Filed Pursuant to Rule 424(b)(3)
Registration No. 333-82750
Prospectus Supplement
(To Prospectus Dated May 24, 2002)
$100,000,000
[EGL, INC. LOGO]
EGL, INC.
5% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 15, 2006
This document supplements the prospectus of EGL, Inc. dated May 24,
2002, relating to the notes and the shares of common stock originally issuable
upon conversion of the notes. The information in this prospectus supplement
replaces and supersedes the information set forth under the heading "Selling
Security Holders" in the prospectus dated May 24, 2002 and in all prior
prospectus supplements to that prospectus.
Our common stock is quoted on The Nasdaq National Market under the
symbol "EAGL." The last reported sales price of our common stock on The Nasdaq
National Market on February 27, 2003 was $12.98 per share.
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 3 OF
THE PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus supplement is February 28, 2003.
SELLING SECURITY HOLDERS
We originally issued the notes in a private placement to Credit Suisse
First Boston Corporation, which resold the notes to qualified institutional
buyers within the meaning of Rule 144A under the Securities Act in transactions
exempt from registration under the Securities Act. The notes and the underlying
common stock that may be offered under this prospectus supplement and the
accompanying prospectus will be offered by the selling securityholders, which
includes their transferees, pledgees, donees and successors. The following
table sets forth certain information concerning the principal amount of notes
beneficially owned by each selling securityholder and the number of shares of
underlying common stock that may be offered from time to time pursuant to this
prospectus supplement and the accompanying prospectus.
The number of shares of common stock shown in the table below assumes
conversion of the full amount of notes held by such holder at the initial
conversion rate of 57.3608 shares per $1,000 principal amount of notes. This
conversion rate is subject to certain adjustments. Accordingly, the number of
shares of common stock issuable upon conversion of the notes may increase or
decrease from time to time. Under the terms of the indenture, fractional shares
will not be issued upon conversion of the notes. Cash will be paid instead of
fractional shares, if any.
The selling securityholders listed below may offer and sell, transfer
or otherwise dispose, from time to time, some or all of their notes. No offer
or sale, transfer or other disposition under this prospectus supplement and the
accompanying prospectus may be made by a holder of the notes unless that holder
is listed in the table below or until that holder has notified us and a
prospectus supplement to the accompanying prospectus has been filed or an
amendment to the related registration statement has become effective. However,
a selling securityholder may already have or may in the future offer and sell,
transfer or otherwise dispose of some or all of its notes in transactions
exempt from the registration requirements of the Securities Act without
notifying us. As a result, the same restricted notes may be included in the
table below as being held by more than one holder and, therefore, the total
principal amount of notes listed below may exceed the $100,000,000 that we
originally issued. In no event, however, will the total principal amount of
notes to be sold hereunder exceed $100,000,000. Further, we cannot give an
estimate as to the amount of the notes or underlying common stock that will be
held by the selling securityholders upon the termination of this offering
because the selling securityholders may offer some or all of their notes or
underlying common stock pursuant to the offering contemplated by the prospectus
and this supplement or otherwise in transactions exempt from the registration
requirements of the Securities Act. See "Plan of Distribution" in the
accompanying prospectus.
PRINCIPAL AMOUNT
OF NOTES PERCENTAGE OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED NOTES OF COMMON STOCK COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING THAT MAY BE SOLD OUTSTANDING (1)
---- ---------------- ----------- ---------------- ---------------
Alexandra Global Investment Fund I, LTD........... 1,500,000 1.50% 86,041 *
Allete, Inc....................................... 750,000 * 43,020 *
Alta Partners Holdings LDC........................ 13,500,000 13.50% 774,370 1.62%
BNP Paribas Equity Strategies SNC................. 8,518,000 8.52% 488,599 1.03%
CALAMOS(R)Market Neutral Fund - CALAMOS(R)Investment
Trust......................................... 2,525,000 2.53% 144,836 *
Clinton Multistrategy Master Fund, Ltd............ 1,000,000 1.00% 57,360 *
Clinton Riverside Convertible Portfolio Limited... 1,000,000 1.00% 57,360 *
Common Fund Fixed Income Arbitrage Co............. 300,000 * 17,208 *
CooperNeff Convertible Strategies (Cayman) Master
Fund, L.P..................................... 3,888,000 3.89% 223,018 *
Credit Suisse First Boston Corporation............ 1,175,000 1.18% 67,398 *
Deutsche Bank Securities Inc...................... 3,500,000 3.50% 200,762 *
First Union Securities Inc........................ 8,000,000 8.00% 458,886 *
Grace Brothers Management LLC..................... 2,000,000 2.00% 114,721 *
Greyhound Lines Inc. Amalgamated Transit Union
National Local 1700 Retirement Disability Trust 500,000 * 28,680 *
Helix Convertible Opportunities Master Fund LP.... 5,000,000 5.00% 286,804 *
HFR CA Distressed Master Trust DTD 7/16/01........ 500,000 * 28,680 *
HFR CA Select Fund................................ 400,000 * 22,944 *
HighBridge International LLC...................... 7,000,000 7.00% 401,525 *
S-2
PRINCIPAL AMOUNT
OF NOTES PERCENTAGE OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED NOTES OF COMMON STOCK COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING THAT MAY BE SOLD OUTSTANDING (1)
---- ---------------- ----------- ---------------- ---------------
Innovest Finanzdienstleistungs AG................. 300,000 * 17,208 *
JMG Capital Partners, LP.......................... 2,000,000 2.00% 114,721 *
JMG Triton Offshore Fund, Ltd..................... 2,000,000 2.00% 114,721 *
JPMorgan Securities Inc........................... 1,000,000 1.00% 57,360 *
McMahan Securities Co. L.P........................ 3,000,000 3.00% 172,082 *
Nomura Securities International, Inc.............. 3,000,000 3.00% 172,082 *
San Diego County Employees Retirement Association. 1,750,000 1.75% 100,381 *
Spear, Leeds & Kellogg 500,000 * 28,680 *
Sturgeon Limited.................................. 1,094,000 1.09% 62,752 *
TQA Master Fund LTD............................... 2,000,000 2.00% 114,721 *
TQA Master Plus Fund LTD.......................... 2,000,000 2.00% 114,721 *
Tribeca Investments LLC........................... 13,000,000 13.00% 745,690 1.56%
Victus Capital, LP................................ 3,000,000 3.00% 172,082 *
Whitebox Convertible Partners, LP................. 6,000,000 6.00% 344,164 *
WPG Convertible Arbitrage Overseas
Master Fund, L.P.............................. 2,500,000 2.50% 143,402 *
Zazove Convertible Arbitrage Fund L.P............. 350,000 * 20,076 *
Zazove Hedged Convertible Fund L.P................ 1,250,000 1.25% 71,701 *
Zazove Income Fund L.P............................ 1,250,000 1.25% 71,701 *
Zurich Institutional Benchmarks Master Fund LTD... 1,700,000 1.70% 97,513 *
----------
* Less than 1%
(1) Calculated pursuant to Rule 13d-3(d)(i) of the Exchange Act using
47,018,731 shares of common stock outstanding as of November 8, 2002. In
calculating this amount, we treated as outstanding the number of shares of
common stock issuable upon conversion of all of a particular holder's
notes. However, we did not assume the conversion of any other holder's
notes.
The preceding table has been prepared based upon the information
furnished to us by the selling securityholders. Information concerning the
selling securityholders may change from time to time and, if necessary, we will
further supplement the prospectus accordingly.
S-3
PROSPECTUS
$100,000,000
[EGL LOGO]
EGL, INC.
5% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 15, 2006
AND
COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
This prospectus relates to the $100,000,000 in aggregate principal amount
of our 5% Convertible Subordinated Notes due December 15, 2006. We originally
issued and sold the notes to Credit Suisse First Boston in a private placement
in December 2001. This prospectus will be used by selling securityholders to
resell their notes and the common stock issuable upon conversion of the notes.
We will pay interest on the notes on June 15 and December 15 of each year.
The first interest payment will be made on June 15, 2002. The notes will mature
on December 15, 2006. We may redeem the notes on or after December 20, 2004 at
the prices described in this prospectus. Holders may require us to repurchase
the notes upon a change in control.
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 adjustment in some events. This is equivalent to a
conversion rate of 57.3608 shares per $1,000 principal amount of notes. The
notes are subordinated to our existing and future senior indebtedness and
structurally subordinated to indebtedness and other liabilities of our
subsidiaries.
Our common stock is quoted on The Nasdaq National Market under the symbol
"EAGL." The last reported sale price of our common stock on The Nasdaq National
Market on May 15, 2002 was $17.95 per share.
INVESTING IN THE NOTES OR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
ON PAGE 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is May 24, 2002.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT AUTHORIZED
ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. THE SELLING
SECURITYHOLDERS ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN
THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE ON ITS COVER PAGE OR THAT ANY INFORMATION WE HAVE INCORPORATED BY
REFERENCE IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THE DOCUMENTS
INCORPORATED BY REFERENCE.
TABLE OF CONTENTS
Where You Can Find More Information.... i
Forward-Looking Statements............. ii
Prospectus Summary..................... 1
Risk Factors........................... 3
Use of Proceeds........................ 9
Dividend Policy........................ 9
Ratio of Earnings to Fixed Charges..... 9
Selected Historical and Pro Forma
Financial Data....................... 10
Description of the Notes............... 12
Description of Other Indebtedness...... 27
Description of Capital Stock........... 28
Selling Security Holders............... 35
Certain United States Federal Income
Tax Considerations................... 37
Plan of Distribution................... 42
Legal Matters.......................... 43
Experts................................ 44
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You can read and copy
any materials we file with the SEC at the SEC's public reference room at 450
Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549. You can
obtain information about the operation of the SEC's public reference room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that
contains information we file electronically with the SEC, which you can access
over the Internet at http://www.sec.gov. You can obtain information about us at
the offices of The National Association of Securities Dealers, Inc., 1735 K.
Street, N.W. Washington, D.C. 20006.
This prospectus is part of a registration statement that we have filed with
the SEC relating to the notes and the underlying common stock into which the
notes may be converted. This prospectus does not contain all of the information
we have included in the registration statement and the accompanying exhibits and
schedules as permitted by the rules and regulations of the SEC, and we refer you
to the omitted information. The statements this prospectus makes pertaining to
the content of any contract, agreement or other document that is an exhibit to
the registration statement are necessarily summaries of their material
provisions, and we qualify them in their entirety by reference to those exhibits
for complete statements of their provisions. The registration statement,
exhibits and schedules are available at the SEC's public reference room or
through its website.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
an important part of this prospectus, and later information that we file with
the SEC will automatically update and supersede that information. We incorporate
by reference into this prospectus the documents listed below, and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until this offering is complete. As of the date
of this prospectus, the documents incorporated by reference are:
- Our annual report on Form 10-K for the calendar year ended December 31,
2001
- Our quarterly report on Form 10-Q for the quarter ended March 31, 2002
- The description of our common stock contained in our Registration
Statement on Form 8-A dated November 27, 1995, as amended on June 26,
1998 and September 29, 2000
i
- The description of rights to purchase from us one unit consisting of one
one-thousandth of a share of our Series A junior participating preferred
stock contained in our Registration Statement on Form 8-A dated May 24,
2001, which were issued pursuant to a Rights Agreement dated as of May
23, 2001 between EGL, Inc. and Computershare Investor Services, L.L.C.,
as Rights Agent, filed as Exhibit 4.1 to our Form 10-Q for the fiscal
quarter ended September 30, 2001
You may request a copy of these filings (other than an exhibit to those
filings, unless we have specifically incorporated that exhibit by reference in
the filing), at no cost, by writing or telephoning us at the following address:
EGL, Inc.
Attn: Corporate Secretary
15350 Vickery Drive
Houston, Texas 77032
Telephone: (281) 618-3100
FORWARD-LOOKING STATEMENTS
The statements contained in all parts of this document 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 and Section 21E of the Exchange
Act. 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 restructure the debt covenants in our credit facility, if
at all,
- 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,
- the restructured and asset based credit facilities,
- expectations or arrangements for our leased planes and the effects
thereof,
- the expected completion and/or effects of the reorganization 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 cost savings,
- past and planned headcount reductions (including the scope, timing,
impact and effects thereof),
- changes in our dedicated charter fleet strategy (including the scope,
timing 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
ii
expectations of prevailing with respect thereto,
- future operating expenses,
- future margins,
- use of credit facility proceeds,
- fluctuations in currency valuations,
- fluctuations in interest rates,
- effects of and exposure relating to Miami Air,
- 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.
When used in this document or in the documents incorporated by reference,
the words "anticipate," "estimate," "expect," "may," "plans," "project," and
similar expressions are intended to be among the statements that identify
forward-looking statements.
Our results may differ significantly from the results discussed in the
forward-looking statements. Such statements involve risk and uncertainties,
including but not limited to, those relating to the following:
- costs, delays and difficulties related to the Circle merger, including
the integration of our systems, operations and other businesses
- termination of joint ventures, charter aircraft arrangements (including
expected losses, increased utilization and other effects),
- our dependence on our ability to attract and retain skilled managers and
other personnel,
- the intense competition within the freight industry,
- the uncertainty of our ability to manage and continue our growth and
implement our business strategy,
- our dependence on the availability of cargo space to serve our customers,
- the potential for liabilities if certain independent owner/operators that
serve us are determined to be employees,
- effects of regulation,
- the finalization of the EEOC settlement (including the timing and terms
thereof and the results of any appeals or challenges thereto) and the
results of related or other litigation,
- our vulnerability to general economic conditions and dependence on our
principal customers and certain industries,
- the timing, success and effects of our restructuring and other changes to
our leased aircraft arrangements, whether we enter into arrangements with
third parties relating to such leased aircraft and the terms of such
arrangements,
- the results of the new air network,
- responses of customers to our actions by our principal shareholder,
- actions by Miami Air and its creditors,
- accuracy of accounting and other estimates,
- our potential exposure to claims involving our local pickup and delivery
operations,
- whether we enter into definitive agreements for new lift capacity and the
terms of any of such agreement,
- the ability of our lead bank to syndicate our new asset-based credit
facility and the market for such syndications,
- the financial condition and the status of the refinancing efforts of
Miami Air,
iii
- responses of customers,
- actions by our principal shareholders,
- our potential exposure to claims involving our local pick up and delivery
operations,
- risk of international operations,
- risks relating to acquisitions,
- our future financial and operating results, cash needs and demand for our
services,
- our ability to maintain and comply with permits and licenses,
- the matters covered under the caption "Risk Factors," and
- the other factors detailed in our filings with the Securities and
Exchange Commission, including those detailed in the subsection entitled
"Factors That May Affect Future Results and Financial Condition" in our
Form 10-K for the year ended December 31, 2001.
Should 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.
iv
PROSPECTUS SUMMARY
Because this is a summary, it may not contain all the information that may
be important to you. You should read this entire prospectus, including the
information incorporated by reference and the financial data and related notes,
before making an investment decision. When used in this prospectus, the terms
"we," "our" and "us" refer to EGL, Inc. and not to the selling securityholders.
EGL, INC.
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.
We believe that we are one of the largest forwarders of domestic and
international air freight based in the United States. We now have a network of
over 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.
THE OFFERING
The following summary contains basic information about the notes. It does
not contain all the information that is important to you. For a more complete
understanding of the notes, please refer to the section of this document
entitled "Description of the Notes," particularly those subsections to which we
have referred you.
Securities Offered............ $100,000,000 aggregate principal amount of 5%
Convertible Subordinated Notes due December 15,
2006.
Interest...................... 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.
Maturity Date................. December 15, 2006.
Conversion Rights............. 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 adjust-
1
ments. This is equivalent to a conversion rate
of 57.3608 shares per $1,000 principal amount
of notes. Upon conversion, you will not receive
any cash representing accrued interest, other
than in the case of a conversion in connection
with an optional redemption. See "Description
of the Notes -- Conversion of Notes."
Optional Redemption........... We may redeem the notes on or after December
20, 2004 at the redemption prices set forth in
this prospectus, plus accrued and unpaid
interest to, but excluding, the redemption
date.
Sinking Fund.................. None.
Purchase Option Upon Change in
Control....................... Upon a change in control, you may require us to
purchase your notes at 100% of the principal
amount of the notes, plus accrued and unpaid
interest to, but excluding, the purchase date.
We may not have sufficient funds to pay the
purchase price for all duly tendered notes upon
a change in control.
Subordination................. 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. The notes are also
effectively subordinated to the existing and
future indebtedness and other liabilities
including trade payables, of our subsidiaries.
As of March 31, 2002, we had $48 million of
senior indebtedness outstanding (including
approximately $23 million of which were
obligations under off-balance sheet lease
financing arrangements and approximately $25
million of which were obligations related to
letters of credit, but excluding intercompany
liabilities) for purposes of the indenture,
while our subsidiaries had approximately $9
million of outstanding indebtedness and other
liabilities (excluding intercompany liabilities
and liabilities of the type not required to be
reflected on a balance sheet in accordance with
generally accepted accounting principles) and
off-balance sheet guarantees of $13 million. We
and our subsidiaries are not prohibited from
incurring senior indebtedness or other debt
under the indenture.
Use of Proceeds............... We will not receive any proceeds from the sale
by the selling securityholders of the notes or
the underlying common stock. See "Use of
Proceeds."
Symbol for Our Common Stock... Our common stock is traded on The Nasdaq
National Market under the symbol "EAGL."
2
RISK FACTORS
Before making an investment decision, you should consider carefully the
following matters, in addition to the other information included or incorporated
by reference in this prospectus or the registration statement of which this
prospectus is a part.
RISKS RELATING TO OUR BUSINESS
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,
- 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
3
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.
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
4
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.
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
5
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.
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 significantly reduced the demand for Miami Air's cargo plane
services. As a result, the market value of Miami Air's planes declined
dramatically. Throughout the fourth quarter of 2001 and the first quarter of
2002, Miami Air was in discussions with its bank and lessors to obtain debt
concessions on its 727 planes, to buy out the lease on a 727 cargo plane and to
reduce the rates on its 737 passenger planes. In May 2002, we
6
were informed that Miami Air's creditors were no longer willing to make
concessions and that negotiations with creditors had reached an impasse and no
agreement appeared feasible. Accordingly, we recognized an other than temporary
impairment of the carrying value of our $6.7 million common stock investment in
Miami Air, which includes a $509,000 increase in value attributable to our 24.5%
share of Miami Air's first quarter 2002 results of operations. In addition, we
recorded a reserve of $1.3 million for our estimated exposure on the outstanding
letters of credit of Miami Air that are supported by an EGL $7 million standby
letter of credit. If we are required to perform under the $7 million standby
letter of credit, we could be required to recognize an additional charge.
RISKS RELATING TO THE NOTES
WE HAVE A HOLDING COMPANY STRUCTURE AND WILL DEPEND ON DISTRIBUTIONS FROM OUR
OPERATING SUBSIDIARIES TO PAY THESE NOTES. CONTRACTUAL OR LEGAL RESTRICTIONS
APPLICABLE TO OUR SUBSIDIARIES COULD LIMIT DISTRIBUTIONS FROM THEM.
We are a holding company and derive all of our operating income from, and
hold substantially all of our assets through, our subsidiaries. The effect of
this structure is that we will depend on the earnings of our subsidiaries, and
the payment or other distributions to us of these earnings, to meet our
obligations under our credit facilities and these notes. Provisions of law, like
those requiring that dividends be paid only out of surplus, and provisions of
our senior indebtedness limit the ability of our subsidiaries to make payments
or other distributions to us. Our subsidiaries also could agree to other
contractual restrictions on their ability to make distributions. See
"Description of Other Indebtedness."
THE NOTES ARE SUBORDINATED AND THERE ARE NO FINANCIAL COVENANTS IN THE
INDENTURE.
The notes are general unsecured obligations of EGL and are subordinated in
right of payment to all of our existing and future senior indebtedness. In the
event of our bankruptcy, liquidation or reorganization or upon acceleration of
the notes due to an event of default under the indenture and in certain other
events, our assets will be available to pay obligations on the notes only after
all senior indebtedness has been paid. As a result, there may not be sufficient
assets remaining to pay amounts due on any or all of the outstanding notes. In
addition, we will not make any payments on the notes in the event of payment
defaults on our senior indebtedness or other specified defaults on our
designated senior indebtedness.
The notes are also effectively subordinated to the liabilities, including
trade payables, of our subsidiaries. We conduct all of our operations through
subsidiaries. As of March 31, 2002, we had $48 million of senior indebtedness
outstanding (including approximately $23 million of which were obligations under
off-balance sheet lease financing arrangements and approximately $25 million of
which were obligations related to letters of credit, but excluding intercompany
liabilities) for purposes of the indenture, while our subsidiaries had
approximately $9 million of outstanding indebtedness and other liabilities
(excluding intercompany liabilities and liabilities of the type not required to
be reflected on a balance sheet in accordance with generally accepted accounting
principles) and off-balance sheet guarantees of $13 million to which the notes
would have been effectively subordinated.
Neither we nor our subsidiaries are restricted from incurring additional
debt, including senior indebtedness, under the indenture. If we or our
subsidiaries were to incur additional debt or liabilities, our ability to pay
our obligations on the notes could be adversely affected. In addition, we are
not restricted from paying dividends or issuing or repurchasing our securities
under the indenture.
WE MAY BE UNABLE TO MEET THE REQUIREMENTS UPON A CHANGE IN CONTROL.
Upon a change in control, as defined in the indenture, you may require us
to purchase all or a portion of your notes. If a change in control were to
occur, we may not have enough funds to pay the purchase price for all tendered
notes. Our credit facility provides that a change in control constitutes an
event of default. Future credit agreements or other agreements relating to our
indebtedness may also provide that a change in control constitutes an event of
default and additionally may prohibit the repurchase or redemption of the notes.
If a change in control occurs at a time when we are prohibited from purchasing
7
the notes, we could seek the consent of our lenders to purchase the notes or
could attempt to refinance this debt. If we do not obtain a consent, we could
not purchase the notes. Our failure to purchase tendered notes would constitute
an event of default under the indenture, which might constitute a default under
the terms of our other debt. In such circumstances, or if a change in control
would constitute an event of default under our senior indebtedness, the
subordination provisions of the indenture would limit or prohibit payments to
you. The term "change in control" is limited to certain specified transactions
and may not include other events that might harm our financial condition. Our
obligation to offer to purchase the notes upon a change in control would not
necessarily afford you protection in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving us.
NO TRADING MARKET FOR THE NOTES.
There is currently no public market for the notes. To the extent they are
traded, the notes may trade at a discount from their initial offering price to
investors, depending on prevailing interest rates, the market for similar
securities, our performance and other factors. To the extent that an active
trading market for the notes does not develop, the liquidity and trading prices
for the notes may be harmed. We do not currently intend to apply to list the
notes on any securities exchange or public market.
OUR STOCK PRICE IS SUBJECT TO VOLATILITY.
Prior to electing to convert notes, the note holder should compare the
price at which our common stock is trading in the market to the conversion price
of the notes. Our common stock trades on The Nasdaq National Market under the
symbol "EAGL." On May 15, 2002, the last reported sale price of our common stock
on Nasdaq was $17.95 per share. The initial conversion price of the notes is
$17.4335 per share. In the past, the market price of shares of our common stock
has been subject to significant fluctuations. Such fluctuations, as well as
economic conditions generally, may adversely affect the market price of our
securities, including our common stock and the notes.
THE NOTES MAY NOT BE RATED OR MAY RECEIVE A LOWER RATING THAN ANTICIPATED.
We believe it is unlikely that the notes will be rated. However, if one or
more rating agencies rates the notes and assigns the notes a rating lower than
the rating expected by investors, or reduces their rating in the future, the
market price of the notes and our common stock would be harmed.
8
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling
securityholders of the notes or the underlying common stock.
DIVIDEND POLICY
Since our initial public offering in November 1995, we have not paid cash
dividends on our common stock, although Circle had regularly declared semiannual
dividends prior to our merger. We currently anticipate that we will retain all
future earnings for use in our business and do not anticipate paying any cash
dividends in the foreseeable future. Our bank credit agreement prohibits us from
declaring or paying any cash dividends without the bank's consent.
RATIO OF EARNINGS TO FIXED CHARGES
The following table contains our consolidated ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- --------------
1997 1998 1999 2000 2001 2002
---- ---- ----- ----- ----- --------------
Ratio of earnings to fixed
charges.......................... 7.36x 6.91x 6.86x 1.62x --(1) --(1)
---------------
(1)No ratio is shown for the year ended December 31, 2001 or for the three
months ended March 31, 2002 because earnings were insufficient to cover fixed
charges by approximately $62.6 million and $6.0 million, respectively.
For purposes of computing the ratios of earnings to fixed charges:
- earnings consists of income before provision for income taxes plus fixed
charges, less capitalized interest, our share of certain pre-tax income of
equity investees and the minority interest in pre-tax income of
subsidiaries that have not incurred fixed charges, and
- fixed charges consists of interest expensed and capitalized, amortization
of debt discount and expense relating to indebtedness and the portion of
rental expense representative of the interest factor attributable to
leases for rental property.
9
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth historical and pro forma selected
consolidated financial data. The historical consolidated financial data as of
and for each of the five fiscal years in the period ended December 31, 2001 have
been derived from our audited consolidated financial statements. The historical
consolidated financial data as of and for the three months ended March 31, 2002
and 2001 were derived from our unaudited interim consolidated financial
statements. In the opinion of management, such unaudited financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position and results of operations of
such interim periods.
Effective January 1, 2002, we adopted the non-amortization provision of
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets," which requires the suspension of amortization of
goodwill. The pro forma statement of operations data below present our pro forma
consolidated results of operations as if we had suspended the amortization of
goodwill as required under SFAS 142 at the beginning of our 1997 fiscal year.
The pro forma financial data does not purport to be indicative of the results
that would actually have been obtained if we had suspended amortization of
goodwill at the beginning of our 1997 fiscal year or that may be obtained in the
future. Additional information regarding our adoption of the provisions of SFAS
142 is contained in our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002.
The information in this section should be read along with our Annual Report
on Form 10-K for the year ended December 31, 2001, our Quarterly Report on Form
10-Q for the quarter ended March 31, 2002 and our subsequent filings with the
SEC, each of which is incorporated by reference in this prospectus. See "Where
You Can Find More Information."
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------------------
2002 2001 2001 2000 1999(1) 1998(1) 1997(1)
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues................................... $371,999 $422,319 $1,671,994 $1,861,206 $1,409,250 $1,154,761 $1,008,756
Net revenues............................... 154,120 159,190 644,183 719,512 587,075 485,506 406,195
Operating income (loss) (2) (3)(4)......... 1,460 (14,309) (57,569) 9,892 72,862 56,306 58,072
Income (loss) before cumulative effect of
change in accounting for negative
goodwill................................. (4,130) (9,051) (40,177) (722) 51,710 39,547 43,130
Cumulative effect of change in accounting
for negative goodwill(6)................. 213 -- -- -- -- -- --
Net income (loss).......................... (3,917) (9,051) (40,177) (722) 51,710 39,547 43,130
Basic earnings (loss) per share before
cumulative effect of change in accounting
for negative goodwill(5)................. $ (0.09) $ (0.19) $ (0.84) $ (0.02) $ 1.14 $ 0.88 $ 0.99
Cumulative effect of change in accounting
for negative goodwill(6)................. 0.01 -- -- -- -- -- --
Basic earnings (loss) per share(5)......... $ (0.08) $ (0.19) $ (0.84) $ (0.02) $ 1.14 $ 0.88 $ 0.99
Basic weighted average shares
outstanding(5)........................... 47,859 47,081 47,558 46,600 45,504 45,141 43,511
Diluted earnings (loss) per share before
cumulative effect of change in accounting
for negative goodwill(5)................. $ (0.09) $ (0.19) $ (0.84) $ (0.02) $ 1.11 $ 0.85 $ 0.95
Cumulative effect of change in accounting
for negative goodwill(6)................. 0.01 -- -- -- -- -- --
Diluted earnings (loss) per share(5)....... $ (0.08) $ (0.19) $ (0.84) $ (0.02) $ 1.11 $ 0.85 $ 0.95
Diluted weighted average shares
outstanding(5)........................... 47,859 47,081 47,558 46,600 46,481 46,321 45,214
PRO FORMA STATEMENT OF OPERATIONS DATA: (7)
Operating income (loss).................... $ 1,460 $(13,135) $ (53,286) $ 13,729 $ 75,003 $ 58,295 $ 59,816
Income (loss) before cumulative effect of
change in accounting for negative
goodwill................................. (4,130) (7,877) (35,894) 3,115 53,851 41,536 44,874
Cumulative effect of change in accounting
for negative goodwill(6)................. 213 -- -- -- -- -- --
Net income (loss).......................... (3,917) (7,877) (35,894) 3,115 53,851 41,536 44,874
Basic earnings (loss) per share before
cumulative............................... $ (0.09) $ (0.17) $ (0.75) $ 0.07 $ 1.18 $ 0.92 $ 1.03
Cumulative effect of change in accounting
for negative goodwill(6)................. 0.01 -- -- -- -- -- --
Basic earnings (loss) per share............ $ (0.08) $ (0.17) $ (0.75) $ 0.07 $ 1.18 $ 0.92 $ 1.03
10
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------------------
2002 2001 2001 2000 1999(1) 1998(1) 1997(1)
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Basic weighted average shares
outstanding.............................. 47,859 47,081 47,558 46,600 45,504 45,141 43,511
Diluted earnings (loss) per share before
cumulative effect of change in accounting
for negative goodwill.................... $ (0.09) $ (0.17) $ (0.75) $ 0.07 $ 1.16 $ 0.90 $ 0.99
Cumulative effect of change in accounting
for negative goodwill(6)................. 0.01 -- -- -- -- -- --
Diluted earnings (loss) per share.......... $ (0.08) $ (0.17) $ (0.75) $ 0.07 $ 1.16 $ 0.90 $ 0.99
Diluted weighted average shares
outstanding.............................. 47,859 47,081 47,558 47,647 46,481 46,321 45,214
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................ $195,416 $133,380 $ 193,898 $ 240,484 $ 231,533 $ 181,336 $ 160,909
Total assets............................... 795,196 892,505 800,908 904,225 775,694 651,142 541,270
Long-term indebtedness, net of current
portion.................................. 101,280 1,372 103,774 91,051 32,244 21,558 27,702
Stockholders' equity....................... 361,202 397,933 366,091 403,767 401,455 338,758 281,476
---------------
(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 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 the year ended December 31, 2001
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 for the year ended December 31,
2001.
(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 three months ended March 31, 2002 and 2001 and the years ended December
31, 2001 and 2000, as their effect is anti-dilutive given our net loss for
those periods.
(6)Effective January 1, 2002, we adopted SFAS No. 141, Business Combinations,
which requires negative goodwill from pre-existing transactions to be
recognized as the cumulative effect of a change in accounting principle, and
recognized a gain of $213,000 to write-off negative goodwill.
(7)Effective January 1, 2002, we adopted the non-amortization provision of SFAS
142, Goodwill and Other Intangible Assets, and ceased amortization of our
goodwill. The pro forma statement of operations data have been presented to
reflect our results as if the non-amortization provision of this standard had
been adopted at the beginning of each period presented.
11
DESCRIPTION OF THE NOTES
The notes are a series of subordinated debt securities issued under an
indenture dated as of December 7, 2001, as supplemented by a first supplemental
indenture, also dated as of December 7, 2001, between us and JPMorgan Chase
Bank, as trustee (the "trustee") (referred to in this prospectus as the
"indenture"). The following summary of certain provisions of the indenture and
the notes does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the indenture, including the
definitions of certain terms and those terms made a part of the indenture by
reference to the Trust Indenture Act of 1939 and the notes. We urge you to read
the indenture because the indenture, and not this description, defines your
rights as a holder of the notes. A copy of the form of indenture and the form of
certificate evidencing the notes is available to you upon request to EGL.
The indenture does not limit the amount of debt that may be issued by us
under the indenture. We may issue debt securities from time to time under the
indenture in separate series (each, a "series"), each up to the aggregate
principal amount authorized by us for such series.
In this section of the prospectus entitled "Description of the Notes," when
we refer to "EGL," "we," "our," or "us," we are referring to EGL, Inc. and not
any of its subsidiaries.
GENERAL
The notes are general unsecured obligations of EGL and are subordinate in
right of payment as described under "-- Subordination of Notes." The notes are
convertible into common stock as described under "-- Conversion of Notes." The
notes are limited to $100,000,000 aggregate principal amount. We may, without
the consent of the holders, increase the aggregate principal amount in the
future on the same terms and conditions and with the same CUSIP number as the
notes being offered hereby. The notes will be issued only in denominations of
$1,000 or in multiples of $1,000. The notes will mature on December 15, 2006,
unless earlier redeemed at our option or purchased by us at your option upon a
change in control.
Neither we nor our subsidiaries are restricted from paying dividends,
incurring debt, or issuing or repurchasing our securities under the indenture.
In addition, there are no financial covenants in the indenture. You are not
protected under the indenture in the event of a highly leveraged transaction or
a change in control of EGL, except to the extent described under "-- Purchase of
Notes at Your Option Upon a Change in Control."
The notes bear interest at the annual rate of 5% from December 7, 2001.
Interest will be payable on June 15 and December 15 of each year, beginning June
15, 2002, subject to limited exceptions if the notes are converted, redeemed or
purchased prior to the interest payment date. The record dates for the payment
of interest will be June 1 and December 1. We may, at our option, pay interest
on the notes by check mailed to the holders. However, a holder with an aggregate
principal amount in excess of $2 million will be paid by wire transfer in
immediately available funds upon its election if the holder has provided us with
wire transfer instructions at least 10 business days prior to the payment date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. We will not be required to make any payment on the notes due on
any day which is not a business day until the next succeeding business day. The
payment made on the next succeeding business day will be treated as though it
were paid on the original due date and no interest will accrue on the payment
for the additional period of time.
We will maintain an office in The City of Dallas, Texas where the notes may
be presented for registration of transfer, exchange or conversion. This office
will initially be an office or agency of the trustee. Except under limited
circumstances described below, the notes will be issued only in fully-
registered book-entry form, without coupons, and will be represented by one or
more global notes. There will be no service charge for any registration of
transfer or exchange of notes. We may, however, require holders to pay a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection with certain transfers or exchanges.
12
CONVERSION OF NOTES
You have the right, at your option, to convert your notes into shares of
our common stock at any time four trading days prior to maturity, unless
previously redeemed or purchased, at the conversion price of approximately
$17.4335 per share, subject to the adjustments described below. This is
equivalent to a conversion rate of 57.3608 shares per $1,000 principal amount of
notes.
Except as described below, we will not make any payment or other adjustment
for accrued interest or dividends on any common stock issued upon conversion of
the notes. If you submit your notes for conversion between a record date and the
opening of business on the next interest payment date (except for notes or
portions of notes called for redemption or subject to purchase following a
change in control on a redemption date or a purchase date, as the case may be,
occurring during the period from the close of business on a record date and
ending on the opening of business on the first business day after the next
interest payment date, or if this interest payment date is not a business day,
the second business day after the interest payment date), you must pay funds
equal to the interest payable on the principal amount being converted. As a
result of the foregoing provisions, if the exception described in the preceding
sentence does not apply and you surrender your notes for conversion on a date
that is not an interest payment date, you will not receive any interest for the
period from the interest payment date next preceding the date of conversion or
for any later period.
We will not issue fractional shares of common stock upon conversion of
notes. Instead, we will pay cash for the fractional amount based upon the
closing market price of the common stock on the last trading day prior to the
date of conversion.
If the notes are called for redemption or are subject to purchase following
a change in control, your conversion rights on the notes called for redemption
or so subject to purchase will expire at the close of business on the last
business day before the redemption date or purchase date, as the case may be, or
such earlier date as the notes are presented for redemption or for purchase,
unless we default in the payment of the redemption price or purchase price, in
which case, your conversion right will terminate at the close of business on the
date the default is cured and the notes are redeemed or purchased. If you have
submitted your notes for purchase upon a change in control, you may only convert
your notes if you withdraw your election in accordance with the indenture.
The conversion price will be adjusted upon the occurrence of:
(1) the issuance of shares of our common stock as a dividend or
distribution on our common stock,
(2) the subdivision or combination of our outstanding common stock,
(3) the issuance to all or substantially all holders of our common
stock of rights or warrants entitling them for a period of not more than 60
days to subscribe for or purchase our common stock at a price per share
less than the then current market price per share, provided that the
conversion price will be readjusted to the extent that such rights or
warrants are not exercised prior to the expiration,
(4) the distribution to all or substantially all holders of our common
stock of shares of our capital stock, evidences of indebtedness or other
securities or non-cash assets, or rights or warrants, excluding:
- dividends, distributions and rights or warrants referred to in
clause (1) or (3) above,
- dividends or distributions exclusively in cash referred to in
clause (5) below, and
- distribution of rights to all holders of common stock pursuant to
an adoption of a shareholder rights plan,
(5) the dividend or distribution to all or substantially all holders
of our common stock of all-cash distributions in an aggregate amount that
together with (A) any cash and the fair market value of any
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other consideration payable in respect of any tender offer by us or any of
our subsidiaries for our common stock consummated within the preceding 12
months not triggering a conversion price adjustment and (B) all other
all-cash distributions to all or substantially all holders of our common
stock made within the preceding 12 months not triggering a conversion price
adjustment, exceeds an amount equal to 10% of our market capitalization on
the business day immediately preceding the day on which we declare such
distribution, and
(6) the purchase of our common stock pursuant to a tender offer made
by us or any of our subsidiaries to the extent that the same involves
aggregate consideration that together with (A) any cash and the fair market
value of any other consideration payable in respect of any other tender
offer by us or any of our subsidiaries for our common stock consummated
within the preceding 12 months not triggering a conversion price adjustment
and (B) all-cash distributions to all or substantially all holders of our
common stock made within the preceding 12 months not triggering a
conversion price adjustment, exceeds an amount equal to 10% of our market
capitalization on the expiration date of such tender offer.
To the extent that our rights plan is still in effect, upon conversion of
the notes into common stock, the holders will receive, in addition to the common
stock, the rights described in our rights plan, whether or not the rights have
separated from the common stock at the time of conversion, subject to certain
limited exceptions. See "Description of Capital Stock." If we implement a new
rights plan, we will be required under the indenture to provide that the holders
of notes will receive the rights upon conversion of the notes, whether or not
these rights were separated from the common stock prior to conversion, subject
to certain limited exceptions.
In the event of:
- any reclassification of our common stock, or
- a consolidation, merger or conversion involving EGL, or
- a sale or conveyance to another person of all or substantially all of the
property and assets of EGL,
in which holders of our outstanding common stock would be entitled to receive
stock, other securities, other property, assets or cash for their common stock,
holders of notes will generally be entitled to convert their notes into the same
type of consideration received by common stock holders immediately prior to one
of these types of events.
You may, in some circumstances, be deemed to have received a distribution
or dividend subject to United States federal income tax as a result of an
adjustment or the nonoccurrence of an adjustment to the conversion price.
We are permitted to reduce the conversion price of the notes by any amount
for a period of at least 20 days if our board of directors determines that such
reduction would be in our best interest. We are required to give at least 15
days' prior notice of any reduction in the conversion price. We may also reduce
the conversion price to avoid or diminish income tax to holders of our common
stock in connection with a dividend or distribution of stock or similar event.
No adjustment in the conversion price will be required unless it would
result in a change in the conversion price of at least one percent. Any
adjustment not made will be taken into account in subsequent adjustments. Except
as stated above, we will not adjust the conversion price for the issuance of our
common stock or any securities convertible into or exchangeable for our common
stock or the right to purchase our common stock or such convertible or
exchangeable securities.
SUBORDINATION OF NOTES
The payment of the principal of, premium, if any, and interest on the notes
is subordinated to the prior payment in full, in cash or other payment
satisfactory to the holders of senior indebtedness, of all existing and future
senior indebtedness. If we dissolve, wind-up, liquidate or reorganize, or if we
are the
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subject of any bankruptcy, insolvency, receivership or similar proceedings, we
will pay the holders of senior indebtedness in full in cash or other payment
satisfactory to the holders of senior indebtedness before we pay the holders of
the notes. If the notes are accelerated because of an event of default we must
pay the holders of senior indebtedness in full all amounts due and owing
thereunder before we pay the note holders. The indenture requires that we
promptly notify holders of senior indebtedness if payment of the notes is
accelerated because of an event of default under the indenture.
We may not make any payment on the notes or purchase or otherwise acquire
the notes if:
- a default in the payment of any designated senior indebtedness occurs and
is continuing beyond any applicable period of grace, or
- any other default of designated senior indebtedness occurs and is
continuing that permits holders of the designated senior indebtedness to
accelerate its maturity and the trustee receives a payment blockage
notice from the Company or other person permitted to give such notice
under the indenture.
We are required to resume payments on the notes:
- in case of a payment default, upon the date on which such default is
cured or waived or ceases to exist, and
- in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or ceases to exist or 179 days
after the date on which the payment blockage notice is received.
No new period of payment blockage may be commenced for a default unless 365
days have elapsed since the effectiveness of the immediately prior payment
blockage notice.
No nonpayment default that existed or was continuing on the date of
delivery of any payment blockage notice shall be the basis for a subsequent
payment blockage notice.
As a result of these subordination provisions, in the event of our
bankruptcy, dissolution or reorganization, holders of senior indebtedness may
receive more, ratably, and holders of the notes may receive less, ratably, than
our other creditors. These subordination provisions will not prevent the
occurrence of any event of default under the indenture.
If either the trustee or any holder of notes receives any payment or
distribution of our assets in contravention of these subordination provisions
before all senior indebtedness is paid in full, then such payment or
distribution will be held by the recipient in trust for the benefit of holders
of senior indebtedness to the extent necessary to make payment in full of all
senior indebtedness remaining unpaid.
A portion of our operations is or in the future may be conducted through
subsidiaries. As a result, our cash flow and our ability to service our debt,
including the notes, would depend upon the earnings of our subsidiaries. In
addition, we would be dependent on the distribution of earnings, loans or other
payments by our subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. Our subsidiaries
have no obligation to pay any amounts due on the notes or to provide us with
funds for our payment obligations, whether by dividends, distributions, loans or
other payments. In addition, any payment of dividends, distributions, loans or
advances by our subsidiaries will also be contingent upon our subsidiaries'
earnings and could be subject to contractual or statutory restrictions.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders of the
notes to participate in those assets, will be structurally subordinated to the
claims of that subsidiary's creditors, including trade creditors. In addition,
even if we were a creditor of any of our subsidiaries, our rights as a creditor
would be subordinate to any security interest in the assets of our subsidiaries
and any indebtedness of our subsidiaries senior to that held by us.
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As of March 31, 2002, we had $48 million of senior indebtedness outstanding
(including approximately $23 million of which were obligations under off-balance
sheet lease financing arrangements and approximately $25 million of which were
obligations related to letters of credit, but excluding intercompany
liabilities) for purposes of the indenture, while our subsidiaries had
approximately $9 million of outstanding indebtedness and other liabilities
(excluding intercompany liabilities and liabilities of the type not required to
be reflected on a balance sheet in accordance with generally accepted accounting
principles) and off-balance sheet guarantees of $13 million to which the notes
will be effectively subordinated.
Neither we nor our subsidiaries are limited from incurring senior
indebtedness or additional debt under the indenture. If we incur additional
debt, our ability to pay our obligations on the notes could be affected. We
expect from time to time to incur additional indebtedness and other liabilities.
We are obligated to pay reasonable compensation to the trustee. We will
indemnify the trustee against any losses, liabilities or expenses incurred by it
in connection with its duties. The trustee's claims for such payments will be
senior to the claims of the note holders.
The term "designated senior indebtedness" means any senior indebtedness in
which the instrument creating or evidencing the indebtedness, or any related
agreements or documents to which we are a party, expressly provides that such
indebtedness is "designated senior indebtedness" for purposes of the indenture
(provided that the instrument, agreement or other document may place limitations
and conditions on the right of the senior indebtedness to exercise the rights of
designated senior indebtedness). We have designated as designated senior
indebtedness our senior indebtedness under our existing amended and restated
credit facility and our existing off-balance sheet leasing arrangements,
including, in each case, any and all amendments, supplements, modifications,
refinancings and replacements thereof.
The term "indebtedness" means:
(1) all of our indebtedness, obligations and other liabilities,
contingent or otherwise, (A) for borrowed money, including overdrafts,
foreign exchange contracts, currency exchange agreements, interest rate
protection agreements, and any loans or advances from banks, whether or not
evidenced by notes or similar instruments, or (B) evidenced by credit or
loan agreements, bonds, debentures, notes or similar instruments, whether
or not the recourse of the lender is to the whole of the assets of EGL or
to only a portion thereof, other than any account payable or other accrued
current liability or obligation incurred in the ordinary course of business
in connection with the obtaining of materials or services,
(2) all of our reimbursement obligations and other liabilities,
contingent or otherwise, with respect to letters of credit, bank guarantees
or bankers' acceptances,
(3) all of our obligations and liabilities, contingent or otherwise,
in respect of leases required, in conformity with generally accepted
accounting principles, to be accounted for as capitalized lease obligations
on our balance sheet,
(4) all of our obligations and other liabilities, contingent or
otherwise, under any lease or related document, including a purchase
agreement, conditional sale or other title retention agreement, in
connection with the lease of real property or improvements thereon (or any
personal property included as part of any such lease) which provides that
we are contractually obligated to purchase or cause a third party to
purchase the leased property or pay an agreed upon residual value of the
leased property, including our obligations under such lease or related
document to purchase or cause a third party to purchase such leased
property or pay an agreed upon residual value of the leased property to the
lessor, whether or not such lease transaction is characterized as an
operating lease or a capitalized lease in accordance with generally
accepted accounting principles,
(5) all of our obligations, contingent or otherwise, with respect to
an interest rate or other swap, cap, floor or collar agreement or hedge
agreement, forward contract or other similar instrument or agreement or
foreign currency hedge, exchange, purchase or similar instrument or
agreement,
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(6) all of our direct or indirect guarantees or similar agreements by
us in respect of, and all of our obligations or liabilities to purchase or
otherwise acquire or otherwise assure a creditor against loss in respect
of, indebtedness, obligations or liabilities of another person of the kinds
described in clauses (1) through (5),
(7) any and all deferrals, renewals, extensions, refinancings and
refundings of, or amendments, modifications or supplements to, any
indebtedness, obligation or liability of the kinds described in clauses (1)
through (6).
The term "senior indebtedness" means the principal of, premium, if any,
interest, including any interest accruing after the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowed as a claim in the proceeding, and rent payable on or in
connection with, and all fees, costs, expenses and other amounts accrued or due
on or in connection with, indebtedness of EGL whether secured or unsecured,
absolute or contingent, due or to become due, outstanding on the date of the
indenture or thereafter created, incurred, assumed, guaranteed or in effect
guaranteed by EGL, including all deferrals, renewals, extensions or refundings
of, or amendments, modifications or supplements to, the foregoing. Senior
indebtedness does not include:
(1) indebtedness that expressly provides that such indebtedness shall
not be senior in right of payment to the notes or expressly provides that
such indebtedness is on the same basis or junior to the notes, and
(2) any indebtedness to any of our majority-owned subsidiaries, other
than indebtedness to our subsidiaries arising by reason of guarantees by us
of indebtedness of such subsidiary to a person that is not our subsidiary.
OPTIONAL REDEMPTION BY EGL
We may redeem the notes on or after December 20, 2004, on at least 20 days
and no more than 60 days notice, in whole or in part, at the following
redemption prices expressed as percentages of the principal amount:
REDEMPTION
PERIOD PRICE
------ ----------
Beginning on December 20, 2004 through December 14, 2005.... 101.25%
Beginning on December 15, 2005 and thereafter............... 100.00%
in each case, together with accrued interest up to but not including the
redemption date; provided that if the redemption date falls after an interest
payment record date and on or before an interest payment date, then the interest
payment shall be payable to holders of record on the relevant record date.
If we decide to redeem fewer than all of the notes, the trustee will select
the notes to be redeemed by lot, or in its discretion, on a pro rata basis or by
another method as the trustee deems fair and appropriate. If any note is to be
redeemed in part only, a new note in principal amount equal to the unredeemed
principal portion will be issued. If a portion of your notes is selected for
partial redemption and you convert a portion of your notes, the converted
portion will be deemed to be part of the portion selected for redemption.
NO MANDATORY REDEMPTION OR SINKING FUND; OPEN MARKET PURCHASES
We are not required to make any mandatory redemption or sinking fund
payments with respect to the notes. However, under certain circumstances we may
be required to offer to purchase notes as described under the caption
"-- Purchase of Notes at Your Option Upon a Change in Control." We may at any
time and from time to time purchase notes in the open market or otherwise.
17
PURCHASE OF NOTES AT YOUR OPTION UPON A CHANGE IN CONTROL
If a change in control occurs, you will have the right to require us to
purchase all or any part of your notes 30 business days after the occurrence of
such change in control at a purchase price equal to 100% of the principal amount
of the notes together with accrued and unpaid interest to, but excluding, the
purchase date. Notes submitted for purchase must be in integral multiples of
$1,000 principal amount.
We will mail to the trustee and to each holder a written notice of the
change in control within 10 business days after the occurrence of such change in
control. This notice shall state certain specified information, including:
- information about and the terms and conditions of the change in control,
- information about the holders' right to convert the notes,
- the holders' right to require us to purchase the notes,
- the procedures required for exercise of the purchase option upon the
change in control, and
- the name and address of the paying and conversion agents.
You must deliver written notice of your exercise of this purchase right to
the paying agent at any time prior to the close of business on the business day
prior to the change in control purchase date. The written notice must specify
the notes for which the purchase right is being exercised. If you wish to
withdraw this election, you must provide a written notice of withdrawal to the
paying agent at any time prior to the close of business on the business day
prior to the change in control purchase date.
A change in control will be deemed to have occurred if any of the following
occurs:
- any "person" or "group" is or becomes the "beneficial owner," directly or
indirectly, of shares of our voting stock representing 50% or more of the
total voting power of all outstanding classes of our voting stock or has
the power, directly or indirectly, to elect a majority of the members of
our board of directors,
- we consolidate with, or merge with or into, another person or we sell,
assign, convey, transfer, lease or otherwise dispose of all or
substantially all of our assets, or any person consolidates with, or
merges with or into, us, in any such event other than pursuant to a
transaction in which the persons that "beneficially owned," directly or
indirectly, the shares of our voting stock immediately prior to such
transaction "beneficially own," directly or indirectly, shares of our
voting stock representing at least a majority of the total voting power
of all outstanding classes of voting stock of the surviving or transferee
person, or
- the holders of our capital stock approve any plan or proposal for the
liquidation or dissolution of EGL (whether or not otherwise in compliance
with the indenture).
However, a change in control will not be deemed to have occurred if either:
- the last sale price of our common stock for any five trading days during
the ten trading days immediately preceding the change in control is at
least equal to 105% of the conversion price in effect on such day, or
- in the case of a merger or consolidation, all of the consideration
(excluding cash payments for fractional shares and cash payments pursuant
to dissenters' appraisal rights) in the merger or consolidation
constituting the change in control consists of common stock traded on a
United States national securities exchange or quoted on the Nasdaq
National Market (or which will be so traded or quoted when issued or
exchanged in connection with such change in control) and as a result of
such transaction or transactions the notes become convertible solely into
such common stock.
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For purposes of this change in control definition:
- "person" or "group" have the meanings given to them for purposes of
Sections 13(d) and 14(d) of the Exchange Act or any successor provisions,
and the term "group" includes any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act, or any successor provision,
- a "beneficial owner" will be determined in accordance with Rule 13d-3
under the Exchange Act, as in effect on the date of the indenture, except
that the number of shares of our voting stock will be deemed to include,
in addition to all outstanding shares of our voting stock and unissued
shares deemed to be held by the "person" or "group" or other person with
respect to which the change in control determination is being made, all
unissued shares deemed to be held by all other persons,
- "beneficially own" and "beneficially owned" have meanings correlative to
that of beneficial owner,
- "unissued shares" means shares of voting stock not outstanding that are
subject to options, warrants, rights to purchase or conversion privileges
exercisable within 60 days of the date of determination of a change in
control, and
- "voting stock" means any class or classes of capital stock or other
interests then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of the board of
directors, managers or trustees.
The term "all or substantially all" as used in the definition of change in
control will likely be interpreted under applicable state law and will be
dependent upon particular facts and circumstances. There may be a degree of
uncertainty in interpreting this phrase. As a result, we cannot assure you how a
court would interpret this phrase under applicable law if you elect to exercise
your rights following the occurrence of a transaction which you believe
constitutes a transfer of "all or substantially all" of our assets.
We will under the indenture:
- comply with the provisions of Rule 13e-4 and Rule 14e-1, if applicable,
under the Exchange Act,
- file a Schedule TO or any successor or similar schedule, if required,
under the Exchange Act, and
- otherwise comply with all federal and state securities laws in connection
with any offer by us to purchase the notes upon a change in control.
This change in control purchase feature may make more difficult or
discourage a takeover of us and the removal of incumbent management. We are not,
however, aware of any specific effort to accumulate shares of our common stock
or to obtain control of us by means of a merger, tender offer, solicitation or
otherwise. In addition, the change in control purchase feature is not part of a
plan by management to adopt a series of anti-takeover provisions. Instead, the
change in control purchase feature is a result of negotiations between us and
the initial purchaser.
We could, in the future, enter into certain transactions, including
recapitalizations, that would not constitute a change in control but would
increase the amount of debt, including senior indebtedness, outstanding or
otherwise adversely affect a holder. Neither we nor our subsidiaries are
prohibited from incurring debt, including senior indebtedness, under the
indenture. The incurrence of significant amounts of additional debt could
adversely affect our ability to service our debt, including the notes.
Certain of our debt agreements may prohibit our redemption or repurchase of
the notes and provide that a change in control constitutes an event of default.
We may not purchase any note at any time when the subordination provisions
of the indenture otherwise would prohibit us from making such repurchase. If we
fail to repurchase the notes when required, this failure will constitute an
event of default under the indenture whether or not repurchase is permitted by
the subordination provisions of the indenture.
19
If a change in control were to occur, we may not have sufficient funds to
pay the change in control purchase price for the notes tendered by holders. In
addition, we may in the future incur debt that has similar change of control
provisions that permit holders of this debt to accelerate or require us to
repurchase this debt upon the occurrence of events similar to a change in
control. Our failure to repurchase the notes upon a change in control will
result in an event of default under the indenture, whether or not the purchase
is permitted by the subordination provisions of the indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The indenture generally permits a consolidation, merger or conversion
between us and another entity. It also permits the sale by us of all or
substantially all of our assets. The indenture provides, however, that we may
consolidate with another entity to form a new entity or merge or convert into
any other entity or transfer or dispose of all or substantially all of our
assets to any other entity only if:
- the resulting or surviving entity (1) (A) is a corporation organized and
existing under the laws of the United States, any state of the United
States or the District of Columbia or (B) (i) is a corporation organized
and existing under the laws of the Cayman Islands, Bermuda or any other
jurisdiction where it is exempt from withholding or deducting amounts for
or on the account of any present or future taxes, fees, duties,
assessments or governmental charges of whatever nature with respect to
the payment of interest on the notes, (ii) its shares of capital stock
are listed on a national securities exchange or quoted on an interdealer
automated quotation system and (iii) we deliver an officers' certificate
to the trustee to the effect that such consolidation, merger, conversion,
transfer or disposal is not reasonably expected to be adverse in any
material respect to the holders taken as a whole, and (2) assumes the due
and punctual payments on the notes and the performance of our covenants
and obligations under the indenture and the notes and provides for
conversion rights of the notes, and
- immediately after giving effect to the transaction, no default or event
of default would occur and be continuing.
EVENTS OF DEFAULT
The following will be events of default with respect to the notes, whether
or not prohibited by the subordination provisions of the indenture:
- our failure to pay interest on the notes for 30 days,
- our failure to pay principal of, any premium on or the purchase price of
the notes when due,
- our failure to comply with any of our other covenants or agreements in
the notes or the indenture (other than an agreement or covenant that we
have included in the indenture solely for the benefit of other series of
debt securities) for 90 days after written notice by the trustee or by
the holders of at least 25% in principal amount of all the outstanding
debt securities issued under the indenture that are affected by that
failure,
- our failure to provide timely notice of a change in control,
- any indebtedness for money borrowed by us or some of our significant
subsidiaries (all or substantially all of the outstanding voting
securities of which are owned, directly or indirectly, by us) in an
outstanding principal amount in excess of $10 million is not paid at
final maturity or upon acceleration and such indebtedness is not
discharged, or such default in payment or acceleration is not cured or
rescinded within 30 days after written notice by the trustee or by the
holders of at least 25% in principal amount of the notes, and
- specified events involving bankruptcy, insolvency or reorganization of
EGL.
A default under the notes will not necessarily be a default under another
series of debt securities. The trustee may withhold notice to the holders of the
debt securities of any default or event of default, except
20
in any payment on the debt securities, if the trustee in good faith determines
that withholding notice is in the interest of the holders of the debt
securities.
If an event of default for the notes occurs and is continuing, the trustee
or the holders of at least 25% in principal amount of the notes (or, in some
cases, 25% in principal amount of all debt securities under the indenture
affected, voting as one class) may declare the principal of and all accrued and
all unpaid interest on the notes (or, in some cases, the debt securities) those
debt securities to be immediately due and payable. If an event of default
relating to events of bankruptcy, insolvency or reorganization occurs, the
principal of and all accrued and unpaid interest on all the debt securities will
become immediately due and payable without any action on the part of the trustee
or any holder. Any payment by us on the notes following any acceleration will be
subject to the subordination provisions described above. The holders of a
majority in principal amount of the outstanding notes (or of all debt securities
under the indenture affected, voting as one class) may in some cases rescind
this accelerated payment requirement. Depending on the terms of our other
indebtedness, an event of default under the indenture may give rise to cross
defaults on our other indebtedness.
A holder of a note will be able to pursue any remedy under the indenture
only if
- the holder gives the trustee written notice of a continuing event of
default with respect to the notes,
- the holders of at least 25% in principal amount of the notes make a
written request to the trustee to pursue the remedy,
- the holder or holders offer to the trustee indemnity reasonably
satisfactory to it,
- the trustee fails to act for a period of 60 days after receipt of notice
and offer of indemnity, and
- during that 60-day period, the holders of a majority in principal amount
of the notes do not give the trustee a direction inconsistent with the
request.
This provision will not, however, affect the right of a holder of a note to
sue for enforcement of any overdue payment.
In most cases, holders of a majority in principal amount of the notes (or
of all debt securities affected, voting as one class) will be able to direct the
time, method and place of
- conducting any proceeding for any remedy available to the trustee with
respect to the notes, and
- exercising any trust or power conferred on the trustee not relating to or
arising under an event of default.
The indenture requires us to file with the trustee each year a written
statement as to our compliance with the covenants contained in the indenture.
MODIFICATION AND WAIVER
We may amend or supplement the indenture if the holders of a majority in
principal amount of the outstanding debt securities of all series issued under
the indenture and affected by the amendment or supplement (acting as one class)
consent to it. Without the consent of the holder of each debt security affected,
however, no amendment or supplement may:
- reduce the amount of debt securities whose holders must consent to an
amendment, supplement or waiver,
- reduce the rate of or change the time for payment of interest on any debt
security,
- reduce the principal of, premium on or any mandatory sinking fund payment
for any debt security,
- change the stated maturity of any debt security,
21
- reduce any premium payable on the redemption of any debt security or
change the time at which any debt security may or must be redeemed or
modify the indenture in a manner that adversely affects the conversion
rights of the notes,
- change any obligation to pay additional amounts on any debt security,
- modify the provisions with respect to the purchase right of the holders
upon a change in control in a manner adverse to holders in any material
respect,
- modify the provisions with respect to the right of holders to convert
notes in a manner adverse to holders in any material respect,
- make the payments on any debt security payable in any currency or
currency unit other than as the debt security originally states,
- impair the holder's right to institute suit for the enforcement of any
payment on any debt security or the right of conversion,
- make any change in the percentage of principal amount of debt securities
necessary to waive compliance with specified provisions of the applicable
indenture or to make any change in the applicable indenture's provisions
for modification,
- waive a continuing default or event of default regarding any payment on
any debt security, or
- modify the provisions relating to the subordination of any subordinated
debt security in a manner adverse to the holder of that security.
We and the trustee may agree to amend or supplement the indenture or waive
any provision of the indenture without the consent of any holders of debt
securities in some circumstances, including:
- issue additional debt securities from time to time under the indenture or
any other indenture,
- to cure any ambiguity, omission, defect or inconsistency,
- to provide for the assumption of our obligations and the provision of
conversion rights under the indenture by a successor upon any merger,
consolidation or asset transfer,
- to provide for uncertificated debt securities in addition to or in place
of certificated debt securities or to provide for bearer debt securities,
- to provide any security for or add guarantees of any series of debt
securities,
- to comply with any requirement to effect or maintain the qualification of
the indenture under the Trust Indenture Act of 1939,
- to add covenants that would benefit the holders of any debt securities or
to surrender any rights we have under the indenture,
- to add events of default with respect to any debt securities,
- to make any change that does not adversely affect any outstanding debt
securities of any series in any material respect,
- to facilitate the defeasance or discharge of any series of debt
securities if that change does not adversely affect the holders of debt
securities of that series or any other series under the indenture in any
material respect, and
- to provide for the acceptance of a successor or another trustee.
The holders of a majority in principal amount of the outstanding debt
securities of any series, or of all debt securities affected, voting as one
class, may waive any existing or past default or event of default with respect
to those debt securities. Those holders may not, however, waive any default or
event of default in
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any payment on any debt security or compliance with a provision that cannot be
amended or supplemented without the consent of each holder affected.
DISCHARGE AND DEFEASANCE
We will be discharged from all obligations under the indenture with respect
to the notes, except for surviving obligations relating to any conversion rights
and to register the transfer or exchange of the notes, if:
- all notes previously authenticated and delivered under the indenture have
been delivered to the indenture trustee for cancellation, or
- all notes have become due and payable or will become due and payable
within one year, at maturity or by redemption, and we deposit with the
trustee funds or government securities sufficient to make payments on the
notes on the dates those payments are due.
To exercise our right to be discharged, we must deliver to the trustee an
opinion of counsel and an officers' certificate stating that all conditions
precedent to the satisfaction and discharge of the indenture have been complied
with.
In addition to our right of discharge described above, we may deposit with
the trustee funds or government securities sufficient to make payments on the
notes on the dates those payments are due and payable, and then, at our option,
either of the following will occur:
- we will be discharged from our obligations with respect to the notes
("legal defeasance"), or
- we will no longer have any obligation to comply with the restrictive
covenants under the indenture, and the related events of default will no
longer apply to us, but some of our other obligations under the indenture
and the notes, including our obligation to make payments on those notes,
will survive ("covenant defeasance").
If we defease the notes, the holders of the notes will not be entitled to
the benefits of the indenture, except for our obligations to:
- convert the notes,
- register the transfer or exchange of notes,
- replace stolen, lost or mutilated notes, and
- maintain paying agencies and hold moneys for payment in trust.
We will be required to deliver to the trustee an opinion of counsel that the
deposit and related defeasance would not cause the holders of the notes to
recognize income, gain or loss for United States federal income tax purposes. If
we elect legal defeasance, that opinion of counsel must be based on a ruling
from the United States Internal Revenue Service or a change in law to that
effect.
REGISTRATION RIGHTS
We entered into a registration rights agreement on December 7, 2001 with
the initial purchaser for the benefit of the holders of the notes and the common
stock issued upon conversion of the notes (collectively, the "registrable
securities"). Under the terms of the registration rights agreement, we agreed,
at our cost:
(a) on or prior to March 4, 2002, to file a registration statement (a
"shelf registration statement") covering resales of the restricted
securities pursuant to Rule 415 under the Securities Act,
(b) on or prior to June 3, 2002, to use our commercially reasonable
efforts to cause the shelf registration statement to be declared effective
under the Securities Act, and
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(c) to use our commercially reasonable efforts to keep the shelf
registration statement effective for up to two years.
We further agreed that, among other things, if (i) by June 3, 2002, the
shelf registration statement has not been declared effective by the SEC, or (ii)
after the shelf registration statement has been declared effective, the shelf
registration statement ceases to be effective or usable (subject to certain
exceptions that permit us to suspend the use of the prospectus which is a part
of the registration statement for a period not to exceed an aggregate of 45 days
in any 90-day period or an aggregate of 90 days in any twelve-month period) in
connection with resales of the restricted securities in accordance with and
during the periods specified in the registration rights agreement (each such
event referred to in clauses (i) and (ii) a "registration default"), additional
interest will accrue on the registrable securities in addition to the rate shown
on the cover page of this prospectus, from and including the date on which any
such registration default shall occur to, but excluding, the date on which the
registration default has been cured, at the rate of 0.5% per year for the notes
(or an equivalent amount for any common stock issued upon conversion of the
notes that are registrable securities). In the case of a registration default
described in clause (ii), our obligation to pay additional interest extends only
to the affected notes. We will have no other liabilities for monetary damages
with respect to our registration obligations. With respect to each holder, our
obligations to pay additional interest remain in effect only so long as the
notes and the common stock issuable upon the conversion of the notes held by the
holder are "registrable securities" within the meaning of the registration
rights agreement.
A holder selling securities pursuant to the shelf registration statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the registration rights
agreement which are applicable to such holder (including certain indemnification
obligations).
We will pay all registration expenses of the shelf registration, provide
each holder that is selling registrable securities pursuant to the shelf
registration statement copies of the related prospectus and take other actions
as are required to permit, subject to the foregoing, unrestricted resales of the
registrable securities. Selling security holders remain responsible for all
selling expenses (i.e., commissions and discounts).
The preceding summary of certain provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the registration rights
agreement, a copy which has been filed as an exhibit to the registration
statement of which this prospectus forms a part.
TRANSFER AND EXCHANGE
We have initially appointed the trustee as the security registrar, paying
agent and conversion agent, acting through its corporate trust office. We
reserve the right to:
- vary or terminate the appointment of the security registrar, paying agent
or conversion agent,
- appoint additional paying agents or conversion agents, or
- approve any change in the office through which any security registrar or
any paying agent or conversion agent acts.
PURCHASE AND CANCELLATION
All notes surrendered for payment, redemption, registration of transfer or
exchange or conversion shall, if surrendered to any person other than the
trustee, be delivered to the trustee. All notes delivered to the trustee shall
be cancelled promptly by the trustee. No notes shall be authenticated in
exchange for any notes cancelled as provided in the indenture.
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We may, to the extent permitted by law, purchase notes in the open market
or by tender offer at any price or by private agreement. Any notes purchased by
us may, to the extent permitted by law, be reissued or resold or may, at our
option, be surrendered to the trustee for cancellation. Any notes surrendered
for cancellation may not be reissued or resold and will be promptly cancelled.
Any notes held by us or one of our subsidiaries or other affiliates shall be
disregarded for purposes of any waiver, consent or direction requiring the vote
or concurrence of note holders.
REPLACEMENT OF NOTES
We will replace mutilated, destroyed, stolen or lost notes at your expense
upon delivery to the trustee of the mutilated notes, or evidence of the loss,
theft or destruction of the notes satisfactory to us and the trustee. In the
case of a lost, stolen or destroyed note, indemnity satisfactory to the trustee
and us may be required at the expense of the holder of such note before a
replacement note will be issued.
GOVERNING LAW
The indenture and the notes are governed by, and construed in accordance
with, the law of the State of New York.
CONCERNING THE TRUSTEE
JPMorgan Chase Bank has agreed to serve as the trustee under the indenture.
The trustee is permitted to deal with us and any of our affiliates with the same
rights as if it were not trustee. However, under the Trust Indenture Act, if the
trustee acquires any conflicting interest and there exists a default with
respect to the notes, the trustee must eliminate such conflict or resign.
The holders of a majority in principal amount of all outstanding notes have
the right to direct the time, method and place of conducting any proceeding for
exercising any remedy or power available to the trustee with respect to the
notes. However, any such direction may not conflict with any law or the
indenture, may not be unduly prejudicial to the rights of another holder and may
not involve the trustee in personal liability.
GLOBAL NOTES; BOOK-ENTRY SYSTEM
THE GLOBAL NOTES
We issued the notes in the form of one or more global notes. Each global
note was deposited with the trustee as custodian for DTC and registered in the
name of a nominee of DTC. Except as set forth below, a global note may be
transferred, in whole and not in part, only to DTC or another nominee of DTC.
You may hold your beneficial interests in the global note directly through DTC
if you have an account with DTC or indirectly through organizations that have
accounts with DTC. Notes in definitive certificated form ("certificated
securities") will be issued only in limited circumstances described below.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC set forth below
are provided solely as a matter of convenience. These operations and procedures
are solely within the control of the respective settlement systems and are
subject to change by them from time to time. Neither we nor the initial
purchaser takes any responsibility for these operations or procedures, and
investors are urged to contact DTC or its participants (collectively, the
"participants") directly to discuss these matters.
DTC has advised us that it is:
- a limited-purpose trust company organized under the laws of the State of
New York,
- a "banking organization" within the meaning of the New York Banking Law,
- a member of the Federal Reserve System,
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- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, as amended, and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants,
thereby eliminating the need for physical transfer and delivery of certificates.
DTC's participants include securities brokers and dealers (including the initial
purchaser), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"indirect participants") that clear through or maintain a custodial relationship
with a participant, either directly or indirectly. Investors who are not
participants may beneficially own securities held by or on behalf of DTC only
through participants or indirect participants.
We expect that pursuant to procedures established by DTC (i) upon deposit
of each global note, DTC will credit, on its book-entry registration and
transfer system, the accounts of participants designated by the initial
purchaser with an interest in the global note and (ii) ownership of beneficial
interests in the notes will be shown on, and the transfer of ownership interests
thereof will be shown on, and effected only through, records maintained by DTC
(with respect to the interests of participants) and the participants and the
indirect participants (with respect to the interests of persons other than
participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer beneficial interests in the notes
represented by a global note to such persons may be limited. In addition,
because DTC can act only on behalf of its participants, who in turn act on
behalf of persons who hold interests through participants, the ability of a
person having a beneficial interest in the notes represented by a global note to
pledge or transfer such interest to persons or entities that do not participate
in DTC's system, or to otherwise take actions in respect of such interest, may
be affected by the lack of a physical definitive security in respect of such
interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or such nominee, as the case may be, will be considered the sole legal owner or
holder of the notes represented by the global note for all purposes of such
notes and the indenture. Except as provided below, owners of beneficial
interests in a global note will not be entitled to have the notes represented by
such global note registered in their names, will not receive or be entitled to
receive physical delivery of certificated notes, and will not be considered the
owners or holders thereof under the indenture for any purpose, including with
respect to the giving of any direction, instruction or approval to the trustee
thereunder. Accordingly, each holder owning a beneficial interest in a global
note must rely on the procedures of DTC and, if such holder is not a participant
or an indirect participant, on the procedures of the participant through which
such holder owns its interest, to exercise any rights of a holder of notes under
the indenture or such global note. We understand that under existing industry
practice, in the event that we request any action of holders of notes, or a
holder that is an owner of a beneficial interest in a global note desires to
take any action that DTC, as the holder of such global note, is entitled to
take, DTC would authorize the participants to take such action and the
participants would authorize holders owning through such participants to take
such action or would otherwise act upon the instruction of such holders. Neither
we nor the trustee will have any responsibility or liability for any aspect of
the records relating to or payments made on account of notes by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to such notes.
Payments with respect to the principal of and premium, if any, additional
interest, if any, and interest on, any notes represented by a global note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the global note representing such notes
under the indenture. Under the terms of the indenture, we and the trustee may
treat the persons in whose names the notes, including the global notes, are
registered as the owners thereof for the purpose of receiving payment thereon
and for any and all other purposes whatsoever. Accordingly, neither we nor the
trustee has or will have any responsibility or
26
liability for the payment of such amounts to owners of beneficial interests in a
global note (including principal, premium, if any, additional interest, if any,
and interest). Payments by the participants and the indirect participants to the
owners of beneficial interest in a global note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the participants or the indirect participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
CERTIFICATED NOTES
If (i) we notify the trustee in writing that DTC is no longer willing or
able to act as a depositary or DTC ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed within 90
days of such notice or cessation, (ii) we, at our option, notify the trustee in
writing that we elect to cause the issuance of notes of any series in definitive
form under the indenture or (iii) upon the occurrence of certain other events as
provided in the indenture, then, upon surrender by DTC of such global note,
certificated notes will be issued to each person that DTC identifies as the
beneficial owner of the notes represented by such global note. Upon any such
issuance, the trustee is required to register such certificated notes in the
name of such person or persons (or the nominee of any thereof) and cause the
same to be delivered thereto.
Neither we nor the trustee shall be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the notes to be issued).
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the notes will be made by the initial purchaser in
immediately available funds. So long as DTC continues to make its settlement
system available to us, all payments on the notes will be made by us in
immediately available funds.
DESCRIPTION OF OTHER INDEBTEDNESS
For a description of some of our other indebtedness, please read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in our most recent annual report on Form 10-K and our
quarterly reports on Form 10-Q.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock currently consists of 200,000,000 shares of
common stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share, issuable in series. The following description
of certain provisions of our second amended and restated articles of
incorporation and our amended and restated bylaws, each as amended to date, are
necessarily general and do not purport to be complete and are qualified in their
entirety by reference to those documents.
COMMON STOCK
Holders of common stock are entitled to one vote per share with respect to
all matters required by law to be submitted to our shareholders. Holders of
common stock have no preemptive rights to purchase or subscribe for our
securities, and the common stock is not convertible or subject to redemption by
us.
The holders of common stock are entitled to dividends that may be declared
by our board of directors from time to time out of funds legally available for
dividends. Shareholders' rights to dividends are subject to the dividend and
liquidation rights of any shares of preferred stock that may be issued and to
any dividend restrictions that may be contained in debt agreements. In the event
of liquidation, holders of common stock will share pro rata in any assets that
remain after payment of debts and satisfaction of any liquidation preference on
any outstanding shares of preferred stock.
PREFERRED STOCK
Our board of directors, without further action by the shareholders, is
authorized to issue up to 10,000,000 shares of preferred stock in one or more
series and to fix and determine as to any series all the relative rights and
preferences of shares in that series, including, without limitation:
- preferences, limitations or relative rights with respect to redemption
rights,
- conversion rights, if any,
- voting rights, if any,
- dividend rights, and
- preferences on liquidation.
We have no present intention to issue any preferred stock, but may determine to
do so in the future.
The issuance of preferred stock, or the issuance of rights to purchase
preferred stock, could adversely affect the voting power of the holders of
common stock, discourage an unsolicited acquisition proposal or make it more
difficult for a third party to gain control of us.
For instance, the issuance of a series of preferred stock might impede a
business combination by including class voting rights that would enable the
holder to block the transaction, or facilitate a business combination by
including voting rights that would provide a required percentage vote of the
shareholders. In addition, under particular circumstances, the issuance of
preferred stock could adversely affect the voting power of the holders of the
common stock. Although our board of directors is required to make any
determination to issue shares based on its judgment as to the best interests of
our shareholders, the board of directors could act in a manner that would
discourage an acquisition attempt or other transaction that some, or a majority,
of the shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their stock over the then market price
of such stock. The board of directors does not at present intend to seek
shareholder approval before any issuance of currently authorized stock, unless
otherwise required by law.
For purposes of the rights plan described below, our board of directors has
designated 200,000 shares of series A junior participating preferred stock, par
value $.001 per share. See "-- Description of Rights Plan."
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SPECIAL MEETINGS
Special meetings of our shareholders may be called by the chairman of the
board, the president, the board of directors or by shareholders holding not less
than 50% of our outstanding voting stock.
VOTING
Holders of common stock are entitled to cast one vote per share on matters
submitted to a vote of shareholders and do not have cumulative voting rights.
Each director will be elected annually. Any director may be removed, with or
without cause, at any meeting of shareholders called expressly for that purpose,
by a vote of the holders of a majority of the outstanding shares. Because the
common stock does not have cumulative voting rights, the holders of more than
50% of the shares may, if they choose to do so, elect all of the directors, and
the holders of the remaining shares will not be able to elect any directors.
Subject to any additional voting rights that may be granted to holders of
future classes or series of stock, our articles of incorporation require the
affirmative vote of holders of a majority of the outstanding shares entitled to
vote to approve any of the following for which a vote is required by the Texas
Business Corporation Act:
- merger, consolidation or share exchange,
- sale of all or substantially all of our assets,
- dissolution, or
- amendment to our articles of incorporation.
Approval of other matters not described above that are submitted to the
shareholders generally requires the affirmative vote of the holders of a
majority of the shares of common stock voted for or against the matter. The
holders of a majority of the shares entitled to vote will constitute a quorum at
meetings of shareholders.
Our bylaws provide that shareholders who wish to nominate directors or to
bring business before a shareholders' meeting must notify us and provide
specified pertinent information at least 80 days before the meeting date or
within ten days after public announcement under the bylaws of the meeting date,
if the meeting date has not been publicly announced at least 90 days in advance.
BUSINESS COMBINATION LAW
Part Thirteen of the Texas Business Corporation Act applies to us and is
commonly known as the Business Combination Law. The Business Combination Law
generally prevents an "affiliated shareholder" or its affiliates or associates
from entering into or engaging in a "business combination" with an "issuing
public corporation" during the three-year period immediately following the
affiliated shareholder's acquisition of shares unless specific conditions are
satisfied. The three-year restriction does not apply if either:
- before the date a person became an affiliated shareholder, the board of
directors of the issuing public corporation approves the business
combination or the acquisition of shares made by the affiliated
stockholder on that date, or
- not less than six months after the date a person became an affiliated
shareholder, the business combination is approved by the affirmative vote
of holders of at least two-thirds of the issuing public corporation's
outstanding voting shares not beneficially owned by the affiliated
shareholder or its affiliates or associates.
An affiliated shareholder is defined generally as a person that is or was
within the preceding three-year period the beneficial owner of 20% or more of a
corporation's outstanding voting shares.
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The business combinations subject to the restriction generally include:
- mergers or share exchanges,
- dispositions of assets having an aggregate value equal to 10% or more of
the market value of the assets or of the outstanding common stock or
representing 10% or more of the earning power or net income of the
corporation,
- specified stock issuances or transactions by the corporation that would
increase the affiliated shareholder's proportionate interest in the
corporation,
- specified liquidations or dissolutions, and
- the receipt of tax, guarantee, loan or other financial benefits by an
affiliated shareholder other than proportionately as a stockholder of the
corporation.
The Business Combination Law does not apply to a business combination with
an affiliated shareholder that was the beneficial owner of 20% or more of the
outstanding voting shares of the issuing public corporation on December 31,
1996, and has continued to own those voting shares until the announcement date
of the business combination. As a result, the restrictions of the Business
Combination Law would not apply to Mr. James R. Crane, our President, Chief
Executive Officer and Chairman of the Board, who has been the beneficial owner
of more than 20% of our outstanding common stock continuously since before
December 31, 1996.
In discharging the duties of a director under the Business Combination Law
or otherwise, a director, in considering our best interests, may consider the
long-term as well as our short-term interests and our shareholders, including
the possibility that those interests may be best served by our continued
independence.
LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION ARRANGEMENTS
Our articles of incorporation contain a provision that limits the liability
of our directors as permitted by the Texas Miscellaneous Corporation Laws Act.
The provision eliminates the personal liability of directors to us and our
shareholders for monetary damages for breach of directors' fiduciary duty of
care. The provision does not change the liability of a director for:
- breach of the duty of loyalty to us or to our shareholders,
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
- an act or omission for which the liability of a director is expressly
provided for by an applicable statute, or
- any transaction from which a director received an improper personal
benefit.
Under our articles of incorporation, the liability of directors will be
further limited or eliminated without action by shareholders if Texas law is
amended to further limit or eliminate the personal liability of directors.
Our bylaws provide for the indemnification of its officers and directors,
and the advancement to them of expenses in connection with proceedings and
claims, to the fullest extent permitted by the Texas Business Corporation Act.
We have also entered into indemnification agreements with each of its directors
and some of its officers. These agreements contractually provide for
indemnification and expense advancement and include related provisions meant to
facilitate the indemnitees' receipt of such benefits.
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We have purchased directors' and officers' liability insurance policies for
our directors and officers. In addition, our bylaws and these agreements with
directors and officers provide for indemnification for amounts:
- in respect of the deductibles for any insurance policies,
- that exceed the liability limits of such insurance policies, and
- in respect of these types of insurance policies that are available, were
available or that become available to us or which are generally available
to comparable companies but that our officers or directors determine are
inadvisable for us to purchase, given the cost involved.
This type of indemnification relating to director and officer insurance may
be made even though directors and officers would not otherwise be entitled to
indemnification under other provisions of our bylaws or individual agreements.
REGISTRATION RIGHTS AGREEMENT WITH MR. CRANE
We and Mr. Crane are parties to a shareholders' agreement dated as of
October 1, 1994 that provides Mr. Crane with registration rights with respect to
common stock held by him on the date of the agreement or purchased by him from
us after that date. Mr. Crane may require us to effect six registrations of his
securities and may require us to include his shares in other registrations we
make. To date, Mr. Crane has effected one registration of his securities.
Registration of Mr. Crane's shares under the Securities Act of 1933 results in
those shares becoming freely tradable without restriction under the Securities
Act in the hands of purchasers, except for shares purchased by our affiliates.
In connection with the offering, Mr. Crane has agreed to various restrictions on
his ability to sell or otherwise dispose of shares of our common stock for a
period of 90 days after December 3, 2001.
DESCRIPTION OF RIGHTS PLAN
On May 23, 2001, our board of directors declared a dividend of one right
for each outstanding share of our common stock, to shareholders of record on
June 4, 2001. Under the plan, each share of common stock currently includes one
right to purchase from us a unit consisting of one one-thousandth of a share of
our Series A junior participating preferred stock at an exercise price of
$120.00 per unit, subject to adjustment.
The description and terms of the rights are set forth in a rights agreement
dated as of May 23, 2001 as it may from time to time be supplemented or amended
between us and Computershare Investor Services, L.L.C., as Rights Agent.
The rights are attached to all certificates representing our currently
outstanding common stock and will attach to all common stock certificates we
issue prior to the rights distribution date. The rights are not exercisable
until after the rights distribution date and will expire at the close of
business on June 4, 2011 unless we earlier redeem or exchange them as we
describe below. The rights will separate from the common stock and a
distribution date would occur, except in some cases, on the earlier of:
- ten days following a public announcement that a person or group of
affiliated or associated persons (collectively, an "acquiring person")
has acquired or obtained the right to acquire beneficial ownership of 15%
or more of the outstanding shares of our common stock, or
- ten business days following the start of a tender or exchange offer that
would result, if closed, in a person's becoming an acquiring person.
James R. Crane will not become an acquiring person, unless and until he and
his affiliates and associates become the beneficial owner of 49% or more of the
common stock. Our board of directors may defer the rights distribution date in
some circumstances. Some inadvertent acquisitions will not result in a person
becoming an acquiring person if the person promptly divests itself of sufficient
shares of common stock.
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Until the rights distribution date:
- common stock certificates, together with, in some cases, the summary of
rights, will evidence the rights, and the rights will be transferable
only with those certificates,
- any new common stock will be issued with rights and new certificates will
contain a notation incorporating the rights agreement by reference, and
- the surrender for transfer of any common stock certificate will also
constitute the transfer of the rights associated with the stock that
certificate represents.
As soon as practicable after the rights distribution date, the rights agent
will mail certificates representing the rights to holders of record of common
stock as of the close of business on that date. After the rights distribution
date, only separate rights certificates will represent the rights.
We will not issue rights with any shares of common stock we issue after the
rights distribution date, except:
- as our board of directors otherwise may determine, and
- together with shares of common stock we issue as a result of previously
established incentive plans or convertible securities.
A flip-in event will occur under the rights agreement when a person becomes
an acquiring person otherwise than pursuant to a permitted offer. The rights
agreement generally defines permitted offer to mean a tender or exchange offer
for all outstanding shares of common stock at a price and on terms that a
majority of the members of our board of directors who are independent from the
acquiring person or the person making the offer determines, at the time the
rights are redeemable, to be fair to and otherwise in the best interests of our
company and our stockholders.
At any time until ten days after the first date of public announcement of
the occurrence of a flip-in event, we may redeem the rights in whole, but not in
part, at a redemption price of $.01 per right. The redemption price is subject
to adjustment for any stock split, stock dividend or similar transaction
occurring before the date of redemption. At our option, we may pay that
redemption price in cash, shares of common stock or any other consideration our
board of directors selects. After a person becomes an acquiring person, the
right of redemption is subject to some limitations. The plan does not, however,
prevent a shareholder from conducting a proxy contest to remove and replace our
board with directors who then vote to redeem the rights, if such actions are
taken prior to the time that the shareholder becomes an acquiring person. The
rights will not be exercisable after a flip-in event until they are no longer
redeemable. If our board of directors timely orders the redemption of the
rights, the rights will terminate on the effectiveness of that action.
If a flip-in event occurs and we do not redeem the rights, each right,
other than any right that has become null and void as we describe below, will
become exercisable, at the time we no longer may redeem it, to receive the
number of shares of common stock, or, in some cases, cash, property or other of
our securities, having a current market price equal to two times the exercise
price of the right.
When a flip-in event occurs, all rights that then are, or in some
circumstances were, beneficially owned by or transferred to an acquiring person
or specified related parties will become null and void in the circumstances the
rights agreement specifies.
A flip-over event will occur under the rights agreement when, at any time
from and after the time a person becomes an acquiring person:
- we are acquired in a merger or other business combination transaction,
other than specified mergers that follow a permitted offer of the type we
describe above, or
- 50% or more of our assets, cash flow or earning power is sold or
transferred.
32
If a flip-over event occurs, each holder of a right, except rights that
previously have become void as we describe above, thereafter will have the right
to receive the number of shares of common stock of the acquiring company which
has a current market price equal to two times the exercise price of the right.
The number of outstanding rights associated with a share of common stock,
the number of fractional shares of junior participating preferred stock issuable
on exercise of a right and the exercise price of the rights are subject to
adjustment in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the common stock occurring prior to the rights distribution
date. The exercise price of the rights and the number of fractional shares of
junior participating preferred stock or other securities or property issuable on
exercise of the rights also are subject to adjustment from time to time to
prevent dilution in the event of specified types of transactions affecting the
junior participating preferred stock.
With some exceptions, the rights agreement will not require us to adjust
the exercise price of the rights until cumulative adjustments amount to at least
1% of the exercise price. It also will not require us to issue fractional shares
of junior participating preferred stock that are not integral multiples of one
one-hundredth, and, in lieu thereof, we may make a cash adjustment based on the
market price of the junior participating preferred stock on the last trading
date prior to the date of exercise. The rights agreement reserves to us the
right to require prior to the occurrence of any flip-in event or flip-over event
that, on any exercise of rights, a number of rights must be exercised so that we
will issue only whole shares of junior participating preferred stock.
At any time after the occurrence of a flip-in event and prior to (1) a
person's becoming the beneficial owner of 50% or more of the shares of common
stock then outstanding or (2) the occurrence of a flip-over event, we may, at
our option if the rights are then redeemable, exchange the rights (other than
rights owned by an acquiring person or an affiliate or an associate of an
acquiring person, which will have become void), in whole or in part, at an
exchange ratio of one share of common stock, and/or other equity securities we
deem to have the same value as one share of common stock, per right, subject to
adjustment.
During the time we may redeem the rights, we may, at the direction of our
board of directors, amend any of the provisions of the rights agreement other
than decreasing the redemption price. Thereafter, we may amend the provisions of
the rights agreement, other than the redemption price, only as follows:
- to cure any ambiguity, defect or inconsistency,
- to make changes that do not materially adversely affect the interests of
holders of rights, excluding the interests of any acquiring person, or
- to shorten or lengthen any time period under the rights agreement;
provided, however, that we cannot lengthen the time period governing
redemption if the rights are no longer redeemable.
Until a right is exercised, the holder thereof, as such, will have no
rights to vote or receive dividends or any other rights as a shareholder.
Each share of series A junior participating preferred stock will be
entitled to a minimum preferential quarterly dividend payment of $20 per share
but will be entitled to an aggregate dividend of 1,000 times the dividend
declared per share of common stock. In the event of liquidation, the holders of
series A junior participating preferred stock will be entitled to a minimum
preferential liquidation payment of $1,000 per share but will be entitled to an
aggregate payment of 1,000 times the payment made per share of common stock.
Each share of series A junior participating preferred stock will have 1,000
votes voting together with the common stock. In the event of any merger,
consolidation or other transaction in which shares of common stock are
exchanged, each share of series A junior participating preferred stock will be
entitled to receive 1,000 times the amount received per share of the common
stock. Each share of series A junior participating preferred stock is redeemable
in whole or in part for cash in a per share amount equal to 1,000 times the
current market price (as determined in the certificate of designation for the
series A junior participating preferred stock) of a share of common stock on the
date of the mailing of the redemption notice. These shares of series A junior
participating preferred stock are protected by anti-dilution provisions.
33
The rights may have anti-takeover effects. The rights will cause
substantial dilution to any person or group that attempts to acquire us without
the approval of our board of directors. As a result, the overall effect of the
rights may be to render more difficult or discourage any attempt to acquire us
even if such acquisition may be favorable to the interests of our stockholders.
Because our board of directors can redeem the rights or approve a permitted
offer, the rights should not interfere with a merger or other business
combination approved by our board of directors.
REGISTRAR AND TRANSFER AGENT
Computershare Trust Company, Inc. (formerly American Securities Transfer &
Trust, Inc.) is the registrar and transfer agent for the common stock.
34
SELLING SECURITY HOLDERS
We originally issued the notes in a private placement to Credit Suisse
First Boston Corporation, which resold the notes to qualified institutional
buyers within the meaning of Rule 144A under the Securities Act in transactions
exempt from registration under the Securities Act. The notes and the underlying
common stock that may be offered under this prospectus will be offered by the
selling securityholders, which includes their transferees, pledgees, donees and
successors.
The following table sets forth certain information concerning the principal
amount of notes beneficially owned by each selling securityholder and the number
of shares of underlying common stock that may be offered from time to time
pursuant to this prospectus.
The number of shares of common stock shown in the table below assumes
conversion of the full amount of notes held by such holder at the initial
conversion rate of 57.3608 shares per $1,000 principal amount of notes. This
conversion rate is subject to certain adjustments. Accordingly, the number of
shares of common stock issuable upon conversion of the notes may increase or
decrease from time to time. Under the terms of the indenture, fractional shares
will not be issued upon conversion of the notes. Cash will be paid instead of
fractional shares, if any.
PRINCIPAL AMOUNT OF NUMBER OF SHARES
NOTES BENEFICIALLY PERCENTAGE OF COMMON STOCK PERCENTAGE OF
OWNED THAT MAY OF NOTES THAT MAY BE COMMON STOCK
NAME BE SOLD OUTSTANDING SOLD OUTSTANDING(1)
---- ------------------- ----------- ---------------- --------------
Alta Partners Holdings LDC........................ 12,500,000 12.50% 717,010 1.48%
CALAMOS(R) Market Neutral Fund -- CALAMOS(R)
Investment Trust................................ 2,525,000 2.53% 144,836 *
Clinton Multistrategy Master Fund, Ltd. .......... 1,000,000 1.00% 57,360 *
Clinton Riverside Convertible Portfolio Limited... 1,000,000 1.00% 57,360 *
Credit Suisse First Boston Corporation............ 175,000 * 10,038 *
First Union Securities Inc. ...................... 8,000,000 8.00% 458,886 *
Grace Brothers Management LLC..................... 2,000,000 2.00% 114,721 *
Innovest Finanzdienstleistungs AG................. 300,000 * 17,208 *
JMG Capital Partners, LP.......................... 2,000,000 2.00% 114,721 *
JMG Triton Offshore Fund, Ltd..................... 2,000,000 2.00% 114,721 *
Lipper Convertibles L.P. ......................... 1,000,000 1.00% 57,360 *
McMahan Securities Co. L.P........................ 500,000 * 28,680 *
San Diego County Employees Retirement
Association..................................... 1,750,000 1.75% 100,381 *
Tribeca Investments LLC........................... 13,000,000 13.00% 745,690 1.53%
Whitebox Convertible Partners, LP................. 6,000,000 6.00% 344,164 *
Zazove Convertible Arbitrage Fund L.P............. 350,000 * 20,076 *
Zazove Hedged Convertible Fund L.P................ 1,250,000 1.25% 71,701 *
Zazove Income Fund L.P............................ 1,250,000 1.25% 71,701 *
Zurich Institutional Benchmarks Master Fund LTD... 1,000,000 1.00% 57,360 *
Any other holder of notes or future transferee,
pledgees, donees or successors from any such
holder of notes(2)(3)........................... 42,400,000 42.40% 2,432,098 4.83%
Total......................................... $100,000,000 100.00% 5,736,080 10.70%
---------------
* Less than 1%.
(1) Calculated pursuant to Rule 13d-3(d)(i) of the Exchange Act using 47,890,703
shares of common stock outstanding as of May 1, 2002. In calculating this
amount, we treated as outstanding the number of shares of common stock
issuable upon conversion of all of a particular holder's notes. However, we
did not assume the conversion of any other holder's notes.
(2) Information concerning selling holders of notes or underlying common stock
will be set forth in prospectus supplements from time to time, if required.
(3) Assumes that holders of notes, or any future transferees, pledgees, donees
or successors of or from any such other holders of notes do not beneficially
own any common stock other than the common stock issuable upon conversion of
the notes at the initial conversion rate.
The preceding table has been prepared based upon the information furnished
to us by the selling securityholders.
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The selling securityholders identified above may have sold, transferred or
otherwise disposed of some or all of their notes since the date on which the
information in the preceding table is presented in transactions exempt from the
registration requirements of the Securities Act. Information concerning the
selling securityholders may change from time to time and, if necessary, we will
supplement this prospectus accordingly. We cannot give an estimate as to the
amount of the notes or underlying common stock that will be held by the selling
securityholders upon the termination of this offering because the selling
securityholders may offer some or all of their notes or underlying common stock
pursuant to the offering contemplated by this prospectus. See "Plan of
Distribution."
36
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
considerations relevant to holders of the notes and common stock into which the
notes may be converted. This discussion is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service
("IRS") rulings and judicial decisions now in effect, all of which are subject
to change (possibly with retroactive effect) or different interpretations. There
can be no assurance that the IRS will not challenge one or more of the tax
consequences described herein, and we have not obtained, nor do we intend to
obtain, a ruling from the IRS with respect to the U.S. federal income tax
consequences of acquiring or holding notes or common stock. This discussion does
not purport to deal with all aspects of U.S. federal income taxation that may be
relevant to a particular holder in light of the holder's circumstances (for
example, persons subject to the alternative minimum tax provisions of the Code).
Also, it is not intended to be wholly applicable to all categories of investors,
some of which (such as dealers in securities or currencies, traders in
securities that elect to use a mark-to-market method of accounting, banks,
thrifts, regulated investment companies, or other financial institutions or
financial service companies, insurance companies, tax-exempt organizations, S
Corporations, persons whose functional currency is not the U.S. dollar, and
persons holding notes or common stock as part of a hedging or conversion
transaction or straddle or persons deemed to sell notes or common stock under
the constructive sale provisions of the Code) may be subject to special rules.
The discussion also does not discuss any aspect of state, local or foreign law,
or U.S. federal estate and gift tax law as applicable to the holders of the
notes and common stock into which the notes may be converted. In addition, this
discussion is limited to the initial purchasers of notes who acquire the notes
at their original issue price within the meaning of Section 1273 of the Code,
and who will hold the notes and common stock as "capital assets" within the
meaning of Section 1221 of the Code. This summary also assumes that the IRS will
respect the classification of the notes as indebtedness for federal income tax
purposes.
ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK IN
THEIR PARTICULAR SITUATIONS.
U.S. HOLDERS
As used herein, the term "U.S. Holder" means a beneficial holder of a note
or common stock that for United States federal income tax purposes is (i) a
citizen or resident (as defined in Section 7701(b) of the Code) of the United
States, (ii) a corporation (including any entity treated as a corporation for
U.S. federal income tax purposes) organized under the laws of the United States
or any political subdivision thereof, (iii) an estate the income of which is
subject to U.S. federal income taxation regardless of its source and (iv) in
general, a trust subject to the primary supervision of a court within the United
States and the control of a United States person as described in Section
7701(a)(30) of the Code or a trust that has a valid election in effect under
applicable United States Treasury regulations to be treated as a United States
person. A "Non-U.S. Holder" is any holder of a note or common stock other than a
U.S. Holder or a foreign or domestic partnership. If a partnership holds notes
or common stock, the tax treatment of a partner will generally depend upon the
status of the partner and the activities of the partnership.
INTEREST
Interest on the notes will generally be included in a U.S. Holder's gross
income as ordinary income for U.S. federal income tax purposes at the time it is
paid or accrued in accordance with the U.S. Holder's regular method of
accounting.
CONVERSION OF NOTES INTO COMMON STOCK
A U.S. Holder generally will not recognize any income, gain or loss upon
conversion of a note into common stock except to the extent the common stock is
considered attributable to accrued interest not
37
previously included in income (which is taxable as ordinary income). Cash
received in lieu of a fractional share of common stock should generally be
treated as a payment in exchange for such fractional share rather than as a
dividend. Gain or loss recognized on the receipt of cash paid in lieu of such
fractional share generally will equal the difference between the amount of cash
received and the amount of tax basis allocable to the fractional share. The
adjusted basis of shares of common stock received on conversion will equal the
adjusted basis of the note converted (reduced by the portion of adjusted basis
allocated to any fractional share of common stock exchanged for cash). The
holding period of the common stock received on conversion will generally include
the period during which the converted notes were held prior to conversion.
The conversion price of the notes is subject to adjustment under certain
circumstances. Section 305 of the Code and the Treasury Regulations issued
thereunder may treat the holders of the notes as having received a constructive
distribution, resulting in ordinary income (subject to a possible dividends
received deduction in the case of corporate holders) to the extent of our
current and/or accumulated earnings and profits, if, and to the extent that
certain adjustments in the conversion price, which may occur in limited
circumstances (particularly an adjustment to reflect a taxable dividend to
holders of common stock), increase the proportionate interest of a holder of
notes in the fully diluted common stock, whether or not such holder ever
exercises its conversion privilege. Moreover, if there is not a full adjustment
to the conversion ratio of the notes to reflect a stock dividend or other event
increasing the proportionate interest of the holders of outstanding common stock
in our assets or earnings and profits, then such increase in the proportionate
interest of the holders of the common stock generally will be treated as a
distribution to such holders, taxable as ordinary income (subject to a possible
dividends received deduction in the case of corporate holders) to the extent of
our current and/or accumulated earnings and profits. Therefore, U.S. Holders may
recognize income in the event of a deemed distribution even though they may not
receive any cash or property. Adjustments to the conversion price made pursuant
to a bona fide reasonable adjustment formula which has the effect of preventing
dilution in the interest of the holders of the debt instruments, however, will
generally not be considered to result in a constructive dividend distribution of
stock.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Each U.S. Holder generally will recognize gain or loss upon the sale,
exchange (other than by exercise of the conversion privilege), redemption,
retirement or other disposition of notes measured by the difference (if any)
between (i) the amount of cash and the fair market value of any property
received (except to the extent that such cash or other property is attributable
to the payment of accrued interest not previously included in income, which
amount will be taxable as ordinary income) and (ii) such holder's adjusted tax
basis in the notes. Any such gain or loss recognized on the sale, exchange,
redemption, retirement or other disposition of a note should be capital gain or
loss and will generally be long-term capital gain or loss if the note has been
held or deemed held for more than twelve months at the time of the sale or
exchange. Generally, the maximum long term capital gains rate for individuals is
20%. Capital gain that is not long term capital gain is taxed at ordinary income
rates. A holder's initial basis in a note will be the amount paid therefor.
THE COMMON STOCK
Distributions, if any, paid on the common stock, to the extent made from
our current and/or accumulated earnings and profits, as determined under U.S.
federal income tax principles, will be included in a U.S. Holder's income as
ordinary income (subject to a possible dividends received deduction in the case
of corporate holders) as they are paid. Gain or loss realized on the sale or
exchange of common stock will equal the difference between the amount of cash
and the fair market value of the property received on such sale or exchange and
the U.S. Holder's adjusted tax basis in such common stock. Such gain or loss
will generally be long-term capital gain or loss if the holder has held or is
deemed to have held the common stock for more than twelve months. The
deductibility of capital losses is subject to certain limitations.
38
INFORMATION REPORTING AND BACKUP WITHHOLDING
A U.S. Holder of notes or common stock may be subject to "backup
withholding" at a rate currently of 30% (which percent will be periodically
reduced to 28% in 2006) with respect to certain "reportable payments," including
interest payments, dividend payments, proceeds from the disposition of the notes
or common stock to or through a broker and, under certain circumstances,
principal payments on the notes. These backup withholding rules apply if the
holder, among other things, (i) fails to furnish a social security number or
other taxpayer identification number ("TIN") certified under penalties of
perjury within a reasonable time after the request therefor, (ii) fails to
report properly interest or dividends, (iii) under certain circumstances, fails
to provide a certified statement, signed under penalties of perjury, that the
TIN furnished is the correct number and that such holder is not subject to
backup withholding or if (iv) the IRS provides notification that the U.S. Holder
has furnished us with an incorrect TIN. Any amount withheld from a payment to a
holder under the backup withholding rules is creditable against the holder's
federal income tax liability, provided that the required information is
furnished to the IRS. Backup withholding will not apply, however, with respect
to payments made to certain holders, including corporations, tax exempt
organizations and certain foreign persons, provided their exemptions from backup
withholding are properly established.
We will report to the U.S. Holders of notes and common stock and to the IRS
the amount of our "reportable payments" for each calendar year and the amount of
tax withheld, if any, with respect to such payments.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Non-U.S. Holder (as defined above). For purposes of
withholding tax on interest and dividends discussed below, a Non-U.S. Holder
includes a nonresident fiduciary of an estate or trust. For purposes of the
following discussion, interest, dividends and gain on the sale, exchange or
other disposition of a note or common stock will be considered to be "U.S. trade
or business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business and (ii) in the case of a Non-U.S. Holder
eligible for the benefits of an applicable U.S. bilateral income tax treaty,
attributable to a permanent establishment (or, in the case of an Individual, a
fixed base) in the United States.
INTEREST
Generally, any interest paid to a Non-U.S. Holder of a note that is not
U.S. trade or business income will not be subject to U.S. tax if the interest
qualifies as "portfolio interest." Generally, interest on the notes will qualify
as portfolio interest if (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total voting power of all of our voting
stock and is not a "controlled foreign corporation" with respect to which we are
a "related person" within the meaning of the applicable provisions of the Code,
(ii) the Non-U.S. Holder is not a bank receiving interest within the meaning of
Section 88l(c)(3)(A) of the Code, and (iii) the withholding agent receives a
qualifying statement that the owner is not a U.S. resident and does not have
actual knowledge or reason to know otherwise.
The gross amount of payments of interest to a Non-U.S. Holder of interest
that do not qualify for the portfolio interest exemption and that are not U.S.
trade or business income will be subject to U.S. federal withholding tax at the
rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate
withholding. U.S. trade or business income will be taxed at regular U.S. income
tax rates rather than subject to withholding at the 30% or treaty-reduced gross
rate. In the case of a Non-U.S. Holder that is a corporation, such U.S. trade or
business income may also be subject to the branch profits tax (which is
generally imposed on a foreign corporation on the actual or deemed repatriation
from the United States of earnings and profits attributable to U.S. trade or
business income) at a 30% (or, if applicable, treaty-reduced) rate. To claim the
benefit of a tax treaty or to claim exemption from withholding because the
income is U.S. trade or business income, the Non-U.S. Holder must provide a
properly executed IRS Form W-8BEN or W-8ECI, as applicable, prior to the payment
of interest. In addition, a Non-
39
U.S. Holder may under certain circumstances be required to obtain a U.S.
taxpayer identification number and make certain certifications to us. Special
procedures are provided for payments through qualified intermediaries. A
Non-U.S. Holder of a note that is eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of amounts
withheld at a higher rate by filing an appropriate claim for a refund with the
IRS.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder of common stock will be
subject to withholding of U.S. federal income tax at a 30% rate unless such rate
is reduced by an applicable income tax treaty. Dividends that are U.S. trade or
business income are generally subject to U.S. federal income tax at regular
income tax rates, but are not generally subject to the 30% withholding tax or
treaty-reduced rate if the Non-U.S. Holder files the appropriate form with the
payor, as discussed above. Any U.S. trade or business income received by a
Non-U.S. Holder that is a corporation may also, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate or such lower rate
as may be applicable under an income tax treaty. A Non-U.S. Holder of common
stock who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy applicable certification and other requirements. A Non-U.S.
Holder of common stock that is eligible for a reduced rate of U.S. withholding
tax pursuant to an income treaty may obtain a refund of amounts withheld at a
higher rate by filing an appropriate claim for a refund with the IRS.
CONVERSION
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on the conversion of notes into common stock. However, cash (if any) received in
lieu of a fractional share or interest not previously included in income will be
subject to U.S. federal income tax if it is U.S. trade or business income. Cash
received in lieu of a fractional share may give rise to gain that would be
subject to the rules described below for the sale of notes.
SALES, EXCHANGE OR REDEMPTION OF NOTES OR COMMON STOCK
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a note or common stock generally will not be subject to U.S.
federal income tax, unless (i) such gain is U.S. trade or business income, (ii)
subject to certain exceptions, the Non-U.S. Holder is an individual who holds
the note or common stock as a capital asset and is present in the United States
for 183 days or more in the taxable year of the disposition, (iii) the Non-U.S.
Holder is subject to tax pursuant to the provisions of U.S. tax law applicable
to certain U.S. expatriates (including certain former citizens or residents of
the United States), or (iv) we are a United States real property holding
corporation within the meaning of Section 897 of the Code. We do not believe
that we are currently a "United States real property holding corporation" within
the meaning of Section 897 of the Code, or that we will become one in the
future.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the IRS and to each Non-U.S. Holder
any interest or dividend that is subject to withholding, or that is exempt from
U.S. withholding tax pursuant to a tax treaty, or any payments of portfolio
interest. Copies of these information returns may also be made available under
the provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides. Under certain circumstances, we
will have to report to the IRS payments of principal.
Generally, information reporting and backup withholding of United States
federal income tax at a current rate of 30% may apply to payments made by us or
any agent of ours to Non-U.S. Holders if the payee fails to make the appropriate
certification that the holder is a non-U.S. person or if we or our paying agent
has actual knowledge that the payee is a United States person.
40
The payment of the proceeds from the disposition of the notes or common
stock to or through the U.S. office of any broker, U.S. or foreign, will be
subject to information reporting and possible backup withholding unless the
owner certifies as to its Non-U.S. Holder status under penalty of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a U.S. person or that the conditions of any
other exemption are not, in fact, satisfied. The payment of the proceeds from
the disposition of a note or common stock to or through a non-U.S. office of a
non-U.S. broker that is not a U.S. related person will generally not be subject
to backup withholding. However, if such broker is (i) a U.S. person, (ii) a
controlled foreign corporation for United States tax purposes, (iii) a foreign
person 50% or more of whose gross income from all sources for certain periods is
effectively connected with a United States trade or business or (iv) a foreign
partnership, if at any time during its tax year, one or more of its partners are
U.S. persons (as defined in U.S. Treasury regulations) who in the aggregate hold
more than 50% of the income or capital interest in the partnership or if, at any
time during its tax year, such foreign partnership is engaged in a United States
trade or business, such payments will be subject to information reporting, but
not backup withholding, unless such broker has documentary evidence in its files
of the Non-U.S. Holder's foreign status and certain other conditions are met or
you otherwise establish an exemption. Both backup withholding and information
reporting will apply to the proceeds of such dispositions if the broker has
actual knowledge that the payee is a U.S. Holder.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO PARTICULAR TAX
CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND THE
COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
41
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and the
underlying common stock offered by this prospectus. The aggregate proceeds to
the selling securityholders from the sale of the notes or underlying common
stock will be the purchase price of the notes or underlying common stock less
any discounts and commissions. A selling securityholder reserves the right to
accept and, together with their agents, to reject, any proposed purchase of
notes or common stock to be made directly or through agents.
The notes and the underlying common stock may be sold from time to time to
purchasers
- directly by the selling securityholders and their successors, which
includes their transferees, pledgees or donees or their successors, or
- through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions from
the selling securityholders or the purchasers of the notes and the
underlying common stock. These discounts, concessions or commissions may
be in excess of those customary in the types of transactions involved.
The selling securityholders and any underwriters, broker-dealers or agents
who participate in the distribution of the notes and the underlying common stock
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act. As a result, any profits on the sale of the notes and the
underlying common stock by selling securityholders and any discounts,
commissions or concessions received by any such broker-dealers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act.
Selling securityholders who are "underwriters" within the meaning of Section
2(11) of the Securities Act will be subject to prospectus delivery requirements
of the Securities Act. If the selling securityholders were deemed to be
underwriters, the selling securityholders may be subject to certain statutory
liabilities of, including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Exchange Act.
If the notes and the underlying common stock are sold through underwriters
or broker-dealers, the selling securityholders will be responsible for
underwriting discounts or commissions or agent's commissions.
The notes and the underlying common stock may be sold in one or more
transactions at:
- fixed prices
- prevailing market prices at the time of sale
- prices related to such prevailing market prices
- varying prices determined at the time of sale
- negotiated prices
These sales may be effected in transactions
- on any national securities exchange or quotation service on which the
notes and underlying common stock may be listed or quoted at the time of
the sale, including the Nasdaq National Market in the case of the common
stock
- in the over-the-counter market
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market
- through the writing of options, whether such options are listed on an
options exchange or otherwise
- through the settlement of short sales
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
42
In connection with sales of the notes and the underlying common stock or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers or other financial institutions. These broker-dealers or other
financial institutions may in turn engage in short sales of the notes or the
underlying common stock in the course of hedging their positions. The selling
securityholders may also sell the notes and underlying common stock short and
deliver notes and the underlying common stock to close out short positions, or
loan or pledge notes or the underlying common stock to broker-dealers that in
turn may sell the notes and the underlying common stock.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the notes and the underlying common
stock by the selling securityholders.
Our common stock trades on the Nasdaq National Market under the symbol
"EAGL." We do not intend to apply for listing of the notes on any securities
exchange or for quotation through Nasdaq. Accordingly, no assurances can be
given as to the development of liquidity or any trading market for the notes.
See "Risk Factors -- No trading market for the notes."
There can be no assurance that any selling securityholder will sell any or
all of the notes or the underlying common stock pursuant to this prospectus.
Further, we cannot assure you that any such selling securityholder will not
transfer, devise or gift the notes and the underlying common stock by other
means not described in this prospectus. In addition, any notes or underlying
common stock covered by this prospectus that qualify for sale pursuant to Rule
144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A
rather than under this prospectus. The notes and the underlying common stock may
be sold in some states only through registered or licensed brokers or dealers.
In addition, in some states the notes and underlying common stock may not be
sold unless they have been registered or qualified for sale or an exemption from
registration.
The selling securityholders and any other person participating in the sale
of notes or the underlying common stock will be subject to the Exchange Act. The
Exchange Act rules include, without limitation, Regulation M, which may limit
the timing of purchases and sales of any of the notes and the underlying common
stock by the selling securityholders and any other such person. In addition,
Regulation M of the Exchange Act may restrict the ability of any person engaged
in the distribution of the notes and the underlying common stock to engage in
market-making activities with respect to the particular notes and the underlying
common stock being distributed for a period of up to five business days before
the commencement of such distribution. This may affect the marketability of the
notes and the underlying common stock and the ability of any person or entity to
engage in market-making activities with respect to the notes and the underlying
common stock.
Pursuant to the registration rights agreement that has been filed as an
exhibit to this registration statement, we and the selling securityholders will
be indemnified by the other against certain liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection with these liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the notes and underlying common stock to the
public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
LEGAL MATTERS
Baker Botts L.L.P., Houston, Texas, will pass upon certain legal matters
for us in connection with the securities offered hereby.
43
EXPERTS
The audited financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K of EGL, Inc. for the year ended
December 31, 2001, except as they relate to Circle International Group, Inc.,
for the year ended December 31, 1999, have been audited by
PricewaterhouseCoopers LLP, independent accountants, and, insofar as they relate
to Circle International Group, by other accountants. Such financial statements
have been so included in reliance on the reports of such independent accountants
given on the authority of such firms as experts in auditing and accounting.
The consolidated statements of operations, stockholders' equity and cash
flows of Circle International Group, Inc. for the year ended December 31, 1999
(which are not presented separately but are consolidated with those of EGL, Inc.
which are incorporated in this prospectus by reference from EGL, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2001) have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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[EGL LOGO]
$100,000,000
5% CONVERTIBLE SUBORDINATED NOTES
DUE DECEMBER 15, 2006
AND
COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
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PROSPECTUS
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May 24, 2002
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