsidiaries of the Parent, and 100% of the Capital Stock of each such Subsidiary is directly or indirectly owned by the Parent except as otherwise specified in Schedule 6.5. As of the Closing Date, each of the Dormant Guarantors is dormant, conducts no business and has no assets. It is not intended by any Dormant Guarantor, the Parent or any other Loan Party that such Dormant Guarantor will conduct any business or own any property after on or after the Closing Date. Schedule 6.5 sets forth a listing, separately for each Loan Party, of each Foreign Subsidiary directly owned by such Loan Party, the total number of shares and the percentage of the total issued and outstanding shares of such Capital Stock owned by such Loan Party. Section 6.6 Financial Statements and Projections. (a) The Parent has delivered to the Agent and the Lenders the audited consolidated balance sheet and related statements of income, retained earnings, cash flow, and changes in stockholders' equity for the Parent and its Subsidiaries as of December 31, 2000, and for the Fiscal Year then ended, accompanied by the report thereon of the Parent's independent certified public accountants, PriceWaterhouseCoopers LLP. The Parent has also delivered to the Agent and the Lenders the unaudited consolidated balance sheet and related statements of income and cash flow for the Parent and its Subsidiaries as of October 31, 2001. All such financial statements have been prepared in accordance with GAAP and fairly present the financial position of the Parent and its Subsidiaries as at the dates thereof and their results of operations for the periods then ended (except with respect to the financial statements dated October 31, 2001, for the absence of applicable footnotes and subject to normal year-end adjustments). The Financial Statements for the Parent and its Subsidiaries as of October 31, 2001 reflect EBITDA for the Consolidated Members for the calendar month October, 2001, was greater than $2,000,000. (b) The Latest Projections described in clause (a) of the definition of Latest Projections in each case (i) include provision for all tax consequences described in the report by the Parent's accountants delivered by the Parent to the Agent prior to the Closing Date and (ii) demonstrate that the Borrowers will meet the minimum Availability Without Regard to Line Constraint required by Section 8.1(b). As of the Closing Date, the Parent and the other Consolidated Members have met the financial performance projections contained in the Latest Projections. (c) The Latest Projections when submitted to the Agent and the Lenders as required herein represent the Loan Parties' good faith estimate of the future financial performance of the Consolidated Members for the periods set forth therein. The Latest Projections have been prepared on the basis of the assumptions set forth therein, which the Loan Parties believe are fair and reasonable in light of current and reasonably foreseeable business conditions at the time submitted to the Agent and the Lenders. CREDIT AGREEMENT - Page 31 Section 6.7 Solvency. Each Obligated Party is Solvent prior to and after giving effect to the Loan Documents, the Borrowings to be made on the Closing Date and the issuance of the Letters of Credit and Credit Support to be issued on the Closing Date (if any), and shall remain Solvent during the term of this Agreement. Section 6.8 Debt. After giving effect to the making of the Loans to be made on the Closing Date, the Consolidated Members (other than Unrestricted Subsidiaries) have no Debt, except (a) the Obligations, (b) Debt described on Schedule 6.8, (c) the Subordinated Debt under the Convertible Subordinated Notes and the Convertible Subordinated Debt Documents and (d) other Debt entered into after the Closing Date as permitted by Section 7.13 and reflected in the Financial Statements delivered pursuant to Section 5.2. Section 6.9 Distributions. Except as reflected on Schedule 6.9, as of the Closing Date, since December 31, 2000, no Distribution has been declared, paid, or made upon or in respect of any Capital Stock of the Parent. Section 6.10 Real Estate; Leases. As of the Closing Date, Schedule 6.10 sets forth a correct and complete list of all Real Estate owned by each Loan Party, all leases and subleases of real or personal property by each Loan Party as lessee or sublessee (other than leases of personal property as to which it is lessee or sublessee for which the aggregate lease payments is less than $500,000), and all leases and subleases of real or personal property by each Loan Party as lessor or sublessor. Each of such leases and subleases is valid and enforceable in accordance with its terms and is in full force and effect, and no default by any party to any such lease or sublease exists in any material respect. Each Loan Party has good and indefeasible title in fee simple to the Real Estate identified on Schedule 6.10 as owned by such Loan Party, or valid leasehold interests in all Real Estate designated therein as "leased" by such Loan Party, and each Loan Party has good and indefeasible title to all of its other property reflected on the October 31, 2001 Financial Statements delivered to the Agent and the Lenders, except as disposed of in the ordinary course of business since the date thereof, free of all Liens except Permitted Liens. Section 6.11 Proprietary Rights. Schedule 6.11 sets forth a correct and complete list of all of each Consolidated Member's patents, patent applications, trademark and service mark registrations and applications, and copyright registrations and applications. None of the Proprietary Rights listed in Schedule 6.11 is subject to any licensing agreement or similar arrangement with any Person other than another Consolidated Member except as set forth on Schedule 6.11. The Proprietary Rights described on Schedule 6.11 constitute all of the property of such type necessary to the current and anticipated future conduct of the Consolidated Members' business. To the best of each Loan Party's knowledge, no slogan or other advertising device, product, process, method, substance, part, or other material now employed, or now contemplated to be employed, by any Consolidated Member infringes in any material respect upon any rights held by any other Person. Except as set forth in Schedule 6.13, no claim or litigation regarding any of the foregoing is pending or, to the best of any Loan Party's knowledge, threatened, which impairs, or could reasonably be expected to impair, any such Proprietary Rights in any material respect. No patent, invention, device, application, principle or any statute, law, rule, regulation, standard, or code is pending or, CREDIT AGREEMENT - Page 32 to the knowledge of any Borrower, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. Section 6.12 Trade Names. All trade names or styles under which any Borrowing Base Party will sell Inventory or create Accounts, or to which instruments in payment of Accounts may be made payable, are listed on Schedule 6.12. Section 6.13 Litigation. Except as set forth on Schedule 6.13, there is no pending, or to the best of any Loan Party's knowledge threatened, action, suit, proceeding, or counterclaim by any Person, or investigation by any Governmental Authority, or any basis for any of the foregoing, which could reasonably be expected to have a Material Adverse Effect. Section 6.14 Labor Disputes. Except as set forth on Schedule 6.14, as of the Closing Date, (a) there is no collective bargaining agreement or other labor contract covering employees of any Consolidated Member, (b) no such collective bargaining agreement or other labor contract is scheduled to expire during the term of this Agreement, (c) to the knowledge of the Loan Parties, no union or other labor organization is seeking to organize, or to be recognized as, a collective bargaining unit of employees of any Consolidated Member or for any similar purpose, and (d) there is no pending or (to the best of any Loan Party's knowledge) threatened, strike, work stoppage, material unfair labor practice claim, or other material labor dispute against or affecting any Consolidated Member or its employees. Section 6.15 Environmental Laws. Except as otherwise disclosed on Schedule 6.15: (a) Each Consolidated Member has complied in all material respects with all Environmental Laws and no Consolidated Member nor any of its presently or previously owned Real Estate, presently conducted or prior operations, or any property now or previously in its charge, management, or control is subject to any enforcement order from or liability agreement with any Governmental Authority or private Person respecting (i) compliance with any Environmental Law or (ii) any potential liabilities and costs or remedial action (involving a liability in excess of $2,000,000) arising from the Release or threatened Release of a Contaminant. (b) Each Consolidated Member has obtained all material permits necessary for its current operations under Environmental Laws, and all such permits are in good standing, and each Consolidated Member is in compliance with all material terms and conditions of such permits, other than permits which the failure to obtain or comply with could not reasonably be expected to have a Material Adverse Effect. (c) No Consolidated Member nor to the best of any Loan Party's knowledge any of its predecessors in interest has in violation of any Environmental Law stored, treated, or disposed of any hazardous waste (as defined pursuant to 40 CFR Part 261 or any equivalent Environmental Law) on any property now or previously in its charge, management, or control other than violations that could not reasonably be expected to have a Material Adverse Effect. CREDIT AGREEMENT - Page 33 (d) No Consolidated Member has received any summons, complaint, order, or similar written notice indicating that it is not currently in compliance with, or that any Governmental Authority is investigating its compliance with, any Environmental Laws or that it is or may be liable to any other Person as a result of a Release or threatened Release of a Contaminant. (e) None of the present or past operations of any Consolidated Member or any property now or previously in its charge, management, or control is the subject of any investigation by any Governmental Authority evaluating whether any remedial action is needed to respond to a Release or threatened Release of a Contaminant in each such case that could reasonably be expected to have a Material Adverse Effect. (f) There is not now, nor to the best of any Loan Party's knowledge has there ever been, on or in the Real Estate of any Consolidated Member a violation of Environmental Laws, other than violations that could not reasonably be expected to have a Material Adverse Effect: (i) any underground storage tanks or surface impoundments, (ii) any asbestos-containing material, or (iii) any polychlorinated biphenyls (PCBs) used in hydraulic oils, electrical transformers, or other equipment. (g) No Obligated Party has filed any notice under any requirement of Environmental Law reporting a spill or accidental and unpermitted Release or discharge of a Contaminant into the environment. No Consolidated Member other than an Obligated Party has filed any notice under any requirement of Environmental Law reporting a spill or accidental and unpermitted Release or discharge of a Contaminant into the environment, which spill or accidental and unpermitted Release could reasonably be expected to have a Material Adverse Effect. (h) No Consolidated Member has entered into any negotiations or settlement agreements with any Person (including the prior owner of its property or any Governmental Authority) imposing material obligations or liabilities on any Consolidated Member with respect to any remedial action in response to the Release of a Contaminant or environmentally related claim. (i) None of the products manufactured, distributed, or sold by any Consolidated Member contains asbestos containing material. (j) No Environmental Lien has attached to the Real Estate of any Consolidated Member. CREDIT AGREEMENT - Page 34 Section 6.16 No Violation of Law. No Consolidated Member is in violation of any law, statute, regulation, ordinance, judgment, order, or decree applicable to it which violation could reasonably be expected to have a Material Adverse Effect. Section 6.17 No Default. No default or event of default (howsoever defined), breach or noncompliance exists under or with respect to any of the Subordinated Debt Documents that would permit, or with the passage of time or the giving of notice, or both, would permit, any holder of any Debt thereunder, or any trustee for such holder, to accelerate the Debt thereunder to be immediately due and payable or exercise any other remedies thereunder. No Consolidated Member is in default with respect to any note, indenture, loan agreement, mortgage, lease, deed, or other agreement to which such Consolidated Member is a party or by which it is bound, which default could reasonably be expected to have a Material Adverse Effect. Section 6.18 ERISA Compliance; Foreign Plans. Except as described on Schedule 6.18: (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code, and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Loan Parties, nothing has occurred which would cause the loss of such qualification. Each Loan Party and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of any Loan Party, threatened claims, actions, or lawsuits, or action by any Governmental Authority, with respect to any Plan or Foreign Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan or Foreign Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) Except for instances, if any, which together do not give rise to liability in excess of $1,000,000 in the aggregate, (i) no ERISA Event has occurred or is reasonably expected to occur, (ii) no Pension Plan has any Unfunded Pension Liability, (iii) no Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA), (iv) no Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Title IV of ERISA, would result in such liability) under Title IV of ERISA with respect to a Multi-employer Plan (other than liabilities incurred in the ordinary course of operations of such Multi-employer Plan , including, but not limited to, liability under Sections 4201 and 4243 of ERISA), and (v) no Loan Party nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. CREDIT AGREEMENT - Page 35 (d) Each Foreign Plan is in compliance in all material respects with the laws and regulations applicable to such Foreign Plan and each Consolidated Member has satisfied all contribution obligations in all material respects with respect to such Foreign Plan (to the extent applicable). Each Foreign Plan and related funding arrangement that is intended to qualify for tax- favored status has been reviewed and approved for such status by the appropriate Governmental Authority (or has been submitted for such review and approval within the applicable time period), and nothing has occurred and no condition exists that is likely to cause the loss or denial of such tax-favored status. No Foreign Plan has any liabilities in any material respect in excess of the current value of such Foreign Plan's assets, determined in accordance with the assumptions used for funding such Foreign Plan pursuant to reasonable accounting standards in accordance with applicable law. No Consolidated Member has incurred or reasonably expects to incur any material liability as a result of the termination or other insolvency of any Foreign Plan or any material liability which is not otherwise funded or satisfied with readily available assets set aside with respect to such Foreign Plan. Section 6.19 Taxes. Except as listed in Schedule 6.19, each Obligated Party has filed all federal, provincial, state, and other tax returns and reports required to be filed (or appropriate extensions have been timely filed), and has paid all federal, provincial, state, and other taxes, assessments, fees, and other governmental charges levied or imposed upon it or its properties, income, or assets otherwise due and payable unless such unpaid taxes and assessments would constitute a Permitted Lien. Each Consolidated Member other than an Obligated Party has filed all federal, provincial, state, and other tax returns and reports required to be filed (or appropriate extensions have been timely filed), and has paid all federal, provincial, state, and other taxes, assessments, fees, and other governmental charges levied or imposed upon it or its properties, income, or assets otherwise due and payable unless the failure to pay any such unpaid taxes and assessments could reasonably be expected to have a Material Adverse Effect. Section 6.20 Regulated Entities. No Consolidated Member nor any Person controlling any Consolidated Member is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. No Consolidated Member is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, or a regulated entity under the Federal Power Act, the Interstate Commerce Act, any state public utilities code or law, or any other federal or state statute or regulation limiting its ability to incur indebtedness. Section 6.21 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be used solely for the purposes specified in Section 7.24. No Consolidated Member is engaged in the business of buying or selling Margin Stock or extending credit for the purpose of buying or carrying Margin Stock. Section 6.22 No Material Adverse Change. No Material Adverse Effect has occurred since the latest date of the Financial Statements delivered to the Lenders referenced in Section 6.6. No CREDIT AGREEMENT - Page 36 event or condition which has occurred on or prior to the Closing Date has had, or in the business judgment of the Loan Parties is expected or is reasonably likely to have, a Material Adverse Effect. Section 6.23 Full Disclosure. None of the representations or warranties made by any Obligated Party in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement, or certificate furnished by or on behalf of any Obligated Party in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of any Obligated Party to the Lenders prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. Section 6.24 Material Agreements. As of the Closing Date, Schedule 6.24 sets forth all material agreements and contracts (other than the Loan Documents) of any Consolidated Member which are required to be publicly disclosed pursuant to any Requirement of Law since the date of the Parent's quarterly report for the fiscal quarter ended September 30, 2001. Section 6.25 Bank Accounts. As of the Closing Date, Schedule 6.25 contains a complete and accurate list of all bank accounts maintained by each Consolidated Member with any bank or other financial institution. Section 6.26 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or other Person is necessary or required in connection with the execution, delivery, or performance by, or enforcement against, (a) any Loan Party of this Agreement or any other Loan Document to which such Loan Party is a party or (b) any Consolidated Member, excluding the Unrestricted Subsidiaries, of any Loan Document to which such Consolidated Member is a party, except for those which have been duly obtained by the Loan Parties or other Consolidated Members, as applicable, copies of which have been provided to the Agent, and for filing of financing statements and the Mortgages. Section 6.27 Investment Property. (a) Schedule 6.27 sets forth a correct and complete list of all Investment Property owned by each Obligated Party. Each Obligated Party is the legal and beneficial owner of such Investment Property, as so reflected, free and clear of any Lien (other than Permitted Liens), and has not sold, granted any option with respect to, assigned or transferred, or otherwise disposed of any of its rights or interest therein. (b) To the extent any Obligated Party is the owner of or becomes the issuer of any Investment Property that is Collateral (each such Person which issues any such Investment Property being referred to herein as an "Issuer"): (i) the owners of such Issuer's Capital Stock that are Consolidated Members and the ownership interest of each such Person are as set forth on Schedule 6.27 , and each such Person is the registered owner thereof on the books of the Issuer; (ii) the Issuer acknowledges the Agent's Lien; (iii) to the extent required to perfect the Agent's Liens, such security interest, collateral assignment, lien, and pledge in CREDIT AGREEMENT - Page 37 favor of the Agent has been registered on the books of the Issuer for such purpose as of the date hereof; and (iv) the Issuer is not aware of any liens, restrictions, or adverse claims which exist on any such Investment Property other than the Agent's Lien. Section 6.28 Common Enterprise. The successful operation and condition of each of the Consolidated Members is dependent on the continued successful performance of the functions of the group of Consolidated Members as a whole and the successful operation of each Consolidated Member is dependent on the successful performance and operation of each other Consolidated Member. Each of the Loan Parties expects to derive benefit (and its board of directors or other governing body has determined that it may reasonably be expected to derive benefit), directly and indirectly, from successful operations of the Parent and each of the other Consolidated Members. Each Loan Party expects to derive benefit (and the boards of directors or other governing body of each such Loan Party have determined that it may reasonably be expected to derive benefit), directly and indirectly, from the credit extended by the Lenders to the Borrowers hereunder, both in their separate capacities and as members of the group of companies. Each Loan Party has determined that execution, delivery, and performance of this Agreement and any other Loan Documents to be executed by such Loan Party is within its purpose, will be of direct and indirect benefit to such Loan Party, and is in its best interest. Section 6.29 Convertible Subordinated Debt Documents. The Parent has delivered to the Agent true and correct copies of the Convertible Subordinated Debt Documents. The issuance by the Parent of the Convertible Subordinated Notes was in compliance in all material respects with applicable federal and state securities laws. During the period December 7, 2001 through the Business Day preceding the Closing Date, the Parent received net cash proceeds of Subordinated Debt under the Convertible Subordinated Debt Documents in an amount not less than $97,010,416.67, which proceeds were applied by the Parent in reduction of the Original Loans. ARTICLE 7 AFFIRMATIVE AND NEGATIVE COVENANTS Each Loan Party covenants to the Agent and each Lender that so long as any of the Obligations remain outstanding or this Agreement is in effect each Loan Party will keep and perform, and shall cause each other Consolidated Member, as applicable, to keep and perform, each of the following covenants, unless agreed otherwise or waived in accordance with Section 11.1: Section 7.1 Taxes and Other Obligations. Except as otherwise permitted by the terms of this Agreement, each Consolidated Member shall (a) file when due all tax returns and other reports which it is required to file, (b) pay, or provide for the payment, when due, of all taxes, fees, assessments, and other governmental charges against it or upon its property, income, and franchises, make all required withholding and other tax deposits, and establish adequate reserves for the payment of all such items, and provide to the Agent and the Lenders, upon request, satisfactory evidence of its timely compliance with the foregoing, and (c) pay when due all Debt owed by it and all claims of materialmen, mechanics, carriers, warehousemen, landlords, processors, and other like Persons, and all other indebtedness owed by it and perform and discharge in a timely manner all CREDIT AGREEMENT - Page 38 other obligations undertaken by it; provided, however, such Consolidated Member need not pay any tax, fee, assessment, or governmental charge (w) that it is contesting in good faith by appropriate proceedings diligently pursued, (x) for which it has established proper reserves as required under GAAP, (y) for which no Lien (other than a Permitted Lien) results from such non-payment, and (z) with respect to which any such tax, fee, assessment, or governmental charge in excess of $500,000, a Loan Party has notified the Agent in writing of any contest described in clause (w) preceding. Section 7.2 Legal Existence and Good Standing. Except as may be allowed otherwise by Section 7.9, each Consolidated Member shall maintain its legal existence and its qualification and good standing in all jurisdictions in which the failure to maintain such existence and qualification or good standing could reasonably be expected to have a Material Adverse Effect. Section 7.3 Compliance with Law and Agreements; Maintenance of Licenses. Each Consolidated Member shall comply in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act and all Environmental Laws). Each Consolidated Member shall obtain and maintain all material licenses, permits, franchises, and governmental authorizations necessary to own its property and to conduct its business as conducted on the Closing Date. No Consolidated Member shall modify, amend, or alter its certificate or articles of incorporation, bylaws, limited liability company operating agreement, limited partnership agreement, or other similar constituent documents other than in a manner which does not adversely affect the rights of the Lenders or the Agent. Section 7.4 Maintenance of Property; Inspection of Property; Appraisals. (a) Each Consolidated Member, excluding Unrestricted Subsidiaries, shall maintain all of its property necessary and useful in the conduct of its business, in good operating condition and repair, ordinary wear and tear excepted. (b) Each Consolidated Member, excluding Unrestricted Subsidiaries, shall permit representatives and independent contractors of the Agent (at the expense of the Loan Parties not to exceed four (4) times per year unless an Event of Default has occurred and is continuing) to visit and inspect any of its properties, to examine its corporate, financial, and operating records, and make copies thereof or abstracts therefrom and to discuss its affairs, finances, and accounts with its directors, officers, and independent public accountants, at such reasonable times during normal business hours and as soon as may be reasonably desired, upon reasonable advance notice to such Consolidated Member; provided, however, when an Event of Default exists, the Agent or any Lender may do any of the foregoing at the expense of the Loan Parties at any reasonable time and without advance notice. The costs of any such visits and inspections shall be paid by the Loan Parties as provided in Section 13.7. (c) At any time when a Default or Event of Default exists, and at such other times not more frequently than once per year as the Agent requests, the Borrowers shall, at their expense and upon the Agent's request, provide the Agent with appraisals or updates thereof CREDIT AGREEMENT - Page 39 of any or all Collateral consisting of Real Estate covered by any Mortgage or Equipment, from an appraiser, and prepared on a basis and in form, satisfactory to the Agent, such appraisals and updates to include, without limitation, information required by applicable law and regulations and by the internal policies of the Lenders. Section 7.5 Insurance. (a) Each Consolidated Member, excluding Unrestricted Subsidiaries, shall maintain with financially sound and reputable insurers having a rating of at least A+ or better by Best Rating Guide, insurance against: (i) loss or damage by fire with extended coverage; (ii) theft, burglary, pilferage, and loss in transit; (iii) public liability and third party property damage; (iv) larceny, embezzlement, or other criminal liability; (v) business interruption; and (vi) such other hazards or of such other types as is customary for Persons engaged in the same or similar business as such Consolidated Member, all such insurance to be reasonably consistent with prudent industry practice and as the Agent, in its reasonable discretion, or acting at the direction of the Majority Lenders, may specify, in amounts, and under policies acceptable to the Agent and the Majority Lenders. Without limiting the foregoing, in the event that any improved Real Estate located in the United States covered by a Mortgage is determined to be located within an area that has been identified by the Director of the Federal Emergency Management Agency as a Special Flood Hazard Area ("SFHA"), the Loan Parties shall purchase and maintain, or cause to be purchased and maintained, flood insurance on such Real Estate and any Equipment and Inventory located on such Real Estate. The amount of such flood insurance will be consistent with industry practice and shall, at a minimum, comply with applicable federal regulations as required by the Flood Disaster Protection Act of 1973, as amended. Each Obligated Party shall also maintain flood insurance for its Inventory and Equipment which is, at any time, located in a SFHA. (b) For each of the insurance policies issued as required by this Section 7.5, each Obligated Party shall cause the Agent, for the benefit of the Agent and the Lenders, to be named as secured party or mortgagee and sole loss payee or additional insured, in a manner acceptable to the Agent. Each policy of insurance shall contain a clause or endorsement requiring the insurer to give not less than thirty (30) days prior written notice to the Agent in the event of cancellation of such policy for any reason whatsoever and a clause or endorsement stating that the interest of the Agent shall not be impaired or invalidated by any act or neglect of the insured Person or the owner of any premises for purposes more hazardous than are permitted by such policy. All premiums for such insurance shall be paid when due, and certificates of insurance and, if requested by the Agent or any Lender, photocopies of the policies shall be delivered to the Agent, in each case, in sufficient quantity for distribution by the Agent to each of the Lenders. If any Obligated Party fails to procure (or cause to be procured) such insurance or to pay the premiums therefor when due, the Agent may, and at the direction of the Majority Lenders shall, do so from the proceeds of Revolving Loans. Section 7.6 Insurance and Condemnation Proceeds. Each Loan Party shall promptly notify the Agent and the Lenders of loss, damage, or destruction to the Collateral which exceeds CREDIT AGREEMENT - Page 40 $5,000,000 in any Fiscal Year, whether or not covered by insurance. The Agent is hereby authorized to directly collect all insurance and condemnation proceeds in respect of Collateral of a Loan Party and to apply such proceeds to the reduction of the Obligations as follows: (a) With respect to insurance and condemnation proceeds relating to Collateral of a Loan Party other than Fixed Assets, after deducting from such proceeds the reasonable expenses, if any, incurred by the Agent in the collection or handling thereof, the Agent shall apply such proceeds to the reduction of the Obligations in the manner provided for in Section 3.8. (b) With respect to insurance and condemnation proceeds relating to Collateral of a Loan Party consisting of Fixed Assets, after deducting from such proceeds the reasonable expenses, if any, incurred by the Agent in the collection or handling thereof, the Agent shall permit or require the affected Loan Party to use such proceeds, or any part thereof, to replace, repair, restore, or rebuild the relevant Fixed Assets in a diligent and expeditious manner with materials and workmanship of substantially the same quality as existed before the loss, damage, or destruction so long as (i) no Default or Event of Default exists, (ii) the aggregate of any such proceeds in any Fiscal Year do not exceed $3,000,000, and (iii) such Loan Party first (A) provides the Agent and the Majority Lenders with plans and specifications for any such repair or restoration which shall be reasonably satisfactory to the Agent and the Majority Lenders and (B) demonstrates to the reasonable satisfaction of the Agent and the Majority Lenders that the funds available to it will be sufficient to complete such project in the manner provided therein. In all other circumstances, the Agent shall apply such insurance and condemnation proceeds, ratably, to the reduction of the Obligations in the manner provided for in Section 3.8). Without limiting the foregoing, with respect to any such insurance or condemnation proceeds of any Canada Subsidiary, at the request of the Parent (but without obligation to do so) the Agent in its sole discretion may allow such proceeds to be held as cash Collateral, rather than immediately applied to the Obligations, on such terms as may be acceptable to the Agent. Section 7.7 Environmental Laws. (a) Each Obligated Party shall conduct its business in compliance with all Environmental Laws applicable to it, including those relating to the generation, handling, use, storage, and disposal of any Contaminant except where the failure to do so could reasonably be expected to give rise to or cause a liability of any Obligated Party in excess of $2,000,000. Each Obligated Party shall take prompt and appropriate action to respond to any non-compliance with Environmental Laws and shall regularly report to the Agent on such response. Each Loan Party shall cause each other Consolidated Member other than an Obligated Party to conduct its business in compliance with all Environmental Laws applicable to it, including those relating to the generation, handling, use, storage, and disposal of any Contaminant, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Each Loan Party shall cause each other Consolidated Member other than an Obligated Party to take prompt and appropriate action CREDIT AGREEMENT - Page 41 to respond to any non-compliance with Environmental Laws, and shall regularly report to the Agent on such response, except with respect to any such non-compliance which could reasonably be expected to have a Material Adverse Effect. (b) Without limiting the generality of the foregoing, the Loan Parties shall ,upon the Agent's request, submit to the Agent and the Lenders annually, commencing on the first Anniversary Date, and on each Anniversary Date thereafter, an update of the status of each environmental compliance or liability issue, if any, concerning any Real Estate at any time covered by any Mortgage. The Agent or any Lender may request, in which case the Loan Parties will promptly furnish or cause to be furnished to the Agent, copies of technical reports with respect to any such Real Estate prepared by or for any Consolidated Member and its communications with any Governmental Authority to determine whether any Consolidated Member is proceeding reasonably to correct, cure, or contest in good faith any alleged non-compliance or environmental liability. Each Loan Party shall, at the Agent's or the Majority Lenders' request and at such Loan Party's expense, (i) retain an independent environmental engineer acceptable to the Agent to evaluate any site located on any such Real Estate, including tests if appropriate, where the non- compliance or alleged non-compliance with Environmental Laws has occurred and prepare and deliver to the Agent, in sufficient quantity for distribution by the Agent to the Lenders, a report setting forth the results of such evaluation, a proposed plan for responding to any environmental problems described therein, and an estimate of the costs thereof and (ii) provide to the Agent, in sufficient quantity for distribution by the Agent to the Lenders, a supplemental report of such engineer whenever the scope of the environmental problems (if any), or the response thereto or the estimated costs thereof, shall increase in any material respect. (c) The Agent and its representatives shall have the right at any reasonable time to enter and visit any Real Estate at any time covered by any Mortgage for the purposes of observing the Real Estate, taking and removing soil or groundwater samples, and conducting tests on any part of the Real Estate. The Agent is under no duty, however, to visit or observe any Real Estate or to conduct tests, and any such acts by the Agent will be solely for the purposes of protecting the Agent's Liens and preserving the Agent and the Lenders' rights under the Loan Documents. No site visit, observation, or testing by the Agent and the Lenders will result in a waiver of any Default or Event of Default or impose any liability on the Agent or the Lenders. In no event will any site visit, observation, or testing by the Agent be a representation that hazardous substances are or are not present in, on or under any Real Estate, or that there has been or will be compliance with any Environmental Law. Neither any Consolidated Member nor any other party is entitled to rely on any site visit, observation, or testing by the Agent. The Agent and the Lenders owe no duty of care to protect the Consolidated Members or any other party against, or to inform the Consolidated Members or any other party of, any hazardous substances or any other adverse condition affecting any Real Estate. The Agent may in its discretion disclose to any Consolidated Member or to any other party if so required by law any report or findings made as a result of, or in connection with, any site visit, observation, or testing by the Agent. The Agent makes no warranty or representation to the Consolidated Members or any other party regarding the truth, accuracy, or completeness of any such report or findings that may be disclosed. The Loan Parties CREDIT AGREEMENT - Page 42 understand, and shall cause each other Consolidated Member to understand, that depending on the results of any site visit, observation, or testing by the Agent and disclosed to any Consolidated Member, a Consolidated Member may have a legal obligation to notify one or more environmental agencies of the results, that such reporting requirements are site-specific, and are to be evaluated by the Consolidated Members without advice or assistance from the Agent. In each instance, the Agent will give the Parent reasonable notice before entering any Real Estate or any other place the Agent is permitted to enter pursuant to this Section 7.7(c). The Agent will make reasonable efforts to avoid interfering with any Consolidated Member's use of any Real Estate or any other property in exercising any rights provided hereunder. Section 7.8 Compliance with ERISA and Similar Foreign Laws. Each Consolidated Member shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code, and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; (c) make all required contributions to any Plan subject to Section 412 of the Code; (d) not engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan or Foreign Plan; (e) not engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA; and (f) maintain each Foreign Plan in compliance in all material respects with Requirements of Law applicable to such Foreign Plan; (g) satisfy all contribution obligations in all material respects with respect to such Foreign Plan; and (h) cause each Foreign Plan and related funding arrangements that are intended to qualify for tax-favored status to maintain such tax-favored status. Section 7.9 Mergers, Consolidations, or Sales. No Consolidated Member, excluding the Unrestricted Subsidiaries, shall enter into any transaction of merger, amalgamation, reorganization, or consolidation, or transfer, sell, assign, lease, or otherwise dispose of all or any part of its property, or wind up, liquidate or dissolve, or agree to do any of the foregoing, except for sales of Inventory in the ordinary course of its business, sales or other dispositions (in each case subject to Sections 3.4 and 7.26) of Real Estate and Equipment in the ordinary course of its business and not otherwise prohibited by this Agreement that is obsolete or no longer useable by such Consolidated Member in its business, and assignments of Proprietary Rights between or among Consolidated Members; provided that, notwithstanding the foregoing or any other provision of this Agreement, as long as no Default or Event of Default exists or would result therefrom and provided the Parent gives the Agent and the Lenders prior written notice: (a) a Consolidated Member, other than the Parent, may wind-up, dissolve, or liquidate if (i) its property is transferred to the Parent or another Loan Party (provided, that the property of a Borrowing Base Party may only be transferred to another Borrowing Base Party) and (ii) the Person acquiring such property complies with its obligations under Section 7.28 of this Agreement and Section 2.3 of the Security Agreement simultaneously with such acquisition (provided, that a Dormant Guarantor may dissolve without compliance with clauses (i) and (ii) preceding so long as such Dormant Guarantor owns no property); (b) a Consolidated Member, other than the Parent, may merge or consolidate with the Parent or another Loan Party (provided the Parent or such other Loan Party is the survivor CREDIT AGREEMENT - Page 43 of any such merger or consolidation to which it is a party, and provided further, that a Borrowing Base Party may merge or consolidate only with another Borrowing Base Party); (c) a Loan Party may make Permitted Acquisitions; (d) subject to Sections 3.4 and 7.26 a Consolidated Member, other than the Unrestricted Subsidiaries, may enter into sales or other dispositions (other than transactions subject to Section 7.19) of its property consisting of Equipment and Real Estate if (A) the Orderly Liquidation Value of such Equipment and the appraised fair market value of such Real Estate does not exceed $15,000,000 in the aggregate (net of the related sales costs, if any, of such Equipment and Real Estate) during the term of this Agreement for all of the Consolidated Members, other than the Unrestricted Subsidiaries, collectively, (B) the Agent shall have received written notice of any such sale or disposition involving Equipment with an Orderly Liquidation Value and Real Estate having an appraised fair market value in excess of $500,000, and (C) the cash consideration received by the applicable Consolidated Member at the time of any such sale or other disposition shall be not less than seventy-five percent (75.0%) of the total consideration received; and (e) Subject to Section 3.4, a Consolidated Member, other than the Unrestricted Subsidiaries, may enter into transactions permitted under Section 7.19. The inclusion of proceeds in the definition of Collateral shall not be deemed to constitute the Agent's or any Lender's consent to any sale or other disposition of the Collateral except as expressly permitted herein. Section 7.10 Distributions; Capital Change; Restricted Investments. No Consolidated Member, excluding the Unrestricted Subsidiaries, shall (a) directly or indirectly declare or make, or incur any liability to make, any Distribution, except Distributions by a Consolidated Member to a Loan Party, (b) make any change in its capital structure which could have a Material Adverse Effect, or (c) make any Restricted Investment. Notwithstanding any other provision of this Agreement, the Loan Parties shall not (i) permit the aggregate value of all Unrestricted Subsidiaries other than EGL Trade Services, Inc. to exceed $50,000 at any time and (ii) shall not permit the Consolidated Members to at any time own Margin Stock with an aggregate value in excess of $50,000. Section 7.11 Transactions Affecting Collateral or Obligations. No Consolidated Member shall enter into any transaction which could be reasonably expected to result in a Material Adverse Effect. Section 7.12 Guaranties. No Consolidated Member, excluding the Unrestricted Subsidiaries, shall make, issue, or become liable on any Guaranty, except Guaranties of the Debt of a Consolidated Member, excluding an Unrestricted Subsidiary, allowed under clauses (a) and (c) of Section 7.13, or clauses (b) or (d) of Section 7.13 to the extent any such Guaranty of any such Debt exists on the Closing Date. CREDIT AGREEMENT - Page 44 Section 7.13 Debt. No Consolidated Member, excluding the Unrestricted Subsidiaries, shall incur or maintain any Debt, other than: (a) the Obligations of the Loan Parties; (b) the Debt described on Schedule 6.8; (c) Capital Leases of Equipment and purchase money secured Debt incurred to purchase Equipment; provided that (i) the Liens securing such Capital Leases and purchase money secured Debt shall attach only to the Equipment acquired by the incurrence of such Capital Leases and purchase money secured Debt and shall not secure any other Debt and (ii) the aggregate amount of such Debt (including Capital Leases) outstanding does not exceed $25,000,000 at any time; (d) Debt evidencing a refunding, renewal, or extension of the Debt described on Schedule 6.8; provided that (i) the principal amount thereof is not increased, (ii) the Liens, if any, securing such refunded, renewed, or extended Debt do not attach to any assets in addition to those assets, if any, securing the Debt to be refunded, renewed, or extended, (iii) no Person that is not an obligor or guarantor of such Debt as of the Closing Date shall become an obligor or guarantor thereof (except pursuant to a transaction permitted by clause (b) of Section 7.9) and (iv) the terms of such refunding, renewal, or extension are, in the Agent's reasonable discretion, no less favorable to such Consolidated Member, the Agent, or the Lenders than the original Debt; (e) Debt owing by an Obligated Party to a Loan Party for intercompany loans and advances made by such Loan Party for working capital in the ordinary course of business; and (f) the Subordinated Debt evidenced by the Convertible Subordinated Notes and the Convertible Subordinated Debt Documents, in each case as existing on the Closing Date. Section 7.14 Prepayment. No Consolidated Member, excluding the Unrestricted Subsidiaries, shall voluntarily prepay any Debt except the Obligations. Section 7.15 Transactions with Affiliates. Except as set forth below, no Loan Party shall sell, transfer, distribute, or pay any money or property, including, but not limited to, any fees or expenses of any nature (including, but not limited to, any fees or expenses for management services), to any Affiliate that is not a Loan Party, or lend or advance money or property to any Affiliate that is not a Loan Party, or invest in (by capital contribution or otherwise) or purchase or repurchase any Capital Stock or indebtedness, or any property, of any Affiliate that is not a Loan Party, or become liable on any Guaranty of the indebtedness, dividends, or other obligations of any Affiliate that is not a Loan Party. Notwithstanding the foregoing, if no Default or Event of Default is in existence or would result therefrom, any Consolidated Member may engage in transactions with an Affiliate (including without limitation as described in Schedule 7.15) in the ordinary course of such Consolidated Member's business consistent with past practices and upon terms no less favorable to such Consolidated Member than would be obtained in a comparable arm's-length transaction with a third party who is not an Affiliate. Section 7.16 Investment Banking and Finder's Fees. No Consolidated Member shall pay or agree to pay, or reimburse any other party with respect to, any investment banking or similar or related fee, underwriter's fee, finder's fee, or broker's fee to any Person in connection with this Agreement other than pursuant to the Agent's Letter. The Loan Parties shall defend and indemnify the Agent and the Lenders against and hold them harmless from (a) all claims of any Person that any Borrower is obligated to pay any such fees and (b) all costs and expenses (including Attorneys Costs) incurred by the Agent and/or any Lender in connection therewith. CREDIT AGREEMENT - Page 45 Section 7.17 Business Conducted. The Consolidated Members shall not engage, directly or indirectly, in any line of business other than the businesses in which the Consolidated Members are engaged on the Closing Date and any business activities that are substantially similar, related, or incidental thereto. Section 7.18 Liens. No Consolidated Member, excluding the Unrestricted Subsidiaries, shall create, incur, assume, or permit to exist any Lien on any property (excluding Margin Stock) now owned or hereafter acquired by it, except Permitted Liens. Other than as set forth in this Agreement or in connection with the creation or incurrence of any Debt under Section 7.13(c) no Consolidated Member, excluding the Unrestricted Subsidiaries, will enter into or become subject to any Negative Pledge; provided that any Negative Pledge entered into in connection with the creation or incurrence of Debt under Section 7.13(c) shall be limited to the property subject to the purchase money Lien securing such Debt. Section 7.19 Sale and Leaseback Transactions. No Consolidated Member, excluding the Unrestricted Subsidiaries, shall, directly or indirectly, enter into any arrangement (a "sale and leaseback arrangement") with any Person providing for such Consolidated Member to lease or rent property that such Consolidated Member has sold or will sell or otherwise transfer to such Person if, after giving effect to such arrangement, the aggregate value (determined on a valuation basis acceptable to the Agent) of all property which has been made subject to a sale and leaseback arrangement under this Section (excluding sale and leaseback arrangements on the Parent's headquarters location in Houston, Texas and its facility in Denver, Colorado) would exceed $15,000,000. Section 7.20 New Subsidiaries. The Consolidated Members shall not, directly or indirectly, organize, create, acquire, or permit to exist any (a) Unrestricted Subsidiary other than Unrestricted Subsidiaries existing on the Closing Date or any other Subsidiary of the Parent which the Agent, in its sole discretion at the request of the Parent, designates as an Unrestricted Subsidiary, or (b) any other Subsidiary other than the Subsidiaries of the Parent in existence on the Closing Date except, in the case of this clause (b), as permitted by this Section 7.20. Not later than thirty (30) days prior to creation or acquisition of any Domestic Subsidiary of a Loan Party, such Loan Party shall notify the Agent that it intends to create or acquire such Domestic Subsidiary and propose to the Agent that such new Domestic Subsidiary become, and with the Agent's and the Majority Lenders' consent pursuant to Section 13.22 cause such new Domestic Subsidiary to become, a Loan Party as a Borrower, subject to the terms of this Agreement. Not later than thirty (30) days prior to creation or acquisition of any Eligible Foreign Subsidiary, the Parent shall notify the Agent that it, or one of its Subsidiaries, intends to create or acquire such Subsidiary and propose to the Agent that such new Subsidiary become, and with the Agent's and the Majority Lenders' consent pursuant to Section 13.22 cause such new Subsidiary to become, a Loan Party as a Borrowing Base Party but not as a Borrower, subject to the terms of this Agreement. In connection with the forgoing, at the Agent's request the Loan Parties shall promptly execute and deliver or cause to be promptly executed and delivered to the Agent such guaranties, amendment agreements, consents, and other documents and agreements as the Agent requests so that such Subsidiary guarantees the Obligations (other than Existing Obligations in the case of any such documents executed by a Newly Obligated Borrower) and grants a Lien to secure such Guaranty and such Obligations on the same terms as the existing CREDIT AGREEMENT - Page 46 Loan Parties (including the execution and delivery of a joinder agreement in form and substance satisfactory to the Agent or the execution of such new Loan Documents and consents as the Agent determines are necessary to have the same effect in different jurisdictions). In connection therewith and within fifteen (15) days after the formation of any such new Subsidiary, the Parent shall deliver or cause to be delivered to the Agent the Capital Stock of such new Subsidiary (together with any other agreements, certificates, or documents required to evidence and perfect the Agent's Liens in such Capital Stock), provide organizational documents and if requested by the Agent, opinion letters reasonably satisfactory to the Agent reflecting the status of such new Subsidiary and the authorization, authority, noncontravention, and enforceability of such agreements. With respect to any such Subsidiary that becomes a Loan Party after the Closing Date, upon execution and delivery of such Loan Documents and other instruments, certificates, and agreements, such Subsidiary shall automatically become a Loan Party, and with the consent of the Agent and the Majority Lenders, a Borrower, and thereupon shall have all of the rights, benefits, duties, and obligations in such capacity under the Loan Documents. Section 7.21 Fiscal Year. The Loan Parties shall not change the last day of their Fiscal Year. Section 7.22 Capital Expenditures. (a) No Consolidated Member, excluding the Unrestricted Subsidiaries, shall make or incur any Capital Expenditure (other than from insurance proceeds to the extent permitted by Section 7.6(b)) if, after giving effect thereto, the aggregate amount of all Capital Expenditures by the Consolidated Members, excluding the Unrestricted Subsidiaries, on a consolidated basis (a) during the fiscal quarter ending December 31, 2001, would exceed $12,000,000, (b) during any of the first three (3) fiscal-quarter-to-date periods during any Fiscal Year beginning with the Fiscal Year ending December 31, 2002, would exceed (i) $12,000,000 for the first of such Fiscal Quarters, (ii) $24,000,000 in the aggregate for the first and second of such Fiscal Quarters or (iii) $36,000,000 in the aggregate for the first, second and third of such Fiscal Quarters, as applicable, or (c) during any Fiscal Year beginning with the Fiscal Year ending December 31, 2002, $48,000,000 (the respective dollar limitations specified in clauses (a) and (b) preceding each hereinafter being called a "Capex Limitation"); (b) If, after giving effect to any proposed Capital Expenditures, the Availability Without Regard to Line Constraint is greater than $40,000,000, then, at the Borrowers' option, the Capex Limitation applicable with respect to such Capital Expenditure may be increased by the additional amount of $3,000,000, provided, that no more than one (1) such increase may be utilized during any fiscal quarter. Section 7.23 Minimum Adjusted Tangible Net Worth. Adjusted Tangible Net Worth, determined for the Parent and its Subsidiaries, excluding the Unrestricted Subsidiaries, as of the last day of the fiscal quarter ending December 31, 2001 and continuing as of the last day of each fiscal quarter ending thereafter, shall not be less than the Adjusted Tangible Net Worth Requirement. CREDIT AGREEMENT - Page 47 Section 7.24 Use of Proceeds. The Borrowers shall use the proceeds of the initial Loans to (a) pay and discharge all Original Loans of the Terminating Lenders, (b) renew and continue (but not extinguish) the Original Loan of the Bank and (c) pay costs, fees and expenses in connection with this Agreement. The Borrowers shall use the proceeds of all other Loans for business purposes not otherwise prohibited by this Agreement, and shall not use any portion of the Loan proceeds, directly or indirectly, (i) to buy or carry any Margin Stock, other than Permitted Stock Repurchases not otherwise prohibited by this Agreement, (ii) to repay or otherwise refinance indebtedness of the Borrowers or others incurred to buy or carry any Margin Stock, (iii) to extend credit for the purpose of buying or carrying any Margin Stock, (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act or (v) to make any payment under or in respect of any Subordinated Debt if any Default or Event of Default is in existence, or would exist after giving effect to such Loan. Section 7.25 Bank as Depository. Each Borrower shall maintain the Bank (or in the case of a Loan Party that is not a Borrower, the Bank or an Affiliate of the Bank) as its principal depository bank, including for the maintenance of operating, administrative, cash management, collection activity, and other deposit accounts for the conduct of its business. Section 7.26 Proceeds from Asset Dispositions by Consolidated Members other than Borrowers. Each Borrower shall cause each of its Subsidiaries that is not a Borrower, excluding the Unrestricted Subsidiaries, to cause all cash proceeds of any Asset Disposition by such Subsidiary (including without limitation proceeds of asset dispositions permitted by Sections 7.9(d) and 7.9(e)), to be transferred to such Borrower, by loan, Distribution, or other inter-company transfer if (i) such assets are not replaced by such Consolidated Member with assets of a similar nature which are usable in its business within six (6) months of the subject Asset Disposition and (ii) on the last day of such six (6) month period, Availability Without Regard to Line Constraint is less than $25,000,000. Section 7.27 Guaranties. Each Loan Party, including any Person which becomes a Loan Party after the Closing Date pursuant to the terms of this Agreement, shall guarantee payment and performance of the Obligations (other than Obligations owing by itself and excluding Existing Obligations in the case of any such guarantee by a Newly Obligated Borrower) pursuant to a Guaranty Agreement in form and substance satisfactory to the Agent, duly executed by each such Loan Party. Each such guaranteeing Loan Party that is a Borrower acknowledges and expressly agrees with the Agent and each Lender that the Guaranty by such Borrower is required solely as a condition to, and is given solely as inducement for and in consideration of, credit or accommodations extended or to be extended under the Loan Documents to any or all of the other Borrowers and is not required or given as a condition of extensions of credit to such Borrower. Section 7.28 Agent's Liens. Each Loan Party, including any Person which becomes a Loan Party after the Closing Date pursuant to the terms of this Agreement, as security for the Obligations (other than Existing Obligations in the case of a Newly Obligated Borrower) and its Guaranty granted pursuant to Section 7.27, shall grant to the Agent, for the benefit of the Agent, the Lenders and the Issuer, pursuant to Loan Documents in form and substance satisfactory to the Agent, a continuing first priority and exclusive (other than Permitted Liens) Lien on (i) all assets (except as limited with respect to Real Estate as provided by clause (iii) following) now owned and hereafter CREDIT AGREEMENT - Page 48 acquired by each such Loan Party, including without limitation, all existing and future acquired Accounts, Intercompany Accounts, contract rights, inventory, machinery and equipment, vehicles and rolling stock, chattel paper, documents, instruments, deposit accounts, investment property (except as limited pursuant to clause (ii) following), general intangibles (including, without limitation, payment intangibles, intercompany accounts, trademarks, tradenames, patents, copyrights and licenses), software, fixtures, commercial tort claims, supporting obligations, letter of credit rights and other goods now owned and hereafter acquired by each such Loan Party, (ii) (A) 100% of the Capital Stock of each Borrower other than the Parent, (B) sixty-five percent (65.0%) of the Capital Stock of EGL (UK) Holding Company Limited, (C) and the maximum amount which is less than 66 2/3% of all Capital Stock of each other direct Foreign Subsidiary of any Loan Party, as may be requested by the Agent in its sole discretion, and (iii) the Real Estate and the improvements thereon owned by any Loan Party and located in Houston, Texas, San Francisco (to the extent not sold prior to the Closing Date), California, Denver, Colorado, and Boston, Massachusetts. Section 7.29 Further Assurances. Without limiting any other provision of this Agreement or the other Loan Documents, the Loan Parties shall, and shall cause each Obligated Party to, execute and deliver, or cause to be executed and delivered, to the Agent such documents and agreements, and shall take or cause to be taken such actions as the Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents. Section 7.30 Proceeds from Surplus Cash Deposits. Any Borrowing Base Party, who is not a Borrower, that has on deposit in any bank account unapplied cash (being surplus cash not used for general working capital needs) exceeding $5,000,000, at any time when Availability Without Regard to Line Constraint is less than $25,000,000, shall, unless otherwise agreed by the Agent in its sole discretion, transfer such unapplied cash to the Parent by loan, Distribution, or other intercompany transfer. Section 7.31 Excess Collections, Investments, Etc. No Loan Party, other than a Borrower, shall have, in the aggregate, a sum exceeding the equivalent amount of $8,000,000 in the form of (a) a deposit of cash in any bank account, (b) securities (other than Capital Stock of a Subsidiary of the Parent), or (c) property that is of the type described in clauses (d), (e), (f), (h), (l) or (m) of the definition of Restricted Investment, unless otherwise agreed by the Agent in its sole discretion. Section 7.32 Collections of Accounts. Collections of Accounts of the Borrowers shall be administered as provided by the Security Agreement. Unless otherwise agreed by the Agent in its discretion, collections of Accounts of the Loan Parties other than the Borrowers shall be transferred daily to a Payment Account maintained with the Agent, an Affiliate of the Agent or other financial institution acceptable to the Agent, subject to a Blocked Account Agreement satisfactory to the Agent, which shall provide for sweeps of Collateral proceeds to the Agent on terms satisfactory to the Agent. Section 7.33 Availability Without Regard to Line Constraint. Availability Without Regard to Line Constraint, shall equal or exceed (i) on each day after the Closing Date until all requirements, if any, of the Postclosing Agreement are satisfied to the Agent's satisfaction or waived in accordance with Section 11.1, $40,000,000, (ii) on each day on and after the date when clause (i) is no longer CREDIT AGREEMENT - Page 49 applicable through the Availability Measurement Reduction Date, $25,000,000 and (ii) provided that clause (i) is no longer applicable, on each day on and after the Availability Measurement Reduction Date, $15,000,000. Section 7.34 Subordinated Debt. No Subordinated Debt Document shall be amended or modified without the prior written consent of the Agent and the Majority Lenders. Section 7.35 Foreign Credit Debt. On or before the expiration of sixty (60) days after the Closing Date the Parent will cause all Debt under the Foreign Credit Debt to be satisfied and discharged in full and the Foreign Credit Debt Documents to be terminated, subject to the terms thereof. ARTICLE 8 CONDITIONS OF LENDING Section 8.1 Conditions Precedent to Making of Loans on the Closing Date. The obligation of the Lenders to make the initial Loans on the Closing Date, and the obligation of the Agent to cause the Letter of Credit Issuer to issue any Letter of Credit or Credit Support on the Closing Date, are subject to the following conditions precedent having been satisfied in a manner satisfactory to the Agent and each Lender: (a) The Agent shall have received each of the following documents, all of which shall be satisfactory in form and substance to the Agent and the Lenders: (i) a certificate of the corporate secretary, general partner or comparable authorized representative of each Loan Party, stating that the certified copies of the certificate of incorporation, certificate of limited partnership, or comparable organizational document of each such Obligated Party and the bylaws, regulations, operating agreement, or similar governing document of each such Loan Party (in each case with all amendments, if any), delivered to the Agent in connection with the Original Credit Agreement, in each case are true and correct and in effect on the Closing Date; (ii) certificates of incumbency and specimen signatures with respect to each Person authorized to execute and deliver this Agreement and the other Loan Documents on behalf of each Loan Party and each other Person executing any document, certificate, or instrument to be delivered in connection with this Agreement and the other Loan Documents and, in the case of each Borrower, to request Borrowings and the issuance of Letters of Credit or Credit Support; (iii) a certificate of the corporate secretary, general partner or comparable authorized representative of each Loan Party, stating that the certificates evidencing the existence of each such Loan Party, and the certificates evidencing the good standing of each such Loan Party, delivered to the Agent in connection with the CREDIT AGREEMENT - Page 50 Original Credit Agreement, in each case are true and correct and in effect on the Closing Date as if such certificates had been issued as of the Closing Date; (iv) certified copies of all action taken by each Loan Party to authorize the execution, delivery, and performance of this Agreement, the other Loan Documents, and with respect to the Borrowers, the Borrowings and the issuance of Letters of Credit and/or Credit Support; (v) a certificate of each Loan Party signed by a Responsible Officer: (A) stating that all of the representations and warranties made or deemed to be made under this Agreement are true and correct as of the Closing Date, after giving effect to the Loans to be made at such time and the application of the proceeds thereof and the issuance of any Letter(s) of Credit and/or Credit Support at such time, (B) stating that no Default or Event of Default exists, (C) specifying the account of the Borrowers which is the Designated Account, and (D) certifying as to (i) attachment of true an correct copies of the Synthetic Lease Transaction Documents and the Convertible Subordinated Debt Documents and (ii) such other factual matters as may be reasonably requested by the Agent; (vi) with respect to any Letter of Credit or Credit Support to be issued, all documentation required by Section 1.4, duly executed; (vii) a Revolving Loan Note payable to the order of each Lender in the amount of its Commitment with respect thereto, duly executed and delivered by each Borrower, complying with the requirements of Section 1.2(b); (viii) (A) UCC financing statements and/or amendments to existing UCC financing statements with respect to all Collateral as may be requested by the Agent, duly executed by the respective Obligated Parties, to the extent any such Liens may be perfected under the UCC and (B) with respect to any Loan Party that is an Eligible Foreign Subsidiary, all filings and recordations required by Requirements of Law in all jurisdictions that the Agent may deem necessary or desirable in order to perfect the Agent's Lien in Collateral owned by such Loan Party; (ix) (A) duly executed UCC-3 termination statements or assignments with respect to the UCC and such other releases or instruments, in each case in form and substance satisfactory to the Agent, in each case as shall be necessary to terminate and satisfy all Liens, except Permitted Liens, on the property of the Loan Parties, and CREDIT AGREEMENT - Page 51 (B) releases, terminations, or other instruments under the Requirements of Law of each Eligible Foreign Jurisdiction (including, without limitation, under the PPSA and the CCQ), and such other releases or instruments, in each case in form and substance satisfactory to the Agent, as shall be necessary to terminate and satisfy all Liens, except Permitted Liens, on the Accounts and Deposit Accounts of any Loan Party; (x) as may be required by the Agent in its discretion, any Copyright Security Agreement, Patent Security Agreement and/or Trademark Security Agreement, as applicable, with respect to any and all Proprietary Rights, if any, owned by any Loan Party which must be registered with any Governmental Authority to perfect the Agent's Liens in such Proprietary Rights, duly executed by each such Loan Party, as applicable; (xi) each Guaranty Agreement, duly executed and delivered by each Loan Party required pursuant to Section 7.27; (xii) the Security Agreement, duly executed by the Loan Parties, and all Canadian Security Documents (or amendments to Canadian Security Documents executed in connection with the Original Credit Agreement), duly executed by the Loan Parties that are Canadian Subsidiaries, as applicable, as required by the Agent; (xiii) (A) except as previously delivered to the Agent in connection with the Original Credit Agreement, stock certificates and stock powers (duly executed in blank) for all Capital Stock referenced in clause (ii) of Section 7.28, in form and substance satisfactory to the Agent, (B) as may be required by the Agent in its reasonable discretion for any Investment Property, "control" agreements (pursuant to the UCC or the laws of any foreign jurisdiction), each duly executed, as the Agent may request with respect to any other Investment Property (other than Capital Stock of a Subsidiary of the Parent) listed in Schedule 6.27, and (C) such other notices, acknowledgments, and other documents as may be required in order to perfect the Agent's Lien in such Investment Property pursuant to applicable Requirements of Law; (xiv) a Borrowing Base Certificate effective as of the Business Day preceding the day such initial Loans are to be funded or any such Letter of Credit or Credit Support is to be issued; (xv) as requested by the Agent in its discretion, a landlord's or mortgagee's waiver and consent agreement, in form and substance reasonably acceptable to the Agent, duly executed on behalf of each landlord or mortgagee, as the case may be, of Real Estate on which any books and records in respect of the Collateral is located (provided that the Loan Parties may defer delivery of any such agreements for a period not to exceed ninety (90) days from the Closing Date; provided, further, that thereafter the Agent may, in its discretion, establish a reserve with respect to any such CREDIT AGREEMENT - Page 52 requested landlord's or mortgagee's waiver and consent agreement which has not been delivered to the Agent; (xvi) each Blocked Account Agreement duly executed as required by the Security Agreement or the Foreign Security Documents or as otherwise required by the Agent, and the Agent shall have established all administrative requirements in respect of collections on Accounts of the Loan Parties in a manner satisfactory to the Agent; (xvii) (A) the Agent shall have received satisfactory evidence that the Agent has a valid, exclusive (other than Permitted Liens) and perfected first priority Lien in all Collateral as required by Section 7.28, to the extent such Liens may be perfected under the UCC or the Requirements of Law of each applicable Eligible Foreign Jurisdiction (excluding any Liens on vehicles for which a certificate of title has been issued and Liens perfected solely by possession, but only to the extent the Agent has not requested perfection of its Liens in such vehicles or possession of such Collateral), and in connection therewith each Loan Party shall have executed and delivered to the Agent such Loan Documents as may be required by the Agent, in each case in form and substance satisfactory to the Agent; (xviii) with respect to Real Estate referenced in clause (iii) of Section 7.28, the applicable Loan Party shall have executed and delivered to the Agent an amendment or modification of the Mortgage previously executed and delivered in connection with the Original Credit Agreement with respect to such Real Estate, in each case in proper form for recording in the jurisdiction in which such Real Estate is located, in form and substance reasonably satisfactory to the Agent, and true and complete copies of each of the following to the extent it exists and is in the possession or control of any Consolidated Member and has not already been delivered to the Agent in connection with the Original Credit Agreement, in each case with respect to such Real Estate: (1) any owner's or mortgagee's policy of title insurance, (2) any environmental site assessment, (3) any boundary survey, and (4) such other information, documentation, opinions, and certifications with respect to any such parcel of Real Estate as may be reasonably requested by the Agent; (xix) signed opinions of counsel for the Loan Parties, opining as to such matters in connection with the transactions contemplated by this Agreement as the Agent may reasonably request, each such opinion to be in a form, scope, and substance satisfactory to the Agent, the Lenders, and their respective counsel; (xx) the Agent shall have received evidence, in form, scope, and substance, reasonably satisfactory to the Agent, of all insurance coverage as required by this Agreement; (xxi) the Agent shall have received true and complete copies of the Convertible Subordinated Debt Documents, with all exhibits and schedules thereto, CREDIT AGREEMENT - Page 53 together with all opinions and related agreements executed and/or delivered in connection therewith; (xxii) the Agent shall have received true and complete copies of all Synthetic Lease Transaction Documents, with all exhibits and schedules thereto, together with all opinions and related agreements executed and/or delivered in connection therewith; and (xxiii) such other documents and instruments as the Agent or any Lender may reasonably request. (b) On the Closing Date, after giving effect to the making of all Loans (including any Loans made to finance payment or reimbursement for fees, costs, and expenses then payable under or pursuant to this Agreement) and issuance of all Letters of Credit and Credit Support and with all of their obligations current to the Agent's satisfaction, the Availability Without Regard to Line Constraint shall be in an amount not less than $40,000,000. (c) All representations and warranties made hereunder and in the other Loan Documents shall be true and correct. (d) No Default or Event of Default shall exist or would exist after giving effect to the Loans to be made and the Letters of Credit and Credit Support to be issued. (e) The Loan Parties shall have paid all fees and expenses of the Agent and the Attorney Costs incurred in connection with any of the Loan Documents and the transactions contemplated thereby to the extent invoiced. (f) The Agent and the Lenders shall have had an opportunity to examine the books of account and other records and files of the Consolidated Members and to make copies thereof, and to conduct a pre-closing audit which shall include, without limitation, verification of Accounts and the Borrowing Base, and the results of such examination and audit shall have been satisfactory to the Agent and the Lenders in all respects. (g) All proceedings taken in connection with the execution of this Agreement, the other Loan Documents, and all documents and papers relating thereto shall be satisfactory in form, scope, and substance to the Agent and the Lenders. (h) Without limiting the generality of the items described above, the Obligated Parties and each Person guaranteeing or securing payment of the Obligations shall have delivered or caused to be delivered to the Agent (in form and substance reasonably satisfactory to the Agent), the financial statements, instruments, resolutions, documents, agreements, certificates, opinions and other items required by the Agent. (i) The Agent and the Lenders shall be satisfied that the Loan Parties are able to comply with Collateral and financial reporting requirements under the Loan Documents. CREDIT AGREEMENT - Page 54 (j) There shall exist no action, suit, investigation, litigation, or proceeding pending or threatened in any court or before any arbitrator or governmental authority that in the Agent's or any Lender's reasonable judgment (i) could reasonably be expected to have a Material Adverse Effect on the business, management, condition (financial or otherwise), operations, performance, properties, profits, or prospects of the Loan Parties or which could impair the Loan Parties' ability to perform satisfactorily under the Loan Documents or (ii) could materially and adversely affect the transactions contemplated by the Loan Documents. The acceptance by the Borrowers of any Loans made or Letters of Credit or Credit Support issued on the Closing Date shall be deemed to be a representation and warranty made by the Loan Parties to the effect that all of the conditions precedent to the making of such Loans or issuance of such Letters of Credit or Credit Support have been satisfied, with the same effect as delivery to the Agent and the Lenders of a certificate signed by a Responsible Officer of the Loan Parties, dated the Closing Date, to such effect. Execution and delivery to the Agent by a Lender of a counterpart of this Agreement shall be deemed confirmation by such Lender that (i) all conditions precedent in this Section 8.1 have been fulfilled or waived to the satisfaction of such Lender, (ii) the decision of such Lender to execute and deliver to the Agent an executed counterpart of this Agreement was made by such Lender independently and without reliance on the Agent or any other Lender as to the satisfaction of any condition precedent set forth in this Section 8.1, and (iii) all documents sent to such Lender for approval, consent, or satisfaction were acceptable to such Lender. Section 8.2 Conditions Precedent to Each Loan. The obligation of the Lenders to make each Loan, including the initial Loans on the Closing Date, and the obligation of the Agent to cause the Letter of Credit Issuer to issue any Letter of Credit or Credit Support shall be subject to the further conditions precedent that on and as of the date of any such extension of credit the following statements shall be true, and the acceptance by the Borrowers of any extension of credit shall be deemed to be a statement to the effect set forth in clause (a), clause (b), and clause (c) following with the same effect as the delivery to the Agent and the Lenders of a certificate signed by a Responsible Officer of the Loan Parties, dated the date of such extension of credit, stating that: (a) the representations and warranties contained in this Agreement and the other Loan Documents are correct in all material respects on and as of the date of such extension of credit as though made on and as of such date, other than any such representation or warranty which relates to a specified prior date and except to the extent the Agent and the Lenders have been notified in writing by the Loan Parties that any representation or warranty is not correct and the Majority Lenders have explicitly waived in writing compliance with such representation or warranty; (b) no event has occurred and is continuing, or would result from such extension of credit, which constitutes a Default or an Event of Default; and (c) no event has occurred and is continuing, or would result from such extension of credit, which has had or would have a Material Adverse Effect, whether resulting in whole or in part from an event that occurred prior to, or occurs after, the Closing Date. CREDIT AGREEMENT - Page 55 Except as provided by Section 11.1(a), no Borrowing or issuance of any Letter of Credit or Credit Support shall exceed the Availability, provided, however, that the foregoing conditions precedent are not conditions to the requirement for each Lender participating in or reimbursing the Bank or the Agent for such Lenders' Pro Rata Share of any Non-Ratable Loan or Agent Advance made in accordance with the provisions of Section 1.2(i) and Section 1.2(j). ARTICLE 9 DEFAULT; REMEDIES Section 9.1 Events of Default. It shall constitute an event of default ("Event of Default") if any one or more of the following shall occur for any reason: (a) any failure by the Borrowers to pay the principal of or interest or premium on any of the Obligations or any fee or other amount owing hereunder when due, whether upon demand or otherwise; (b) any representation or warranty made or deemed made by any Loan Party in this Agreement or by any Obligated Party in any other Loan Document, any Financial Statement, or any certificate furnished by any Obligated Party at any time to the Agent or any Lender shall prove to be untrue in any material respect as of the date on which made, deemed made, or furnished; (c) any default shall occur in (i) the observance or performance of any of the covenants and agreements contained in Section 5.2(k), Section 7.2 (insofar as it requires the preservation of the existence of the Obligated Parties), or Sections 7.9 through 7.35 or Section 2.11 of the Security Agreement, or (ii) observance or performance of any of the covenants and agreements contained in Section 5.2 (other than Section 5.2(k)) or Section 5.3 and such default shall continue for three (3) days or more, or (iii) observance or performance of any of the other covenants or agreements contained in this Agreement other than as referenced in Section 9.1(a), Section 9.1(b), and clause (i) and clause (ii) preceding, any other Loan Document, or any other agreement entered into at any time to which any Obligated Party and the Agent or any Lender are party (including in respect of any Bank Products) and such default shall continue for more than fifteen (15) days, or if any such agreement or document shall terminate (other than in accordance with its terms or the terms hereof or with the written consent of the Agent and the Majority Lenders) or CREDIT AGREEMENT - Page 56 become void or unenforceable without the written consent of the Agent and the Majority Lenders; (d) any default shall occur with respect to any Debt (other than the Obligations) of the Loan Parties in an outstanding principal amount which exceeds $5,000,000, or under any agreement or instrument under or pursuant to which any such Debt may have been issued, created, assumed, or guaranteed by any Loan Party, and such default shall continue for more than the period of grace, if any, therein specified, if the effect thereof (with or without the giving of notice or further lapse of time or both) is to accelerate or to permit the holders of any such Debt to accelerate, the maturity of any such Debt, or any such Debt shall be declared due and payable or be required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; (e) any Consolidated Member shall (i) file a voluntary petition in bankruptcy or file a voluntary petition or an answer or file any proposal or notice of intent to file a proposal or otherwise commence any action or proceeding seeking reorganization, arrangement, consolidation, or readjustment of its debts or which seeks to stay or has the effect of staying any creditor or for any other relief under the Bankruptcy Code or under any other bankruptcy, insolvency, liquidation, winding-up, corporate, or similar Requirement of Law, now or hereafter existing, or consent to, approve of, or acquiesce in, any such petition, proposal, action, or proceeding, (ii) apply for or acquiesce in the appointment of a receiver, assignee, liquidator, sequestrator, custodian, monitor, administrator, trustee, or similar officer for it or for all or any part of its property, (iii) make an assignment for the benefit of its creditors, or (iv) be unable generally to pay its debts as they become due; (f) an involuntary petition or proposal shall be filed or an action or proceeding otherwise commenced seeking reorganization, arrangement, consolidation, or readjustment of the debts of any Consolidated Member or for any other relief under the Bankruptcy Code or under any other bankruptcy, insolvency, liquidation, winding-up, corporate, or similar Requirement of Law, now or hereafter existing and such petition, proposal, or proceeding shall not be dismissed within sixty (60) days after the filing or commencement thereof or an order of relief (or comparable order under any other Requirement of Law) shall be entered with respect thereto; (g) a receiver, assignee, liquidator, sequestrator, custodian, monitor, administrator, trustee, or similar officer for any Consolidated Member or for all or any part of its property shall be appointed or a warrant of attachment, execution, writ of seizure or seizure and sale, or similar process shall be issued against any part of the property of any Consolidated Member or any distress or analogous process is levied upon all or any part of any Consolidated Member; (h) any Consolidated Member shall file a certificate of dissolution or like process under any Requirement of Law or shall be liquidated, dissolved, or wound-up (except in a transaction allowed under Section 7.9 or shall commence or have commenced against it any action or proceeding for dissolution, winding-up, or liquidation which is not vacated or set CREDIT AGREEMENT - Page 57 aside within thirty (30) days of the initiation or such action or proceeding, or shall take any corporate action in furtherance thereof; (i) all or any material part of the property of any Obligated Party shall be nationalized, expropriated, condemned, seized, or otherwise appropriated, or custody or control of such property or of any Obligated Party shall be assumed by any Governmental Authority or any court of competent jurisdiction at the instance of any Governmental Authority or any other Person, except where contested in good faith by proper proceedings diligently pursued where a stay of enforcement is in effect; (j) any Loan Document, including any Guaranty of the Obligations, shall be terminated, revoked, or declared void or invalid or unenforceable or challenged by any Consolidated Member or any Affiliate thereof or any other obligor or any Affiliate thereof; (k) one or more judgments, orders, decrees, or arbitration awards is entered against any Consolidated Member involving liability in the aggregate for all of the Consolidated Members (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related or unrelated series of transactions, incidents, or conditions, of $5,000,000 or more, and the same shall remain unsatisfied, unvacated, and unstayed pending appeal for a period of thirty (30) days after the entry thereof; (l) any loss, theft, damage, or destruction of any item or items of Collateral or other property of any Consolidated Member occurs which could reasonably be expected to cause a Material Adverse Effect and is not adequately covered by insurance; (m) there is filed against any Consolidated Member any action, suit, or proceeding under any federal or state racketeering statute (including the Racketeer Influenced and Corrupt Organization Act of 1970), which action, suit, or proceeding (i) is not dismissed within one hundred twenty (120) days and (ii) could reasonably be expected to result in the confiscation or forfeiture of any material portion of the Collateral; (n) for any reason other than the failure of the Agent to take any action available to it to maintain perfection of the Agent's Liens pursuant to the Loan Documents, any Loan Document ceases to be in full force and effect or any Lien with respect to any material portion of the Collateral intended to be secured thereby ceases to be, or is not, valid, perfected, and prior to all other Liens (other than Permitted Liens which are expressly permitted to have priority over the Agent's Liens) or is terminated, revoked, or declared void; (o) (i) an ERISA Event shall occur with respect to a Pension Plan or Multi-employer Plan which has resulted or could reasonably be expected to result in liability of any Consolidated Member under Title IV of ERISA to the Pension Plan, Multi-employer Plan, or the PBGC in an aggregate amount in excess of $1,000,000; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $1,000,000; (iii) any Consolidated Member or any ERISA Affiliate shall fail to pay when due, after the CREDIT AGREEMENT - Page 58 expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multi-employer Plan in an aggregate amount in excess of $1,000,000; or (iv) all of the Foreign Plans in the aggregate have liabilities in excess of assets (determined in accordance the assumptions under each such Foreign Plan and under Requirements of Law used for funding each Foreign Plan pursuant to reasonable accounting standards in accordance with Requirements of Law) in an amount in excess of $1,000,000; (p) there occurs a Change of Control; (q) any breach, noncompliance, default or event of default (howsoever defined) occurs under any of the Synthetic Lease Transaction Documents that would permit, or with the passage of time or the giving of notice, or both, would permit, any holder of Debt thereunder, or any trustee for such holder, to accelerate the Debt thereunder to be immediately due and payable or exercise any other remedies thereunder; (r) there occurs a Material Adverse Effect; or (s) any breach, noncompliance, default or event of default (howsoever defined) occurs under any Subordinated Debt Documents that would permit, or with the passage of time or the giving of notice, or both, would permit, any holder of any Debt thereunder, or any trustee for such holder, to accelerate the Debt thereunder to be immediately due and payable or exercise any other remedies thereunder. Section 9.2 Remedies. (a) If a Default or an Event of Default exists, the Agent may, in its discretion, and shall, at the direction of the Majority Lenders, do one or more of the following at any time or times and in any order, without notice to or demand on any Loan Party or any other Obligated Party: (i) reduce the Maximum Revolver Amount, or the advance rates against Eligible Accounts used in computing the Borrowing Base, or reduce or increase one or more of the other elements used in computing the Borrowing Base; (ii) restrict the amount of or refuse to make Revolving Loans; and (iii) restrict or refuse to provide Letters of Credit or Credit Support. If an Event of Default exists, the Agent shall, at the direction of the Majority Lenders, do one or more of the following, in addition to the actions described in the preceding sentence, at any time or times and in any order, without notice to or demand on any Loan Party or any other Obligated Party: (A) terminate the Commitments and this Agreement; (B) declare any or all Obligations to be immediately due and payable; provided, however, that upon the occurrence of any Event of Default with respect to a Loan Party described in Sections 9.1(e), 9.1(f), 9.1(g), or 9.1(h), the Commitments shall automatically and immediately expire and all Obligations shall automatically become immediately due and payable without notice or demand of any kind; (C) require the Loan Parties to cash collateralize all Obligations outstanding with respect to Letters of Credit and Credit Support; and (D) pursue its other rights and remedies under the Loan Documents and applicable law. CREDIT AGREEMENT - Page 59 (b) If an Event of Default has occurred and is continuing: (i) the Agent shall have, for the benefit of the Agent and the Lenders, in addition to all other rights of the Agent and the Lenders, the rights and remedies of a secured party under the Loan Documents and Requirements of Law (including, without limitation, under the UCC, PPSA, CCQ, the Mortgages Act of Ontario and any similar laws of any applicable foreign jurisdiction); (ii) the Agent may, at any time, take possession of the Collateral and keep it on any Loan Party's premises, at no cost to the Agent or any Lender, or remove any part of it to such other place or places as the Agent may desire, or any Loan Party shall, upon the Agent's demand, at such Loan Party's cost, assemble the Collateral and make it available to the Agent at a place reasonably convenient to the Agent; and (iii) the Agent may sell and deliver any Collateral at public or private sales, for cash, upon credit, or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion, and may, if the Agent deems it reasonable, postpone or adjourn any sale of the Collateral by an announcement at the time and place of sale or of such postponed or adjourned sale without giving a new notice of sale. Without in any way requiring notice to be given in the following manner, each Loan Party agrees that any notice by the Agent of sale, disposition, or other intended action hereunder or in connection herewith, whether required by the UCC, PPSA, CCQ, the Mortgages Act of Ontario or any similar laws of any applicable foreign jurisdiction) or otherwise, shall constitute reasonable notice to the Loan Parties if such notice is mailed by registered or certified mail, return receipt requested, postage prepaid, or is delivered personally against receipt, at least ten (10) Business Days prior to such action to the Loan Parties' address specified in or pursuant to Section 13.8. If any Collateral is sold on terms other than payment in full at the time of sale, no credit shall be given against the Obligations until the Agent or the Lenders receive payment, and if the buyer defaults in payment, the Agent may resell the Collateral without further notice to any Loan Party or any other Obligated Party. In the event the Agent seeks to take possession of all or any portion of the Collateral by judicial process, each Loan Party irrevocably waives: (A) the posting of any bond, surety, or security with respect thereto which might otherwise be required; (B) any demand for possession prior to the commencement of any suit or action to recover the Collateral; and (C) any requirement that the Agent retain possession and not dispose of any Collateral until after trial or final judgment. Each Loan Party agrees that the Agent has no obligation to preserve rights to the Collateral or marshal any Collateral for the benefit of any Person. The Agent is hereby granted a license or other right to use, without charge, each Loan Party's labels, patents, copyrights, name, trade secrets, trade names, trademarks, and advertising matter, or any similar property, in completing production of, advertising, or selling any Collateral, and each Loan Party's rights under all licenses and all franchise agreements shall inure to the Agent's benefit for such purpose. The proceeds of sale shall be applied first to all expenses of sale, including Attorney Costs, and then to the Obligations. The Agent will return any excess to the Loan Parties and the Loan Parties shall remain liable for any deficiency. (c) If an Event of Default occurs and is continuing, each Loan Party hereby waives all rights to notice and hearing prior to the exercise by the Agent of the Agent's rights to repossess the Collateral without judicial process or to replevy, attach, or levy upon the Collateral without notice or hearing. CREDIT AGREEMENT - Page 60 ARTICLE 10 TERM AND TERMINATION Section 10.1 Term and Termination. The term of this Agreement shall end on the Stated Termination Date unless sooner terminated in accordance with the terms hereof. The Agent upon direction from the Majority Lenders may terminate this Agreement, without notice to the Borrowers, during the existence of an Event of Default. Upon the effective date of termination of this Agreement for any reason whatsoever, all Obligations (including all unpaid principal, accrued and unpaid interest, and any early termination or prepayment fees or penalties but excluding indemnification obligations to the extent no claim with respect thereto has been asserted and remains unsatisfied) shall become immediately due and payable and the Loan Parties shall immediately arrange for the cancellation and return of all Letters of Credit and Credit Support then outstanding. Notwithstanding the termination of this Agreement, until all Obligations are indefeasibly paid and performed in full in cash, the Loan Parties shall remain bound by the terms of this Agreement and the other Loan Documents and shall not be relieved of any of their Obligations hereunder or under any other Loan Document, and the Agent and the Lenders shall retain all their rights and remedies hereunder and under the other Loan Documents (including, without limitation, the Agent's Liens in and all rights and remedies with respect to all then existing and after-arising Collateral). ARTICLE 11 AMENDMENTS; WAIVERS; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS Section 11.1 Amendments and Waivers. (a) No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by any Loan Party therefrom, shall be effective unless the same shall be in writing and signed by the Majority Lenders (or by the Agent at the written request of the Majority Lenders) and the Loan Parties (which signature by the Loan Parties may be evidenced by the signature of the Parent pursuant to Section 13.21) and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Lenders and the Loan Parties (which signature by the Loan Parties may be evidenced by the signature of the Parent pursuant to Section 13.21) and acknowledged by the Agent, do any of the following: (i) increase or extend the Commitment of any Lender; (ii) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document; CREDIT AGREEMENT - Page 61 (iii) reduce the principal of, or the rate of interest specified herein on any Loan, or any fees or other amounts payable hereunder or under any other Loan Document; (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Lenders or any of them to take any action hereunder; (v) increase any of the percentages set forth in the definition of the Borrowing Base; (vi) amend this Section 11.1 or any provision of this Agreement providing for consent or other action by all of the Lenders; (vii) release Collateral other than as permitted by Section 12.11; (viii) change the definition of "Majority Lenders"; or (ix) increase the Maximum Revolver Amount or the Letter of Credit Subfacility; provided, however, the Agent may, in its sole discretion and notwithstanding the limitations contained in clause (v) and clause (ix) preceding and any other terms of this Agreement, make Non-Ratable Loans in accordance with Section 1.2(i) and make Agent Advances in an amount not to exceed ten percent (10.0%) of the Maximum Revolver Amount in accordance with Section 1.2(j) and, provided, further, that no amendment, waiver, or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent under this Agreement or any other Loan Document and, provided, further, that Schedule A-1 ("Commitments") may be amended from time to time by the Agent alone to reflect assignments of Commitments in accordance herewith. (b) If any fees are paid to the Lenders as consideration for amendments, waivers, or consents with respect to this Agreement, at the Agent's election, such fees may be paid only to those Lenders that agree to such amendments, waivers, or consents within the time specified for submission thereof. (c) If, in connection with any proposed amendment, waiver, or consent (a "Proposed Change"): (i) requiring the consent of all of the Lenders, the consent of the Majority Lenders is obtained, but the consent of the other Lenders is not obtained (any such Lender whose consent is not obtained as described in this clause (i) and in clause (ii) following being referred to as a "Non-Consenting Lender"), or CREDIT AGREEMENT - Page 62 (ii) requiring the consent of the Majority Lenders, the consent of the Majority Lenders is obtained, then, so long as the Agent is not a Non-Consenting Lender, at the Borrowers' request the Agent (in its individual capacity as a Lender) or an Eligible Assignee (with the Agent's approval) shall have the right (but not the obligation) to purchase from each Non-Consenting Lender, and each Non-Consenting Lender agrees that it shall sell, such Non-Consenting Lender's Commitments for an amount equal to the principal balances thereof and all accrued interest and fees with respect thereto through the date of sale pursuant to an Assignment and Acceptance, without premium or discount. Section 11.2 Assignments; Participations. (a) Any Lender may, with the written consent of the Agent (which consent shall not be unreasonably withheld), assign and delegate to one or more Eligible Assignees (provided that no consent of the Agent shall be required in connection with any assignment and delegation by a Lender to an Affiliate of such Lender) (each an "Assignee") all, or any ratable part of all, of the Loans, the Commitments, and the other rights and obligations of such Lender hereunder, in a minimum amount of $10,000,000 (provided that, unless an assignor Lender has assigned and delegated all of its Loans and Commitments, no such assignment and/or delegation shall be permitted unless, after giving effect thereto, such assignor Lender retains a Commitment in a minimum amount of $10,000,000); provided, however, that the Loan Parties and the Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, shall have been given to the Loan Parties and the Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to the Loan Party and the Agent an Assignment and Acceptance in the form of Exhibit E (an "Assignment and Acceptance") together with any Note or Notes subject to such assignment, and (iii) the assignor Lender or Assignee has paid to the Agent a processing fee in the amount of $5,000 (provided that the Agent may waive such fee in its discretion in connection with the initial syndication of the Commitments). The Borrowers agree to promptly execute and deliver new or replacement Notes as reasonably requested by the Agent to evidence assignments of the Loans and Commitments in accordance herewith. (b) From and after the date that the Agent notifies the assignor Lender that it has received an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations, including, but not limited to, the obligation to participate in Letters of Credit and Credit Support have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of CREDIT AGREEMENT - Page 63 an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other Loan Document furnished pursuant hereto or the attachment, perfection, or priority of any Lien granted by any Obligated Party to the Agent or any Lender in the Collateral; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Consolidated Members, or any of them, or the performance or observance by any Loan Party of any of its obligations under this Agreement or of any Loan Party or any other Obligated Party under any other Loan Document furnished pursuant hereto; (iii) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Assignee will, independently and without reliance upon the Agent, such assigning Lender, or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof, together with such powers, including the discretionary rights and incidental power, as are reasonably incidental thereto; and (vi) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Immediately upon satisfaction of the requirements of Section 11.2(a), this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. (e) Any Lender may at any time sell to one or more Participants participating interests in any Loans, the Commitment of that Lender, and the other interests of that Lender (the "originating Lender") hereunder and under the other Loan Documents; provided, however, that (i) the originating Lender's obligations under this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Loan Parties and the Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant has rights to approve CREDIT AGREEMENT - Page 64 any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document except the matters set forth in Section 11.1(a)(i), Section 11.1(a)(ii), and Section 11.1(a)(iii), and (v) all amounts payable by the Loan Parties hereunder shall be determined as if such Lender had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent and subject to the same limitation as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. (f) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Board or United States Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. ARTICLE 12 THE AGENT Section 12.1 Appointment and Authorization. Each Lender hereby designates and appoints the Bank (acting in its capacity as the Agent) as its agent under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. The Agent agrees to act as such on the express conditions contained in this Article 12. The provisions of this Article 12 are solely for the benefit of the Agent and the Lenders, and the Consolidated Members shall have no rights as a third party beneficiary of any of the provisions contained herein other than as expressly provided in Section 12.10 and Section 12.11. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations, or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to, and shall not, connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. Except as expressly otherwise provided in this Agreement, the Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which the Agent is expressly entitled to take or assert under this Agreement and the other Loan Documents, including (a) the CREDIT AGREEMENT - Page 65 determination of the applicability of ineligibility criteria with respect to the calculation of the Borrowing Base, (b) the making of Agent Advances pursuant to Section 1.2(j), and (c) the exercise of remedies pursuant to Section 9.2, and any action so taken or not taken shall be deemed consented to by the Lenders. Section 12.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees, or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct. Section 12.3 Liability of the Agent. None of the Agent-Related Persons shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders for any recital, statement, representation, or warranty made by any Loan Party or any other Obligated Party or Affiliate of any Loan Party or any other Obligated Party, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement, or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability, or sufficiency of this Agreement or any other Loan Document, or for any failure of any Loan Party or any other Obligated Party or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party or any Loan Party's Affiliates. Section 12.4 Reliance by the Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex, or telephone message, statement, or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including, without limitation, counsel to any Obligated Party), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Lenders (or all Lenders if so required by Section 11.1) and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. Section 12.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, unless the Agent shall have received CREDIT AGREEMENT - Page 66 written notice from a Lender or a Loan Party referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." The Agent will notify the Lenders of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Lenders in accordance with Article 9; provided, however, that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable. Section 12.6 Credit Decision. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Consolidated Members and their Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition, and creditworthiness of the Borrowers and the other Consolidated Members, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrowers. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals, and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition, and creditworthiness of the Borrowers and the other Consolidated Members. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by the Agent, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition, or creditworthiness of any Borrower or any other Consolidated Member which may come into the possession of any of the Agent-Related Persons. Section 12.7 Indemnification. WHETHER OR NOT THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED, THE LENDERS SHALL UPON DEMAND INDEMNIFY THE AGENT-RELATED PERSONS (TO THE EXTENT NOT REIMBURSED BY OR ON BEHALF OF THE LOAN PARTIES AND WITHOUT LIMITING THE OBLIGATION OF THE LOAN PARTIES TO DO SO), IN ACCORDANCE WITH THEIR PRO RATA SHARES, FROM AND AGAINST ANY AND ALL INDEMNIFIED LIABILITIES; PROVIDED, HOWEVER, THAT NO LENDER SHALL BE LIABLE FOR THE PAYMENT TO THE AGENT-RELATED PERSONS OF ANY PORTION OF SUCH INDEMNIFIED LIABILITIES (AS DEFINED HEREIN)RESULTING SOLELY FROM SUCH PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Without limitation of the foregoing, each Lender shall reimburse the Agent upon demand for its Pro Rata Share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings, or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to CREDIT AGREEMENT - Page 67 the extent that the Agent is not reimbursed for such expenses by or on behalf of the Loan Parties. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. Section 12.8 The Agent in Individual Capacity. The Bank and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with any Consolidated Member and its Affiliates as though the Bank were not the Agent hereunder and without notice to or consent of the Lenders. The Bank or its Affiliates may receive information regarding any Consolidated Member or its Affiliates and Account Debtors (including information that may be subject to confidentiality obligations in favor of any such Consolidated Member or Affiliate), and the Lenders acknowledge that the Agent and the Bank shall be under no obligation to provide such information to the Lenders. With respect to its Loans, the Bank as a Lender shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" include the Bank in its individual capacity. Section 12.9 Successor Agent. The Agent may resign as Agent upon at least thirty (30) days prior notice to the Lenders and the Loan Parties, such resignation to be effective upon the acceptance of a successor agent to its appointment as the Agent. In the event the Bank sells all of its Commitments and Loans as part of a sale, transfer, or other disposition by the Bank of substantially all of its loan portfolio, the Bank shall resign as the Agent and such purchaser or transferee shall become the successor Agent hereunder. Subject to the foregoing, if the Agent resigns (the "resigning Agent") under this Agreement, the Majority Lenders shall appoint from among the Lenders a successor agent for the Lenders (the "successor Agent"). If no successor Agent is appointed prior to the effective date of the resignation of the resigning Agent, the resigning Agent may appoint, after consulting with the Lenders and the Loan Parties, a successor Agent from among the Lenders. Upon the acceptance of its appointment as the successor Agent, the successor Agent shall succeed to all the rights, powers, and duties of the resigning Agent and the term "Agent" shall mean the successor Agent and the resigning Agent's appointment, powers, and duties as the Agent shall be terminated. After any resigning Agent's resignation hereunder as the Agent, the provisions of this Article 12 shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. Section 12.10 Withholding Tax. (a) If any Lender is a "foreign person" within the meaning of the Code and such Lender claims exemption from, or a reduction of, United States withholding tax under Sections 1441 or 1442 of the Code, such Lender agrees with and in favor of the Agent, to deliver to the Agent and the Parent: (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two (2) properly completed and executed copies of IRS Form W-8BEN before the payment of any interest in the first CREDIT AGREEMENT - Page 68 calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two (2) properly completed and executed copies of IRS Form W-8ECI before the payment of any interest in the first calendar year and before the payment of any interest in each fourth (or more frequently if requested by the Agent) succeeding calendar year during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees to promptly notify the Agent and the Parent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form W-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations owing to such Lender, such Lender agrees to notify the Agent and the Parent of the percentage amount in which it is no longer the beneficial owner of Obligations owing to such Lender. To the extent of such percentage amount, the Agent and the Parent will treat such Lender's IRS Form W-8BEN as no longer valid. (c) If any Lender claiming exemption from United States withholding tax by filing IRS Form W-8ECI with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations owing to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Lender is entitled to a reduction in the applicable withholding tax, the Agent or any Borrower may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by clause (a) preceding are not delivered to the Agent and the Parent, then the Agent or any Borrower may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent or any Loan Party did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Agent or any Loan Party of a change in circumstances which rendered the exemption from, or CREDIT AGREEMENT - Page 69 reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify the Agent or any Loan Party fully for all amounts paid, directly or indirectly, by the Agent or any such Loan Party as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section 12.10, together with all costs and expenses (including Attorney Costs). The obligation of the Lenders under this clause (e) shall survive the payment of all Obligations and the resignation or replacement of the Agent. Section 12.11 Collateral Matters. (a) The Lenders hereby irrevocably authorize the Agent, at its option and in its sole discretion, to release any Agent's Liens upon any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full of all Loans and reimbursement obligations in respect of Letters of Credit and Credit Support, and the termination of all outstanding Letters of Credit and Credit Support (whether or not any of such obligations are due) and all other Obligations (other than contingent indemnities which survive the termination of this Agreement); (ii) constituting property being sold or disposed of if the Obligated Party disposing of such property certifies to the Agent that the sale or disposition is made in compliance with Section 7.9 (and the Agent may rely conclusively on any such certificate, without further inquiry); (iii) constituting property in which no Obligated Party owned any interest at the time the Lien was granted or at any time thereafter; or (iv) constituting property leased to an Obligated Party under a lease which has expired or been terminated in a transaction permitted under this Agreement. Except as provided above, the Agent will not release any of the Agent's Liens without the prior written authorization of the Lenders; provided that the Agent may, in its discretion, release the Agent's Liens on Collateral valued in the aggregate not in excess of $3,000,000 during each Fiscal Year without the prior written authorization of the Lenders and the Agent may release the Agent's Liens on Collateral valued in the aggregate not in excess of $9,000,000 during each Fiscal Year with the prior written authorization of the Majority Lenders. Upon request by the Agent or an Obligated Party at any time, the Lenders will confirm in writing the Agent's authority to release any Agent's Liens upon particular types or items of Collateral pursuant to this Section 12.11. (b) Upon receipt by the Agent of any authorization required pursuant to Section 12.11(a) from the Lenders of the Agent's authority to release any Agent's Liens upon particular types or items of Collateral, and upon at least five (5) Business Days prior written request by an Obligated Party, the Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Agent's Liens upon such Collateral; provided, however, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent's opinion, would expose the Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of the Obligated Parties in respect of) all interests CREDIT AGREEMENT - Page 70 retained by the Obligated Parties, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (c) The Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by any Obligated Party or is cared for, protected, or insured or has been encumbered, or that the Agent's Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the rights, authorities, and powers granted or available to the Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion given the Agent's own interest in the Collateral in its capacity as one of the Lenders and that the Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing. Section 12.12 Restrictions on Actions by the Lenders; Sharing of Payments. (a) Each of the Lenders agrees that it shall not, without the express consent of all Lenders, and that it shall, to the extent it is lawfully entitled to do so, upon the request of all Lenders, setoff against the Obligations, or against any Debt owing to any such Lender by any other Obligated Party, any amounts owing by such Lender to any Obligated Party or any accounts of any Obligated Party now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so by the Agent, take or cause to be taken any action to enforce its rights under this Agreement or any other Loan Document or against any Obligated Party, including the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral. (b) If at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations, or any Guaranty thereof by any Obligated Party, owing to such Lender arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from the Agent pursuant to the terms of this Agreement, or (ii) payments from the Agent in excess of such Lender's ratable portion of all such distributions by the Agent, such Lender shall promptly (1) turn the same over to the Agent, in kind, and with such endorsements as may be required to negotiate the same to the Agent, or in same day funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the CREDIT AGREEMENT - Page 71 extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. Section 12.13 Agency for Perfection. Each Lender hereby appoints each other Lender as agent for the purpose of perfecting the Lenders' security interest in assets which, in accordance with Article 9 of the UCC or any other Requirement of Law of the United States or any foreign jurisdiction can be perfected only by possession. Should any Lender (other than the Agent) obtain possession of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agent's request therefor shall deliver such Collateral to the Agent or otherwise deal with such Collateral in accordance with the Agent's instructions. Section 12.14 Payments by the Agent to the Lenders. All payments to be made by the Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds to each Lender pursuant to wire transfer instructions delivered in writing to the Agent on or prior to the Closing Date (or if such Lender is an Assignee, with or in the applicable Assignment and Acceptance), or pursuant to such other wire transfer instructions as each party may designate for itself by written notice to the Agent. Concurrently with each such payment, the Agent shall identify whether such payment (or any portion thereof) represents principal, premium, or interest on the Loans or otherwise. Unless the Agent receives notice from the Borrowers prior to the date on which any payment is due to the Lenders that the Borrowers will not make such payment in full as and when required, the Agent may assume that the Borrowers have made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrowers have not made such payment in full to the Agent, each Lender shall repay to the Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Lender until the date repaid. Section 12.15 Settlement. (a) Each Lender's funded portion of the Revolving Loans is intended by the Lenders to be equal at all times to such Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding such agreement, the Agent, the Bank, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by the Loan Parties or any other Consolidated Member) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Revolving Loans, including the Non-Ratable Loans and the Agent Advances, shall take place on a periodic basis in accordance with the following provisions: (i) The Agent shall request settlement (a "Settlement") with the Lenders on at least a weekly basis, or on a more frequent basis at the Agent's election, (A) on behalf of the Bank, with respect to each outstanding Non-Ratable Loan, (B) for itself, with respect to each Agent Advance, and (C) with respect to collections received, in each case, by notifying the Lenders of such requested Settlement by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no CREDIT AGREEMENT - Page 72 later than 12:00 noon (Dallas, Texas time) on the date of such requested Settlement (the "Settlement Date"). Each Lender (other than the Bank, in the case of Non-Ratable Loans and the Agent in the case of Agent Advances) shall transfer the amount of such Lender's Pro Rata Share of the outstanding principal amount of the Non-Ratable Loans and Agent Advances with respect to which Settlement is requested to the Agent, to such account of the Agent as the Agent may designate, not later than 2:00 p.m. (Dallas, Texas time), on the Settlement Date applicable thereto. Settlements may occur during the continuation of a Default or an Event of Default and whether or not the applicable conditions precedent set forth in Article 8 have then been satisfied. Such amounts transferred to the Agent shall be applied against the amounts of the applicable Non-Ratable Loan or Agent Advance and, together with the portion of such Non-Ratable Loan or Agent Advance representing the Bank's Pro Rata Share thereof, shall constitute Revolving Loans of such Lenders, respectively. If any such amount is not transferred to the Agent by any Lender on the Settlement Date applicable thereto, the Agent shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Federal Funds Rate for the first three (3) days from and after the Settlement Date and thereafter at the Interest Rate then applicable to the Base Rate Revolving Loans (Y) on behalf of the Bank, with respect to each outstanding Non- Ratable Loan, and (Z) for itself, with respect to each Agent Advance. (ii) Notwithstanding the foregoing, not more than one (1) Business Day after demand is made by the Agent (whether before or after the occurrence of a Default or an Event of Default and regardless of whether the Agent has requested a Settlement with respect to a Non-Ratable Loan or Agent Advance), each other Lender (A) shall irrevocably and unconditionally purchase and receive from the Bank or the Agent, as applicable, without recourse or warranty, an undivided interest and participation in such Non-Ratable Loan or Agent Advance equal to such Lender's Pro Rata Share of such Non-Ratable Loan or Agent Advance and (B) if Settlement has not previously occurred with respect to such Non-Ratable Loans or Agent Advances, upon demand by the Bank or the Agent, as applicable, shall pay to the Bank or the Agent, as applicable, as the purchase price of such participation an amount equal to one-hundred percent (100%) of such Lender's Pro Rata Share of such Non-Ratable Loans or Agent Advances. If such amount is not in fact transferred to the Agent by any Lender, the Agent shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Federal Funds Rate for the first three (3) days from and after such demand and thereafter at the Interest Rate then applicable to Base Rate Revolving Loans. (iii) From and after the date, if any, on which any Lender purchases an undivided interest and participation in any Non-Ratable Loan or Agent Advance pursuant to clause (ii) preceding, the Agent shall promptly distribute to such Lender, such Lender's Pro Rata Share of all payments of principal and interest and all proceeds of Collateral received by the Agent in respect of such Non-Ratable Loan or Agent Advance. CREDIT AGREEMENT - Page 73 (iv) Between Settlement Dates, to the extent no Agent Advances are outstanding, the Agent may pay over to the Bank any payments received by the Agent, which in accordance with the terms of this Agreement would be applied to the reduction of the Revolving Loans, for application to the Bank's Revolving Loans including Non- Ratable Loans. If, as of any Settlement Date, collections received since the then immediately preceding Settlement Date have been applied to the Bank's Revolving Loans (other than to Non-Ratable Loans or Agent Advances in which a Lender has not yet funded its purchase of a participation pursuant to clause (ii) preceding), as provided for in the previous sentence, the Bank shall pay to the Agent for the accounts of the Lenders, to be applied to the outstanding Revolving Loans of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Revolving Loans. During the period between Settlement Dates, the Bank with respect to Non-Ratable Loans, the Agent with respect to Agent Advances, and each Lender with respect to the Revolving Loans other than Non-Ratable Loans and Agent Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the actual average daily amount of funds employed by the Bank, the Agent, and the other Lenders. (v) Unless the Agent has received written notice from a Lender to the contrary, the Agent may assume that the applicable conditions precedent set forth in Article 8 have been satisfied and the requested Borrowing will not exceed Availability on any Funding Date for a Revolving Loan or Non-Ratable Loan. (b) The Lenders' Failure to Perform. All Revolving Loans (other than Non-Ratable Loans and Agent Advances) shall be made by the Lenders simultaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Revolving Loans hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligation to make any Revolving Loans hereunder, (ii) no failure by any Lender to perform its obligation to make any Revolving Loans hereunder shall excuse any other Lender from its obligation to make any Revolving Loans hereunder, and (iii) the obligations of each Lender hereunder shall be several, not joint and several. (c) Defaulting Lenders. Unless the Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one (1) Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to the Agent that Lender's Pro Rata Share of such Borrowing, the Agent may assume that each Lender has made such amount available to the Agent in immediately available funds on the Funding Date. Furthermore, the Agent may, in reliance upon such assumption, make available to the Borrowers on such date a corresponding amount. If any Lender has not transferred its full Pro Rata Share to the Agent in immediately available funds and if the Agent has transferred a corresponding amount to CREDIT AGREEMENT - Page 74 the Borrowers on the Business Day following such Funding Date the applicable Lender shall make such amount available to the Agent, together with interest at the Federal Funds Rate for that day. A notice by the Agent submitted to any Lender with respect to amounts owing shall be conclusive, absent manifest error. If each Lender's full Pro Rata Share is transferred to the Agent as required, the amount transferred to the Agent shall constitute such Lender's Revolving Loan for all purposes of this Agreement. If any such amount is not transferred to the Agent on the Business Day following the Funding Date, the Agent will notify the Borrowers of such failure to fund and, upon demand by the Agent, the Borrowers shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the Interest Rate applicable at the time to the Revolving Loans comprising that particular Borrowing. The failure of any Lender to make any Revolving Loan on any Funding Date (any such Lender, prior to the cure of such failure, being hereinafter referred to as a "Defaulting Lender") shall not relieve any other Lender of its obligation hereunder to make a Revolving Loan on such Funding Date. No Lender shall be responsible for any other Lender's failure to advance such other Lenders' Pro Rata Share of any Borrowing. (d) Retention of Defaulting Lender's Payments. The Agent shall not be obligated to transfer to a Defaulting Lender any payments made by any Borrower to the Agent for the Defaulting Lender's benefit, nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder. Amounts payable to a Defaulting Lender shall instead be paid to or retained by the Agent. In its discretion, the Agent may loan the Borrowers the amount of all such payments received or retained by it for the account of such Defaulting Lender. Any amounts so loaned to the Borrowers shall bear interest at the rate applicable to Base Rate Revolving Loans and for all other purposes of this Agreement shall be treated as if they were Revolving Loans, provided, however, that for purposes of voting or consenting to matters with respect to the Loan Documents and determining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender". Until a Defaulting Lender cures its failure to fund its Pro Rata Share of any Borrowing (i) such Defaulting Lender shall not be entitled to any portion of the Unused Line Fee and (ii) the Unused Line Fee shall accrue in favor of the Lenders which have funded their respective Pro Rata Shares of such requested Borrowing and shall be allocated among such performing Lenders ratably based upon their relative Commitments. This Section shall remain effective with respect to such Lender until such time as the Defaulting Lender shall no longer be in default of any of its obligations under this Agreement. The terms of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, or relieve or excuse the performance by any Loan Party of its duties and obligations hereunder. (e) Removal of Defaulting Lender. At the Borrowers' request, the Agent or an Eligible Assignee reasonably acceptable to the Agent and the Borrowers shall have the right (but not the obligation) to purchase from any Defaulting Lender, and each Defaulting Lender shall, upon such request, sell and assign to the Agent or such Eligible Assignee, all of the Defaulting Lender's outstanding Commitments hereunder. Such sale shall be consummated promptly after the Agent has arranged for a purchase by the Agent or an Eligible Assignee pursuant to an Assignment and Acceptance, and at a price equal to the outstanding principal CREDIT AGREEMENT - Page 75 balance of the Defaulting Lender's Loans, plus accrued interest and fees, without premium or discount. Section 12.16 Letters of Credit; Intra-Lender Issues. (a) Notice of Letter of Credit Balance. On each Settlement Date, the Agent shall notify each Lender of the issuance of all Letters of Credit and Credit Support since the prior Settlement Date. (b) Participations in Letters of Credit. (i) Purchase of Participations. Immediately upon issuance of any Letter of Credit or Credit Support in accordance with Section 1.4(d), each Lender shall be deemed to have irrevocably and unconditionally purchased and received without recourse or warranty, an undivided interest and participation equal to such Lender's Pro Rata Share of the face amount of such Letter of Credit or Credit Support in connection with the issuance of such Letter of Credit or Credit Support (including all obligations of the Borrower for whose account such Letter of Credit or Credit Support was issued, and any security therefor or guaranty pertaining thereto). (ii) Sharing of Reimbursement Obligation Payments. Whenever the Agent receives a payment from a Borrower on account of reimbursement obligations in respect of a Letter of Credit or Credit Support as to which the Agent has previously received for the account of the Agent or the Letter of Credit Issuer payment from a Lender, the Agent shall promptly pay to such Lender such Lender's Pro Rata Share of such payment from such Borrower. Each such payment shall be made by the Agent on the next Settlement Date. (iii) Documentation. Upon the request of any Lender, the Agent shall furnish to such Lender copies of any Letter of Credit, Credit Support, reimbursement agreements executed in connection therewith, applications for any Letter of Credit or Credit Support, and such other documentation as may reasonably be requested by such Lender. (iv) Obligations Irrevocable. The obligation of each Lender to make payments to the Agent with respect to any Letter of Credit or Credit Support or with respect to their participation therein or with respect to the Revolving Loans made as a result of a drawing under a Letter of Credit or Credit Support and the obligation of the Borrowers to make payments to the Agent, for the account of the Lenders, with respect to any Letter of Credit or Credit Support shall be irrevocable and shall not be subject to any qualification or exception whatsoever, including any of the following circumstances: (A) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; CREDIT AGREEMENT - Page 76 (B) the existence of any claim, setoff, defense, or other right which any Borrower may have at any time against a beneficiary named in a Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), any Lender, the Agent, the Letter of Credit Issuer, or any other Person, whether in connection with this Agreement, any Letter of Credit or Credit Support, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between such Borrower or any Consolidated Member or any other Person and the beneficiary named in any Letter of Credit); (C) any draft, certificate, or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (D) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (E) the occurrence of any Default or Event of Default; or (F) the failure of the Loan Parties to satisfy the applicable conditions precedent set forth in Article 8. (c) Recovery or Avoidance of Payments; Refund of Payments in Error. In the event any payment by or on behalf of any Borrower received by the Agent with respect to any Letter of Credit or Credit Support and distributed by the Agent to the Lenders on account of their respective participations therein is thereafter set aside, avoided, or recovered from the Agent in connection with any receivership, liquidation, or bankruptcy proceeding, the Lenders shall, upon demand by the Agent, pay to the Agent their respective Pro Rata Shares of such amount set aside, avoided, or recovered, together with interest at the rate required to be paid by the Agent upon the amount required to be repaid by it. Unless the Agent receives notice from the Borrowers prior to the date on which any payment is due to the Lenders that the Borrowers will not make such payment in full as and when required, the Agent may assume that the Borrowers have made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrowers have not made such payment in full to the Agent, each Lender shall repay to the Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Lender until the date repaid. (d) Indemnification by the Lenders. To the extent not reimbursed by the Loan Parties and without limiting the obligations of the Loan Parties hereunder, the Lenders agree CREDIT AGREEMENT - Page 77 to indemnify the Letter of Credit Issuer ratably in accordance with their respective Pro Rata Shares, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees) or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Letter of Credit Issuer in any way relating to or arising out of any Letter of Credit or Credit Support or the transactions contemplated thereby or any action taken or omitted by the Letter of Credit Issuer under any Letter of Credit or Credit Support or any Loan Document in connection therewith; provided that no Lender shall be liable for any of the foregoing to the extent it arises from the gross negligence or willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse the Letter of Credit Issuer promptly upon demand for its Pro Rata Share of any costs or expenses payable by any Borrower to the Letter of Credit Issuer, to the extent that the Letter of Credit Issuer is not promptly reimbursed for such costs and expenses by a Borrower. The agreement contained in this Section shall survive payment in full of all other Obligations. Section 12.17 Concerning the Collateral and the Related Loan Documents. Each Lender authorizes and directs the Agent to enter into the other Loan Documents, for the ratable benefit and obligation of the Agent and the Lenders. Each Lender agrees that any action taken by the Agent or the Majority Lenders, as applicable, in accordance with the terms of this Agreement or the other Loan Documents, and the exercise by the Agent or the Majority Lenders, as applicable, of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. The Lenders acknowledge that the Revolving Loans, Agent Advances, Non-Ratable Loans, Hedge Agreements, Bank Products, and all interest, fees, and expenses hereunder constitute one Debt, secured pari passu by all of the Collateral. Section 12.18 Field Audit and Examination Reports; Disclaimer by the Lenders. By signing this Agreement, each Lender: (a) is deemed to have requested that the Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and collectively, the "Reports") prepared by or on behalf of the Agent; (b) expressly agrees and acknowledges that neither the Bank nor the Agent (i) makes any representation or warranty as to the accuracy of any Report, or (ii) shall be liable for any information contained in any Report; (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that the Agent, the Bank, or any other party performing any audit or examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties' books and records, as well as on representations of the Loan Parties' personnel; (d) agrees to keep all Reports confidential and strictly for its internal use, and not to distribute except to its participants, or use any Report in any other manner; and CREDIT AGREEMENT - Page 78 (e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold the Agent and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to the Borrowers, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of the Borrowers; and (ii) to pay and protect, and indemnify, defend, and hold the Agent and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including Attorney Costs) incurred by the Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. Section 12.19 Relation Among the Lenders. The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Agent) authorized to act for, any other Lender. Section 12.20 Rights of the Agent as UK Security Trustee. In its capacity as UK Security Trustee, the Agent shall have (a) the benefit of all of the provisions contained in this Article 12, (b) all the powers of an absolute owner of the security constituted by the UK Security Documents and (c) all the rights and powers granted to it and be subject to all the obligations and duties owed by it under the UK Security Documents. ARTICLE 13 MISCELLANEOUS Section 13.1 No Waivers; Cumulative Remedies. No failure by the Agent or any Lender to exercise any right, remedy, or option under this Agreement or any present or future supplement hereto, or in any other agreement between or among any Obligated Party and the Agent and/or any Lender, or delay by the Agent or any Lender in exercising the same, will operate as a waiver thereof. Subject to Section 11.1, no waiver by the Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by the Agent or the Lenders on any occasion shall affect or diminish the Agent's and each Lender's rights thereafter to require strict performance by the Loan Parties of any provision of this Agreement. The Agent and the Lenders may proceed directly to collect the Obligations without any prior recourse to the Collateral. The Agent's and each Lender's rights under this Agreement will be cumulative and not exclusive of any other right or remedy which the Agent or any Lender may have. Section 13.2 Severability. The illegality or unenforceability of any provision of this Agreement, any other Loan Document, or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement, any other Loan Document, or any instrument or agreement required hereunder. Section 13.3 Governing Law; Choice of Forum. CREDIT AGREEMENT - Page 79 (a) THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS, PROVIDED THAT PERFECTION ISSUES WITH RESPECT TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF TEXAS; PROVIDED THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES LOCATED IN DALLAS COUNTY, TEXAS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE LOAN PARTIES, THE AGENT, AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON- EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE LOAN PARTIES, THE AGENT, AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING (i) THE AGENT AND THE LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY LOAN PARTY OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS AND (ii) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS. (c) TO THE MAXIMUM EXTENT ALLOWED BY ANY APPLICABLE REQUIREMENT OF LAW, EACH LOAN PARTY HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO SUCH BORROWER AT ITS ADDRESS SET FORTH IN SECTION 13.8 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED TEN (10) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE UNITED STATES MAILS POSTAGE PREPAID. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR THE LENDERS TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW. Section 13.4 Waiver of Jury Trial. EACH OF THE LOAN PARTIES, THE LENDERS, AND THE AGENT IRREVOCABLY WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY CREDIT AGREEMENT - Page 80 JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING, OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT, OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH OF THE LOAN PARTIES, THE LENDERS, AND THE AGENT AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH OF THE PARTIES FURTHER AGREES THAT ITS RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM, OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS, OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. Section 13.5 Survival of Representations and Warranties. All representations and warranties of the Loan Parties contained in this Agreement shall survive the execution, delivery, and acceptance thereof by the parties, notwithstanding any investigation by the Agent or the Lenders or their respective agents. Section 13.6 Other Security and Guaranties. The Agent may, without notice or demand and without affecting the Loan Parties' obligations hereunder, from time to time: (a) take from any Person and hold collateral (other than the Collateral) for the payment of all or any part of the Obligations and exchange, enforce, or release such collateral or any part thereof; and (b) accept and hold any endorsement or guaranty of payment of all or any part of the Obligations and release or substitute any such endorser or guarantor, or any Person who has given any Lien in any other collateral as security for the payment of all or any part of the Obligations, or any other Person in any way obligated to pay all or any part of the Obligations. Section 13.7 Fees and Expenses. Each Loan Party agrees to pay to the Agent, for its benefit, on demand, all costs and expenses that the Agent pays or incurs in connection with the negotiation, preparation, syndication, consummation, administration, enforcement, and termination of this Agreement or any of the other Loan Documents, including: (a) Attorney Costs; (b) costs and expenses (including Attorney Costs) for any amendment, supplement, waiver, consent, or subsequent closing in connection with the Loan Documents and the transactions contemplated thereby; (c) costs and expenses of lien and title searches, and environmental audits; (d) taxes, fees, and other charges for recording the Mortgages, filing financing statements and continuations, and other actions to perfect, protect, and continue the Agent's Liens (including costs and expenses paid or incurred by the Agent in connection with the consummation of this Agreement); (e) sums paid or incurred to pay any amount or take any action required of any Loan Party under the Loan Documents that such Loan Party fails to pay or take; (f) costs of appraisals, inspections, and verifications of the Collateral, including travel, lodging, and meals for field examinations and inspections of the Collateral and the Obligated Parties' operations by the Agent, plus the Agent's then customary charge for field CREDIT AGREEMENT - Page 81 examinations and audits and the preparation of reports thereof (such charge is currently $750 per day (or portion thereof) for each Person retained or employed by the Agent with respect to each field examination or audit); and (g) costs and expenses of forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining Payment Accounts and lock boxes, and costs and expenses of preserving and protecting the Collateral. In addition, the Loan Parties agree to pay costs and expenses incurred by the Agent (including Attorney Costs), for its benefit, on demand, all reasonable fees, expenses, and disbursements paid or incurred by the Agent and to pay to the Lenders, for their benefit, on demand, all reasonable fees, expenses, and disbursements paid or incurred by the Lenders during the existence of an Event of Default for one law firm retained by the Lenders separate from the Agent to obtain payment of the Obligations, enforce the Agent's Liens, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions of the Loan Documents, or to defend any claims made or threatened against the Agent or any Lender arising out of the transactions contemplated hereby (including preparations for and consultations concerning any such matters). The foregoing shall not be construed to limit any other provisions of the Loan Documents regarding costs and expenses to be paid by the Loan Parties. All of the foregoing costs and expenses shall be charged to the Borrowers' Loan Account as Revolving Loans as described in Section 3.7. Section 13.8 Notices. Except as otherwise provided herein, all notices, demands, and requests that any party is required or elects to give to any other shall be in writing, or by a telecommunications device capable of creating a written record, and any such notice shall become effective (a) upon personal delivery thereof, including, but not limited to, delivery by overnight mail or courier service, (b) four (4) days after it shall have been mailed by United States mail, first class, certified or registered, with postage prepaid, or (c) in the case of notice by such a telecommunications device, when properly transmitted, in each case addressed to the party to be notified as follows: If to the Agent or to the Bank: Bank of America, N.A.. 901 Main Street, 6th Floor Dallas, TX 75202 Attention: Business Credit: URGENT Telecopy No.: 214-209-3501 If to the Loan Parties or any of them: EGL, Inc. 15350 Vickery Drive Houston, Texas 77032 Attention: Chief Financial Officer Telecopy No. 281-618-3429 or to such other address as each party may designate for itself by like notice. For purposes of providing any notice to a Lender, such notice shall be delivered to such Lender at the address for CREDIT AGREEMENT - Page 82 notice of such Lender set forth on the signature pages of this Agreement or on the most recent Assignment and Acceptance to which such Lender is a party. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration, or other communication to the persons designated above to receive copies shall not adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration, or other communication. Section 13.9 Waiver of Notices. Unless otherwise expressly provided herein, each Loan Party waives presentment, notice of demand or dishonor, protest as to any instrument, notice of intent to accelerate the Obligations, and notice of acceleration of the Obligations, as well as any and all other notices to which it might otherwise be entitled. No notice to or demand on any Loan Party which the Agent or any Lender may elect to give shall entitle any Loan Party to any or further notice or demand in the same, similar, or other circumstances. Section 13.10 Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective representatives, successors, and assigns of the parties hereto; provided, however, that no interest herein may be assigned by any Loan Party without the prior written consent of the Agent and each Lender. The rights and benefits of the Agent and the Lenders hereunder shall, if such Persons so agree, inure to any party acquiring any interest in the Obligations or any part thereof. Section 13.11 Indemnity of the Agent and the Lenders by the Loan Parties. (a) EACH LOAN PARTY AGREES TO DEFEND, INDEMNIFY, AND HOLD THE AGENT-RELATED PERSONS, AND EACH LENDER AND EACH OF ITS RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, COUNSEL, REPRESENTATIVES, AGENTS, AND ATTORNEYS-IN-FACT (EACH, AN "INDEMNIFIED PERSON") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, CHARGES, EXPENSES, AND DISBURSEMENTS (INCLUDING ATTORNEY COSTS) OF ANY KIND OR NATURE WHATSOEVER WHICH MAY AT ANY TIME (INCLUDING AT ANY TIME FOLLOWING REPAYMENT OF THE LOANS AND THE TERMINATION, RESIGNATION, OR REPLACEMENT OF THE AGENT OR REPLACEMENT OF ANY LENDER) BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ANY SUCH PERSON IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED BY OR REFERRED TO HEREIN, OR THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY ACTION TAKEN OR OMITTED BY ANY SUCH PERSON UNDER OR IN CONNECTION WITH ANY OF THE FOREGOING, INCLUDING WITH RESPECT TO ANY INVESTIGATION, LITIGATION, OR PROCEEDING (INCLUDING ANY INSOLVENCY PROCEEDING OR APPELLATE PROCEEDING) RELATED TO OR ARISING OUT OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR THE LOANS OR THE USE OF THE PROCEEDS THEREOF, WHETHER OR NOT ANY INDEMNIFIED PERSON IS A PARTY THERETO (ALL THE FOREGOING, COLLECTIVELY, THE "INDEMNIFIED LIABILITIES"); PROVIDED THAT THE LOAN PARTIES SHALL HAVE NO CREDIT AGREEMENT - Page 83 OBLIGATION HEREUNDER TO ANY INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES TO THE EXTENT RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PERSON. THE AGREEMENTS IN THIS SECTION 13.11 SHALL SURVIVE PAYMENT OF ALL OTHER OBLIGATIONS. (b) EACH LOAN PARTY AGREES TO INDEMNIFY, DEFEND, AND HOLD HARMLESS THE AGENT AND THE LENDERS FROM ANY LOSS OR LIABILITY DIRECTLY OR INDIRECTLY ARISING OUT OF THE USE, GENERATION, MANUFACTURE, PRODUCTION, STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, OR PRESENCE OF A HAZARDOUS SUBSTANCE RELATING TO ANY LOAN PARTIES' OPERATIONS, BUSINESS, OR PROPERTY. THIS INDEMNITY WILL APPLY WHETHER THE HAZARDOUS SUBSTANCE IS ON, UNDER, OR ABOUT ANY LOAN PARTY'S PROPERTY OR OPERATIONS OR PROPERTY LEASED TO ANY LOAN PARTY. THE INDEMNITY INCLUDES BUT IS NOT LIMITED TO ATTORNEY COSTS. THE INDEMNITY EXTENDS TO THE AGENT AND THE LENDERS, THEIR AFFILIATES, SUBSIDIARIES, AND ALL OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, SUCCESSORS, ATTORNEYS, AND ASSIGNS. AS USED IN THIS CLAUSE (B), "HAZARDOUS SUBSTANCES" MEANS ANY SUBSTANCE, MATERIAL, OR WASTE THAT IS OR BECOMES DESIGNATED OR REGULATED AS "TOXIC," "HAZARDOUS," "POLLUTANT," OR "CONTAMINANT" OR A SIMILAR DESIGNATION OR REGULATION UNDER ANY FEDERAL, STATE, OR LOCAL LAW (WHETHER UNDER COMMON LAW, STATUTE, REGULATION, OR OTHERWISE) OR JUDICIAL OR ADMINISTRATIVE INTERPRETATION OF SUCH, INCLUDING PETROLEUM OR NATURAL GAS. THIS INDEMNITY WILL SURVIVE REPAYMENT OF ALL OTHER OBLIGATIONS. Section 13.12 Limitation of Liability. NO CLAIM MAY BE MADE BY ANY LOAN PARTY, ANY LENDER, OR OTHER PERSON AGAINST THE AGENT, ANY LENDER, OR THE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, COUNSEL, REPRESENTATIVES, AGENTS, OR ATTORNEYS-IN-FACT OF ANY OF THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION THEREWITH, AND EACH LOAN PARTY AND EACH LENDER HEREBY WAIVES, RELEASES, AND AGREES NOT TO SUE UPON ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR. Section 13.13 Final Agreement. This Agreement and the other Loan Documents are intended by the Loan Parties, the Agent, and the Lenders to be the final, complete, and exclusive expression of the agreement between them. This Agreement and the other Loan Documents supersede any and all prior oral or written agreements relating to the subject matter hereof and CREDIT AGREEMENT - Page 84 thereof. No modification, rescission, waiver, release, or amendment of any provision of this Agreement or any other Loan Document shall be made, except by a written agreement signed by the Loan Parties and a duly authorized officer of each of the Agent and the Majority Lenders or all of the Lenders, as applicable. THIS WRITTEN AGREEMENT REPRESENTS 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 NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 13.14 Counterparts. This Agreement and the other Loan Documents may be executed in any number of counterparts, and by the Agent, each Lender, and the Loan Parties in separate counterparts, each of which shall be an original, but all of which shall together constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document and a telecopy of any such executed signature page shall be valid as an original. Section 13.15 Captions. The captions contained in this Agreement and the other Loan Documents are for convenience of reference only, are without substantive meaning and should not be construed to modify, enlarge, or restrict any provision. Section 13.16 Right of Setoff. In addition to any rights and remedies of the Lenders provided by law, if an Event of Default exists or the Loans have been accelerated, each Lender is authorized at any time and from time to time, without prior notice to the Loan Parties, any such notice being waived by the Loan Parties to the fullest extent permitted by law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Lender or any Affiliate of such Lender to or for the credit or the account of the Loan Parties, or any of them, against any and all Obligations, or any Guaranty thereof by any Obligated Party, owing to such Lender, now or hereafter existing, irrespective of whether or not the Agent or such Lender shall have made demand under this Agreement or any other Loan Document and although such Obligations or Guaranty may be contingent or unmatured. Each Lender agrees promptly to notify the Loan Parties and the Agent after any such setoff and application made by such Lender; provided, however, the failure to give such notice shall not affect the validity of such setoff and application. NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL EXERCISE ANY RIGHT OF SETOFF, BANKER'S LIEN, OR THE LIKE AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY OF ANY LOAN PARTY HELD OR MAINTAINED BY SUCH LENDER WITHOUT THE PRIOR WRITTEN UNANIMOUS CONSENT OF THE LENDERS. Section 13.17 Confidentiality. (a) Each Loan Party hereby consents that the Agent and each Lender may issue and disseminate to the public general information describing the credit accommodation entered into pursuant to this Agreement, including the name and address of the Loan Parties CREDIT AGREEMENT - Page 85 and a general description of the Loan Parties' business and may use each Loan Party's name in advertising and other promotional material. (b) Each Lender severally agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by any Loan Party and provided to the Agent or such Lender by or on behalf of any Loan Party, under this Agreement or any other Loan Document, except to the extent that such information (i) was or becomes generally available to the public other than as a result of disclosure by the Agent or such Lender, or (ii) was or becomes available on a nonconfidential basis from a source other than a Loan Party, provided that such source is not bound by a confidentiality agreement with a Loan Party known to the Agent or such Lender; provided, however, that the Agent and any Lender may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Agent or such Lender is subject or in connection with an examination of the Agent or such Lender by any such Governmental Authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (d) to the extent reasonably required in connection with any litigation or proceeding (including, but not limited to, any bankruptcy proceeding) to which the Agent, any Lender or their respective Affiliates may be party; (e) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (f) to the Agent's or such Lender's independent auditors, accountants, attorneys, and other professional advisors; (g) to any prospective Participant or Assignee, actual or potential, provided that such prospective Participant or Assignee agrees in writing to keep such information confidential to the same extent required of the Agent and the Lenders hereunder; (h) as expressly permitted under the terms of any other document or agreement regarding confidentiality to which any Borrower is party or is deemed party with the Agent or such Lender; and (i) to its Affiliates. Section 13.18 Conflicts with other Loan Documents. Unless otherwise expressly provided in this Agreement (or in another Loan Document by specific reference to the applicable provision contained in this Agreement), if any provision contained in this Agreement conflicts with any provision of any other Loan Document, the provision contained in this Agreement shall govern and control. Section 13.19 Joint and Several Liability. All Loans, upon funding, shall be deemed to be jointly funded to and received by the Borrowers. Each Borrower jointly and severally agrees to pay, and shall be jointly and severally liable under this Agreement for, all Obligations (excluding Existing Obligations in the case of a Newly Obligated Borrower), regardless of the manner or amount in which proceeds of Loans are used, allocated, shared, or disbursed by or among the Borrowers themselves, or the manner in which the Agent and/or any Lender accounts for such Loans or other extensions of credit on its books and records. Each Borrower shall be liable for all amounts due to the Agent and/or any Lender under this Agreement, regardless of which Borrower actually receives Loans or other extensions of credit hereunder or the amount of such Loans and extensions of credit received or the manner in which the Agent and/or such Lender accounts for such Loans or other extensions of credit on its books and records. Each Borrower's Obligations with respect to Loans CREDIT AGREEMENT - Page 86 and other extensions of credit made to it, and such Borrower's Obligations arising as a result of the joint and several liability of such Borrower hereunder, with respect to Loans made to the other Borrowers hereunder, shall be separate and distinct obligations, but all such Obligations shall be primary obligations of such Borrower. The Borrowers acknowledge and expressly agree with the Agent and each Lender that the joint and several liability of each Borrower is required solely as a condition to, and is given solely as inducement for and in consideration of, credit or accommodations extended or to be extended under the Loan Documents to any or all of the other Borrowers and is not required or given as a condition of extensions of credit to such Borrower. Each Loan Party's obligations under this Agreement and as an obligor under a Guaranty Agreement shall be separate and distinct obligations. Each Loan Party's obligations under this Agreement shall, to the fullest extent permitted by law, be unconditional irrespective of (i) the validity or enforceability, avoidance, or subordination of the Obligations of any other Loan Party or of any promissory note or other document evidencing all or any part of the Obligations of any other Loan Party, (ii) the absence of any attempt to collect the Obligations from any other Loan Party, any other Obligated Party, or any other security therefor, or the absence of any other action to enforce the same, (iii) the waiver, consent, extension, forbearance, or granting of any indulgence by the Agent and/or any Lender with respect to any provision of any instrument evidencing the Obligations of any other Loan Party or other Obligated Party, or any part thereof, or any other agreement now or hereafter executed by any other Loan Party or other Obligated Party and delivered to the Agent and/or any Lender, (iv) the failure by the Agent and/or any Lender to take any steps to perfect and maintain its security interest in, or to preserve its rights to, any security or collateral for the Obligations of any other Loan Party or other Obligated Party, (v) the Agent's and/or any Lender's election, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code or under any similar provision of the BIA, the Companies Creditors Arrangement Act (Canada), or any other applicable laws of any foreign jurisdiction, (vi) any borrowing or grant of a security interest by any other Loan Party or other Obligated Party, as debtor-in-possession under Section 364 of the Bankruptcy Code or under any similar provision of the BIA, the Companies Creditors Arrangement Act (Canada), or any other applicable laws of any foreign jurisdiction, (vii) the disallowance of all or any portion of the Agent's and/or any Lender's claim(s) for the repayment of the Obligations of any other Loan Party or other Obligated Party under Section 502 of the Bankruptcy Code or under any similar provision of the BIA, the Companies Creditors Arrangement Act (Canada), or any other applicable laws of any foreign jurisdiction, or (viii) any other circumstances which might constitute a legal or equitable discharge or defense of a guarantor or of any other Loan Party or other Obligated Party. With respect to any Borrower's Obligations arising as a result of the joint and several liability of the Borrowers hereunder with respect to Loans or other extensions of credit made to any of the other Borrowers hereunder, such Borrower waives, until the Obligations shall have been paid in full and this Agreement shall have been terminated, any right to enforce any right of subrogation or any remedy which the Agent and/or any Lender now has or may hereafter have against any other Borrower, any other Obligated Party, or any other endorser or any guarantor of all or any part of the Obligations, and any benefit of, and any right to participate in, any security or collateral given to the Agent and/or any Lender to secure payment of the Obligations or any other liability of any Loan Party or other Obligated Party to the Agent and/or any Lender. Upon any Event of Default, the Agent may proceed directly and at once, without notice, against any Loan Party or other Obligated Party to collect and recover the full amount, or any portion of the Obligations, without first proceeding against any other Loan Party or other Obligated Party or any other Person, or against any CREDIT AGREEMENT - Page 87 security or collateral for the Obligations. Each Loan Party consents and agrees that the Agent shall be under no obligation to marshal any assets in favor of any Loan Party or against or in payment of any or all of the Obligations. Section 13.20 Contribution and Indemnification Among the Borrowers. Each Borrower is obligated to repay the Obligations as joint and several obligors under this Agreement. To the extent that any Borrower shall, under this Agreement as a joint and several obligor, repay any of the Obligations constituting Loans made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower (an "Accommodation Payment"), then the Borrower making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Borrowers in an amount, for each of such other Borrowers, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Borrower's Allocable Amount and the denominator of which is the sum of the Allocable Amounts of all of the Borrowers. As of any date of determination, the "Allocable Amount" of each Borrower shall be equal to the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without (a) rendering such Borrower "insolvent" within the meaning of Section 101 (31) of the Bankruptcy Code, Section 2 of the Uniform Fraudulent Transfer Act ("UFTA") or Section 2 of the Uniform Fraudulent Conveyance Act ("UFCA"), (b) leaving such Borrower with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA, or (c) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code or Section 4 of the UFTA, or Section 5 of the UFCA. All rights and claims of contribution, indemnification, and reimbursement under this Section shall be subordinate in right of payment to the prior payment in full of the Obligations. The provisions of this Section shall, to the extent expressly inconsistent with any provision in any Loan Document, supersede such inconsistent provision. Section 13.21 Agency of the Parent for Each Other Loan Party. Each of the Loan Parties other than the Parent irrevocably appoints the Parent as its agent for all purposes relevant to this Agreement, including the giving and receipt of notices and execution and delivery of all documents, instruments, and certificates contemplated herein (including, without limitation, execution and delivery to the Agent of Borrowing Base Certificates, Notices of Borrowing, and Notices of Continuation/Conversion) and all modifications hereto. Any agreement, acknowledgment, consent, direction, certification, or other action which might otherwise be valid or effective only if given or taken by all or any of the Loan Parties or acting singly, shall be valid and effective if given or taken only by the Parent, whether or not any of the other Loan Parties joins therein, and the Agent and the Lenders shall have no duty or obligation to make further inquiry with respect to the authority of the Parent under this Section 13.21, provided that nothing in this Section 13.21 shall limit the effectiveness of, or the right of the Agent and the Lenders to rely upon, any notice (including without limitation a Notice of Borrowing or a Notice of Continuation/Conversion), document, instrument, certificate, acknowledgment, consent, direction, certification, or other action delivered by any Borrower or other Loan Party pursuant to this Agreement. Section 13.22 Additional Loan Parties. Addition of any Person as a party to this Agreement is subject to approval of the Agent and the Majority Lenders, and may be conditioned upon such CREDIT AGREEMENT - Page 88 requirements as they may determine in their discretion, including, without limitation, (a) the furnishing of such financial and other information as the Agent or any such Lender may request; (b) approval by all appropriate approval authorities of the Agent and each of the Majority Lenders; (c) execution and delivery by the then existing Loan Parties, such Person, the Agent, and the Majority Lenders of such agreements and other documentation (including, without limitation, an amendment to this Agreement or any other Loan Document), and the furnishing by such Person or any of the Loan Parties of such certificates, opinions, and other documentation, as the Agent and any such of the Majority Lenders may request. Neither the Agent nor any Lender shall have any obligation to approve any such Person for addition as a party to this Agreement. Section 13.23 Express Waivers By Loan Parties In Respect of Cross Guaranties and Cross Collateralization. Each Loan Party agrees as follows: (a) Each Loan Party hereby waives: (i) notice of acceptance of this Agreement; (ii) notice of the making of any Loans, the issuance of any Letter of Credit or Credit Support, or any other financial accommodations made or extended under the Loan Documents or the creation or existence of any Obligations; (iii) notice of the amount of the Obligations, subject, however, to such Loan Party's right to make inquiry of the Agent to ascertain the amount of the Obligations at any reasonable time; (iv) notice of any adverse change in the financial condition of any other Obligated Party or of any other fact that might increase such Loan Party's risk with respect to such other Obligated Party under the Loan Documents; (v) notice of presentment for payment, demand, protest, and notice thereof as to any promissory notes or other instruments among the Loan Documents; and (vii) all other notices (except if such notice is specifically required to be given to such Loan Party hereunder or under any of the other Loan Documents to which such Loan Party is a party) and demands to which such Loan Party might otherwise be entitled; (b) Each Loan Party hereby waives the right by statute or otherwise to require the Agent or any Lender to institute suit against any other Obligated Party or to exhaust any rights and remedies which the Agent or any Lender has or may have against any other Obligated Party. Each Loan Party further waives any defense arising by reason of any disability or other defense of any other Obligated Party (other than the defense that the Obligations shall have been fully and finally performed and indefeasibly paid) or by reason of the cessation from any cause whatsoever of the liability of any such Obligated Party in respect thereof. (c) Each Loan Party hereby waives and agrees not to assert against the Agent, any Lender, or the Letter of Credit Issuer: (i) any defense (legal or equitable), setoff, counterclaim, or claim which such Loan Party may now or at any time hereafter have against any other Obligated Party or any other party liable under the Loan Documents; (ii) any defense, setoff, counterclaim, or claim of any kind or nature available to any other Obligated Party against the Agent, any Lender, the Bank, or the Letter of Credit Issuer, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Obligations or any security therefor; (iii) any right or defense arising by reason of any claim or defense based upon an election of remedies by the Agent, any Lender, CREDIT AGREEMENT - Page 89 +the Bank, or the Letter of Credit Issuer under any applicable law; (iv) the benefit of any statute of limitations affecting any other Loan Party's liability hereunder; (d) Each Loan Party consents and agrees that, without notice to or by such Loan Party and without affecting or impairing the obligations of such Loan Party hereunder, the Agent may (subject to any requirement for consent of any of the Lenders to the extent required by this Agreement), by action or inaction: (i) compromise, settle, extend the duration or the time for the payment of, or discharge the performance of, or may refuse to or otherwise not enforce the Loan Documents; (ii) release all or any one or more parties to any one or more of the Loan Documents or grant other indulgences to any other Obligated Party in respect thereof; (iii) amend or modify in any manner and at any time (or from time to time) any of the Loan Documents; or (iv) release or substitute any Person liable for payment of the Obligations, or enforce, exchange, release, or waive any security for the Obligations or any Guaranty of the Obligations; Each Loan Party represents and warrants to the Agent and the Lenders that such Loan Party is currently informed of the financial condition of all other Consolidated Members and all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Loan Party further represents and warrants that such Loan Party has read and understands the terms and conditions of the Loan Documents. Each Loan Party agrees that neither the Agent, any Lender, the Bank, nor the Letter of Credit Issuer has any responsibility to inform any Loan Party of the financial condition of any other Obligated Party or of any other circumstances which bear upon the risk of nonpayment or nonperformance of the Obligations. Section 13.24 Payment Currency. Unless otherwise specified, all payments under this Agreement or any of the other Loan Documents, whether constituting payments of principal or interest on Loans, fees, costs or expenses, or other Obligations payable of any kind, shall be made in Dollars. To the extent any payments or proceeds of Collateral are received by or on behalf of the Agent in currency other than Dollars ("foreign currency"), for application to the Obligations, the amount to be applied and credited to the Obligations shall be equal (and limited) to the amount in Dollars which could be received on the Business Day following the Agent's receipt thereof in immediately available funds, in exchange for such foreign currency at the applicable exchange rate available to the Agent on the date of such exchange, less associated costs and expenses. Section 13.25 Judgment Currency. If, for the purpose of obtaining judgment in any court in any jurisdiction with respect to this Agreement or any other Loan Document or the Collateral, it becomes necessary to convert into the currency of such jurisdiction (herein called the "Judgment Currency") any amount due hereunder in any currency other than the Judgment Currency, then conversion shall be made at the rate of exchange prevailing on the Business Day before the day on which judgment is given. For this purpose, "rate of exchange" means the rate at which the Agent is able, on the relevant date, to sell the currency of the amount due hereunder in New York, New York against the Judgment Currency. In the event that there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment is given and the date of payment of the amount due, each Borrower agrees that it will, on the date of payment, pay such additional amounts (if any) as may be necessary to ensure that the amount paid on such date is the CREDIT AGREEMENT - Page 90 amount in the Judgment Currency which, when converted at the rate of exchange prevailing on the date of payment, is the amount then due under this Agreement in Dollars. Any additional amount due under this Section 13.25 will be due as a separate indebtedness and shall not be affected by judgment being obtained for any other sums due under or in respect of this Agreement or any other Loan Document. Section 13.26 Amendment and Restatement. This Agreement shall constitute an amendment and restatement of the Original Credit Agreement. On the Closing Date, the Original Loan of the Bank shall be deemed to be renewed and continued, and not extinguished, and thereupon and thereafter shall constitute a Revolving Loan under this Agreement, and the Original Revolving Note of the Bank shall be deemed to be renewed and replaced, but not extinguished, by the Revolving Loan Note of the Bank under this Agreement. Upon funding of the initial Loans by the Bank as a Lender under this Agreement the proceeds thereof (in excess of the principal amount of the Original Loan of the Bank renewed and continued as referenced in the preceding sentence) shall be used to pay and discharge in full the Original Loans and Original Revolving Notes of each Terminating Lender and the Bank, as a Lender under this Agreement, shall be subrogated to all rights of the Terminating Lenders in respect thereof. On the Closing Date, the "Administrative Agent's Lien" as defined in and evidenced by the Original Credit Documents shall automatically be deemed to be renewed and continued (and not extinguished) by this Agreement and the other Loan Documents and thereupon and thereafter shall be the Agent's Lien under this Agreement and the other Loan Documents, which shall continue in full force and effect as security for all Obligations in accordance with the terms of this Agreement and the other Loan Documents. All Original Letters of Credit shall be deemed to be outstanding under this Agreement and all references to Letters of Credit in this Agreement and the other Loan Documents shall include the Original Letters of Credit. All references in the Original Credit Documents to the Original Credit Agreement shall be deemed to mean this Agreement, as an amendment and restatement of the Original Credit Agreement, all references in the Original Credit Documents to the "Administrative Agent" shall mean the Agent and all references in the Original Credit Documents to "Bank of America," "Bank of America, N.A.,"or "Bank of America, National Association" shall mean the Bank. Section 13.27 Designated Senior Debt. All Obligations existing from time to time, including any increases, renewals, extensions or modifications thereof, are hereby expressly designated as being "Designated Senior Indebtedness" for purposes of, and as defined by, the Convertible Subordinated Debt Documents. [Remainder of page intentionally left blank] CREDIT AGREEMENT - Page 91 IN WITNESS WHEREOF, the parties have entered into this Agreement on the date first above written. BORROWERS: EGL, INC. By: /s/ JAMES R. CRANE -------------------------------------- James R. Crane, President By: /s/ J. BRADLEY GREEN -------------------------------------- J. Bradley Green, Corporate Secretary ALROD INTERNATIONAL, INC. By: /s/ JAMES R. CRANE -------------------------------------- James R. Crane, President CIRCLE AIRFREIGHT JAPAN, LTD. By: /s/ JAMES R. CRANE -------------------------------------- James R. Crane, President CIRCLE OVERSEAS CORP. By: /s/ JAMES R. CRANE -------------------------------------- James R. Crane, President CIRCLE INTERNATIONAL GROUP, INC. By: /s/ JAMES R. CRANE ------------------------------------- James R. Crane, President CREDIT AGREEMENT CIRCLE INTERNATIONAL HOLDINGS, INC. By: /s/ JAMES R. CRANE ------------------------------------- James R. Crane, President CIRCLE INTERNATIONAL, INC. By: /s/ JAMES R. CRANE ------------------------------------- James R. Crane, President DARRELL J. SEKIN & CO. By: /s/ JAMES R. CRANE ------------------------------------- James R. Crane, President By: /s/ J. BRADLEY GREEN ------------------------------------- J. Bradley Green, Secretary EAGLE MARITIME SERVICES, INC. By: /s/ DOUGLAS WICKLUND ------------------------------------- Douglas Wicklund, President By: /s/ TERRY DERR ------------------------------------- Terry Derr, Secretary EAGLE PARTNERS L.P. By: EUSA HOLDINGS, INC., its General Partner By: /s/ J. BRADLEY GREEN --------------------------------- J. Bradley Green, President CREDIT AGREEMENT EAGLE USA IMPORT BROKERS, INC. By: /s/ J. BRADLEY GREEN ------------------------------------ J. Bradley Green, President EGL (CANADA) HOLDING COMPANY, INC. By: /s/ JAMES R. CRANE ------------------------------------ James R. Crane, President EGL DELAWARE LIMITED LIABILITY COMPANY By: /s/ JAMES R. CRANE ------------------------------------ James R. Crane, Manager By: /s/ E. JOSEPH BENTO ------------------------------------ E. Joseph Bento, Manager EGL EAGLE GLOBAL LOGISTICS, LP By: EGL MANAGEMENT, LLC, its Sole General Partner By: /s/ JAMES R. CRANE -------------------------------- James R. Crane, President By: /s/ J. BRADLEY GREEN -------------------------------- J. Bradley Green, Secretary CREDIT AGREEMENT EGL MANAGEMENT, LLC By: /s/ JAMES R. CRANE ------------------------------------ James R. Crane, President By: /s/ J. BRADLEY GREEN ------------------------------------ J. Bradley Green, Secretary EUSA HOLDINGS, INC. By: /s/ J. BRADLEY GREEN ------------------------------------ J. Bradley Green, President EUSA PARTNERS, INC. By: /s/ J. BRADLEY GREEN ------------------------------------ J. Bradley Green, President HARPER, ROBINSON & CO., INC. By: /s/ JAMES R. CRANE ------------------------------------ James R. Crane, President J.R. MICHELS, INCORPORATED By: /s/ JAMES R. CRANE ------------------------------------ James R. Crane, President MAX GRUENHUT INTERNATIONAL, INC. By: /s/ JAMES R. CRANE ------------------------------------ James R. Crane, President CREDIT AGREEMENT AGENT: BANK OF AMERICA, N.A., as the Agent By: /s/ DAN LANE ---------------------------------- Dan Lane, Senior Vice President LENDERS: BANK OF AMERICA, N.A. By: /s/ DAN LANE ---------------------------------- Dan Lane, Senior Vice President Address for Notices: 901 Main Street, 6th Floor Dallas, TX 75202 Attention: Business Credit: URGENT Telecopy No.: 214-209-3501 CREDIT AGREEMENT LOAN PARTIES - GUARANTORS: EGL EAGLE GLOBAL LOGISTICS (CANADA) CORP. By: /s/ CHRISTOPHER RALPHS ---------------------------------- Christopher Ralphs, President CREDIT AGREEMENT ANNEX A to Credit Agreement Definitions, Accounting Terms, and Interpretive Provisions DEFINITIONS: Capitalized terms wherever used in the Loan Documents shall have the following respective meanings (unless otherwise defined therein): "Account" and "Accounts" have the meanings specified in the Security Agreement. "Accommodation Payment" has the meaning specified in Section 13.20. "Account Debtor" means each Person obligated in any way on or in connection with an Account, Chattel Paper, or General Intangibles (including a payment intangible). "ACH Transactions" means any cash management or related services including, without limitation, the automated clearinghouse transfer of funds by the Bank for the account of any Consolidated Member pursuant to agreement or overdrafts. "Adjusted Net Earnings from Operations" means, with respect to any fiscal period of the Parent, the Consolidated Members' net income after provision for income taxes for such fiscal period, as determined in accordance with GAAP and reported on the Financial Statements for such period, excluding any and all of the following included in such net income: (a) gain or loss arising from the sale of any capital assets; (b) gain arising from any write-up in the book value of any asset; (c) earnings of any Person, substantially all the assets of which have been acquired by any Consolidated Member other than an Unrestricted Subsidiary in any manner, to the extent realized by such other Person prior to the date of acquisition; (d) earnings of any Person in which any Consolidated Member other than an Unrestricted Subsidiary has an ownership interest unless (and only to the extent) such earnings shall actually have been received by such Consolidated Member in the form of cash distributions; (e) earnings of any Person to which assets of any Consolidated Member other than an Unrestricted Subsidiary shall have been sold, transferred, or disposed of, or into which any Consolidated Member other than an Unrestricted Subsidiary shall have been merged, or which has been a party with any Consolidated Member other than an Unrestricted Subsidiary to any consolidation or other form of reorganization, prior to the date of such transaction; (f) gain arising from the acquisition of debt or equity securities of any Consolidated Member other than an Unrestricted Subsidiary or from cancellation or forgiveness of Debt; (g) gain or loss arising from extraordinary items, other than any such items arising with respect to an Unrestricted Subsidiary, as determined in accordance with GAAP, or from any other non-recurring transaction; and (h) any income or loss resulting from the operations of the Unrestricted Subsidiaries. ANNEX A TO CREDIT AGREEMENT - Page 1 "Adjusted Tangible Assets" means, as applied to any Person, all of such Person's assets except: (a) patents, copyrights, trademarks, trade names, franchises, goodwill, and other similar intangibles; (b) Restricted Investments; (c) unamortized debt discount and expense; (d) assets constituting Intercompany Accounts; and (e) fixed assets to the extent of any write-up in the book value thereof resulting from a revaluation effective after the Closing Date. "Adjusted Tangible Net Worth" means, as applied to any Person, at any date and determined in accordance with GAAP (a) the book value (after deducting related depreciation, obsolescence, amortization, valuation, and other proper reserves) at which the Adjusted Tangible Assets would be shown on a balance sheet of such Person at such date, less (b) the amount at which such Person's liabilities would be shown on such balance sheet, including as liabilities all reserves for contingencies and other potential liabilities which would be required to be shown on such balance sheet. "Adjusted Tangible Net Worth Requirement" means, as of the end of each fiscal quarter of the Parent ending after the Closing Date, an amount equal to the amount specified corresponding to the applicable fiscal quarter end in the table below, respectively:
==================================================================================== Fiscal Quarter End Adjusted Tangible Net Worth Requirement ==================================================================================== Fiscal quarter ending December 31, 2001 $270,000,000 - ------------------------------------------------------------------------------------ Fiscal quarter ending March 31, 2002 and $270,000,000 plus the cumulative each fiscal quarter ending thereafter amount of all Adjusted Tangible Net Worth Requirement Increases ====================================================================================
"Adjusted Tangible Net Worth Requirement Increase" means an amount, determined for the Parent and its Subsidiaries, excluding the Unrestricted Subsidiaries, on a consolidated basis as of the end of any fiscal quarter of the Parent, commencing with the fiscal quarter ending March 31, 2002, equal to the sum of (a) seventy-five percent (75.0%) of the amount (not less than zero) of Net Income for such fiscal quarter, plus (b) seventy-five percent (75.0%) of the net amount of all equity proceeds received during such fiscal quarter minus (c) the aggregate amount of all Permitted Stock Repurchases during such fiscal quarter; plus or minus, as the case may be, without duplication, adjustments (increases or decreases) to net worth made during such period pursuant to Statement of Financial Accounting Standards (SFAS) 142. "Affected Lender" has the meaning specified in Section 4.8. "Affiliate" means, as to any Person (the "subject Person"), including any Consolidated Member, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, the subject Person or which owns, directly or indirectly, five percent (5.0%) or more of the outstanding Capital Stock of the subject Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause ANNEX A TO CREDIT AGREEMENT - Page 2 the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise. "Agent" means the Bank in its capacity as sole and exclusive administrative and/or collateral agent for the Lenders, and as lead arranger and book manager, and any successor to Bank of America by merger and any successor administrative and/or collateral agent. "Agent Advances" has the meaning specified in Section 1.2(j). "Agent's Letter" means that certain letter agreement, dated as of the Closing Date, among the Borrowers and the Agent as such letter agreement may be amended, restated, or otherwise modified. "Agent's Liens" means the Liens in the Collateral granted to the Agent (or to any other Person as agent, trustee, or otherwise for the benefit of the Agent), for the benefit of the Lenders, the Bank, and the Agent pursuant to this Agreement and the other Loan Documents. "Agent-Related Persons" means the Agent, together with its Affiliates, and the officers, directors, employees, counsel, representatives, agents, and attorneys-in-fact of the Agent and its Affiliates. "Aggregate Revolver Outstandings" means, at any time, the sum of (a) the unpaid balance of the Revolving Loans, (b) the aggregate amount of Pending Revolving Loans, (c) one hundred percent (100%) of the aggregate undrawn face amount of all outstanding Letters of Credit and Credit Support, and (d) the aggregate amount of any unpaid reimbursement obligations in respect of Letters of Credit and Credit Support. "Agreement" means the Credit Agreement to which this Annex A is attached, as amended, restated, or otherwise modified from time to time. "Anniversary Date" means an anniversary of the Closing Date. "Applicable Margin" means, as of the Closing Date, (a) with respect to Base Rate Revolving Loans and all other Obligations (other than LIBOR Rate Loans), 0.00%; and (b) with respect to LIBOR Rate Revolving Loans, 2.50%. in each case subject to adjustment from time to time, after June 30, 2002, to the applicable percentage specified corresponding to the monthly average Availability Without Regard to Line Constraint (determined on a calendar month basis for each respective calendar month beginning June, 2002 and thereafter), as set forth below, respectively: ANNEX A TO CREDIT AGREEMENT - Page 3
========================================================================================================= Availability Without Regard to Line Constraint Base Rate Loans LIBOR Rate Loans ========================================================================================================= Greater than or equal to $65,000,000 0.00% 2.00% - --------------------------------------------------------------------------------------------------------- Less than $65,000,000 but greater than or equal 0.00% 2.25% to $45,000,000 - --------------------------------------------------------------------------------------------------------- Less than $45,000,000 but greater than or equal 0.00% 2.50% to $25,000,000 - --------------------------------------------------------------------------------------------------------- Less than $25,000,000 0.25% 2.75% =========================================================================================================
For the purpose of determining any such adjustments to the Applicable Margin, the monthly average Availability Without Regard to Line Constraint, for any such calendar month, shall be determined by the Agent and any resulting adjustment, if any, shall become effective prospectively on the fifteenth (15th) day of the next calendar month. If a Default or Event of Default exists at the time any reduction in the Applicable Margin is to be implemented, such reduction shall not occur until the first day of the first calendar month, if any, following the date on which such Default or Event of Default is waived or cured. "Asset Disposition" means, with respect to any Person, the sale, lease or other disposition of any asset of such Person other than the sale of Inventory or the use of cash in the ordinary course of business. "Assignee" has the meaning specified in Section 11.2(a). "Assignment and Acceptance" has the meaning specified in Section 11.2(a). "Attorney Costs" means and includes all reasonable fees, expenses, and disbursements of any law firm or other counsel engaged by the Agent and the reasonably allocated costs and expenses of internal legal services of the Agent. "Availability" means, at any time (a) the lesser of (i) the Maximum Revolver Amount or (ii) the Borrowing Base, minus (b) Reserves other than Reserves deducted in the calculation of the Borrowing Base, minus (c) the Aggregate Revolver Outstandings. "Availability Measurement Reduction Date" means the date that is five (5) Business Days after the date of delivery of Financial Statements first demonstrating EBITDA for the Consolidated Members in an amount equal to or exceeding any of the following amounts for the specified periods: (i) $9,700,000 for the fiscal quarter ending December 31, 2001, (ii) $9,800,000 for the fiscal quarter ending March 31, 2001 or (iii) $13,200,000 for the fiscal quarter ending June 30, 2002. "Availability Without Regard to Line Constraint" means, at any time, the Borrowing Base minus Reserves other than Reserves deducted in the calculation of the Borrowing Base minus the Aggregate Revolver Outstandings minus the sum of the Borrowing Base Parties' accounts payable ANNEX A TO CREDIT AGREEMENT - Page 4 which remain unpaid more than sixty (60) days from their respective invoice date or thirty (30) days from their respective due date (other than accounts contested in good faith), whichever time period is longer. "Bank" means Bank of America, National Association, a national banking association (also known as Bank of America, N.A.), or any successor entity thereto. "Bank Products" means any one or more of the following types of services or facilities extended to any Consolidated Member, excluding the Unrestricted Subsidiaries, by the Bank or any Affiliate of the Bank in reliance on the Bank's agreement to indemnify such Affiliate: (a) credit cards; (b) ACH Transactions; (c) cash management, including, without limitation, controlled disbursement services; (d) Hedge Agreements and (e) the Foreign Credit Debt. "Bank Product Reserves" means all reserves which the Agent from time to time establishes in its reasonable discretion for the Bank Products then provided or outstanding. "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C.ss. 101 et seq.). "Base Rate" means, for any day, the rate of interest in effect for such day as publicly announced from time to time by the Bank in Charlotte, North Carolina as its "prime rate" (the "prime rate" being a rate set by the Bank based upon various factors including the Bank's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate). Any change in the prime rate announced by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change. Each Interest Rate based upon the Base Rate shall be adjusted simultaneously with any change in the Base Rate. "Base Rate Loans" means, collectively, the Base Rate Revolving Loans. "Base Rate Revolving Loan" means a Revolving Loan during any period in which it bears interest based on the Base Rate. "BIA" means the Bankruptcy and Insolvency Act (Canada) and all regulations thereunder. "Blocked Account Agreement" means an agreement (including, without limitation, a collection account agreement) among one or more of the Loan Parties or other Obligated Parties, the Agent, and a Clearing Bank, in form and substance reasonably satisfactory to the Agent, concerning the collection of payments which represent the proceeds of Accounts or of any other Collateral. "Borrower" means, separately and individually, any of the Parent and the Domestic Subsidiaries, and any other Person who becomes a party to this Agreement as a "Borrower" pursuant to the terms hereof, jointly, severally, and collectively, and "Borrowers" means more than one or all of the foregoing Persons, jointly, severally, and collectively, as the context requires. ANNEX A TO CREDIT AGREEMENT - Page 5 "Borrowing" means a borrowing hereunder consisting of Revolving Loans xmade on the same day by the Lenders to the Borrowers, or any of them, or by the Bank (in the case of a Borrowing funded by Non-Ratable Loans) or by the Agent (in the case of a Borrowing consisting of an Agent Advance), or the issuance of a Letter of Credit or Credit Support hereunder. "Borrowing Base" means, at any time, an amount equal to (a) the sum of (i) up to eighty-five percent (85.0%) of the Net Amount of billed and posted Eligible Accounts generated and owned by the Borrowing Base Parties plus (ii) up to eighty-five percent (85.0%) of the Net Amount of billed and unposted Eligible Accounts generated and owned by the Borrowers and owing by Account Debtors located in the United States (subject to a maximum aggregate availability cap in the case of Eligible Accounts under this clause (ii) of $10,000,000) plus (iii) up to fifty percent (50%) of the Net Amount of unbilled (fully earned) and unposted Eligible Accounts generated and owned by the Borrowers and owing by Account Debtors located in the United States (subject to a maximum aggregate availability cap in the case of Eligible Accounts under this clause (iii) of $10,000,000) minus (b) Reserves from time to time established by the Agent in its reasonable credit judgment. "Borrowing Base Certificate" means a certificate by a Responsible Officer of the Borrowers, or the Parent on behalf of the Borrowers, substantially in the form of Exhibit B (or another form acceptable to the Agent) setting forth the calculation of the Borrowing Base, including a calculation of each component thereof (including to the extent a Borrower has received notice of any Reserve from the Agent, any of the Reserves included in such calculation pursuant to clause (b) of the definition of Borrowing Base), all in such detail as shall be reasonably satisfactory to the Agent. All calculations of the Borrowing Base in connection with the preparation of any Borrowing Base Certificate shall originally be made by the Borrowers, or the Parent on behalf of the Borrowers, and certified to the Agent; provided that the Agent shall have the right to review and adjust, in the exercise of its reasonable credit judgment, any such calculation (a) to reflect its reasonable estimate of declines in value of any of the Collateral described therein, and (b) to the extent that such calculation is not in accordance with this Agreement. "Borrowing Base Party" means the Parent, a Domestic Subsidiary or an Eligible Foreign Subsidiary, and "Borrowing Base Parties" means any two or more, or all, of such Persons. "Business Day" means (a) any day that is not a Saturday, Sunday, or a day on which banks in Dallas, Texas or Charlotte, North Carolina are required or permitted to be closed, and (b) with respect to all notices, determinations, fundings, and payments in connection with the LIBOR Rate or LIBOR Rate Loans, any day that is a Business Day pursuant to clause (a) preceding and that is also a day on which trading in Dollars is carried on by and between banks in the London interbank market. "Canadian Security Document" means each of that certain Guarantee, General Security Agreement, Security Agreement (Trademark), and Collection Account Agreement executed and delivered to the Agent by Eagle Canada, and any other agreements, certificates, documents, or instruments delivered in connection therewith, and "Canadian Security Documents" means all of such documents collectively. "Canadian Security Document" includes, without limitation, each "Canadian Security Document" as defined in, and executed and delivered pursuant to, the Original ANNEX A TO CREDIT AGREEMENT - Page 6 Credit Agreement, as any such Canadian Security Document has been, or may be, renewed, modified, amended or restated from time to time. "Canada Subsidiary" each Subsidiary of the Parent that is organized under the laws of Canada, or any province thereof, and has its chief executive office and principal place of business in Canada, including, without limitation, each such Subsidiary of the Parent so identified in Schedule A-5, and "Canada Subsidiaries" means all such Subsidiaries, provided, however, that in any event "Canada Subsidiary" and "Canada Subsidiaries" specifically excludes any Unrestricted Subsidiary. "Capital Adequacy Regulation" means any guideline, request, or directive of any central bank or other Governmental Authority, or any other law, rule, or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Capital Expenditures" means all payments due (whether or not paid during any fiscal period) in respect of the cost of any fixed asset or improvement, or replacement, substitution, or addition thereto, which has a useful life of more than one year, including, without limitation, those costs arising in connection with the direct or indirect acquisition of such asset by way of increased product or service charges or in connection with a Capital Lease. "Capital Lease" means any lease of property by a Consolidated Member which, in accordance with GAAP, should be reflected as a capital lease on the consolidated balance sheet of the Parent. "Capital Stock" has the meaning specified for such term by the Security Agreement. "CCQ" means the Civil Code of Quebec, and all regulations thereunder, as amended from time to time, and any successor statutes. "Change of Control" means the occurrence of any of the following: (a) except as allowed by Section 7.9, the adoption of a plan relating to the liquidation or dissolution of the Parent or any other Loan Party; (b) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of a direct or indirect majority in interest (more than fifty percent (50.0%)) of the voting power of the voting stock of the Parent by way of merger or consolidation or otherwise; (c) during any period of twelve (12) consecutive calendar months, individuals (i) who were members of the Management Group of the Parent on the first day of such period, or (ii) whose election or nomination for election to the Management Group of the Parent was recommended or approved by at least a majority of the Management Group then still in office who were members of the Management Group of the Parent on the first day of such period, or whose election or nomination for election was so approved, shall cease to constitute a majority of the Management Group of the Parent; (d) except as allowed by Section 7.9, any Loan Party (other than the Parent) shall cease to be a Wholly-Owned Subsidiary of the Parent; or (e) any "Change in Control" as defined by the Convertible Subordinated Debt Documents. "Chattel Paper" has the meaning specified in the Security Agreement. ANNEX A TO CREDIT AGREEMENT - Page 7 "Clearing Bank" means the Bank or any other banking institution with whom a Payment Account has been established pursuant to a Blocked Account Agreement. "Closing Date" means the date of this Agreement as specified in the introductory paragraph. "Code" means the Internal Revenue Code of 1986, as amended from time to time and any successor statute and the regulations promulgated thereunder. "Collateral" means (a) all of the "Collateral," as such term is defined in the Security Agreement, including without limitation all property now owned or hereafter acquired by each Loan Party as described in clauses (i), (ii) and (iii) of Section 7.28, (b) all other personal property at any time subject to the Agent's Liens, including, without limitation, any property now owned or hereafter acquired by a Loan Party in which a Lien is granted to the Agent or otherwise for the benefit of the Agent and the Lenders pursuant to any Foreign Security Documents and (c) all accessions to, substitutions for, and replacements, products and proceeds of any of the foregoing, including, but not limited to, proceeds of any insurance policies, claims against third parties, and condemnation or requisition payments with respect to all or any of the foregoing. "Commitment" means, at any time with respect to a Lender, the principal amount set forth beside such Lender's name under the heading "Commitment" on Schedule A-1 or on the signature page of the most recent Assignment and Acceptance to which such Lender is a party, as such Commitment may be adjusted from time to time in accordance with the provisions of Section 11.2, and "Commitments" means, collectively, the aggregate amount of the Commitments of all of the Lenders. "Compliance Certificate' has the meaning specified in Section 5.2(d). "Consolidated Members" means the Parent and its Subsidiaries and "Consolidated Member" means any of the foregoing. "Contaminant" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos in any form or condition, polychlorinated biphenyls ("PCBs"), or any constituent of any such substance or waste as defined in any Environmental Law. "Continuation/Conversion Date" means the effective date of (a) any conversion of LIBOR Rate Loans to Base Rate Loans or of Base Rate Loans to LIBOR Rate Loans or (b) any continuation of LIBOR Rate Loans as LIBOR Rate Loans. "Convertible Subordinated Debt Documents" means (i) the certain Indenture dated as of December 7, 2001, between the Parent and JPMorgan Chase Bank, as Trustee and (ii) the certain First Supplemental Indenture dated December 7, 2001, between the Parent and JPMorgan Chase Bank, as Trustee. ANNEX A TO CREDIT AGREEMENT - Page 8 "Convertible Subordinated Notes" means the certain 5% Convertible Subordinated Notes due December 15, 2006, executed and delivered by the Parent in the original aggregate principal amount of $100,000,000 pursuant to the terms of the Convertible Subordinated Debt Documents. "Copyright Security Agreement" means any Copyright Security Agreement, dated as of the Closing Date or any subsequent date, executed and delivered by an Obligated Party to the Agent, for the benefit of the Agent and the Lenders, to evidence and perfect the Agent's security interest in such Obligated Parties' present and future copyrights and related licenses and rights, as such agreement may be amended, restated, or otherwise modified from time to time. "Credit Support" has the meaning specified in Section 1.4(a). "Debt" means, without duplication, with respect to any Person (the "subject Person") all liabilities, obligations, and indebtedness of the subject Person to any other Person, of any kind or nature, now or hereafter owing, arising, due, or payable, howsoever evidenced, created, incurred, acquired, or owing, whether primary, secondary, direct, contingent, fixed, or otherwise, consisting of indebtedness for borrowed money or the deferred purchase price of property, excluding trade payables, but including, without in any way limiting the generality of the foregoing: (a) in the case of the Loan Parties, the Obligations; (b) all indebtedness, liabilities, and obligations of any Person secured by any Lien on the subject Person's property, even if the subject Person shall not have assumed or become liable for the payment thereof; provided, however, that all such indebtedness, liabilities, and obligations which are limited in recourse to such property shall be included in Debt only to the extent of the book value of such property as would be shown on a balance sheet of the subject Person prepared in accordance with GAAP; (c) all indebtedness, liabilities, and obligations created or arising under any Capital Lease or conditional sale or other title retention agreement with respect to property used or acquired by the subject Person, even if the rights and remedies of the lessor, seller, or lender thereunder are limited to repossession of such property; provided, however, that all such indebtedness, liabilities, and obligations which are limited in recourse to such property shall be included in Debt only to the extent of the book value of such property as would be shown on a balance sheet of the subject Person prepared in accordance with GAAP; (d) all indebtedness, liabilities, and obligations under Guaranties; and (e) the present value (discounted at the Base Rate) of lease payments due under synthetic leases. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured, waived, or otherwise remedied during such time) constitute an Event of Default. "Default Rate" means a fluctuating per annum interest rate at all times equal to the sum of (a) the otherwise applicable Interest Rate, plus (b) two percent (2.0%) per annum. Each Default Rate shall be adjusted simultaneously with any change in the applicable Interest Rate. In addition, with respect to Letters of Credit and Credit Support, the Default Rate shall mean the Letter of Credit Fee Percentage, plus two percent (2.0%) per annum. "Defaulting Lender" has the meaning specified in Section 12.15(c). ANNEX A TO CREDIT AGREEMENT - Page 9 "Deposit Accounts" has the meaning specified in the Security Agreement. "Designated Account" has the meaning specified in Section 1.2(d). "Distribution" means, with respect to any Person (other than a natural person): (a) the payment or making of any dividend or other distribution of property in respect of such Person's Capital Stock (or any options or warrants for, or other rights with respect to, such Capital Stock) of such Person, other than distributions solely in such Person's Capital Stock (or any options or warrants for, or other rights with respect to, such Capital Stock) of the same class; or (b) the redemption or other acquisition by such Person of any Capital Stock (or any options or warrants for, or other rights with respect to, such Capital Stock) of such Person. "DOL" means the United States Department of Labor or any successor department or agency. "Dollar" and "$" means dollars in the lawful currency of the United States. "Domestic Subsidiary" means each Subsidiary of the Parent that is organized under the laws of the United States or any State thereof, and has its chief executive office and principal place of business in the United States, including, without limitation, each Subsidiary of the Parent listed in Schedule A-4, and "Domestic Subsidiaries" means all such Subsidiaries, provided, however, that in any event "Domestic Subsidiary" and "Domestic Subsidiaries" specifically excludes any Unrestricted Subsidiary. "Dormant Guarantor" means each of the Loan Parties listed in Schedule A-6. "EBITDA" means, with respect to any fiscal period of the Parent, Adjusted Net Earnings from Operations, plus, to the extent deducted in the determination of Adjusted Net Earnings from Operations for such fiscal period, Interest Expense, plus Federal, state, local, and foreign income taxes, plus depreciation and amortization. "Eligible Accounts" means the Accounts of a Borrowing Base Party which the Agent in the exercise of its reasonable commercial discretion determines to be Eligible Accounts. Without limiting the discretion of the Agent to establish other criteria of ineligibility, Eligible Accounts shall not, unless the Agent in its reasonable discretion elects, include any Account: (a) with respect to which more than one hundred twenty (120) days have elapsed since the date of the original invoice therefor; (b) with respect to which any of the representations, warranties, covenants, and agreements contained in the Security Agreement are incorrect or have been breached; (c) with respect to which Account (or any other Account due from the applicable Account Debtor), in whole or in part, a check, promissory note, draft, trade acceptance, or other instrument for the payment of money has been received, presented for payment, and returned uncollected for any reason; ANNEX A TO CREDIT AGREEMENT - Page 10 (d) which represents a progress billing (as hereinafter defined) or as to which the applicable Borrowing Base Party has extended the time for payment without the consent of the Agent (for the purposes hereof, "progress billing" means any invoice for goods sold or leased or services rendered under a contract or agreement pursuant to which the Account Debtor's obligation to pay such invoice is conditioned upon such Borrowing Base Party's completion of any further performance under such contract or agreement); (e) with respect to which any one or more of the following events has occurred to the Account Debtor on such Account: (i) death or judicial declaration of incompetency of such Account Debtor who is a natural person; (ii) the filing by or against such Account Debtor of a request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or other relief under the Bankruptcy Code, the BIA, or other similar Requirements of Law of any jurisdiction or any other bankruptcy, insolvency, or similar laws of the United States, any state or territory thereof, or any foreign jurisdiction, now or hereafter in effect; (iii) the making of any general assignment by such Account Debtor for the benefit of creditors; (iv) the appointment of a receiver or trustee for such Account Debtor or for any of the assets of the Account Debtor, including, without limitation, the appointment of or taking possession by a "custodian," as defined in the Bankruptcy Code; (v) the institution by or against such Account Debtor of any other type of insolvency proceeding (under the Bankruptcy Code, the BIA, or other similar Requirements of Law of any jurisdiction or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of affairs of, such Account Debtor; (vi) the sale, assignment, or transfer of all or any material part of the assets of such Account Debtor; (vii) the nonpayment generally by such Account Debtor of its debts as they become due; or (viii) the cessation of the business of such Account Debtor as a going concern; (f) if fifty percent (50.0%) or more of the aggregate Dollar amount of outstanding Accounts owed at such time by the Account Debtor thereon is classified as ineligible pursuant to the other provisions of this definition; (g) owed by an Account Debtor which (i) does not maintain its chief executive office and a billing address in the United States or Canada, (ii) is not organized under the laws of the United States or Canada or any political subdivision, state, or province thereof, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, except to the extent that such Account is secured or payable by a letter of credit satisfactory to the Agent in its discretion; (h) owed by an Account Debtor which is an Affiliate or employee of such Borrowing Base Party or Affiliate; (i) with respect to Accounts of a Borrower, except as provided in clause (k) following, with respect to which either the perfection, enforceability, or validity of the Agent's Liens in such Account, or the Agent's right or ability to obtain direct payment to the ANNEX A TO CREDIT AGREEMENT - Page 11 Agent of the proceeds of such Account, is governed by any federal, state, or local statutory requirements other than those of the UCC or Requirements of Law of Canada; (j) owed by an Account Debtor to which a Consolidated Member or any Affiliate thereof is indebted in any way, or which is subject to any right of setoff or recoupment by the Account Debtor, unless the Account Debtor has entered into an agreement acceptable to the Agent to waive setoff rights, or if the Account Debtor thereon has disputed liability or made any claim with respect to any other Account due from such Account Debtor, but in each such case only to the extent of such indebtedness, setoff, recoupment, dispute, or claim; (k) owed by the government of the United States or any Eligible Foreign Jurisdiction, or any department, agency, public corporation, or other instrumentality thereof, unless, in the case of the United States, the Federal Assignment of Claims Act of 1940, as amended (31 U.S.C. ss. 3727 et seq.), and any other steps necessary to perfect the Agent's Liens therein, have been complied with to the Agent's satisfaction with respect to such Account; (l) owed by any state, province, municipality, or other political subdivision of the United States or any other government, country or jurisdiction, or any department, agency, public corporation, or other instrumentality thereof (including, without limitation, of any Eligible Foreign Jurisdiction) and as to which the Agent determines that its Lien therein is not or cannot be perfected; (m) which represents a sale on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, or other repurchase or return basis; (n) which is evidenced by a promissory note or other instrument or by chattel paper; (o) with respect to which the Agent believes, in the exercise of its reasonable judgment, that the prospect of collection of such Account is impaired or that such Account may not be paid by reason of the Account Debtor's financial inability to pay; (p) with respect to which the Account Debtor is located in any state requiring the filing of a Notice of Business Activities Report or similar report in order to permit such Borrowing Base Party to seek judicial enforcement in such state of payment of such Account, unless such Borrowing Base Party has qualified to do business in such state or has filed a Notice of Business Activities Report or equivalent report for the then current year; (q) which arises out of a sale not made in the ordinary course of such Loan Party's business; (r) with respect to which the goods giving rise to such Account have not been shipped and delivered to and accepted by, or have been rejected or objected to by, the Account Debtor or the services giving rise to such Account have not been fully performed ANNEX A TO CREDIT AGREEMENT - Page 12 by such Borrowing Base Party, and, if applicable, accepted by the Account Debtor, or the Account Debtor revokes its acceptance of such goods or services; (s) owed by an Account Debtor or group of affiliated Account Debtors which is obligated to the Borrowing Base Parties, or any of them, respecting Accounts the aggregate unpaid balance of which exceeds twenty five percent (25.0%) of the aggregate unpaid balance of all Accounts owed to the Borrowing Base Parties at such time by all of the Borrowing Base Parties' Account Debtors, but only to the extent of such excess; (t) which is not subject to a first priority and perfected security interest in favor of the Agent, for the benefit of the Agent and the Lenders; (u) with respect to which collections administration has not been established in a manner satisfactory to the Agent; (v) with respect to which such Borrowing Base Party or the Agent has deemed such Account as uncollectible or has any reason to believe that such Account is uncollectible; and (w) which the Agent determines in its reasonable discretion is ineligible for any other reason. If any Account at any time ceases to be an Eligible Account, then such Account shall promptly be excluded from the calculation of the Borrowing Base. "Eligible Assignee" means (a) a commercial bank, commercial finance company, or other asset based lender having total assets in excess of $1,000,000,000, (b) any Lender listed on the signature pages of this Agreement, (c) any Affiliate of any Lender, and (d) if an Event of Default has occurred and is continuing, any Person reasonably acceptable to the Agent. "Eligible Foreign Jurisdiction" means Canada. "Eligible Foreign Subsidiary" means the Canada Subsidiaries. "Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for a Release or injury to the environment. "Environmental Compliance Reserve" means any reserve which the Agent establishes from time to time in its reasonable discretion after prior written notice to the Borrowers for amounts that are reasonably likely to be expended by a Loan Party in order for such Loan Party and its operations and property (a) to comply with any notice from a Governmental Authority asserting material non-compliance with Environmental Laws or (b) to correct any such material non-compliance identified in a report delivered to the Agent and the Lenders pursuant to Section 7.7. ANNEX A TO CREDIT AGREEMENT - Page 13 "Environmental Laws" means all federal, state, provincial, or local laws, statutes, common law duties, rules, regulations, ordinances, and codes, together with all administrative orders, directed duties, licenses, authorizations, and permits of, and agreements with, any Governmental Authority, in each case relating to environmental, health and safety. "Environmental Lien" means a Lien in favor of any Governmental Authority or any other Person for (a) any liability under Environmental Laws or (b) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. "Equipment" has the meaning specified in the Security Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with a Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan, (b) a withdrawal by a Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA, (c) a complete or partial withdrawal by a Borrower or any ERISA Affiliate from a Multi-employer Plan or notification that a Multi-employer Plan is in reorganization or insolvent, (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or the termination, insolvency, or reorganization of a Multi-employer Plan, (e) the occurrence of an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multi-employer Plan, or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon a Borrower or any ERISA Affiliate. "Event of Default" has the meaning specified in Section 9.1. "Exchange Act" means the Securities Exchange Act of 1934, and regulations promulgated thereunder. "Existing Obligations" means, with respect to a Newly Obligated Borrower, any Obligations which are outstanding and unpaid as of the time such Newly Obligated Borrower becomes a Borrower. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. ANNEX A TO CREDIT AGREEMENT - Page 14 "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1.00%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Bank on such day on such transactions as determined by the Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "Financial Statements" means, according to the context in which used, the financial statements referred to in Section 5.2 and Section 6.6 or any other financial statements required to be given to the Agent or the Lenders pursuant to this Agreement. "Fiscal Year" means, with respect to the Parent and the other Consolidated Members, their fiscal year for financial accounting purposes. The current Fiscal Year of the Parent and the other Consolidated Members will end on December 31, 2001. "Fixed Assets" means, with respect to a Person, the Equipment and Real Estate of such Person. "Fixed Charge Coverage Ratio" means, as of the end of any fiscal quarter, determined for the Parent and its Subsidiaries, excluding the Unrestricted Subsidiaries, for the preceding four (4) fiscal quarters on a consolidated basis in accordance with GAAP (other than the exclusion from such determination of any of the following items used in such determination to the extent that it arises with respect to an Unrestricted Subsidiary or a Subsidiary of the Parent prior to the date such Person becomes a Subsidiary of, or is consolidated with, the Parent), the ratio of (a) EBITDA for such period, minus (i) the cash amount of income or franchise taxes paid during such period, minus (ii) the amount of Net Capital Expenditures during such period, minus (iii) the cash amount of Distributions paid by the Parent during such period minus (iv) the aggregate amount of Permitted Stock Repurchases during such period, if any, to (b) the sum of (i) the aggregate amount of all principal payments made with respect to Debt during such period (excluding repayments on the Revolving Loans prior to the Stated Termination Date), plus (ii) the cash amount of Interest Expense paid during such period. "Foreign Credit Debt" means the $10,000,000 multi-currency line of credit as evidenced by the certain Foreign Credit Debt Documents. "Foreign Credit Debt Documents" means the certain Foreign Credit Reimbursement Agreement dated June 28, 2001 between the Bank and the Parent, as may heretofore or hereafter be renewed, extended, modified, amended or restated from time to time. ANNEX A TO CREDIT AGREEMENT - Page 15 "Foreign Plan" means any benefit plan established or maintained outside of the United States which a Consolidated Member maintains, sponsors, or to which such Person has any obligation or liability and which provides or otherwise makes available retirement or deferred benefits of any kind whatsoever to employees. "Foreign Security Document" means the Canadian Security Documents, the UK Security Documents and any other Guaranty, pledge, Mortgage, personal property mortgage, security agreement, assignment, security instrument, hypothecation, charge or other agreement or document by which any Foreign Subsidiary grants or otherwise conveys to the Agent or any Affiliate of the Agent for the benefit of the Agent, or any other Person for or on behalf of the Agent or any such Affiliate, any Guaranty, pledge, lien, security interest, mortgage, charge, collateral assignment or similar interest in property of such Foreign Subsidiary as security for the Obligations or any portion thereof, and any and all renewals, extensions, modifications, amendments or restatements thereof. "Foreign Subsidiary" means any Subsidiary of the Parent other than the Domestic Subsidiaries and the Unrestricted Subsidiaries. "Funding Date" means the date on which a Borrowing occurs. "GAAP" means generally accepted accounting principles and practices set forth from time to time in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the United States accounting profession), which are applicable to the circumstances as of the Closing Date. "General Intangibles" has the meaning specified in the Security Agreement. "Governmental Authority" means any nation or government, any state, province, municipality, or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government, any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing, and any department, agency, board, commission, tribunal, committee, or instrumentality of any of the foregoing. "Guaranty" means, with respect to any Person, all obligations of such Person which in any manner directly or indirectly guarantee or assure, or in effect guarantee or assure, the payment or performance of any indebtedness, dividend, or other obligations of any other Person (the "guaranteed obligations"), or assure or in effect assure the holder of the guaranteed obligations against loss in respect thereof, including any such obligations incurred through an agreement, contingent or otherwise: (a) to purchase the guaranteed obligations or any property constituting security therefor; (b) to advance or supply funds for the purchase or payment of the guaranteed obligations or to maintain a working capital or other balance sheet condition; or (c) to lease property or to purchase any debt or equity securities or other property or services. ANNEX A TO CREDIT AGREEMENT - Page 16 "Guaranty Agreement" means the Parent Guaranty or a Subsidiary Guaranty, as the case may be. "Hedge Agreement" means any and all transactions, agreements, or documents now existing or hereafter entered into, which provide for an interest rate, credit, commodity, or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging a Person's exposure to fluctuations in interest or exchange rates, loan, credit exchange, security, or currency valuations, or commodity prices. "Indemnified Liabilities" has the meaning specified in Section 13.11(a). "Indemnified Person" has the meaning specified in Section 13.11(a). "Intercompany Accounts" has the meaning specified in the Security Agreement. "Interest Expense" means, with respect to any Person for any period, the interest expense of such Person for such period, determined in accordance with GAAP. "Interest Period" means, with respect to any LIBOR Rate Loan, the period commencing on the Funding Date of such Loan or on the Continuation/Conversion Date on which such Loan is continued as or converted into a LIBOR Rate Loan, and ending on the date one, two, or three months thereafter as selected by a Borrower in its Notice of Borrowing or Notice of Continuation/Conversion, provided that: (a) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (b) any Interest Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (c) no Interest Period shall extend beyond the Stated Termination Date. "Interest Rate" means each or any of the interest rates, including the Default Rate, set forth in Section 2.1. "Inventory" has the meaning specified in the Security Agreement. "Investment Property" has the meaning specified in the Security Agreement. ANNEX A TO CREDIT AGREEMENT - Page 17 "IRS" means the Internal Revenue Service and any Governmental Authority succeeding to any of its principal functions under the Code. "Issuer" has the meaning prescribed for such term in Section 6.27(b). "Latest Projections" means (a) on the Closing Date and thereafter until the Agent receives new projections pursuant to Section 5.2(e), (i) the projections of the Consolidated Members' financial condition, results of operations, and cash flows and Availability and (ii) the income statement forecast separately stated on a stand-alone basis for the Foreign Subsidiaries, in each case on a monthly basis and including monthly detail for the period commencing on November 1, 2001 and ending on December 31, 2001 and on a quarterly basis and including quarterly detail for the period commencing on January 1, 2002 and ending on December 31, 2002 and on an annual basis and including annual detail for the period commencing January 1, 2003 and ending on December 31, 2004, in each case delivered to the Agent prior to the Closing Date and (b) thereafter, the projections most recently received by the Agent pursuant to Section 5.2(e). "Lender" and "Lenders" have the meanings specified in the introductory paragraph hereof and shall include the Agent to the extent of any Agent Advance outstanding and the Bank to the extent of any Non- Ratable Loan outstanding; provided that no such Agent Advance or Non-Ratable Loan shall be taken into account in determining any Lender's Pro Rata Share. "Letter of Credit" has the meaning specified in Section 1.4(a). "Letter of Credit Fee" has the meaning specified in Section 2.6. "Letter of Credit Fee Percentage" means with respect to any Letter of Credit or any Credit Support issued hereunder, on any date of determination, a per annum percentage equal to the Applicable Margin for LIBOR Rate Revolving Loans. "Letter of Credit Issuer" means the Bank, any Affiliate of the Bank, or any other financial institution that issues any Letter of Credit or Credit Support pursuant to this Agreement. "Letter of Credit Subfacility" means $50,000,000. "LIBOR Rate" means, for any Interest Period, with respect to LIBOR Rate Loans, the rate of interest per annum determined pursuant to the following formula: LIBOR Rate = Offshore Base Rate ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, ANNEX A TO CREDIT AGREEMENT - Page 18 "Eurodollar Reserve Percentage" means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1.00%) in effect on such day applicable to member banks under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental, or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The LIBOR Rate for each outstanding LIBOR Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "Offshore Base Rate" means the rate per annum appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the Offshore Base Rate shall be, for any Interest Period, the rate per annum appearing on Reuters Screen LIBOR Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBOR Page, the applicable rate shall be the arithmetic mean of all such rates. If for any reason none of the foregoing rates is available, the Offshore Base Rate shall be, for any Interest Period, the rate per annum determined by the Agent as the rate of interest at which Dollar deposits in the approximate amount of the LIBOR Rate Loan comprising part of such Borrowing would be offered by the Bank's London Branch to major banks in the offshore Dollar market at their request at or about 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. "LIBOR Rate Loans" means, collectively, the LIBOR Rate Revolving Loans. "LIBOR Rate Revolving Loan" means a Revolving Loan during any period in which it bears interest based on the LIBOR Rate. "Lien" means (a) any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute, or contract, and including a security interest, hypothec, charge, claim, or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, charge, conditional sale or trust receipt or a lease, consignment, or bailment for security purposes, (b) to the extent not included under clause (a) preceding, (i) any reservation, exception, encroachment, easement, right-of-way, covenant, condition, restriction, lease, or other title exception or encumbrance affecting property and (ii) any other lien, charge, privilege, secured claim, title retention, garnishment right, deemed trust, encumbrance, or other right affecting property, choate or inchoate, whether or not crystallized or fixed whether or not for amounts due or coming due, arising by any statute, act of law of any jurisdiction, at common law, in equity, or by any agreement, and (c) any contingent or other agreement to provide any of the foregoing or any ANNEX A TO CREDIT AGREEMENT - Page 19 other arrangement the intention or result of which is to confer security upon or prefer the beneficiary thereof. "Loan Account" means the loan account of the Borrowers, which account shall be maintained by the Agent. "Loan Documents" means, collectively, this Agreement, the Revolving Loan Notes, the Security Agreement, the Mortgages, each Copyright Security Agreement (if any), each Patent Security Agreement (if any), each Trademark Security Agreement, the Parent Guaranty, the Subsidiary Guaranty, the Foreign Security Documents, the Postclosing Agreement, any and all Hedge Agreements in favor of any Lender or Affiliate of any Lender and any other agreements, instruments, and documents heretofore, now or hereafter evidencing, securing, guaranteeing, or otherwise relating to the Obligations, the Collateral, or any other aspect of the transactions contemplated by this Agreement, in each case including any and all renewals, extensions, modifications, amendments or restatements thereof. "Loan Documents" includes, without limitation, all "Credit Documents" as defined in, and executed and delivered pursuant to, the Original Credit Agreement, as any such "Credit Document" has been, or may be, renewed, modified, amended or restated from time to time. "Loan Party" means each of the Borrowers and EGL Eagle Global Logistics (Canada) Corp., and any Subsidiary that becomes a Loan Party after the Closing Date pursuant to Section 7.20. "Loans" means, collectively, all loans and advances provided for in Article 1. "Majority Lenders" means, at any time, Lenders whose Pro Rata Shares aggregate more than fifty percent (50.0%) of the Commitments. "Management Group" means, as of any date of determination, the board of directors, board of managers, or similar constituency having management authority in respect of an entity under any Requirement of Law. "Margin Stock" means "margin stock" as such term is defined in Regulation T, U, or X of the Federal Reserve Board. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, performance, business, properties, condition (financial or otherwise), or prospects of the Loan Parties, or any of them, or of the Consolidated Members taken as a whole, or the Collateral (including without limitation any material deterioration or adverse effect on the commercial markets in which the Consolidated Parties, or any of them, operate, whether resulting in whole or in part from an event that occurred prior to, or occurs after, the Closing Date), (b) a material impairment of the ability of any Loan Party to perform under any Loan Document to which it is a party, or (c) a material adverse effect upon the legality, validity, binding effect, or enforceability against any Loan Party of any Loan Document to which it is a party. ANNEX A TO CREDIT AGREEMENT - Page 20 "Maximum Rate" means, at any time, the maximum rate of interest the Lenders may lawfully contract for, charge, or receive in respect of the Obligations as allowed by any Requirement of Law. For purposes of determining the Maximum Rate under the Requirements of Law of the State of Texas, the applicable rate ceiling shall be (a) the "weekly ceiling" described in and computed in accordance with the provisions of Section 303.003 of the Texas Finance Code, as amended or (b) if the parties subsequently contract as allowed by any Requirement of Law, the "quarterly ceiling" or the "annualized ceiling" computed pursuant to Section 303.008 of the Texas Finance Code, as amended; provided, however, that at any time the "weekly ceiling", the "quarterly ceiling", or the "annualized ceiling" shall be less than eighteen percent (18.0%) per annum or more than twenty-four percent (24.0%) per annum, the provisions of Section 303.009(a) and Section 303.009(b) of the Texas Finance Code, as amended, shall control for purposes of such determination, as applicable. "Maximum Revolver Amount" means (i) on any day prior to the Syndication Completion Date, $75,000,000 and (ii) at all times on and after the Syndication Completion Date, $100,000,000. "Mortgage" means and includes any mortgage, deed of trust, charge/mortgage of land, deed to secure debt, assignment, or other instrument executed and delivered by any Obligated Party to or for the benefit of the Agent by which the Agent, for the benefit of the Agent and the Lenders, acquires a Lien on any Real Estate or a collateral assignment of such Obligated Party's interest under a lease of Real Estate, and any amendment, modification, or supplement thereto. "Mortgage" includes, without limitation, each "Mortgage" as defined in, and executed and delivered pursuant to, the Original Credit Agreement, as any such Mortgage has been, or may be, renewed, modified, amended or restated from time to time. "Multi-employer Plan" means a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current calendar year or the immediately preceding six (6) calendar years contributed to by a Borrower or any ERISA Affiliate. "Negative Pledge" means any agreement, contract, or other arrangement whereby any Consolidated Member, excluding the Unrestricted Subsidiaries, is prohibited from, or would otherwise be in default as a result of, creating, assuming, incurring, or suffering to exist, directly or indirectly, any Lien on any of its assets in favor of the Agent under the Loan Documents. "Net Amount" means, with respect to Eligible Accounts, at any time, the gross amount of Eligible Accounts less sales, excise, or similar taxes, and less returns, discounts, claims, credits, allowances, accrued rebates, offsets, deductions, counterclaims, disputes, and other defenses of any nature at any time issued, owing, granted, outstanding, available, or claimed, in each case calculated and determined in Dollars. "Net Capital Expenditures" means, for any period, the aggregate amount of Capital Expenditures during such period, minus net proceeds of sale of fixed assets or improvement, minus the aggregate amount of such Capital Expenditures which were financed during such period with Debt other than the Revolving Loans. ANNEX A TO CREDIT AGREEMENT - Page 21 "Net Proceeds" means, in respect of an Asset Disposition of by a Person, all proceeds received by and/or payable to such Person in consideration thereof, net of (a) commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by such Person in connection therewith (in each case, paid to non-Affiliates), (b) transfer taxes, (c) amounts payable to holders of senior Liens (to the extent such Liens constitute Permitted Liens), if any, and (d) an appropriate reserve for income taxes in accordance with GAAP in connection therewith. "Newly Obligated Borrower" means each Person, if any, who becomes party to this Agreement as a Borrower effective as of any date after the Closing Date. "Non-Ratable Loan" and "Non-Ratable Loans" have the respective meanings specified in Section 1.2(i). "Notes" means the Revolving Loan Notes. "Notice of Borrowing" has the meaning specified in Section 1.2(c). "Notice of Continuation/Conversion" has the meaning specified in Section 2.2(b). "Obligated Parties" means (a) the Loan Parties and (b) any other Consolidated Member, excluding the Unrestricted Subsidiaries, that executes and delivers to the Agent any Foreign Security Document, and "Obligated Party" means any of the foregoing. "Obligations" means all present and future loans, advances, liabilities, obligations, covenants, duties, and debts owing by the Borrowers, or any of them, or any of the other Loan Parties, or any of them, to the Agent and/or any Lender, arising under or pursuant to this Agreement or any of the other Loan Documents, whether or not evidenced by any note, or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, acceptance, loan, guaranty, indemnification, or otherwise, whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, as principal or guarantor, and including all principal, interest, charges, expenses, fees, attorneys' fees, filing fees, and any other sums chargeable to any Borrower or other Loan Party hereunder or under any of the other Loan Documents. "Obligations" includes, without limitation, (a) all debts, liabilities, and obligations now or hereafter arising from or in connection with the Letters of Credit and Credit Support and (b) all debts, liabilities, and obligations to the Agent and/or any Lender, or any Affiliate thereof, respectively, now or hereafter arising from or in connection with Bank Products; provided, however, that notwithstanding the foregoing, in the case of and with regard to or in connection with any Newly Obligated Borrower, the term "Obligations," wherever in any manner used in the Loan Documents, excludes Existing Obligations. "Orderly Liquidation Value" means, with respect to Equipment, the orderly liquidation value thereof as determined in a manner acceptable to the Agent by an experienced and reputable appraiser acceptable to the Agent, net of all costs of liquidation thereof. ANNEX A TO CREDIT AGREEMENT - Page 22 "Original Credit Agreement" means the certain Amended and Restated Credit Agreement, dated as of November 9, 2001, among EGL, Inc., the "Banks" (as defined therein) party thereto, SouthTrust Bank and the Bank of Mitsubishi, Ltd., acting as "Co-Agents" as provided therein, and Bank of America, N.A., acting as "Administrative Agent" as defined therein. "Original Letter of Credit" means any "Letter of Credit" as defined by the Original Credit Agreement and "Original Letters of Credit" means more than one, or all, of each such Original Letter of Credit, collectively. "Original Loan" means a "Revolving Loan" as defined by the Original Credit Agreement. "Original Revolving Note" means a "Revolving Loan Note" as defined by the Original Credit Agreement. "Other Taxes" means any present or future stamp or documentary taxes or any other excise or property taxes, charges, or similar levies (excluding, in the case of each Lender and the Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Lender's or the Agent's net income) which arise from any payment made hereunder or from the execution, delivery, or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "Parent" means EGL, Inc., a Texas corporation. "Parent Guaranty" means an agreement of Guaranty executed by the Parent pursuant to which the Parent guarantees the Obligations or any portion thereof. "Participant" means any commercial bank, financial institution, or other Person not an Affiliate of the Loan Parties who shall have been granted the right by any Lender to participate in the financing provided by such Lender under this Agreement, and who shall have entered into a participation agreement in form and substance satisfactory to such Lender. "Patent Security Agreement" means the Patent Security Agreement, dated as of the Closing Date or any subsequent date, executed and delivered by an Obligated Party to the Agent, for the benefit of the Agent and the Lenders, to evidence and perfect the Agent's security interest in such Obligated Party's present and future patents and related licenses and rights, as such agreement may be amended, restated, or otherwise modified from time to time. "Payment Account" has the meaning specified in the Security Agreement. "PBGC" means the Pension Benefit Guaranty Corporation or any Governmental Authority succeeding to the functions thereof. "Pending Revolving Loans" means, at any time, the aggregate principal amount of all Revolving Loans requested in any Notice of Borrowing received by the Agent which have not yet been advanced. ANNEX A TO CREDIT AGREEMENT - Page 23 "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which any Borrower or any ERISA Affiliate sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a Multi-employer Plan has made contributions at any time during the immediately preceding five (5) plan years. "Permitted Acquisition" means any acquisition of the Capital Stock of a Person or any acquisition of property which constitutes a significant or material portion of an existing business of a Person, in each case, in a transaction that satisfies each of the following requirements: (a) both before and after giving effect to such acquisition and the Revolving Loans (if any) requested to be made in connection therewith, no Default or Event of Default exists or will exist or would result therefrom; (b) as soon as available, but not less than thirty (30) Business Days prior to such acquisition, the Parent has provided to the Lenders a copy of the information provided to the board of directors of the Parent or other Borrower making such acquisition; (c) the Cash Purchase Consideration paid in connection with such acquisition does not exceed $10,000,000, and the Cash Purchase Consideration paid in connection with all acquisitions during the term of this Agreement does not exceed $25,000,000; (d) if such acquisition is an acquisition of the Capital Stock of a Person, the acquisition is structured so that the acquired Person is added as an Obligated Party pursuant to the terms of this Agreement, and if such acquisition is an acquisition of assets, the acquisition is structured so that an Obligated Party shall acquire such assets; (e) no Loan Party shall, as a result of or in connection with any such acquisition, assume or incur any direct or contingent liabilities (whether relating to environmental, tax, litigation, or other matters) that could reasonably be expected, as of the date of such acquisition, to result in the existence or occurrence of a Material Adverse Effect; (f) the Fixed Charge Coverage Ratio, without giving effect to such acquisition, shall be greater than or equal to 1.20 to 1.00 for the most recently completed period of four (4) Fiscal Quarters; (g) the Pro Forma Fixed Charge Coverage Ratio, after giving effect to such acquisition, for the following period of four (4) Fiscal Quarters shall be greater than or equal to 1.20 to 1.00; and (h) the Loan Party making such acquisition shall certify (and provide the Agent with a pro forma calculation in form and substance reasonably satisfactory to the Agent) to the Agent and the Lenders that, after giving effect to completion of such acquisition, the Availability Without Regard to Line Constraint is not less than $40,000,000 on a pro forma basis which includes all consideration given in connection with such acquisition, other than ANNEX A TO CREDIT AGREEMENT - Page 24 Capital Stock of the Parent delivered to the seller(s) in such acquisition, as having been paid in cash at the time of making such acquisition. "Permitted Liens" means: (a) the Agent's Liens; (b) Liens, if any, which are described on Schedule A-2 ("Permitted Liens") on the Closing Date and Liens resulting from the refinancing of the related Debt, provided that such refinancing is on the same or substantially similar terms, the Debt secured thereby shall not be increased, and the Liens shall not cover any additional property; (c) Liens for taxes, fees, assessments, or other charges of a Governmental Authority which are not delinquent or statutory Liens for taxes, fees, assessments, or other charges of a Governmental Authority in an amount not to exceed $1,000,000; provided that the payment of such taxes which are due and payable is being contested in good faith and by appropriate proceedings diligently pursued and as to which adequate financial reserves have been established in accordance with GAAP on the applicable Loan Party's books and records and a stay of enforcement of any such Lien is in effect; (d) Liens consisting of deposits made in the ordinary course of business in connection with, or to secure payment of, obligations under worker's compensation, unemployment insurance, social security, and other similar laws, or to secure the performance of bids, tenders, or contracts (other than for the repayment of Debt) or to secure indemnity, performance, or other similar bonds for the performance of bids, tenders, or contracts (other than for the repayment of Debt) or to secure statutory obligations (other than liens arising under ERISA or Environmental Liens) or surety or appeal bonds, or to secure indemnity, performance, or other similar bonds; (e) Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords, and other similar Persons, provided that if any such Lien arises from the nonpayment of such claims or demands when due, such claims or demands do not exceed $1,000,000 in the aggregate; (f) Liens constituting encumbrances in the nature of reservations, exceptions, encroachments, easements, rights of way, covenants running with the land, and other similar title exceptions or encumbrances affecting any Real Estate, provided that any such Liens do not in the aggregate materially detract from the value of such Real Estate or materially interfere with its use in the ordinary conduct of a Borrower's business; (g) Liens which constitute purchase money Liens and secure Debt permitted under clause (c) of Section 7.13; (h) Liens arising from judgments and attachments or pre-judgment attachments in connection with court proceedings, provided that the attachment or enforcement of such ANNEX A TO CREDIT AGREEMENT - Page 25 Liens would not result in an Event of Default hereunder and such Liens are being contested in good faith by appropriate proceedings, adequate financial reserves have been established on the applicable Loan Party's books and records in accordance with GAAP, no material property is subject to a material risk of loss or forfeiture, the claims in respect of such Liens are fully covered by insurance (subject to ordinary and customary deductibles), and a stay of execution pending appeal or proceeding for review is in effect; and (i) Liens in favor of ABN Amro Bank NV (i) on Cash and or Cash Equivalents of Eagle Global Logistics (Holland) B.V. not in excess of 1,500,000 Eurodollars to secure Eagle Global Logistics (Holland) B.V.'s existing facility with ABN Amro Bank NV used for customs charges, duties, and similar fees and expenses in the ordinary course of business of Eagle Global Logistics (Holland) B.V., or any replacement Lien on the real property of Eagle Global Logistics (Holland) B.V. located in the Netherlands, (ii) on fixtures and equipment on the real estate owned by Eagle Global Logistics (Holland) B.V. in the Netherlands to the extent included in the Lien in favor of ABN Amro Bank NV described in Schedule A-2 and (iii) without limiting the requirements for Eligible Receivables, on any deposit account owned and maintained by Eagle Global Logistics (Holland) B.V. at ABN Amro Bank NV; provided that none of such Liens listed in clause (b) through clause (h) preceding may attach to any Accounts of a Borrowing Base Party. "Permitted Stock Repurchase" means a purchase by the Parent of Capital Stock of the Parent; provided that at the time of making such purchase and after giving effect thereto (a) no Default or Event of Default exists, (b) Availability Without Regard to Line Constraint exceeds $50,000,000, (c) the Parent has reported positive net income (as determined in accordance with GAAP) for the two immediately preceding months, and (d) all such Capital Stock repurchased shall be immediately canceled by the Parent. "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, Governmental Authority, or any other entity. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which any Borrower sponsors or maintains or to which any Borrower makes, is making, or is obligated to make contributions and includes any Pension Plan. "Postclosing Agreement" means the certain Postclosing Agreement dated as of the Closing Date among the Agent, the Loan Parties and the Lenders. "PPSA" means the Personal Property Security Act of Ontario, and all regulations thereunder, as amended from time to time, and any successor statutes. "Pro Forma Fixed Charge Coverage Ratio" means the ratio, for any period, determined according to the definition of Fixed Charge Coverage Ratio, provided, that each item thereof shall ANNEX A TO CREDIT AGREEMENT - Page 26 be calculated as of the end of such period on a pro forma basis for the next succeeding (rather than the immediately preceding) four (4) fiscal quarters. "Pro Rata Share" means, with respect to a Lender, a fraction (expressed as a percentage), the numerator of which is the amount of such Lender's Commitment and the denominator of which is the sum of the amounts of all of the Lenders' Commitments, or if no Commitments are outstanding, a fraction (expressed as a percentage), the numerator of which is the amount of Obligations owed to such Lender and the denominator of which is the aggregate amount of the Obligations owed to the Lenders, in each case giving effect to a Lender's participation in Non-Ratable Loans and Agent Advances. "Proprietary Rights" has the meaning specified in the Security Agreement. "Real Estate" means, with respect to any Person, all of such Person's now or hereafter owned or leased estates in real property, including, without limitation, all fees, leaseholds, and future interests, together with all of such Person's now or hereafter owned or leased interests in the improvements thereon, the fixtures attached thereto, and the easements appurtenant thereto. "Release" means a release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching, or migration of a Contaminant into the indoor or outdoor environment or into or out of any Real Estate or other property, including the movement of Contaminants through or in the air, soil, surface water, groundwater, or Real Estate or other property. "Replacement Lender" has the meaning specified in Section 4.8. "Report" has the meaning specified in Section 12.18(a). "Reportable Event" means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule, or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Reserves" means reserves that limit the availability of credit hereunder, consisting of reserves against Availability or Eligible Accounts, established by the Agent from time to time in the Agent's reasonable credit judgment. Without limiting the generality of the foregoing, the following reserves shall be deemed to be a reasonable exercise of the Agent's credit judgment: (a) Bank Product Reserves; (b) a reserve for accrued and unpaid interest on the Obligations; (c) reserves for rent at leased locations subject to statutory or contractual landlord liens; (d) Environmental Compliance Reserves; (e) reserves for customs charges, dilution, and warehousemen's or bailees' charges; (f) reserves which may be applicable to any Borrowing Base Party for preferential claims against Collateral; (g) reserves with respect to unpaid accounts payable of a Borrowing Base Party; ANNEX A TO CREDIT AGREEMENT - Page 27 (h) reserves in respect of potential taxes, withholding requirements, duties, or other similar obligations and (i) reserves with respect to potential liability of the Borrower under its Interest Hedge Agreement with The Bank of Tokyo-Mitsubishi, Ltd. to the extent it exists on and after the Closing Date. "Responsible Officer" means, with respect to any Loan Party, the chief executive officer or the president, or any other officer having substantially the same authority and responsibility, and, with respect to compliance with financial covenants and the preparation of Borrowing Base Certificates, the chief financial officer, chief accounting officer, or treasurer of the Parent or any other Borrower, or any other officer having substantially the same authority and responsibility. "Restricted Investment" means, with respect to any Consolidated Member, any investment or acquisition of property by such Consolidated Member in exchange for cash or other property, whether in the form of an investment in or acquisition of Capital Stock, debt, or other indebtedness or obligation, or the purchase or acquisition of any other property, or a loan, advance, capital contribution, or subscription, except the following: (a) acquisitions of Equipment to be used in the business of such Consolidated Member so long as the acquisition costs thereof constitute Capital Expenditures permitted hereunder; (b) acquisitions of Inventory in the ordinary course of business of such Consolidated Member; (c) acquisitions of other current assets acquired in the ordinary course of business of such Consolidated Member; (d) direct obligations of the United States, or any agency thereof, or obligations guaranteed by the United States, provided that such obligations mature within one year from the date of acquisition thereof; (e) acquisitions of certificates of deposit maturing within one year from the date of acquisition, bankers' acceptances, Eurodollar bank deposits, or overnight bank deposits, in each case issued by, created by, or with a bank or trust company organized under the laws of the United States or any state thereof having capital and surplus aggregating at least $100,000,000; (f) acquisitions of commercial paper given a rating of "A2" or better by Standard & Poor's Corporation or "P2" or better by Moody's Investors Service, Inc. and maturing not more than ninety (90) days from the date of creation thereof; (g) Hedge Agreements entered into for the purpose of hedging interest payable under this Agreement; (h) investments in mutual funds substantially all of the assets of which are comprised of securities of the types described in clause (d), clause (e), and clause (f) preceding; (i) Permitted Stock Repurchases; (j) Permitted Acquisitions; (k) investments consisting of intercompany loans between a Loan Party and a Loan Party or investments in the Capital Stock of a Loan Party by a Loan Party; (l) investments consisting of intercompany loans, not exceeding the aggregate unpaid amount of $15,000,000 at any time, from a Loan Party to a Consolidated Member other than a Loan Party, (m) existing investments listed on the attached Schedule A-3; and (n) subject to Section 7.10, other investments not listed in clause (a) through clause (l) preceding in an aggregate amount at any time not exceeding $5,000,000; "Revolving Loans" has the meaning specified in Section 1.2 and includes each Agent Advance and Non-Ratable Loan. "Revolving Loan Note" and "Revolving Loan Notes" have the meanings specified in Section 1.2(b). ANNEX A TO CREDIT AGREEMENT - Page 28 "Security Agreement" means the Security Agreement dated concurrently herewith among the Loan Parties and the Agent, for the benefit of the Agent and the Lenders, as such agreement may be amended, restated, or otherwise modified from time to time. "Settlement" and "Settlement Date" have the meanings specified in Section 12.15(a)(i). "Shares Mortgage" means the "Shares Mortgage" as defined by the Original Credit Agreement, as such agreement may be amended, restated, or otherwise modified from time to time. "Solvent" means, when used with respect to any Person, that at the time of determination: (a) the assets of such Person, at a fair valuation, are in excess of the total amount of its debts (including contingent liabilities); (b) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; (c) it is then able and expects to be able to pay its debts (including contingent debts and other commitments) as they mature; and (d) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. For purposes of determining whether a Person is Solvent, the amount of any contingent liability shall be computed as the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Stated Termination Date" means December 20, 2004. "Subordinated Debt" means all indebtedness, liabilities, and obligations owing by the Parent or any other Consolidated Member pursuant to any Subordinated Debt Documents "Subordinated Debt Documents" means collectively, (a) the Convertible Subordinated Debt Documents, the Convertible Subordinated Notes and all other agreements, certificates, documents, and instruments executed or delivered by the parties thereto in connection therewith, respectively, and (b) all other agreements, certificates, documents, and instruments executed or delivered by the Parent or any other Consolidated Member evidencing unsecured Debt of the Parent or any such Consolidated Member which has maturities and terms, and which is subordinated to payment of the Obligations in a manner approved in writing by the Agent and the Majority Lenders, and in each such case described in clauses (a) and (b) preceding, any renewals, modifications, or amendments thereof which are approved in writing by the Agent and the Majority Lenders. "Subsidiary" means, with respect to any Person (the "subject Person"), any corporation, association, partnership, limited liability company, joint venture, or other business entity of which ANNEX A TO CREDIT AGREEMENT - Page 29 more than fifty percent (50.0%) of the voting Capital Stock or other Capital Stock, is owned or controlled directly or indirectly by the subject Person, or one or more of the Subsidiaries of the subject Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Parent. "Subsidiary Guaranty" means an agreement of Guaranty executed by any Subsidiary of the Parent pursuant to which such Subsidiary guarantees the Obligations or any portion thereof. "Supporting Letter of Credit" has the meaning specified in Section 1.4(g). "Syndication Completion Date" means the date on which (i) the Commitment of the Bank has been reduced to an amount equal to or less than $35,000,000 and (ii) the sum of the Commitments of all Lenders other than the Bank equals or exceeds $65,000,000. "Synthetic Lease Transaction Documents" means the Synthetic Lease Transaction (1997) Documents, the Synthetic Lease Transaction (1998) Documents and the Synthetic Lease Transaction (Lawrence, NY) Documents. "Synthetic Lease Transaction (1997) Documents" means the Lease and Development Agreement dated as of January 10, 1997 between Asset XI Holdings Company, L.L.C., as lessor ("1997 Lessor") and Eagle USA Airfreight, Inc. (now known as EGL, Inc.), as lessee ("Lessee"), Loan Agreement dated as of January 10, 1997 between 1997 Lessor, as borrower and Bank One, Texas, N.A. (now known as Bank One, NA), as lender ("Bank One"), Participation Agreement dated as of January 10, 1997 among Lessor, Lessee, and Bank One, and all agreements, instruments, and documents executed in connection therewith (as each of the same was, from time to time, amended, modified, and supplemented, including, without limitation, the First Amendment to Participation Agreement, Lease and Development Agreement and Loan Agreement dated as of May 15, 1998 among 1997 Lessor, Lessee, and Bank One). "Synthetic Lease Transaction (1998) Documents" means the Master Lease and Development Agreement dated as of April 3, 1998 between Asset XVI Holdings Company, L.L.C., as lessor ("1998 Lessor") and Eagle USA Airfreight, Inc. (now known as EGL, Inc.), as lessee ("Lessee"), Loan Agreement dated as of April 3, 1998 between 1998 Lessor, as borrower, and Bank One, Texas, N.A. (now known as Bank One, NA), as lender ("Bank One"), Master Participation Agreement dated as of April 3, 1998 among 1998 Lessor, Lessee, and Bank One, and all agreements, instruments, and documents executed in connection therewith (as each of the same was, from time to time, amended, modified, and supplemented, including, without limitation, the Amendment to Master Participation Agreement dated as of April 1, 1999 among 1998 Lessor, Lessee, and Bank One, and Second Amendment to Participation Agreement, Lease Agreement and Loan Agreement dated as of October 20, 2000 among 1998 Lessor, Lessee, and Bank One). "Synthetic Lease Transaction (Lawrence, NY) Documents" means each of the agreements among Circle International, Inc., Wilmington Trust Company and others in respect of the master operating lease arrangement for a ten (10) year $12,885,000 master operating lease entered into on ANNEX A TO CREDIT AGREEMENT - Page 30 or about January 1, 1998, to finance the construction of a terminal and warehouse facilities at John F. Kennedy Airport in New York, New York. "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto, excluding, in the case of the Agent and each Lender, such taxes (including income taxes or franchise taxes) as are imposed on or measured by the Agent's or such Lender's net income in the jurisdiction (whether federal, state, or local and including any political subdivision thereof) under the laws of which the Agent or such Lender, as the case may be, is organized or maintains a lending office. "Terminating Lenders" means the "Lenders" under the Original Credit Agreement other than the Bank. "Termination Date" means the earliest to occur of (a) the Stated Termination Date, (b) the date the Total Facility is terminated either by the Borrowers pursuant to Section 3.2 or by the Majority Lenders pursuant to Section 9.2, and (c) the date this Agreement is otherwise terminated for any reason whatsoever pursuant to the terms of this Agreement. "Total Facility" has the meaning specified in Section 1.1. "Trademark Security Agreement" means the Trademark Security Agreement, dated as of the Closing Date or any subsequent date, executed and delivered by an Obligated Party to the Agent, for the benefit of the Agent and the Lenders, to evidence and perfect the Agent's security interest in such Obligated Party's present and future trademarks and related licenses and rights, as such agreement may be amended, restated, or otherwise modified from time to time. "Trademark Security Agreement" includes, without limitation, each "Trademark Security Agreement" as defined in, and executed and delivered pursuant to, the Original Credit Agreement, as any such Trademark Security Agreement has been, or may be, renewed, modified, amended or restated from time to time. "UCC" means the Uniform Commercial Code (or any successor statute), as in effect from time to time, of the State of Texas or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests; provided that to the extent that the UCC is used to define any term herein or in any other documents and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern. "UK Security Documents" means the Shares Mortgage. "UK Security Trustee" means the Bank, acting through its London branch at Bank of America House, 1 Alie Street, London E1 8DE, in its capacity as security trustee under the UK Security Documents, and includes any successor entity thereto. "Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with ANNEX A TO CREDIT AGREEMENT - Page 31 the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "United States" means the United States of America. "Unrestricted Subsidiary" means each of Jet Urban Renewal Corporation and EGL Trade Services, Inc., respectively, and any other Subsidiary of the Parent which the Agent, in its sole discretion, at the request of the Parent, designates as an "Unrestricted Subsidiary", and "Unrestricted Subsidiaries" means more than one of the foregoing. "Unused Letter of Credit Subfacility" means an amount equal to the Letter of Credit Subfacility minus the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit and Credit Support, plus, without duplication, (b) the aggregate unpaid reimbursement obligations with respect to all Letters of Credit and Credit Support. "Unused Line Fee" has the meaning specified in Section 2.5. "Unused Line Fee Percentage" means, as of the Closing Date, one-half of one percent (.50%), subject to adjustment from time to time after June 30, 2002, to the applicable percentage specified corresponding to the monthly average Availability Without Regard to Line Constraint (determined on a calendar month basis for each respective calendar month beginning June, 2002 and thereafter), as set forth below, respectively:
====================================================================================== Availability Without Regard to Line Constraint Unused Line Fee Percentage ====================================================================================== Greater than or equal to $65,000,000 0.25% - -------------------------------------------------------------------------------------- Less than $65,000,000 but greater than or equal 0.375% to $45,000,000 - -------------------------------------------------------------------------------------- Less than $45,000,000 but greater than or equal 0.50% to $25,000,000 - -------------------------------------------------------------------------------------- Less than $25,000,000 0.50% ======================================================================================
For the purpose of determining any such adjustments to the Unused Line Fee Percentage, the monthly average Availability Without Regard to Line Constraint, for any such calendar month, shall be determined by the Agent and any resulting adjustment, if any, shall become effective prospectively on the fifteenth (15th) day of the next calendar month. If a Default or Event of Default exists at the time any reduction in the Applicable Margin is to be implemented, such reduction shall not occur until the first day of the first calendar month, if any, following the date on which such Default or Event of Default is waived or cured. "Wholly-Owned Subsidiary" when used to determine the relationship of a Subsidiary to a Person, means a Subsidiary all of the issued and outstanding Capital Stock (other than directors' ANNEX A TO CREDIT AGREEMENT - Page 32 qualifying shares) of which shall at the time be owned by such Person or one or more of such Person's Wholly-Owned Subsidiaries or by such Person and one or more of such Person's Wholly-Owned Subsidiaries. ACCOUNTING TERMS: Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given to such term in accordance with GAAP, and all financial computations in this Agreement shall be computed, unless otherwise specifically provided herein, in accordance with GAAP as consistently applied and using the same method for inventory valuation as used in the preparation of the Financial Statements. INTERPRETIVE PROVISIONS: Wherever used in this Agreement, (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. Terms used herein that are defined in the UCC and are not otherwise defined herein shall have the meanings specified therefor in the UCC. (b) Unless otherwise defined in this Agreement, terms defined in any other Loan Document, if and where used in this Agreement, shall have the same meanings in this Agreement as are prescribed by such Loan Document. (b) The words "hereof," "herein," "hereunder," and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, Schedule, and Exhibit references are to this Agreement unless otherwise specified. The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices, and other writings, however evidenced. The term "including" is not limiting and means "including, without limitation." In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including," the words "to" and "until" each mean "to but excluding" and the word "through" means "to and including." The word "or" is not exclusive. The words "hereof," "herein," "hereunder" and similar words refer to the Agreement as a whole and not to any particular provision of the Agreement; and Subsection, Section, Schedule and Exhibit references are to the Agreement unless otherwise specified. "Knowledge" means, with respect to knowledge of any Consolidated Member, knowledge of any officer (or comparable capacity) of such Consolidated Member, including without limitation its chief executive officer, president, chief financial officer, treasurer or controller (or any Person serving in any comparable capacity). (c) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, and other modifications thereto, but only to the extent such amendments, restatements, and other modifications are not prohibited by the terms of ANNEX A TO CREDIT AGREEMENT - Page 33 any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing, or interpreting the statute or regulation. (d) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (e) This Agreement and the other Loan Documents may use several different limitations, tests, or measurements to regulate the same or similar matters. All such limitations, tests, and measurements are cumulative and shall each be performed in accordance with their terms. (f) For purposes of Section 9.1, a breach of a financial covenant contained in Section 7.22 and Section 7.23 shall be deemed to have occurred as of any date of determination thereof by the Agent or as of the last day of any specified measuring period, regardless of when the Financial Statements reflecting such breach are delivered to the Agent and the Lenders. (g) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agent, each Lender, and the Loan Parties and are the products of all parties. Accordingly, this Agreement and the other Loan Documents shall not be construed against the Agent, the Lender, or the Loan Parties merely because of their respective involvement in their preparation. ANNEX A TO CREDIT AGREEMENT - Page 34 EXHIBIT A FORM OF REVOLVING LOAN NOTE REVOLVING LOAN NOTE $_____________ __________, ____ EACH OF THE UNDERSIGNED (collectively, the "Borrowers"), for value received, jointly and severally, hereby promises to pay to the order of _____________________, a _______________________ with an office located at __________________________ (the "Payee"), the principal amount of _______________________________DOLLARS ($__________) or such lesser amount as may from time to time be advanced and remain unpaid and outstanding hereunder, together with accrued interest thereon as provided hereinbelow. This Revolving Loan Note ("Note") is executed and delivered by the Borrowers pursuant to that certain Credit Agreement, dated as of December 20, 2001 (as such agreement may be amended, restated, or otherwise modified from time to time, the "Credit Agreement") among the Borrowers, certain Affiliates of the Borrowers, each of the financial institutions from time to time party thereto (the "Lenders"), and Bank of America, National Association, in its capacity as administrative agent for the Lenders (the "Agent"), and is a "Revolving Loan Note" as defined therein. All terms defined in the Credit Agreement, wherever used herein, unless otherwise defined herein, shall have the same meanings herein as are prescribed by the Credit Agreement. All Revolving Loans from time to time requested by any Borrower, and from time to time made and outstanding hereunder, are subject in all respects to the terms and provisions of the Credit Agreement. Reference hereby is made to the Credit Agreement for a statement of the obligations of the Borrowers and the rights of the Payee in relation thereto, provided that nothing shall impair the absolute and unconditional, joint and several, obligation of the Borrowers to pay the outstanding principal and unpaid accrued interest on this Note when due. The Credit Agreement, among other things, contains provisions for acceleration of the maturity of this Note upon the happening of certain stated events and for prepayments of the Revolving Loans prior to the maturity of this Note upon the terms and conditions specified in the Credit Agreement. The unpaid principal from day to day outstanding under this Note shall bear interest at the applicable rate prescribed for the Revolving Loans as provided by the Credit Agreement. The Agent's and the Payee's books and records shall be prima facie evidence of Revolving Loans, interest accruals, and payments hereunder, absent manifest error. The Borrowers unconditionally, jointly and severally, promise to pay all principal of and accrued interest on the Revolving Loans from time to time outstanding under this Note as prescribed by the Credit Agreement. This Note shall automatically mature and become due and payable in full on the Termination Date. All rights and remedies of the Payee, and of the Agent for the benefit of the Payee, with respect to the Revolving Loans evidenced by this Note (including, without limitation, the right upon the occurrence of an Event of Default to accelerate the entire unpaid principal balance and unpaid accrued interest hereunder to be immediately due and payable) as provided by the Credit Agreement are incorporated herein by reference. All obligations and indebtedness from time to REVOLVING NOTE - Page 2 time evidenced by this Note are secured by the Agent's Liens as provided by the Credit Agreement and the other Loan Documents. No delay or omission by the Agent or the Payee in exercising any power, right, or remedy hereunder or under any of the other Loan Documents shall operate as a waiver or impair any such powers, rights, or remedies. Except as specifically provided in the Credit Agreement, each of the Borrowers and each other party ever liable hereunder severally hereby expressly waives presentment, demand, notice of intention to accelerate, notice of acceleration, protest, notice of protest, and any other notice of any kind, and agrees that its joint and several liability hereunder shall not be affected by any renewals, extensions, or modifications, from time to time, of the time or manner of payment hereof, or by any release or modification of any Collateral or other Person liable for the Obligations. The Borrowers hereby, jointly and severally, promise to pay to the Agent, for the benefit of the Agent and the Payee, all fees, costs, and expenses incurred by the Agent or the Payee in enforcement and collection of any amounts under this Note, including, without limitation, Attorney Costs. The Agent, the Payee, and each Borrower acknowledges, agrees, and declares that it is its intention to expressly comply with all Requirements of Law in respect of limitations on the amount or rate of interest that can legally be contracted for, charged, or received under or in connection with the Loan Documents. Notwithstanding anything to the contrary contained in any Loan Document (even if any such provision expressly declares that it controls all other provisions of the Loan Documents), in no contingency or event whatsoever shall the amount of interest (including the aggregate of all charges, fees, benefits, or other compensation which constitutes interest under any Requirement of Law) under the Loan Documents paid by any Borrower, received by the Agent or the Payee, agreed to be paid by any Borrower, or requested or demanded to be paid by the Agent or the Payee, exceed the Maximum Rate, and all provisions of the Loan Documents in respect of the contracting for, charging, or receiving compensation for the use, forbearance, or detention of money shall be limited as provided by Section 2.3 of the Credit Agreement and herein. In the event any such interest is paid to the Agent or the Payee by the Borrowers, or any of them, in an amount or at a rate which would exceed the Maximum Rate, the Agent or the Payee, as the case may be, shall automatically apply such excess to any unpaid amount of the Obligations other than interest, in inverse order of maturity, or if the amount of such excess exceeds said unpaid amount, such excess shall be paid to the paying Borrowers or Borrower, as applicable. All interest paid, or agreed to be paid, by any Borrower, or taken, reserved, or received by the Agent or the Payee, shall be amortized, prorated, spread, and allocated in respect of the Obligations throughout the full term of this Note and the Credit Agreement. Notwithstanding any provision contained in any of the Loan Documents, or in any other related documents executed pursuant to the Credit Agreement, neither the Agent nor the Payee shall ever be entitled to charge, receive, take, reserve, collect, or apply as interest any amount which, together with all other interest under the Loan Documents would result in a rate of interest under the Loan Documents in excess of the Maximum Rate and, in the event the Agent or the Payee ever charges, receives, takes, reserves, collects, or applies any amount in respect of the Borrowers, or any of them, that otherwise would, together with all other interest under the Loan Documents, be in excess of the Maximum Rate, such amount shall automatically REVOLVING NOTE - Page 3 be deemed to be applied in reduction of the unpaid principal balance of the Obligations and, if such principal balance is paid in full, any remaining excess shall forthwith be paid to the applicable Borrowers or Borrower. The Borrowers, the Agent and the Payee shall, to the maximum extent permitted under any Requirement of Law, (a) characterize any non-principal payment as a standby fee, commitment fee, prepayment charge, delinquency charge, expense, or reimbursement for a third-party expense rather than as interest and (b) exclude prepayments, acceleration, and the effects thereof. Nothing in any Loan Document shall be construed or so operate as to require or obligate the Borrowers, or any of them, to pay any interest, fees, costs, or charges greater than is permitted by any Requirement of Law. Subject to the foregoing, the Borrowers hereby agree that the actual effective rate of interest from time to time existing under the Loan Documents in respect of this Note, including all amounts agreed to by the Borrowers or charged or received by the Agent or the Payee pursuant to and in accordance with the Loan Documents, which may be deemed to be interest under any Requirement of Law, shall be deemed to be a rate which is agreed to and stipulated by the Borrowers and the Payee in accordance with Requirements of Law. This Note may not be amended, restated, or otherwise modified except in writing executed by the Payee and the Borrowers in the manner prescribed by the Credit Agreement. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, PROVIDED THAT TO THE EXTENT FEDERAL LAW WOULD ALLOW A HIGHER RATE OF INTEREST THAN WOULD BE ALLOWED BY THE LAWS OF THE STATE OF TEXAS, THEN WITH RESPECT TO THE PROVISIONS OF ANY LAW WHICH PURPORTS TO LIMIT THE AMOUNT OF INTEREST THAT MAY BE CONTRACTED FOR, CHARGED, OR RECEIVED IN CONNECTION WITH THIS NOTE, SUCH FEDERAL LAW SHALL APPLY. This Note shall be binding upon the Borrowers and the Borrowers' successors and assigns. THIS WRITTEN AGREEMENT REPRESENTS 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 NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. All obligations and indebtedness of the Parent evidenced by this Note, now and hereafter existing, including any increases, renewals, extensions, modifications or amendments hereof, are hereby expressly designated as being "Designated Senior Indebtedness" for purposes of, and as defined by, the certain Indenture dated as of December 7, 2001, between the Parent and JPMorgan Chase Bank, as Trustee as supplemented by the certain First Supplemental Indenture dated December 7, 2001, between the Parent and JPMorgan Chase Bank, as Trustee, as may be modified or amended from time to time. This Note is in renewal and replacement of (but not extinguishment of) the indebtedness evidenced by the certain Revolving Loan Note dated January 5, 2001, previously executed and REVOLVING NOTE - Page 4 delivered by EGL, Inc. payable to the order of Bank of America, N.A., in the principal amount of $25,000,000, and the indebtedness evidenced by this Note shall hereafter be governed by and payable in accordance with the terms hereof. [Remainder of page intentionally left blank] REVOLVING NOTE - Page 5 Executed as of the date set forth above. BORROWERS: EGL, INC. By:_____________________________________ James R. Crane, President By:_____________________________________ J. Bradley Green, Corporate Secretary ALROD INTERNATIONAL, INC. By:_____________________________________ James R. Crane, President CIRCLE AIRFREIGHT JAPAN, LTD. By:_____________________________________ James R. Crane, President CIRCLE OVERSEAS CORP. By:_____________________________________ James R. Crane, President CIRCLE INTERNATIONAL GROUP, INC. By:_____________________________________ James R. Crane, President REVOLVING NOTE - Page 6 CIRCLE INTERNATIONAL HOLDINGS, INC. By:_____________________________________ James R. Crane, President CIRCLE INTERNATIONAL, INC. By:_____________________________________ James R. Crane, President DARRELL J. SEKIN & CO. By:_____________________________________ James R. Crane, President By:_____________________________________ J. Bradley Green, Secretary EAGLE MARITIME SERVICES, INC. By:_____________________________________ Douglas Wicklund, President By:_____________________________________ Terry Derr, Secretary EAGLE PARTNERS L.P. By: EUSA HOLDINGS, INC., its General Partner By: ______________________________ J. Bradley Green, President REVOLVING NOTE - Page 7 EAGLE USA IMPORT BROKERS, INC. By: __________________________________ J. Bradley Green, President EGL (CANADA) HOLDING COMPANY, INC. By: __________________________________ James R. Crane, President EGL DELAWARE LIMITED LIABILITY COMPANY By: __________________________________ James R. Crane, Manager By: __________________________________ E. Joseph Bento, Manager EGL EAGLE GLOBAL LOGISTICS, LP By: EGL MANAGEMENT, LLC, its Sole General Partner By:_______________________________ James R. Crane, President By:_______________________________ J. Bradley Green, Secretary REVOLVING NOTE - Page 8 EGL MANAGEMENT, LLC By: __________________________________ James R. Crane, President By: __________________________________ J. Bradley Green, Secretary EUSA HOLDINGS, INC. By: __________________________________ J. Bradley Green, President EUSA PARTNERS, INC. By: __________________________________ J. Bradley Green, President HARPER, ROBINSON & CO., INC. By: __________________________________ James R. Crane, President J.R. MICHELS, INCORPORATED By: __________________________________ James R. Crane, President MAX GRUENHUT INTERNATIONAL, INC. By: __________________________________ James R. Crane, President REVOLVING NOTE - Page 9 EXHIBIT C FORM OF NOTICE OF BORROWING EXHIBIT C - Cover Page Date: __________, 20__ To: Bank of America, N. A., as Agent for the Lenders who are parties to the Credit Agreement dated as of December 20, 2001 (as amended, restated, or otherwise modified from time to time, the "Credit Agreement") among EGL, Inc. and certain of its Subsidiaries, the Lenders party thereto, and Bank of America, National Association, as administrative agent for the Lenders Ladies and Gentlemen: The undersigned refers to the Credit Agreement, the terms defined therein being used herein as therein defined and, subject to the terms of the Credit Agreement, hereby gives you notice irrevocably of the Borrowing specified below: 1. The Business Day of the proposed Borrowing is _____________, 20__. 2. The aggregate amount of the proposed Borrowing is $__________. 3. The proposed Borrowing is to be comprised of $__________ of Base Rate Revolving Loans and $__________ of LIBOR Rate Revolving Loans. 4. The duration of the Interest Period for the LIBOR Rate Revolving Loans, if any, included in the proposed Borrowing shall be _____ months. 5. The proceeds of the Borrowing are to be deposited to the [Designated Account] [insert wire transfer instructions]. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (a) The representations and warranties of each of the Loan Parties contained in the Credit Agreement are true and correct as though made on and as of such date (except to the extent that any of such representations or warranties are expressly by their terms made only as of the Closing Date or another specific date); (b) No Default or Event of Default has occurred and is continuing, or would result from the proposed Borrowing; and (c) The proposed Borrowing will not cause the aggregate principal amount of all outstanding Revolving Loans plus the aggregate amount available for drawing under all outstanding Letters of Credit and Credit Support, to exceed the lesser of the Borrowing Base or the Maximum Revolver Amount. NOTICE OF BORROWING - Page 1 PARENT: EGL, INC., As agent for itself and the other Borrowers By:_____________________________________ Name:___________________________________ Title:__________________________________ OR [SIGNATURE BLOCK FOR ANY OTHER BORROWER] BORROWER: [NAME OF BORROWER] By:_____________________________________ Name:___________________________________ Title:__________________________________ NOTICE OF BORROWING - Page 2 EXHIBIT D FORM OF NOTICE OF CONTINUATION/CONVERSION EXHIBIT D - Cover Page Date: ______________, 20__ To: Bank of America, N. A., as Agent for the Lenders who are parties to the Credit Agreement dated as of December 20, 2001 (as amended, restated, or otherwise modified from time to time, the "Credit Agreement") among EGL, Inc. and certain of its Subsidiaries, the Lenders party thereto, and Bank of America, National Association, as administrative agent for the Lenders Ladies and Gentlemen: The undersigned refers to the Credit Agreement, the terms defined therein being used herein as therein defined and, subject to the terms of the Credit Agreement, hereby gives you notice irrevocably of the [conversion] [continuation] of the Revolving Loans specified herein, that: 1. The Continuation/Conversion Date is ___________, 20__. 2. The aggregate amount of the Revolving Loans to be [converted] [continued] is $_________. 3. The Revolving Loans are to be [converted into] [continued as] [LIBOR Rate] [Base Rate] Revolving Loans. 4. The duration of the Interest Period for the LIBOR Rate Revolving Loans included in the [conversion] [continuation] shall be _________ months. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the proposed Continuation/Conversion Date, before and after giving effect thereto and to the application of the proceeds therefrom: (a) The representations and warranties of the Loan Parties contained in the Credit Agreement are true and correct as though made on and as of such date (except to the extent that any of such representations or warranties are expressly by their terms made only as of the Closing Date or another specific date); (b) Default or Event of Default has occurred and is continuing, or would result from the proposed [conversion] [continuation]; and (c) The proposed [conversion] [continuation] will not cause the aggregate principal amount of all outstanding Revolving Loans plus the aggregate amount available for drawing under all outstanding Letters of Credit and Credit Support to exceed the lesser of the Borrowing Base or the Maximum Revolver Amount. NOTICE OF CONTINUATION/CONVERSION - Page 1 PARENT: EGL, INC., As agent for itself and the other Borrowers By:_____________________________________ Name:___________________________________ Title:__________________________________ OR [SIGNATURE BLOCK FOR ANY OTHER BORROWER] BORROWER: [NAME OF BORROWER] By:_____________________________________ Name:___________________________________ Title:__________________________________ NOTICE OF CONTINUATION/CONVERSION - Page 2 EXHIBIT E FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT E - Cover Page ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and Acceptance") dated as of [________, 20__] is made between [________________________] (the "Assignor") and __________________________ (the "Assignee"). RECITALS: A. The Assignor is party to that certain Credit Agreement dated as of December 20, 2001 (as amended, restated, or otherwise modified from time to time, the "Credit Agreement") among EGL, Inc., a Texas corporation and certain of its Subsidiaries party thereto (collectively, the "Loan Parties"), the several financial institutions from time to time party thereto (including the Assignor, the "Lenders"), and Bank of America, National Association, as administrative agent for the Lenders (the "Agent"). Any terms defined in the Credit Agreement and not defined in this Assignment and Acceptance shall have the respective meanings herein as in the Credit Agreement. B. As provided under the Credit Agreement, the Assignor has committed to making Loans (the "Committed Loans") to the Borrowers in an aggregate amount not to exceed $[__________] (the "Commitment"). C. As of the date hereof, Committed Loans owing to the Assignor from the Borrowers equal an aggregate principal amount of $[__________]; D. [The Assignor has acquired a participation in its pro rata share of the Lenders' liabilities under Letters of Credit and Credit Support in an aggregate principal amount of $[__________] (the "L/C Obligations")] [no Letters of Credit are outstanding under the Credit Agreement]. E. The Assignor wishes to assign to the Assignee [part of the] [all] rights and obligations of the Assignor under the Credit Agreement in respect of its Commitment, together with a corresponding portion of its outstanding Committed Loans [and L/C Obligations], in an amount equal to $[__________] (the "Assigned Amount") on the terms and subject to the conditions set forth herein, and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions. NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. Assignment and Acceptance. (a) Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor hereby sells, transfers, and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes, and undertakes from the Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Acceptance) ___________percent (__%) (the "Assignee's Percentage Share") of (A) the Commitment ASSIGNMENT AND ACCEPTANCE AGREEMENT - Page 1 [and][,] the Committed Loans [and the L/C Obligations] of the Assignor and (B) all related rights, benefits, obligations, liabilities, and indemnities of the Assignor under and in connection with the Credit Agreement and the Loan Documents. (b) On and after the Effective Date (as defined in paragraph 5 hereof), the Assignee shall be a party to the Credit Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Lender under the Credit Agreement, including the requirements concerning confidentiality and the payment of indemnification, with a Commitment in an amount equal to the Assigned Amount. The Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced by an amount equal to the Assigned Amount and the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee; provided, however, the Assignor shall not relinquish its rights under Section 3.9 and Section 13.11 of the Credit Agreement (or any other provision of the Loan Documents to the extent such provision, by its terms, survives termination of the Credit Agreement) to the extent such rights relate to the time prior to the Effective Date. (c) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignee's Commitment will be $[__________]. (d) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignor's Commitment will be $[__________]. 2. Payments. (a) As consideration for the sale, assignment and transfer contemplated in paragraph 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $[__________], representing the Assignee's Pro Rata Share of the principal amount of all Committed Loans. (b) The Assignee further agrees to pay to the Agent a processing fee in the amount specified in Section 11.2(a) of the Credit Agreement. 3. Reallocation of Payments. Any interest, fees, and other payments accrued to the Effective Date with respect to the Commitment[,][and] Committed Loans[, and L/C Obligations] shall be for the account of the Assignor. Any interest, fees, and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees, and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. ASSIGNMENT AND ACCEPTANCE AGREEMENT - Page 2 4. Independent Credit Decision. The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the Annex, Schedules, and Exhibits thereto, together with copies of the most recent financial statements of the Loan Parties, and such other documents and information in respect of the Loan Parties and the other Consolidated Members, or otherwise, as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees that it will, independently and without reliance upon the Assignor, the Agent, or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Credit Agreement. 5. Effective Date; Notices. (a) As between the Assignor and the Assignee, the effective date for this Assignment and Acceptance shall be __________, 20__ (the "Effective Date"); provided that the following conditions precedent have been satisfied on or before the Effective Date: (i) this Assignment and Acceptance shall be executed and delivered by the Assignor and the Assignee; (ii) the consent of the Agent required for an effective assignment of the Assigned Amount by the Assignor to the Assignee shall have been duly obtained and shall be in full force and effect as of the Effective Date; (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and Acceptance; (iv) the Assignee shall have complied with Section 11.2 of the Credit Agreement (if applicable); (v) the processing fee referred to in Section 2(b) hereof and in Section 11.2(a) of the Credit Agreement shall have been paid to the Agent; and (b) Promptly following the execution of this Assignment and Acceptance, the Assignor shall deliver to the Borrowers and the Agent for acknowledgment by the Agent, a Notice of Assignment in the form attached hereto as Schedule 1. 6. [Agent. [INCLUDE ONLY IF THE ASSIGNOR IS THE AGENT] (a) The Assignee hereby appoints and authorizes the Assignor to take such action as administrative agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the Lenders pursuant to the terms of the Credit Agreement. (b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Agent under the Credit Agreement.] ASSIGNMENT AND ACCEPTANCE AGREEMENT - Page 3 7. Withholding Tax. The Assignee (a) represents and warrants to the Agent and the Borrowers that under applicable law and treaties no tax will be required to be withheld by the Borrowers with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any State thereof) to the Agent and the Borrowers prior to the time that the Agent is or the Borrowers are required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form W-8ECI or U.S. Internal Revenue Service Form W-8BEN (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax on all payments hereunder) and agrees to provide new Forms W-8ECI or W-8BEN upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 8. Representations and Warranties. (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien or other adverse claim, (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder, (iii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery, and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery, or performance, and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid, and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization, and other laws of general application relating to or affecting creditors' rights and to general equitable principles. (b) The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition, or statements of the Loan Parties, or the performance or observance by the Loan Parties, of any of their respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and ASSIGNMENT AND ACCEPTANCE AGREEMENT - Page 4 deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder, (ii) no notices to, or consents, authorizations, or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery, and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of the Assignee for such execution, delivery, or performance, (iii) this Assignment and Acceptance has been duly executed and delivered by the Assignee and constitutes the legal, valid, and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization, and other laws of general application relating to or affecting creditors' rights and to general equitable principles, and (iv) it is an Eligible Assignee. 9. Further Assurances. The Assignor and the Assignee each hereby agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Acceptance, including the delivery of any notices or other documents or instruments to the Loan Parties or the Agent, which may be required in connection with the assignment and assumption contemplated hereby. 10. Miscellaneous. (a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power, or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other or further breach thereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. (c) The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution, and performance of this Assignment and Acceptance. (d) This Assignment and Acceptance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF TEXAS. The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in Texas over any suit, action, or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Texas State or ASSIGNMENT AND ACCEPTANCE AGREEMENT - Page 5 Federal court. Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN). IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. ASSIGNOR: [_________________] By:_____________________________________ Name:___________________________________ Title:__________________________________ ASSIGNEE: [_________________] By:_____________________________________ Name:___________________________________ Title:__________________________________ ASSIGNMENT AND ACCEPTANCE AGREEMENT - Page 6 SCHEDULE 1 to ASSIGNMENT AND ACCEPTANCE NOTICE OF ASSIGNMENT AND ACCEPTANCE _______________, 20__ Bank of America, N.A. 901 Main Street, 6th Floor Dallas, TX 75202 Attn: Business Credit: URGENT Re: EGL, Inc., et al Ladies and Gentlemen: We refer to the Credit Agreement dated as of December 20, 2001 (as amended, restated, or otherwise modified from time to time, the "Credit Agreement") among EGL, Inc. and certain of its Subsidiaries party thereto, the Lenders referred to therein, and Bank of America, N. A. , as administrative agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement are used herein as therein defined. 1. We hereby give you notice of, and request your consent to, the assignment by [__________________] (the "Assignor") to [__________________] (the "Assignee") of ________ percent ([__]%) of the right, title, and interest of the Assignor in and to the Credit Agreement (including the right, title, and interest of the Assignor in and to the Commitment of the Assignor, all outstanding Loans made by the Assignor, and the Assignor's participation in the Letters of Credit and Credit Support pursuant to the Assignment and Acceptance Agreement attached hereto (the "Assignment and Acceptance"). We understand and agree that the Assignor's Commitment, as of [_______, 20__], is $[_______], the aggregate amount of its outstanding Loans is $[_______], and its participation in L/C Obligations (as defined in the Assignment ans Acceptance) is $[_______]. 2. The Assignee agrees that, upon receiving the consent of the Agent [and, if required by the Credit Agreement, EGL, Inc., as agent for itself and the other Loan Parties], to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to the same extent as if the Assignee were the Lender originally holding such interest in the Credit Agreement. NOTICE OF ASSIGNMENT AND ACCEPTANCE - Page 1 3. The following administrative details apply to the Assignee: (A) Notice Address: Assignee name:________________ Address:______________________ Attention:____________________ Telephone: (___)______________ Telecopier: (___)_____________ Telex (Answerback):___________ (B) Payment Instructions: Account No.:__________________ At:___________________________ Reference:____________________ Attention:____________________ 4. You are entitled to rely upon the representations, warranties, and covenants of each of the Assignor and the Assignee contained in the Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers, or agents as of the date first above mentioned. Very truly yours, ASSIGNOR: By:_____________________________________ Name:___________________________________ Title:__________________________________ ASSIGNEE: By:_____________________________________ Name:___________________________________ Title:__________________________________ NOTICE OF ASSIGNMENT AND ACCEPTANCE - Page 2 ACKNOWLEDGED AND CONSENTED TO: AGENT: BANK OF AMERICA, N. A., as Agent By:____________________________ Name:__________________________ Title:_________________________ NOTICE OF ASSIGNMENT AND ACCEPTANCE - Page 3 EXHIBIT F FORM OF COMPLIANCE CERTIFICATE EXHIBIT F - Cover Page COMPLIANCE CERTIFICATE The undersigned, duly appointed and acting [_____________] of EGL, Inc. (the "Parent"), being duly authorized, hereby delivers this Compliance Certificate to the Agent, pursuant to Section 5.2(d) of the certain Credit Agreement, dated as of December 20, 2001, among the Parent, each of the other Subsidiaries of the Parent party thereto, the Lenders party thereto, and Bank of America, N. A., in its capacity as administrative agent for the Lenders (the "Agent"), as such agreement may be amended, restated, or otherwise modified from time to time, reference to which hereby is made (the "Credit Agreement"). Terms defined in the Credit Agreement, wherever used herein, shall have the same meanings as are prescribed by the Credit Agreement. 1. The Parent hereby delivers to the Agent [check as applicable]: | | the consolidated audited Fiscal Year end Financial Statements and accountant's report required by Section 5.2(a), dated as of [________, ____]; or | | the unaudited month end or unaudited fiscal quarter end Financial Statements, as applicable, required by Section 5.2(b), dated as of [________, ____]. Such Financial Statements are complete and correct in all material respects and have been prepared in accordance with GAAP (as applicable) applied consistently throughout the periods reflected therein. 2. The undersigned represents and warrants to the Agent and the Lenders that, except as may have been previously or concurrently disclosed to the Agent and the Lenders in writing by the Parent, the representations and warranties contained in Article 6 of the Credit Agreement and the other Loan Documents are correct and complete in all material respects on and as of the date of this Compliance Certificate as if made on and as of the date hereof (except to the extent that such representations and warranties are expressly by their terms made only as of the Closing Date or another specified date). 3. The undersigned represents and warrants to the Agent and the Lenders that as of the date of this Compliance Certificate, except as previously or concurrently disclosed to the Agent and the Lenders in writing by the Parent, the Loan Parties are in compliance in all material respects with all of their respective covenants and agreements in the Credit Agreement and the other Loan Documents. 4. The undersigned hereby states that, to the best of his or her knowledge and based upon an examination sufficient to enable an informed statement [check as applicable]: | | No Default or Event of Default exists as of the date hereof or existed during the period covered by the Financial Statements referenced in paragraph 1 of this Compliance Certificate. COMPLIANCE CERTIFICATE - Page 1 | | One or more Defaults or Events of Default exist as of the date hereof or existed during the period covered by the Financial Statements referenced in paragraph 1 of this Compliance Certificate. Included within Exhibit A attached hereto is a written description specifying each such Default or Event of Default, its nature, when it occurred, whether it is continuing as of the date hereof and the steps being taken by the Parent and the other Loan Parties with respect thereto. Except as so specified, no Default or Event of Default exists as of the date hereof. 5. Exhibit B attached hereto sets forth the calculations necessary to establish the status of compliance with the covenants contained in Section 7.22 ("Capital Expenditures") and Section 7.23 ("Minimum Adjusted Tangible Net Worth") of the Credit Agreement as of the effective date of the Financial Statements referenced in paragraph 1 above. 6. Exhibit C attached hereto sets forth a description and analysis in reasonable detail of all material trends, changes, and developments in each and all Financial Statements and an explanation of the variances of the figures in the corresponding budgets and Financial Statements for the preceding Fiscal Year, as required by Section 5.2(d)(ii)(D) and Section 5.2(d)(ii)(E). Date of execution of this Compliance Certificate: __________, ____. EGL, INC., as agent for itself and the other Loan Parties By:_____________________________________ Name:___________________________________ Title:__________________________________ COMPLIANCE CERTIFICATE - Page 2 EXHIBIT A to COMPLIANCE CERTIFICATE dated ______________, ____ The following is attached to and made a part of the above referenced Compliance Certificate. [specify Defaults or Events of Defaults] EXHIBIT A - Defaults and Events of Default EXHIBIT B to COMPLIANCE CERTIFICATE dated ______________, ____ The following is attached to and made a part of the above referenced Compliance Certificate. [insert calculations] EXHIBIT B - Calculations EXHIBIT C to COMPLIANCE CERTIFICATE dated ______________, ____ The following is attached to and made a part of the above referenced Compliance Certificate. [insert material trends, changes, and developments and an explanation of variances, as required by paragraph 6] EXHIBIT C - Material Trends, Changes, Developments, and Explanation of Variances EX-10.11.B 4 h95091ex10-11_b.txt FIRST AMENDMENT TO CREDIT AGREEMENT Exhibit 10.11B FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("Amendment"), dated effective as of March 7, 2002 (the "Amendment Effective Date"), is executed and entered into by and among Bank of America, National Association, in its capacity as collateral and administrative agent (the "Agent"), EGL, Inc. and each of its undersigned Subsidiaries party to the Agreement (defined below) (collectively, the "Loan Parties") and each financial institution party to the Agreement (defined below) as a "Lender" as of the Amendment Effective Date (the "Lenders"), as follows: RECITALS: A. The Agent, the Loan Parties and the Lenders are parties to the certain Credit Agreement dated as of December 20, 2001 (the "Agreement"). Terms defined by the Agreement, where used in this Amendment, shall have the same meanings in this Amendment as are prescribed by the Agreement. B. The Agent, the Loan Parties and the Lenders have agreed to amend the Agreement as provided below. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE 1 Amendments to Credit Agreement Section 1.1 Amendment to Preamble. Effective as of the Amendment Effective Date, the preamble to the Agreement is amended and restated to read as follows: This Credit Agreement, dated as of December 20, 2001 ("Agreement"), among the financial institutions from time to time parties hereto (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), Bank of America, N.A., with an office at 901 Main Street, Sixth Floor, Dallas, Texas 75202, as collateral and administrative agent for the Lenders (in such capacity, the "Agent"), Transamerica Business Capital Corporation, as documentation agent, and EGL, Inc., a Texas corporation and each of its Subsidiaries party hereto. Section 1.2. Amendment to Annex A. Annex A to the Agreement hereby is amended to add the following definitions, which shall be inserted in its appropriate alphabetical position: "Documentation Agent" means Transamerica Business Capital Corporation, and its successors, in its capacity as documentation agent under this Agreement. FIRST AMENDMENT TO CREDIT AGREEMENT, Page 1 "Original Credit Documents" means the "Credit Documents" as defined by the Original Credit Agreement. Section 1.3 Amendment to Section 1.2(j) of the Agreement. Effective as of the Amendment Effective Date, Section 1.2(j) of the Agreement is amended to add the following immediately after the existing last sentence thereof, as follows: The Agent shall notify each Lender in writing of each Agent Advance, provided, that any delay or failure of the Agent in providing any such notice to any Lender shall not result in any liability to the Agent, or impair any rights of the Agent or constitute the breach of any duty or obligation of the Agent under this Agreement. Section 1.4 Amendment to Schedule 6.5. Effective as of the Closing Date, in the "Other Foreign Subsidiaries" portion of Schedule 6.5, the percentage "49%" reflected under the "Ownership" column with respect to each of EGL Eagle Global Logistics (Espana) SL and Circle Freight (Portugal) Logistics, Ltd., in each case, is amended to read 51%. Section 1.4 Amendment to Section 7.12. Effective as of the Closing Date, Section 7.12 of the Agreement hereby is amended and restated to read in its entirety as follows: Section 7.12 Guaranties. No Consolidated Member, excluding the Unrestricted Subsidiaries, shall make, issue, or become liable on any Guaranty, except (i) Guaranties of the Debt of a Consolidated Member, excluding an Unrestricted Subsidiary, allowed under clauses (a) and (c) of Section 7.13, or clauses (b) or (d) of Section 7.13 to the extent any such Guaranty allowed by such clauses (b) or (d) exists on the Closing Date, and (ii) the Guaranty consisting of the certain Letter of Credit No. 302728 dated July 6, 2000 issued by the Bank on behalf of the Parent, as applicant, for the account of Miami Air International, Inc. for the benefit of First Union National Bank. Section 1.5 Amendment to Section 7.35 of the Agreement. Effective as of the Amendment Effective Date, Section 7.35 of the Agreement is amended to amend and restate the phrase "On or before sixty (60) days after the Closing Date" to read, "On or before April 15, 2002". Section 1.6 Amendments to Section 11.1 (a) of the Agreement. Effective as of the Amendment Effective Date, Section 11.1(a) is amended as follows: (a) Clause (viii) thereof is amended to delete the word "or" following the semi-colon; (b) Clause (ix) thereof is amended to add the word "or" following the semi-colon; (c) A new clause (x) is added, immediately following clause (ix) thereof, which shall read in its entirety as follows: FIRST AMENDMENT TO CREDIT AGREEMENT, Page 2 "(x) release any Loan Party from its obligations under a Guaranty Agreement." ; and (d) The following is added to the end of the proviso paragraph that follows such newly added clause (x), which shall be deemed inserted immediately following the words "in accordance herewith": "and, provided, further, that the Agent alone in its discretion may release the Guaranty of, and the Agent's Liens in property of, each of (i) EGL (UK) Holding Company Limited, (ii) EGL (UK) Holdings Limited, (iii) EGL Eagle Global Logistics (UK) Limited, (iv) F.J. Tytherleigh & Co. Limited, (v) Eagle Global Logistics (UK) Limited and (vi) EGL Eagle Global Logistics (Belgium) NV, in each case existing under the Original Agreement, without necessity of consent or joinder by any other Person." Section 1.7 Amendment to Add Section 12.21. Effective as of the Amendment Effective Date, a new Section 12.21 is added to the Agreement, which shall be inserted following Section 12.20 of the Agreement and read in its entirety as follows: Section 12.21 Documentation Agent. Neither the Agent, the Lenders nor the Borrowers shall have any duty or obligation to the Documentation Agent in such capacity. Section 1.8 Amendment to Section 13.3. Effective as of the Amendment Effective Date, the word "AGREEMENT" in Section 13.3(a) of the Agreement is amended to read "THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OTHER THAN THE FOREIGN SECURITY DOCUMENTS". Section 1.9 Amendment to Section 13.7. Effective as of the Amendment Effective Date, the second sentence of Section 13.7 of the Agreement is amended to include the following parenthetical phrase which shall be inserted immediately after the phrase "one law firm" in such sentence: (or, alternatively and without duplication, internal legal counsel of a Lender who is retained by the Lenders, in which case such fees and expenses shall be the reasonable internally allocated fees and expenses of such counsel) FIRST AMENDMENT TO CREDIT AGREEMENT, Page 3 ARTICLE 2 Miscellaneous Section 2.1 Miscellaneous. In the event of any conflict between the provisions of Section 13.3 of the Agreement with any provision of any other Loan Document, the provisions of Section 13.3 of the Agreement shall control. Section 2.2 Limited Waiver. The Agent and the Lenders waive any Default or Event of Default which exists by reason of (i) existence, on the Closing Date and continuing to the Effective Date, of the Guaranty referenced in clause (ii) of Section 7.12 of the Credit Agreement, as amended by this Amendment or (ii) incorrect disclosures on the Closing Date and continuing to the Effective Date, in Schedule 6.5 of the Credit Agreement with respect to each of EGL Eagle Global Logistics (Espana) SL and Circle Freight (Portugal) Logistics, Ltd., respectively, provided, that such waiver is expressly limited as provided herein. Section 2.3 Representations and Warranties. The Loan Parties hereby represent and warrant to, and agree with, the Agent, for the benefit of the Lenders, that, as of the date of and after giving effect to this Amendment, (a) the execution, delivery, and performance of this Amendment has been authorized by all requisite corporate action on the part of each of the Loan Parties and will not violate any of such Loan Party's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Agreement and in any other Loan Document are true and correct as if made again on and as of such date (except those, if any, which by their terms specifically relate only to a different date) in the Agreement), (d) no Default or Event of Default has occurred and is continuing, (e) the Agreement (as amended by this Amendment), and all other Loan Documents are and remain legal, valid, binding, and enforceable obligations in accordance with the terms thereof, and (f) the certifications delivered to the Agent under clauses (i), (ii), (iii) and (iv) of Section 8.1(a) of the Agreement remain true, correct, and complete as of the Amendment Effective Date. Section 2.4 Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Agent or any Lender, or any closing, shall affect the representations and warranties or the right of the Agent and the Lenders to rely upon them. Section 2.5 Reference to Agreement. Each of the Loan Documents, including the Agreement and any and all other agreements, documents, or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement, whether direct or indirect, shall mean a reference to the Agreement as amended hereby. Section 2.6 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. FIRST AMENDMENT TO CREDIT AGREEMENT, Page 4 Section 2.7 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of the Agent, the Lenders, the Loan Parties and their respective successors and assigns, except no Loan Party may assign or transfer any of its rights or obligations hereunder without the prior written consent of the Agent and the Lenders. Section 2.8 General. This Amendment, when signed by each signatory as required by the Agreement (a) shall be deemed effective prospectively as of the Amendment Effective Date, whereupon it shall be a Loan Document and (b) may be executed in any number of counterparts, each of which shall be valid as an original, and a telecopy or other electronic transmission of any such executed counterpart shall be deemed valid as an original. THIS WRITTEN AGREEMENT REPRESENTS 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 NO ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers in several counterparts effective as of the date specified in the introductory paragraph hereof. REMAINDER OF PAGE BLANK SIGNATURES FOLLOW FIRST AMENDMENT TO CREDIT AGREEMENT, Page 5 SIGNED effective as of the Amendment Effective Date: BANK OF AMERICA, N.A. In its capacity as Agent By: /s/ ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- BANK OF AMERICA, N.A. By: /s/ ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- PNC BANK, NATIONAL ASSOCIATION By: /s/ ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- TRANSAMERICA BUSINESS CAPITAL CORPORATION By: /s/ ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- FIRST AMENDMENT TO CREDIT AGREEMENT, Page 6 BORROWERS: EGL, INC. By: /s/ ELIJIO V. SERRANO ----------------------------------------- Elijio V. Serrano, Chief Financial Officer By: /s/ J. BRADLEY GREEN ----------------------------------------- J. Bradley Green, Corporate Secretary ALROD INTERNATIONAL, INC. By: /s/ ELIJIO V. SERRANO ----------------------------------------- Elijio V. Serrano, Chief Financial Officer CIRCLE AIRFREIGHT JAPAN, LTD. By: /s/ ELIJIO V. SERRANO ----------------------------------------- Elijio V. Serrano, Chief Financial Officer CIRCLE OVERSEAS CORP. By: /s/ ELIJIO V. SERRANO ----------------------------------------- Elijio V. Serrano, Chief Financial Officer CIRCLE INTERNATIONAL GROUP, INC. By: /s/ ELIJIO V. SERRANO ----------------------------------------- Elijio V. Serrano, Chief Financial Officer FIRST AMENDMENT TO CREDIT AGREEMENT, Page 7 CIRCLE INTERNATIONAL HOLDINGS, INC. By: /s/ ELIJIO V. SERRANO ----------------------------------------- Elijio V. Serrano, Chief Financial Officer CIRCLE INTERNATIONAL, INC. By: /s/ ELIJIO V. SERRANO ----------------------------------------- Elijio V. Serrano, Chief Financial Officer DARRELL J. SEKIN & CO. By: /s/ ELIJIO V. SERRANO ----------------------------------------- Elijio V. Serrano, Chief Financial Officer By: /s/ J. BRADLEY GREEN ----------------------------------------- J. Bradley Green, Secretary EAGLE MARITIME SERVICES, INC. By: /s/ DOUGLAS A. SECKEL ----------------------------------------- Douglas A. Seckel, Treasurer By: /s/ TERRY DERR ----------------------------------------- Terry Derr, Secretary EAGLE PARTNERS L.P. By: EUSA HOLDINGS, INC., its General Partner By: /s/ J. BRADLEY GREEN -------------------------------- J. Bradley Green, President FIRST AMENDMENT TO CREDIT AGREEMENT, Page 8 EAGLE USA IMPORT BROKERS, INC. By: /s/ J. BRADLEY GREEN ----------------------------------------- J. Bradley Green, President EGL (CANADA) HOLDING COMPANY, INC. By: /s/ DOUGLAS A. SECKEL ----------------------------------------- Douglas A. Seckel, Treasurer EGL DELAWARE LIMITED LIABILITY COMPANY By: /s/ DOUGLAS A. SECKEL ----------------------------------------- Douglas A. Seckel, Treasurer By: /s/ E. JOSEPH BENTO ----------------------------------------- E. Joseph Bento, Manager EGL EAGLE GLOBAL LOGISTICS, LP By: EGL MANAGEMENT, LLC, its Sole General Partner By: /s/ DOUGLAS A. SECKEL -------------------------------- Douglas A. Seckel, Treasurer By: /s/ J. BRADLEY GREEN -------------------------------- J. Bradley Green, Secretary FIRST AMENDMENT TO CREDIT AGREEMENT, Page 9 EGL MANAGEMENT, LLC By: /s/ DOUGLAS A. SECKEL ----------------------------------------------- Douglas A. Seckel, Treasurer By: /s/ J. BRADLEY GREEN ----------------------------------------------- J. Bradley Green, Secretary EUSA HOLDINGS, INC. By: /s/ J. BRADLEY GREEN ----------------------------------------------- J. Bradley Green, President EUSA PARTNERS, INC. By: /s/ J. BRADLEY GREEN ----------------------------------------------- J. Bradley Green, President FIRST AMENDMENT TO CREDIT AGREEMENT, Page 10 HARPER, ROBINSON & CO., INC. By: /s/ ELIJIO V. SERRANO ----------------------------------------------- Elijio V. Serrano, Chief Financial Officer J.R. MICHELS, INCORPORATED By: /s/ ELIJIO V. SERRANO ----------------------------------------------- Elijio V. Serrano, Chief Financial Officer MAX GRUENHUT INTERNATIONAL, INC. By: /s/ ELIJIO V. SERRANO ----------------------------------------------- Elijio V. Serrano, Chief Financial Officer LOAN PARTIES - GUARANTORS: EGL EAGLE GLOBAL LOGISTICS (CANADA) CORP. By: /s/ CHRISTOPHER RALPHS ----------------------------------------------- Christopher Ralphs, President FIRST AMENDMENT TO CREDIT AGREEMENT, Page 11 EX-10.17.A 5 h95091ex10-17_a.txt LEASE AGREEMENT Exhibit 10.17A BASIC LEASE INFORMATION LEASE DATED AS OF DECEMBER 31, 2001 Landlord: iStar Eagle LP, a Delaware limited partnership. Tenant: EGL Eagle Global Logistics, LP, a Delaware limited partnership Commencement Date: December 31, 2001. On or substantially contemporaneous with the Commencement Date, Landlord and Tenant shall execute a Commencement Date Declaration in the form of Exhibit J hereto which shall specify the Commencement Date, the initial Lease Expiration Date and the applicable dates for each Extension Term as provided for in the Lease. Lease Expiration Date: The last day of the 192nd full calendar month following the Commencement Date, unless extended pursuant to paragraph 4(b) of the Lease. Primary Term and any Extension Term Fixed Rent: The annual Fixed Rent during the Primary Term and any applicable Extension Term of the Lease shall be payable quarterly in advance (unless specifically set forth to be paid at a different time below) as follows: (a) From the Commencement Date through the twenty-fourth (24th) full calendar month after the Commencement Date: at the annual rate of $3,461,250, 1/4 of which shall be payable in advance on the first day of each quarter annual period (each January, April, July and October of each year) commencing (i) if the Commencement Date does not occur on the first day of a quarter, then on the first day of the quarter following the quarter in which the Commencement Date occurs, and (ii) if the Commencement Date occurs on the first day of a quarter, then on the Commencement Date. Additionally, if the Commencement Date does not occur on the first day of a quarter, then on the Commencement Date, a payment of an amount equal to the product of $865,312.50 multiplied by a fraction, the numerator of which is the number of days in the quarter from and including the Commencement Date through the end of the quarter in which the Commencement Date occurs, and the denominator of which is the total number of days in the quarter in which the Commencement Date occurs. (b) Beginning with the twenty-fifth (25th) full calendar month after the Commencement Date and every twenty-fourth (24th) month thereafter (each an "Adjustment Month") during the Primary Term: the annual Fixed Rent payable during the next twenty-four (24) month period (commencing with each Adjustment Month) shall be the Fixed Rent payable during the twenty four (24) months preceding the Adjustment Month increased (but not decreased) by the percentage increase in the Consumer Price Index from the twenty sixth (26th) month preceding the Adjustment Month through the second month immediately preceding the Adjustment Month, 1/4 of which shall be payable in advance on the first day of each quarter annual period (each January, April, July and October of each year) (commencing with each Adjustment Month); provided, however, that such increase shall not exceed 6.06% for any twenty-four month period. (c) Beginning with the first quarter annual period of each Extension Term the annual Fixed Rent payable during the first twelve (12) months of such Extension Term shall be the fair market rental value of the Sites subject to the Extension Term, as agreed upon at least 9 months prior to the commencement of such Extension Term in a written amendment to this Lease entered into by Landlord and Tenant setting forth such amounts; provided, however that if Landlord and Tenant are unable to agree upon the fair rental value of the applicable Sites at least 9 months prior to the commencement of such Extension Term, then upon written notice from either party to the other, the annual Fixed Rent payable during the first twelve (12) months of such Extension Term shall be at the fair market rental value of the applicable Sites as determined in accordance with Exhibit G. (d) Beginning with the thirteenth (13th) full calendar month after the Extension Term Commencement Date and every twelfth (12th) month thereafter (each an "EXTENSION TERM ADJUSTMENT MONTH") during the Extension Term: the annual Fixed Rent payable during the next twelve (12) month period (commencing with each Extension Term Adjustment Month) shall be the Fixed Rent payable during the twelve (12) months preceding the Extension Term Adjustment Month increased (but not decreased) by the percentage increase in the Consumer Price Index from the fourteenth (14th) month preceding the Extension Term Adjustment Month through the second month immediately preceding the Extension Term Adjustment Month; 1/4 of which shall be payable in advance on the first day of each quarter annual period (each January, April, July and October of each year) (commencing with each Extension Term Adjustment Month). Landlord Address for Payment: (a) by wire transfer: Chase Manhattan Bank ABA #021000021 SFT II, Inc. Sweep Account Account #230-142613 (b) by check (to be received at least 4 business days before the due date) to: SFT II, Inc. Sweep Account P. O. Box 35520 Newark, NJ 07193-5520 Tenant Address: EGL Eagle Global Logistics, LP 15350 Vickery Drive Houston, Texas 77032 Attention: Jon Kennedy Senior Vice President Corporate Administration LEASE AGREEMENT Between ISTAR EAGLE LP as Landlord and EGL EAGLE GLOBAL LOGISTICS, LP as Tenant Dated as of December 31, 2001 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS............................................................ 1 2. DEMISE OF PREMISES; QUIET ENJOYMENT.................................... 4 3. USE.................................................................... 4 4. TERM................................................................... 5 5. RENTAL; GUARANTY....................................................... 5 6. TAXES.................................................................. 6 7. NET LEASE; NON-TERMINABILITY........................................... 8 8. SERVICES............................................................... 9 9. REPAIRS AND MAINTENANCE; REPLACEMENT................................... 10 10. DESTRUCTION OF OR DAMAGE TO PREMISES................................... 11 11. INSURANCE, HOLD HARMLESS AND INDEMNIFICATION........................... 12 12. COMPLIANCE WITH LAWS, COVENANTS........................................ 15 13. PARTIAL TAKING......................................................... 16 14. SUBSTANTIAL TAKING..................................................... 16 15. DEFAULT: Events of Default........................................... 17 16. REMEDIES............................................................... 19 17. SUBORDINATION.......................................................... 20 18. LANDLORD'S RIGHT OF ENTRY.............................................. 21 19. NOTICES................................................................ 21 20. ESTOPPEL CERTIFICATE; FINANCIAL DATA................................... 23 21. MECHANICS' LIENS....................................................... 24 22. END OF TERM............................................................ 25 23. ALTERATIONS............................................................ 26 24. MEMORANDUM OF LEASE.................................................... 28 25. SUBLETTING/ASSIGNMENT.................................................. 28 26. HAZARDOUS MATERIAL..................................................... 29 27. FINANCING.............................................................. 32 28. MISCELLANEOUS PROVISIONS............................................... 33 29. PURCHASE PROCEDURE..................................................... 34
EXHIBITS: A-1 LEGAL DESCRIPTION FOR HOUSTON SITE 1 A-2 LEGAL DESCRIPTION FOR HOUSTON SITE 4 A-3 LEGAL DESCRIPTION FOR DISTRIBUTION FACILITY A-4 IMPROVEMENTS B EQUIPMENT C PERMITTED ENCUMBRANCES D FORM OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT E TENANT'S TRADE FIXTURES F FAIR MARKET VALUE DETERMINATION FOR PREMISES
TABLE OF CONTENTS (CONTINUED) G FAIR MARKET VALUE DETERMINATION FOR FIXED RENT DURING EXTENSIONS H CONDEMNATION SITE PRICES I FIXED RENT REDUCTION PERCENTAGE FOR EACH SITE J FORM OF COMMENCEMENT DATE DECLARATION
THIS LEASE AGREEMENT, made and entered into as of the date set forth in the Basic Lease Information (together with all amendments and supplements hereto, this "LEASE"), by and between iStar Eagle LP, a Delaware limited partnership with offices c/o iStar Financial Inc., 1114 Avenue of the Americas, 27th Floor, New York, New York 10036 (together with any successor or assigns, hereinafter called the "LANDLORD") and EGL Eagle Global Logistics, LP, a Delaware limited partnership, having an address at 15350 Vickery Drive, Houston, Texas 77032 (together with any permitted successor or assigns, hereinafter collectively called the "TENANT"). 1. DEFINITIONS Capitalized terms used herein shall have the following meanings for all purposes of this Lease and shall be equally applicable to both the singular and plural forms of the terms herein defined. "ADDITIONAL RENT" means all amounts, liabilities and obligations other than Fixed Rent which Tenant assumes or agrees to pay under this Lease to Landlord or others. "AFFILIATES" means persons (other than individuals) controlled by, controlling, or under common control with Tenant. "ALTERNATIVE CREDIT RATING AGENCY" means if either or both of S & P and Moody's no longer exist or no longer assign Credit Ratings, such other nationally recognized statistical credit rating agency designated by Landlord, acting in its sole discretion. "BASIC LEASE INFORMATION" means the page(s) preceding this Lease which are hereby incorporated by reference. "COMMENCEMENT DATE" is defined and shall have the meaning specified in the Basic Lease Information. "CONSUMER PRICE INDEX" means the Consumer Price Index-U.S. City Average for All Urban Consumers (all item) (1982-84=100) prepared by the Bureau of Labor Statistics of the United States Department of Labor. In the event that such Consumer Price Index shall no longer be published with a base year of 1982-84=100, Landlord shall compute, by reference to data available from such Bureau of Labor Statistics, the actual percentage increase in consumer prices during the period or periods in question. If said Consumer Price Index shall cease to be published, Landlord shall use the most comparable index published by the United States Government. Where the Consumer Price Index is required for a given month, and if the Consumer Price Index is not published for such month, then the Consumer Price Index published for the month closest and prior to the designated month shall be used. "CREDIT RATING" means the senior unsecured debt rating issued by S&P and Moody's or if either or both no longer exist or no longer issue ratings then an Alternative Credit Rating Agency, as applicable. All references to specific levels of a Credit Rating mean such rating with a "stable" or "positive" outlook, but not a "negative" outlook or "on watch" associated with such rating. "ENVIRONMENTAL LAWS" is defined in paragraph 26(b) of this Lease. "EQUIPMENT" means the equipment listed on Exhibit B. "EVENT OF DEFAULT" is defined in paragraph 15 of this Lease. "EXTENSION TERM COMMENCEMENT DATE" is defined in paragraph 4(b) of this Lease. "EXTENSION TERMS" is defined in paragraph 4(b) of this Lease. "FIRST MORTGAGE" or "MORTGAGE" shall mean a first mortgage on all or any portion of the Premises given by Landlord to the Mortgagee to secure a loan financing or refinancing all or a portion of the Landlord's interest in the Premises. "FIXED RENT" is defined in paragraph 5 of this Lease. "GUARANTOR" means EGL, Inc., a Texas corporation and its successors. "GUARANTY" is defined in paragraph 5(d) of this Lease. "IMPOSITION" means the various taxes and other charges referred to in paragraph 6 of this Lease and the present and future governmental laws and regulations more specifically described in paragraph 6(d) of this Lease. "IMPROVEMENTS" means all of the buildings, structures, improvements, equipment, and all building fixtures therein (including, without limitation, parking areas, and driveways now or hereafter located on the Land and generally described on Exhibit A-4 hereto, other than and specifically excluding Tenant's Trade Fixtures. "INITIAL APPRAISER" is defined in Exhibit F of this Lease. "INITIAL VALUATION" is defined in Exhibit F of this Lease. "LAND" means the three parcels of land, but none of the Improvements thereon, described in Exhibit A-1, Exhibit A-2, and Exhibit A-3 hereto. "LANDLORD" is defined in the first paragraph of this Lease. "LEASE" is defined in the first sentence of this Lease. "LEASE EXPIRATION DATE" is defined and shall have the meaning specified in the Basic Lease Information. "MOODY'S" means Moody's Investors Services, Inc. and its successors. "MORTGAGEE" shall mean any holder of a First Mortgage with respect to the Premises or any part thereof. "OTHER TAXES" is defined in paragraph 6(b) of this Lease. 2 "OVERDUE RATE" means the sum of 5% plus the prime or base interest rate of money center banks as reported from time to time in The Wall Street Journal, but in any event, if lower, the maximum annual interest rate allowed by law for business loans (not primarily for personal, family or household purposes). "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, trustee(s) of a trust, unincorporated organization, or government or governmental authority, agency or political subdivision thereof. "PERMITTED ENCUMBRANCES" means: (a) Any liens for taxes, assessments and other governmental charges and any liens of mechanics, materialmen and laborers for work or services performed or materials furnished in connection with the Premises, which are not due and payable; (b) The easements, rights-of-way, encroachments, encumbrances, restrictive covenants or other matters affecting the title to the Premises or any part thereof set forth on Exhibit C attached hereto; and (c) This Lease and the rights of Tenant hereunder. "PRIMARY TERM" is defined in paragraph 4(a) of this Lease. "PREMISES" is defined in paragraph 2(a) of this Lease. "PROCEEDS TRUSTEE" is defined in paragraph 10 of this Lease. "PROPERTY TAXES" is defined in paragraph 6(a) of this Lease. "RENT" means Fixed Rent and Additional Rent. "S&P" means Standard & Poor's Rating Service (a division of McGraw-Hill Companies, Inc.) and its successors or assigns. "SITE ASSESSMENTS" is defined in paragraph 26(d) of this Lease. "SITE REVIEWERS" is defined in paragraph 26(d) of this Lease. "SUBORDINATION AGREEMENT" is defined in paragraph 17(a) of this Lease. "SUPERIOR MORTGAGE" is defined in paragraph 17(a) of this Lease. "TENANT" is defined in the first paragraph of this Lease. "TENANT'S TRADE FIXTURES" means all personal property of Tenant in or on the Premises which is not necessary for the operation of the Improvements and is listed on Exhibit E hereto, and specifically excludes the Equipment. 3 "TERM" means the Primary Term, together with each Extension Term when Tenant has exercised or is deemed to have exercised its option related to such Extension Term. "TERMINATION DATE" is defined in paragraph 14 of this Lease. "THIRD APPRAISER" is defined in Exhibit F of this Lease. "THIRD VALUATION" is defined in Exhibit F of this Lease. 2. DEMISE OF PREMISES; QUIET ENJOYMENT (a) Landlord hereby demises and leases to Tenant and Tenant hereby leases and rents from Landlord the Premises, IN ITS "AS IS" CONDITION, SUBJECT TO THE EXISTING STATE OF TITLE (WITHOUT EXPRESS OR IMPLIED WARRANTY OF LANDLORD WITH RESPECT TO THE CONDITION, QUALITY, REPAIR OR FITNESS OF THE PREMISES FOR A PARTICULAR USE OR TITLE THERETO, ALL SUCH WARRANTIES BEING HEREBY DISCLAIMED BY LANDLORD AND WAIVED AND RENOUNCED BY TENANT). The "PREMISES" consists of collectively, Landlord's interest in the Land, the Equipment, the Improvements, together with any easements, rights, and appurtenances in connection therewith or belonging to said Land and Improvements. No easement for light, air or view is included with or appurtenant to the Premises. The foregoing disclaimer has been negotiated by Landlord and Tenant, each being represented by independent counsel, and is intended as a complete negation of any representation or warranty by Landlord, express or implied. (b) Landlord covenants with Tenant that, upon the payment of the Fixed Rent and Additional Rent and the performance of all the terms of this Lease, Tenant shall at all times during the Term, peaceably and quietly enjoy the Premises without any disturbance from Landlord or from any person claiming by, through, or under Landlord. Exercise by Landlord of its rights to come upon the Premises as set forth in this Lease shall not constitute a violation of this paragraph. (c) The Premises includes the property (a) described in Exhibit A-1 ("HOUSTON SITE 1") and in Exhibit A-2 ("HOUSTON SITE 4"), each located at the address commonly known as 15350-15390 Vickery Drive, Houston, Texas 77032 (collectively, the "CORPORATE HEADQUARTERS") and (b) described in Exhibit A-3 and located at the address commonly known as 18300 East 28th Avenue, Aurora, Colorado (the "DISTRIBUTION FACILITY"). The Houston Site 1, Houston Site 4 and the Distribution Facility are each individually herein called a "SITE" and together are herein called the "SITES". A general description of the Sites is set forth on Exhibit A-4, provided that Landlord makes no representation as to the square footage of any Site, and Tenant shall not be entitled to any reduction or abatement of Fixed Rent based on any measurement or calculation of the square footage of any improvement on any Site. 3. USE Tenant shall, subject to applicable zoning restrictions and any recorded covenants or restrictions, use and occupy the Premises, including each Site, only for general office, warehouse, freight forwarding and distribution purposes. Tenant shall not use, suffer or permit the Premises, 4 or any portion thereof, to be used by Tenant, any third party or the public, as such, without restriction or in such manner as might impair Landlord's title to or interest in the Premises, or in such manner as might make possible a claim or claims of adverse usage or adverse possession by the public, as such, or third Persons, or of implied dedication of the Premises, or any portion thereof. 4. TERM (a) The primary term of this Lease (the "PRIMARY TERM") shall be for a period of no less than Sixteen (16) years, beginning on the Commencement Date and ending on the Lease Expiration Date as set forth on the Basic Lease Information. (b) Tenant shall have the right, at its option, to extend the Primary Term of this Lease for 3 extension terms (the "EXTENSION TERMS"), each of which shall extend the Primary Term for one or more of the Sites, for an additional 5 years. Each Extension Term shall commence on the day after the expiration of the preceding term (each, an "EXTENSION TERM COMMENCEMENT DATE") and shall expire on the 5th anniversary of the Lease Expiration Date in the case of the first (1st) Extension Term, and on the tenth (10th) and fifteenth (15th) anniversaries of the Lease Expiration Date in the case of the second (2nd) and third (3rd) Extension Terms, respectively. The options to extend the Term of this Lease as described above shall not be deemed exercised by Tenant unless at least twelve (12) months prior to the Lease Expiration Date for the Primary Term or at least twelve (12) months prior to the expiration of the Extension Term for the first (1st) and second (2nd) Extension Terms, respectively, Tenant shall have delivered written notice to Landlord of Tenant's irrevocable decision to so extend this Lease and identifying each Site for which the term will be extended. Tenant's failure to deliver one (1) such timely notice to extend to Landlord with respect to any Site shall terminate all future Extension Terms, if any, with respect to such Site. Subject to the provisions of paragraph 5, the terms and conditions of this Lease shall apply to each Site for which Tenant has timely exercised its extension option hereunder during the Extension Term with the same force and effect as if such Extension Term had originally been included in the Primary Term of the Lease. The right of Tenant to the Extension Terms shall be conditioned upon this Lease being in full force and effect as of the Lease Expiration Date or expiration of the 1st and 2nd Extension Term, as the case may be, and no Event of Default being in effect as of (i) the date written notice is given to Landlord of Tenant's irrevocable decision to extend this Lease and identifying each Site for which the term will be extended, and (ii) as of each applicable Extension Term Commencement Date. The Primary Term, together with any Extension Term, shall constitute the "TERM" of this Lease. 5. RENTAL; GUARANTY (a) Tenant shall pay to Landlord the following amounts as rent for the Premises: (i) During the Term of this Lease, Tenant shall pay to Landlord, as fixed quarterly rent, the amount of quarterly fixed rent specified in the Basic Lease Information ("FIXED RENT"). (ii) Throughout the Term of this Lease, Tenant shall pay, as Additional Rent, all other amounts of money and charges required to be paid by Tenant under this Lease, whether or not such amounts of money or charges are designated Additional Rent. As used in this Lease, 5 "RENT" shall mean and include all Fixed Rent and Additional Rent payable by Tenant in accordance with this Lease. (b) It is the intention of Landlord and Tenant that the Fixed Rent payable by Tenant to Landlord during the entire term of this Lease shall be absolutely net of all costs and expenses incurred in connection with the management, operation, maintenance and repair of the Premises in accordance with this Lease. Landlord shall have no obligations or liabilities whatsoever with respect to the management, operation, maintenance or repair of the Premises during the term of this Lease, and Tenant shall manage, operate, maintain and repair the Premises in accordance with this Lease and shall pay all costs and expenses incurred in connection therewith before such costs or expenses become delinquent. Without limiting the generality of the foregoing, throughout the entire term of this Lease, Tenant shall pay, as Additional Rent, all premiums for all property and liability insurance covering the Premises required under this Lease, all Property Taxes (as defined in paragraph 6(a)) and all Other Taxes (as defined in paragraph 6(b)) that accrue during or are allocable to the terms of this Lease. (c) Tenant shall pay all Fixed Rent to Landlord, in advance, on or before the first day of each and every calendar quarter (each January, April, July and October of each year) during the Term of this Lease (other than the payment due on the Commencement Date which is due as set forth in the Basic Lease Information) without notice, by either (i) wire transfer or other electronic means or otherwise so there are collected funds available to Landlord on the due date, or (ii) by check drawable upon good funds by mail for delivery at least four business days before the due date therefor. Interest at the Overdue Rate shall accrue on Fixed Rent from the due date thereof to the date of actual payment. If the Fixed Rent is paid more than five (5) days after its due date, a late charge of 5% of the delinquent amount shall be due and payable. Tenant shall pay all Additional Rent when due. Tenant shall pay all Fixed Rent to Landlord without notice, demand, deduction or offset, in lawful money of the United States of America, at the address of Landlord specified in the Basic Lease Information, or to such other person or persons or at such other place or places as Landlord may from time to time designate in writing. (d) Tenant acknowledges and agrees that it was a condition precedent to Landlord entering into this Lease that Landlord receive a guaranty of Tenant's payment and performance of all of Tenant's obligations under this Lease (in such form as approved by Landlord, the "GUARANTY") from Guarantor, which Guaranty is being entered into contemporaneously with the execution of this Lease.. 6. TAXES (a) Tenant shall pay, as Additional Rent, all Property Taxes prior to the assessment of any interest or penalty for late payment. "PROPERTY TAXES" shall mean all taxes, assessments, excises, levies, fees and charges (and any tax, assessment, excise, levy, municipal service fee, fee or charge levied wholly or partly in lieu thereof or as a substitute therefor or as an addition thereto) of every kind and description, general or special, ordinary or extraordinary, foreseen or unforeseen, secured or unsecured, whether or not now customary or within the contemplation of Landlord and Tenant, that are levied, assessed, charged, confirmed or imposed by any public or government authority on or against, or otherwise with respect to, the Premises or any part thereof or any personal property used in connection with the Premises, including Landlord's franchise taxes based upon gross receipts or derivatives thereof (but not net income or derivatives thereof). 6 "Property Taxes" shall not include (1) federal or state income or inheritance taxes of Landlord, unless levied or assessed against Landlord in whole or in part in lieu of, as a substitute for, or as an addition to any Property Taxes or (2) state or federal income taxes of Tenant or Guarantor. (b) Tenant shall pay, as Additional Rent, all Other Taxes prior to the assessment of any interest or penalty for late payment. "OTHER TAXES" shall mean all taxes, assessments, excises, levies, fees and charges, including all payments related to the cost of providing facilities or services, whether or not now customary or within the contemplation of Landlord and Tenant, that are levied, assessed, charged, confirmed or imposed by any public or government authority upon, or measured by, or reasonably attributable to (i) the Premises, (ii) the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises or the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, regardless of whether title to such improvements is vested in Tenant or Landlord, (iii) any Rent payable under this Lease, including any gross income tax or excise tax levied by any public or government authority with respect to the receipt of any such Rent, (iv) the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or (v) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. "Other Taxes" shall not include (i) state or federal income or inheritance taxes of Landlord unless levied or assessed against Landlord in whole or in part in lieu of, as a substitute for, or as an addition to any Other Taxes or (2) state or federal income taxes of Tenant or Guarantor. Other Taxes shall not include any franchise tax based upon net income or derivatives thereof (but not gross income or derivatives thereof). (c) Except for any tax on the net income derived from the Fixed Rent, if at any time during the Term, any method of taxation shall be such that there shall be levied, assessed or imposed on the Landlord, or on the Fixed Rent or Additional Rent, or on the Premises, or any portion thereof, a capital levy, gross receipts tax, occupational license tax or other tax on the Rents received therefrom, or a franchise tax, or an assessment, gross receipts levy or charge measured by or based in whole or in part upon such gross Rents, Tenant, to the extent permitted by law, covenants to pay and discharge the same, it being the intention of the parties hereto that the Fixed Rent to be paid hereunder shall be paid to Landlord absolutely net without deduction or charge of any nature whatsoever, foreseeable or unforeseeable, ordinary or extraordinary, or of any nature, kind, or description, except as otherwise expressly provided in this Lease. (d) Tenant covenants to furnish Landlord, within fifteen (15) days after request by Landlord, official receipts of the appropriate taxing authority, if any, or other appropriate proof reasonably satisfactory to Landlord, evidencing the payment of all Impositions. The certificate, advice or bill of the appropriate official designated by law to make or issue the same or to receive payment of any Imposition may be relied upon by Landlord as sufficient evidence that such Imposition is due and unpaid at the time of making or issuance of such certificate, advice or bill. (e) Tenant shall have the right to contest the amount or validity, in whole or in part, of any Property Tax or Other Tax or to seek a reduction in the valuation of the Premises as assessed for real estate property tax purposes by appropriate proceedings diligently conducted in good faith (but only after payment of such Tax) provided, however, Tenant may withhold payment of such tax if permitted by applicable law and provided that Tenant establishes an escrow to cover the payment of such tax and any accrued interest or penalty that may become due and payable during the period of such contest. Landlord shall not be required to join in any 7 proceeding referred to in this subparagraph (e) unless required by law, in which event Landlord shall, upon written request by Tenant, join in such proceedings or permit the same to be brought in its name, all at Tenant's expense. Landlord agrees to provide, at Tenant's expense, whatever assistance Tenant may reasonably require in connection with any such contest. Tenant covenants that Landlord shall not suffer or sustain any costs or expenses (including, but not limited to, counsel fees) or any liability in connection with any such proceeding. No such consent shall subject Landlord to any civil liability or the risk of any criminal liability. (f) If required by any Mortgagee or upon written notice from Landlord following an Event of Default, Tenant shall pay to Landlord on the first day of each calendar month an amount equal to one twelfth (1/12) of the Property Taxes and Other Taxes, as reasonably estimated by Landlord on the basis of assessments and bills and estimates thereof. Such amounts shall be held by Landlord or Mortgagee, without interest, and shall not be deemed to be trust funds and may be commingled with the general funds of Landlord or Mortgagee, as applicable. Landlord shall apply such amounts to the payment of the taxes with respect to which such amounts were paid, subject to any rights of the Mortgagee thereto. Landlord shall make no charge for holding and applying such amounts. If at any time the amount on deposit pursuant to this paragraph shall be less than the amount reasonably deemed necessary by Landlord to pay such taxes as they become due, Tenant shall pay to Landlord the amount necessary to make the deficiency within five (5) days after notice from Landlord requesting payment thereof. Annually Landlord shall refund to Tenant any amount held by Landlord pursuant to this paragraph which is not reasonably deemed necessary for the payment of future taxes. (g) Landlord will, within fifteen (15) days after receipt, reimburse Tenant for any refund of Property Tax or Other Tax received by Landlord as a result of any tax contest relating to the Term. 7. NET LEASE; NON-TERMINABILITY (a) This is an absolutely net lease and the Fixed Rent, Additional Rent and all other sums payable hereunder by Tenant shall be paid without notice (except as expressly provided herein), demand, set-off, counterclaim, abatement, suspension, deduction or defense. It is the intention of the parties hereto that the Fixed Rent shall be an absolutely net return to Landlord throughout the term of this Lease. In order that such Rent shall be absolutely net to Landlord, Tenant shall pay when due, and save Landlord harmless from and against, any and all costs, charges and expenses attributable to the Premises, including but not limited to, each fine, fee, penalty, charge (including governmental charges), assessments, sewer rent, Impositions, insurance premiums as may be required from time to time by Landlord or Mortgagee, utility expenses, carrying charges, costs, expenses and obligations of every kind and nature whatsoever, general and special, ordinary and extraordinary, foreseen and unforeseen, the payment for which Landlord or Tenant is, or shall become liable by reason of any rights or interest of Landlord or Tenant in, to or under the Premises or this Lease or in any manner relating to the ownership, leasing, operation, management, maintenance, repair, rebuilding use or occupation of the Premises, or of any portion thereof; provided, however, that nothing herein contained shall be construed as imposing upon Tenant any obligation to pay any estate, inheritance, succession, franchise or transfer tax of Landlord growing out of, or levied in connection with, this Lease or the Landlord's right or interest in the Premises. 8 (b) This Lease shall not terminate, nor shall Tenant have any right to terminate this Lease, except as expressly provided in paragraph 14, nor shall Tenant be entitled to any abatement or reduction of Rent hereunder, nor shall the obligations of Tenant under this Lease be affected, by reason of (i) any damage to or destruction of all or any part of the Premises from whatever cause, (ii) subject to paragraph 14, the taking of the Premises or any portion thereof by condemnation, requisition or otherwise, (iii) the prohibition, limitation or restriction of Tenant's use of all or any part of the Premises, or any interference with such use, (iv) any eviction by paramount title or otherwise, (v) Tenant's acquisition or ownership of all or any part of the Premises otherwise than as expressly provided herein, (vi) any default on the part of Landlord under this Lease, or under any other agreement to which Landlord and Tenant may be parties, (vii) the failure of Landlord to deliver possession of the Premises or (viii) any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding. It is the intention of the parties hereto that the obligations of Tenant hereunder shall be separate and independent covenants and agreements, that the Fixed Rent, the Additional Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events and that the obligations of Tenant hereunder shall continue unaffected unless the requirement to pay or perform the same shall have been terminated pursuant to any express provision of this Lease. Tenant agrees that Tenant will not be relieved of the obligations to pay the Basic Rent or any Additional Rent in case of damage to or destruction of the Premises. (c) Tenant agrees that it will remain obligated under this Lease in accordance with its terms, and that it will not take any action to terminate, rescind or avoid this Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution or winding-up or other proceeding affecting Landlord or its successor in interest, or (ii) any action with respect to this Lease which may be taken by any trustee or receiver of Landlord or its successor in interest or by any court in any such proceeding. (d) Tenant waives all rights which may now or hereafter be conferred by law (i) to quit, terminate or surrender this Lease or the Premises or any part thereof, or (ii) to any abatement, suspension, deferment or reduction of the Fixed Rent, Additional Rent or any other sums payable under this Lease, except as otherwise expressly provided herein. 8. SERVICES Tenant shall, at Tenant's sole cost and expense, supply the Premises with electricity, heating, ventilating and air conditioning, water, natural gas, lighting, replacement for all lights, restroom supplies, telephone service, window washing, security service, janitor, scavenger and disposal services (including hazardous and biological waste disposal), and such other services as Tenant determines to furnish to the Premises. Landlord shall not be in default hereunder or be liable for any damage or loss directly or indirectly resulting from, nor shall the Fixed Rent or Additional Rent be abated or a constructive or other eviction be deemed to have occurred by reason of, the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, any failure to furnish or delay in furnishing any such services, whether such failure or delay is caused by accident or any condition beyond the control of Landlord or Tenant or by the making of repairs or improvements to the Premises, or any limitation, curtailment, rationing or restriction on use of water, electricity, gas or any form of energy serving the Premises, whether such results from mandatory governmental restriction or 9 voluntary compliance with governmental guidelines. Tenant shall pay the full cost of all of the foregoing services and all other utilities and services supplied to the Premises as Additional Rent. 9. REPAIRS AND MAINTENANCE; REPLACEMENT (a) Tenant shall, at its own sole cost and expense, keep the Premises, including each Site therein, in good order and condition as an office building with respect to the Corporate Headquarters and an office and distribution facility with respect to the Distribution Facility at all times on and after Commencement Date to and including the date of the termination of the Term, by lapse of time or otherwise. Tenant shall timely and properly maintain, repair and replace all of the Premises and all its component parts, including, but not limited to, parking lot surface and stripes, all landscaping, mechanical systems, electrical and lighting systems, plumbing and sewage systems, fixtures and appurtenances, interior and exterior walls, roof, foundations, floor slabs, columns and structural steel so as to preserve and protect the useful life, utility and value of such components, and in all events so as to preserve the effectiveness of any warranty relating thereto, such repairs and replacements to be at least in quality and class to the original work. If any building system or component shall become obsolete, non-functional, or uneconomic to repair, Tenant shall remove such item from the Premises and, promptly replace it with an item of comparable initial value and function. Promptly upon installation of any equipment which is not leased from third parties or Tenant Trade Fixtures, Tenant shall deliver to Landlord the original warranty (which shall specify Landlord as the owner of the equipment) relating to such equipment. Tenant shall deliver to Landlord a written statement showing all removals and replacements of such systems or components during the preceding calendar year, including manufacturers, model numbers, and serial numbers. Landlord may, upon three (3) business days prior notice cause independent private inspectors to make inspections of any building and building systems on the Premises or segments thereof to determine Tenant's compliance under this paragraph 9. Landlord may, but is not required to, after five (5) days notice to Tenant (except in the case of emergency, in which case Tenant shall be given notice contemporaneously with entry), enter the Premises and make such repairs, alterations, improvements, additions, replacements or maintenance as Landlord deems necessary to cure any default of Tenant hereunder, in a diligent fashion, and Tenant shall pay Landlord as Additional Rent forthwith (and in any event within ten (10) days) upon being billed for same by Landlord the cost thereof plus an administrative fee of 3% of such cost. Such amounts shall bear interest at the Overdue Rate from the date of billing until paid. (b) It is intended by Tenant and Landlord that Landlord shall have no obligation, in any manner whatsoever, to repair or maintain the Premises (or any equipment therein), whether structural or nonstructural, all of which obligations are intended, as between Landlord and Tenant, to be those of Tenant. Tenant expressly waives the benefit of any statute now or in the future in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair. (c) Tenant shall maintain on the Premises, and turn over to Landlord upon expiration or termination of this Lease, then current operating manuals for the equipment then located on the Premises. 10 (d) Tenant covenants not to maintain or install any underground storage tank on the Land. 10. DESTRUCTION OF OR DAMAGE TO PREMISES If the Premises are damaged by fire or other casualty during the Term of this Lease, Tenant shall repair such damage and restore the Premises to substantially the same or better condition as existed before the occurrence of such fire or other casualty using materials of the same or better grade than that of the materials being replaced, and this Lease shall remain in full force and effect. Such repair and replacement by Tenant shall be done in accordance with paragraph 23 and the standards of paragraph 9 and Tenant shall, at its expense, obtain all permits required for such work. An architect or engineer selected by Landlord shall review, at Tenant's expense, all plans and specifications and all draw requests hereunder. In no event shall Fixed Rent or Additional Rent abate, nor shall this Lease terminate by reason of such damage or destruction. Provided Tenant is not in default under this Lease (and no event has occurred which, with the passage of time, the giving of notice, or both, would constitute a default), and provided Tenant has (i) delivered to Landlord plans and specifications and a budget for such repair and restoration (all of which Landlord shall have approved), and (ii) deposited with Landlord or the Proceeds Trustee (defined below) cash in the sum equal to the excess, if any, of the total cost set forth in such approved budget over the amount of insurance proceeds received on account of such casualty, then to the extent such proceeds are available to Landlord from Mortgagee, Landlord shall make available to Tenant all insurance proceeds actually received by Landlord on account of such casualty, for application to the costs of such approved repair and restoration, as set forth below. If the estimated cost of reconstruction and the amount of insurance proceeds are less than $500,000, such proceeds shall be paid to Tenant to apply to the cost of restoration. If the estimated cost of reconstruction is equal to or in excess of $500,000, all insurance proceeds shall be paid to or deposited with either a bank or trust company designated by Landlord, subject to the reasonable approval of Tenant (herein called the "PROCEEDS TRUSTEE") in the name of the Proceeds Trustee as trustee for Landlord and Tenant and disbursed in the manner hereinafter provided. If Landlord mortgages the Premises with a First Mortgage, the Mortgagee thereunder may, at its option, be appointed Proceeds Trustee for so long as such First Mortgage remains outstanding and such Mortgagee does not control Landlord or is not controlled by or under common control with Landlord. Insurance proceeds shall be deposited in an interest bearing account and interest shall be distributed to Tenant upon completion of said installation, repair, replacement or rebuilding, provided no default has occurred and is continuing hereunder. All checks drawn on said account shall be signed by the Proceeds Trustee. Subject to the terms and conditions of any First Mortgage (if the Mortgagee is the Proceeds Trustee), insurance proceeds shall be disbursed to Tenant by the Proceeds Trustee under the following procedure: (i) No more frequently than once per calendar month, Tenant may request that Landlord reimburse Tenant out of such insurance proceeds for costs incurred by Tenant for work in place to repair and restore the Premises during the immediately preceding calendar month. Tenant's request shall certify that all work for which reimbursement is requested was performed in compliance with the plans and specifications approved by Landlord pursuant to paragraph 9 and all applicable laws, and shall include reasonably satisfactory evidence of the costs incurred by Tenant and unconditional lien releases in form and substance required by applicable law 11 executed by all mechanic's, materialmen, laborers, suppliers and contractors who performed any portion of the repair work or applied materials. (ii) Within fifteen (15) days after receiving Tenant's request, Landlord shall approve or disapprove Tenant's request, which approval shall not be unreasonably withheld, by written notice to Tenant. If Landlord approves all or any portion of a request and Landlord has received (and not previously disbursed) insurance proceeds, then Landlord's approval shall include a check in the amount approved by Landlord. If Landlord disapproves all or any portion of a request, then Landlord's notice shall state the reasons for that disapproval. Landlord's failure to deliver a notice approving or disapproving a request shall be conclusively deemed Landlord's disapproval of the request. 11. INSURANCE, HOLD HARMLESS AND INDEMNIFICATION (a) Landlord shall not be liable to Tenant for any damage to or loss or theft of any property or for any bodily or personal injury, illness or death of any person in, on or about the Premises arising at any time and from any cause whatsoever except when caused by the gross negligence or willful misconduct of Landlord. Tenant waives all claims against Landlord arising from any liability described in this paragraph 11(a), except to the extent caused by the gross negligence or willful misconduct of Landlord. (b) Tenant hereby agrees to indemnify and defend Landlord against and hold Landlord harmless from all claims, demands, liabilities, damages, losses, costs and expenses, including reasonable attorneys' fees and disbursements, arising from or related to any use or occupancy of the Premises, or any condition of the Premises, or any default in the performance of Tenant's obligations hereunder, or any damage to any property (including property of employees and invitees of Tenant) or any bodily or personal injury, illness or death of any person (including employees and invitees of Tenant) occurring in, on or about the Premises or any part thereof or any part of the building or the land constituting a part of the Premises arising at any time and from any cause whatsoever or occurring outside the Premises when such damage, bodily or personal injury, illness or death is caused by any act or omission of Tenant or its agents, officers, employees, contractors, invitees or licensees. This paragraph 11(b) shall survive the termination of this Lease with respect to any damage, bodily or personal injury, illness or death occurring prior to such termination. (c) Tenant shall, at all times and during the term of this Lease and at Tenant's sole cost and expense, obtain and keep in force comprehensive commercial general liability and special cause of loss insurance, including contractual liability (specifically covering this Lease), cross liability, fire, legal liability, and premises operations, all on an "occurrence" policy form, with a minimum combined single limit in the amount of $10,000,000 per occurrence for bodily or personal injury to, illness of, or death of persons and damage to property occurring in, on or about the Premises, and such insurance shall name the Landlord, any Mortgagee, and any other parties designated by Landlord as additional insureds. Tenant shall, at Tenant's sole cost and expense, be responsible for insuring Tenant's furniture, equipment, fixtures, computers, office machines and personal property. (d) Tenant shall, at all times during the term of this Lease and at Tenant's sole cost and expense, obtain and keep in force worker's compensation and employer's liability insurance 12 in all states in which the Premises and any other operations of the Tenant are located and any other state in which the Tenant may be subject to any statutory or other liability arising in any manner whatsoever out of the actual or alleged employment of others. (e) Tenant shall, at all times during the Term of this Lease, at Tenant's sole cost and expense, obtain and keep in force or reimburse Landlord for the cost of (a) insurance against loss (including terrorism, earthquake and flood) or damage to the Premises by fire and all other risks of physical loss (including earthquake and flood) covered by insurance of the type now known as "all risk," with difference in conditions coverage, in an amount not less than the full replacement cost of the Premises (without deduction for depreciation), including the cost of debris removal and such endorsements as Landlord may reasonably require, and containing "Replacement Cost" and "Agreed Amount" endorsements; (b) boiler and machinery insurance covering pressure vessels, air tanks, boilers, machinery, pressure piping, heating, ventilation and air conditioning equipment, and elevator and escalator equipment, provided the Premises contain equipment of such nature and insurance against loss of occupancy or use arising from any breakdown of any such items, in such amounts as Landlord may reasonably determine; (c) plate glass insurance in such amounts as Landlord may reasonably determine if the Premises contain plate glass; (d) business interruption insurance insuring that the Fixed Rent will be paid to Landlord for up to one year if the Premises are destroyed or rendered untenantable by any cause insured against (it being understood that the existence of such insurance does not reduce Tenant's obligation to pay Fixed Rent without diminution), and in the event of termination of this Lease due to any such insured cause, pay to Landlord one year's Fixed Rent; and (e) insurance in amounts and against such other risks as Landlord or Mortgagee may reasonably require and against such risks as are customarily insured against by operators of similar properties. In addition, during any period when any demolition or construction on the Land is underway, Tenant shall maintain the following insurance: (i) completed value builders risk insurance for the Premises, including all building materials thereon, covering loss or damage from fire, lightning, extended coverage periods, sprinkler, leakage, vandalism, malicious mischief and perils insured in an amount not less than the full insurable value of the Premises, and (ii) worker's compensation insurance covering the full statutory liability as an employer of the contractor performing the work of such construction or alterations. (f) All insurance required to be maintained by Tenant under this paragraph 11 and all renewals thereof shall be issued by good and responsible companies qualified to do and doing business in the state of where the Premises are located and having a S&P claims paying ability rating of at least "AA" and a rating of "A-XIII" or better in the current Best's Insurance Reports and shall be reasonably satisfactory to Landlord. All deductible amounts in excess of $100,000 under each such insurance policy shall be subject to Landlord's prior written approval. Each policy to be maintained by Tenant shall expressly provide that the policy shall not be canceled or altered without thirty (30) days' prior written notice to Landlord and shall remain in effect notwithstanding any such cancellation or alteration until such notice shall have been given to Landlord and such period of thirty (30) days shall have expired. All insurance under this paragraph 11 to be maintained by Tenant shall name Landlord, Mortgagee, and any other parties designated by Landlord as an additional insured and loss payee, shall be primary and noncontributing with any insurance which may be carried by Landlord, shall afford coverage for all claims based on any act, omission, event or condition that occurred or arose (or the onset of which occurred or arose) during the policy period, and shall expressly provide that Landlord, although named as an insured, shall nevertheless be entitled to recover under the policy for any 13 loss, injury or damage to Landlord. Tenant may carry such insurance under "blanket" policies, provided such policies expressly reserve an amount of coverage for the Premises equal to the amount required by this Lease. Upon the issuance of each such policy to be maintained by Tenant, Tenant shall deliver each such policy or a certified copy and a certificate thereof (Acord 27 form) to Landlord for retention by Landlord, provided that Tenant may deliver a certified copy of its existing policies to Landlord within thirty (30) days after the date hereof. Failure to properly maintain such insurance shall, without further notice, be an Event of Default under this Lease. Landlord shall have the right from time to time to effect insurance for the benefit of Tenant or Landlord or both of them and all premiums paid by Landlord shall be payable by Tenant as Additional Rent on demand. Tenant shall pay to Landlord, immediately upon demand all costs incurred by Landlord to obtain and maintain in effect the policies of insurance required under this paragraph 11 or otherwise required by Landlord. (g) Tenant waives on behalf of all insurers under all policies of property, liability and other insurance (excluding workers' compensation) now or hereafter carried by Tenant insuring or covering the Premises, or any portion or any contents thereof, or any operations therein, all rights of subrogation which any insurer might otherwise, if at all, have to any claims of Tenant against Landlord. Landlord waives on behalf of all insurers under all policies of property, liability and other insurance (excluding workers' compensation) now or hereafter carried by Landlord insuring or covering the Premises or any portion or any contents thereof, or any operations therein, all rights of subrogation which any insurer might otherwise, if at all, have to any claims of Landlord against Tenant. Tenant shall, prior to or immediately after the date of this Lease, procure from each of the insurers under all policies of property, liability and other insurance (excluding workers' compensation) now or hereafter carried by Tenant insuring or covering the Premises, or any portion or any contents thereof, or any operations therein, a waiver of all rights of subrogation which the insurer might otherwise, if at all, have to any claims of Tenant against Landlord as required by this paragraph 11(g). Tenant shall have the right to adjust losses under all policies of property insurance required by this Lease and Landlord shall have the right to participate in such process. If Tenant fails to adjust losses in a diligent manner, Landlord may, upon two (2) business days notice assume control of the adjustment process. (h) If required by any Mortgagee or upon written notice from Landlord following an Event of Default, Tenant shall pay to Landlord on the first day of each calendar month an amount equal to one twelfth (1/12) of the premiums for the insurance required by this paragraph 11, as reasonably estimated by Landlord on the basis of bills and estimates thereof. Such amounts shall be held by Landlord or Mortgagee, without interest, and shall not be deemed to be trust funds and may be commingled with the general funds of Landlord or Mortgagee. Landlord shall apply such amounts to the payment of the insurance premiums with respect to which such amounts were paid, subject to any rights of the Mortgagee thereto. Landlord shall make no charge for holding and applying such amounts. If at any time the amount on deposit pursuant to this paragraph shall be less than the amount deemed necessary by Landlord to pay such premiums as they become due, Tenant shall pay to Landlord the amount necessary to make the deficiency within five (5) days after notice from Landlord requesting payment thereof. Upon the expiration or termination of the term of this Lease (other than as a result of an Event of Default), Landlord shall promptly refund to Tenant any amount held by Landlord pursuant to this paragraph. (i) Landlord has informed Tenant that Landlord, or its affiliates, carries property insurance policies which meet or exceed the requirements for Tenant to carry with respect to the 14 Premises as set forth in this Lease. Upon Tenant's request, Landlord shall obtain, at Tenant's expense as Additional Rent (in accordance with Landlord's, or its affiliates', programs for other properties owned by other parties ("LANDLORD'S INSURANCE PROGRAM")), such property insurance on Tenant's behalf as of a mutually agreed upon, reasonable date and thereafter maintain such property insurance on Tenant's behalf until (1) Tenant notifies Landlord to cease causing such insurance to be so carried and (2) Tenant provides Landlord with copies of the property insurance policies which Tenant obtains to replace such Landlord's policies, which Tenant furnished policies must be in conformance with the requirements of this Lease. Tenant agrees to pay all such charges relating to such insurance carried by Landlord or its affiliates for the Premises. Additionally, Tenant shall obtain and maintain property insurance for the Premises in such amount and as otherwise required by any Mortgagee, either pursuant to a policy obtained by Tenant, or upon request as set forth above, through Landlord's Insurance Program, provided that in no event shall Tenant maintain or cause to be maintained property insurance for the Premises in an amount less than required by this Lease. 12. COMPLIANCE WITH LAWS, COVENANTS Tenant shall throughout the Term promptly comply or cause compliance with or remove or cure any violation of any and all present and future laws, including, without limitation, the Americans with Disabilities Act of 1990, as the same may be amended from time to time, ordinances (zoning or otherwise), orders, rules, regulations and requirements of all Federal, State, municipal and other governmental bodies having jurisdiction over the Premises and the appropriate departments, commissions, boards and officers thereof, and the orders, rules and regulations of the Board of Fire Underwriters where the Premises are situated, or any other body now or hereafter constituted exercising lawful or valid authority over the Premises, or any portion thereof, or the sidewalks, curbs, roadways, alleys or entrances adjacent or appurtenant thereto, or exercising authority with respect to the use or manner of use of the Premises, or such adjacent or appurtenant facilities, and whether the compliance, curing or removal of any such violation and the costs and expenses necessitated thereby shall have been foreseen or unforeseen, ordinary or extraordinary, and whether or not the same shall be presently within the contemplation of Landlord or Tenant or shall involve any change in governmental policy, or require structural or extraordinary repairs, alterations or additions by Tenant and irrespective of the amount of the costs thereof. Tenant, at its sole cost and expense, shall comply with all agreements, contracts, easements, restrictions, reservations or covenants, if any, running with the land or hereafter created by Tenant or consented to, in writing, by Tenant or requested, in writing, by Tenant. Tenant shall also comply with, observe and perform all provisions and requirements of all policies of insurance at any time in force with respect to the Premises and required to be obtained and maintained under the terms of paragraph 12 hereof and shall comply with all development permits issued by governmental authorities issued in connection with development of the Premises. If Tenant shall at any time fail to pay any Imposition in accordance with the provisions of paragraphs 6 or 26, or shall fail to make any other payment or perform any other act on its part to be made or performed hereunder, then Landlord, after ten (10) days prior written notice to Tenant (or without notice in situations where Landlord determines that delay is likely to cause harm to Landlord's interest in the Premises), and without waiving or releasing Tenant from any obligation of Tenant contained in this Lease, may, but shall be under no obligation to do so, (i) pay any Imposition payable by Tenant pursuant to this Lease; or 15 (ii) make any other payment or perform any other act on Tenant's part to be paid or performed hereunder, except that any time permitted to Tenant to perform any act required by this paragraph shall be extended for such period not to exceed 180 days as may be necessary to effectuate such performance, provided throughout such time Tenant is continuously, diligently and in good faith prosecuting such performance. Landlord may enter upon the Premises for any such purpose and take all such action therein or thereon as may be necessary therefor pursuant to this Section. All sums, reasonable under the circumstances, actually so paid by Landlord and all costs and expenses, including reasonable attorney's fees, incurred by Landlord in connection with the performance of any such act, together with interest thereon at the Overdue Rate and an administrative fee equal to 3% of all such costs and expenses, shall be paid by Tenant to Landlord on demand and submission of reasonable evidence of such expenditures. Landlord shall not be limited in the proof of any damages which Landlord may claim against Tenant arising out of or by reason of Tenant's failure to provide and keep in force insurance as aforesaid, to the amount of the insurance premium or premiums not paid or incurred by Tenant, and which would have been payable upon such insurance, but Landlord shall also be entitled to recover, as damages for such breach, the uninsured amount of any loss, damages, costs and expenses of suit, including reasonable attorney's fees, suffered or incurred by reason of damage to or destruction of the Premises, or any portion thereof or other damage or loss which Tenant is required to insure against hereunder, occurring during any period when Tenant shall have failed or neglected to provide insurance as aforesaid. 13. PARTIAL TAKING If less than substantially all of any Site shall be taken for public or quasi-public purposes, Tenant will promptly, at its sole cost and expense, restore, repair, replace or rebuild the improvements so taken in conformity with the requirements of paragraph 9 as nearly as practicable to the condition, size, quality of workmanship and market value thereof immediately prior to such taking, without regard to the adequacy of any condemnation award for such purpose. There shall be no abatement of Rent during such period of restoration. In performing its obligations, Tenant shall be entitled to all condemnation proceeds available to Landlord under the same terms and conditions for disbursement set forth for casualty proceeds in paragraph 10 hereof, including such proceeds being made available by Mortgagee. Tenant shall, at its sole cost and expense, negotiate and, if necessary, litigate, the amount of the award, and Landlord shall have the right to participate in such process, and if Tenant fails to diligently prosecute such efforts, Landlord may take control of the process. Any condemnation proceeds in excess of the amounts as are made available to Tenant for restoration or repair of the Premises, shall be the sole and exclusive property of Landlord. Tenant shall have the right to participate in condemnation proceedings with Landlord, and shall be entitled to receive any award made by the condemning authority in respect of business loss or, if available, business relocation and any other claim permitted by law which does not, in any such case, diminish Landlord's recovery. 14. SUBSTANTIAL TAKING If all or substantially all of any Site shall be taken for public or quasi-public purposes, and if Tenant determines that such event has rendered such Site unavailable for use or unsuitable for restoration for continued use and occupancy in Tenant's business, then Tenant, in lieu of 16 rebuilding as contemplated by paragraph 13, shall, not later than 90 days after such occurrence, deliver to Landlord (i) notice of its intention to terminate this Lease solely for that portion of the Premises constituting such taken Site on a date occurring not more than 95 days nor less than 60 days after such notice (the "SITE TERMINATION DATE"), (ii) a certificate by the president or a vice president of the general partner in Tenant describing the event giving rise to such termination, stating that such event has rendered such taken Site unavailable for use or unsuitable for restoration for continued use and occupancy in Tenant's business and that such termination will not violate any operating agreement or covenant then in effect, and (iii) an irrevocable offer to purchase any remaining portion of such taken Site and the related condemnation award at a price equal to the greater of (x) the price set forth on Exhibit H hereto plus any prepayment premium or breakage fees charged by Mortgagee, or (y) the fair market value (as determined in accordance with Exhibit F) of such Site, considered as encumbered by this Lease including assuming all Extension Terms have been exercised by Tenant and considered as not having been the subject of a condemnation. Landlord shall accept or reject such offer by notice given to Tenant not later than thirty (30) days after receipt of Tenant's notice, and if Landlord fails to act, it shall be deemed to have accepted the offer. If Landlord shall have accepted such offer or is deemed to have accepted such offer, (1) on the Site Termination Date, Landlord shall convey by special warranty deed to Tenant any remaining portion of the applicable Site in accordance with paragraph 29, along with the right to receive any related condemnation award to which Landlord is entitled, (2) this Lease shall no longer apply to such Site as of the Site Termination Date, except for liabilities which accrued prior thereto related to such condemned Site, (3) this Lease shall remain in full force and effect for the remaining Sites except that the Fixed Rent shall be reduced by the amount set forth on Exhibit I hereto, (4) Landlord and Tenant shall execute an amendment to this Lease clarifying the foregoing, which amendment shall be prepared by or on behalf of Landlord, and (5) Tenant shall pay all of Landlord's costs and expenses (including reasonable attorney's fees and expenses) related to all of the foregoing. If Landlord rejects such offer, as of the Site Termination Date, (1) this Lease shall no longer apply to such Site, except for liabilities which accrued prior thereto related to such condemned Site, (2) this Lease shall remain in full force and effect for the remaining Sites except that the Fixed Rent shall be reduced by the amount set forth on Exhibit I hereto, (3) Landlord and Tenant shall execute an amendment to this Lease clarifying the foregoing, which amendment shall be prepared by or on behalf of Landlord, and (4) Tenant shall pay all of Landlord's costs and expenses (including attorney's fees and expenses) related to all of the foregoing. 15. DEFAULT: Events of Default The occurrence of any one or more of the following events ("EVENT OF DEFAULT") shall constitute a breach of this Lease by Tenant: (a) Tenant fails to pay any Fixed Rent as and when such Fixed Rent becomes due, and such failure continues for five (5) days after written notice thereof, provided that if Tenant is more than five (5) days late in the payment of Fixed Rent in any twelve month period, any subsequent failure to pay Fixed Rent on or before its due date shall constitute an Event of Default after five (5) days without notice; (b) Tenant fails to pay any Additional Rent as and when such Additional Rent becomes due and payable and such failure continues for more than ten (10) days after Landlord gives written notice thereof to Tenant; 17 (c) A default occurs under paragraph 25, subletting/assignment; or (d) Tenant fails to perform or breaches any agreement or covenant of this Lease not separately covered in this paragraph 15 to be performed or observed by Tenant as and when performance or observance is due and such failure or breach continues for more than thirty (30) days after Landlord's giving written notice thereof to Tenant; provided, however, that if, by the nature of such agreement or covenant, such failure or breach cannot reasonably be cured within such period of thirty (30) days, an Event of Default shall not exist as long as Tenant commences with due diligence and dispatch the curing of such failure or breach within such period of ten (10) days and, having so commenced, thereafter prosecutes with diligence and dispatch and completes the curing of such failure or breach within a reasonable time not to exceed 180 days; or (e) Tenant or Guarantor (i) files, or consents by answer or otherwise to the filing against either Tenant or Guarantor of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy, insolvency or other debtors' relief law of any jurisdiction, (ii) makes an assignment for the benefit of either Tenant's or Guarantor's creditors, (iii) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers of Tenant or Guarantor or of any substantial part of Tenant's or Guarantor's property, or (iv) takes action for the purpose of any of the foregoing; or (f) A court or government authority enters an order, and such order is not vacated within forty-five (45) days, (i) appointing a custodian, receiver, trustee or other officer with similar powers with respect to Tenant or Guarantor or with respect to any substantial part of Tenant's or Guarantor's property, or (ii) constituting an order for relief or approving a petition for relief or reorganization or arrangement or any other petition in bankruptcy, insolvency or other debtors' relief law of any jurisdiction, or (iii) ordering the dissolution, winding-up or liquidation of Tenant or Guarantor; or (g) Guarantor defaults under the Guaranty from Guarantor to Landlord relating to this Lease; or (h) Intentionally Omitted; (i) Any representation or warranty of Tenant contained in any writing delivered to Landlord shall have been materially and adversely false as of the date it was made; or (j) This Lease or any estate of Tenant hereunder is levied upon under any attachment or execution and such attachment or execution is not vacated within thirty (30) days; or (k) Tenant shall abandon the Premises for one hundred eighty (180) days; (l) Any judgment or order for the payment of money in excess of $10,000,000 shall be rendered against Tenant and not paid within thirty (30) days after the right to appeal shall have expired. Landlord may treat the occurrence of any one or more of the foregoing Events of Default as a breach of this Lease. For so long as such Event of Default continues, Landlord, at its option and with or without notice or demand of any kind to Tenant or any other person, may have any 18 one or more of the remedies provided in this Lease, in addition to all other remedies and rights provided at law or in equity. 16. REMEDIES Upon the occurrence of an Event of Default, Landlord shall, in addition to, and not in derogation of any remedies for any preceding breach, with or without notice of demand (except as otherwise expressly provided herein) and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such Event of Default have all of the following remedies available: (a) Landlord shall have the right at any time to give a written termination notice to Tenant and, on the date specified in such notice, Tenant's right to possession shall terminate and this Lease shall terminate. Upon such termination, Landlord shall have the right to recover from Tenant: (i) The worth at the time of determination of all unpaid Rent which had been earned at the time of termination; (ii) The worth at the time of determination of the amount of all unpaid Rent for the balance of the term of this Lease after the time of termination; and (iii) All other amounts necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform all of Tenant's obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. The "worth at the time of determination" of the amounts referred to in clause (i) above shall be computed by allowing interest at the Overdue Rate. The "worth at the time of determination" of the amount referred to in clause (ii) above shall be computed by discounting such amount at the discount rate of the New York Federal Reserve Bank at the time of award. For the purpose of determining unpaid Rent under clause (i) and (ii) above, the Rent reserved in this Lease shall be deemed to be the total Rent payable by Tenant under paragraph 5 hereof. (b) Even though Tenant has breached this Lease, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to enforce all its rights and remedies under this Lease, including the right to recover all Rent as it becomes due under this Lease. Acts of maintenance or preservation or efforts to relet the Premises or the appointment of a receiver upon initiative of Landlord to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession unless written notice of termination is given by Landlord to Tenant. Landlord shall have unrestricted rights of entry for such purposes following an Event of Default. Landlord shall be entitled to an administrative fee of 5% of all amounts expended under this paragraph 16. (c) All agreements and covenants to be performed or observed by Tenant under this Lease shall be at Tenant's sole cost and expense and without any abatement of Fixed Rent or Additional Rent. If Tenant fails to pay any sum of money to be paid by Tenant or to perform any other act to be performed by Tenant under this Lease as and when due or required to be performed, Landlord shall have the right, but shall not be obligated, and without waiving or releasing Tenant from any obligations of Tenant, to make any such payment or to perform any 19 such other act on behalf of Tenant in accordance with this Lease. All sums so paid by Landlord and all necessary incidental costs shall be deemed Additional Rent hereunder and shall be payable by Tenant to Landlord on demand, together with interest on all such sums from the date of expenditure by Landlord to the date of repayment by Tenant at the Overdue Rate. Landlord shall have, in addition to all other rights and remedies of Landlord, the same rights and remedies in the event of the nonpayment of such sums (plus interest at the Overdue Rate) by Tenant as in the case of default by Tenant in the payment of Rent. (d) If Tenant abandons or surrenders the Premises or any portion thereof, including but not limited to either Site, or is dispossessed by process of law or otherwise, any movable furniture, equipment, trade fixtures or personal property belonging to Tenant and left in the Premises, or any portion thereof, including but not limited to either Site, or shall be deemed to be abandoned, at the option of Landlord, and Landlord shall have the right to sell or otherwise dispose of such personal property in any commercially reasonable manner. If Tenant abandons the Premises, Landlord shall have the right, but not the obligation, to sublet the Premises on reasonable terms for the account of Tenant, and Tenant shall be liable for all costs of such subletting, including without limitation the cost of preparing the Premises, or any portion thereof, including but not limited to either Site, or for subtenants and leasing commissions paid to brokers. 17. SUBORDINATION (a) Subordination, Non-Disturbance. Tenant agrees at any time hereafter, and from time to time within fifteen (15) days of written request of Landlord, to execute and deliver to Landlord at Landlord's election either (1) an instrument in the form customarily used by any institutional investor becoming a Mortgagee or (2) a subordination, non-disturbance and attornment agreement substantially in the form attached hereto as Exhibit D (in either such case, such instrument, release, document, or agreement is herein called the "SUBORDINATION AGREEMENT"), in either case subjecting and subordinating this Lease to the lien of any mortgage, deed of trust, security instrument, ground or underlying lease or other document of like nature (hereinafter collectively referred to as "SUPERIOR MORTGAGE") which at any time may be placed upon the Premises, or any portion thereof, by Landlord, and to any replacements, renewals, amendments, consolidations, modifications, extensions or refinancing thereof, and to each and every advance made under any Superior Mortgage. It is agreed, nevertheless, that so long as there exists no Event of Default, such Subordination Agreement shall not interfere with, hinder or reduce Tenant's right to quiet enjoyment under this Lease, nor the right of Tenant to continue to occupy the Premises, and all portions thereof, and to conduct its business thereon in accordance with the covenants, conditions, provisions, terms and agreements of this Lease. The costs of preparing and recording such document shall be borne by Landlord, but Tenant shall be responsible for its own counsel fees. (b) Mortgagee Protection Clause. In the event of any act or omission of Landlord constituting a default by Landlord, Tenant shall not exercise any remedy until Tenant has given Landlord and any Mortgagee of the Premises written notice of such act or omission, and until a reasonable period of time (not less than ten (10) business days nor more than forty-five (45) days) to allow Landlord or the Mortgagee to remedy such act or omission shall have elapsed following receipt of such notice. However, if such act or omission cannot, with due diligence and in good faith, be remedied within such period or cannot be cured simply by the payment of money, the 20 Landlord and the Mortgagee shall be allowed such further period of time as may be reasonably necessary provided that it commences remedying the same with due diligence and in good faith and thereafter diligently prosecutes such cure, provided such cure period shall not extend beyond 180 days after the notice of such default. Nothing herein contained shall be construed or interpreted as requiring any Mortgagee receiving such notice to remedy such act or omission. (c) Attornment. If any Mortgagee shall succeed to the rights of Landlord under this Lease or to ownership of the Premises, whether through possession or foreclosure or the delivery of a deed to the Premises in lieu of foreclosure, then such Mortgagee shall automatically be deemed to have recognized this Lease and to assume the obligations of Landlord hereunder accruing on and after the date such Mortgagee acquired title to the Premises, and Tenant shall attorn to and recognize such Mortgagee as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Mortgagee may reasonably request to evidence such attornment (whether before or after the making of the Mortgage). In the event of any other transfer of Landlord's interest hereunder, such transferee shall automatically be deemed to have recognized this Lease and to assume the obligations of Landlord hereunder accruing on and after the date of such transfer, Tenant shall attorn to and recognize such transferee as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such transferee and Landlord may reasonably request to evidence such attornment. (d) Consent. Upon fifteen (15) days' advance written notice, Tenant agrees to execute, acknowledge and deliver a document consenting to the assignment by Landlord of this Lease to a Mortgagee, in a form then in use among institutional lenders, with such changes therein as may be reasonably requested by the Mortgagee. 18. LANDLORD'S RIGHT OF ENTRY Landlord, Mortgagee, and their respective designees, shall have the right to enter the Premises at any time during normal business hours and any part of the Premises on three (3) days advance notice and to inspect the same, post notices of non-responsibility, monitor construction, perform appraisals, perform environmental site assessments and engineering studies, exhibit the Premises to prospective purchasers and mortgagees, and examine Tenant's books and records pertaining to the Premises, insurance policies, certificates of occupancy and other documents, records and permits in Tenant's possession with respect to the Premises, all of which shall be customary and adequate and reasonably satisfactory to Landlord. 19. NOTICES Notices, statements, demands, or other communications required or permitted to be given, rendered or made by either party to the other pursuant to this Lease or pursuant to any applicable law or requirement of public authority, shall be in writing (whether or not so stated elsewhere in this Lease) and shall be deemed to have been properly given, rendered, made and delivered, (i) when sent by certified mail, postage prepaid, return receipt requested, on the fifth (5th) day after deposit in such mail, or (ii) when received by overnight delivery or overnight courier delivery (or if such delivery is refused, the date of such refusal) or facsimile transmission with a confirmation copy sent by overnight delivery or by overnight courier delivery addressed to the other party as follows: 21 To Landlord: iStar Eagle LP c/o iStar Financial Inc. 1114 Avenue of the Americas 27th Floor New York, New York 10036 Attention: Chief Financial Officer Telephone: 212.930.9400 Fax: 212.930.9494 With copies to: iStar Eagle LP c/o iStar Financial Inc. 1114 Avenue of the Americas 27th Floor New York, New York 10036 Attention: General Counsel Telephone: 212.930.9400 Fax: 212.930.9494 and Katten Muchin Zavis 525 West Monroe Street 16th Floor Chicago, Illinois 60661-3693 Attention: Nina B. Matis, Esq. Gregory P. L. Pierce, Esq. Telephone: 312.902.5541 Fax: 312.902.1061 To Tenant: EGL Eagle Global Logistics, LP 15350 Vickery Drive Houston, Texas 77032 Attention: Jon Kennedy, Senior Vice President, Corporate Administration Telephone: 281.618.3309 Fax: 281.618.3399 With a copy to: Baker & Hostetler LLP 1000 Louisiana, Suite 2000 Houston, Texas 77002-5009 Attention: William C. Stroh, Esq. Telephone: 713.646.1369 Fax: 713.276.1626 Any party listed in this paragraph 19 may, by notices as aforesaid, designate a different address for addresses for notice, statements, demands or other communications intended for it. 22 20. ESTOPPEL CERTIFICATE; FINANCIAL DATA (a) At any time and from time to time, Tenant shall, within fifteen (15) days after written request by Landlord, execute, acknowledge and deliver to Landlord a certificate certifying: (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect as modified, and stating the date and nature of each modification); (b) the Commencement Date and the Expiration Date determined in accordance with paragraph 4 and the Basic Lease Information, and the date, if any, to which all Rent and other sums payable hereunder have been paid; (c) the amount of Fixed Rent currently payable quarterly, (d) that no written notice has been received by Tenant of any default by Tenant hereunder which has not been cured, except as to defaults specified in such certificate; (e) that Landlord is not in default under this Lease, except as to defaults specified in such certificate; and (f) such other matters as may be reasonably requested by Landlord or any actual or prospective purchaser or mortgage lender. Any such certificate may be relied upon by Landlord and any actual or prospective purchaser or mortgage lender of the Premises or any part thereof. (b) Tenant shall deliver to Landlord and to any lender or purchaser designated by Landlord the following information: within 90 days after the end of each fiscal year of Tenant, an audited balance sheet of Tenant and its consolidated subsidiaries as at the end of such year, an audited statement of profits and losses of Tenant and its consolidated subsidiaries for such year, and an audited statement of cash flows of Tenant and its consolidated subsidiaries for such year, setting forth in each case, in comparative form, the corresponding figures for the preceding fiscal year in reasonable detail and scope and certified by independent certified public accountants of recognized national standing selected by Tenant; and within 45 days after the end of each of the first three fiscal quarters of Tenant a balance sheet of Tenant and its consolidated subsidiaries as at the end of such quarter, statements of profits and losses of Tenant and its consolidated subsidiaries for such quarter and a statement of cash flows of Tenant and its consolidated subsidiaries for such quarter, setting forth in each case, in comparative form, the corresponding figures for the similar quarter of the preceding year, in reasonable detail and scope, and certified to be true and complete by a financial officer of Tenant having knowledge thereof; the foregoing financial statements all being prepared in accordance with generally accepted accounting principles, consistently applied. If and so long as Tenant is a reporting company under the Securities and Exchange Act of 1934, as amended, the foregoing requirements of this paragraph 20(b) will be satisfied by the delivery of Tenant's Forms 10-K, 10-Q and annual reports promptly upon their filing with the Securities and Exchange Commission. Together with the annual financial statements described above, Tenant shall deliver to Landlord an annual expense statement of the Premises, setting forth taxes, insurance, capital expenditures and utility expenses of the Premises in detail reasonably satisfactory to Landlord and certified to be true, complete and correct by an officer of Tenant. (c) Upon ten (10) days' prior notice, Tenant will permit Landlord and its professional representatives to visit Tenant's offices, and discuss Tenant's affairs and finances with appropriate officers, and will make available such information as Landlord may reasonably request bearing on the Tenant, the Premises or this Lease, provided that so long as Tenant's securities are publicly held, Landlord shall agree to maintain the confidentiality of any information designated by Tenant as "nonpublic". 23 (d) Landlord shall, without charge, at any time and from time to time, within twenty (20) days after request therefor by Tenant, execute, acknowledge and deliver, at no cost or other charge to Tenant, a written estoppel certificate certifying to Tenant, any lender or accountant of Tenant, any prospective assignee hereof (which assignment is permitted pursuant to the terms hereof), prospective subtenant of the Premises (which subtenancy is permitted pursuant to the terms hereof), or other Person acquiring all or part of Tenant's assets or capital stock (which acquisition is not deemed an assignment of this Lease or if deemed to be such an assignment is permitted pursuant to the terms hereof), or any other Person with which Tenant is contemplating a business arrangement, as of the date of such estoppel certificate, the following: (i) whether or not this Lease is unmodified and in full force and effect (or if there has been a modification, that the Lease is in full force and effect as modified and setting forth such modifications); (ii) whether or not the Term has commenced and the full rental is now accruing; (iii) the amounts of Fixed Rent currently due and payable by Tenant; (iv) whether or not any quarterly Fixed Rent has been paid more than thirty (30) days in advance of its due date; and (v) the address to which notices to Landlord should be sent. Any such certificate may be relied upon by any recipient thereof. 21. MECHANICS' LIENS (a) Except for liens created through the act of Landlord, Tenant shall not suffer or permit any mechanic's lien or other lien to be filed or recorded against the Premises, equipment or materials supplied or claimed to have been supplied to the Premises at the request of Tenant, or anyone holding the Premises, or any portion thereof, through or under Tenant. If any such mechanic's lien or other lien shall at any time be filed or recorded against the Premises, or any portion thereof, Tenant shall cause the same to be discharged of record within thirty (30) days after the date of filing or recording of the same. However, in the event Tenant desires to contest the validity of any lien it shall (i) on or before thirty (30) days prior to the due date thereof (but in no event later than 30 days after the filing or recording thereof), notify Landlord, in writing, that Tenant intends to so contest same; (ii) on or before the due date thereof, if such lien involves an amount in excess of $100,000 or if any Mortgagee so requires, deposit with Landlord security (in form and content reasonably satisfactory to Landlord or Mortgagee) for the payment of the full amount of such lien, and from time to time deposit additional security so that, at all times, adequate security will be available for the payment of the full amount of the lien together with all interest, penalties, costs and other charges in respect thereof. If Tenant complies with the foregoing, and Tenant continues, in good faith, to contest the validity of such lien by appropriate legal proceedings which shall operate to prevent the collection thereof and the sale or forfeiture of the Premises, or any part thereof, to satisfy the same, Tenant shall be under no obligation to pay such lien until such time as the same has been decreed, by court order, to be a valid lien on the Premises. Any surplus deposit retained by Landlord, after the payment of the lien shall be repaid to Tenant. Provided that nonpayment of such lien does not cause Landlord to be in violation of any of its contractual undertakings, Landlord agrees not to pay such lien during the period of Tenant's contest. However, if Landlord pays for the discharge of a lien or any part thereof from funds of Landlord, any amount paid by Landlord, together with all costs, fees and expenses in connection therewith (including reasonable attorney's fees of Landlord plus an administration fee equal to 5% of such costs and expenses), shall be repaid by Tenant to Landlord on demand by Landlord, together with interest thereon at the Overdue Rate. Tenant shall indemnify and defend Landlord against and save Landlord and the Premises, and any portion thereof, harmless from and against all losses, costs, 24 damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable attorney's fees, resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanic's lien or other lien or the attempt by Tenant to discharge same as above provided. (b) All materialmen, contractors, artisans, engineers, mechanics, laborers and any other Person now or hereafter furnishing any labor, services, materials, supplies or equipment to Tenant with respect to the Premises, or any portion thereof, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for the same. Notice is hereby given that Landlord shall not be liable for any labor, services, materials, supplies, skill, machinery, fixtures or equipment furnished or to be furnished to Tenant upon credit, and that no mechanic's lien or other lien for any such labor, services, materials, supplies, machinery, fixtures or equipment shall attach to or affect the estate or interest of Landlord in and to the Premises, or any portion thereof. (c) Tenant shall not create, permit or suffer, and, subject to the provisions of paragraph 21(a) hereof, shall promptly discharge and satisfy of record, any other lien, encumbrance, charge, security interest, or other right or interest which, as a result of Tenant's action or inaction contrary to the provisions hereof, shall be or become a lien, encumbrance, charge or security interest upon the Premises, or any portion thereof, or the income therefrom, other than Permitted Encumbrances. 22. END OF TERM (a) Upon the expiration or earlier termination of the Term of this Lease, Tenant shall surrender the Premises to Landlord in the good condition and repair as a first class facility suitable for the same use in which the Premises was originally intended as of the Commencement Date except repair as a first class facility and as repaired, rebuilt or altered as required or permitted by this Lease (or, in the case of termination pursuant to paragraph 14, as condemned), with the Equipment and Improvements, including but not limited to all systems and components thereof, having a useful life of at least 5 years as reasonably determined by Landlord, and Tenant shall surrender all keys to the Premises to Landlord at the place then fixed for notices to Landlord and shall inform Landlord of all combinations on locks, safes and vaults, if any. Except as otherwise provided herein, Tenant shall at such time remove all of its property (including Tenant's Trade Fixtures) therefrom, and, if so requested by Landlord, all alterations and improvements placed thereon by Tenant and not consented to by Landlord. Tenant shall repair any damage to the Premises caused by such removal, and any and all such property not so removed when required shall, at Landlord's option, become the exclusive property of Landlord or be disposed of by Landlord, at Tenant's cost and expense, without further notice to or demand upon Tenant. (b) If the Premises are not surrendered as above set forth, Tenant shall indemnify, defend and hold Landlord harmless from and against loss or liability resulting from the delay by Tenant in so surrendering Premises, including, without limitation, any claim made by any succeeding occupant founded on such delay. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this Lease. In addition to the foregoing, and in addition to the Additional Rent, Tenant shall pay to Landlord a sum equal to 150% of the Fixed Rent payable during the preceding year during each month or portion thereof for which Tenant shall remain in possession of the Premises or any part thereof after the 25 termination of the Term or of Tenant's rights of possession, whether by lapse of time or otherwise. The provisions of this paragraph 22(b) shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein, at law or at equity. (c) All property of Tenant not removed on or before the last day of the Term of this Lease shall be deemed abandoned. Tenant hereby agrees that Landlord may remove all property of Tenant, including Tenant's Trade Fixtures, from the Premises upon termination of this Lease and to cause its transportation and storage, all at the sole cost and risk of Tenant and Landlord shall not be liable for damage, theft, misappropriation or loss thereof and Landlord shall not be liable in any manner in respect thereto and Landlord shall be entitled to dispose of such property, as Landlord deems fit, without the requirement of an accounting. Tenant shall pay all costs and expenses of such removal, transportation and storage. Tenant shall reimburse Landlord upon demand for any expenses reasonably and actually incurred by Landlord with respect to removal or storage of abandoned property and with respect to restoring said Premises to good order, condition and repair. (d) Except for surrender upon the expiration or earlier termination of the Term hereof as expressly provided herein, no surrender to Landlord of this Lease or of the Premises shall be valid or effective unless agreed to and accepted in writing by Landlord. 23. ALTERATIONS (a) Tenant shall obtain Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed so long as the value or utility of the Premises in its current use is not diminished thereby, before making any change in the structure of the Improvements or any building system costing more than $100,000. Subject to the terms of the preceding sentence, Tenant may make alterations, additions or improvements to the Premises costing less than $200,000 without Landlord's consent only if (i) such alterations, additions or improvements will be in compliance with all applicable laws, codes, rules, regulations and ordinances, (ii) such alterations, additions or improvements will not reduce the fair market value or utility of the Premises in its current use, considered as unencumbered by this Lease, and (iii) such alterations, additions or improvements will not affect in any way the structural, exterior or roof elements of the Premises or mechanical, electrical, plumbing, utility or life safety systems of the Premises, but Tenant shall give prior written notice of any such alterations, additions or improvements to Landlord. In all other cases, Landlord's prior written consent shall be required which consent shall not be unreasonably withheld, conditioned, or delayed so long as the value or utility of the Premises in its current use is not diminished thereby. In no event shall Tenant be permitted to install underground storage tanks or fuel systems on the Premises. (b) All alterations, additions or improvements including those required to be made by paragraph 23(c) below, requiring Landlord's consent shall be made at Tenant's sole cost and expense as follows: (i) Tenant shall submit to Landlord, for Landlord's written approval, complete plans and specifications for all work to be done by Tenant. Such plans and specifications shall be prepared by the licensed architect(s) and engineer(s) approved in writing by Landlord, shall comply with all applicable codes, ordinances, rules and regulations, shall not adversely affect the structural elements of the Premises, shall be in a form sufficient to secure the 26 approval of all government authorities with jurisdiction over the Premises, and shall be otherwise satisfactory to Landlord in Landlord's reasonable discretion. (ii) Landlord shall notify Tenant in writing within thirty (30) days whether Landlord approves, approves on condition that Tenant reverse the alteration at Tenant's expense at the termination or expiration of this Lease, or disapproves such plans and specifications. Tenant may submit to Landlord revised plans and specifications for Landlord's prior written approval, which approval shall not be withheld or delayed if (a) the work to be done would not, in Landlord's reasonable judgment, adversely affect the value, character, rentability or usefulness of the Premises or any part thereof, or (b) the work to be done shall be required by any Law (hereinafter defined). Tenant shall pay all costs, including the fees and expenses of the licensed architect(s) and engineer(s), in preparing such plans and specifications. (iii) All changes (other than field changes for which no change order is proposed and which will be reflected in the final "as built" plans) in the plans and specifications approved by Landlord shall be subject to Landlord's prior written approval. If Tenant wishes to make such change in approved plans and specifications, Tenant shall have such architect(s) and engineer(s) prepare plans and specifications for such change and submit them to Landlord for Landlord's written approval. Landlord shall notify Tenant in writing promptly whether Landlord approves, approves on condition that Tenant reverse the alteration at Tenant's expense at the termination or expiration of this Lease, or disapproves such change. Tenant may submit to Landlord revised plans and specifications for such change for Landlord's written approval. After Landlord's written approval of such change, such change shall become part of the plans and specifications approved by Landlord. (iv) Tenant shall obtain and comply with all building permits and other government permits and approvals required in connection with the work. Tenant shall, through Tenant's licensed contractor, perform the work substantially in accordance with the plans and specifications approved in writing by Landlord. Tenant shall pay, as Additional Rent, the entire cost of all work (including the cost of all utilities, permits, fees, taxes, and property and liability insurance premiums in connection therewith) required to make the alterations, additions or improvements. Under no circumstances shall Landlord be liable to Tenant for any damage, loss, cost or expenses incurred by Tenant on account of any plans and specifications, contractors or subcontractors, design of any work, construction of any work, or delay in completion of any work. (v) Tenant shall give written notice to Landlord of the date on which construction of any work to be done by outside contractors will be commenced at least ten (10) days prior to such date. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Landlord may deem to be proper for the protection of Landlord and the Premises from liens, and to take any other action Landlord deems necessary to remove or discharge liens or encumbrances at the expense of Tenant. (vi) All alterations, additions, fixtures and improvements, whether temporary or permanent in character, made in or to the Premises by Tenant, shall become part of the Premises and Landlord's property, except those which are readily removable with causing material damage to the Premises (which shall be and remain the property of Tenant). Upon termination or expiration of this Lease, Tenant shall, at Tenant's expense, remove all movable 27 furniture, equipment, trade fixtures, office machines and other personal property (including Tenant's Trade Fixtures) from the Premises (but not the Improvements or Equipment) and repair all damage caused by such removal. Termination of this Lease shall not affect the obligations of Tenant pursuant to this paragraph 23(b) to be performed after such termination. 24. MEMORANDUM OF LEASE The parties agree to promptly execute a Memorandum of Lease in recordable form and either of the parties shall have the right, without notice to the other party, to record such Memorandum of Lease. 25. SUBLETTING/ASSIGNMENT (a) Tenant shall have the right to sublease at each Site not more than fifty percent (50%) of the rentable square footage of such Site without the prior consent of Landlord (a "PERMITTED SUBLEASE"), but subject to each other provision in this paragraph 25 applicable to subleases, provided that the use of the subleased space by the subtenant under such sublease would be permitted by Section 3 hereof. Tenant shall not, directly or indirectly, without the prior written consent of Landlord and Mortgagee, which Landlord consent shall be based upon the credit, management, type of business and reputation, and historical operations of any proposed assignee or subtenant, and which Mortgagee consent shall not be unreasonably withheld, delayed or conditioned, assign this Lease or any interest herein, or any interest in Tenant, or, other than pursuant to a Permitted Sublease, sublease the Premises or any part thereof, or permit the use or occupancy of the Premises by any Person other than Tenant. This Lease shall not, nor shall any interest herein, be assignable as to the interest of Tenant involuntarily or by operation of law without the prior written consent of Landlord. For purposes of this Lease, an assignment of Tenant's interest in this Lease shall be deemed to have occurred upon the occurrence of any of the following: (i) a merger or consolidation of Tenant with another entity ("Merger"), (ii) the change of the owners of 50% of more of voting securities or economic benefits and burdens (including distributions) of Tenant within any twelve month period ("CHANGE OF CONTROL"), or (iii) the sale of all or substantially all the assets of Tenant to any party, provided, however, no consent by Landlord shall be required to any assignment of this Lease caused by a Merger or Change of Control if the surviving Person in such Merger or the Person acquiring ownership or control in Tenant in such Change of Control, as applicable, has a Credit Rating of "A" or higher from both S&P and Moody's after such Merger or Change of Control. Notwithstanding the foregoing, Tenant shall be permitted to assign or sublet Tenant's interest in this Lease only if the following conditions are satisfied: (i) the assignee or subtenant is a (A) corporation, partnership, limited liability company or other entity which controls, is controlled by, or is under common control of Tenant or (B) a wholly-owned subsidiary or affiliate of Tenant within the meaning of such term as set forth in Rule 501 of Regulation D under the Federal Securities Act of 1933 and (ii) Tenant remains fully liable, as a primary obligor, under this Lease. Other than a subleasing pursuant to a Permitted Sublease, any of the foregoing acts without such prior written consent of Landlord and Mortgagee shall be void and shall, at the option of Landlord, constitute an immediate Event of Default that entitles Landlord to all remedies available at law and pursuant to this Lease. Tenant agrees that the instrument by which any assignment or sublease is accomplished shall expressly provide that the assignee or subtenant will perform all of the covenants to be performed by Tenant under this Lease (in the case of a 28 sublease, only insofar as such covenants relate to the portion of the Premises subject to such sublease) as and when performance is due after the effective date of the assignment or sublease and that Landlord will have the right to enforce such covenants directly against such assignee or subtenant. Any purported assignment or sublease without an instrument containing the foregoing provisions shall be void. Unless and until expressly released by Landlord, Tenant shall in all cases remain primarily liable (and not liable merely as a guarantor or surety) for the performance by any assignee or subtenant of all such covenants, as if no assignment or sublease had been made. (b) Tenant may complete the intended assignment or sublease subject to the following conditions: (i) Landlord consents in writing, if such consent is required, (ii) no assignment or sublease shall be valid and no assignee or subtenant shall take possession of the Premises or any part thereof until an executed duplicate original of such assignment or sublease, in compliance with paragraph 25(a), has been delivered to Landlord, and (iii) no assignee or subtenant shall have a right further to assign or sublease. (c) Unless and until expressly released by Landlord and Mortgagee, no assignment or sublease whatsoever shall release Tenant from Tenant's obligations and liabilities under this Lease (which shall continue as the obligations of a principal and not of a guarantor or surety) or alter the primary liability of Tenant to pay all Rent and to perform all obligations to be paid and performed by Tenant. The acceptance of Rent by Landlord from any other person or entity shall not be deemed to be a waiver by Landlord of any provision of this Lease. Consent to one assignment or sublease shall not be deemed consent to any subsequent assignment or sublease. If any assignee, subtenant or successor of Tenant defaults in the performance of any obligation to be performed by Tenant under this Lease, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments or subleases or amendments or modifications to this Lease with assignees, subtenants or successor of Tenant, without notifying Tenant or any successor of Tenant and without obtaining any consent thereto from Tenant or any successor of Tenant, and such action shall not release Tenant from liability under this Lease. (d) Tenant shall have no right to mortgage, grant a lien upon, encumber or otherwise finance Tenant's interest under this Lease (provided that Tenant may make a general pledge of all of its assets pursuant to its revolving credit line facility) or record a lien upon Tenant's interest in the Premises under this Lease, and Tenant shall not permit, cause or suffer to be recorded in the real estate records of the county in which the Premises are located any mortgage, deed of trust, assignment, UCC financing statement or any other document granting, perfecting, or recording a lien upon Tenant's interest in this Lease or interest in the Premises under this Lease. Tenant shall not give any notice, or permit or cause any other party to give any notice, to Landlord of any existing lien on or security interest in Tenant's interest in this Lease or interest in the Premises under this Lease. Tenant shall not request that Landlord execute (nor shall Landlord have any obligation to execute) any non-disturbance, attornment or any other agreement in favor of any party transacting any business or transaction with or related to Tenant. 26. HAZARDOUS MATERIAL (a) Tenant acknowledges receipt of (i) the Phase I environmental site assessment and environmental compliance review of EMG of Baltimore, MD, dated December 13, 2001 with 29 respect to the Corporate Headquarters (ii) the Phase I environmental site assessment of EMG of Baltimore, MD, dated December 13, 2001 with respect to the Distribution Facility (collectively, the "ENVIRONMENTAL REPORTS"). Tenant (i) shall comply, and cause the Premises to comply, with all Environmental Laws (as hereinafter defined) applicable to the Premises (including the making of all submissions to governmental authorities required by Environmental Laws and the carrying out of any remediation program specified by such authority), (ii) shall prohibit the use of the Premises for the generation, manufacture, refinement, production, or processing of any Hazardous Material (as hereinafter defined) or for the storage, handling, transfer or transportation of any Hazardous Material (other than in connection with the operation, business and maintenance of the Premises and in commercially reasonable quantities as a consumer thereof and supplier of consumer products and in compliance with Environmental Laws), (iii) shall not permit to remain, install or permit the installation on the Premises of any surface impoundments, underground storage tanks, pcb-containing transformers or asbestos-containing materials, and (iv) shall cause any alterations of the Premises to be done in a way so as to not expose in an unsafe manner the persons working on or visiting the Premises to Hazardous Materials and in connection with any such alterations shall remove any Hazardous Materials present upon the Premises which are not in compliance with Environmental Laws or which present a danger to persons working on or visiting the Premises. (b) "ENVIRONMENTAL LAWS" means the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. ss.ss.6901, et seq. (RCRA), as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. ss.ss.9601 et seq. (CERCLA), as amended, the Toxic Substance Control Act, as amended, 15 U.S.C. ss.ss.2601 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, as amended, 7 U.S.C. ss.ss.136 et seq., and all applicable federal, state and local environmental laws, ordinances, rules and regulations, as any of the foregoing may have been or may be from time to time amended, supplemented or supplanted, and any other federal, state or local laws, ordinances, rules and regulations, now or hereafter existing relating to regulations or control of Hazardous Material or materials. The term "Hazardous Materials" as used in this Lease shall mean substances defined as "hazardous substances", "hazardous materials", "hazardous wastes" or "toxic substances" in any applicable federal, state or local statute, rule, regulation or determination, including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss.ss.9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss.1801, et seq.; the Resource, Conservation and Recovery Act of 1976, 42 U.S.C. ss.ss.6901, et seq.; and, asbestos, pcb's, radioactive substances, methane, volatile hydrocarbons, petroleum or petroleum-derived substances or wastes, radon, industrial solvents or any other material as may be specified in applicable law or regulations. (c) Tenant agrees to protect, defend, indemnify and hold harmless Landlord, its members, directors, officers, employees and agents, and any successors to Landlord's interest in the chain of title to the Premises, their direct or indirect members, partners, directors, officers, employees, and agents (collectively, the "INDEMNIFIED PARTNER"), from and against any and all liability, including all foreseeable and all unforeseeable damages including but not limited to attorney's and consultant's fees, fines, penalties and civil or criminal damages, directly or indirectly arising out of the use, generation, storage, treatment, release, threatened release, discharge, spill, presence or disposal of Hazardous Materials from, on, at, to or under the Premises prior to or during the Term of this Lease, and including, without limitation, for all 30 matters disclosed in the Environmental Reports, and the cost of any required or necessary repair, response action, remediation, investigation, cleanup or detoxification and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following transfer of title to the Premises. This agreement to indemnify and hold harmless shall be in addition to any other obligations or liabilities Tenant may have to Landlord at common law under all statutes and ordinances or otherwise, and shall survive following the date of expiration or earlier termination of this Lease for two (2) years, except where the event giving rise to the liability for which indemnity is sought arises out of Tenant's acts, in which case the agreement to indemnify shall survive the expiration or termination of this Lease without limit of time. Tenant expressly agrees that the representations, warranties and covenants made and the indemnities stated in this Lease are not personal to Landlord, and the benefits under this Lease may be assigned to subsequent parties in interest to the chain of title to the Premises, which subsequent parties in interest may proceed directly against Tenant to recover pursuant to this Lease. Tenant, at its expense, may institute appropriate legal proceedings with respect to environmental matters of the type specified in this paragraph 26(c) or any lien for such environmental matters, not involving Landlord or its Mortgagee as a defendant (unless Landlord or its mortgagee is the alleged cause of the damage), conducted in good faith and with due diligence, provided that such proceedings shall not in any way impair the interests of Landlord or Mortgagee under this Lease or contravene the provisions of any First Mortgage. Counsel to Tenant in such proceedings shall be reasonably approved by Landlord if Landlord is a defendant in the same proceeding. Landlord shall have the right to appoint co-counsel, which co-counsel will cooperate with Tenant's counsel in such proceedings. The fees and expenses of such co-counsel shall be paid by Landlord, unless such co-counsel are appointed because the interests of Landlord and Tenant in such proceedings, in such counsel's opinion, are or have become adverse, or Tenant or Tenant's counsel is not conducting such proceedings in good faith or with due diligence. (d) Tenant, upon two (2) days prior notice shall permit such persons as Landlord or any assignee of Landlord may designate and (unless an Event of Default has occurred and is continuing) approved by Tenant, which approval shall not be unreasonably withheld or delayed ("SITE REVIEWERS"), to visit the Premises from time to time and perform environmental site investigations and assessments ("SITE ASSESSMENTS") on the Premises for the purpose of determining whether there exists on the Premises any environmental condition which may result in any liability, cost or expense to Landlord or any other owner or occupier of the Premises. Such Site Assessments may include both above and below the ground testing for environmental damage or the presence of Hazardous Material on the Premises and such other tests on the Premises as may be necessary to conduct the Site Assessments in the reasonable opinion of the Site Reviewers. Tenant shall supply to the Site Reviewers such historical and operational information regarding the Premises as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments (other than information previously supplied in writing to Landlord by Tenant) and shall make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. The cost of performing and reporting all Site Assessments shall be paid by Landlord unless an Event of Default has occurred and is continuing or unless the Site Reviewers discover an environmental condition causing the Premises not to be in compliance with applicable Environmental Laws, in either of which events such cost will be paid by Tenant within ten (10) days after demand by Landlord with interest to accrue at the Overdue Rate. Landlord, promptly after written request by Tenant and payment by Tenant to the extent required as aforesaid, shall deliver to Tenant copies of reports, summaries or other compilations of the results of such Site Assessments. Tenant's sole remedy for Landlord's breach of the 31 preceding sentence shall be a mandatory injunction, and not a termination of this Lease or a withholding or reduction of Rent. (e) Tenant shall notify Landlord in writing, promptly upon Tenant's learning thereof, of any: (i) notice or claim to the effect that Tenant is or may be liable to any Person as a result of the release or threatened release of any Hazardous Material into the environment from the Premises; (ii) notice that Tenant is subject to investigation by any governmental authority evaluating whether any remedial action is needed to respond to the release or threatened release of any Hazardous Material into the environment from the Premises; (iii) notice that the Premises are subject to an environmental lien; and (iv) notice of violation to Tenant or awareness by Tenant of a condition which might reasonably result in a notice of violation of any applicable Environmental Law that could have a material adverse effect upon the Premises. (f) As soon as reasonably possible after Tenant vacates and surrenders exclusive possession of any Site to Landlord, Landlord and Tenant shall engage a firm acceptable to each party to conduct an environmental assessment satisfactory to Landlord (including without limitation a Phase I, and if necessary, a Phase II site assessment), at Tenant's sole cost and expense, of the applicable Site to establish to Landlord's and Tenant's satisfaction the then existing environmental condition of such Site. 27. FINANCING (a) Landlord may assign this Lease to any Mortgagee. Tenant shall execute, acknowledge and deliver any documents reasonably requested by Landlord or Mortgagee relating to such assignment of the Lease or the Mortgage financing. (b) If Landlord proposes to refinance any Mortgage, Tenant shall cooperate in the process, and shall negotiate in good faith any request made by a prospective Mortgagee for changes or modifications to this Lease, and shall not unreasonably withhold its consent to any such proposed change or modification so long as the same does not adversely affect any significant right of Tenant under this Lease or increase Tenant's obligations under this Lease. Tenant agrees to execute, acknowledge and deliver documents reasonably requested by the prospective Mortgagee (such as a consent to the financing (without encumbering Tenant's assets), a consent to assignment of lease, and a subordination, non-disturbance and attornment agreement meeting the standards set forth in paragraph 17) customary for tenants to sign in connection with mortgage loans to their landlords, so long as such documents are in form then customary among institutional lenders (provided the same do not adversely change Tenant's rights or obligations in a way not previously changed by loan documents previously executed by Tenant in connection with an earlier Mortgage). (c) Tenant shall permit Landlord and any Mortgagee or prospective Mortgagee, at their expense, to meet with management personnel of Tenant at Tenant's offices and to discuss 32 the Tenant's business and finances. On request of Landlord, Tenant agrees to provide any Mortgagee or prospective Mortgagee the information to which Landlord is entitled hereunder. If any such information is non-public and designated as such by Tenant, Landlord will take reasonable steps to assure the confidentiality of such information. 28. MISCELLANEOUS PROVISIONS (a) This Lease and all of the covenants and provisions hereof shall inure to the benefit of, and be binding upon, the parties hereto and the heirs, personal representatives, successors and permitted assigns of the parties. (b) The titles and headings appearing in this Lease are for reference only and shall not be considered a part of this lease or in any way to modify, amend or affect the provisions thereof. (c) This Lease contains the complete agreement of the parties with reference to the leasing of the Premises, and may not be amended except by an instrument in writing signed by Landlord and Tenant and consented by Mortgagee (if any). (d) Any provision or provisions of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof, and the remaining provisions hereof shall nevertheless remain in full force and effect. (e) This Lease may be executed in one or more counterparts, and may be signed by each party on a separate counterpart, each of which, taken together, shall be an original, and all of which shall constitute one and same instrument. (f) The term "Landlord" as used in this Lease shall mean only the owner or owners at the time in question of the Premises and in the event of any transfer of such title or interest, Landlord named in this Lease (and in case of any subsequent transfers, then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Landlord's obligations thereafter to be performed hereunder, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Landlord shall, subject as aforesaid, be binding on Landlord's successors and assigns, only during their respective periods of ownership. (g) This Lease shall be governed by and construed and enforced in accordance with and subject to the laws of the state where the Premises are located. (h) Any claim based on or in respect of any liability of Landlord under this Lease shall be enforced only against the Premises and not against any other assets, properties or funds of (1) Landlord or any director, officer, member, shareholder, general partner, limited partner, or direct or indirect member, partner, employee or agent of Landlord or any of its members (or any legal representative, heir, estate, successor or assign of any thereof), (2) any predecessor or successor partnership, corporation or limited liability company (or other entity) of Landlord or any of its members, either directly or through Landlord or its predecessor or successor partnership, corporation of limited liability company (or other Person) of Landlord or its general partners, and (3) any other person. 33 (i) Without the written approval of Landlord and Tenant, no Person other than Landlord (including its direct and indirect partners), Mortgagee, Tenant and their respective successors and assigns shall have any rights under this Lease. (j) There shall be no merger of the leasehold estate created hereby by reason of the fact that the same Person may own directly or indirectly, (1) the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (2) the fee estate in the Premises. Notwithstanding any such combined ownership, this Lease shall continue in full force and effect until terminated by an instrument executed by both Landlord and Tenant. (k) Whenever in this Lease either party is required to take an action within a particular time period, delays caused by acts of God, war, major casualty, strike, labor shortage or other cause beyond the reasonable control of such party shall not be counted in determining the time in which such performance must be completed (except in the case of the obligation to pay money) so long as such party shall, promptly after the commencement of such delay, shall give the other party notice thereof and estimating the duration thereof. (l) If at any time a dispute shall arise as to any amount to be paid by one party to the other hereunder, the obligor may make payment "under protest", and such payment shall not be deemed a voluntary payment, and the right of the obligor to contest its liability for such payment shall survive such payment. (m) Landlord and Tenant each represent that they have dealt with no broker, finder or other person who could legally charge a commission in connection with Landlord's acquisition of the Land or with the Lease other than The Staubach Company whose commission is the sole responsibility of Tenant. (n) Tenant hereby represents and warrants to Landlord as of the date hereof and covenants to Landlord that throughout the Term of this Lease: (a) Tenant is and shall continue to be organized solely for the purpose of leasing and operating the Premises, (b) Tenant has not and will not engage in any business unrelated to the leasing and operation of the Premises, and (c) Tenant has not had and will not have assets other than those related to the Premises. 29. PURCHASE PROCEDURE (a) In the event of the purchase of the Premises or any Site by Tenant pursuant to any provision of this Lease, Landlord need not transfer and convey to Tenant or its designee any better title thereto than that which was transferred and conveyed to Landlord, and Tenant (or its designee) shall accept such title, subject, however, to all liens, exceptions and restrictions on, against or relating to the Premises or any Site and to all applicable laws, but free of the lien of and security interest created by the Mortgage and liens, exceptions and restrictions on, against or relating to any of the Premises or any Site which have been created by or resulted solely from acts of Landlord, unless the same were created with the consent of Tenant or as a result of a default by Tenant under this Lease or are otherwise the responsibility of the Tenant hereunder. Execution by Tenant of a consent to financing and a nondisturbance agreement pursuant to paragraph 27 shall not constitute the consent of Tenant to a mortgage or other lien securing such financing for purposes of this paragraph 29. 34 (b) Upon the date fixed for any such purchase of the Premises or any Site pursuant to any provision of this Lease, Tenant shall pay to Landlord or to any Person to whom Landlord directs payment, at Landlord's address set forth above, or at any other place designated by Landlord, the applicable purchase price therefor specified herein, in federal or other immediately available funds which at the time of such payment shall be legal tender for the payment of public or private debts in the United States of America, less any credits of the net awards or net proceeds allowed against the applicable purchase price pursuant to the provisions of paragraph 14, and Landlord shall thereupon deliver to Tenant (i) a special warranty deed which describes any of the Premises or such Site, as applicable, then being sold to Tenant and conveys and transfers the title thereto which is described in paragraph 29(a), (ii) such other instruments as shall be necessary to transfer to Tenant or its designee any other property (or rights to any net proceeds or net award not yet received by Landlord, if applicable) then required to be transferred or sold by Landlord pursuant to this Lease, and (iii) any net award or net proceeds received by Landlord, if applicable, not credited to Tenant against the applicable purchase price and required to be delivered by Landlord to Tenant pursuant to this Lease. Additionally, Landlord and Tenant shall execute an amendment to this Lease to reflect such change in the Premises and Rent. Tenant shall pay all charges incident to such conveyance and transfer, including Landlord's reasonable counsel fees, escrow fees, recording fees, brokerage fees, title insurance or guarantee premiums and all applicable federal, state and local real estate transfer taxes or deed stamps which may be incurred or imposed by reason of such conveyance and transfer and/or by reason of the delivery of said deed and other instruments. Only upon the completion of Tenant's purchase of all of the Premises, including all Sites, , but not prior thereto, this Lease and all obligations hereunder shall terminate (including the obligations to pay Rent), except any obligations and liabilities of Tenant, actual or contingent, under this Lease, which (a) arose on or prior to such date or purchase or (b) survive termination of this Lease. In the event that the completion of such purchase shall be delayed other than through the sole fault of Landlord, then the applicable purchase price payable by Tenant upon the purchase of the Premises or any Site pursuant to any provisions of this Lease shall, at Landlord's sole option, be determined as of the actual date of such purchase by Tenant, provided that Tenant shall have paid to Landlord all Rent due and payable hereunder to and including such date. Any prepaid Fixed Rent or other prepaid sums paid to Landlord shall be prorated as of the date the purchase is completed, and the prorated unapplied balance shall be deducted from the applicable purchase price due to Landlord. No apportionment of any Impositions shall be made upon such purchase, Tenant being liable for payment thereof during the Term as Tenant and being liable thereafter as owner. (c) In the event of the purchase of the Premises or any Site by Tenant pursuant to any provision of this Lease, Tenant shall, on the date of the closing of such purchase, pay to Landlord (in addition to payment of the applicable purchase price) all Rent and other sums then due and owing by Tenant to Landlord hereunder as of the date of the closing of such purchase. 30. TEXAS PROVISIONS The following provisions shall apply with respect to the Site(s) located in the State of Texas: Tenant hereby waives any and all liens (whether statutory, contractual or constitutional) it may have or acquire as a result of a breach by Landlord under this Lease. Tenant also waives and 35 releases any statutory lien and offset rights it may have against Landlord, including without limitation the rights conferred upon Tenant pursuant to Section 91.004 of the Texas Property Code, as amended or superseded from time to time, or other applicable law. [SIGNATURE PAGE FOLLOWS] 36 IN WITNESS WHEREOF, the parties have hereunto set their hands under seal on the day and year first above written. LANDLORD: iSTAR EAGLE LP, a Delaware limited partnership By: iStar Eagle GenPar LLC, a Delaware limited liability company, its general partner By: SFT II, Inc., a Delaware corporation, its sole member By: ______________________________________ Name: ____________________________________ Title: ___________________________________ TENANT: EGL EAGLE GLOBAL LOGISTICS, LP, a Delaware limited partnership By: EGL Management, LLC, a Delaware limited liability company, its general partner By: ______________________________________ Name: ____________________________________ Title: ___________________________________ 37 EXHIBIT A -1 Legal Description for Houston Site 1 Being a tract of land containing 23.5513 acres (1,025,892 square feet) situated in the E.F. Marshall Survey, A-1316 and in the W.H. Lloyd Survey A-1407 in Harris County, Texas, also being described as Block 1, Restricted Reserve "A", Eagle USA, a subdivision recorded in File No. 386032 of the Map Records of Harris County, Texas. Said 23.5513-acre tract being more particularly described by metes and bounds as follows. BEGINNING at a found 5/8-inch iron rod with cap located in a curve to the right in the east right-of-way line of Vickery Drive (width varies) for the northwest corner of said Eagle USA and the southwest corner of Rusovich Limited Partnership, a subdivision recorded in File No. 360057 of the Map Records of Harris County, Texas; THENCE South 75(degree) 14' 12" East with the south line of said Rusovich Limited Partnership subdivision, a distance of 886.36 feet to a point for the southeast corner of said Rusovich Limited Partnership subdivision and an angle point in the north line of said tract herein described, from which a found 1/2-inch iron rod bears South, 0.8 feet and East, 0.2 feet; THENCE North 02(degree) 51' 27" West with the east line of said Rusovich Limited Partnership subdivision, a distance of 333.76 feet to a point located in the south line of Block 3, Unrestricted Reserve "F", World Houston International Business Center, Section One, a subdivision recorded in Volume 278, Page 25 of the Map Records of Harris County, Texas, and for the easternmost northwest corner of said tract herein described, from which a found 3/8-inch iron rod bears South, 0.4 feet and East 0.4 feet; THENCE North 86(degree) 58' 50" East with the south line of said Unrestricted Reserve "F", a distance of 537.04 feet to a point located in the west line of Farmstead Acres Subdivision, as recorded in Volume 21, Page 5 of the Map Records of Harris County, Texas, for the southeast corner of said Unrestricted Reserve "F" and the northeast corner of said tract herein described, from which a found 5/8-inch iron rod bears South, 2.3 feet and West, 0.1 feet; THENCE South 02(degree) 45' 06" East with the west line of said Farmstead Acres Subdivision, a distance of 8.03 feet to 5/8 inch iron rod with cap set for an angle point in the east line of said tract herein described; THENCE South 02(degree) 55' 40" East with the west line of said Farmstead Acres Subdivision, a distance of 389.86 feet to a point located in the north line of Edwards Street (60 feet wide) and the beginning of a curve to the right, for a corner in the east line of said tract herein described and for the beginning of a cul-de-sac, from which a found 3/4-inch iron pipe bears South, 1.2 feet and East, 2.4 feet; THENCE in a northwesterly direction with the north right-of-way line of said Edwards Street and said curve to the right whose radius is 25.00 and central angle is 42(degree) 50' 23" (chord bears North 71(degree) 30' 40" West, a distance of 18.26 feet) for a curve length of 18.69 feet to a set A-1-1 5/8-inch iron rod with cap, for the beginning of a curve to the left and corner of said tract herein described; THENCE in a southeasterly direction with the north right-of-way line of said Edwards Street and said curve to the left whose radius is 50.00 feet and central angle is 265(degree) 40' 21" (chord bears South 02(degree) 55' 40" East, a distance of 73.33) for a curve length of 231.84 feet to a set 5/8-inch iron rod located in the south right-of-way line of said Edwards Street, for the beginning of a curve to the right and corner of said tract herein described; THENCE in a northeasterly direction with the south right-of-way line of said Edwards Street and said curve to the right whose radius is 25.00 feet and whose central angle is 42(degree) 50' 23" (chord bears North 65(degree) 39' 20" East, a distance of 18.26 feet) for a curve length of 18.69 feet to a point in the west line of said Farmstead Acres Subdivision, for corner of said tract herein described, from which a found 1/2-inch iron rod bears South 2.0 feet, and East 0.6 feet; THENCE South 02(degree) 55' 40" East with the west line of said Farmstead Acres Subdivision, a distance of 361.45 feet to a set 5/8-inch iron rod with cap located in the north line of a 150 foot wide easement as conveyed unto Houston Lighting & Power Company by deed recorded in Volume 1440, Page 246 of the Deed Records of Harris County, Texas, for the southeast corner of said tract herein described; THENCE South 84(degree) 11' 24" West with the north line of said 150-foot wide easement, a distance of 1416.78 feet to a point located in the east right-of-way line of said Vickery Drive, for the southwest corner of said tract herein described from which a found 5/8-inch iron rod bears South 0.5 feet; THENCE North 02(degree) 46' 58" West with the east right-of-way line of said Vickery Drive, a distance of 479.79 feet to a set 5/8-inch iron rod for the beginning of a curve to the right and a corner in the west line of said tract herein described; THENCE in a northeasterly direction with the east right-of-way line of said Vickery Drive and said curve to the right whose radius is 1940.00 feet and whose central angle is 10(degree) 15' 42" (chord bears North 02(degree) 20' 53" East, a distance of 346.99 feet) for a curve length of 347.45 feet to the POINT OF BEGINNING and containing 23.5513 acres (1,025,892 square feet) of land more or less. 2 EXHIBIT A-2 Legal Description for Houston Site 4 All that certain 14.0314 acres of land out of that certain 14.0339 acre tract described in the deed dated October 10, 2000, from Houston D. & F., Ltd. (f/k/a D. & F., Ltd.) and William R. Durrill, Jr., as Successor Trustee of the Trust created under the Will of Paul W. Drummet, deceased to EGL Eagle Global Logistics, LP, recorded at Clerk File No. U674628, Film Code No. 535-17-3281, of the Official Public Records of Real Property of Harris County, Texas, out of Eagle Global Logistics, according to the plat thereof recorded at Film Code No. 475078, of the Map Records of Harris County, Texas, out of the Mary E. Colby Survey, A-1649 and the W. C. R. R. Company Survey, A-1078, Houston, Harris County, Texas and being more particularly described by metes and bounds as follows: BEGINNING at a found 1-1/2" aluminum disk in concrete marking the southeast corner of said Eagle Global Logistics located in the west right-of-way line of Vickery Drive (Width Varies) (called 3.92 acre tract) described in the deed dated July 19, 1978, from William G. Thompson, Trustee to Public dedication of street easement, recorded at Clerk File No. F-747174, Film Code No. 104-99-2222, of the Official Public Records of Real Property of Harris County, Texas; THENCE S 84(Degree) 13' 06" W - 330.29', with the north line of that certain called 1.137 acre tract described in the deed dated January 30, 1975, from Paul W. Drummet to Houston Lighting & Power Company, recorded at Clerk File No. E-373341, Film Code No. 116-20-1491, of the Official Public Records of Real Property of Harris County, Texas, to a found 5/8" iron rod for corner; THENCE N 02(Degree) 09' 42" W - 49.60', with the east line of that certain called 3.889 acre tract described in the deed dated July 25, 1978, from Joe Price, Trustee to World/Houston, Inc., recorded at Clerk File No. F-710988, Film Code No. ###-##-####, of the Official Public Records of Real Property of Harris County, Texas, to a found 5/8" iron rod for corner; THENCE S 86(Degree) 10' 29" W - 453.01', with the north line of said 3.889 acre tract and the north line of that certain called 120' Public Drainage Easement recorded at Clerk File No. F-737749, Film Code No. 104-87-1904, of the Official Public Records of Real Property of Harris County, Texas, to a found 1" iron pipe for corner; THENCE N 03(Degree) 01' 19" W - 790.41', with the west right-of-way line of the Public Drainage Easement recorded at Clerk File No. F-737748, Film Code No. ###-##-####, of the Official Public Records of Real Property of Harris County, Texas, and its extension, to a found 5/8" iron rod with cap for corner in the south right-of-way line of World/Houston Parkway (110' Wide) a called 3.359 acre tract described in the document dated February 6, 1979, from Robert P. Kelley to Public Dedication of Street Easement, recorded at Clerk File No. F985072, Film Code No. ###-##-####, of the Official Public Records of Real Property of Harris County, Texas; THENCE N 87(Degree) 39' 30" E - 252.70', with said south right-of-way line of World Houston Parkway, to a found 5/8" iron rod with cap for a Point of Curvature of a curve to the right having a central angle of 08(Degree) 11' 45" and a radius of 1,145.00'; A-2-1 THENCE continuing with said south right-of-way line of World/Houston Parkway and said curve to the right for an arc distance of 163.79', to a found 5/8" iron rod with cap for the Point of Tangency; THENCE S 84(Degree) 08' 45" E - 358.96', continuing with said south right-of-way line of World/Houston Parkway, to a set 5/8" iron rod with cap marking a cutback corner; THENCE S 43(Degree) 27' 51" E - 22.75', with said cutback line, to a set 5/8" iron rod with cap for a cutback corner in the aforementioned west right-of-way line of Vickery Drive; THENCE S 02(Degree) 46' 58" E - 728.43', with said west right-of-way line of Vickery Drive, to the POINT OF BEGINNING of the herein described tract and containing 14.0314 acres (611,206 square feet) of land, more or less. 2 EXHIBIT A-3 Legal Description for Distribution Facility Lot 2, Block 1, Upland Park II Subdivision Filing No. 9, County of Adams, State of Colorado. A-3-1 EXHIBIT A-4 Improvements CORPORATE HEADQUARTERS - HOUSTON, TEXAS The Houston Corporate Headquarters consists of the following buildings divided into two sites. HOUSTON SITE 1 The following Buildings are situated on a 23.5513 acre site in Houston, Harris County, Texas: Building One is a 135,279 square foot single story industrial facility located at 15350 Vickery Road in Houston, Harris County, Texas. Building Two is a 102,060 square foot single story industrial facility located at 15370 Vickery Road in Houston, Harris County, Texas. Building Three is a 96,136 square foot single story industrial facility located at 15390 Vickery Road in Houston, Harris County, Texas. Houston Site 1 also includes a Parking Garage and 385 striped parking spaces. HOUSTON SITE 4 Building Four is a 132,000 square foot single story industrial facility situated on a 14.0314-acre site located in the 15400 block of Vickery Road in Houston, Harris County, Texas. DISTRIBUTION FACILITY - AURORA, COLORADO The Distribution Facility is an 84,973 square foot single story office/warehouse building situated on a 4.83-acre site in the City of Aurora, Adams County, Colorado. The Distribution Facility also includes 84 striped parking stalls. A-4-1 EXHIBIT B Equipment The machinery and equipment which is attached to the improvements in such a manner as to become fixtures under applicable law, together with all additions and accessions thereto, substitutions therefor and replacements thereof permitted by this Lease, excepting therefrom Tenant's Trade Fixtures. B-1 EXHIBIT C Permitted Encumbrances Houston Site 1: 1. Restrictions recorded in Volume 278, Page 25 of the Map Records of Harris County, Texas, and under County Clerk's File No.(s) filed for record under Film Code No(s) 386032 of the Map Records of Harris County, Texas. Restrictions filed for record under Harris County Clerk's File No(s). F934983, refiled F944735 and amended under Clerk's File No(s). G698447 and P500092 of the Official Public Records of Real Property of Harris County, Texas, but omitting any covenant or restriction based on race, color, religion, sex, handicap, familial status or national origin unless and only to the extent that said covenant (a) is exempt under Chapter 42, Section 3607 of the United States Code or (b) relates to handicap but does not discriminate against handicapped persons. 2. Storm sewer easement 20 feet in width along the West property line as set out and more particularly described in instrument filed for record under Harris County Clerk's File No(s). F727669 and in Volume 278, Page 25 of the Map Records of Harris County, Texas and shown on the plat of Eagle USA, filed for record under Film Code No(s). 386032 of the Map Records of Harris County, Texas. 3. Utility easement 16 feet in width within the northeasterly corner of subject property line together with an aerial easement adjacent thereto as set out and more particularly described in instrument filed for record under Clerk's File No. F941406 and corrected under Clerk's File Nos. G120555 and G769967 of the Official Public Records of Real Property of Harris County, Texas, and shown on the plat of Eagle filed for record under Film Code No(s). 386032 of the Map Records of Harris County, Texas. 4. Pipeline easement as set out and more particularly described in instrument to Humble Oil & Refining Co. recorded in Volume 5470, Page 63 of the Deed Records of Harris County, Texas, amended in instrument filed for record under Harris County Clerk's File No(s). E156301, and shown on the plat of Eagle USA, filed for record under Film Code No(s). 386032 of the Map Records of Harris County, Texas. 5. A 10 foot by 20 foot water meter easement within the most westerly northwest portion of subject property as set out on plat of Eagle USA, filed for record under Film Code No(s). 386032 of the Map Records of Harris County, Texas. 6. An easement 10 feet in width along the most north, northerly property line; together with an unobstructed aerial easement 11 feet 6 inches wide from a plane 16 feet above the ground upward located southerly of and adjoining said 10 foot wide easement, granted to Houston Lighting & Power Company by instrument filed for record under County Clerk's File No(s). T462665 of the Official Public Records of Real Property of Harris County, Texas. C-1 7. An easement 10 feet in width along the most east, westerly property line; together with an unobstructed aerial easement 11 feet 6 inches wide from a plane 16 feet above the ground upward located easterly of and adjoining said 10 foot wide easement, granted to Houston Lighting & Power Company by instrument filed for record under County Clerk's File No(s). T462665 of the Official Public Records of Real Property of Harris County, Texas. 8. An easement for electric distribution and/or natural gas facilities, 10 feet in width located west of and adjoining the south 361.45 feet and the north 389.86 feet of the east property line; together with an unobstructed aerial easement 11 feet 6 inches wide from a plane 16 feet above the ground upward located west of and adjoining said 10 foot wide easement, granted to Houston Lighting & Power Company by instrument filed for record under County Clerk's File No(s). U401839 of the Official Public Records of Real Property of Harris County, Texas. 9. All oil, gas and other minerals, the royalties, bonuses, rentals and all other rights in connection with same are excepted herefrom as set forth in instrument filed for record under County Clerk's File No(s). G134217 of the Official Public Records of Real Property of Harris County, Texas. Waiver of surface rights contained therein. 10. Building lines along the westerly property line as set out and more particularly described in instrument filed for record under County Clerk's File No(s). E162420 and by instruments filed for record under County Clerk's File No(s). F727668 and F747174 of the Official Public Records of Real Property of Harris County, Texas. 11. Building set back line of 15 feet in width northeasterly and adjoining the 40 foot wide Humble Pipe Line easement across the southwest corner of subject property, as set out on the plat of Eagle USA, filed for record under Film Code No(s). 386032 of the Map Records of Harris County, Texas. 12. Building set back line of 25 feet along the west property line, as set out on plat of Eagle USA, filed for record under Film Code No(s). 386032 of the Map Records of Harris County, Texas. 13. Building set back line of 10 feet adjacent to the Edwards Street cul-de-sac within the east portion of subject property, as set out on plat of Eagle USA, filed for record under Film Code No(s). 386032 of the Map Records of Harris County, Texas. 14. Access to Edwards Street is denied by plat of Eagle USA, filed for record under Film Code No(s). 386032 of the Map Records of Harris County, Texas. 15. Annual Maintenance Charge and Special Assessments for Capital Improvements payable to World Houston International Business Center Improvement Association as set forth in instrument filed for record under Harris County Clerk's File No(s). F934983, refiled under F944735 and amended under G698447 of the Official Public Records of Real Property of Harris County, Texas. 2 16. The above property lies within the area designated and zoned by the City of Houston as the "Jetero Airport Hazard Area" (George Bush Intercontinental Airport) and is subject to the restrictions and regulations imposed by Ordinance of the City of Houston, recorded in Volume 5448, Page 421, Deed Records, Harris County, Texas as amended by Ordinance No. 83-861, filed for record under County Clerk's File No. J040968 of the Official Public Records of Harris County, Texas. 17. An unobstructed easement 16' wide, together with an unobstructed aerial easement adjacent thereto along the most northerly north property line as set forth by instrument recorded under Harris County Clerk's File No. F941406. 18. Building set-back line of 15' along the Ease property line, 25' along the most Northerly North property line, 25' along the most Southerly portion of the Ease property line, all as set forth by instrument recorded under County Clerk's File No. P50092. 19. Parking or paving set-back line 15' wide along the West property line and 3' along the East property line, as set forth by the instrument recorded under County Clerk's File No. P500092. 20. The following matters disclosed by survey dated December 26, 2001, made by Steven Lee Wright, Registered Professional Land Surveyor, No. 4820: Signs along the westerly property line. 21. Terms, conditions and provisions of that certain Lease Agreement, by and between iSTAR Eagle, LP, as Lessor, and EGL Eagle Global Logistics, LP, as Lessee, evidenced by Memorandum of Lease dated December __, 2001, filed for record under County Clerk's File No(s). _______ of the Official Public Records of Real Property of Harris County, Texas. 22. Standby fees, taxes and assessments by any taxing authority for the year 2001 and subsequent years and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership. 23. All matters depicted on the Survey dated December 26, 2001, prepared by Steven L. Wright (R.P.L.S. No. 4823) of Cobb Findley and Associates, Inc., with respect to the Property under Project No. 0102-211-01. Houston Site 4 1. Restrictions filed for record under Film Code No(s). 475078 of the Map Records of Harris County, Texas, but omitting any covenant or restriction based on race, color, religion, sex, handicap, familial status or national origin unless and only to the extent that said covenant (a) is exempt under Chapter 42, Section 3607 of the United States Code or (b) relates to handicap but does not discriminate against handicapped persons. 3 2. Rights of tenants in possession, as tenants only, with no right to purchase. 3. A pipeline right-of-way and easement 20 feet in width across the southerly portion of subject property, granted to Humble Oil & Refining Company by instrument recorded in Volume 5470, Page 65 of the Deed Records of Harris County, Texas and reflected on the plat of Eagle Global Logistics, filed for record under Film Code No(s). 475078 of the Map Records of Harris County, Texas. 4. An easement for sanitary sewer purposes along the east property line, granted to the public by instrument filed for record under County Clerk's File No(s). F737747 of the Official Public Records of Real Property of Harris County, Texas and reflected on the plat of Eagle Global Logistics, filed for record under Film Code No (s). 475078 of the Map Records of Harris County, Texas. 5. An easement for drainage purposes 120' wide along the west property line and across the northerly portion of subject property, granted to the public by instrument filed for record under County Clerk's File No(s). F737748 of the Official Public Records of Real Property of Harris County, Teas and reflected on the plat of Eagle Global Logistics, filed for record under Film Code No (s). 475078 of the Map Records of Harris County, Texas. 6. An easement 16 feet wide along the east property line, together with an unobstructed aerial easement 5 feet 6 inches wide extending upward from an inclined plane beginning at a height of 16 feet 3 inches above the ground and continuing outward to a height of 18 feet 6 inches located adjacent thereto, as granted to Houston Lighting and Power Company by instrument filed for record under County Clerk's File No(s). F975432 of the Official Public Records of Real Property of Harris County, Texas and reflected on the plat of Eagle Global Logistics, filed for record under Film Code No(s). 475078 of the Map Records of Harris County, Texas. 7. Unobstructed easements along the southerly property line. Said easements being 16 feet in width, together with adjoining unobstructed aerial easements 5 feet 6 inches wide extending upward from an inclined plane beginning at a height of 16 feet 3 inches above the ground and continuing outward to a height of 18 feet 6 inches, and an unobstructed aerial easement 21.5 feet wide from a plane 15 feet above the ground upward, and an unobstructed down guy easement 35 feet in length, as granted to Houston Lighting and Power Company by instrument filed for record under County Clerk's File No(s). G375918 of the Official Public Records of Real Property of Harris County, Texas and reflected on the plat of Eagle Global Logistics, filed for record under Film Code No(s). 475078 of the Map Records of Harris County, Texas. A portion of the above easement has been released as reflected in instrument filed for record under county Clerk's File No(s). V364233 of the Official Public Records of Real Property of Harris County, Texas. 8. An easement for electrical and gas facilities, 10 feet in width extending 156.00 feet in a southeast from the east property line; together with an unobstructed aerial easement 10 feet wide from a plane 16 feet above the ground upward located on both sides of and adjoining said 10 foot easement granted to Reliant Energy, Incorporated by instrument filed for record under County Clerk's File No(s). V423284 of the Official Public Records 4 of Real Property of Harris County, Texas, and shown on Sketch No. 01-300 attached to said instrument. 9. Building set Back line of 25 feet along the north and east property lines, as set out on plat of Eagle Global Logistics, filed for record under Film Code No(s). 475078 of the Map Records of Harris County, Texas. 10. Storm/sanitary sewer manholes, 18" force main, and 96" cmp, and Power Poles all outside the designated easement, as shown on survey dated March 7, 2000, by James M. Ewing, Registered Professional Surveyor, No. 4892. 11. The above property lies within the area designated and zoned by the City of Houston as the "Jetero Airport Hazard Area" (George Bush Intercontinental Airport) and is subject to the restrictions and regulations imposed by Ordinance of the City of Houston a certified copy of which is recorded in Volume 5448, Page 421, Deed Records, Harris County, Texas, as amended by Ordinance No. 83-861, filed for record under Clerk's File No. J040968 of the Official Public Records, Harris County, Texas. 12. Standby fees, taxes and assessments by any taxing authority for the year 2001 and subsequent years and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership. 13. Terms, conditions and provisions of that certain Lease Agreement, by and between iSTAR Eagle, LP, as Lessor, and EGL Eagle Global Logistics, LP, as Lessee, evidenced by Memorandum of Lease dated December __, 2001, filed for record under County Clerk's File No(s). _______ of the Official Public Records of Real Property of Harris County, Texas. 14. All matters depicted on the Survey dated December 16, 2001, prepared by James M. Ewing Registered Professional Surveyor No. 4892. Distribution Facility, Colorado: 1. The right of the proprietor of a vein or lode to extract or remove his ore, should the same be found to penetrate or intersect the premises thereby granted and rights of way for ditches and canals as reserved in United States patents recorded October 10, 1906 in Book 25 at Page 313, and any and all assignments thereof or interests therein. 2. Terms, conditions, provisions, agreements and obligations specified under the agreements recorded June 12, 1973 in Book 1869 at Page 168 and October 9, 1974 in Book 1957 at Page 895. Amendments thereto recorded September 10, 1981 in Book 2585 at Pages 413, 419 and 443 and October 24, 1991 in Book 3828 at Page 863. 3. Oil and gas lease between Champlin Petroleum Company, a Delaware corporation (holder of all oil and gas rights at the time) and Amoco Production Company, a Delaware corporation, recorded July 26, 1977 in Book 2160 at Page 805, and any and all assignments thereof, or interests therein. 5 4. Affidavit of Production recorded September 2, 1983 in Book 2786 at Page 382. 5. Assignment of Oil and Gas Lease from Geochemical Surveys, Inc. and Sands-American Corp., a/k/a Sands-American Corporation, as assignor, to U.S. Mineral & Royalty Corporation, an Oklahoma corporation, assignee, recorded February 23, 1988 in Book 3418 at Page 820. 6. Ratification of Lease recorded December 10, 1990 in Book 3735 at Page 141. 7. Assignment of Oil and Gas Lease from Amoco Production Company, a Delaware corporation, assignor, to Union Pacific Resources Company, assignee, recorded November 14, 1991 in Book 3836 at Page 510. 8. Non-Drilling Agreement executed by Union Pacific Resources Corporation, a Nebraska corporation, recorded July 19, 1995 in Book 4550 at Page 356. 9. Easements, notes, terms, conditions, provisions, agreements and obligations as shown on the Plat of Upland Park II Subdivision, Filing No. 1, recorded October 14, 1980 in Plat File 14 at Page 691. 10. Covenants, conditions and restrictions, which do not include a forfeiture or reverter clause, as set forth in the instrument recorded January 20, 1982 in Book 2617 at Page 32, but omitting any covenant or restriction based on race, color, religion, sex, handicap, familial status, or national origin. Amendment of said covenants, conditions and restrictions in their entirety by an instrument recorded January 15, 1985 in Book 2957 at Page 646. Second Amendment recorded February 5, 1988 in Book 3414 at Page 364. Assignment of Declaration of Covenants, Conditions and Restrictions recorded February 16, 1996 in Book 4684 at Page 274. 11. All minerals and all mineral rights as reserved in quitclaim deed recorded June 28, 1982 in Book 2656 at Page 308, and any and all assignments thereof or interests therein. 12. An easement for utility lines and incidental purposes granted to Public Service Company of Colorado by the instrument recorded August 28, 1985 in Book 3041 at Page 638, upon the terms and conditions set forth in the instrument. 13. The effect of the inclusion of the subject property in the Gateway Park Metropolitan District, as disclosed by the instrument recorded December 6, 1995 in Book 4640 at Page 166. Said Gateway Park Metropolitan District is now known as Sand Creek Metropolitan District as disclosed by the instrument recorded March 25, 1996 in Book 4709 at Page 175. 14. All water and water rights as reserved in deed from Gateway Park II, LLC, a Colorado Limited Liability Company, recorded August 30, 1995 in Book 4577 at Page 976. 6 15. Easements, notes, terms, conditions, provisions, agreements and obligations as shown on the Plat of Upland Park II Subdivision Filing No. 9 recorded May 5, 1997 in Book F17 at Page 679. 16. Any and all water rights, whether adjudicated or unadjudicated, tributary or nontributary, and all related interests of whatever nature and however evidenced and all oil, gas, coal and other hydrocarbon and nonhydrocarbon mineral rights and substances of whatever nature, including, but not limited to, all sand, gravel, stone, clay and clay derivatives and any geothermal resources of any kind in, upon, under, or that may be produced as reserved in Special Warranty Deed recorded November 23, 1999 in Book 5961 at Page 80. 17. Terms, conditions, provisions, easements, agreements, and obligations specified under the Fire Lane Easement recorded March 3, 2000 in Book 6052 at Page 937. 18. Terms conditions, provisions, easements, agreements, and obligations specified under the Easement for Sidewalk Purposes recorded March 3, 2000 in Book 6052 at Page 941. 19. Terms, conditions, provisions, agreements, and obligations specified under the Revocable License recorded March 6, 2000 in Book 6054 at Page 681. 20. Easements, notes, terms, conditions, provisions, agreements and obligations as shown on the Upland Park II Subdivision Filing No. 9 Eagle U.S.A. Freight Site Plan recorded March 6, 2000 at Reception No. C0646662. 21. Terms, conditions, provisions, agreements, and obligations specified under the Covenant to Run with the Land recorded April 21, 2000 in Book 6102 at Page 637. 22. Leasehold interest between EGL Eagle Global Logistics, LP, a Delaware limited partnership, as tenant, and iSTAR Eagle LP, a Delaware limited partnership, as Landlord, dated December 31, 2001, as evidenced by Memorandum of Lease recorded ______________, 2001 at Reception No. _____. 23. Taxes and assessments for the year 2001, not yet due and payable. 24. All matters depicted on the ALTA/ACSM Land Title Survey dated March 8, 2001, as revised December 31, 2001, prepared by Creighton R. Moore, PLS No. 10945 with respect to the Property under Job No. 09.01, including, but not limited to the following: (i) Storm, sewer, sanitary sewer, electric, telephone and gas lines, manhole, inlets and transformer not located within a recorded easement and any possible prescriptive easement resulting therefrom. (ii) Encroachment of concrete curb into the platted 10' utility easement and into the easement recorded in Book 3041 at page 638. 7 EXHIBIT D Form of Subordination, Non-Disturbance and Attornment Agreement TENANT: EGL Eagle Global Logistics, LP SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this "Agreement") is entered into by and among EGL EAGLE GLOBAL LOGISTICS, LP, a Delaware limited partnership ("Tenant"), whose address is 15350 Vickery Drive, Houston, Texas 77032, iSTAR EAGLE LP, a Delaware limited partnership ("Landlord"), whose address is c/o iStar Financial Inc., 1114 Avenue of the Americas, 27th Floor, New York, New York 10036, and GREENWICH CAPITAL MARKETS, INC., a Delaware corporation, individually and as agent for the Commercial Mortgage Loan Facility Variable Funding Trust 1998 SFT-1 (together with its successors and assigns, "Lender"), whose address is 600 Steamboat Road, Greenwich, Connecticut 06830. W I T N E S S E T H WHEREAS, Landlord is the owner in fee simple of certain real property located at 15350 - 15390 Vickery Drive, Houston, Texas, as more particularly described on Exhibit A attached hereto, together with the improvements thereon (the "Houston Property") and located at 18300 East 28th Avenue, Aurora, Colorado, as more particularly described on Exhibit B attached hereto (the "Colorado Property"; together with the Houston Property, the "Property"). WHEREAS, Landlord or its predecessor and Tenant have entered into a certain Lease Agreement, dated as of December 31, 2001 (as the same may have been or may hereafter be amended, modified, restated, renewed or extended, the "Lease"), leasing to Tenant the entire Property (the "Premises"); WHEREAS, Lender has agreed to make a certain loan to an affiliate of Landlord in the principal amount of up to $700,000,000 (the "Loan"), which Loan will be secured by, among other things, a mortgage or deed of trust, as the case may be (the "Security Instrument"), and an assignment of leases and rents (the "Assignment of Leases"), each from Landlord to Lender encumbering the Property, which Security Instrument and Assignment of Leases are to be recorded contemporaneously herewith; WHEREAS, Lender, Landlord and Tenant desire to confirm their understanding with respect to the Lease and the Loan and the rights of Tenant and Lender thereunder. NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: D-1 1. Subordination. Notwithstanding anything to the contrary set forth in the Lease, Tenant hereby subordinates and subjects the Lease and the leasehold estate created thereby and all of Tenant's rights thereunder to the Security Instrument and the liens thereof and all advances and rights of Lender thereunder and to any and all renewals, modifications, consolidations, replacements and extensions thereof, as fully and as if the Security Instrument and all of its renewals, modifications, consolidations, replacements and extensions had been executed, delivered and recorded prior to execution of the Lease. Without affecting the foregoing subordination, Lender may, from time to time: (a) extend, in whole or in part, by renewal or otherwise, the terms of payment or performance of any obligation secured by the Security Instrument; (b) release, surrender, exchange or modify any obligation secured by the Security Instrument, or any security for such obligation; or (c) settle or compromise any claim with respect to any obligation secured by the Security Instrument or against any person who has given security for any such obligation. 2. Non-Disturbance. If, at any time, Lender or any person or entity or any of their successors or assigns who shall acquire the interest of Landlord under the Lease through a foreclosure of the Security Instrument, the exercise of the power of sale under the Security Instrument, a deed-in-lieu of foreclosure, an assignment-in-lieu of foreclosure or otherwise (each, a "New Owner") shall succeed to the interests of Landlord under the Lease, so long as the Lease is then in full force and effect, Tenant complies with this Agreement and no default after the giving of any required notice, and expiration of any applicable grace period, under the Lease (a "Default") on the part of Tenant exists under the Lease, the Lease shall continue in full force and effect as a direct lease between the New Owner and Tenant, upon and subject to all of the terms, covenants and conditions of the Lease, for the balance of the term thereof. Tenant hereby agrees to attorn to and accept any such New Owner as landlord under the Lease and to be bound by and perform all of the obligations imposed by the Lease, and Lender, or any such New Owner of the Property, agrees that it will not disturb the possession of Tenant and will be bound by all of the obligations imposed on the Landlord by the Lease; provided, however, that any New Owner shall not be: (a) liable for any act or omission of a prior landlord (including Landlord) arising prior to the date upon which the New Owner shall succeed to the interests of Landlord under the Lease; or (b) subject to any claims, offsets or defenses which Tenant might have against any prior landlord (including Landlord) arising prior to the date upon which the New Owner shall succeed to the interests of Landlord under the Lease; or (c) bound by any rent or additional rent which Tenant might have paid in advance to any prior landlord (including Landlord) for a period in excess of one calendar quarter or by any security deposit or other prepaid charge which Tenant might have paid in advance to any prior landlord (including Landlord), except to the extent that such New Owner actually comes into exclusive possession of the same; or (d) bound by any assignment (except as permitted by the Lease), surrender, release, waiver, cancellation, amendment or modification of the Lease made without the written consent of Lender which consent shall not be unreasonably withheld, conditioned or delayed by Lender; or 2 (e) responsible for the making of any improvement to the Property or repairs in or to the Property in the case of damage or destruction of the Property or any part thereof due to fire or other casualty or by reason of condemnation unless such New Owner shall be obligated under the Lease to make such repairs and shall have received insurance proceeds or condemnation awards sufficient to finance the completion of such repairs; or (f) obligated to make any payment to Tenant except for the timely return of any security deposit actually received by such New Owner. 3. Cure by Lender of Landlord Defaults. Tenant hereby agrees that from and after the date hereof, in the event of any act or omission by Landlord which would give Tenant the right, either immediately or after the lapse of time, to terminate or cancel the Lease or to claim a partial or total eviction, or to abate or reduce rent, Tenant will not exercise any such right until it has given written notice of such act or omission to Lender, and Lender has failed, within thirty (30) days after receipt of such notice by Lender, to commence to cure such act or omission and to thereafter diligently prosecute such cure to completion but in no event shall such cure period exceed one hundred eighty (180) days after receipt of such notice by Lender; provided that in the event Lender cannot commence such cure without possession of the Property, Tenant will not exercise any such right if Lender commences judicial or non-judicial proceedings to obtain possession within such period and thereafter diligently prosecutes such efforts and cure to completion; further, Tenant shall not, as to Lender, require cure of any such act or omission which is not susceptible to cure by Lender. 4. Payments to Lender and Exculpation of Tenant. Tenant is hereby notified that the Lease and the rent and all other sums due thereunder have been assigned to Lender as security for the Loan. In the event that Lender or any future party to whom Lender may assign the Security Instrument notifies Tenant of a default under the Security Instrument and directs that Tenant pay its rent and all other sums due under the Lease to Lender or to such assignee, Tenant shall honor such direction without inquiry and pay its rent and all other sums due under the Lease in accordance with such notice. Landlord agrees that Tenant shall have the right to rely on any such notice from Lender or any such assignee without incurring any obligation or liability to Landlord, and Tenant is hereby instructed to disregard any notice to the contrary received from Landlord or any third party. 5. Limitation of Liability. Lender shall not, either by virtue of the Security Instrument, the Assignment of Leases or this Agreement, be or become a mortgagee-in-possession or be or become subject to any liability or obligation under the Lease or otherwise unless and until Lender shall have acquired the interest of Landlord in the Premises, by foreclosure or otherwise, and then such liability or obligation of Lender under the Lease shall extend only to those liabilities or obligations accruing subsequent to the date that Lender has acquired the interest of Landlord in the Premises as modified by the terms of this Agreement. In addition, upon such acquisition, Lender shall have no obligation, nor incur any liability, beyond Lender's then equity interest, if any, in the Premises. Furthermore, in the event of the assignment or transfer of the interest of Lender under this Agreement, all obligations and liabilities of Lender under this Agreement shall terminate and, thereupon, all such obligations and liabilities shall be the sole responsibility of the party to whom Lender's interest is assigned or transferred. 3 6. Notice. Any notice, demand, statement, request, consent or other communication made hereunder shall be in writing and delivered (i) personally, (ii) mailed by certified or registered mail, postage prepaid, return receipt requested or (iii) by depositing the same with a reputable private courier service, postage prepaid, for next business day delivery, to the parties at their addresses first set forth above and shall be deemed given when delivered personally, or four (4) business days after being placed in the United States mail, if sent by certified or registered mail, or one (1) business day after deposit with such private courier service. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given as herein required shall be deemed to be receipt of the notice, demand or request sent. By giving to the other parties thereto at least fifteen (15) days' prior written notice hereof in accordance with the provisions hereof, the parties hereto shall have the right from time to time to change their respective addresses to any other address within the United States of America. Tenant agrees to send a copy of any notice or statement under the Lease to Lender at the same time such notice or statement is sent to Landlord. 7. Miscellaneous. (a) In the event of any conflict or inconsistency between the provisions of this Agreement and the Lease, the provisions of this Agreement shall govern; provided, however, that the foregoing shall in no way diminish Landlord's obligations or liability to Tenant under the Lease. Lender's enforcement of any provisions of this Agreement or the Security Instrument shall not entitle Tenant to claim any interference with the contractual relations between Landlord or Tenant or give rise to any claim or defense against Lender with respect to the enforcement of such provisions. (b) Tenant agrees that this Agreement satisfies any condition or requirement in the Lease relating to the granting of a non-disturbance agreement. (c) Tenant agrees that it will not subordinate the Lease to the lien of any mortgage or deed of trust other than the Security Instrument for so long as the Security Instrument shall remain a lien on the Property. (d) This Agreement shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the interest of Tenant under this Agreement may not be assigned or transferred without prior written consent of Lender. (e) The captions appearing under the paragraph number designations of this Agreement are for convenience only and are not a part of this Agreement and do not in any way limit or amplify the terms and provisions of this Agreement. (f) If any portion or portions of this Agreement shall be held invalid or inoperative, then all of the remaining portions shall remain in full force and effect, and, so far as is reasonable and possible, effect shall be given to the intent manifested by the portion or portions held to be invalid or inoperative. (g) This Agreement shall be governed by and construed in accordance with the laws of the State in which the Property is located. 4 (h) This Agreement may be executed in any number of separate counterparts, each of which shall be deemed an original, but all of which, collectively and separately, shall constitute one and the same agreement. (i) This Agreement cannot be altered, modified, amended, waived, extended, changed, discharged or terminated orally or by any act on the part of Tenant, Landlord or Lender, but only by an agreement in writing signed by the party against whom enforcement of any alteration, modified, amendment, waiver, extension, change, discharge or termination is sought. IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates set forth adjacent to their signatures below to be effective as of the date of the Security Instrument. Date: December 31, 2001 TENANT: EGL Eagle Global Logistics, LP, a Delaware limited partnership By: EGL Management, LLC, a Delaware limited liability company, its General Partner By:___________________________________ Name:_________________________________ Title:________________________________ Date: December 31, 2001 LANDLORD: iSTAR EAGLE LP a Delaware limited partnership By: iStar Eagle GenPar LLC, a Delaware limited liability company, its general partner By: SFT II, Inc., a Delaware corporation, its sole member By:__________________________________ Name:________________________________ Title:_______________________________ 5 Date: ____________, 200_ LENDER: GREENWICH CAPITAL MARKETS, INC., individually and as agent for the Commercial Mortgage Loan Facility Variable Funding Trust 1998 SFT-1 By:__________________________________________ Name:________________________________________ Title:_______________________________________ WHEN RECORDED, RETURN TO: Robert L .Boyd, Esq. Sidley Austin Brown & Wood 875 Third Avenue New York, New York 10022 6 STATE OF _____________) ) ss.: COUNTY OF ____________) On the ______ day of December, 2001, before me, the undersigned, a notary public in and for said state, personally appeared ______________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. ___________________________________ Notary Public [notarial seal] 7 STATE OF _____________) ) ss.: COUNTY OF ____________) On the ______ day of December, 2001, before me, the undersigned, a notary public in and for said state, personally appeared ______________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. ___________________________________ Notary Public [notarial seal] 8 STATE OF _____________) ) ss.: COUNTY OF ____________) On the ______ day of December, 2001, before me, the undersigned, a notary public in and for said state, personally appeared ______________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. ___________________________________ Notary Public [notarial seal] 9 EXHIBIT A PROPERTY DESCRIPTION - TEXAS PROPERTIES Site 1: Being a tract of land containing 23.5513 acres (1,025,892 square feet) situated in the E.F. Marshall Survey, A-1316 and in the W.H. Lloyd Survey A-1407 in Harris County, Texas, also being described as Block 1, Restricted Reserve "A", Eagle USA, a subdivision recorded in File No. 386032 of the Map Records of Harris County, Texas. Said 23.5513-acre tract being more particularly described by metes and bounds as follows. BEGINNING at a found 5/8-inch iron rod with cap located in a curve to the right in the east right-of-way line of Vickery Drive (width varies) for the northwest corner of said Eagle USA and the southwest corner of Rusovich Limited Partnership, a subdivision recorded in File No. 360057 of the Map Records of Harris County, Texas; THENCE South 75(degree) 14' 12" East with the south line of said Rusovich Limited Partnership subdivision, a distance of 886.36 feet to a point for the southeast corner of said Rusovich Limited Partnership subdivision and an angle point in the north line of said tract herein described, from which a found 1/2-inch iron rod bears South, 0.8 feet and East, 0.2 feet; THENCE North 02(degree) 51' 27" West with the east line of said Rusovich Limited Partnership subdivision, a distance of 333.76 feet to a point located in the south line of Block 3, Unrestricted Reserve "F", World Houston International Business Center, Section One, a subdivision recorded in Volume 278, Page 25 of the Map Records of Harris County, Texas, and for the easternmost northwest corner of said tract herein described, from which a found 3/8-inch iron rod bears South, 0.4 feet and East 0.4 feet; THENCE North 86(degree) 58' 50" East with the south line of said Unrestricted Reserve "F", a distance of 537.04 feet to a point located in the west line of Farmstead Acres Subdivision, as recorded in Volume 21, Page 5 of the Map Records of Harris County, Texas, for the southeast corner of said Unrestricted Reserve "F" and the northeast corner of said tract herein described, from which a found 5/8-inch iron rod bears South, 2.3 feet and West, 0.1 feet; THENCE South 02(degree) 45' 06" East with the west line of said Farmstead Acres Subdivision, a distance of 8.03 feet to 5/8 inch iron rod with cap set for an angle point in the east line of said tract herein described; THENCE South 02(degree) 55' 40" East with the west line of said Farmstead Acres Subdivision, a distance of 389.86 feet to a point located in the north line of Edwards Street (60 feet wide) and the beginning of a curve to the right, for a corner in the east line of said tract herein described and for the beginning of a cul-de-sac, from which a found 3/4-inch iron pipe bears South, 1.2 feet and East, 2.4 feet; THENCE in a northwesterly direction with the north right-of-way line of said Edwards Street and said curve to the right whose radius is 25.00 and central angle is 42(degree) 50' 23" (chord bears North 71(degree) 30' 40" West, a distance of 18.26 feet) for a curve length of 18.69 feet to a set 10 5/8-inch iron rod with cap, for the beginning of a curve to the left and corner of said tract herein described; THENCE in a southeasterly direction with the north right-of-way line of said Edwards Street and said curve to the left whose radius is 50.00 feet and central angle is 265(degree) 40' 21" (chord bears South 02(degree) 55' 40" East, a distance of 73.33) for a curve length of 231.84 feet to a set 5/8-inch iron rod located in the south right-of-way line of said Edwards Street, for the beginning of a curve to the right and corner of said tract herein described; THENCE in a northeasterly direction with the south right-of-way line of said Edwards Street and said curve to the right whose radius is 25.00 feet and whose central angle is 42(degree) 50' 23" (chord bears North 65(degree) 39' 20" East, a distance of 18.26 feet) for a curve length of 18.69 feet to a point in the west line of said Farmstead Acres Subdivision, for corner of said tract herein described, from which a found 1/2-inch iron rod bears South 2.0 feet, and East 0.6 feet; THENCE South 02(degree) 55' 40" East with the west line of said Farmstead Acres Subdivision, a distance of 361.45 feet to a set 5/8-inch iron rod with cap located in the north line of a 150 foot wide easement as conveyed unto Houston Lighting & Power Company by deed recorded in Volume 1440, Page 246 of the Deed Records of Harris County, Texas, for the southeast corner of said tract herein described; THENCE South 84(degree) 11' 24" West with the north line of said 150-foot wide easement, a distance of 1416.78 feet to a point located in the east right-of-way line of said Vickery Drive, for the southwest corner of said tract herein described from which a found 5/8-inch iron rod bears South 0.5 feet; THENCE North 02(degree) 46' 58" West with the east right-of-way line of said Vickery Drive, a distance of 479.79 feet to a set 5/8-inch iron rod for the beginning of a curve to the right and a corner in the west line of said tract herein described; THENCE in a northeasterly direction with the east right-of-way line of said Vickery Drive and said curve to the right whose radius is 1940.00 feet and whose central angle is 10(degree) 15' 42" (chord bears North 02(degree) 20' 53" East, a distance of 346.99 feet) for a curve length of 347.45 feet to the POINT OF BEGINNING and containing 23.5513 acres (1,025,892 square feet) of land more or less. Site 4: All that certain 14.0314 acres of land out of that certain 14.0339 acre tract described in the deed dated October 10, 2000, from Houston D. & F., Ltd. (f/k/a D. & F., Ltd.) and William R. Durrill, Jr., as Successor Trustee of the Trust created under the Will of Paul W. Drummet, deceased to EGL Eagle Global Logistics, LP, recorded at Clerk File No. U674628, Film Code No. 535-17-3281, of the Official Public Records of Real Property of Harris County, Texas, out of Eagle Global Logistics, according to the plat thereof recorded at Film Code No. 475078, of the Map Records of Harris County, Texas, out of the Mary E. Colby Survey, A-1649 and the W. C. R. R. Company Survey, A-1078, Houston, Harris County, Texas and being more particularly described by metes and bounds as follows: 11 BEGINNING at a found 1-1/2" aluminum disk in concrete marking the southeast corner of said Eagle Global Logistics located in the west right-of-way line of Vickery Drive (Width Varies) (called 3.92 acre tract) described in the deed dated July 19, 1978, from William G. Thompson, Trustee to Public dedication of street easement, recorded at Clerk File No. F-747174, Film Code No. 104-99-2222, of the Official Public Records of Real Property of Harris County, Texas; THENCE S 84(degree) 13' 06" W - 330.29', with the north line of that certain called 1.137 acre tract described in the deed dated January 30, 1975, from Paul W. Drummet to Houston Lighting & Power Company, recorded at Clerk File No. E-373341, Film Code No. 116-20-1491, of the Official Public Records of Real Property of Harris County, Texas, to a found 5/8" iron rod for corner; THENCE N 02(degree) 09' 42" W - 49.60', with the east line of that certain called 3.889 acre tract described in the deed dated July 25, 1978, from Joe Price, Trustee to World/Houston, Inc., recorded at Clerk File No. F-710988, Film Code No. ###-##-####, of the Official Public Records of Real Property of Harris County, Texas, to a found 5/8" iron rod for corner; THENCE S 86(degree) 10' 29" W - 453.01', with the north line of said 3.889 acre tract and the north line of that certain called 120' Public Drainage Easement recorded at Clerk File No. F-737749, Film Code No. 104-87-1904, of the Official Public Records of Real Property of Harris County, Texas, to a found 1" iron pipe for corner; THENCE N 03(degree) 01' 19" W - 790.41', with the west right-of-way line of the Public Drainage Easement recorded at Clerk File No. F-737748, Film Code No. ###-##-####, of the Official Public Records of Real Property of Harris County, Texas, and its extension, to a found 5/8" iron rod with cap for corner in the south right-of-way line of World/Houston Parkway (110' Wide) a called 3.359 acre tract described in the document dated February 6, 1979, from Robert P. Kelley to Public Dedication of Street Easement, recorded at Clerk File No. F985072, Film Code No. ###-##-####, of the Official Public Records of Real Property of Harris County, Texas; THENCE N 87(degree) 39' 30" E - 252.70', with said south right-of-way line of World Houston Parkway, to a found 5/8" iron rod with cap for a Point of Curvature of a curve to the right having a central angle of 08(degree) 11' 45" and a radius of 1,145.00'; THENCE continuing with said south right-of-way line of World/Houston Parkway and said curve to the right for an arc distance of 163.79', to a found 5/8" iron rod with cap for the Point of Tangency; THENCE S 84(degree) 08' 45" E - 358.96', continuing with said south right-of-way line of World/Houston Parkway, to a set 5/8" iron rod with cap marking a cutback corner; THENCE S 43(degree) 27' 51" E - 22.75', with said cutback line, to a set 5/8" iron rod with cap for a cutback corner in the aforementioned west right-of-way line of Vickery Drive; THENCE S 02(degree) 46' 58" E - 728.43', with said west right-of-way line of Vickery Drive, to the POINT OF BEGINNING of the herein described tract and containing 14.0314 acres (611,206 square feet) of land, more or less. 12 EXHIBIT B PROPERTY DESCRIPTION - COLORADO PROPERTY Lot 2, Block 1, Upland Park II Subdivision Filing No. 9, County of Adams, State of Colorado. 13 EXHIBIT E Tenant's Trade Fixtures All fixtures, equipment, security equipment, office furnishings and other items of personal property (whether or not attached to the Improvements) which are owned by Tenant and used in the operation of the business conducted on the Leased Premises. Tenant's Trade Fixtures shall include, but not be limited to the following: Liebert UPS model AP381 Ser#P24869 Liebert Aircon model U125D1525A2 Ser#M15675 Liebert Sircon model UBP180 Generator Generac Power System Type DCT-24-25A043 Serial#116928-2301 E-1 EXHIBIT F Fair Market Value Determination For Premises Determination of fair market value of the Premises or any Site under paragraph 14 of this Lease shall be made in accordance with the following procedures, which shall be separately applied for each Site, with the sum of such determinations being the fair market value of the Premises as a whole: (a) Fair market value of the Premises shall be determined by the agreement of two (2) appraisers (each, an "Initial Appraiser"), one of which shall be selected by Landlord and the other of which shall be selected by Tenant as set forth in this Exhibit F. Tenant shall identify in writing, as part of Tenant's written notice exercising the purchase option set forth in paragraph 14, the Initial Appraiser selected and retained by Tenant and specifically identify such Initial Appraiser's name, address, phone number and qualifications as an appraiser. Within thirty (30) days after receipt of notice of Tenant's Initial Appraiser, Landlord shall select its Initial Appraiser and notify Tenant in writing of the name, address, phone number and qualifications of such appraiser. Within five (5) days after Tenant receives from Landlord such notice of Landlord's Initial Appraiser, each of Landlord and Tenant shall direct, in writing with a copy to the other party, its Initial Appraiser to work with the other party's Initial Appraiser to endeavor to determine and reach agreement upon the fair market value of the Premises, or any Site, as applicable, considered as encumbered by this Lease including assuming all Extension Terms have been exercised by Tenant and considered as not having been the subject of a casualty or condemnation, as applicable, and thereafter to deliver in writing to Landlord and Tenant within thirty (30) days (such 30-day period, the "Valuation Period") the agreed-upon fair market value (the "Valuation Notice"). The costs and expenses of each Initial Appraiser shall be paid by the party selecting such Initial Appraiser. If Tenant fails to identify in writing an Initial Appraiser as required by this Exhibit F, Landlord shall identify an Initial Appraiser on behalf of Tenant; provided, however, Tenant shall be liable for the costs and expenses of such Initial Appraiser identified on Tenant's behalf by Landlord as if Tenant had selected such Initial Appraiser. (b) If the Initial Appraisers are not able to reach agreement upon the fair market value within the Valuation Period, within ten (10) days after the end of the Valuation Period each Initial Appraiser shall deliver a written notice to Landlord, Tenant, and the other Initial Appraiser setting forth (i) such Initial Appraiser's valuation of the fair market value (each, an "Initial Valuation") and (ii) the name, address and qualifications of a third appraiser selected jointly by the Initial Appraisers (the "Third Appraiser"). The Initial Appraisers shall, in writing with a copy to Landlord and Tenant, direct the Third Appraiser (or substitute Third Appraiser) to determine a valuation of the fair market value of the Premises, or any Site, as applicable, considered as encumbered by this Lease including assuming all Extension Terms have been exercised by Tenant and considered as not having been the subject of a casualty or condemnation, as applicable, and to deliver in writing to Landlord, Tenant and the Initial Appraisers such valuation (the "Third Valuation") within twenty (20) days of the date of the written direction retaining such Third Appraiser. The fair market value shall be the arithmetic mean of (A) the Third F-1 Valuation and (B) the Initial Valuation closer to the Third Valuation. If the Third Valuation is exactly between the two Initial Valuations, then the fair market value shall be the Third Valuation. If the Initial Appraisers are unable to agree upon the designation of a Third Appraiser within the requisite time period or if the Third Appraiser selected does not make a valuation of the fair market value within twenty (20) days after being directed by the Initial Appraisers, then such Third Appraiser or a substitute Third Appraiser, as applicable, shall, at the request of Landlord or Offeror, be appointed by the President or Chairman of the American Arbitration Association in the area in which the applicable Site exists which is the subject of the fair market valuation determination determined hereunder. The costs and expenses of the Third Appraiser (and substitute Third Appraiser and the American Arbitration Association, if applicable) shall be divided evenly between, and paid for by, Landlord and Tenant. (c) All appraisers selected or appointed pursuant to this Exhibit F shall be independent qualified appraisers. Such appraisers shall have no right, power or authority to alter or modify the provisions of this Lease, and such appraisers shall determine the fair market value of the Premises or Site, as applicable, considered as encumbered by this Lease including assuming all Extension Terms have been exercised by Tenant and considered as not having been the subject of a casualty or condemnation, as applicable. (d) Notwithstanding the foregoing, if Landlord and Tenant are able to agree upon a fair market value of the Premises, or Site, as applicable, prior to the date on which Tenant receives notice of Landlord's Initial Appraiser, Landlord and Tenant shall execute an agreement setting forth such agreed-upon fair market value of the Premises, or Site, as applicable, and waiving each party's right to have the fair market value of the Premises, or Site, as applicable, determined in accordance with the procedures set forth in paragraphs (a) and (b) of this Exhibit F. F-2 EXHIBIT G Fair Market Value Determination For Fixed Rent During Extension Term Upon written notice from one party to another electing to determine the fair market rental value of the Premises during an Extension Period as set forth in the Basic Lease Information, determination of fair market value of Fixed Rent during an Extension Term of this Lease shall be made in accordance with the following procedures, which shall be separately applied for each Site with the sum of such determinations for each Site being the fair market rental value of the Premises as a whole: (a) Fair market rental value of each Site shall be determined by the agreement of two (2) appraisers (each, an "Initial FR Appraiser"), one of which shall be selected by Landlord and the other of which shall be selected by Tenant as set forth in this Exhibit G. The party electing to have the fair market rental value of the Premises determined in accordance with this Exhibit G (herein, the "Electing Party") shall identify in writing (contemporaneously with providing the notice electing to utilize the provisions of this Exhibit G) the Initial FR Appraiser selected and retained by such Electing Party and specifically identify such Initial FR Appraiser's name, address, phone number and qualifications as an appraiser. Within thirty (30) days after receipt of notice by the other party ("Other Party") of the Electing Party's FR Initial Appraiser, the Other Party shall select its Initial FR Appraiser and notify the Electing Party in writing of the name, address, phone number and qualifications of such appraiser. Within five (5) days after the Electing Party receives from the Other Party such notice of the Other Party's Initial FR Appraiser, each of the Other Party and the Electing Party shall direct, in writing with a copy to the other party, its Initial FR Appraiser to work with the other party's Initial FR Appraiser to endeavor to determine and reach agreement upon the fair market rental value of such Site, considered as encumbered by this Lease including assuming all Extension Terms have been exercised by Tenant and considered as not having been the subject of a casualty or condemnation, as applicable, and thereafter to deliver in writing to Landlord and Tenant within thirty (30) days (such 30-day period, the "FR Valuation Period") the agreed-upon fair market value (the "FR Valuation Notice"). The costs and expenses of each Initial FR Appraiser shall be paid by the party selecting such Initial FR Appraiser. (b) If the Initial FR Appraisers are not able to reach agreement upon the fair market rental value within the FR Valuation Period, within ten (10) days after the end of the FR Valuation Period each Initial FR Appraiser shall deliver a written notice to Landlord, Tenant, and the other Initial FR Appraiser setting forth (i) such Initial FR Appraiser's valuation of the fair market rental value (each, an "FR Initial Valuation") and (ii) the name, address and qualifications of a third appraiser selected jointly by the Initial FR Appraisers (the "Third FR Appraiser"). The Initial FR Appraisers shall, in writing with a copy to Landlord and Tenant, direct the Third FR Appraiser (or substitute Third FR Appraiser) to determine a valuation of the fair market rental value of the site, considered as encumbered by this Lease including assuming all Extension Terms have been exercised by Tenant and considered as not having been the subject of a casualty or condemnation, as applicable, and to deliver in writing to Landlord, Tenant and the Initial FR Appraisers such valuation (the "FR Third Valuation") within twenty (20) days of the date of the written direction retaining such Third FR Appraiser. The fair market rental value shall be the G-1 arithmetic mean of (A) the Third FR Valuation and (B) the Initial FR Valuation closer to the Third FR Valuation. If the Third FR Valuation is exactly between the two Initial FR Valuations, then the fair market value shall be the Third FR Valuation. If the Initial FR Appraisers are unable to agree upon the designation of a Third FR Appraiser within the requisite time period or if the Third FR Appraiser selected does not make a valuation of the fair market value within twenty (20) days after being directed by the Initial FR Appraisers, then such Third FR Appraiser or a substitute Third FR Appraiser, as applicable, shall, at the request of Landlord or Tenant, be appointed by the President or Chairman of the American Arbitration Association in the area in which the Site exists which is the subject of the fair market rented valuation determination hereunder. The costs and expenses of the Third FR Appraiser (and substitute Third FR Appraiser and the American Arbitration Association, if applicable) shall be divided evenly between, and paid for by, Landlord and Tenant. (c) All appraisers selected or appointed pursuant to this Exhibit G shall be independent qualified appraisers. Such appraisers shall have no right, power or authority to alter or modify the provisions of this Lease, and such appraisers shall determine the fair market value of the Premises, considered as encumbered by this Lease including assuming all Extension Terms have been exercised by Tenant and considered as not having been the subject of a casualty or condemnation, as applicable. (d) Notwithstanding the foregoing, if Landlord and Tenant are able to agree upon a fair market rental value of the Premises or any Site prior to the date on which Tenant receives notice of Landlord's Initial FR Appraiser, Landlord and Tenant shall execute an agreement setting forth such agreed-upon fair market value of the Premises or any Site, as applicable, and waiving each party's right to have the fair market value of such Premises, or any Site, as applicable, determined in accordance with the procedures set forth in paragraphs (a) and (b) of this Exhibit G. G-2 EXHIBIT H Condemnation Site Prices (for paragraph 14 of Lease)
SITE PRICE ---- ----- Corporate Headquarters Houston Site 1 $20,702,500.00 Houston Site 4 $7,540,000.00 Distribution Facility $4,257,500.00
H-1 EXHIBIT I Fixed Rent Reduction Percentage for each Site
SITE FIXED RENT REDUCTION PERCENTAGE ---- ------------------------------- Corporate Headquarters Houston Site 1 63.7% Houston Site 4 23.2% Distribution Facility 13.1%
I-1 EXHIBIT J Form of Commencement Date Declaration This Commencement Date Declaration ("Declaration") is made and entered as of the 31st day of December, 2001, by and between iSTAR EAGLE LP, a Delaware limited partnership ("Landlord"), and EGL EAGLE GLOBAL LOGISTICS, LP, a Delaware limited partnership ("Tenant"). RECITALS: A. Landlord and Tenant are parties to that certain Lease Agreement dated as of December 31, 2001, executed by Landlord and Tenant. Landlord is leasing to Tenant and Tenant is leasing from Landlord, the following described Premises: (i) The Premises includes the property (a) described in Exhibit A-1 ("Houston Site 1") and in Exhibit "A-2" ("Houston Site 4"), each located at the address commonly known as 15350 Vickery Drive, Houston, Texas 77032 (collectively, the "Corporate Headquarters"); and (b) described in Exhibit "A-3" and located at the address commonly known as 18300 East 28th Avenue, Aurora, Colorado (the "Distribution Facility"). B. Landlord and Tenant have reached certain agreements in regard to the Commencement Date (as such term is defined in the Lease). Landlord and Tenant now desire to set forth such agreements in this Declaration. AGREEMENTS: Now, therefore, in consideration of the foregoing Recitals, the mutual covenants and promises herein set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: SECTION 1. MEANINGS OF TERMS; INCORPORATION OF RECITALS. Except as otherwise set forth in this Declaration, all capitalized terms used herein will have the respective meanings given them in the Lease. The Recitals set forth above are hereby incorporated into this Declaration and are hereby made a part hereof, as if fully set forth herein. SECTION 2. COMMENCEMENT DATE; TERMINATION DATE. Anything in the Lease to the contrary notwithstanding, (a) the Commencement Date under the Lease is December 31, 2001; and (b) the last day of the Initial Term will be December 31, 2017, unless sooner terminated in the manner provided in the Lease. SECTION 3. RELEVANT DATES FOR EXTENSION TERMS. As a result of the aforesaid determination of the Commencement Date, (a) the last date on which Tenant may provide Landlord with Tenant's Extension Notice with respect to the First Extension Term, subject to the Lease and if Tenant desires to provide such Tenant's Extension Notice, is January 1, 2017; (b) J-1 the First Extension Term (if any) would commence on January 1, 2018, and would end on December 31, 2022, unless sooner terminated in the manner provided in the Lease; (c) the last date on which Tenant may provide Landlord with Tenant's Extension Notice with respect to the Second Extension Term, subject to the Lease and if Tenant desires to provide such Tenant's Extension Notice, is January 1, 2022; (d) the Second Extension Term (if any) would commence on January 1, 2023, and would end on December 31, 2027, unless sooner terminated in the manner provided in the Lease; (e) the last date on which Tenant may provide Landlord with Tenant's Extension Notice with respect to the Third Extension Term is January 1, 2027; and (f) the Third Extension Term (if any) would commence on January 1, 2028 and would end on December 31, 2032. SECTION 4. FULL FORCE AND EFFECT. Except as expressly amended by this Declaration, the Lease will remain in full force and effect in accordance with its terms, provisions and conditions. The Lease, as amended by this Declaration, will herein and hereafter be referred to as the "Lease." In witness whereof, each of the parties hereto has caused this Declaration to be duly executed as of the day and year first above written. LANDLORD: iSTAR EAGLE LP, a Delaware limited partnership By: iStar Eagle GenPar LLC, a Delaware limited liability company, its General Partner By: STF II, Inc., a Delaware corporation, its sole member By:___________________________________ Name:_________________________________ Title:________________________________ TENANT: EGL EAGLE GLOBAL LOGISTICS, LP, a Delaware limited partnership By: EGL Management, LLC, a Delaware limited liability company, its General Partner By:___________________________________ Name:_________________________________ Title:________________________________ J-2 EX-10.17.B 6 h95091ex10-17_b.txt GUARANTY EXHIBIT 10.17B GUARANTY This Guaranty (as amended, modified and restated from time to time is herein called the "GUARANTY") is made as of December 31, 2001, by EGL, Inc. a Texas corporation ("GUARANTOR"), to and for the benefit of iStar Eagle LP, a Delaware limited partnership (such limited partnership, together with its successors, transferees and assigns is herein called the "LANDLORD"). RECITALS A. EGL Eagle Global Logistics, LP, a Delaware limited partnership ("TENANT"), is entering into that certain Lease Agreement with Landlord dated as of the date hereof (such Lease Agreement as modified and restated from time to time is herein called the "LEASE"), relating to the properties having common addresses of (a) 15350-15390 Viceroy Drive, Houston, Texas 77032 and (b) 18300 East 28th Avenue, Aurora, Colorado. All terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Lease. An index of terms defined herein is attached hereto as Schedule 1. B. Guarantor owns all of the partnership interests in Tenant, directly or indirectly. Guarantor shall receive substantial benefits from Tenant's entering into the Lease. Guarantor has received and reviewed, and hereby approves and acknowledges the terms and conditions of the Lease. C. The execution and delivery of this Guaranty by Guarantor is a condition precedent to Landlord's entering into the Lease with Tenant, and without ibis Guaranty, Landlord would be unwilling to enter into the Lease. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged by Guarantor, and to induce Landlord to enter into the Lease with Tenant, Guarantor hereby absolutely, unconditionally and irrevocably agrees as follows: 1. GUARANTY. (a) Guarantor, as a primary obligor and not merely as a surety, hereby absolutely, unconditionally and irrevocably guarantees to Landlord the prompt and complete payment and performance, in the case of non-pecuniary obligations, of all of the Guaranteed Obligations (as defined below) in full, when and as the same shall become due, whether on any due date or performance date, or upon demand or otherwise, This Guaranty constitutes the agreement to pay money and to act in the first instance and is not be construed as a contract of indemnity or a guaranty of collectability. (b) As used in this Guaranty, "GUARANTEED OBLIGATIONS" means, collectively, all of the following: (i) all of the indebtedness, liabilities and obligations of every kind and nature of Tenant to Landlord relating to the payment of money arising under or in any way relating to the Lease, howsoever-created, incurred or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, due or to become due, and howsoever owned, held, or acquired by Landlord (collectively, the "MONETARY OBLIGATIONS"), including all of Tenant's payment obligations owed to Landlord under the Lease, including timely full payment of all Rent and all other amounts payable by Tenant under the Lease, including, to the extent applicable, all payments required under Sections 14 and 16 of the Lease; (ii) all of the covenants, liabilities, and obligations of every kind and nature of Tenant to Landlord which do not relate to the payment of money arising, under or in any way relating to the Lease, howsoever created, incurred or evidenced, whether direct or indirect, absolute or contingent, new or hereafter existing, due or to become due, and howsoever owned, held, or acquired by Landlord; (iii) all interest, fees, costs and expenses due Landlord after the filing of a bankruptcy petition by or against Tenant regardless of whether such amounts can be collected during the pendency of the bankruptcy proceedings; and (iv) all Enforcement Costs (as defined herein). 2. REPRESENTATIONS AND WARRANTIES. Guarantor acknowledges and agrees that Landlord's agreement to enter into the Lease with Tenant is of substantial and material benefit to Guarantor and further agrees that the following shall constitute representations and warranties of Guarantor, and Guarantor acknowledges that Landlord intends to enter into the Lease in reliance thereon: (a) There is no existing event of default, and no event has occurred which with the passage, of time or the giving of notice or both will constitute an event of default, under any agreement to which Guarantor is a party, the effect of which event of default will impair performance by Guarantor of Guarantor's obligations pursuant to and as contemplated by the terms of this Guaranty, and neither the execution and delivery of this Guaranty nor compliance with the terms and provisions hereof will violate any presently existing provision of law or any presently existing regulation, order, writ, injunction or decree of any court or governmental department, commission, board, bureau, agency or instrumentality, or will conflict or will be inconsistent with, or will result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, instrument, document, agreement or contract of any kind that creates, represents, evidences or provides for any lien, charge or encumbrance upon any of the property or assets of Guarantor, or any other indenture, mortgage, deed of trust, instrument, document, agreement or contract of any kind to which Guarantor is a party or by which Guarantor or any of Guarantor's property may be subject, or in the event of any such conflict, the required consent or waiver of the other party or parties thereto has been validly granted, is in full force and effect, is valid and sufficient therefor and has been approved in writing by Landlord; (b) There are no actions, suits or proceedings pending or threatened against Guarantor before any court or any governmental, administrative, regulatory, adjudicatory or arbitrational body or agency of any kind that will adversely affect performance by Guarantor of Guarantor's obligations pursuant to and as contemplated by the terms and provisions, of this Guaranty; (c) Neither this Guaranty nor my document, financial statement, credit information, certificate or statement heretofore furnished or required herein to be furnished to Landlord by Guarantor contains any untrue statement of fact or omits to state a fact material to this Guaranty; and (d) Guarantor is a corporation, duly -incorporated and in good standing under the laws of the State of Texas and has as its principal place of business at 15350 Vickery Drive, Houston, Texas 77032. 3. COVENANTS. Guarantor agrees and covenants that: (a) Any indebtedness of Tenant now or hereafter existing or owing, together with any interest thereon, to Guarantor, is hereby subordinated to the Rent payments and any other payments due from Tenant to Landlord under the Lease, and such indebtedness of Tenant to Guarantor shall be collected, enforced and received by Guarantor in trust for the benefit of Landlord, and shall be paid over to Landlord on account of the Rent payments and other payments due from Tenant to Landlord, but without impairing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty; (b) (1) No payment by Guarantor under any provision of this Guaranty shall entitle Guarantor, by subrogation to the rights of Landlord or otherwise, to (i) any payment by Tenant or out of its property, or (ii) any payment from or rights in any applicable bonds, title insurance certifications, commitments or indemnities or other security held by or for the benefit of Landlord in connection with the Premises; (2) until Tenant's Guaranteed Obligations are indefeasibly paid in full and all periods under applicable bankruptcy law for the contest of any payment by any Guarantor or Tenant as a preferential or fraudulent payment have expired, Guarantor knowingly, and with advice of counsel, waives, relinquishes, releases and abandons all rights and claims to indemnification, contribution, reimbursement, subrogation and payment which such Guarantor may now or hereafter have by and from Tenant and the successors and assigns of Tenant, for any payments made by Guarantor to Landlord, including, without limitation, any rights which might allow Tenant, Tenant's successors, a creditor of Tenant, or a trustee in bankruptcy of Tenant to claim in bankruptcy or any other similar proceedings that any payment made by Tenant or Tenant's successors and assigns to Landlord was on behalf of or for the benefit of Guarantor and that such payment is recoverable by Tenant, a creditor or trustee in bankruptcy of Tenant as a preferential payment, fraudulent conveyance, payment of an insider or any other classification of payment which may otherwise be recoverable from Landlord; and (3) unless and until Tenant's Obligations and Guarantors' obligations under this Guaranty have been indefeasibly paid and performed in full, Guarantor will not assign or otherwise transfer any such claim to any other person or entity; (c) Landlord, in its sole discretion, may at any time enter into agreements with Tenant to amend and modify the Lease, and may waive or release any provision or provisions thereof and, with reference thereto, may make and enter into any such agreement or agreements as Landlord or Tenant may deem proper or desirable, without any not-lee to or further assent from Guarantor and without in any manner impairing or affecting this Guaranty or any of Landlord's rights hereunder; (d) Landlord may enforce this Guaranty without the necessity at any time of resorting to or exhausting any other remedy or any other security or collateral and without the necessity of proceeding against Tenant; (e) Nothing contained herein or otherwise shall prevent Landlord from pursuing concurrently or successively all rights and remedies available to Landlord pursuant to any document or agreement in law or in equity and against any persons, firms or entities whatsoever (and particularly, but not by way of limitation, Landlord exercise any rights available to Landlord under the Lease), and the exercise of any of Landlord's rights or the completion of any of Landlord's remedies shall not constitute a discharge of any obligation of Guarantor hereunder, it being the purpose and intent of Guarantor that Guarantor's obligations shall be absolute, independent and unconditional under any and all circumstances whatsoever; (f) The liability of Guarantor hereunder or any remedy for the enforcement thereof shall in no way be affected by (i) the release or discharge of Tenant in any creditors' receivership, bankruptcy or other similar proceedings, (ii) the impairment, limitation, modification or termination of the liabilities of Tenant to Landlord or the estate of Tenant in bankruptcy, or of any lien or security interest securing said liabilities, or any remedy for the enforcement of Tenant's said liability under the Lease, resulting from the operation of any present or future provision of Title 11 of the United States Code other similar statute or from the decision in any court arising from, (iii) the rejection or disaffirmance of the Lease in any such proceedings, (iv) any disability or other defense of Tenant, (v) the cessation from any cause whatsoever of the liability of the Tenant to Landlord, or (vi) any defense, current or future, of Guarantor to any action, suit or proceeding at law or otherwise, that may be instituted on this Guaranty; (g) This Guaranty shall continue to be effective and be deemed to have continued in existence or be reinstated (as the case may be) if at any time payment of all or any part of any sum payable pursuant to the Lease is rescinded or otherwise required to be returned by the payee upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the payor, all as though such payment to Landlord had not been made, regardless of whether Landlord contested the order requiring the return of such payment. The obligations of Guarantor pursuant to the preceding sentence shall survive any termination, cancellation, or release of this Guaranty; (h) Guarantor shall deliver to Landlord and to any party holding a mortgage or deed of trust on all or any portion of the Premises (each herein a "MORTGAGEE"), prospective Mortgagee, lender or purchaser designated by Landlord the following information: within 90 days after the end of each fiscal year of Guarantor, an audited balance sheet of Guarantor and its consolidated subsidiaries as at the end of such year, an audited statement of profits and losses of Guarantor and its consolidated subsidiaries for such -year, and an audited statement of cash flows of Guarantor and its consolidated subsidiaries for such year, setting forth in each case, in comparative form, the corresponding figures for the preceding,- fiscal year in reasonable detail and scope and certified by independent certified public accountants of recognized national standing selected by Guarantor; and within 45 days after the end of each of the first three fiscal quarters of Guarantor a balance sheet of Guarantor and its consolidated subsidiaries as at the end of such quarter, statements of profits and losses of Guarantor and its consolidated subsidiaries for such quarter and a statement of cash flows of Guarantor and its consolidated subsidiaries for such quarter, setting forth in each case, in comparative form, the corresponding figures for the similar quarter of the preceding year, in reasonable detail and scope, and certified to be true and complete by a financial officer of Guarantor having knowledge thereof; the foregoing financial statements all being prepared in accordance with generally accepted accounting principles, consistently applied. If and so long as Guarantor is a reporting company under the Securities and Exchange Act of 1934, as amended, the foregoing requirements of this paragraph 3(h) will be satisfied by the delivery of Guarantor's Forms 10-K, 10-Q and annual reports promptly upon their filing with the Securities and Exchange Commission; (i) Upon ten (10) days' prior notice, Guarantor will permit Landlord and its professional representatives to visit Guarantor's offices, and discuss Guarantor's affairs and finances with appropriate officers, and will make available such information as Landlord may reasonably request bearing on Guarantor, the Premises or the Lease, and Landlord shall maintain the confidentiality of any information designated by Guarantor as "nonpublic" and Landlord will execute and use its reasonable efforts to cause Landlord's professional representatives to execute appropriate confidentiality agreements; and (j) After giving effect to the transactions contemplated by this Guaranty, Guarantor (1) does not intend to incur, and does not believe that it will incur, debts beyond its ability to pay such debts as they become due, (2) owns and will own property, the fair salable value of which is (A) greater than the total amount of its liabilities (including contingent liabilities) and (B) greater than the amount that will be required to pay the probable liabilities of its then existing debts as they become absolute and matured, and (3) has and will have capital that is not unreasonably small in relation to its business as presently conducted and as proposed to be conducted. 4. CONTINUING GUARANTY. Guarantor agrees that the obligations of Guarantor to Landlord hereunder constitute an absolute, present, primary, continuing, irrevocable, unlimited, unconditional guaranty of payment and performance and, without limitation, is not conditioned or contingent upon any effort to attempt to seek payment or performance from any other person or entity (whether or not pursuant to this Guaranty) or upon any other condition or contingency. In addition, the obligations of Guarantor hereunder shall not be subject to any counterclaim, set- off, abatement, suspension, deduction, deferment or defense, and shall remain in full force and effect without regard to, and shall not be released, discharged or affected in any way by any circumstances or condition (whether or not Guarantor shall have any knowledge thereof), including: (a) any lack of validity or enforceability of the Lease; (b) any termination, amendment, modification or other change in the Lease; (c) any failure, or omission or delay on the part of Tenant, Guarantor or Landlord to conform or comply with any term of any of the Lease or any failure of Landlord to give notice of any event of default under the Lease; (d) any waiver, compromise, release, settlement, forbearance or extension of time of payment or performance or observance of any of the obligations or agreements contained in the Lease; (e) any action or inaction by Landlord under or in respect of the Lease, any failure, lack of diligence, omission or delay on the part of Landlord to enforce, assert or exercise any right, power or remedy conferred on Landlord in the Lease, or any other action or inaction on the part of Landlord; (f) the death or incapacity of Guarantor, as applicable, or any voluntary or involuntary bankruptcy, insolvency, reorganization, arrangement, readjustment, assignment for the benefit of creditors, composition, receivership, liquidation, marshalling of assets and liabilities or similar events or proceedings with respect to Tenant or Guarantor, as applicable, or any of their respective properties, or any action taken by any trustee or receiver or by any court in any such proceeding; (g) any merger or consolidation of Tenant into or with any other entity, or any sale, lease or transfer of any of the assets of Tenant or Guarantor to any other person or entity; (h) any change in the ownership of the 100% partnership interests directly or indirectly owned in Tenant by Guarantor or any other change in the relationship between Tenant and Guarantor, or any termination of any such relationship; (i) to the, extent permitted by law, any release or discharge by operation of law of Tenant from any obligation or agreement contained in the Lease; (j) any conveyance, mortgage, or other transfer of all or any part of Tenant's interest in the Premises, or all or part of Guarantor's interest therein; (k) any assumption by any person of any or all of Tenant's obligations under the Lease, or Tenant's assignment of any or all of Its interest in the Lease (which assignment is not permitted by the Lease without Landlord's written consent); (l) the power or authority or lack thereof of Tenant to execute, acknowledge or deliver the Lease; (m) any defenses whatsoever that Tenant may or might have to the payment of the Monetary Obligations, except for the payment thereof; (n) the existence or non-existence of Tenant as a legal entity; (o) any sale or assignment by Landlord of the Premises, this Guaranty, and/or the Lease (including any assignment by Landlord to any Mortgagee consistent with the provisions of Paragraph 10 of this Guaranty); (p) any default by Tenant under the Lease or any right of setoff, counterclaim or defense (other than payment in full of the Monetary Obligations in accordance with the terms of the Lease) that Guarantor may or might have to its respective undertaking, liabilities, and obligations hereunder, each and every such defense being hereby waived by Guarantor; or (q) to the extent permitted by law, any other occurrence, circumstance, happening or event, whether similar or dissimilar to the foregoing and whether foreseen or unforeseen, which otherwise might constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or which otherwise might limit recourse against Tenant or Guarantor. 5. WAIVERS. Guarantor irrevocably waives (i) notice of acceptance of this Guaranty by the Landlord and any and all notices and demands of every kind that may be required to be given by any statute or rule or law, (11) any defense arising by reason of any disability or other defense of Tenant, (iii) presentment, demand, notice of dishonor, protest and all other notices whatsoever, (iv) any right to participate in any security now or hereafter held by Landlord, (v) any right to enforce remedies Landlord now has, or later may have, against Tenant, Guarantor, or any other party, (vi) diligence in collection or protection of or realization upon any obligation hereunder, or any security for or guaranty of any of the foregoing, and any and all formalities that otherwise might be legally required to charge Tenant, Guarantor, or any other party with liability, (vii) any right to require Landlord to proceed against Tenant or any other person at any time or to proceed against or exhaust any security held by Landlord at any time or to pursue or exhaust any other remedy whatsoever at any time, (viii) the defense of any statute of limitations affecting the liability of Guarantor hereunder or the enforcement thereof, to the extent permitted by law, (ix) any defense arising by reason of any invalidity or unenforceability of the Lease, or any defense of Tenant, or any disability of Tenant, or by any cessation of the liability of Tenant from any cause whatsoever, (x) any duty of Landlord to advise Guarantor of any information known to Landlord regarding any and all favorable or unfavorable information, financial or otherwise, about the Premises learned or acquired by Landlord at any time (it is agreed that Guarantor assumes the responsibility for being and keeping informed regarding such information), (xi) all rights at law or in equity to seek subrogation, contribution, indemnification or any other form of reimbursement or repayment from Tenant or any other person or entity now or hereafter primarily or secondarily liable for any of Tenant's obligations for any disbursements made by Guarantor under or in connection with this Guaranty and further agrees that Guarantor shall have no claims of any kind or type against Tenant as a result of any payment made by Guarantor to Landlord, all such claims being specifically waived, (xii) any right to enforce any remedy which Landlord now has or may hereafter have against Tenant and any benefit of, and the right to participate in, any security now or hereafter held by Landlord, (xiii) any defense arising by reason of any act or failure to act by Landlord, any election of remedies made by Landlord or any other election afforded to Landlord pursuant to applicable law, whether or not pursuant to a bankruptcy, insolvency, liquidation, reorganization or similar proceeding filed by or against Tenant, (xiv) notice of any of the circumstances or conditions set forth in items (a) through (r), inclusive, of Paragraph 4 above, and (xv) the requirement of Landlord to mitigate damages. 6. EFFECT OF LANDLORD'S DELAY OR ACTION. No delay on the part of Landlord in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Landlord of any riot or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. No action of Landlord permitted hereunder shall in any way affect or impair the rights of Landlord and the obligation of Guarantor under this Guaranty. 7. ENFORCEMENT. All of the remedies set forth herein or provided by the Lease or law or equity shall be equally available to Landlord, and the choice by Landlord of one such alternative over another shall not be subject to question or challenge by Guarantor, nor shall any such choice be asserted as a defense, setoff, or failure to mitigate damages in any action, proceeding, or counteraction by Landlord to recover or seek any other remedy under this Guaranty, nor shall such choice preclude Landlord from subsequently electing to exercise a different remedy. The obligations of Guarantor hereunder are independent of the obligations of Tenant and, in the event of a default hereunder, a separate action or actions may be brought and prosecuted against Guarantor whether or not Guarantor is the alter ego of Tenant and whether or not Tenant is joined therein or a separate action or actions are brought against Tenant. Guarantor agrees that one or more successive actions may be brought against Guarantor, as often as Landlord deem advisable, until all of the Guaranteed Obligations are paid and performed in full. 8. ENFORCEMENT COSTS. If: (i) this Guaranty is placed in the hands of an attorney for collection or is collected through any legal proceeding; (ii) an attorney is retained to represent Landlord in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors' rights and involving a claim under this Guaranty or the Lease; (iii) an attorney is retained to protect or enforce the Lease or to provide advice or other representation with respect to the Premises or the Lease in connection with an enforcement action or potential enforcement action, or (iv) an attorney is retained to represent Landlord in any other legal proceedings whatsoever in connection with this Guaranty or the Lease, then Guarantor shall pay to Landlord upon demand all attorney's fees, costs and expenses, including, court costs, filing fees, recording costs, expenses of foreclosure, title insurance premiums, survey costs, minutes of foreclosure, and all other costs and expenses incurred in connection therewith (all of which are referred to herein as "Enforcement Costs"), in addition to all other amounts due hereunder. 9. NOTICES. Any notice, demand, request, or other communication which any party hereto may be required or may desire to give hereunder shall be in writing, addressed as follows, and shall be deemed to have been properly given, rendered, made and delivered (i) when sent by certified mail, postage prepaid, return receipt requested, on the fifth (4th) day after deposit in such mail, or (ii) when received by overnight delivery or overnight courier delivery (or if such delivery is refused, the date of such refusal) or (iii) by facsimile, transmission with a confirmation copy sent by overnight delivery or by overnight courier delivery addressed to the other party as follows: If to Guarantor: EGL, Inc. c/o EGL Eagle Global Logistics, LP 15350 Vickery Drive Houston, Texas 77032 Attention: Jon Kennedy, Senior Vice President, Corporate Administration Telephone: 281.618.3309 Fax: 281.618.3399 With a copy to: Baker & Hostetler LLP 1000 Louisiana, Suite 2000 Houston, Texas 77002-5009 Attention: William C. Stroh, Esq. Telephone: 713.646.1369 Fax: 713.276.1626 To Landlord: iStar Eagle LP c/o iStar Financial Inc. 1114 Avenue of the Americas 27th Floor New York, Now York 10036 Attention: Chief Financial Officer Telephone: 212.930.9400 Fax: 212.930.9494 and Katten Muchin Zavis 525 West Monroe Street 16th Floor Chicago, Illinois 60661-3693 Attention: Nina B. Matis, Esq. Gregory P. L. Pierce, Esq. Telephone: 312.902-5541 Fax: 312.902.1061 or at such other address as the party to be served with notice may have furnished in writing to the party seeking or desiring to serve notice as a place for the service of notice. Notices given in any other fashion shall be effective only upon receipt. 10. ASSIGNMENT AND MODIFICATIONS. This Guaranty shall be assignable by Landlord, its successor and assigns to any assignee of all or a portion of Landlord's rights under the Lease, including Mortgagee, whether directly or by way of a grant of a security interest herein, without the consent of Guarantor, and Guarantor shall execute, acknowledge and deliver any documents reasonably requested by Landlord or such assignee in connection therewith- No modification, waiver, amendment, discharge or change of this Guaranty shall be binding upon Landlord except as expressly set forth in a writing duly signed and delivered on behalf of Landlord. 11. SEVERABILITY. The parties hereto intend and believe that each pro-vision in this Guaranty comports with all applicable local, state and federal laws and judicial decisions, However, if any provision or provisions, or if any portion of any provision or provisions, in this Guaranty is found by a court of law to be in violation of any applicable local, state, or federal law, statute, ordinance, administrative or judicial decision, or public policy, and if such court declares such portion, provision, or provisions of this Guaranty to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision, or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, and that the remainder of this Guaranty shall be construed as if such illegal, invalid, unlawful, void, or unenforceable portion, provision, or provisions were not contained therein, and that the rights, obligations, and interests of Guarantor and Landlord under the remainder of this Guaranty shall continue in full force and effect. 12. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the heirs, executors, legal and personal representatives, successors and assigns of Guarantor and shall inure to the benefit of Landlord's successors and assigns. 13. JURISDICTION. With respect to any suit, action or proceedings relating to this Guaranty, the Premises or the Lease ("Proceedings") Guarantor (i) submits to the non-exclusive jurisdiction of the state and federal courts located in the County and State where any of the Premises are located or in the State of New York and (ii) waives any objection which Guarantor may have at any time to the laying of venue of any proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over Guarantor. 14. USE OF TERMS. All personal pronouns used in this Guaranty, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural and vice versa and shall refer solely to the parties signatory thereto except where otherwise specifically provided. The words "INCLUDE", "INCLUDES", "INCLUDING" and any other derivation of "include" means "including, but not limited to" unless specifically set forth to the contrary. 15. MATERIAL INDUCEMENT. Guarantor acknowledges and agrees that Landlord is specifically relying upon the representations, warranties, agreements and waivers contained herein and that such representations, warranties, agreements and waivers constitute a material inducement to Landlord to accept this Guaranty and to enter into the Lease and the transaction contemplated therein. 16. RECITALS INCORPORATED. The Recitals to this Agreement are hereby incorporated into this Agreement together with all exhibits, schedules and appendices hereto. 17. GOVERNING LAW. THIS GUARANTY SHALL BF GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS (AS OPPOSED TO THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK. 18. WAIVER OF JURY TRIAL. GUARANTOR HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY OR ANY OTHER LOAN DOCUMENTS OR RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS GUARANTY AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 19. CERTIFICATE. Within fifteen (15) days after request by Landlord, Guarantor shall deliver a certificate confirming that this Guaranty is in fall force and effect and unamended (or, if amended, specifying such amendment), and whether, to the knowledge of Guarantor, any default exists under the Lease or this Guaranty. 20. REFINANCE COOPERATION. If Landlord proposes to finance or refinance the Premises, Guarantor shall cooperate in the process, and shall negotiate in good faith any request made by a prospective Mortgagee for changes or modifications to the Lease and this Guaranty, and shall not unreasonably withhold its consent to any such proposed change or modification so long as the same does not adversely affect any significant right or obligation of Tenant under the Lease, increase Tenant's obligations under the Lease or change Guarantor's rights and obligations under this Guaranty. Guarantor agrees to execute, acknowledge and deliver documents reasonably requested by the prospective Mortgagee (such as a consent to the financing (without encumbering Guarantor's or Tenant's assets), a consent to assignment of lease and of this Guaranty, estoppel certificate and a subordination, non-disturbance and attornment agreement) customary for tenants and their guarantors to sign in connection with mortgage loans to landlords, so long as such documents are in form then customary among institutional lenders (provided the same do not adversely change Tenant's rights or obligations in a way not previously changed by loan documents previously executed by Tenant in connection with an earlier Mortgage or adversely change Guarantor's rights and obligations under this Guaranty). Guarantor shall permit Landlord and any Mortgagee or prospective Mortgagee, at their expense, to meet with officers of Guarantor at Guarantor's offices and to discuss the Guarantor's business and finances. On request of Landlord, Guarantor agrees to provide any Mortgagee or prospective Mortgagee the information to which Landlord is entitled hereunder, provided that if any such information is non-public and designated as such by Guarantor, Landlord will take reasonable steps to assure the confidentiality of such information. [EXECUTION PAGE FOLLOWS] IN WITNESS WHEREOF, Guarantor has delivered this Guaranty in as of the date first written above. GUARANTOR: EGL, Inc., a Texas corporation By: ---------------------------------- Name: Elijio V. Serrano Title: Chief Financial Officer STATE OF TEXAS } } COUNTY OF HARRIS } I, Mary C. Sullivan, a Notary Public; in and for said County, in the State aforesaid, do hereby certify that Elijio V. Serrano, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged that he signed, sealed and delivered the same instrument as his free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and notarial seal this 28th day of December, 2001. ------------------------------------- Notary Public My Commission expires: ------------------------------------- SCHEDULE I INDEX OF DEFINED TERMS Enforcement Costs............................................... Guaranteed Obligations.......................................... Guarantor....................................................... Guaranty........................................................ include......................................................... includes........................................................ including....................................................... Landlord........................................................ Lease........................................................... Monetary Obligations............................................ Mortgagee....................................................... Proceedings..................................................... Tenant.......................................................... EX-10.18.H 7 h95091ex10-18_h.txt THIRD AMENDMENT TO MASTER PARTICIPATION AGREEMENT Exhibit 10.18H ================================================================================ THIRD AMENDMENT TO MASTER PARTICIPATION AGREEMENT, LEASE AGREEMENT AND LOAN AGREEMENT Dated as of December 20, 2001 among ASSET XVI HOLDINGS COMPANY, L.L.C., as Lessor EGL, INC., as Lessee and BANK ONE, NA, as Lender ------------------------------------------- Lease Financing for EGL, Inc. Corporate Real Estate Program ================================================================================ THIRD AMENDMENT TO MASTER PARTICIPATION AGREEMENT, LEASE AGREEMENT AND LOAN AGREEMENT THIS THIRD AMENDMENT TO MASTER PARTICIPATION AGREEMENT, LEASE AGREEMENT AND LOAN AGREEMENT (this "Third Amendment"), dated as of December 20, 2001, is made and entered into by and among ASSET XVI HOLDINGS COMPANY, L.L.C., a Massachusetts limited liability company, as Lessor, EGL, INC., a Texas corporation formerly named "Eagle USA Airfreight, Inc.", as Lessee, and BANK ONE, NA, a national banking association, with an address at 1 Bank One Plaza, Suite ILI-0634, 10th Floor, Chicago, Illinois 60670, Attn: Martin Cattan, Loan Servicing Department, as Lender and assignee of Bank One, Texas, NA, a national banking association (the "Lender"). Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix I to that certain Master Participation Agreement dated as of April 3, 1998, among the Lessor, the Lessee and Bank One, Texas, NA, as amended by that certain First Amendment to Master Participation Agreement, Master Lease and Development Agreement, and Loan Agreement, dated as of April 3, 1998, among the Lessor, the Lessee and Bank One, Texas, N.A., as further amended by that certain Amendment to Participation Agreement, dated as of April 1, 1999, among the Lessor, the Lessee and Bank One, Texas, N.A., and as further amended by that certain Second Amendment to Participation Agreement, Lease Agreement and Loan Agreement dated as of October 20, 2000, among the Lessor, the Lessee and Bank One, NA (as successor in interest to Bank One, Texas, N.A.) (as so amended and as otherwise heretofore amended, supplemented and/or modified, the "Participation Agreement"). W I T N E S S E T H: WHEREAS, pursuant to the Loan Agreement, the Participation Agreement and the other Operative Documents, in order to provide funding for the costs incurred by the Lessor (or by the Lessee on its behalf) for the acquisition of the Leased Property, the Construction of the Improvements and other Property Costs, (i) the Lender made Loan Advances in the aggregate principal amount of $14,812,736.94, of which amount there remains unpaid on the Note the total principal balance of $14,054,357.19 together with interest thereon from December 2, 2001, and (ii) the Lessor made Contribution Advances from its own equity resources in the aggregate sum of $709,241.09, which sum is the total amount of the Contribution now outstanding, together with Contribution Return computed thereon from December 2, 2001; and WHEREAS, on and as of September 29, 2000, Bank One, Texas, NA sold, transferred and assigned to its affiliate, Bank One, NA (referred to herein as the "Lender" for all time periods on and following such date of transfer), all of its right, title and interest as the Lender in, to and under the Loan, the Note, the Loan Agreement, the Participation Agreement, the Lease (as supplemented by all of the Lease Supplements), and the other Operative Documents; and WHEREAS, contemporaneously with the execution of the Second Amendment, the Lessee and its wholly owned Subsidiary, EGL Delaware 1, Inc., a Delaware corporation (the "Merger Sub"), consummated the transactions contemplated by that certain Agreement and Plan of Merger dated as of July 2, 2000, (the "Merger Agreement") with Circle International Group, - 1 - Inc., a Delaware corporation ("Circle") pursuant to which, subject to the terms and conditions thereof, the parties caused the Merger Sub to merge with and into Circle (the "Circle Merger"), with the result, among other things, that Circle became a wholly owned Subsidiary of the Lessee; and WHEREAS, the Lessee has requested that the Lender agree to further modify certain covenants and provisions in the Participation Agreement and the other Operative Documents, which the Lender is willing to do on and subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual agreements contained in this Third Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION I DEFINITIONS; INTERPRETATION Appendix I of the Participation Agreement, the Lease and the Loan Agreement is hereby amended by deleting therefrom the definitions of the terms listed in Exhibit A attached hereto, and inserting in lieu thereof the definitions for such terms contained in said Exhibit A. Furthermore, said Appendix I is hereby amended by adding those defined terms set forth in Exhibit B attached hereto. Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix I to the Participation Agreement, the Lease and the Loan Agreement after taking into account the amendments effected herein. SECTION 2 AMENDMENT OF PARTICIPATION AGREEMENT Section 2.1. Financial Covenants of Lessee. SECTION 5.4 (Financial Covenants of Lessee) of the Participation Agreement is hereby amended by deleting subsections (d) and (e) thereof in their entirety and substituting the following in lieu thereof: "(d) The Lessee shall be permitted to incur, assume or in any manner become or be liable in respect of (i) Debt to any one creditor or one group of creditors pursuant to a single commitment, to lend not to exceed $100,000,000; provided that such Debt is only to any single creditor or group of creditors and the amount of such Debt, either individually with respect to any single creditor in such group of creditors, or in the aggregate with respect to all such creditors, never exceeds $100,000,000); and (ii) Debt in the aggregate principal amount of $100,000,000, evidenced by the 5% convertible subordinated notes, due December 15, 2006, issued by the Lessee in December, 2001. (e) The Lessee and its Subsidiaries shall not incur, assume or in any manner become or be liable at any time in respect of Debt (other than that permitted by subsection (d) above or as evidenced by the transactions contemplated hereby) which, in the aggregate, exceeds $30,000,000." - 2 - Section 2.2. Notices. SECTION 8.2 (Notices) of the Participation Agreement is hereby amended by replacing the address of the Lender set forth in item (ii) thereof with the following: "(ii) Lender Bank One, N. A. 1717 Main Street, 4th Floor Dallas, Texas 75201 Attn.: C. Dianne Wooley, First Vice President Facsimile No.: (214) 290-2740 Telephone No.: (214) 290-2719" SECTION 3 AMENDMENT TO LEASE Section 3.1 Contribution Advances. The parties acknowledge that the unpaid balance of the Contribution is the principal sum of $709,241.09 together with Contribution Return computed thereon from and after December 2, 2001. The parties acknowledge and agree that in addition to the payments of Scheduled Rent provided for in Exhibit D to the Second Amendment, on the Scheduled Termination Date (as modified hereby) the Lessee shall pay in accordance with the provisions of the Lease either (a) the aggregate Recourse Deficiency Amount to the extent permitted by, and in accordance with, the provisions of, Section 15.6 and/or Section 15.7 of the Lease, or (b) in any other instance, the Lease Balance. SECTION 4 AMENDMENT TO LOAN AGREEMENT Section 4.1 Loan Balance. The unpaid principal balance of the Loan totals the sum of $14,054,357.19 as of December 2, 2001. The parties acknowledge and agree that in addition to the payments of loan payments provided for in Exhibit E to the Second Amendment, on the Lease Termination Date the entire principal balance of the Loan, together with any and all accrued and unpaid interest thereon and any and all other or additional amounts owing to the Lender under, or in connection with, the Loan Agreement, shall be immediately due and payable in full by the Lessor. SECTION 5 MISCELLANEOUS Section 5.1 Representations and Warranties. Effective as of the date of this Third Amendment, each of the Lessee and Lessor represents and warrants to each of the parties hereto that each of the representations and warranties made by it in the Participation Agreement and the other Operative Documents, as amended hereby, remain true and correct in all material respects as of the date of this Third Amendment to the same extent and subject to the same qualifications as set forth in the Participation Agreement and the other Operative Documents, as amended hereby. - 3 - Section 5.2 Compliance with Operative Documents. The Lessee hereby represents and warrants that it is in full compliance with all terms, conditions, covenants, agreements, stipulations, representations and warranties under the Operative Documents, as amended hereby, to which it is a party or by which it is bound, and the Lessee hereby reaffirms the same as of the date hereof. The Lessee covenants and agrees to perform and observe all covenants, agreements, stipulations and conditions on its part to be performed under the Operative Documents, as amended hereby. To the best of the knowledge of the Lessee, neither the Lender nor the Lessor is in default under any of the Operative Documents and no event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute a default under any of the Operative Documents by any of the parties hereto. Section 5.3 Amendment of Operative Documents. Except as specifically modified herein, the Operative Documents shall remain in full force and effect in all respects according to their original terms, covenants and conditions, and nothing in this Third Amendment shall affect or impair any rights and powers which the Lender and/or the Lessor may have thereunder. Section 5.4 Expenses. The Lessee shall pay or cause to be paid and save the Lender and the Lessor harmless against liability for the payment of all reasonable out-of-pocket expenses, including counsel fees and disbursements, incurred or paid by the Lender or the Lessor in connection with the negotiation, development, preparation, execution and performance of this Third Amendment. Section 5.5 Successors and Assigns. This Third Amendment is binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns; provided, however, that the Lessee shall not assign or transfer its rights or duties under this Third Amendment or the Operative Documents without the prior written consent of the Lender and the Lessor. Section 5.6 Counterparts. This Third Amendment may be executed in any number of counterparts as may be convenient or necessary, and it shall not be necessary that the signatures of all parties hereto or thereto be contained on any one counterpart hereof or thereof. Additionally, the parties hereto agree that for purposes of facilitating the execution of this Third Amendment, (a) the signature pages taken from the separate individually executed counterparts of this Third Amendment may be combined to form multiple fully executed counterparts and (b) a facsimile transmission shall be deemed to be an original signature for all purposes. All executed counterparts of this Third Amendment shall be deemed to be originals, but all such counterparts taken together or collectively, as the case may be, shall constitute one and the same agreement. Section 5.7 No Recourse. No recourse shall be had for the payment of any amount owing in respect to any obligation of, or claim against the Lessor arising out of or based upon this Third Amendment or any other related agreement against JH Management Corporation or against any stockholder, employee, officer, director or incorporator of the Lessor or JH Management Corporation; provided, however, that the foregoing shall not relieve any such person or entity from any liability they might otherwise have as a result of fraudulent actions or fraudulent omissions taken by them. - 4 - IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be executed by their respective duly authorized officers as of the day and year first written above. Witnesses: EGL, INC., a Texas Corporation, as Lessee _________________________________ By:_________________________________________ Printed Name:____________________ Name:_______________________________________ Title:______________________________________ _________________________________ Printed Name:____________________ ASSET XVI HOLDINGS COMPANY, L.L.C., a Massachusetts limited liability company, as Lessor By: Asset Holdings Corporation I, a Delaware corporation, its managing member _________________________________ By:_____________________________________ Printed Name:____________________ Name:___________________________________ Title:__________________________________ _________________________________ Printed Name:____________________ BANK ONE, N.A., as Lender _________________________________ By:_________________________________________ Printed Name:____________________ Name: C. Dianne Wooley Title: First Vice President _________________________________ Printed Name:____________________ - 5 - EXHIBIT A TO THIRD AMENDMENT TO MASTER PARTICIPATION AGREEMENT, LEASE AGREEMENT AND LOAN AGREEMENT AMENDED DEFINITIONS "First Amendment to Agreements" or "First Amendment" means that certain First Amendment to Master Participation Agreement, Master Lease and Development Agreement, and Loan Agreement, dated as of April 3, 1998, among the Lessor, the Lessee and Bank One, Texas, N.A.. "Lease" means the Lease Agreement dated as of April 3, 1998, between the Lessor and the Lessee, as supplemented by the Parcel 1998-I Lease Supplement, the Parcel 1998-II Lease Supplement, the Parcel 1999-I Lease Supplement, the Parcel 1999-II Lease Supplement, and the Parcel 1999-III Lease Supplement, and as amended by the First Amendment, the Second Amendment, and this Third Amendment, together with all amendments and supplements thereto. "Operative Documents" means the Participation Agreement, the Lease, the Note, the Loan Agreement, the Assignments of Lease and Rents, the Notices of Assignment of Lease and Rents, the Mortgages, the Non-Disturbance and Attornment Agreements, the First Amendment , the Second Amendment and this Third Amendment, together with all other or additional amendments and supplements thereto. "Participation Agreement" means the Participation Agreement as defined in the heading to this Third Amendment, together with all amendments and supplements thereto. "Scheduled Termination Date" means November 15, 2002. EXHIBIT B TO THIRD AMENDMENT TO MASTER PARTICIPATION AGREEMENT, LEASE AGREEMENT AND LOAN AGREEMENT NEW DEFINITIONS "Second Amendment" means that certain Second Amendment to Master Participation Agreement, Lease Agreement and Loan Agreement among the Lessor, the Lessee, and the Lender, dated as of October 20, 2000, together with any amendments or supplements thereto. "Third Amendment" means that certain Third Amendment to Participation Agreement, Lease and Development Agreement and Loan Agreement among the Lessor, the Lessee, and the Lender, dated as of December 20, 2001, together with any amendments or supplements thereto. EX-12 8 h95091ex12.txt RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 EGL, INC. AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES ($ IN MILLIONS)
YEAR ENDED DECEMBER 31, ----------------------------------------------- 2001 2000 1999 1998 1997 ----------------------------------------------- EARNINGS: Pretax income (66,011) 12,441 84,020 65,441 67,769 Deduct: Minority interest 1,161 1,654 920 928 1,286 Income from affiliates (3,145) 1,599 3,922 3,853 5,785 Add: Fixed charges 33,269 20,095 13,825 10,571 9,946 Amortization of capitalized interest -- -- -- -- -- Distributed income of equity investees -- -- -- -- -- Share of pre-tax losses of equity investees for which charges arising from guarantees are included in fixed charges -- -- -- -- -- Subtract: Interest capitalized 854 -- -- -- -- Preference security dividend -- -- -- -- -- Minority interest in pretax income of subsidiaries that have incurred fixed charges -- -- -- -- -- TOTAL EARNINGS (29,290) 32,591 94,843 73,087 73,216 FIXED CHARGES: Interest costs expensed 10,543 7,005 3,193 1,953 2,922 Interest costs capitalized 854 -- -- -- -- Amortization of debt discount or premium 1,279 245 60 15 -- Rental expense 61,778 38,536 31,717 25,810 21,073 Portion of rental expense as can be demonstrated to be representative of the interest factor 20,593 12,845 10,572 8,603 7,024 TOTAL FIXED CHARGES 33,269 20,095 13,825 10,571 9,946 RATIO -- 1.62 6.86 6.91 7.36 SHORT FALL FOR THE YEAR ENDED DECEMBER 31, 2001 62,559
EX-21 9 h95091ex21.txt SUBSIDIARIES OF EGL EXHIBIT 21 SUBSIDIARIES
SUBSIDIARY JURISDICTION OF ORGANIZATION - ---------- ---------------------------- EGL Eagle Global Logistics, LP Delaware EGL Management, LLC Delaware EGL Trade Services, Inc. California EGL Delaware Limited Liability Company Delaware Eagle Maritime Services, Inc. Texas Eagle USA Import Brokers, Inc. Texas Eagle Partners, LP Texas EUSA Partners, Inc. Delaware EUSA Holdings, Inc. Delaware Eagle Global Logistics de Argentina S.R.L. Argentina Eagle Asia Holdings, Ltd. Hong Kong E.I. Freight Holdings, B.V. Netherlands Eagle Global Logistics de Brazil, Ltda. Brazil EGL (Canada) Holding Co. Inc. Delaware EGL Eagle Global Logistics (Canada) Corp. Nova Scotia EGL Eagle Global Logistica de Chile Ltda Chile EGL (UK) Holding Company Limited United Kingdom EGL Eagle Global Logistics (UK) Limited United Kingdom EGL Eagle Global Logistis Mexico, S.A. de C.V. Mexico EGL Eagle Global Logistics (Hong Kong) Limited Hong Kong Eagle Global Logistics de Peru S.R.L. Peru EGL Eagle Global Logistics (New Zealand) Limited New Zealand EGL Eagle Global Logistics (Austria) GmbH Austria EGL Eagle Global Logistics (Hungary) Kft. Hungary EGL Eagle Global Logistics (M) Sdn Bhd Malaysia EGL Eagle Global Logistics (Finland) OY Finland EGL Eagle Global Logistics (Sweden) AB Sweden EGL Eagle Global Logistics (Schweiz) Gmbh Switzerland Concord Express (Taiwan) Co. Ltd. Taiwan EGL Eagle Global Logistics (Taiwan) Co., Ltd. Taiwan EGL Belgium Holding Company, B.V.B.A. Belgium EGL Eagle Global Logistics China Limited China EGL Eagle Global Logistics (S) Pte. Ltd. Singapore PT EGL Eagle Global Logistics (Indonesia) International Indonesia EGL Eagle Global Logistics Korea, Inc. Korea EGL Eagle Global Logistics (Aust) Pty. Limited Australia EGL Asia-Pacific Holdings Company Pte. Ltd. Singapore EGL Eagle Global Logistics Japan, Inc. Japan EGL Eagle Global Logistics (India) Pvt. Ltd. India EGL Eagle Global Logistics (France) SARL France EGL Eagle Global Logistics (Thailand) Ltd. Thailand Circle International Group, Inc. Delaware Circle International, Inc. Delaware Circle International Holdings, Inc. Delaware
Certain subsidiaries not in the aggregate constituting a significant subsidiary are omitted pursuant to Regulation S-K 601(21)(ii). EX-23.1 10 h95091ex23-1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-4452 and 333-58393), in the Registration Statement on Form S-4 (No. 333-42310) and in the Registration Statement (No. 333-82750) on Form S-3 of EGL, Inc. of our report dated March 28, 2002 relating to the financial statements which appears in this Form 10-K. PricewaterhouseCoopers LLP Houston, Texas March 28, 2002 EX-23.2 11 h95091ex23-2.txt CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 333-4452 and No. 333-58393 on Form S-8, Registration Statement No. 333-42310 on Form S-4 and in Registration Statement No. 333-82750 on Form S-3 of EGL, Inc. of our report dated March 29, 2000 on the consolidated financial statements of operations, stockholders' equity and cash flows of Circle International Group, Inc. and subsidiaries for the year ended December 31, 1999 (not presented separately herein) appearing in this Annual Report on Form 10-K of EGL, Inc. for the year ended December 31, 2001. Deloitte & Touche LLP San Francisco, California March 27, 2002 -----END PRIVACY-ENHANCED MESSAGE-----