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<SEC-DOCUMENT>0000950117-99-000560.txt : 19990325
<SEC-HEADER>0000950117-99-000560.hdr.sgml : 19990325
ACCESSION NUMBER: 0000950117-99-000560
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 13
CONFORMED PERIOD OF REPORT: 19981231
FILED AS OF DATE: 19990323
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PITTSTON CO
CENTRAL INDEX KEY: 0000078890
STANDARD INDUSTRIAL CLASSIFICATION: BITUMINOUS COAL & LIGNITE MINING [1220]
IRS NUMBER: 541317776
STATE OF INCORPORATION: VA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-09148
FILM NUMBER: 99570766
BUSINESS ADDRESS:
STREET 1: P O BOX 4229
STREET 2: 1000 VIRGINIA CENTER PKWY
CITY: GLEN ALLEN
STATE: VA
ZIP: 23058-4229
BUSINESS PHONE: 8045533600
MAIL ADDRESS:
STREET 1: P O BOX 4229
CITY: GLEN ALLEN
STATE: VA
ZIP: 23058-4229
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<DESCRIPTION>THE PITTSTON COMPANY 10-K
<TEXT>
<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-9148
THE PITTSTON COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
VIRGINIA 54-1317776
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P.O. BOX 4229,
1000 VIRGINIA CENTER PARKWAY
GLEN ALLEN, VIRGINIA 23058-4229
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (804) 553-3600
</TABLE>
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
<S> <C>
PITTSTON BRINK'S GROUP COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
PITTSTON BAX GROUP COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
PITTSTON MINERALS GROUP COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES B PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES D PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 2, 1999, there were issued and outstanding 40,863,615 shares
of Pittston Brink's Group Common Stock, 20,824,910 shares of Pittston BAX Group
Common Stock and 9,186,434 shares of Pittston Minerals Group Common Stock. The
aggregate market value of such stocks held by nonaffiliates, as of that date,
was $954,461,464, $151,105,783 and $13,962,972, respectively.
Documents incorporated by reference: Part I, Part II and Part IV
incorporate information by reference from the Annual Reports of Pittston Brink's
Group, Pittston BAX Group and Pittston Minerals Group for the year ended
December 31, 1998. Part III incorporates information by reference from portions
of the Registrant's definitive Proxy Statement to be filed pursuant to
Regulation 14A.
<PAGE>
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
As used herein, the "Company" includes The Pittston Company, except as otherwise
indicated by the context. The Company is a diversified firm with three separate
groups - Pittston Brink's Group, Pittston BAX Group, and Pittston Minerals Group
(each as defined below). The Company has three classes of common stock: Pittston
Brink's Group Common Stock ("Brink's Stock"), Pittston BAX Group Common Stock
("BAX Stock") and Pittston Minerals Group Common Stock ("Minerals Stock") which
were designed to provide shareholders with separate securities reflecting the
performance of the Brink's Group, BAX Group and Minerals Group, respectively,
without diminishing the benefits of remaining a single corporation or precluding
future transactions affecting any of the Groups. The Brink's Group consists of
the Brink's and BHS segments (each as defined below) of the Company. The BAX
Group consists of the BAX Global segment (as defined below) of the Company. The
Minerals Group consists of the Pittston Coal and Mineral Ventures segments (each
as defined below) of the Company. The Company prepares three separate Annual
Reports for the Brink's, BAX and Minerals Groups, each of which includes the
consolidated financial information of the Company. Corporate allocations
reflected in Brink's, BAX and Minerals Groups' financial statements are
determined based upon methods which management believes to provide a reasonable
and equitable allocation of such items. Holders of the Brink's Group, BAX Group
and Minerals Group common stocks are shareholders of the Company, which
continues to be responsible for all its liabilities. Accordingly, the financial
statements of the Pittston Brink's Group, Pittston BAX Group and Pittston
Minerals Group must be read in conjunction with the financial statements of the
Company, which are included in each Group's Annual Report.
The Company provides to holders of Brink's Stock, BAX Stock and Minerals Stock,
separate financial statements, financial review, descriptions of business and
other relevant information in addition to the consolidated financial information
of the Company. Notwithstanding the attribution of assets and liabilities
(including contingent liabilities) among the Brink's Group, the BAX Group and
the Minerals Group, for the purpose of preparing their respective financial
statements, this attribution and the change in the capital structure of the
Company as a result of the approval of the Brink's Stock Proposal did not affect
legal title to such assets or responsibility for such liabilities for the
Company or any of its subsidiaries. Holders of Brink's Stock, BAX Stock and
Minerals Stock are shareholders of the Company, which continues to be
responsible for all its liabilities. Financial impacts arising from one group
that affect the Company's financial condition could thereby affect the results
of operations and financial condition of each of the groups. Since financial
developments within one group could affect other groups, all shareholders of the
Company could be adversely affected by an event directly impacting only one
group. Accordingly, the Company's consolidated financial statements must be read
in connection with the Brink's Group, BAX Group and Minerals Groups' financial
statements.
Financial information related to the Company's segments is included in Note 17
of the Company's consolidated financial statements. See pages 84 through 85; 87
through 88 or 92 through 93 of the Brink's Group, the BAX Group and the Minerals
Group 1998 Annual Reports, respectively, each of which includes the consolidated
financial information of the Company and are incorporated herein by reference.
The information set forth with respect to "Business and Properties" is as of
December 31, 1998 except where an earlier or later date is expressly stated.
Nothing herein should be considered as implying that such information is correct
as of any date other than December 31, 1998, except as so stated or indicated by
the context.
Activities relating to the Brink's segment are carried on by Brink's,
Incorporated and its subsidiaries and certain affiliates and associated
companies in foreign countries (together, "Brink's"). Activities relating to the
BHS segment are carried on by Brink's Home Security, Inc. and its subsidiaries
(together, "BHS"). Activities relating to the BAX Global segment are carried on
by BAX Global Inc. and its subsidiaries and certain affiliates and associated
companies in foreign countries (together, "BAX Global"). Activities relating to
Pittston Coal are carried on by the Pittston Coal Company and its subsidiaries
(together, "Pittston Coal"). Activities relating to Mineral Ventures are carried
on by Pittston Mineral Ventures Company and its subsidiaries and certain
affiliates (together, "Mineral Ventures").
The Company has a total of approximately 41,800 employees.
PITTSTON BRINK'S GROUP
Pittston Brink's Group (the "Brink's Group") consists of the armored car, air
courier and related services of Brink's, and the home security business of BHS.
BRINK'S
GENERAL
The major activities of Brink's are contract-carrier armored car, automated
teller machine ("ATM"), air courier, coin wrapping, and currency and deposit
processing services. Brink's serves customers through 153 branches in the United
States and 39 branches in Canada. Service is also provided through subsidiaries,
affiliates and associated companies in 48 countries outside the United States
and Canada. These international operations contributed approximately 50% of
Brink's total reported 1998 operating profit. Brink's ownership interest in
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subsidiaries and affiliated companies ranges from approximately 20% to 100%; in
some instances local laws limit the extent of Brink's interest.
Representative customers include banks, commercial establishments, industrial
facilities, investment banking and brokerage firms and government agencies.
Brink's provides its individualized services under separate contracts designed
to meet the distinct transportation and security requirements of its customers.
These contracts are usually for an initial term of one year or less, but
generally continue in effect thereafter until canceled by either party.
Brink's armored car services include transportation of money from industrial and
commercial establishments to banks for deposit, and transportation of money,
securities and other negotiable items and valuables between commercial banks,
Federal Reserve Banks and their branches and correspondents, and brokerage
firms. Brink's also transports new currency, coins and precious metals for the
United States Mint, the Federal Reserve System and the Bank of Canada. For
transporting money and other valuables over long distances, Brink's offers a
combined armored car and air courier service linking many cities in the United
States and abroad. Except for a subsidiary in Venezuela, Brink's does not own or
operate any aircraft, but uses regularly scheduled or chartered aircraft in
connection with its air courier services.
In addition to its armored car pickup and delivery services, Brink's provides
change services, coin wrapping services, currency and deposit processing
services, ATM services, safes and safe control services, check cashing and
pickup and delivery of valuable air cargo shipments. In certain geographic
areas, Brink's transports canceled checks between banks or between a clearing
house and its member banks. Brink's also offers CompuSafe'TM' service, designed
to streamline the handling and management of cash receipts initially implemented
for the convenience store and gas station market.
Brink's operates a worldwide specialized diamond and jewelry transportation
business and has offices in the major diamond and jewelry centers of the world,
including London, Antwerp, Tel Aviv, Hong Kong, New York, Bombay, Bangkok, Tokyo
and Arrezzo, Italy.
Brink's has a wholly owned subsidiary that develops flexible deposit processing
and vault management software systems for the financial services industry and
for Brink's internal use. Brink's has the ability to tie together a full range
of cash vault, ATM, transportation, storage, processing, inventory management
and reporting services. Brink's believes that its processing and information
capabilities differentiate its currency and deposit processing services from its
competitors and enable Brink's to take advantage of the trend by banks, retail
business establishments and others to outsource vaulting and cash room
operations.
Brink's non-North American operations which accounted for approximately 57% of
its revenues in 1998, are organized into three regions: Europe, Latin America
and Asia/Pacific. In Europe, wholly owned subsidiaries of Brink's operate in
France, Germany, the United Kingdom and the Netherlands and, in the diamond and
jewelry transportation business, in Belgium, Italy, Russia and the United
Kingdom. In January 1998, Brink's purchased substantially all of the remaining
outstanding shares of its subsidiary in France. In June 1998, Brink's purchased
the remaining 50% interest of its subsidiary in Germany. Brink's has a 70%
interest in a subsidiary in Israel, a 50.05% interest in a subsidiary in Greece
and a 51% interest in a subsidiary in Switzerland. Brink's also has ownership
interests ranging from 45% to 50% in affiliates and subsidiaries operating in
Belgium, Ireland, Jordan and Luxembourg. Wholly owned subsidiaries operate in
South Africa and Turkey. In Latin America, wholly owned subsidiaries operate in
Brazil and Bolivia. Brink's owns a 61% interest in a subsidiary in Venezuela, a
73% interest in a subsidiary in Chile, a 51% ownership interest in a subsidiary
in Argentina, a 58% interest in a subsidiary in Colombia and a 20% interest in a
Mexican company which operates one of the world's largest security
transportation services with over 1,400 armored vehicles. Brink's also has 49%
and 36% ownership interests in affiliates operating in Panama and Peru,
respectively. In the Asia/Pacific region, wholly owned subsidiaries of Brink's
operate in Australia, Taiwan and China, and majority owned subsidiaries operate
in Hong Kong (90% owned), Japan (51% owned) and Singapore (60% owned). Brink's
also has minority interests in affiliates in India, Pakistan and Thailand
ranging from 40% to 49%.
Because the financial results of Brink's are reported in US dollars, they are
affected by changes in the value of the various foreign currencies in relation
to the US dollar. Changes in exchange rates may also adversely affect
transactions which are denominated in currencies other than the functional
currency. Brink's periodically enters into such transactions in the normal
course of its business. The diversity of foreign operations helps to mitigate a
portion of the impact that foreign currency fluctuations may have in any one
country on the translated results. Brink's, from time to time, uses foreign
currency forward contracts to hedge certain transactional risks associated with
foreign currencies. Brink's is also subject to other risks customarily
associated with doing business in foreign countries, including labor and
economic conditions, political instability, controls on repatriation of earnings
and capital, nationalization, expropriation and other forms of restrictive
action by local governments. The future effects of such risks on Brink's cannot
be predicted.
COMPETITION
Brink's is the oldest and largest armored car service company in the United
States as well as a market leader in most of the countries in which it operates.
The foreign subsidiaries, affiliates and associates of Brink's compete with
numerous armored car and courier service companies in many areas of operation.
In the United States, Brink's presently competes nationally with one company and
regionally and locally with many smaller companies. Brink's believes that its
service, high quality insurance coverage and company reputation (including the
name
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"Brink's") are important competitive advantages. However, the cost of service
is, in many instances, the controlling factor in obtaining and retaining
customers. While Brink's cost structure is generally competitive, certain
competitors of Brink's have lower costs primarily as a result of lower wage and
benefit levels.
See also "Government Regulation" below.
SERVICE MARK, PATENTS AND COPYRIGHTS
Brink's is a registered service mark of Brink's, Incorporated in the United
States and in certain foreign countries. The Brink's mark and name are of
material significance to Brink's business. Brink's owns patents with respect to
certain coin sorting and counting machines and armored truck design. Patents
related to coin sorting and counting machines expire in 2007. Brink's holds
copyrights on certain software systems developed by Brink's. In addition,
Brink's has a patented integrated service called CompuSafe'TM' service which has
been designed to streamline the handling and management of cash receipts.
INSURANCE
Brink's carries insurance coverage for its losses. Insurance policies cover
liability for loss of various types of property entrusted to Brink's from any
cause except war and nuclear risk. The various layers of insurance are covered
by different groups of participating underwriters. Such insurance is obtained by
Brink's at rates and upon terms negotiated periodically with the underwriters.
The loss experience of Brink's and, to a limited extent, other armored carriers
affects premium rates charged to Brink's. The availability of quality and
reliable insurance coverage is an important factor in the ability of Brink's to
obtain and retain customers. Quality insurance is available to Brink's in major
markets although the premiums charged are subject to fluctuations depending on
market conditions. Less expensive armored car and air courier all-risk insurance
is available, but these policies typically contain unacceptable operating
warranties and limited customer protection.
GOVERNMENT REGULATION
The operations of Brink's are subject to regulation by the United States
Department of Transportation with respect to safety of operation and equipment
and financial responsibility. Intrastate operations in the United States and
intraprovince operations in Canada are subject to regulation by state and by
Canadian and provincial regulatory authorities, respectively. Brink's non-North
American operations are regulated to varying degrees in foreign countries.
EMPLOYEE RELATIONS
At December 31, 1998, Brink's and its subsidiaries had approximately 10,700
employees in North America, of whom approximately 3,200 are classified as
part-time employees. At December 31, 1998, Brink's had approximately 19,200
employees outside North America. In the United States, two locations (13
employees) are covered by collective bargaining agreements. At December 31,
1998, Brink's was a party to two United States and nine Canadian collective
bargaining agreements with various local unions covering approximately 1,290
employees, most of whom are employees in Canada and members of unions affiliated
with the International Brotherhood of Teamsters. Negotiations are continuing on
two agreements that expired in 1998 and three agreements expiring in 1999. The
remaining agreements will expire after 1999. Negotiations on the two agreements
which expired in 1998 are expected to be concluded by the beginning of the
second quarter of 1999. Brink's believes that its employee relations are
generally satisfactory.
PROPERTIES
Brink's owns 26 branch offices and holds under lease an additional 185 branch
offices, located in 38 states, the District of Columbia, the Commonwealth of
Puerto Rico and nine Canadian provinces. Such branches generally include office
space and garage or vehicle terminals, and serve not only the city in which they
are located but also nearby cities. Brink's corporate headquarters in Darien,
Connecticut, is held under a lease expiring in 2000, with an option to renew for
an additional five-year period. The leased branches include 109 facilities held
under long-term leases, while the remaining 76 branches are held under
short-term leases or month-to-month tenancies.
Brink's owns or leases, in the United States and Canada, approximately 2,300
armored vehicles, 300 panel trucks and 260 other vehicles which are primarily
service cars. In addition, approximately 2,700 Brink's-owned safes are located
on customers' premises. The armored vehicles are of bullet-resistant
construction and are specially designed and equipped to afford security for crew
and cargo. Brink's subsidiaries and affiliated and associated companies located
outside the United States and Canada operate from approximately 450 branches
with approximately 4,400 armored vehicles.
BHS
GENERAL
BHS is engaged in the business of installing, servicing and monitoring
electronic security systems primarily in owner-occupied, single-family
residences. At December 31, 1998, BHS was monitoring approximately 585,500
systems, including approximately 113,500 new subscribers since December 31,
1997, and was servicing 70 metropolitan areas in 40 states, the District of
Columbia and Canada. Four of these areas were added during 1998.
BHS markets its alarm systems primarily through advertising, inbound
telemarketing and a direct sales force. BHS also markets its systems directly to
home builders and has entered into several contracts which extend through 1999.
BHS employees install and service the systems from local BHS branches.
Subcontractors are utilized in some service areas. BHS does not manufacture any
of the equipment used in its security systems; instead, it purchases such
equipment from a small number of suppliers. Equipment inventories are maintained
at each branch office.
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BHS's security system consists of sensors and other devices which are installed
at a customer's premises. The equipment is designed to signal intrusion, fire
and medical alerts. When an alarm is triggered, a signal is sent by telephone
line to BHS's central monitoring station in Irving, Texas, a suburb of Dallas.
The monitoring station was designed and constructed in 1997 to meet the
specifications of Underwriters' Laboratories, Inc. ("UL"). BHS applied for and
received a UL listing for the facility. A backup monitoring center in
Carrollton, Texas, protects against a catastrophic event at the primary
monitoring center. In the event of an emergency, such as fire, tornado, major
interruption in telephone service, or any other calamity affecting the primary
facility, monitoring operations can be quickly transferred to the backup
facility.
BHS's alarm service contracts contain provisions limiting BHS's liability to its
customers. Courts have, from time to time, upheld such provisions, but there can
be no assurance that the limitations contained in BHS's agreements will be
enforced according to their terms in any or all cases. The nature of the service
provided by BHS potentially exposes it to greater risk of liability than may be
borne by other service businesses. However, BHS has not experienced any major
liability losses.
BHS carries insurance of various types, including general liability and errors
and omissions insurance, to protect it from product deficiencies and negligent
acts of its employees. Certain of BHS's insurance policies and the laws of some
states limit or prohibit insurance coverage for punitive or certain other kinds
of damages arising from employees' misconduct.
REGULATION
BHS and its personnel are subject to various Federal, state and local consumer
protection, licensing and other laws and regulations. BHS's business relies upon
the use of telephone lines to communicate signals, and telephone companies are
currently regulated by both the Federal and state governments. BHS's wholly
owned Canadian subsidiary, Brink's Home Security Canada Limited, is subject to
the laws of Canada, British Columbia and Alberta. The alarm service industry
continues to experience a high incidence of false alarms in some communities,
including communities in which BHS operates. This has caused some local
governments to impose assessments, fines and penalties on subscribers of alarm
companies (including BHS) based upon the number of false alarms reported. There
is a possibility that at some point some police departments may refuse to
respond to calls from alarm companies which would necessitate that private
response forces be used to respond to alarm signals. Since these false alarms
are generally not attributable to equipment failures, BHS does not anticipate
any significant capital expenditures will be required as a result thereof. BHS
believes its alarm service contracts will allow BHS to pass these charges on to
the appropriate customers. Regulation of installation and monitoring of fire
detection devices has also increased in several markets.
COMPETITION
BHS competes in many of its markets with numerous small local companies,
regional companies and several large national firms. BHS believes that it is one
of the leading firms engaged in the business of installing, servicing and
monitoring electronic security systems in the single-family home marketplace.
Competitive pressure on installation fees has increased since 1996. Several
significant competitors offer installation prices which match or are less than
BHS prices; however, many of the small local competitors in BHS markets continue
to charge significantly more for installation.
In February 1996, a Federal telecommunications reform bill was enacted which
contained provisions specific to the alarm industry. The key provisions include
a five year waiting period prior to entry for the six (now four) regional Bell
operating companies ("RBOCs") not already providing alarm service, restrictions
on further purchases of alarm companies by one RBOC, Ameritech, which has
already become a significant competitor in the industry, a prohibition against
cross-subsidiarization by an RBOC of any alarm subsidiaries, a prohibition
against any RBOCs accessing lists of alarm company customers and an expedited
complaint process. Consequently, RBOCs could become significant competitors in
the home security business in the near future. However, BHS believes that the
quality of its service compares favorably with that provided by current
competitors and that the Brink's name and reputation will continue to provide an
important competitive advantage subsequent to the completion of the five year
waiting period.
EMPLOYEES
BHS has approximately 2,400 employees, none of whom is covered by a collective
bargaining agreement. BHS believes that its employee relations are satisfactory.
PROPERTIES
BHS operates from 58 leased offices and warehouse facilities across the United
States and two leased offices in Canada. All premises protected by BHS alarm
systems are monitored from the central monitoring station in Irving, Texas which
is held by BHS under a lease expiring in 2003. This facility is also occupied by
administrative, technical and marketing services personnel who support branch
operations. The lease for the backup monitoring center in Carrollton, Texas,
expires in 2002.
BHS retains ownership of nearly all of the approximately 585,500 systems
currently being monitored. When a current customer cancels the monitoring
service and does not move, it is BHS' policy to temporarily disable the system
and not incur the cost of retrieving it (at which point any remaining book value
of the equipment is fully reserved). Retaining ownership helps prevent another
alarm company from providing services using BHS security equipment. On the other
hand, when a current customer cancels the monitoring service because of a move,
the retention of ownership of the equipment facilitates the marketing of the
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monitoring service to the new homeowner. BHS leases all of the 1,160 vehicles
used for installation and servicing of its security systems.
BHS has two patents on its 2000 Control Panel and Keypad which expire in 2012
and 2018.
PITTSTON BAX GROUP
Pittston BAX Group (the "BAX Group") consists of the expedited freight
transportation services, supply chain management, freight forwarding and customs
brokerage services business of BAX Global.
BAX GLOBAL
GENERAL
BAX Global is primarily engaged in North American overnight and second day
freight, and international time definite air and sea transportation, freight
forwarding, supply chain management services and international customs
brokerage. In conducting its forwarding business, BAX Global generally picks up
or receives freight shipments from its customers, consolidates the freight of
various customers into shipments for common destinations, arranges for the
transportation of the consolidated freight to such destinations (using either
commercial carriers or, in the case of most of its United States, Canadian and
Mexican shipments, its own aircraft fleet and hub sorting facility) and, at the
destinations, distributes the consolidated shipments and effects delivery to
consignees. For international shipments, BAX Global also frequently acts as
customs broker, facilitating the clearance of goods through customs at
international points of entry. BAX Global provides transportation customers with
supply chain management services and operates logistics warehouse and
distribution facilities in key world markets.
BAX Global specializes in highly customized global freight forwarding and supply
chain management services. It concentrates on providing service to customers
with significant supply chain management needs, such as manufacturers of
computer and electronics equipment. BAX Global offers its customers a variety of
service and pricing alternatives for their shipments, such as guaranteed
overnight delivery, second-day delivery or deferred service in North America. A
variety of ancillary services, such as shipment tracking, inventory control and
management reports are also provided. Internationally, BAX Global offers a
similar variety of services including ocean forwarding, door-to-door delivery
and standard and expedited freight services.
BAX Global has the ability to provide freight service to all North American
business communities as well as to virtually all foreign countries through its
network of company-operated stations and agent locations in 119 countries. The
pickup and delivery of freight are accomplished principally by independent
contractors. BAX Global markets its services primarily through its direct sales
force and also employs other marketing methods, including print media
advertising and direct marketing campaigns.
BAX Global's freight business has tended to be seasonal, with a significantly
higher volume of shipments generally experienced during March, June and the
period August through December than during the other periods of the year. The
lowest volume of shipments has generally occurred in January and February.
Including United States export and import revenue, BAX Global's international
operations accounted for approximately 65% of its revenues in 1998. Intra-US
revenues accounted for 35% of total revenues in 1998.
BAX Global is continuing to develop import/export and supply chain management
business between shippers and consignees, in countries other than the United
States through BAX Global's network of company-operated stations and agent
locations. BAX Global has agents and sales representatives in many overseas
locations, although such agents and representatives are not subject to long-term
noncancellable contracts.
Because the financial results of BAX Global are reported in US dollars, they are
affected by changes in the value of the various foreign currencies in relation
to the US dollar. Changes in exchange rates may also adversely affect
transactions which are denominated in currencies other than the functional
currency. BAX Global periodically enters into such transactions in the normal
course of its business. The diversity of foreign operations helps to mitigate a
portion of the impact that foreign currency fluctuations may have in any one
country on the translated results. BAX Global, from time to time, uses foreign
currency forward contracts to hedge certain transactional risks associated with
foreign currencies. BAX Global is also subject to other risks associated with
doing business in foreign countries, including labor and economic conditions,
political instability, controls on repatriation of earnings and capital,
nationalization, expropriation and other forms of restrictive action by local
governments. The future effects of such risks, if any, on BAX Global cannot be
predicted.
BAX Global's computer system, ARGUS+'r', is a satellite-based, worldwide
communications and information system which, among other things, provides
worldwide tracking and tracing of shipments and various data for management
information reports, enabling customers to improve efficiency and control costs.
BAX Global also utilizes an image processing system to centralize domestic
airbill and related document storage in BAX Global's computer for automated
retrieval by any BAX Global office.
During early 1997, BAX Global began an extensive review of the company's
information technology ("IT") strategy. Through this review, senior management
from around the world developed a new global strategy to improve business
processes with an emphasis on new information systems intended to enhance
productivity and improve the company's competitive position, as well as address
and remediate the company's Year 2000
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compliance issues. The company ultimately committed up to $120 million to be
spent from 1997 to early 2000 to improve information systems and complete Year
2000 initiatives.
However, in conjunction with priorities established by BAX Global's new
president and chief executive officer, who joined the company in June 1998,
senior management re-examined this global IT strategy. It was determined that
the critical IT objectives needed to be accomplished by the end of 1999 were
Year 2000 compliance and the consolidation and integration of certain key
operating and financial systems, supplemented by process improvement initiatives
to enhance these efforts. As a result of this re-examination, senior management
determined that certain non-critical, in-process IT software development
projects that were begun in late 1997 under BAX Process Innovation ("BPI")
project would be terminated. Therefore, costs relating to these projects, which
had previously been capitalized, were written off during the third quarter of
1998. Also, as a result of this re-examination, certain existing software
applications were found to have no future service potential or value. The
combined carrying amount of these assets, which were written off, approximated
$16 million. It is management's belief at this time that the current ongoing
information technology initiatives that originated from the previously mentioned
BPI project are necessary and will be successfully completed and implemented.
AIRCRAFT OPERATIONS
On April 30, 1998, BAX Global acquired the privately held Air Transport
International LLC ("ATI"). ATI is a US-based freight and passenger airline which
operates a certificated fleet of DC-8 aircraft providing services to BAX Global,
the US Government Air Mobility Command, and other customers. ATI provides
domestic lift service in the BAX Global system and domestic and international
lift service for the US Government Air Mobility Command and other charter
customers.
BAX Global, inclusive of the ATI fleet, utilizes a fleet of 36 leased or
contracted and 7 owned aircraft providing regularly scheduled service throughout
the United States and certain destinations in Canada and Mexico from its freight
sorting hub in Toledo, Ohio. BAX Global's fleet is also used for charters and to
serve other international markets from time to time. The fleet and hub are
primarily dedicated to providing reliable next-day service for domestic,
Canadian and Mexican air cargo customers. BAX Global owns 5 DC-8 aircraft in
cargo configuration and an additional 2 in Combi configuration (designed to
carry cargo and passengers), which are utilized for US Government Air Mobility
Command missions. There is a total of 5 DC-8s in the Combi configuration (2
owned and 3 leased) which are utilized for military flights and do not operate
in the BAX cargo system. At December 31, 1998, BAX Global utilized 17 DC-8s
(including 11 DC8-71 aircraft) under leases for terms primarily expiring between
1999 and 2003. Sixteen additional 727 cargo aircraft were under contract at
December 31, 1998, for terms ranging between three and four years. Based on the
current state of the aircraft leasing market, BAX Global believes that it should
be able to renew these leases or enter into new leases on terms reasonably
comparable to those currently in effect. The actual operation and routine
maintenance of the aircraft owned or held under long-term lease by BAX Global is
performed by ATI, a wholly owned airline subsidiary, or is contracted out,
normally for two-to-three-year terms, to other federally certificated operators
which supply the pilots and other flight services.
The nightly lift capacity in operation at December 31, 1998, was approximately
2.0 million pounds, calculated on an average freight density of 7.5 pounds per
cubic foot. BAX Global's nightly lift capacity varies depending upon the number
and type of planes operated by BAX Global at any particular time. Including
trucking capacity available to BAX Global, the aggregate daily cargo capacity at
December 31, 1998, was approximately 3.2 million pounds.
For aircraft owned or held under long-term lease, BAX Global is generally
responsible for all the costs of operating and maintaining the aircraft,
including any special maintenance or modifications which may be required by
Federal Aviation Administration ("FAA") regulations or orders (see "Government
Regulation" below). In 1998, BAX Global had cash outlays totaling approximately
$40 million on routine heavy maintenance of its aircraft fleet. BAX Global has
made provisions in its financial statements for the expected costs associated
with aircraft operations and maintenance which it believes to be adequate;
however, unanticipated maintenance costs or required aircraft modifications
could adversely affect BAX Global's profitability.
The average airframe age of the fleet leased by BAX Global under leases with
terms longer than two years is 30 years, although factors other than age, such
as cycles (numbers of takeoffs or landings) can have a significant impact on an
aircraft's serviceability. Generally, cargo aircraft tend to have fewer cycles
than passenger aircraft over comparable time periods because they have fewer
flights per day and longer flight segments.
Fuel costs are a significant element of the total costs of operating BAX
Global's aircraft fleet. For each one cent per gallon increase or decrease in
the price of jet fuel, BAX Global's airline operating costs may increase or
decrease approximately $80 thousand per month. In order to protect against price
increases in jet fuel, from time to time BAX Global enters into hedging and
other agreements, including swap contracts, options and collars.
Fuel prices are subject to world, as well as local, market conditions. It is not
possible to predict the impact of future conditions on fuel prices and fuel
availability. Competition in the airfreight industry is such that no assurance
can be given that any future increases in fuel costs (including taxes relating
thereto) will be recoverable in whole or in part from customers.
BAX Global has a lease expiring in October 2013, with the Toledo-Lucas County
Port Authority covering its freight sorting hub and related facilities (the
"Hub") at Toledo Express Airport in
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Ohio. The Hub consists of various facilities, including a technologically
advanced material handling system which is capable of sorting approximately one
million pounds of freight per hour.
CUSTOMERS
BAX Global's domestic and foreign customer base includes thousands of industrial
and commercial shippers, both large and small. BAX Global's customer base
includes major companies in the automotive, aerospace, computer, electronics,
fashion, retail and other industries where rapid delivery of high-value products
is required. In 1998, no single customer accounted for more than 3% of BAX
Global's total worldwide revenues. BAX Global does not have long-term,
noncancellable contracts with any of its customers.
COMPETITION
The air and ocean freight forwarding and supply chain management industries have
been and are expected to remain highly competitive. The principal competitive
factors in both domestic and international markets are price, the ability to
provide consistently fast and reliable delivery of shipments and the ability to
provide ancillary services such as warehousing, distribution, shipment tracking
and sophisticated information systems and reports. There is aggressive price
competition in the domestic air freight market, particularly for the business of
high volume shippers. BAX Global competes with other integrated air freight
companies that operate their own aircraft, as well as with air freight
forwarders, express delivery services, passenger airlines and other
transportation companies. Domestically, BAX Global also competes with package
delivery services provided by ground transportation companies, including
trucking firms and surface freight forwarders, which offer specialized overnight
services within limited geographical areas. As a freight forwarder to, from and
within international markets, BAX Global also competes with government-owned or
subsidized passenger airlines and ocean shipping companies. In supply chain
management services, BAX Global competes with many third party logistics
providers.
GOVERNMENT REGULATION
The air transportation industry is subject to Federal regulation under the
Federal Aviation Act of 1958, as amended, and pursuant to that statute, the
Department of Transportation ("DOT") may exercise regulatory authority over BAX
Global. ATI operates an FAA-certificated fleet and therefore is subject to such
regulations. In addition, BAX Global's Toledo, Ohio, hub operations are directly
affected by the FAA.
Federal statues authorize the FAA, with the assistance of the Environmental
Protection Agency ("EPA"), to establish aircraft noise standards. Under the
National Emissions Standards Acts of 1967, as amended by the Clean Air Act
Amendments of 1970, and the Airport Noise and Capacity Act of 1990 (the "Noise
Act"), the administrator of the EPA is authorized to issue regulations setting
forth standards for aircraft emissions. Although the Federal government
generally regulates aircraft noise, local airport operators may, under certain
circumstances, regulate airport operations based on aircraft noise
considerations. If airport operators were to restrict arrivals or departures
during certain nighttime hours to reduce or eliminate air traffic noise for
surrounding home areas at airports where BAX Global's activities are centered,
BAX Global would be required to serve those airports with Stage III equipment.
The Noise Act requires that aircraft not complying with Stage III noise limits
be phased out by December 31, 1999. The Secretary of Transportation may grant a
waiver if it is in the public interest and if the carrier has at least 85% of
its aircraft in compliance with Stage III noise levels by July 1, 1999, and has
a plan with firm orders for making all of its aircraft comply with such noise
levels no later than December 31, 2003. No waiver may permit the operation of
Stage II aircraft in the United States after December 31, 2003.
The Noise Act requires the FAA to promulgate regulations setting forth a
schedule for the gradual phase-out of Stage II aircraft. The FAA has adopted
rules requiring each "US operator" to reduce the number of its Stage II aircraft
by 25% by the end of 1994, by 50% by the end of 1996, and by 75% by the end of
1998. The Noise Act imposes certain conditions and limitations on an airport's
right to impose new noise or access restrictions on Stage II and Stage III
aircraft but exempts present and certain proposed regulations from those
requirements.
Forty-one of the 43 aircraft in BAX Global's fleet primarily held under
long-term leases or owned now comply with the Stage III limits. Through 1999,
BAX Global anticipates that the two remaining aircraft will be hush-kitted to
comply with Stage III standards.
The FAA has recently imposed a regulation mandating Boeing 727 container load
reductions. A supplier of lift to BAX Global does operate Boeing 727 that are
subject to this regulation. BAX Global does not anticipate that this regulation
will have any significant impact on its operations.
BAX Global is subject to various requirements and regulations in connection with
the operation of its motor vehicles, including certain safety regulations
promulgated by DOT and state agencies.
EMPLOYEE RELATIONS
BAX Global and its subsidiaries have approximately 7,600 employees worldwide, of
whom about 2,500 are classified as part-time. Approximately 130 of these
employees (principally customer service, clerical and/or dock workers) in BAX
Global's stations at John F. Kennedy Airport, New York; Secaucus, New Jersey;
Minneapolis, Minnesota; and Toronto, Canada are represented by labor unions,
which in most cases are affiliated with the International Brotherhood of
Teamsters. The hourly collective bargaining agreement at John F. Kennedy Airport
has been negotiated and was ratified in 1998. BAX Global is currently
negotiating with the clerical union at John F. Kennedy Airport.
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BAX Global did not experience any significant strike or work stoppage in 1998
and considers its employee relations satisfactory.
Substantially all of BAX Global's cartage operations are conducted by
independent contractors. Certain flight crews for its aircraft are employees of
the independent airline companies which operate such aircraft and certain flight
crews are employees of ATI.
PROPERTIES
BAX Global operates 267 (106 domestic and 161 international) stations with BAX
Global personnel, and has agency agreements at an additional 227 (47 domestic
and 180 international) stations. These stations are located near primary
shipping areas, generally at or near airports. BAX Global-operated domestic
stations, which generally include office space and warehousing facilities, are
located in 47 states, the District of Columbia and Puerto Rico. BAX
Global-operated international facilities are located in 28 countries. Most
stations serve not only the city in which they are located, but also nearby
cities and towns. Nearly all BAX Global-operated stations are held under lease.
The Hub in Toledo, Ohio, is held under a lease expiring in 2013, with rights of
renewal for three five-year periods. Other facilities, including the corporate
headquarters in Irvine, California, are held under leases having terms of one to
ten years.
BAX Global owns or leases, in the United States and Canada, a fleet of
approximately 44 automobiles as well as 152 vans and trucks utilized in station
work or for hauling freight between airport facilities and BAX Global's
stations.
PITTSTON MINERALS GROUP
Pittston Minerals Group (the "Minerals Group") is primarily engaged in the
mining, preparation and marketing of coal, the purchase of coal for resale, the
sale or leasing of coal lands to others and has interests in the timber and
natural gas businesses through Pittston Coal. The Minerals Group also explores
for and acquires mineral assets other than coal, primarily gold, through its
Mineral Ventures operations. Revenues from such Mineral Ventures activities
currently represent approximately 3% of Minerals Group revenues.
PITTSTON COAL
GENERAL
Pittston Coal produces coal from approximately 17 company-operated surface and
deep mines located in Virginia, West Virginia and eastern Kentucky for
consumption in the steam and metallurgical markets. Steam coal is sold primarily
to utilities and industrial customers located in the eastern United States.
Metallurgical coal is sold to steel and coke producers primarily located in the
United States, Europe, the Mediterranean basin, Japan, Korea and Brazil.
Pittston Coal's strategy is to continue to develop its business as a low-cost
producer of low sulphur steam coal and high-quality metallurgical coal.
Pittston Coal has substantial reserves of low sulphur coal, much of which can be
produced from lower cost surface mines. Moreover, it has a significant share of
the premium quality metallurgical coal reserves in the United States, along with
other high quality feed stock seams in demand by the coke and steel-making
industry.
Steam coal is sold primarily to domestic utility customers through long-term
contracts (contracts in excess of one year) which have the effect of moderating
the impact of short-term market conditions, thereby reducing one element of risk
in new or expanded projects. Most of the steam coal consumed in the United
States is used to generate electricity. Through September 1998, coal accounted
for approximately 56% of the electricity generated by the electric utility
industry. Pittston Coal believes that it is well-positioned to take advantage of
any increased demand for low sulphur steam coal. Such increased demand could
result from factors such as regulatory requirements mandating lower emissions of
sulphur dioxide and utility deregulation which should favor coal as the lowest
cost energy source for power plants.
In contrast, the market for metallurgical coal, for most of the past fifteen
years, has been characterized by a weakening demand from primary steel
producers, a move to non-metallurgical coal and/or weak metallurgical coal in
coke and steel making, and intense competition from foreign coal producers,
especially those in Australia and Canada who benefited over this period from a
declining currency value versus the US dollar (coal sales contracts are priced
in US dollars). 1996 results benefited from some relief from declining
currencies while 1997 and 1998 results suffered from a sharp weakening of the
Australian dollar. Metallurgical coal sales contracts typically are subject to
annual price renegotiation, which increases the exposure to market forces.
PRODUCTION
The following table indicates the approximate tonnage of coal purchased and
produced by Pittston Coal for the years ended 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands of tons) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Produced:
Deep 5,332 4,975 3,930
Surface (a) 6,689 10,238 11,151
Contract 831 1,433 1,621
- --------------------------------------------------------------------------------
12,852 16,646 16,702
Purchased 3,536 4,075 5,762
- --------------------------------------------------------------------------------
Total 16,388 20,721 22,464
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(a) Reduction from 1997 is primarily the result of the sale of certain assets of
the Elkay mining operation in April 1998.
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SALES
The following table indicates the approximate tonnage of coal sold by Pittston
Coal in the years ended December 31, 1998, 1997 and 1996 in the domestic (United
States and Canada) and export markets and by categories of customers:
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands,
except per ton amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DOMESTIC:
Steel and coke producers 1,109 792 139
Utility, industrial and other 9,797 12,912 14,794
- --------------------------------------------------------------------------------
10,906 13,704 14,933
EXPORT:
Utility, industrial and other -- -- 217
Steel and coke producers 5,831 6,764 7,821
- --------------------------------------------------------------------------------
Total sold 16,737 20,468 22,971
- --------------------------------------------------------------------------------
Average selling price per ton $29.59 29.52 29.17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
For the year ended December 31, 1998, Pittston Coal sold approximately 16.7
million tons of coal, of which approximately 9.8 million tons were sold under
long-term contracts. In 1997, Pittston Coal sold approximately 20.5 million tons
of coal, of which approximately 13.5 million tons were sold under long-term
contracts.
The following table provides year by year estimates of the tons of coal
committed for sale under long-term contracts at December 31, 1998:
<TABLE>
<CAPTION>
Thousands
Year of tons
- --------------------------------------------------------------------------------
<S> <C>
1999 8,244
2000 5,917
2001 4,886
2002 3,070
2003 1,445
2004 1,080
2005 1,005
2006 780
2007 460
- --------------------------------------------------------------------------------
Total 26,887
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Contracts relating to a certain portion of this tonnage are subject to periodic
price renegotiation, which can result in termination by the purchaser or the
seller prior to contract expiration in case the parties should fail to agree
upon price.
During 1998, the ten largest domestic customers purchased 8.6 million tons of
coal (51% of total coal sales and 79% of domestic coal sales, by tonnage). The
three largest domestic customers purchased 5.9 million tons of coal for the year
ended December 31, 1998 (36% of total coal sales and 54% of domestic coal sales,
by tonnage). The largest single customer, American Electric Power Company,
purchased 4.3 million tons of coal, accounting for 26% of total coal sales and
39% of domestic coal sales, by tonnage. In 1997, the ten largest domestic
customers purchased 11.2 million tons of coal (55% of total coal sales and 82%
of domestic coal sales, by tonnage). The three largest domestic customers
purchased 8.0 million tons of coal in 1997 (39% of total coal sales and 59% of
domestic coal sales, by tonnage). In 1997, American Electric Power Company
purchased 5.6 million tons of coal, accounting for 27% of total coal sales and
41% of domestic coal sales, by tonnage.
Of the 5.8 million tons of coal sold in the export market in 1998, the ten
largest customers accounted for 3.4 million tons (21% of total coal sales and
59% of export coal sales, by tonnage) and the three largest customers purchased
1.8 million tons (11% of total coal sales and 31% of export coal sales, by
tonnage). Of the 6.8 million tons of coal sold in the export market in 1997, the
ten largest customers accounted for 3.7 million tons (18% of total coal sales
and 54% of export coal sales, by tonnage) and the three largest customers
purchased 1.7 million tons (8% of total coal sales and 24% of export coal sales,
by tonnage). Export coal sales are made principally under annual contracts or
long-term contracts that are subject to annual price renegotiation. Under these
export contracts, the price for coal is expressed and paid in United States
dollars.
Virtually all coal sales in the domestic utility market pursuant to long-term
contracts are subject to periodic price adjustments on the basis of provisions
which permit an increase or decrease periodically in the price to reflect
increases and decreases in certain price indices. In certain cases, price
adjustments are permitted when there are changes in taxes other than income
taxes, when the coal is sold other than FOB the mine and when there are changes
in railroad and barge freight rates. The provisions, however, are not identical
in all of such contracts, and the selling price of the coal does not necessarily
reflect every change in production cost incurred by the seller.
Metallurgical contracts are generally of one-year duration. The longest-term
metallurgical contract is valid through December 31, 2001. Contracts for the
sale of metallurgical coal in the domestic and export markets are generally
subject to price renegotiations on an annual basis. Pittston Coal's sales of
metallurgical coal are diversified geographically on a worldwide basis.
Approximately 1.1 million tons, or 16% of metallurgical sales were domestic; 3.6
million tons, or 52%, were to the Europe/Mediterranean basin; 1.0 million tons,
or 14%, were to the Far East and 1.3 million tons, or 18%, were to Latin
America. Contract negotiations for 1999, which typically occur in April, are
expected to be negatively impacted as a result of the increased competitiveness
of foreign metallurgical coal producers caused by the relative strength of the
US dollar versus the currencies of those producers' countries.
COMPETITION
The bituminous coal industry is highly competitive. Pittston Coal competes with
many other large coal producers and with hundreds of small producers in the
United States and abroad.
In the export market, many foreign competitors, particularly Australian, South
African and Canadian coal producers, benefit
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from certain competitive advantages existing in the countries in which they
operate, such as less difficult mining conditions, lower transportation costs,
less severe government regulation and lower labor and health benefit costs, as
well as currencies which have generally depreciated against the United States
dollar. The metallurgical coal produced by Pittston Coal is generally of higher
quality, and is often used by foreign steel producers to blend with coals from
other sources to improve the quality of coke and coke oven efficiency. However,
in recent years, steel producers have developed facilities and techniques which,
to some extent, enable them to accept lower quality metallurgical coal in their
coke ovens. Moreover, new technologies for steel production which utilize
pulverized coal injection, direct reduction iron and the electric arc furnace
have reduced the demand for all types of metallurgical coal. However, the use of
lesser quality coals and less coke in the blast furnace has increased the
importance of coke strength and the importance of premium quality coal in coke
making.
Metallurgical sales in 1999 are expected to be lower than those of 1998,
primarily as a result of the increased competitiveness of foreign metallurgical
coal producers caused by the relative strength of the US dollar versus the
currencies of those producers' countries, especially in Asia. In addition, this
currency disadvantage is expected to negatively impact 1999 contract
negotiations which typically occur in April.
Pittston Coal competes domestically on the basis of the premium quality of its
coal, which is not only valuable in the making of steel but, because of low
sulphur and high heat content, is also an attractive source of fuel to the
electric utility and other coal burning industries.
Other factors which affect competition include the price, availability and
public acceptance of alternative energy sources (in particular, oil, natural
gas, hydroelectric power and nuclear power), as well as the impact of federal
energy policies. Pittston Coal is not able to predict the effect, if any, on its
business (especially with respect to sales to domestic utilities) of particular
price levels for such alternative energy sources, especially oil and natural
gas. However, any sustained and marked decline in such prices could have a
material adverse effect on such business.
ENVIRONMENTAL MATTERS
The Surface Mining Control and Reclamation Act of 1977 and the regulations
promulgated thereunder ("SMCRA") by the Federal Office of Surface Mining
Reclamation and Enforcement ("OSM"), and the enforcement thereof by the US
Department of the Interior, establish mining and reclamation standards for all
aspects of surface mining as well as many aspects of deep mining. SMCRA also
imposes a tax of $0.35 on each ton of surface-mined coal and $0.15 on each ton
of deep-mined coal. OSM and its state counterparts monitor compliance with SMCRA
and its regulations by the routine issuance of "notices of violation" which
direct the mine operator to correct the cited conditions within a stated period
of time. Pittston Coal's policy is to correct the conditions that are the
subject of these notices or to contest those believed to be without merit in
appropriate proceedings.
As previously reported, Pittston Coal has reached a broad settlement with the
OSM involving SMCRA liabilities of former contractors. Pittston Coal has also
entered into a number of similar agreements with the states. Under these
agreements, Pittston Coal agreed to perform certain reclamation and to pay
certain fees of former contractors. In return, the agencies agreed not to deny
or "block" permits to Pittston Coal on account of the contractor liabilities
being settled. Pittston Coal is in the process of successfully completing all
required work under these agreements.
Pittston Coal is subject to various federal environmental laws, including the
Clean Water Act, the Clean Air Act and the Safe Drinking Water Act, as well as
state laws of similar scope in Virginia, West Virginia, Kentucky and Ohio. These
laws require approval of many aspects of coal mining operations, and both
federal and state inspectors regularly visit Pittston Coal's mines and other
facilities to assure compliance.
While it is not possible to quantify the costs of compliance with all applicable
federal and state laws, those costs have been and are expected to continue to be
significant. In that connection, it is estimated that Pittston Coal made capital
expenditures for environmental control facilities in the amount of approximately
$1.1 million in 1998 and estimates expenditures of $1.2 million in 1999.
Compliance with these laws has substantially increased the cost of coal mining,
but is, in general, a cost common to all domestic coal producers. The Company
believes that the competitive position of Pittston Coal has not been and should
not be adversely affected except in the export market where Pittston Coal
competes with various foreign producers not subject to regulations prevalent in
the US.
Federal, state and local authorities strictly monitor the sulphur dioxide and
particulate emissions from electric power plants served by Pittston Coal. In
1990, Congress enacted the Clean Air Act Amendments of 1990, which, among other
things, permit utilities to use low sulphur coals in lieu of constructing
expensive sulphur dioxide removal systems. The Company believes this should have
a favorable impact on the marketability of Pittston Coal's extensive reserves of
low sulphur coals. However, the Company cannot predict at this time the timing
or extent of such favorable impact.
MINE HEALTH AND SAFETY LAWS
The coal operating companies included within Pittston Coal are generally liable
under federal laws requiring payment of benefits to coal miners with
pneumoconiosis ("black lung"). The Black Lung Benefits Revenue Act of 1977 and
the Black Lung Benefits Reform Act of 1977 (the "1977 Act"), as amended by the
Black Lung Benefits and Revenue Amendments Act of 1981 (the "1981 Act"),
expanded the benefits for black lung disease and levied a tax on coal production
of $1.10 per ton for deep-mined coal and $0.55 per ton for surface-mined coal,
but not to exceed 4.4% of
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the sales price. In addition, the 1981 Act provides that certain claims for
which coal operators had previously been responsible will be obligations of the
government trust funded by the tax. The 1981 Act also tightened standards set by
the 1977 Act for establishing and maintaining eligibility for benefits. The
Revenue Act of 1987 extended the termination date of the tax from January 1,
1996 to the earlier of January 1, 2014 or the date on which the government trust
becomes solvent. The Company cannot predict whether any future legislation
effecting changes in the tax will be enacted. A number of the subsidiaries of
the Company filed a civil action in the United States District Court for the
Eastern District of Virginia asking the Court to find that the assessment of the
black lung tax on coal the Company subsidiaries sold to foreign customers for
the first quarter of 1997 was unconstitutional. On December 28, 1998, the
District Court found the black lung tax, as assessed against foreign coal sales,
to be unconstitutional and entered judgment for the Company's subsidiaries in an
amount in excess of $0.7 million. The Company will seek a refund of the black
lung tax it paid on any of its foreign coal sales for periods as far back as
applicable statute limitations will permit.
Stringent safety and health standards have been imposed by federal legislation
since 1969 when the Federal Coal Mine Health and Safety Act was adopted, which
resulted in increased operating costs and reduced productivity. The Federal Mine
Safety and Health Act of 1977 significantly expanded the enforcement of health
and safety standards.
Compliance with health and safety laws is, in general, a cost common to all
domestic coal producers. The Company believes that the competitive position of
Pittston Coal has not been and should not be adversely affected except in the
export market where Pittston Coal competes with various foreign producers
subject to less stringent health and safety regulations.
EMPLOYEE RELATIONS
At December 31, 1998, approximately 490 of the 1,800 employees of Pittston Coal
were members of the United Mine Workers of America ("UMWA"). The remainder of
such employees are either unrepresented hourly employees or supervisory
personnel. During the fourth quarter of 1998, certain of the Pittston coal
companies and the UMWA agreed to a five year wage contract. The agreement covers
approximately 400 employees and became effective January 1, 1999. Since 1990, no
significant labor disruptions involving UMWA-represented employees have
occurred. Pittston Coal believes that its employee relations are satisfactory.
HEALTH BENEFIT ACT
In October 1992, the Coal Industry Retiree Health Benefit Act of 1992 (the
"Health Benefit Act") was enacted as part of the Energy Policy Act of 1992. The
Health Benefit Act established rules for the payment of future health care
benefits for thousands of retired union mine workers and their dependents. The
Health Benefit Act established a trust fund to which "signatory operators" and
"related persons," including the Company and certain of its subsidiaries
(collectively, the "Pittston Companies"), are jointly and severally liable to
pay annual premiums for assigned beneficiaries, together with a pro rata share
for certain beneficiaries who never worked for such employers, including, in the
Company's case, the Pittston Companies ("unassigned beneficiaries"), in amounts
determined on the basis set forth in the Health Benefit Act. In October 1993 and
at various times in subsequent years, the Pittston Companies have received
notices from the Social Security Administration (the "SSA") with regard to their
assigned beneficiaries for which they are responsible under the Health Benefit
Act. For 1998 and 1997, these amounts were approximately $9.6 million and $9.3
million, respectively. As a result of legal developments in 1998 involving the
Health Benefit Act, the Company experienced an increase in its assessments under
the Health Benefit Act for the twelve month period beginning October 1, 1998,
approximating $1.7 million, $1.1 million of which relates to retroactive
assessments for years prior to 1998. This increase consists of charges for death
benefits which are provided for by the Health Benefit Act, but which previously
have been covered by other funding sources. As with all the Company's Health
Benefit Act assessments, this amount is to be paid in 12 equal monthly
installments over the plan year beginning October 1, 1998. The Company is unable
to determine at this time whether any other additional amounts will apply in
future plan years.
The Company currently estimates that the annual cash funding under the Health
Benefit Act for the Pittston Companies' assigned beneficiaries will continue at
approximately $10 million per year for the next several years and should begin
to decline thereafter as the number of such beneficiaries decreases. Based on
the number of beneficiaries actually assigned by the SSA, the Company estimates
the aggregate pretax liability relating to the Pittston Companies' beneficiaries
at December 31, 1998 at approximately $216 million, which when discounted at
7.0% provides a present value estimate of approximately $99 million. The
Company accounts for the obligation under the Health Benefit Act as a
participant in a multi-employer plan and the annual cost is recognized on a
pay-as-you-go basis.
In addition, under the Health Benefit Act, the Pittston Companies are jointly
and severally liable for certain post-retirement health benefits for thousands
of retired union mine workers and their dependents. Substantially all of the
Company's accumulated postretirement benefit obligations as of December 31, 1998
for retirees of $282.7 million relates to such retired workers and their
beneficiaries.
The ultimate obligation that will be incurred by the Company could be
significantly affected by, among other things, increased medical costs,
decreased number of beneficiaries, governmental funding arrangements, and such
federal health benefit legislation of general application as may be enacted. In
addition, the Health Benefit Act requires the Pittston Companies to fund, pro
rata according to the total number of assigned beneficiaries, a portion of the
health benefits for unassigned beneficiaries. At this time, the funding for such
health benefits is being provided from
11
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<PAGE>
another source and for this and other reasons the Pittston Companies' ultimate
obligation for the unassigned beneficiaries cannot be determined.
EVERGREEN CASE
In 1988, the trustees of the 1950 Benefit Trust Funds and the 1974 Pension
Benefit Trust Fund (the "Trust Funds") established under collective bargaining
agreements with the UMWA brought an action (the "Evergreen Case") against the
Company and a number of its coal subsidiaries claiming that the defendants are
obligated to contribute to such Trust Funds in accordance with the provisions of
the 1988 and subsequent National Bituminous Coal Wage Agreements, to which
neither the Company nor any of its subsidiaries is a signatory. In 1993, the
Company and the Minerals Group recognized in their financial statements the
potential liability that might have resulted from an ultimate adverse judgment
in the Evergreen Case.
In late March 1996 a settlement was reached in the Evergreen Case. Under the
terms of the settlement, the coal subsidiaries which had been signatories to
earlier National Bituminous Coal Wage Agreements agreed to make various lump sum
payments in full satisfaction of all amounts allegedly due to the Trust Funds
through January 31, 1996, to be paid over time as follows: approximately $25.8
million upon dismissal of the Evergreen Case and the remainder of $24.0 million
in installments of $7.0 million in 1996 and $8.5 million in each of 1997 and
1998. The first payment was entirely funded through an escrow account previously
established by the Company. The second, third and fourth (last) payments of $7.0
million and $8.5 million were paid according to schedule and were funded by cash
flows from operating activities. In addition, the coal subsidiaries agreed to
future participation in the UMWA 1974 Pension Plan.
PROPERTIES
The principal properties of Pittston Coal are coal reserves, coal mines and coal
preparation plants, all of which are located in Virginia, West Virginia and
eastern Kentucky. Such reserves are either owned or leased. Leases of land or
coal mining rights generally are either for a long-term period or until
exhaustion of the reserves, and require the payment of a royalty based generally
on the sales price and/or tonnage of coal mined from a particular property. Many
leases or rights provide for payment of minimum royalties.
Pittston Coal's estimated proven and probable surface mining, deep mining and
total coal reserves as of December 31, 1998 were 103 million, 397 million and
500 million tons, respectively. Such estimates represent economically
recoverable and minable tonnage and include allowances for extraction and
processing.
The decrease in total reserves over 1997 levels is primarily attributable to the
sale in the second quarter of 1998 of the Elkay mining operation in West
Virginia.
Of the 500 million tons of proven and probable coal reserves as of year-end
1998, approximately 60% has a sulphur content of less than 1% (which is
generally regarded in the industry as low sulphur coal) and approximately 40%
has a sulphur content greater than 1%. Approximately 36% of total proven and
probable reserves consist of metallurgical grade coal.
As of December 31, 1998, Pittston Coal controlled approximately 536 million tons
of additional coal deposits in the eastern United States, and approximately 170
million tons of low sulphur coal deposits in Sheridan County, Wyoming which
cannot be expected to be economically recovered without market improvement
and/or the application of new technologies.
Pittston Coal also owns other non-coal properties, such as land, hardwood
forests and natural gas reserves. It owns approximately 225 thousand surface
acres of land which includes approximately 125 thousand acres of saw timber
grade hardwood forests, comprising approximately 435 million board feet. Most of
the oil and gas rights are managed by an indirect wholly owned subsidiary of
Pittston Coal which, in general, receives royalty and other income from gas
development and operation by third parties. As of December 31, 1998, including
royalty interests, net proven developed natural gas reserves located in Virginia
and West Virginia approximated 3.5 Bcf. Pittston Coal also receives income from
the sale of timber cutting rights on certain properties as well as from the
operation of a sawmill.
Pittston Coal owns a 32.5% interest in Dominion Terminal Associates ("DTA"),
which leases and operates a ground storage-to-vessel coal transloading facility
in Newport News, Virginia. DTA has a throughput capacity of 22.0 million tons of
coal per year and ground storage capacity of 2.0 million tons. A portion of
Pittston Coal's share of the throughput and ground storage capacity of the DTA
facility is subject to user rights of third parties which pay Pittston Coal a
fee. The DTA facility serves export customers, as well as domestic coal users
located on the eastern seaboard of the United States. For information relating
to the financing arrangements for DTA, see page 87 of the Minerals Group's 1998
Annual Report which is incorporated herein by reference.
MINERAL VENTURES
Mineral Ventures' business is directed at locating and acquiring mineral assets,
advanced stage projects and operating mines. Mineral Ventures continues to
evaluate gold projects in North America and Australia. An exploration office
operates from Reno, Nevada to coordinate Mineral Ventures' continuing
exploration program in the Western United States. In 1998, Mineral Ventures
expended approximately $4.6 million on all such programs.
Mineral Ventures primarily consists of a 50% direct interest in the Stawell gold
mine ("Stawell") located in Western Victoria, Australia. The remaining 50%
interest in Stawell is owned by Mining Project Investors ("MPI"). In addition,
Mineral Ventures has a 51.5% ownership interest in its joint venture partner
MPI. This ownership interest increased during 1998 from 34.1% to 51.5% (45% on a
fully diluted basis) as a result of a sale by MPI
12
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<PAGE>
of its 50% interest in the Black Swan Nickel Joint Venture (including the Silver
Swan Mine). The sale of the venture was to one of its shareholders, Outokumpu,
for a combination of cash and Outokumpu's shareholding in MPI. The Stawell gold
mine produced approximately 93,500 ounces of gold in 1998. Mineral Ventures
estimates that on December 31, 1998, the Stawell gold mine had approximately
406,000 ounces of proven and probable gold reserves. In-mine and surface
exploration at Stawell continue to generate positive results.
A substantial portion of Mineral Ventures' financial results is derived from
activities in Australia, which has a local currency other than the US dollar.
Because the financial results of Mineral Ventures are reported in US dollars,
they are affected by the changes in the value of the foreign currency in
relation to the US dollar. Rate fluctuations may adversely affect transactions
which are denominated in the Australian dollar. Mineral Ventures routinely
enters into such transactions in the normal course of its business. Mineral
Ventures, from time to time, uses foreign currency forward contracts to hedge
the currency risks associated with these transactions
Mineral Ventures is also subject to other risks customarily associated with
doing business in foreign countries, including labor and economic conditions.
MATTERS RELATING TO FORMER OPERATIONS
In April 1990, the Company entered into a settlement agreement to resolve
certain environmental claims against the Company arising from hydrocarbon
contamination at a petroleum terminal facility ("Tankport") in Jersey City, New
Jersey, which operations were sold in 1983. Under the settlement agreement, the
Company is obligated to pay for 80% of the remediation costs.
Based on data available to the Company and its environmental consultants, the
Company estimates its portion of the cleanup costs, on an undiscounted basis,
using existing technologies to be between $6.6 million and $11.2 million and to
be incurred over a period of up to five years. Management is unable to determine
that any amount within that range is a better estimate due to a variety of
uncertainties, which include the extent of the contamination at the site, the
permitted technologies for remediation and the regulatory standards by which the
clean-up will be conducted. The estimate of costs and the timing of payments
could change as a result of changes to the remediation plan required, changes in
the technology available to treat the site, unforeseen circumstances existing at
the site and additional cost inflation.
The Company commenced insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgment that all amounts payable by the Company pursuant to the Tankport
obligation were reimbursable under comprehensive general liability and pollution
liability policies maintained by the Company. In August 1995, the District Court
ruled on various Motions for Summary Judgment. In its decision, the Court found
favorably for the Company on several matters relating to the comprehensive
general liability policies but concluded that the pollution liability policies
did not contain pollution coverage for the types of claims associated with the
Tankport site. On appeal, the Third Circuit reversed the District Court and held
that the insurers could not deny coverage for the reasons stated by the District
Court, and the case was remanded to the District Court for trial. In the latter
part of 1998, the Company concluded a settlement with its comprehensive general
liability insurer and has agreements with three other groups of insurers. If
these agreements are consummated, only one group of insurers will be remaining
in this coverage action. In the event the parties are unable to settle the
dispute with this group of insurers, the case is scheduled to be tried in June
1999. Management and its outside legal counsel continue to believe, however,
that recovery of a substantial portion of the cleanup costs ultimately will be
probable of realization. Accordingly, based on estimates of potential liability,
probable realization of insurance recoveries, related developments of New Jersey
law and on the Third Circuit's decision, it is the Company's belief that the
ultimate amount that it would be liable for related to the remediation of the
Tankport site will not significantly adversely impact the Company's results of
operations or financial position.
13
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
Not applicable.
14
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The Pittston Company and Subsidiaries
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list as of March 15, 1999, of the names and ages of the
executive and other officers of Pittston and the names and ages of certain
officers of its subsidiaries, indicating the principal positions and offices
held by each. There is no family relationship between any of the officers named.
<TABLE>
<CAPTION>
Name Age Positions and Offices Held Held Since
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS:
Michael T. Dan 48 President and Chief Executive Officer 1998
Chairman of the Board 1999
James B. Hartough 51 Vice President-Corporate Finance and Treasurer 1988
Frank T. Lennon 57 Vice President-Human Resources and Administration 1985
Austin F. Reed 47 Vice President, General Counsel and Secretary 1994
Robert T. Ritter 47 Vice President and Chief Financial Officer 1998
OTHER OFFICERS:
Amanda N. Aghdami 30 Controller 1997
Jonathan M. Sturman 56 Vice President-Corporate Development 1995
Arthur E. Wheatley 56 Vice President and Director of Risk Management 1988
SUBSIDIARY OFFICERS:
C. Robert Campbell 54 President and Chief Executive Officer of BAX Global Inc. 1998
Thomas W. Garges, Jr. 59 President and Chief Executive Officer of Pittston Coal Company 1999
Mark T. Gritton 49 President and Chief Operating Officer of Brink's, Incorporated 1998
Peter A. Michel 56 President and Chief Executive Officer of Brink's Home Security, Inc. 1988
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Executive and other officers of Pittston are elected annually and serve at the
pleasure of its Board of Directors.
Mr. Dan was elected President, Chief Executive Officer and Director of The
Pittston Company on February 6, 1998 and was elected Chairman of the Board
effective January 1, 1999. He also serves as Chief Executive Officer of Brink's
Incorporated, a position he has held since July 1993 and as President and Chief
Executive Officer of Brink's Holding Company, a position he has held since
December 31, 1995. He also serves as Chairman of the Board of BAX Global Inc., a
position he has held since February 1998. He also serves as Chairman of the
Board of Pittston Mineral Ventures, a position he has held since August 31, 1998
and as Chairman of the Board of Pittston Coal Company, a position he has held
since September 1, 1998. From August 1992 to July 1993 he served as President of
North American operations of Brink's, Incorporated and as Executive Vice
President of Brink's, Incorporated from 1985 to 1992.
Mr. Ritter joined The Pittston Company as Vice President and Chief Financial
Officer in August of 1998. Prior thereto, he served as Chief Financial Officer
of WLR Foods, Inc. from June 1996 to July 1998. From April 1995 to May 1996, he
was a private investor and financial consultant and was Treasurer at American
Cyanamid Company from March 1991 to January 1994 and Controller from February
1994 to March 1995.
Messrs. Hartough, Lennon, Reed, Sturman and Wheatley have served in their
present positions for more than the past five years.
Ms. Aghdami was elected to her current position on November 7, 1997. She joined
The Pittston Company in September 1996 as Manager of Financial Reporting. Prior
to September 1996, she was Audit Manager with Ernst & Young LLP.
Mr. Campbell joined BAX Global Inc. in June 1998 as President and Chief
Executive Officer. Before joining BAX Global, he served as Executive Vice
President for Advantica Restaurant Group, Inc. from 1995 to June 1998. From 1991
to 1995 he served as Executive Vice President at Ryder System Inc.
Mr. Gritton was elected President and Chief Operating Officer in December 1998
after joining Brink's, Inc. in July 1997 as Executive Vice President of Brink's
US Operations. Before joining Brink's, he worked at Deluxe Corporation where he
served as president of its financial services group division.
Mr. Garges joined Pittston Coal Company on January 4, 1999 as President and
Chief Executive Officer. Before joining Pittston Coal, he served as President
and Chief Executive Officer of Rochester and Pittsburgh Coal Company. From 1971
to 1986, he was Executive Vice President - Operations for Pittston Coal and
President of Pittston Coal's Pyxis operations.
Mr. Michel was elected President and Chief Executive Officer of Brink's Home
Security, Inc. in April 1988. From 1985 to 1987, he served as President and
Chief Executive Officer of Penn Central Technical Security Co.
15
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company has three classes of common stock: Pittston Brink's Group Common
Stock ("Brink's Stock"), Pittston BAX Group Common Stock ("BAX Stock") and
Pittston Minerals Group Common Stock ("Minerals Stock") which were designed to
provide shareholders with separate securities reflecting the performance of the
Brink's Group, BAX Group and Minerals Group, respectively, without diminishing
the benefits of remaining a single corporation or precluding future transactions
affecting any of the Groups. The Brink's Group consists of the Brink's and BHS
segments of the Company. The BAX Group consists of the BAX Global segment of the
Company. The Minerals Group consists of the Pittston Coal and Mineral Ventures
segments of the Company. The Company prepares separate Annual Reports for the
Brink's, BAX and Minerals Groups, each of which includes the consolidated
financial information of the Company.
Holders of Brink's Group, BAX Group and Minerals Group common stocks are
shareholders of the Company, which continues to be responsible for all its
liabilities. Accordingly, the financial statements of the Pittston Brink's
Group, Pittston BAX Group and Pittston Minerals Group must be read in
conjunction with the financial statements of The Pittston Company which are
included in each Group's Annual Report.
Reference is made to page 88 of the Brink's Group 1998 Annual Report, page 91 of
the BAX Group 1998 Annual Report and page 96 of the Minerals Group 1998 Annual
Report, which are incorporated herein by reference, for information required by
this item.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
Reference is made to pages 6 and 39 of the Brink's Group 1998 Annual Report,
pages 7 and 41 of the BAX Group 1998 Annual Report and pages 6 and 47 of the
Minerals Group 1998 Annual Report, which are incorporated herein by reference,
for information required by this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
- --------------------------------------------------------------------------------
Reference is made to pages 7 through 16 and 40 through 55 of the Brink's Group
1998 Annual Report, pages 8 through 17 and 42 through 58 of the BAX Group 1998
Annual Report and pages 7 through 20 and 48 through 63 of the Minerals Group
1998 Annual Report, which are incorporated herein by reference, for information
required by this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The information regarding quantitative and qualitative disclosures about market
risk is included in this report under Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Reference is made to pages 17 through 37 and 56 through 87 of the Brink's Group
1998 Annual Report, pages 18 through 38 and 59 through 90 of the BAX Group 1998
Annual Report and pages 21 through 45 and 64 through 95 of the Minerals Group
1998 Annual Report, which are incorporated herein by reference, for information
required by this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
Not applicable.
16
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
The information required by this Item regarding directors is incorporated by
reference to Pittston's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after December 31, 1998. The information
regarding executive officers is included in this report following Item 4, under
the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
The information required by Items 11 through 13 is incorporated by reference to
Pittston's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. All financial statements - see index to financial statements and
schedules.
2. Financial statement schedules - see index to financial statements and
schedules.
3. Exhibits - see exhibit index.
(b) Reports on Form 8-K were filed on (i) October 15, 1998, with respect to a
press release filed by Mining Project Investors Pty Ltd., an affiliate of
the Company, announcing the sale of its 50% interest in the Black Swan
Nickel Joint Venture; (ii) November 13, 1998, with respect to an
announcement by Pittston Minerals Group, that Mining Project Investors Pty
Ltd. had completed the previously announced sale; and (iii) November 19,
1998, with respect to the Company's sale of additional shares of Pittston
BAX Group Common Stock and Pittston Minerals Group Common Stock to The
Pittston Company Employee Benefits Trust.
UNDERTAKING
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant's Registration Statements on Form S-8 Nos. 2-64258,
33-2039, 33-21393, 33-23333, 33-69040, 33-53565 and 333-02219:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
17
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<PAGE>
The Pittston Company and Subsidiaries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 12, 1999.
The Pittston Company
(Registrant)
By M. T. Dan
______________________________________
(M. T. Dan,
Chairman, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated, on March 12, 1999.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
R. G. Ackerman* Director
J. R. Barker* Director
J. L. Broadhead* Director
W. F. Craig* Director
M. T. Dan Chairman, President and
_______________________________________ Chief Executive Officer
(M. T. Dan) (principal executive officer)
G. Grinstein* Director
R. M. Gross* Director
C. F. Haywood* Director
R. T. Ritter
_______________________________________ Vice President
(R. T. Ritter) and Chief Financial Officer
(principal accounting officer)
C. S. Sloane* Director
R. H. Spilman* Director
A. H. Zimmerman* Director
*By M. T. Dan
___________________________________
(M. T. Dan, Attorney-in-Fact)
</TABLE>
18
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<PAGE>
The Pittston Company and Subsidiaries
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS:
The consolidated financial statements of The Pittston Company, Pittston Brink's
Group, Pittston BAX Group and Pittston Minerals Group, listed in the index below
which are included in the Annual Report of Pittston Brink's Group, Pittston BAX
Group and Pittston Minerals Group, for the year ended December 31, 1998 are
incorporated herein by reference. With the exception of the pages listed in the
index below and the information incorporated by reference included in Parts I,
II and IV, the 1998 Annual Reports of the Pittston Brink's Group, Pittston BAX
Group and Pittston Minerals Group to Shareholders are not deemed filed as part
of this report.
<TABLE>
<S> <C>
PITTSTON BRINK'S GROUP ANNUAL REPORT
PITTSTON BRINK'S GROUP
Selected Financial Data................................. 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 7-16
Independent Auditors' Report............................ 17
Balance Sheets.......................................... 18
Statements of Operations................................ 19
Statements of Shareholder's Equity...................... 20
Statements of Cash Flows................................ 21
Notes to Financial Statements...........................22-37
THE PITTSTON COMPANY AND SUBSIDIARIES
Selected Financial Data................................. 39
Management's Discussion and Analysis of Results of
Operations and Financial Condition.....................40-55
Independent Auditors' Report............................ 56
Consolidated Balance Sheets............................. 57
Consolidated Statements of Operations................... 58
Consolidated Statements of Shareholders' Equity......... 59
Consolidated Statements of Cash Flows................... 60
Notes to Consolidated Financial Statements..............61-87
PITTSTON BAX GROUP ANNUAL REPORT
PITTSTON BAX GROUP
Selected Financial Data................................. 7
Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 8-17
Independent Auditors' Report............................ 18
Balance Sheets.......................................... 19
Statements of Operations................................ 20
Statements of Shareholder's Equity...................... 21
Statements of Cash Flows................................ 22
Notes to Financial Statements...........................23-38
THE PITTSTON COMPANY AND SUBSIDIARIES
Selected Financial Data................................. 41
Management's Discussion and Analysis of Results of
Operations and Financial Condition.....................42-58
Independent Auditors' Report............................ 59
Consolidated Balance Sheets............................. 60
Consolidated Statements of Operations................... 61
Consolidated Statements of Shareholders' Equity......... 62
Consolidated Statements of Cash Flows................... 63
Notes to Consolidated Financial Statements..............64-90
PITTSTON MINERALS GROUP ANNUAL REPORT
PITTSTON MINERALS GROUP
Selected Financial Data................................. 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 7-20
Independent Auditors' Report............................ 21
Balance Sheets.......................................... 22
Statements of Operations................................ 23
Statements of Shareholder's Equity...................... 24
Statements of Cash Flows................................ 25
Notes to Financial Statements...........................26-45
THE PITTSTON COMPANY AND SUBSIDIARIES
Selected Financial Data................................. 47
Management's Discussion and Analysis of Results of
Operations and Financial Condition.....................48-63
Independent Auditors' Report............................ 64
Consolidated Balance Sheets............................. 65
Consolidated Statements of Operations................... 66
Consolidated Statements of Shareholders' Equity......... 67
Consolidated Statements of Cash Flows................... 68
Notes to Consolidated Financial Statements..............69-95
</TABLE>
FINANCIAL STATEMENT SCHEDULES:
Schedules are omitted because they are not material, not applicable or not
required, or the information is included elsewhere in the financial statements.
19
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The Pittston Company and Subsidiaries
EXHIBIT INDEX
Each Exhibit listed previously filed document is hereby incorporated by
reference to such document.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2 Membership Interest Acquisition Agreement Among Air Transport
International LLC and BAX Global Inc., dated February 3, 1998.
Exhibit 2 to the Registrant's Current Report on Form 8-K filed
May 14, 1998.
3(i) The Registrant's Articles of Correction. Exhibit 3(l) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (the "First Quarter 1998 Form 10-Q").
3(ii) The Registrant's Bylaws, as amended through January 1, 1999.
4(a) (i) Amendment dated as of July 1, 1997, to the Rights
Agreement between Registrant and BankBoston, N.A., as
successor Rights Agent. Exhibit 4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
(ii) Amended and Restated Rights Agreement dated as of
January 19, 1996 (the "Rights Agreement"), between the
Registrant and Chemical Mellon Shareholder Services,
L.L.C., as Rights Agent. Exhibit 2 to the Registrant's
Registration Statement on Form 8-A dated February 26,
1996 (the "Form 8-A").
(iii) Form of Right Certificate for Brink's Rights. Exhibit
B-1 to Exhibit 2 to the Form 8-A.
(iv) Form of Right Certificate for Minerals Rights. Exhibit
B-2 to Exhibit 2 to the Form 8-A.
(v) Form of Right Certificate for BAX Rights. Exhibit B-3
to Exhibit 2 to the Form 8-A.
Instruments defining the rights of holders of long-term debt of
the Registrant and its consolidated subsidiaries have been
omitted because the amount of debt under any such instrument does
not exceed 10% of the total assets of the Registrant and its
consolidated subsidiaries. The Registrant agrees to furnish a
copy of any such instrument to the Commission upon request.
10(a)* The Key Employees Incentive Plan, as amended.
10(b)* The Key Employees' Deferred Compensation Program, as amended.
Exhibit 10(d) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995 (the "1995 Form 10-K").
10(c)* (i) The Registrant's Pension Equalization Plan as amended.
Exhibit 10(e)(I) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997 (the
"1997 Form 10-K").
(ii) Amended and Restated Trust Agreement, dated December 1,
1997, between Registrant and Chase Manhattan Bank, as
Trustee. Exhibit 10(e)(ii) to the 1997 Form 10-K.
(iii) Trust Agreement under the Pension Equalization Plan,
Retirement Plan for Non-Employee Directors and Certain
Contractual Arrangements of The Pittston Company made
as of September 16, 1994, by and between the Registrant
and Chase Manhattan Bank (National Association), as
Trustee. Exhibit 10(l) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994 (the "Third Quarter 1994 Form 10-Q").
(iv) Form of letter agreement dated as of September 16,
1994, between the Registrant and one of its officers.
Exhibit 10(e) to the Third Quarter 1994 Form 10-Q.
(v) Form of letter agreement dated as of September 16,
1994, between the Registrant and Participants pursuant
to the Pension Equalization Plan. Exhibit 10(f) to the
Third Quarter 1994 Form 10-Q.
10(d)* The Registrant's Executive Salary Continuation Plan. Exhibit
10(e) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 (the "1991 Form 10-K").
10(e)* The Registrant's Non-Employee Directors' Stock Option Plan, as
amended. Exhibit 10(g) to the 1997 Form 10-K.
10(f)* The Registrant's 1988 Stock Option Plan, as amended. Exhibit
10(h) to the 1997 Form 10-K.
10(g)* (i) Employment Agreement dated as of May 1, 1993, between
the Registrant and J.C. Farrell. Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993.
</TABLE>
20
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<PAGE>
<TABLE>
<S> <C>
(ii) Amendment No. 1 to Employment Agreement dated as of May
1, 1993, between the Registrant and J. C. Farrell.
Exhibit 10(h) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.
(iii) Form of Amendment No. 2 dated as of September 16, 1994,
to Employment Agreement dated as of May 1, 1993, as
amended by Amendment No. 1 thereto dated March 18,
1994, between the Registrant and J. C. Farrell. Exhibit
10(b) to the Third Quarter 1994 Form 10-Q.
(iv) Amendment No. 3 to Employment Agreement dated as of May
1, 1996, between the Registrant and J.C. Farrell.
Exhibit 10(i)(iv) to the 1995 Form 10-K.
(v) Amendment No. 4 to Employment Agreement, dated as of
April 23, 1997, between the Registrant and J.C.
Farrell. Exhibit 10(i)(v) to the 1997 Form 10-K.
10(h)* (i) Employment Agreement dated as of June 1, 1994, between
the Registrant and D. L. Marshall. Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 1994.
(ii) Form of Letter Agreement dated as of September 16,
1994, amending Employment Agreement dated as of June 1,
1994, between the Registrant and D. L. Marshall.
Exhibit 10(c) to the Third Quarter 1994 Form 10-Q.
(iii) Form of Letter Agreement dated as of June 1, 1995,
replacing all prior Employment Agreements and
amendments or modifications thereto, between the
Registrant and D. L. Marshall (the "Marshall Employment
Agreement"). Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended June 30,
1995.
(iv) Letter Agreement dated as of April 1, 1996, amending
the Marshall Employment Agreement. Exhibit 10(j)(iv)
to the 1995 Form 10-K.
(v) Form of Letter Agreement dated as of June 1, 1997,
replacing all prior Employment Agreements and
amendments or modifications thereto, between the
Registrant and D. L. Marshall. Exhibit 10(j)(v) to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 (the "1996 Form 10-K").
(vi) Form of Letter Agreement dated as of October 1, 1997,
replacing all prior Employment Agreements and
amendments or modifications thereto, between the
Registrant and D. L. Marshall. Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
(vii) Retirement Agreement, dated as of May 4, 1998, between
the Registrant and D. L. Marshall. Exhibit 10(a) to the
First Quarter 1998 Form 10-Q.
10(i)* (i) Form of change in control agreement replacing all prior
change in control agreements and amendments and
modifications thereto, between the Registrant and J. C.
Farrell. Exhibit 10(l)(i) to the 1997 Form 10-K.
(ii) Form of change in control agreement replacing all prior
change in control agreements and amendments and
modifications thereto, between the Registrant (or a
subsidiary) and various officers of the Registrant.
Exhibit 10(l)(ii) to the 1997 Form 10-K.
10(j)* Form of Indemnification Agreement entered into by the Registrant
with its directors and officers. Exhibit 10(l) to the 1991 Form
10-K.
10(k)* (i) Registrant's Retirement Plan for Non-Employee
Directors, as amended. Exhibit 10(g) to the Third
Quarter 1994 Form 10-Q.
(ii) Form of letter agreement dated as of September 16,
1994, between the Registrant and its Non-Employee
Directors pursuant to Retirement Plan for Non-Employee
Directors. Exhibit 10(h) to the Third Quarter 1994 Form
10-Q.
10(l)* (i) Form of severance agreement between Registrant and J.C.
Farrell. Exhibit 10(o)(i) to the 1997 Form 10-K.
(ii) Form of severance agreement between the Registrant (or
a subsidiary) and various of the Registrant's officers.
Exhibit 10(o)(ii) to the 1997 Form 10-K.
10(m)* Registrant's Directors' Stock Accumulation Plan. Exhibit A to the
Registrant's Proxy Statement filed March 26, 1996.
10(n)* Registrant's Amended and Restated Plan for Deferral of Directors'
Fees. Exhibit 10(o) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1989.
</TABLE>
21
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10(o) (i) Lease dated as of April 1, 1989, between Toledo-Lucas
County Port Authority (the "Authority"), as Lessor, and
Burlington, as Lessee. Exhibit 10(i) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989 (the "Second Quarter 1989
Form 10-Q").
(ii) Lease Guaranty Agreement dated as of April 1, 1989,
between Burlington (formerly Burlington Air Express
Management Inc.), as Guarantor, and the Authority.
Exhibit 10(ii) to the Second Quarter 1989 Form 10-Q.
(iii) Trust Indenture dated as of April 1, 1989 between the
Authority and Society Bank & Trust (formerly,
Trustcorp. Bank, Ohio) (the "Trustee"), as Trustee.
Exhibit 10(iii) to the Second Quarter 1989 Form 10-Q.
(iv) Assignment of Basic Rent and Rights Under a Lease and
Lease Guaranty dated as of April 1, 1989 from the
Authority to the Trustee. Exhibit 10(iv) to the Second
Quarter 1989 Form 10-Q.
(v) Open-End First Leasehold Mortgage and Security
Agreement dated as of April 1, 1989 from the Authority
to the Trustee. Exhibit 10(v) to the Second Quarter
1989 Form 10-Q.
(vi) First Supplement to Lease dated as of January 1, 1990,
between the Authority and Burlington, as Lessee.
Exhibit 10 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1990.
(vii) Revised and Amended Second Supplement to Lease dated as
of September 1, 1990, between the Authority and
Burlington. Exhibit 10(i) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1990 (the "Third Quarter 1990 Form 10-Q").
(viii) Amendment Agreement dated as of September 1, 1990,
among City of Toledo, Ohio, the Authority, Burlington
and the Trustee. Exhibit 10(ii) to the Third Quarter
1990 Form 10-Q.
(ix) Assumption and Non-Merger Agreement dated as of
September 1, 1990, among Burlington, the Authority and
the Trustee. Exhibit 10(iii) to the Third Quarter 1990
Form 10-Q.
(x) First Supplemental Indenture between Toledo-Lucas
County Port Authority, and Society National Bank, as
Trustee, dated as of March 1, 1994. Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994 (the "First Quarter 1994
Form 10-Q").
(xi) Third Supplement to Lease between Toledo-Lucas County
Port Authority, as Lessor, and Burlington Air Express
Inc., as Lessee, dated as of March 1, 1994. Exhibit
10.2 to the First Quarter 1994 Form 10-Q.
(xii) Fourth Supplement to Lease between Toledo-Lucas County
Port Authority, as Lessor, and Burlington Air Express
Inc., as Lessee, dated as of June 1, 1991. Exhibit 10.3
to the First Quarter 1994 Form 10-Q.
(xiii) Fifth Supplement to Lease between Toledo-Lucas County
Port Authority, as Lessor, and Burlington Air Express
Inc., as Lessee, dated as of December 1, 1996. Exhibit
10(r)(xiii) to the 1996 Form 10-K.
10(p)* (i) Credit Agreement dated as of March 4, 1994, among The
Pittston Company, as Borrower, Lenders Parties Thereto,
Chemical Bank, Credit Suisse and Morgan Guaranty Trust
Company of New York, as Co-agents, and Credit Suisse,
as Administrative Agent (the "Credit Agreement").
Exhibit 10.4 to the First Quarter 1994 Form 10-Q.
(ii) Amendment to the Credit Agreement dated as of May 1,
1995. Exhibit 10(s)(ii) to the 1995 Form 10-K.
(iii) Amendment to Credit Agreement dated as of May 15, 1996.
Exhibit 10(t)((iii) to the 1996 Form 10-K.
10(q)* Retirement Agreement dated March 11, 1998 between the Registrant
and J. C. Farrell. Exhibit 10(v) to the 1997 Form 10-K.
10(r)* Employment Agreement dated as of May 4, 1998, between the
Registrant and M. T. Dan. Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998 (the "Third Quarter 1998 Form 10-Q").
10(s)* Executive Agreement dated as of May 4, 1998, between the
Registrant and M. T. Dan. Exhibit 10(b) to the Third Quarter 1998
Form 10-Q.
10(t)* Executive Agreement dated as of August 7, 1998, between the
Registrant and R. T. Ritter. Exhibit 10(c) to the Third
Quarter 1998 Form 10-Q.
</TABLE>
22
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<PAGE>
<TABLE>
<S> <C>
10(u)* Severance Agreement dated as of August 7, 1998, between the Registrant
and R. T. Ritter. Exhibit 10(d) to the Third Quarter 1998 Form 10-Q.
10(v)* Share Purchase Agreement, dated as of January 27, 1998, between
Brink's Security International, Inc., acting as Purchaser, and
Generale de Transport et D'Industrie, acting as Seller.
10(w)* Shareholders' Agreement, dated as of January 10, 1997, between Brink's
Security International, Inc., and Valores Tamanaco, C.A.
13 (a) Pittston Brink's Group 1998 Annual Report
(b) Pittston BAX Group 1998 Annual Report
(c) Pittston Minerals Group 1998 Annual Report
21 Subsidiaries of the Registrant.
23 Consent of independent auditors.
24 Powers of attorney.
27 Financial Data Schedule.
99* (a) Amendment to Registrant's Pension-Retirement Plan relating to
preservation of assets of the Pension-Retirement Plan upon a
change in control. Exhibit 99 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
(b) 1994 Employee Stock Purchase Plan of The Pittston Company's
Annual Report on Form 11-K for the year ended December 31, 1998.
</TABLE>
- --------------------------
*Management contract or compensatory plan or arrangement.
23
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as..............................'TM'
The registered trademark symbol shall be expressed as...................'r'
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3
<SEQUENCE>2
<DESCRIPTION>EXHIBIT 3(II)
<TEXT>
<PAGE>
Exhibit 3(ii)
THE PITTSTON COMPANY
BYLAWS
(As amended through January 1, 1999)
ARTICLE I
NAME
The name of the corporation is The Pittston Company.
ARTICLE II
OFFICES
1. The corporation shall maintain a registered office and a registered
agent in the Commonwealth of Virginia as required by the laws of said
Commonwealth.
2. The corporation shall in addition to its registered office in the
Commonwealth of Virginia establish and maintain an office or offices at such
place or places as the Board of Directors may from time to time find necessary
or desirable.
ARTICLE III
CORPORATE SEAL
The corporate seal of the corporation shall have inscribed thereon the
name of the corporation, the fact of its establishment in the Commonwealth of
Virginia and the words "Corporate Seal". Such seal may be used by causing it or
a facsimile thereof to be impressed, affixed, printed or otherwise reproduced.
ARTICLE IV
MEETINGS OF SHAREHOLDERS
1. Meetings of the shareholders shall be held at such place, within or
without the Commonwealth of Virginia, as the Board may determine.
<PAGE>
<PAGE>
2. The annual meeting of the shareholders shall be held on the second
Wednesday in May at ten o'clock in the forenoon, local time, or on such other
day or at such other time as the Board may determine. At each annual meeting of
the shareholders they shall elect by plurality vote, in accordance with the
Articles of Incorporation and these bylaws, directors to hold office until the
third annual meeting of the shareholders held after their election and their
successors are respectively elected and qualified or as otherwise provided by
statute, the Articles of Incorporation or these bylaws. Any other proper
business may be transacted at the annual meeting. The chairman of the meeting
shall be authorized to declare whether any business is properly brought before
the meeting, and, if he shall declare that it is not so brought, such business
shall not be transacted. Without limiting the generality of the foregoing, the
chairman of the meeting may declare that matters relating to the conduct of the
ordinary business operations of the corporation are not properly brought before
the meeting.
3. A majority of the votes entitled to be cast on a matter shall
constitute a quorum for action on that matter at all meetings of the
shareholders, except as otherwise provided by statute, the Articles of
Incorporation or these bylaws. The shareholders entitled to vote thereat,
present in person or by proxy, or the chairman of the meeting shall have power
to adjourn the meeting from time to time, without notice other than announcement
at the meeting before adjournment (except as otherwise provided by statute). At
such adjourned meeting any business may be transacted which might have been
transacted at the meeting as originally notified.
4. At all meetings of the shareholders each shareholder having the right
to vote shall be entitled to vote in person, or by proxy appointed by an
appointment form signed by such shareholder and bearing a date not more than
eleven months prior to said meeting, unless such form provides for a longer
period. All proxies shall be effective when received by the Secretary or other
officer or agent of the corporation authorized to tabulate votes.
5. Except as otherwise provided in the Articles of Incorporation, at
each meeting of the shareholders each shareholder shall have one vote for each
share having voting power, registered in his name on the share transfer books of
the corporation at the record date fixed in accordance with these bylaws, or
otherwise determined, with respect to such meeting. Except as otherwise
expressly provided by statute, the Articles of Incorporation or these bylaws,
action on a matter, other than the election of directors, by a voting
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<PAGE>
group is approved if a quorum exists and the votes cast within the voting group
favoring the action exceed the votes cast opposing the action.
6. Except as otherwise prescribed by statute, notice of each meeting of
the shareholders shall be given to each shareholder entitled to vote thereat not
less than 10 nor more than 60 days before the meeting. Such notice shall state
the date, time and place of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
7. Except as otherwise prescribed by statute, special meetings of the
shareholders for any purpose or purposes may be called by the Chairman of the
Board and shall be called by the Chairman of the Board or the Secretary by vote
of the Board of Directors.
8. Business transacted at each special meeting shall be confined to the
purpose or purposes stated in the notice of such meeting.
9. The order of business at each meeting of the shareholders and the
voting and other procedures to be observed at such meeting shall be determined
by the chairman of such meeting.
10. Subject to the rights of holders of shares of the Preferred Stock of the
corporation, nominations for the election of directors shall be made by the
Board of Directors or by any shareholder entitled to vote in elections of
directors. However, any shareholder entitled to vote in elections of directors
may nominate one or more persons for election as directors at an annual meeting
only if written notice of such shareholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
registered or certified mail, postage prepaid, to the Secretary of the
corporation not less than 120 and not more than 180 calendar days in advance of
the date on which the corporation's proxy statement was released to shareholders
in connection with the immediately preceding annual meeting. Each notice shall
set forth (i) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated, (ii) a representation
that the shareholder is entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice, (iii) the class and number of shares of the corporation that are
owned by the shareholder, (iv) a description of all arrangements, understandings
or relationships between the shareholder and each nominee and any other person
or persons (naming such person or persons)
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<PAGE>
pursuant to which the nomination or nominations are to be made by the
shareholder and (v) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors,
and shall include a consent signed by each such nominee to serve as a director
of the corporation if so elected. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
11. To be properly brought before an annual meeting of shareholders,
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or (iii) otherwise properly brought before the annual meeting by a
shareholder. In addition to any other applicable requirements, for business to
be properly brought before a meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice must be given, either by personal delivery or
by United States registered or certified mail, postage prepaid, to the Secretary
of the corporation not less than 120 and not more than 180 calendar days in
advance of the date on which the corporation's proxy statement was released to
shareholders in connection with the immediately preceding annual meeting. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting, including the
complete text of any resolutions to be presented at such meeting with respect to
such business, and the reasons for conducting such business at the annual
meeting, (ii) the name and address of record of the shareholder proposing such
business, (iii) a representation that the shareholder is entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
propose the business specified in the notice, (iv) the class and number of
shares of the corporation that are owned by the shareholder, (v) any material
interest of the shareholder in such business and (vi) full particulars as to the
relationship, if any, of such shareholder to any other person that such
shareholder knows or has reason to believe intends to bring one or more other
items of business before the meeting. In the event that a shareholder attempts
to bring business before an annual meeting without complying with the foregoing
procedure, the chairman of the meeting may declare to the meeting that the
business was not
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<PAGE>
properly brought before the meeting and, if he shall so declare, such business
shall not be transacted.
ARTICLE V
DIRECTORS
1. All corporate powers shall be exercised by or under the authority of,
and the business and affairs shall be managed under the direction of, the Board
of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2. The Board shall consist of not less than nine or more than fifteen
members.
3. The Board of Directors shall consist of eleven members. The terms of
office of the directors shall be staggered and shall otherwise be determined, as
provided in these bylaws, subject to the Articles of Incorporation and
applicable laws. Such terms shall be divided into three groups, two of which
shall consist of three directors and the third of which shall consist of four
directors.
4. The number of directors may at any time be increased or decreased,
within the variable range established by the Articles of Incorporation and these
bylaws, by amendment of these bylaws. In case of any such increase the Board
shall have power to elect any additional director to hold office until the next
shareholders' meeting at which directors are elected. Any decrease in the number
of directors shall take effect at the time of such amendment only to the extent
that vacancies then exist; to the extent that such decrease exceeds the number
of such vacancies, the decrease shall not become effective, except as further
vacancies may thereafter occur by expiration of the term of directors at the
next shareholders' meeting at which directors are elected, or otherwise.
5. If the office of any director becomes vacant, by reason of death,
resignation, increase in the number of directors or otherwise, the directors
remaining in office, although less than a quorum, may fill the vacancy by the
affirmative vote of a majority of such directors.
6. The Board of Directors, at its first meeting after the annual meeting
of shareholders, shall choose a Chairman of the Board from among the directors.
7. Any director may resign at any time by delivering written notice of
his resignation to the Board of Directors
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<PAGE>
or the Chairman of the Board. Any such resignation shall take effect upon such
delivery or at such later date as may be specified therein. Any such notice to
the Board may be addressed to it in care of the Secretary.
8. The Chairman of the Board shall preside at meetings of the Board of
Directors, and shall have the powers and duties usually and customarily
associated with the position of a non-executive Chairman of the Board.
9. In case of the absence of the Chairman of the Board, the Board member
with the longest tenure on the Board shall preside at meetings of the
shareholders and of the Board of Directors. He shall have such other powers and
duties as may be delegated to him by the Chairman of the Board.
ARTICLE VI
COMMITTEES OF DIRECTORS
There shall be an Executive Committee, an Audit and Ethics Committee, a
Compensation and Benefits Committee, a Finance Committee, a Nominating Committee
and a Pension Committee, and the Board of Directors may create one or more other
committees. Each committee of the Board of Directors shall consist of two or
more directors of the corporation who shall be appointed by, and shall serve at
the pleasure of, the Board. The Executive Committee, to the extent determined by
the Board but subject to limitations expressly prescribed by statute, shall have
and may exercise all the powers and authority of the Board in the management of
the business and affairs of the corporation. The Audit and Ethics Committee, the
Compensation and Benefits Committee, the Finance Committee, the Nominating
Committee and the Pension Committee and each such other committee shall have
such of the powers and authority of the Board as may be determined by the Board.
Each committee shall report its proceedings to the Board when required.
Provisions with respect to the Board of Directors which are applicable to
meetings, actions without meetings, notices and waivers of notice and quorum and
voting requirements shall also be applicable to each committee, except that a
quorum of the Executive Committee shall consist of one third of the number of
members of the Committee, three of whom are not employees of the Company or any
of its subsidiaries.
ARTICLE VII
COMPENSATION OF DIRECTORS
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<PAGE>
<PAGE>
The Board of Directors may fix the compensation of the directors for
their services, which compensation may include an annual fee, a fixed sum and
expenses for attendance at regular or special meetings of the Board or any
committee thereof, pension benefits and such other amounts as the Board may
determine. Nothing herein contained shall be construed to preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
ARTICLE VIII
MEETINGS OF DIRECTORS;
ACTION WITHOUT A MEETING
1. Regular meetings of the Board of Directors may be held pursuant to
resolutions from time to time adopted by the Board, without further notice of
the date, time, place or purpose of the meeting.
2. Special meetings of the Board of Directors may be called by the
Chairman of the Board on at least 24 hours' notice to each director of the date,
time and place thereof, and shall be called by the Chairman of the Board or by
the Secretary on like notice on the request in writing of a majority of the
total number of directors in office at the time of such request. Except as may
be otherwise required by the Articles of Incorporation or these bylaws, the
purpose or purposes of any such special meeting need not be stated in such
notice.
3. The Board of Directors may hold its meetings, have one or more
offices and, subject to the laws of the Commonwealth of Virginia, keep the share
transfer books and other books and records of the corporation, within or without
said Commonwealth, at such place or places as it may from time to time
determine.
4. At each meeting of the Board of Directors the presence of a majority
of the total number of directors in office immediately before the meeting begins
shall be necessary and sufficient to constitute a quorum for the transaction of
business, and, except as otherwise provided by the Articles of Incorporation or
these bylaws, if a quorum shall be present the affirmative vote of a majority of
the directors present shall be the act of the Board.
5. Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if one or more written
consents stating the action taken, signed by each director either before or
after the action is taken, are included in the minutes or filed with
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<PAGE>
<PAGE>
the corporate records. Any or all directors may participate in any regular or
special meeting of the Board, or conduct such meeting through the use of, any
means of communication by which all directors participating may simultaneously
hear each other, and a director participating in a meeting by this means shall
be deemed to be present in person at such meeting.
ARTICLE IX
OFFICERS
1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a Chief Executive Officer, a President, one or more Vice
Presidents, a General Counsel, a Treasurer and a Secretary. The Board may also
appoint a Controller and one or more Executive Vice Presidents, Senior Vice
Presidents, Assistant Treasurers, Assistant Controllers and Assistant
Secretaries, and such other officers as it may deem necessary or advisable. Any
number of offices may be held by the same person. The Board may authorize an
officer to appoint one or more other officers or assistant officers. The
officers shall hold their offices for such terms and shall exercise such powers
and perform such duties as shall be prescribed from time to time by the Board or
by direction of an officer authorized by the Board to prescribe duties of other
officers.
2. The Board of Directors, at its first meeting after the annual meeting
of shareholders, shall choose the officers, who need not be members of the
Board.
3. The salaries of all officers of the corporation shall be fixed by the
Board of Directors, or in such manner as the Board may prescribe.
4. The officers of the corporation shall hold office until their
successors are chosen and qualified. Any officer may at any time be removed by
the Board of Directors or, in the case of an officer appointed by another
officer as provided in these bylaws, by such other officer. If the office of any
officer becomes vacant for any reason, the vacancy may be filled by the Board
or, in the case of an officer so appointed, by such other officer.
5. Any officer may resign at any time by delivering notice of his
resignation to the Board of Directors or the Chairman of the Board. Any such
resignation may be effective when the notice is delivered or at such later date
as may be specified therein if the corporation accepts such later date. Any such
notice to the Board shall be addressed to it in care of the Chairman of the
Board or the Secretary.
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<PAGE>
<PAGE>
ARTICLE X
CHIEF EXECUTIVE OFFICER
Subject to the supervision and direction of the Board of Directors, the
Chief Executive Officer shall be responsible for managing the affairs of the
corporation and shall preside at meetings of the shareholders. The Chief
Executive Officer shall have supervision and direction of all of the other
officers of the corporation.
ARTICLE XI
PRESIDENT
The President shall be the chief operating officer of the corporation
and shall perform such duties as may be prescribed by these bylaws, or by the
Chief Executive Officer. The President shall, in case of the absence or
inability of the Chief Executive Officer to act, have the powers and perform the
duties of the Chief Executive Officer.
ARTICLE XII
EXECUTIVE VICE PRESIDENTS,
SENIOR VICE PRESIDENTS
AND VICE PRESIDENTS
1. The Executive Vice Presidents, the Senior Vice Presidents and the
Vice Presidents shall have such powers and duties as may be delegated to them by
the Chief Executive Officer.
ARTICLE XIII
GENERAL COUNSEL
The General Counsel shall be the chief legal officer of the corporation
and the head of its legal department. He shall, in general, perform the duties
incident to the office of General Counsel and shall have such other powers and
duties as may be delegated to him by the Chief Executive Officer.
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<PAGE>
ARTICLE XIV
TREASURER
The Treasurer shall be responsible for the care and custody of all the
funds and securities of the corporation. The Treasurer shall render an account
of the financial condition and operations of the corporation to the Board of
Directors or the Chief Executive Officer as often as the Board or the Chief
Executive Officer shall require. He or she shall have such other powers and
duties as may be delegated to him or her by the Chief Executive Officer.
ARTICLE XV
CONTROLLER
The Controller shall maintain adequate records of all assets,
liabilities and transactions of the corporation, and shall see that adequate
audits thereof are currently and regularly made. The Controller shall disburse
the funds of the corporation in payment of the just obligations of the
corporation, or as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements. The Controller shall have such other powers and
duties as may be delegated to the Controller by the Chief Executive Officer.
ARTICLE XVI
SECRETARY
The Secretary shall act as custodian of the minutes of all meetings of
the Board of Directors and of the shareholders and of the committees of the
Board of Directors. He or she shall attend to the giving and serving of all
notices of the corporation, and the Secretary or any Assistant Secretary shall
attest the seal of the corporation upon all contracts and instruments executed
under such seal. He or she shall also be custodian of such other books and
records as the Board or the Chief Executive Officer may direct. He or she shall
have such other powers and duties as may be delegated to him or her by the Chief
Executive Officer.
ARTICLE XVII
TRANSFER AGENTS AND REGISTRARS;
CERTIFICATES OF STOCK
1. The Board of Directors may appoint one or more transfer agents and
one or more registrars for shares of capital stock of the corporation and may
require all cer-
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<PAGE>
tificates for such shares, or for options, warrants or other rights in
respect thereof, to be countersigned on behalf of the corporation by any such
transfer agent or by any such registrar.
2. The certificates for shares of the corporation shall be numbered and
shall be entered on the books of the corporation as they are issued. Each share
certificate shall state on its face the name of the corporation and the fact
that it is organized under the laws of the Commonwealth of Virginia, the name of
the person to whom such certificate is issued and the number and class of shares
and the designation of the series, if any, represented by such certificate and
shall be signed by the Chief Executive Officer, the President, an Executive or
Senior Vice President or a Vice President and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary. Any and all signatures on
such certificates, including signatures of officers, transfer agents and
registrars may be facsimile. In case any officer who has signed or whose
facsimile signature has been placed on any such certificate shall have ceased to
be such officer before such certificate is issued, then, unless the Board of
Directors shall otherwise determine and cause notification thereof to be given
to such transfer agent and registrar, such certificate shall nevertheless be
valid and may be issued by the corporation (and by its transfer agent) and
registered by its registrar with the same effect as if he were such officer at
the date of issue.
ARTICLE XVIII
TRANSFERS OF STOCK
1. All transfers of shares of the corporation shall be made on the books
of the corporation by the registered holders of such shares in person or by
their attorneys lawfully constituted in writing, or by their legal
representatives.
2. Certificates for shares of stock shall be surrendered and canceled at
the time of transfer.
3. To the extent that any provision of the Amended and Restated Rights
Agreement dated as of January 19, 1996, between the corporation and Chemical
Bank, as Rights Agent (the "Rights Agreement"), or the Amendment thereto, dated
as of July 31, 1997, between the corporation and BankBoston, N.A., as successor
rights agent, imposes a restriction on the transfer of any securities of the
corporation, including, without limitation, the Rights, as defined in the
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<PAGE>
<PAGE>
Amended and Restated Rights Agreement, such restriction is hereby authorized.
4. Article 14.1 of Chapter 9 of Title 13.1 of the Code of Virginia,
titled "Control Share Acquisitions," shall not apply to acquisitions of shares
of the corporation.
ARTICLE XIX
FIXING RECORD DATE
In order to make a determination of shareholders for any purpose,
including those who are entitled to notice of and to vote at any meeting of
shareholders or any adjournment thereof, or entitled to express consent in
writing to any corporate action without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, the Board of Directors may fix in advance a record date which shall
not be more than 70 days before the meeting or other action requiring such
determination. Except as otherwise expressly prescribed by statute, only
shareholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or entitled to express
such consent, or entitled to receive payment of such dividend or other
distribution or allotment of rights, or entitled to exercise such rights in
respect of change, conversion or exchange, or to take such other action, as the
case may be, notwithstanding any transfer of shares on the share transfer books
of the corporation after any such record date fixed as aforesaid.
ARTICLE XX
REGISTERED SHAREHOLDERS
The corporation shall be entitled to treat the holder of record of any
share or shares as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the Commonwealth of
Virginia.
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<PAGE>
<PAGE>
ARTICLE XXI
CHECKS
All checks, drafts and other orders for the payment of money and all
promissory notes and other evidences of indebtedness of the corporation shall be
signed in such manner as may be determined by the Board of Directors.
ARTICLE XXII
FISCAL YEAR
The fiscal year of the corporation shall end on December 31 of each
year.
ARTICLE XXIII
NOTICES AND WAIVER
1. Whenever by statute, the Articles of Incorporation or these bylaws it
is provided that notice shall be given to any director or shareholder, such
provision shall not be construed to require personal notice, but such notice may
be given in writing, by mail, by depositing the same in the United States mail,
postage prepaid, directed to such shareholder or director at his address as it
appears on the records of the corporation, or, in default of other address, to
such director or shareholder at the registered office of the corporation in the
Commonwealth of Virginia, and, except for any meeting of directors to be held
within 48 hours after such notice, shall be deemed to be given at the time when
the same shall be thus deposited. Notice of special meetings of the Board of
Directors may also be given to any director by telephone, by telex or telecopy,
or by telegraph or cable, and in case of notice so given otherwise than by
telephone, the notice shall be deemed to be given at the time such notice,
addressed to such director at the address hereinabove provided, shall be
acknowledged by reply telex or telecopy or shall be transmitted or delivered to
and accepted by an authorized telegraph or cable office, as the case may be.
2. Whenever by statute, the Articles of Incorporation or these bylaws a
notice is required to be given, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, and filed
with the corporate records or the minutes of the meeting, shall be equivalent to
notice. Attendance of any shareholder or director at any meeting thereof shall
constitute a waiver of notice of such meeting by such shareholder or
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<PAGE>
<PAGE>
director, as the case may be, except as otherwise provided by statute.
ARTICLE XXIV
BYLAWS
The Board of Directors shall have the power to make, amend or repeal
bylaws of the corporation.
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<DESCRIPTION>EXHIBIT 10(A)
<TEXT>
<PAGE>
Exhibit 10(a)
PLAN DOCUMENT
THE KEY EMPLOYEES INCENTIVE PLAN
OF THE PITTSTON COMPANY
(Including Amendments Adopted on 03/14/97)
THE PITTSTON COMPANY
03/97
<PAGE>
<PAGE>
THE PITTSTON COMPANY
Key Employees Incentive Plan
1. Purpose. The Key Employees Incentive Plan (the "Plan") of The Pittston
Company (the "Company") represents a continuation and formalization of
the Company's compensation policies and practices generally observed by
it in the past. The purpose of the Plan is to provide greater incentives
for certain key management, professional and technical employees,
including certain officers, whose performance in fulfilling the
responsibilities of their positions can significantly affect the
profitable growth of the Company or its operating units. The Plan
provides an opportunity to earn additional compensation in the form of
cash incentive payments based on the employee's individual performance
and on the results achieved by the Company (or appropriate Operating
Group), and by the operating or staff unit for which the employee
performs services.
2. Administration. The Plan shall be administered by the Chief Executive
Officer of the Company, subject to the provisions of the Plan, and
subject to overall policy and administrative guidelines as the
Compensation and Benefits Committee (the "Committee") of the Company's
Board of Directors and the Board shall adopt annually as respects each
Plan year.
3. Eligibility for Participation. Each year the Chief Executive Officer,
upon advice from appropriate levels of management, shall select the key
managerial, professional or technical employees of the Company or any of
its subsidiaries who are to be eligible for participation in the Plan
during that year. Prior to March 1st (or such later date as the Chairman
of the Committee shall approve) of each year the Chief Executive Officer
shall submit to the Committee for its review and approval a list of
employees proposed for participation in the Plan for such year, together
with relevant information as to the identity and qualifications of such
proposed participants. From time to time thereafter the Chief Executive
Officer may
<PAGE>
<PAGE>
during such year propose any other employee or employees for
participation in the Plan for such year, subject to review and approval
by the Committee.
The selection of an employee for participation in any year shall not
constitute entitlement either to an incentive payment under the Plan for
that year nor to selection for participation in any subsequent calendar
year. Unless otherwise determined by the Committee in its sole
discretion, an employee shall not be eligible for any incentive payment
with respect to a particular year if he or she ceases to be an employee
prior to the end of such year. Directors of the Company who are not
officers of the Company or any of its subsidiaries shall not be eligible
for participation in the Plan.
4. Determination of Target Incentives. At the time of the initial selection
for participation in the Plan for a particular year, the Chief Executive
Officer shall determine a target incentive or a target incentive range
for that employee with respect to that year. Such incentive or range
(which shall give effect to limitations prescribed pursuant to the last
paragraph of Section 5 below) shall be indicative of the incentive
payment which the employee might expect to receive on the basis of
strong performance by such employee, by the Company (or Operating Group)
and by such employee's operating or staff unit. As promptly as
practicable thereafter, the Chief Executive Officer shall submit to the
Committee for its review and approval (i) a general description of the
performance standards and objectives which formed the basis for such
target incentive range and the weighing of those standards and
objectives in relation to individual performance, and (ii) an estimate
of the aggregate amount that might be payable for that year under the
Plan. In so far as practicable, such review by the Chief Executive
Officer with the Committee shall take place at the time when the list of
proposed participants in the Plan is initially submitted as provided in
Section 3 above. Thereafter, the Chief Executive Officer shall keep the
Committee advised with respect to any material changes, upward or
downward, in such estimate.
<PAGE>
<PAGE>
5. Cash Incentive Payments; Limitations. Promptly after the end of each
year, the performance of each employee selected for participation in the
Plan for that year, as well as the performance of the Company (or
appropriate Operating Group) and the employee's operating or staff unit,
shall be evaluated in accordance with the overall policy and
administrative guidelines adopted pursuant to Section 2 above. The Chief
Executive Officer shall, on the basis of such evaluation, determine
whether a cash incentive payment shall be made to such employee for that
year, and, if so, the amount of such payment, subject to review and
consultation with the Committee. The Committee shall review and approve
(which approval may in the Committee's sole discretion be made subject
to the further approval of the Board of Directors) the Chief Executive
Officer's determinations with respect to Incentive Payments, for senior
executive officers, and with respect to the aggregate amount, if any, of
all cash incentive payments to be made for such year, and shall submit
its recommendations to the Board of Directors. The Committee shall also
be responsible for recommending to the Board of Directors any incentive
payment with respect to the Chief Executive Officer and any other
officers who are also directors of the Company. The Board shall approve
any such payments, as well as the aggregate amount, if any, of all other
incentive payments for such year. The Chief Executive Officer shall, if
necessary, adjust the amount of individual payments in conformity with
the actions taken by the Board of Directors. Each such payment shall be
made as soon as practicable after such Board approval unless otherwise
determined by the Board in its sole discretion with respect to any one
or more participants.
The Board may from time to time establish for any year criteria (whether
based on pre-tax income, return on investment or a percentage of salary
or on other factors) by which the aggregate amount of all incentive
awards or the amount of individual awards for such year shall be
limited. In no event, however, shall any award for any year to any
participant in the Plan exceed an amount equal to such participant's
base salary (i.e., regular salary exclusive of any bonuses, commissions,
amounts credited or paid under any benefit plan of the Company or any of
its subsidiaries, and
<PAGE>
<PAGE>
such other compensation as may from time to time
be excluded by the Board for purposes hereof) for such year.
6. Non-Assignability, etc. No employee, no person claiming through such
employee, nor any other person shall have any right or interest under
the Plan, or in its continuance, or in the payment of any amount under
the Plan, unless or until all the provisions of the Plan, the rules
adopted thereunder, and any restrictions and limitations on the payment
itself have been fully complied with. No rights under the Plan,
contingent or otherwise, shall be transferable, assignable or subject to
any pledge or encumbrance of any nature, nor shall the Company or any of
its subsidiaries be obligated, except as otherwise required by law, to
recognize or give effect to any such transfer, assignment, pledge or
encumbrance.
7. General Provisions. The benefits provided for employees under the Plan
shall be in addition to, and in no way preclude other forms of
compensation to or in respect of such employee. However, the selection
of an employee for participation in the Plan shall not give such
employee any right to be retained in the employ of the Company or any of
its subsidiaries, either for any part of the year for which he or she
may have been selected to participate in the Plan, or for any subsequent
period.
The right of the Company and of each such subsidiary to dismiss or
discharge any such employee at any time is specifically reserved.
All payments pursuant to the Plan shall be subject to withholding in
respect of income and other taxes required by law to be withheld.
8. Amendment or Termination. The Board of Directors may from time to time
amend any of the provisions of the Plan other than the last sentence of
Section 5 above, or may at any time terminate the Plan, but no amendment
or termination shall
<PAGE>
<PAGE>
serve to cancel any incentive payment for any year which has been
approved by the Board. All actions taken in conformity with the Plan
shall be final, conclusive and binding on all parties, including
employees participating in the Plan.
All actions of the Board of Directors under the Plan shall be taken at a
meeting thereof, a quorum being present, by a majority of the Directors
who are not officers or employees of the Company or any of its
subsidiaries.
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<DESCRIPTION>EXHIBIT 10(V)
<TEXT>
<PAGE>
SHARE PURCHASE AGREEMENT
Between
BRINK'S SECURITY INTERNATIONAL, INC.
acting as Purchaser
And
GENERAL DE TRANSPORT ET D'INDUSTRIE
acting as Seller
Dated January 27, 1998
<PAGE>
<PAGE>
SHARE PURCHASE AGREEMENT
BETWEEN:
BRINK'S SECURITY INTERNATIONAL, INC., a Delaware (U.S.A.) company, the
office of which is at One Thorndal Circle, P.O. Box 1225, Darien,
Connecticut 06820 (United States of America), incorporated under the laws
of the State of Delaware, represented by Mr. Christopher P. Corrini in his
capacity as Senior Vice-President Finance,
(hereinafter called the "Purchaser")
ON THE FIRST PART,
AND:
GENERALE DE TRANSPORT ET D'INDUSTRIE, a French societe anonyme with a share
capital of FRF 251,127,000, the registered office of which is at 1, rue de
Berri, 75008 Paris (France) registered with the Register of Commerce and
Companies of Paris under number B 552 111-809, represented by Mr. Olivier
Barbaroux in his capacity as Chairman of the Board of directors,
(hereinafter called the "Seller")
ON THE SECOND PART,
(hereinafter for time to time collectively referred to as the "Parties"
and individually as a "Party")
<PAGE>
<PAGE>
WHEREAS:
1. Brink's S.A. (the "Company") is a French societe anonyme with a share capital
of FRF 6,636,100, the registered office of which is at 49, rue de Provence,
75009 Paris, France, registered with the Register of Commerce and Companies of
Paris under the reference B 672 009 636.
The Company does not own any share of capital stock of any class
whatsoever, nor any share of the capital of any company whatsoever, is not a
member of any partnership or association whatsoever and does not have any
subsidiaries, branches or other operating premises, other than (i) as set forth
in Schedule A hereto, (ii) investments in treasury instruments or (iii) holdings
which are listed in Schedule B hereto (the "Holdings").
The subsidiaries of the Company listed in Schedule A hereto are hereinafter
referred to as "Subsidiaries" and the Company and the Subsidiaries are
hereinafter referred to collectively as the "Brink's Group".
2. The share capital of the Company is broken down as follows:
<TABLE>
<S> <C>
-- The Seller.....................................................41,048 shares
-- The Purchaser..................................................25,191 shares
-- Mr. Robert Klein ......... .................................... 54 shares
-- Mr. Francois Guiraud .. ....................................... 23 shares
-- Mr. Bernard Cedille............................................ 10 shares
-- Mr. Pierre Garnier. .......................................... 10 shares
-- Mr. Rober Lala ................................................ 7 shares
-- Brink's, Incorporated.......................................... 4 shares
-- Mr. Raymond Huppert............................................ 3 shares
-- Mrs. Marie-Jose Reneuve ....................................... 3 shares
-- Mr. Robert Sigrist............................................. 3 shares
-- Mr. John Walsh................................................. 3 shares
-- Mr. Glenn M. Mason.......... .................................. 1 share
-- Mr. Jean-Francois Varagne..................................... 1 share
-------------
TOTAL ..............................................66,361 shares
=============
</TABLE>
3. The 41,048 shares of the Company held by the Seller are, unless the
context otherwise requires, referred to hereinafter as the "Shares".
4. The Purchaser is prepared to acquire the Shares from the Seller and the
Seller is prepared to sell the Shares to the Purchaser pursuant to the terms and
conditions of this Agreement.
- 2 -
<PAGE>
<PAGE>
5. The Purchaser holds approximately 38% of the share capital of the Company
and three of its representatives hold seats on the Board of Directors of the
Company.
The Seller holds approximately 62% of the share capital of the Company and
four of its representatives hold seats on the Board of Directors of the Company.
The President of the Board of Directors of the Company was mutually
appointed by the Seller and the Purchaser.
6. The Company's workers' council has met and has been provided with all
necessary information.
CONSEQUENTLY, IT HAS BEEN AGREED AS FOLLOWS:
SECTION I-SALE
Article 1 - Sale of the Shares
In accordance with the provisions of this Agreement, the Seller sells and
transfers the Shares to the Purchaser, which agrees to purchase the Shares,
subject to the conditions set forth in Section 2 hereof (the "Sale").
As a result of the Sale, the Purchaser has good title and ownership of the
Shares together with all rights attached thereto or accruing thereon, and is
subrogated to the Seller in respect of all the rights and obligations attached
to the Shares sold.
The Shares are sold with dividend attached with regard to the fiscal year
ended December 31, 1997.
Article 2 - Purchase Price
2.1. The Shares are sold and purchased, subject to the terms and conditions of
this Agreement, for a total price of (the "Price") two hundred and thirty-five
million French francs (FRF 235,000,000).
- 3 -
<PAGE>
<PAGE>
2.2. Payment of the Price shall be made as follows:
--fifty three million five hundred thousand French francs (FRF 53,500,000)
(the "Down Payment") are paid on the date hereof by wire transfer or by
any other immediately available funds means for value as of the date
hereof;
--the balance, i.e. one hundred eighty one million five hundred thousand
French francs (FRF 181,500,000) will be paid to the Seller in three (3)
installments (the "Installments"), by wire transfer or by any other
immediately available funds means for value as of the dates set forth
below, on account no. 0324025050V with Via Banque, 10 rue Volney, 75002
Paris, at each of the subsequent three (3) dates below, such Installments
being as follows:
on January 27, 1999: FRF 63,250,000
on January 27, 2000: FRF 60,500,000
on January 29, 2001: FRF 57,750,000
2.3. Payment of the Installments is guaranteed by an irrevocable letter of
credit issued by Credit Suisse First Boston, New York substantially in the form
of Schedule 2.3. (the "Bank Guarantee"). The Purchaser undertakes to reimburse,
at first demand of the Seller, all the costs, fees, charges and commissions
incurred by the Seller in connection with the Bank Guarantee within a maximum
amount of FRF 1,000.
ARTICLE 3 - TRANSFER
As a result of the Sale and in order to transfer the property of the Shares
as of the date hereof:
(a) the Purchaser delivers to the Seller proper evidence of a wire transfer
or proper evidence of payment effected by any other immediately
available funds in respect of the Down Payment, for value as of the
date hereof;
(b) the Purchaser delivers to the Seller the Bank Guarantee;
(c) the Seller delivers to the Purchaser:
-- a share transfer order, made in favor of the Purchaser, requiring
the Company to effect the transfer of the Shares, such documents
being duly completed and executed by the Seller;
-- the duly completed share transfer registers and shareholders'
accounts of the Company;
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<PAGE>
<PAGE>
-- the resignation letters of the following members of the Board of
Directors of the Company: Mr. Michel Cornil, Generale de Transport
et d'Industrie (represented by Mr. Olivier Barbaroux), Societe ARY
(represented by Mr. Pierre Massard) and Mr. Andre Launois.
Article 4 - Transactions prior to the Sale
4.1. The technical assistance contract entered into on October 1, 1993 between
the Seller and the Company a copy of which is attached as Schedule 4.1. hereto,
has been terminated as of the date hereof and all obligations, including payment
obligations, have been or will be settled between the Parties within thirty (30)
days of date hereof.
4.2. The services agreement entered into on April 22, 1997 between the Seller
and the Company a copy of which is attached as Schedule 4.2. hereto, has been
terminated as of the date hereof and all obligations, including payment
obligations, have been or will be settled between the Parties within thirty (30)
days of date hereof.
SECTION 2 -- REPRESENTATIONS AND WARRANTIES
Article 5 - Representations and Warranties
The Seller hereby, as of the date hereof, represents and warrants
irrevocably as follows.
All of those certain representations and warranties qualified by Seller's
knowledge shall mean Seller's actual knowledge and knowledge which Seller gained
or should have gained in the prudent exercise of its responsibility as a
majority shareholder of the Company and as a member of the board of directors of
the Company.
5.1. The Company
5.1.1. The Company has been duly incorporated; its share capital is as hereabove
mentioned and was duly issued and is fully paid up. Other than this Agreement,
the Seller is not a party to any agreement or understanding with respect to the
voting, sale or transfer of the Shares.
- 5 -
<PAGE>
<PAGE>
All the shares issued by the Company have equal voting rights and the same
rights to dividends in proportion with the percentage of share capital which
they represent.
The Shares are freely transferable without any contractual, legal or
judicial restriction subject, as far as the shares of the Subsidiaries are
concerned, to restrictions stated in their respective by-laws.
The Company's business (fonds de commerce) and, except as set forth in
Schedule 5.1.1. hereto, the Company's assets are free and clear of any Liens
(as defined herebelow).
The Seller has good and marketable title to the Shares free and clear of
all Liens (as defined herebelow) and has the absolute right to sell, assign,
transfer and deliver the Shares to Purchaser pursuant to this Agreement, free
and clear of all Liens. Upon transfer of the Shares to Purchaser as provided in
this Agreement, Purchaser will have good and marketable title to the Shares,
free and clear of all Liens.
The Seller neither holds nor controls any shares in any of the
Subsidiaries.
For the purpose of this Agreement, "Lien" shall mean any and all liens,
security interests or agreements, mortgages, privileges, leases, rights or
claims from any third party, charges, pledges, indentures, rights of first
refusal, options, restrictions, easements, rights of way, escrows, conditional
sale agreements or other title retention agreements, and any other encumbrance
of whatever kind or nature, recorded or unrecorded, and shall include without
limitation when used with respect to shares of capital stock or other securities
of a corporation, proxies, voting agreements, subscriptions, preemptive rights
and any other limitations on such stock or securities.
5.1.2. The Company has not issued or authorized or decided the issue of any new
shares of the Company or any securities giving access to the share capital of
the Company by exchange, conversion, repayment or otherwise.
There are no outstanding options to subscribe for new shares of the
Company.
5.1.3. To the Seller's knowledge, as at the date hereof the Company has complied
with all applicable laws, regulations, orders, agreements, judgments to which it
is a party or by which it is bound, including without limitation European
Community ("EC") and French laws and environmental protection regulations,
except in the case for any non compliance which would not individually or in the
aggregate have a material adverse effect on the financial condition or business
of the Company.
5.1.4. The Company has not filed a petition for bankruptcy, is not under
receivership or any similar proceeding, and, to the Seller's knowledge, at the
date hereof is not under the threat of any such proceedings.
- 6 -
<PAGE>
<PAGE>
5.1.5. An up-to-date and true copy of the by-laws of the Company and of each of
the Subsidiaries has been delivered to the Purchaser.
5.1.6. Schedule A hereto sets forth a complete and accurate list of the
Subsidiaries owned or controlled by the Company and the share capital of each
Subsidiary, and the percentage interest held by the Company and the other
shareholders thereof. Other than the Subsidiaries, the Company does not directly
or indirectly own any interest in nor control any corporation, unincorporated
company or association other than investments in treasury instruments and the
Holdings. To the Seller's knowledge, each Subsidiary is validly existing and,
where relevant, in good standing, under the laws of the jurisdiction of its
incorporation and has full power and authority to carry on its business and
affairs as they are currently conducted.
5.2 The Seller
The Seller has full right, power and authority to execute, deliver and
perform this Agreement and neither the performance of the Sale, nor the
execution of this Agreement, breaches or will breach any of the conditions and
provisions of any agreement or act to which it is a party, the Seller's by-laws
or any applicable law, regulation, judgment, order or agreement to which it is a
party or by which it is or may be bound.
There is no consent of a third party required as a condition to Seller's
full performance under this Agreement.
5.3 Financial Obligations -- Bank Accounts
To the Seller's knowledge:
5.3.1.(A) All (i) short-term borrowings and bank overdrafts, the amount of which
shall not exceed in the aggregate FRF 110,000,000 as the date hereof, (ii)
medium and long term loans, (iii) monies advanced by a third party other than in
the ordinary course of business or by the Seller on behalf of the Company and
(iv) credit facilities whether drawn or not drawn, (the "Loans") outstanding
as of the date hereof are listed and described in Schedule 5.3.1.(A) hereto.
5.3.1.(B) The Company has not granted any guarantee, surety or warranty
(caution, aval ou garantie), except (i) as specified in Schedule 5.3.1.(B)
hereto, (ii) guarantees, sureties or warranties granted to third parties for the
benefit of the Company or any of the Subsidiaries by the Company or any of the
Subsidiaries, (iii) guarantees, sureties or warranties referred to in the notes
(engagements hors bilan) of the Accounts and (iv) guarantees, sureties and
warranties which do not exceed FRF 20,000 per item. The guarantees, sureties and
warranties referred to in (iv) shall not exceed in the aggregate FRF 100,000.
- 7 -
<PAGE>
<PAGE>
The undertakings listed in Schedule 5.3.1.(B) hereto have been entered
into by the Company in the ordinary course of its business activities.
5.3.2. Bank accounts or safes maintained by the Company are accessed only by
properly authorized employees of the Company and Mr. Francois Varagne.
5.4. Employment
5.4.1. To the Seller's knowledge, the number of employees of the Company
corresponds to the number of employees reflected in the personnel records of the
Company. Except as set forth in Schedule 5.4.1. and except for any increase
rendered mandatory pursuant to any collective bargaining agreement or an
employment agreement provided in the latter case that such increase is customary
Company practice, the Company is under no obligation to increase the current
rates of remuneration or grant any bonus or any advantage to any of its
employees at any future date.
5.4.2. To the Seller's knowledge, there is no profit sharing scheme, insurance,
incentive, retirement benefit pension scheme, life insurance policy, medical
insurance scheme or any other contract for the benefit of any of the Company's
employees other than as set forth in Schedule 5.4.2.
5.4.3. To the Seller's knowledge, the terms and conditions of the employment
agreements binding the Company to its employees comply with the legal and
regulatory provisions and the collective bargaining agreements (conventions
collectives) applying to the Company and, consequently, do not contain any
provision contrary to the usual legal dispositions or customary practices, in
particular, but not limited to, any retirement or departure benefits.
To the Seller's knowledge, all the agreements entered into between the
Company and any third party with respect to the direct or indirect provision of
workforce to the Company comply with French law. No such agreements will give
rise to an obligation to provide employee benefits to any person whose services
are or have been provided thereunder.
5.4.4. Other than transactions referred to or implied by the restructuring
provision adopted by the board of directors of the Company on October 13, 1997
(the "Restructuring Provision") which is detailed on Schedule 5.4.4. hereto, the
Company is not liable to make any payment to any of its employees or any former
employee by way of damages or compensation for loss of office or employment or
for redundancy or dismissal.
5.4.5. To the Seller's knowledge, the Company is in compliance with all
statutory or regulatory requirements with respect to its employees, in
particular in terms of contributions to the social security scheme (including
health insurance, retirement and unemployment insurance).
- 8 -
<PAGE>
<PAGE>
5.4.6. To the Seller's knowledge, no director (mandataire social) of the Company
benefits from an employment agreement that was suspended on the day of his
appointment as director and which could be resumed after his dismissal or
resignation as director.
5.4.7. To the Seller's knowledge, the Company is in compliance with all
applicable statutory requirements relating to the workers committee (comite
d'entreprise), the Company's works council, the employees' representatives, the
safety committee (comite d'hygiene, de securite et des conditions de travail)
and the union delegates, including, but not limited to, all applicable statutory
requirements relating to consultation with, or notification to the employees
with respect to this Agreement.
5.4.8 Except as set forth in Schedule 5.4.8., the Seller has not entered into
any employment or other similar agreement with any third party for the benefit
of the Company.
5.5 Company's activities
To the Seller's knowledge:
5.5.1.(A) The Company has full capacity to operate its business activities as
well as to own and use the assets and goods owned or used by it.
All the licenses, permits and authorizations have been properly obtained by
the Company and are in force. These licenses, permits and authorizations are the
only ones required to conduct the Company's activities as currently conducted.
There are no grounds which would jeopardize the validity or the scope of these
licenses, permits and authorizations, including without limitation as a result
of the transfer of the Shares pursuant to this Agreement.
The Company has caused each employee required to be licensed to perform
his/her duties pursuant to employment to obtain and maintain such license.
5.5.1.(B) All the formalities required for the operation of the Company's
business activities have been completed in conformity with all applicable laws
and regulations and all decisions have been validly taken by the competent
corporate body of the Company.
5.5.2(A) The Company is the true and legal owner or has full rights of use of
all assets used within the course of the operation of its business, whether
fixed or moveable, tangible or intangible. All such assets and goods owned
by the Company are free and clear of any security interest that may have a
material adverse effect in the Company.
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5.5.2.(B) The Company has not rented to a third party any of the assets referred
to above and has no commitment to do so.
5.5.2.(C) None of the assets which are either rented or held on leasing
(credit-bail) by the Company has been repossessed by its owner and the Company
has committed no breach which would allow the owner of said assets to repossess
them.
5.5.2.(D) No material discrepancy or loss exists with regard to vault contents
belonging to customers.
5.5.3(A) Except as set forth in Schedule 5.5.3.(A) hereto, the Company is not
party to or a beneficiary under any agreement or arrangement under the terms of
which by reason of any change in the ownership of the Shares:
(i) such agreement or arrangement will terminate earlier than it would have
done but for such change, or the obligations of the Company will be
accelerated or terms less favorable to the Company than those subsisting
in the absence of such change will apply, or
(ii) any other party will be entitled to terminate the agreement or
arrangement earlier than it would have been entitled to terminate it but
for such change or to require the obligations of the Company to be
accelerated or the adoption of terms less favorable to the Company than
those subsisting in the absence of such change.
5.5.3.(B) The Company has not entered into any agreement whatsoever limiting or
reducing its right to develop its business activities or to compete with any
other person or entity in any field.
5.5.4. Where the Company's assets are used by any of its Subsidiaries, the
Company has entered into agreements with the relevant Subsidiary in the normal
course of business and at arms' length conditions.
5.5.5. The Company has not taken any business (fonds de commerce) on lease.
5.5.6. The Company maintains the insurance policies listed in Schedule 5.5.6.
hereto. All said insurance policies are in force and effect and the Company has
complied in all material respects with the provisions of such policies and has
not done anything, or failed to do anything, which would cause the cancellation
of such policies or materially diminish the rights of the Company thereunder.
5.6 Seller/Company, activities
Except as set forth in Schedule 5.6. hereto, all agreements, contracts,
deeds of any kind whatsoever which have been entered into between the Company or
any of its Subsidiaries, on the one hand, and the Seller or any of the Seller's
Controlled
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Subsidiaries (as these words are defined in Article 10 hereof), on the other
hand have been entered into in the normal course of business and at arms' length
conditions.
5.7. Occupational safety and health matters--Environmental matters
To the Seller's knowledge, the Company is in compliance with current laws
and regulations governing (i) environmental and (ii) material occupational
safety and health matters.
5.8. Real estate
To the Seller's knowledge:
5.8.1. The Company is the true and legal owner of the real estate property (the
"Properties") listed as owned under Schedule 5.8.1. hereto and the Company does
not own any real estate property other than the Properties and it has no
commitment to acquire any other real estate property; the Properties may be
freely disposed of, are free of any mortgages, promises of mortgages, put
options or any other material encumbrance and have not been adversely affected
by fire, windstorm, flood, strike, lockout, Act of God, eviction or any other
cause.
5.8.2. No necessary building license concerning the Properties has been
challenged by any third party within the time limit prescribed by law.
5.8.3.(A) Any premises used by the Company as a lessee (locataire) is so used
pursuant to a rental agreement (bail) regularly entered into. The list of all
the rental agreements entered into by the Company specifying the duration and
termination dates is given under Schedule 5.8.3.(A) hereto.
5.8.3.(B) The above mentioned rental agreements are valid and binding upon their
parties. There is no dispute between the Company and the landlords or any third
party arising out of the existence or implementation of such rental agreements,
except as set forth under Schedule 5.8.3.(B) hereto.
5.8.4. All real estate lease or sub-lease agreements entered into between the
Company and any of its Subsidiaries are valid and binding upon their parties.
5.9. Intellectual Property
5.9.1. The Seller waives any and all present or future right, titles and
interests in or to the Intellectual Property Rights listed on Schedule 5.9.2.
hereto, and in the name "Brink's", in any form or combination and any derivation
thereof and shall procure that each and all of the Seller's Controlled
Subsidiaries will also do so.
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To the Seller's knowledge:
5.9.2. Listed on Schedule 5.9.2. hereto are all the patents, trademarks, service
marks, tradenames, logos, company names, designs and models, know-how,
copyrights and industrial property rights (the "Intellectual Property Rights")
which are registered in the name of the Company or used by the Company.
The Company has a valid, binding and exclusive right to use or otherwise
dispose of any or all of such Intellectual Property Rights which are listed in
Schedule 5.9.2. hereto. Together with each Intellectual Property Right is given
in Schedule 5.9.2. hereto the indication of its nature (ownership, license,
etc.) and of its duration.
5.9.3. Except as may be required under the licenses listed in Schedule 5.9.3.
hereto, the Company is entitled to use without payment all material know-how and
other material technical information used by it in connection with its business
or businesses and all information concerning the methods and processes used by
the Company, and no rights to disclosure or use of any Intellectual Property
Rights, material know-how or material technical information used by the Company
have been granted to or claimed by any third party.
5.9.4. There has not been any material default (or any event which with notice
or lapse of time or both would constitute a default) under any of the material
agreements in respect of the Intellectual Property Rights by the Company or so
far as the Seller is aware by any other party thereto.
5.9.5. The Company has not granted to third parties the right to use any
Intellectual Property Rights with or without consideration, other than as set
forth in Schedule 5.9.2. hereto.
5.10. Litigations - Claims
To the Seller's knowledge:
5.10.1. There is no dispute, claim or litigation whether existing, pending or,
to the Seller's knowledge, threatened in writing, by, against or between the
Company and any other third party (individual, corporation, trade union,
administration, governmental body or State, etc.) (whether the Company is a
plaintiff or a defendant for itself or on behalf of a person for which it may be
vicariously liable or a guarantor), except for those listed under Schedule
5.10.1. hereto. All liabilities or risk of liability to the Company with respect
to such disputes, claims or litigation (whether existing, pending or threatened)
have been fully reserved in the Accounts (as defined here below).
There are no proceedings or actions pending to limit or impair any of the
powers, rights or privileges of the Company or to dissolve it, and the Seller is
not aware of any grounds or facts upon which such proceedings or actions could
be undertaken.
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The Company is not subject to any inquiry or survey relating to the breach
or possible breach of any legal provision.
5.10.2. Furthermore there is no judgment or Court order held against the Company
or administrative decision made for it which it has not complied with or
satisfied.
5.10.3. The Company is not, and has not been, party to or concerned by any
agreement, decision or practice prohibited by Article 85 of the Treaty of Rome,
nor has the Company made any application to the Commission of the European
Communities for a declaration of inapplicability or for negative clearance in
respect of any agreement, decision or practice, nor is it abusing, nor has it
abused, a dominant position as prohibited by Article 86 of the Treaty of Rome.
5.10.4. Neither the Company, nor any of its past or present officers is sued for
a criminal offence or have knowledge of circumstances likely to cause such
lawsuit as a result of such a criminal offence.
5.11. Accounts
The Seller hereby represents and warrants to the Purchaser that:
5.11.1. attached hereto as Schedule 5.11.1. are the consolidated accounts of the
Brink's Group as at December 31, 1996, as approved by the directors in the
meeting of the Board of Directors of the Company held on March 21, 1997 (the
"Consolidated Accounts"). The Consolidated Accounts and each valuation, item,
reserve and provision contained or reflected therein:
(i) are properly drawn up and give a true and fair view of the assets,
financial situation and overall results of the Company and the
Subsidiaries and have been established in conformity with the current
and generally accepted accounting principles in France consistently
applied and, in particular, the Accounting Methods and Principles (as
defined below);
(ii) have been certified without any reserve by the statutory auditors of
the Company;
5.11.2. attached hereto as Schedule 5.11.2. are the intermediary consolidated
accounts of the Brink's Group as at June 30, 1997, as approved by the meeting of
the Board of Directors of the Company held on October 13, 1997 (the
"Consolidated Intermediary Accounts"). The Consolidated Intermediary Accounts
and each valuation, item, reserve and provision contained or reflected therein
are properly drawn up and give a true and fair view of the assets, financial
situation and overall results of the Company and the Subsidiaries and have been
established in conformity with the current and generally accepted accounting
principles in France consistently applied and, in particular, the
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Accounting Methods and Principles.
The Consolidated Accounts and the Consolidated Intermediary Accounts,
comprising Schedule 5.11.1. and Schedule 5.11.2 hereto, are together referred
to herein as the "Accounts";
5.11.3. the consolidated net assets (situation nette consolidee) of the Brink's
Group as at June 30, 1997, as set forth in the Consolidated Intermediary
Accounts, drawn up in accordance with the Accounting Methods and Principles,
were one hundred and thirty million one hundred and forty-seven thousand French
francs (FRF 130,147,000);
5.11.4. the Company has met all of its customs duties, tax or parafiscal
obligations (social security among others). The Company has paid all customs
duties, taxes and all parafiscal obligations due and payable by it and, if
required by the Accounting Methods and Principles and current French generally
accepted accounting principles, has given full consideration and provided full
reserve in the Accounts or stated in the notes to the Accounts to and for any
and all obligations (including the contingent liabilities) falling due and
payable after December 31, 1996 and June 30, 1997, respectively;
5.11.5. the Accounts have been established in conformity with the current French
generally accepted accounting principles consistently applied and in accordance
with the accounting methods and principles of consolidation set forth in
Schedules 5.11.1. and 5.11.2. hereto (the "Accounting Methods and Principles");
5.11.6. all dividends, the payment of which has been decided or authorized by
the Company, have been paid to the shareholders of the Company and the books of
the Company do not show any debt to the shareholders in respect of any such
dividends.
5.12. Interim period - Management
Since June 30, 1997 and until the date hereof, the Company has been
operated in a normal and prudent ("bon pere de famille") way, and in particular
it has not, except with respect to transactions referred to in or implied by the
Restructuring Provision or except as set forth in Schedule 5.12. hereto:
(i) suffered any material change in its business or operation or in its
financial or commercial situation;
(ii) suffered any material decrease in the value of its assets except for
depreciation in the ordinary course of business;
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(iii) suffered any material damage, destruction or loss (unless covered by
insurance) or any other event jeopardizing the activities of the Company
or given up any material right of value;
(iv) made any assignment of assets of the Company likely to jeopardize the
operations of the Company;
(v) made any modification of the method for determining the salaries other
than those resulting from the normal course of business, the laws and
regulations in force as well as of the agreements and covenants or uses
in force in the business of the Company;
(vi) made any change in the methods used for keeping the accounts of the
Company except for those required by new laws and regulations;
(vii) authorized nor decided to distribute any dividend nor any
interim-dividend (acompte sur dividende), it being specified that this
provision does not apply to dividend paid by the Subsidiaries to the
Company;
(viii) suffered any strike or protest or any other event (or receive a threat of
such an event) related to the labor situation which adversely affects or
may adversely affect the assets, business or prospects of the Company;
(ix) entered into any agreement or taken any action likely to make untrue or
to jeopardize the extent of any of the representations and warranties
granted or of the commitments made in this Agreement;
(x) in the event that the Company holds its own shares, transferred or
redeemed any of its shares;
(xi) disbursed any cash except in the ordinary course of its business and
except for non material amounts of cash between the Company and its
Subsidiaries in the ordinary course of business. All amounts received by
the Company have been deposited with the Company's bankers and appear in
the appropriate books of accounts;
(xii) decided or made any payment or distribution to its shareholders, or
redeemed any of its shares but for the payment by the Company of the
dividend (FRF 190 per share) relating to the 1995 fiscal year;
(xiii) decided or made, directly or indirectly, any increase in the share
capital of the Company or any amendment to its by-laws;
(xiv) suffered or initiated any involuntary or voluntary termination of any
license, commitment, contract, lease or other agreement except in the
ordinary course of business;
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(xv) suffered any cancellation or termination of any insurance policy insuring
the assets or operations of the Company unless simultaneously replacement
policies providing substantially the same coverage were in full force and
effect;
(xvi) made any transfer of cash or cash equivalents to Seller or any of the
Seller's Controlled Subsidiaries other than in the ordinary course of
business;
(xvii) made any settlement or compromise of any action, suit, proceeding,
litigation or claim which required the Company to pay an amount in excess
of fifty thousand French francs (FRF 50,000) except to the extent that
full reserves therefor were reflected in the Accounts and except in the
ordinary course of business.
5.13. General provisions regarding Seller's representations and warranties
5.13.(A) No representation or statement by the Seller made in this Agreement
intentionally omits or will intentionally omit to state any material fact
necessary to make any such representation or statement not misleading.
5.13.(B) To the Seller's knowledge, there is no fact which materially adversely
affects the business, property, condition, results of operations or business
prospects of the Company which has not been set forth in this Agreement or any
Schedule hereto.
5.14. Purchaser's representations and warranties
The Purchaser represents that it is a company validly organized under the
laws of Delaware. It has the authority required to enter into this Agreement and
to be irrevocably and finally bound by the contents hereof.
Article 6 - Subsidiaries
6.1. All the provisions of the representations and warranties of this Agreement,
but for Article 5.11.6., shall (mutatis mutandis) where relevant respectively
apply to each one of the Subsidiaries.
Consequently, the Seller:
(a) makes and gives with respect to each one of the Subsidiaries the same
representations and warranties as those made or given in respect of the
Company and for the same duration and will make the same disclosures and
provide for the same specific information and documents, provided however
that:
with regard to Codival SA and Coditrans SARL, the Seller does not make or
give any representation or warranty other than the representations and
warranties
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referring to custom duties, tax or parafiscal obligations (social security
among others) and to matters mentioned under Articles 5.1.1. - paragraphs 3
and 5, 5.1.2., 5.1.4., 5.1.5., 5.1.6. and 5.11.
(b) undertakes and commits itself to indemnify the Purchaser in connection with
the provisions of this Article 6.1. under the terms and conditions of
Article 7 hereof and for the duration of Article 8 hereof.
6.2. For the purpose of the enforcement and construction of this Article 6, the
references to any legal provision enacted in France shall, in as much as
necessary, include reference to the corresponding provision in the applicable
local jurisdiction.
6.3. No representations or warranties are made by the Seller in respect of the
Holdings.
Article 7 - Indemnification
7.1. Scope
7.1.1. The Seller hereby undertakes and commits itself to indemnify the
Purchaser or, at the Purchaser's sole option, the Company or a Subsidiary:
(a) unless otherwise provided herein, for 62% of any cost(s) (including
reasonable attorney's fees and court costs and expenses), damage(s),
loss(es), increase(s) of liabilities or reduction(s) of assets of the
Company or of any of the Subsidiaries resulting:
(ii) from any inaccuracy or omission in one or more of the representations
made and warranties granted under Section 2 hereof, or of any
violation of the above mentioned representations and warranties; or
(ii) from any consequence of any litigation, lawsuit, procedure or claim of
any nature connected to the above mentioned events;
(b) unless otherwise provided herein, for 62% of any cost(s) (including
reasonable attorney's fees and court costs and expenses), damage(s),
loss(es), increase(s) of liabilities or reduction(s) of assets of the
Company or of any of the Subsidiaries corresponding to an event or fact or
to any events or facts which occurred prior to the date hereof, which would
be the consequence of any litigation, lawsuit, procedure or claim of any
nature, to the extent such cost(s), damage(s), loss(es),
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increase(s) of liabilities or reduction(s) of assets exceed reserves or
liability amounts reflected in the Accounts including but not limited to:
(i) any tax, penalty, late payment interest, increase or fine which may
fall or be deemed to be due as a result of any tax or Social Security
audit as well as of any survey or control from any governmental or EC
body;
(ii) any tax, penalty, late payment interest, increase or fine which may
fall or be deemed to be due as a result of any audit(s), claim(s),
proceeding(s), order(s), or judgment(s) relating, directly or
indirectly, to the domestic or international operation of the Company
or any of its Subsidiaries;
(c) notwithstanding the provisions stipulated in paragraphs 7.1.1.(a) and
7.1.1.(b) above, for 100% of any cost(s) (including attorney's fees and
court costs and expenses), damage(s), loss(es), increase(s) of liabilities
or reduction(s) of assets of the Company in respect of any consequences
arising out of any litigation, lawsuit, procedure or claim of any nature in
connection with the sale, by the Company, of its stake in Cyrasa, a Spanish
company, to Fichet-Bauche and in excess of FRF 1,336,000 which amount
corresponds to reserves made in this regard in the Accounts; it being
understood that the recovery under this Article 7.1.1.(c) is subject to
Sections 7.2.1. and 7.2.2.;
(d) notwithstanding the provisions stipulated in paragraphs 7.1.1.(a) and
7.1.1.(b) above, for 100% of any cost(s) (including attorney's fees and
court costs and expenses), damage(s), loss(es), increase(s) of liabilities
or reduction(s) of assets of the Company or of any of the Subsidiaries
resulting from any inaccuracy or omission in one or more of the
representations made and warranties granted under Articles 5.1.1.
paragraphs 3 and 5, 5.2. and 5.6. hereof, or of any violation of such
representations and warranties, or from any consequence of any litigation,
lawsuit, procedure or claim of any nature connected to such events.
For the purpose of Article 7 hereof, the Purchaser is deemed to include the
Company and the Subsidiaries, should the Purchaser choose to make use of the
right of substitution hereabove provided.
7.1.2. No claim other than a claim relating to (i) custom duties, tax or
parafiscal matters (social securities among others) and to other matters
mentioned under Article 5.11., and (ii) matters mentioned under Article 5.1.1.
paragraphs 3 and 5 shall give rise to an indemnity if the matter relating to the
Claim has been disclosed to Purchaser (a) in connection with Purchaser's
representation on the Company's board of directors, (b) in the due diligence
review conducted by the Purchaser prior to the date hereof or (c) as a minority
shareholder of the Company.
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7.2. Limitation
7.2.1. The Seller's obligation to indemnify under Article 7 of this Agreement
shall apply when the aggregate amount of the damage(s), loss(es), increase(s) of
liabilities or reduction(s) of assets of the Company or of any of the
Subsidiaries as above described by reason of the implementation of the warranty
reaches the sum of thirteen million French francs (FRF 13,000,000), said amount
representing a deductible (franchise) in Seller's favor and not a threshold
(seuil de declenchement).
7.2.2. The total amount of money paid to Purchaser for indemnification due
hereunder shall be limited in any event to fifty million French francs (FRF
50,000,000).
7.2.3. The Seller shall not be bound to pay an indemnity owing to an inaccuracy
in the representations made under Section 2 - Representations and Warranties, if
such inaccuracy is due to the enactement or amendment of any statute, decree,
regulation or official governmental practice, new tax, levy or charge or
modification of the rate of any tax, levy or charge, after the date hereof, even
if such enactement or modification is retroactive.
7.3. Loss evaluation
7.3.1. Notwithstanding the provisions of Article 7.1.1., it is specified that no
indemnity shall be due on the basis of any inaccuracy relating to:
(i) the value of the intangible assets entered in the Accounts under the
headings "Intangible Fixed Assets" and "Acquisition Goodwill", and the
provisions of this paragraph shall apply both to the gross amount of such
intangible assets as of the date of their entry in the Company's
consolidated balance sheet and to the depreciation and amortization
allowances relating thereto from such date to the date of the Accounts,
all such items being known to the Purchaser itself owing to the
inspections performed every year by its own auditors;
(ii) the value of tangible fixed assets, and the amount of adequacy of any
provisions relating thereto and entered in the Accounts;
(iv) the booking of expenses to be allocated among several financial years,
and the amount of any deferred tax and tax loss;
(iv) the amount or adequacy of the Restructuring Provision and any of the
actions and programs relating to the restructuring plan for which the
Restructuring Provision was recorded by the Company in June 1997, as
detailed on Schedule 5.4.4. hereto.
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7.3.2. All losses shall be evaluated by applying the following principles:
(i) the re-assessment in respect of corporate income tax and VAT
contributions which only represent a timing difference of the
corresponding charges (in particular, depreciation and/or reserves,
add-backs in respect of corporate income tax) shall not be taken into
account in the calculation of losses, except for the penalties, interest
and surtaxes resulting from such re-assessment;
(ii) with respect to each of the three categories of items set forth in
Schedule 7.3.2.(ii), there shall be deducted from the amount of any loss
claimed in each category, the amount of any financial reserve or
provision related to such category which is reversed or cancelled due to
the disappearance of the risk of that same category as mentioned in
Schedule 7.3.2.(ii).
(iii) The aforementioned set-off shall be carried out only in respect of the
fiscal years 1998 and 1999 and provided notification of such set-off is
made by Seller before the expiry of the period referred to in Article
8(ii) hereof, provided however that if the 1999 accounts are not
available at the expiry of such period, such period shall be extended up
to one month after the date when such accounts are made available.
7.3.3. In the event the Company or its Subsidiaries receive any indemnification
from an insurance company of the Company or its Subsidiaries, as the case may
be, or from a third party, related to a claim that was indemnified by Seller
pursuant to this Agreement, the amount recovered from the insurance company or
the third party shall be repaid to Seller up to a maximum of the indemnity
received by Purchaser from Seller.
7.3.4. If the Company or the Subsidiaries is required to make a payment in
connection with a third party's claim that gives rise to an indemnity to the
Purchaser, the Company or a Subsidiary, the Seller shall not be required to make
any payment hereunder until such payment has actually been made by the Company
or its Subsidiaries.
When calculating the amounts due by the Seller pursuant to Article 7 hereof
above, one shall not take into account the tax savings which would result from
the liability which would be charged to the relevant company as a result of the
increase of liability, reduction of assets, loss or damage sustained by it
provided that the indemnity received by the beneficiary is subject to corporate
income tax.
Should such indemnity not be subject to corporate income tax in the hands
of the beneficiary, the above mentioned tax savings will be taken into account
for the calculation of the amount due by the Seller, so that the indemnity to be
recovered shall not exceed in any case the amount of the loss suffered.
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7.4. Procedure
7.4.1. The Purchaser shall inform the Seller in writing of any event of such
nature that would result in the enforcement of any of the terms of this
Agreement, as soon as possible but in no event later than seventy five (75) days
from the date the Purchaser or the Company has had actual knowledge of such
event and in the case of tax or parafiscal reassessment, as soon as possible and
within a reasonable period to enable the Seller to inform the Purchaser of its
position on such reassessment prior to the time that a response or responsive
action by the Company is due and shall provide information useful for the
valuation of this event (description in details of the event on which the
Purchaser bases its claim, the damage incurred and, to the extent possible, the
evaluation ofthe related indemnity, such notice constituting a "Claim").
7.4.2. In case of tax or parafiscal reassessment or in case of litigation or
claim from a third party, the Purchaser shall not unreasonably refuse to file
any claim, either in or out of court, or to file any lawsuit if the Seller so
requests. However, in the event that the Seller so requests, all expenses
relating to such claim and suits shall be borne by the Seller which hereby
commits itself to pay. The same will be true should the Purchaser's claim be
dismissed or should it have to pay interests or penalties. Such expenses,
interests, indemnities or penalties will be upon the Purchaser's request
advanced by the Seller.
7.4.3. The Purchaser shall consult with the Seller and its counsel as to the
preparation of the arguments to be presented on behalf of the Purchaser as well
as to the negotiations which may take place in view of an out of court
settlement.
7.4.4. In the absence of a final court decision, no immediate payment or out of
court settlement of any claim of any third party, or of any proposal of
reassessment of tax shall be made without the prior approval of the Seller, such
approval not to be unreasonably withheld or delayed.
7.4.5. The indemnity eventually due pursuant to Article 7 hereof shall be paid
to the Purchaser or, as the case may be, to the Company or the Subsidiaries
within one month from the court decision or of the out of court settlement
making such indemnity final and binding.
Article 8 - Duration of the warranties
The warranties issued by the Seller, pursuant to this Agreement, shall
expire respectively and individually:
(i) as concerns the warranties relating to custom duties, taxes, duties or
parafiscales debts, one month after the expiry of the statute of
limitations respectively applicable; however, any modification of a
period of statute
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of limitations shall extend or reduce, as the case may be, the
corresponding warranty;
(ii) as concerns the other warranties, at the expiry of a period of two (2)
years as from the date hereof.
The obligations to indemnify under this Agreement shall be triggered upon
receipt by the Seller of Purchaser's written notification of a Claim within the
applicable time period set forth in this Article 8.
Article 9 - Late payment interests
Any delay by either Party in the performance of any of the financial
obligations arising out of the enforcement of this Agreement shall cause the
other Party to pay a penalty interest computed prorata temporis, on the basis of
a year of three hundred and sixty (365) days, at a rate of five per cent (5%)
per annum.
Article 10 - Commitments
The Seller hereby undertakes that neither the Seller nor any company or
companies under the direct or indirect control (within the meaning of Article
355-1 of the French Company Law of July 24, 1966) of the Seller (the
above-referred companies individually or collectively referred to as the
"Seller's Controlled Subsidiaries") shall (directly or indirectly by themselves
or in conjunction with any other party or venture):
(i) utilize to its profit or disclose to any third party any commercial
secret, know-how or confidential information belonging to the Company
or to a Subsidiary and will not do so until such times as this
commercial secret, know-how or confidential information has fallen
into the public domain by other than action or omission by the Seller
or any of the Seller's Controlled Subsidiaries;
(ii) utilize for any purpose or in any way any name, mark or logo listed in
Schedule 10 hereto (including without limitation "Brink's") or any
similar name, mark, logo or any derivation thereof (whether alone or
in combination);
(iii) during a lapse of time of five (5) years as from the transfer of the
Shares and in France, not engage in transportation of valuables,
servicing of automatic teller machines (including, but not limited to,
cash replenishment, deposit pick-up and first line maintenance), coin
processing and wrapping, money processing and cash management
services, guarding services, storage of valuables, movement of
documents and alarm services and monitoring, or acquire directly or
indirectly any interest in an enterprise which engages in any of the
above mentioned
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<PAGE>
activities, or, during the above mentioned lapse of time, solicit any
prospective or existing customer for any such activity or any director
or employee of the Company or of any of the Subsidiaries.
The provisions of this sub-paragraph 10.(iii) shall not apply to the
company Mont Jura or any of its successors (should the Seller acquire
an interest in Mont Jura or any of its successors), with respect to
the enumerated activities and to Mr. Francois Varagne with respect to
solicitation, should Mr. Francois Varagne not become or ceases to be
an employee of an affiliate of the Purchaser.
SECTION 3--GENERAL PROVISIONS
Article 11 - No Set Off
The Purchaser undertakes not to set off any amounts due by it to the Seller
(in particular any amounts due pursuant to Article 2.2.) against any amounts due
by the Purchaser to the Seller (in particular any indemnity).
Article 12 - Notices
Any notice served pursuant to this Agreement shall be sent by registered
mail with return receipt requested or by international courier to the following
address:
12.1. For the Seller:
Generale de Transport et d'Industrie
55-57 avenue de Colmar
92946 Rueil-Malmaison Cedex
France
To the attention of: President Directeur General
12.2. For the Purchaser:
Brink's Security International, Inc
One Thorndal Circle
P.O. Box 1225
Darien, Connecticut 06820
United States of America
To the attention of the President;
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<PAGE>
With a copy to Brink's Incorporated
One Thorndal Circle
P.O. Box 1225
Darien, Connecticut 06820
United States of America
To the attention of: General Counsel.
Any change of address shall be notified by the Party concerned to the other
Party by registered mail with return receipt requested or by international
courier within fifteen (15) days of the actual date of change of address.
Notices will be deemed to have been received at the date of reception of
the registered letter or the international courier, as shown by the receipt.
Article 13 - Entirety - Preamble - Headings
This Agreement cancels and supersedes any and all earlier agreements,
representations and warranties, whether oral or written, between the Parties in
relation to the transaction contemplated hereby.
The provisions contained in the preamble hereto as well as Schedules hereto
form an integral part of the provisions of this Agreement.
The sections and other headings contained in this Agreement are for
convenience of reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
Article 14 - Amendments
14.1. No alteration or amendment to any of the provisions of this Agreement
shall be binding on any of the Parties unless it is written and executed by a
duly authorized representative of each of the Parties.
14.2. This Agreement may not be assigned by either Party except with the prior
written agreement of the other Party, except that Seller shall be authorized to
assign its rights to receive the Installments and the benefit of the Bank
Guarantee.
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<PAGE>
14.3. Any failure of either Seller or Purchaser to comply with any obligation,
covenant, agreement or condition in this Agreement may be waived by Purchaser or
Seller, respectively, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of any subsequent or other failure.
Article 15 - Commitments - Successors
The legal representatives of the Parties or of their successors are bound
by all the terms of this Agreement and may rely on any of such terms.
Article 16 - Miscellaneous Provisions
16.1. Post-Closing Undertakings
16.1.1. The Seller shall execute, and the Purchaser shall ensure that the
Companies shall execute, any agreements, statements and other documents
necessary or expedient to finalize the transactions provided hereunder, or to
make them enforceable against third parties.
16.1.2. During a term of three (3) years from the date hereof, the Purchaser
shall ensure that the Seller (or the Seller's Controlled Subsidiaries and their
counsel, representatives, agents and assigns) shall have access, at the Seller's
expense, to all the information and books of the Companies relating to financial
years during which the Seller had control thereof and 1998 and which the Seller
(or the Companies in their groups and their assigns) may require in order in
particular to draw any tax statements, accounts and corporate records, or to
defend any proceedings or disputes, and also to defend or participate in the
defense of any proceedings or disputes referred to under Article 7 or to
implement the provisions of Article 7.3., upon reasonable prior notice. The
Purchaser shall ensure that the officers and employees of the Companies shall
receive the Seller (and the Companies in their groups) in the best possible
manner in such respect during reasonable normal business hours and upon a
reasonable prior notice.
16.2. Enforceability
Should any of the provisions of this Agreement be held null and void or
unenforceable for any reason whatsoever, the Parties undertake to act together
to remedy the causes of such nullity, so that, except in the case where it is
impossible to do so, this Agreement shall remain in force without any
discontinuity.
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<PAGE>
The representations made in this Agreement, the warranties granted, and the
undertakings agreed to are valid, and shall remain valid, whatever the legal
form the Company may acquire.
16.3. Performance - Cooperation
The Parties agree to provide any information as well as to execute and to
deliver all documents required for the performance of this Agreement.
16.4. Expenses
Each Party will bear its own expenses, charges and fees of any nature
related to this Agreement and its consequences.
16.5. Registration duties
The registration duties resulting from the Sale will be borne by the
Purchaser.
The Parties undertake to execute as soon as possible after the date hereof
a reiterative deed in the French language for purposes of paying registration
duties, it being specified that such deed will only refer to the transfer of the
Shares and the Price.
Article 17 - Confidentiality
17.1. Subject to legal requirements to the contrary, Seller and Purchaser
undertake to hold in confidence and not to disclose to third parties (except to
professional advisors of the Parties hereto), without the prior written consent
of the other, the terms and conditions of the transactions contemplated hereby.
17.2. Notwithstanding the provisions of paragraph 17.1. above, but subject to
any legal requirements, all announcements by or on behalf of the Parties hereto
relating to the transactions contemplated hereby shall be in terms to be agreed
between Seller and Purchaser.
Article 18 - Applicable law
This Agreement shall be governed as to its validity, construction and
performance in accordance with the laws of the Republic of France.
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Article 19 - Jurisdiction
Any disputes arising from this Agreement or which is a result thereof shall
be submitted to the exclusive jurisdiction of the Tribunal de Commerce de Paris.
Executed in Paris,
in two original copies,
on January 27, 1998.
BRINK'S SECURITY GENERALE DE TRANSPORT
INTERNATIONAL, INC. ET D'INDUSTRIE S.A.
By CHRISTOPHER P. CORRINI By OLIVIER BARBAROUX
------------------------------ ------------------------------
Christopher P. Corrini Olivier Barbaroux
Senior Vice-President Finance Chairman of the Board of Directors
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<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<DESCRIPTION>EXHIBIT 10(W)
<TEXT>
<PAGE>
EXHIBIT A
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement, made this 10th day of January, 1997, by and
between BRINK'S SECURITY INTERNATIONAL, INC. ("BSI"), a corporation duly
organized and existing under the laws of the State of Delaware, United States of
America, with its principal office at One Thorndal Circle, Darien, Connecticut,
U.S.A. and Valores Tamanaco, C.A. ("Valores"), a corporation duly organized and
existing under the laws of Venezuela, with its principal office at Av. Urdaneta,
Esq. Animas, Edif. Banco Internacional, Caracas, Venezuela, (BSI and Valores are
hereinafter collectively referred to as the "Shareholders" or the "Parties".)
WHEREAS, BSI, its parent, Brink's Incorporated, and their respective affiliates
(collectively "Brink's") have long been engaged in and are well known and
respected worldwide in connection with the business of protecting and
transporting valuables by secured transportation throughout the world and
providing various related and ancillary services;
WHEREAS, Valores is a corporation formed under the laws of Venezuela on December
26, 1996 (registered with the Mercantil Registry II of the Federal District and
the State of Miranda, No. 1, Volume 707-A-SGDO), for the purpose of holding
shares of the joint venture company pursuant to this Agreement;
WHEREAS, the shareholders of Valores are Cartera Central, C.A., Cartera de
Inversiones Venezolanas, C.A. and a newly formed corporation, Inversiones Grand
Value, C.A. ("Grand Value"), which newly formed corporation holds 80.2% of the
shares of Valores and which has as its current shareholders Jose Luis Feaugas
and Juan Carlo Mendez Machado, attorneys for Victor Gill (President of
InterBank) ("Gill") and Victor Vargas (President of Cartera Inversiones
Venezolanas) ("Vargas") and which, in the future, will have as its shareholders
Gill and Vargas and such other additional individuals and/or corporations as
are approved by BSI under this Agreement (Cartera Central, Cartera de
Inversiones Venezolanas, Grand Value, Gill, Vargas and all future shareholders
of both Valores and Grand Value are referred to collectively herein as
"Investors"); and
WHEREAS, each of the Investors are guaranteeing all of the obligations of
Valores pursuant to this Agreement;
WHEREAS, BSI was the successful bidder for the shares of Custodia y Traslado de
Valores, C.A. ("Custravalca"), a corporation duly organized and existing under
the laws of Venezuela engaged in business of transportation of valuables and
various other activities in Venezuela, at a public auction held by Fondo de
Garantia de Depositos y
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Proteccion Bancaria ("FOGADE") on December 23, 1996, with a bid in the amount of
US$68,100,999 for all of the shares subject to the auction;
WHEREAS, BSI is currently the holder of 15% of the shares of Custravalca, which
shares were included in the public auction of Custravalca;
WHEREAS, the Parties desire to become joint shareholders of Custravalca and
enter this Agreement to set forth their agreement with respect to the
establishment of a joint venture for this purpose and to regulate their
respective rights and responsibilities and the management of the proposed
business and affairs of Custravalca following the acquisition of the shares from
FOGADE.
NOW, THEREFORE, it is hereby agreed as follows:
ARTICLE 1. ESTABLISHMENT OF THE JOINT VENTURE COMPANY
1.1 The Parties agree to become joint shareholders, as set forth herein, of a
new corporation formed on January 9, 1997 by BSI under the laws of Venezuela,
which corporation has paid in capital of US$2,200, has issued 1,000 shares of
common stock and which has no liabilities as of the date of this Agreement.
1.2 The name of the newly formed corporation is Custravalca Brink's, C.A.
(hereinafter referred to as "Custravalca Brink's" or the "Company"), subject to
the terms of Article 10 of this Agreement and the terms of a Trademark License
Agreement.
1.3 Immediately following execution of this Agreement, but not later than forty
eight (48) hours prior to the Closing Date (as defined in Section 1.4 below),
Valores shall:
(a) Pay to BSI the amount of US$858, for which it shall receive 390 shares
of the Company (out of the total of 1,000 issued shares); and
(b) Lend to Custravalca Brink's the amount of US$7,967,817, which loan
shall be non-interest bearing. The loan amount shall be wire transferred to the
account of the Company; the bank and the account number for such wire transfer
shall be provided prior to such transfer.
(c) Should Valores fail to pay for the shares of the Company as provided in
(a) above and/or to transfer the loan amount as set forth in (b) above 48 hours
prior to the Closing Date, this Agreement shall be null and void and neither
Valores nor the Investors shall have any right to become shareholders of
Custravalca Brink's or to otherwise own
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the shares of Custravalca; BSI shall have no further obligation to Valores
or to any of the Investors.
1.4 At a closing with FOGADE, scheduled for January 14, 1997 (or such subsequent
date, not later than January 20, 1997, that may be agreed upon by BSI and
FOGADE) (the "Closing Date"), the Company shall acquire the shares of
Custravalca not currently held by BSI from FOGADE. BSI's currently held shares
of Custravalca shall remain with BSI and shall not be subject to transfer.
1.5 (a) As soon as practicable following the acquisition of the shares of
Custravalca by the Company, the Shareholders shall take whatever action is
necessary and appropriate to cause the mergers of Custravalca and Servicio
Panamericano de Proteccion, C.A., a subsidiary of Custravalca, into Custravalca
Brink's, C.A., with the latter being the surviving entity. The name of the
Company will thereupon be changed to Brink's-Servicio Panamericano de
Proteccion, C.A.
(b) Upon the merger of Custravalca into Custravalca Brink's, BSI's shares
in Custravalca will be exchanged for newly issued shares of Custravalca Brink's,
such that the total number of shares of the Company held by BSI will equal 61%
of the shares of the Company.
(c) Upon the merger of Custravalca into Custravalca Brink's, the loan made
by Valores to the Company in the amount of US$7,967,817 as set forth in Section
1.3(b) above will be capitalized. Valores shall thereupon receive newly issued
shares of Custravalca Brink's, such that the total number of shares of the
Company held by Valores will equal 39% of the shares of the Company.
(d) Upon the merger of Custravalca into the Company, the Shareholders shall
take such action as is permissible under local law to provide for either a cash
payment or other purchase by the Company of the shares of Custravalca owned by
shareholders holding less than 1% of the shares of Custravalca at the time of
the merger, i.e. those shareholders holding 0.08% of Custravalca's shares which
were not subject to the auction, or take such other action as may be permissible
to achieve the same ultimate result.
1.6 (a) Following the mergers and other actions set forth in 1.5 above, the
shares of Custravalca Brink's shall be held by the parties in the following
proportions:
BSI: 61%
Valores: 39%
The shares held by BSI shall be designated Class A Shares and the shares held by
Valores shall be designated Class B Shares.
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(b) Except as specifically set forth in this Agreement or unless otherwise
agreed by the Parties, the holders of Class A and Class B common stock of
Custravalca Brink's shall be entitled to pre-emptive rights to subscribe for or
purchase pro rata, based upon the percentage shareholdings set forth above, any
shares issued in addition to the shares issued by Custravalca Brink's as
provided above.
(c) Except as specifically provided in this Agreement, each share of Class
A and Class B common stock of Custravalca Brink's shall be of equal rights in
all respects and for all purposes and each share of common stock shall accord to
the holder thereof: (a) one vote at the meetings of Shareholders of Custravalca
Brink's in respect of each share owned and fully paid by the holder; (b) the
right to receive dividends; (c) the right to subscribe for or purchase any
additional shares issued by Custravalca Brink's pursuant to this Article 1.6;
and (d) the right to participate in the distribution of assets of Custravalca at
the time of the winding-up thereof. These shares shall be subject to
restrictions on transfer as set forth in this Agreement.
ARTICLE 2. PURCHASE OF CUSTRAVALCA SHARES FROM FOGADE
2.1 At the closing with FOGADE on the Closing Date, BSI is obligated by
Agreement with FOGADE dated December 23, 1996, to pay in United States Dollars
the sum of $57,877,671 for the shares to be transferred by FOGADE to Custravalca
Brink's. This amount reflects the total purchase price of US$68,100,999 less the
value of BSI's existing 15% shareholding in Custravalca. Upon payment of this
amount in cash, the shares of Custravalca not currently held by BSI will be
transferred by FOGADE to Custravalca Brink's.
2.2 The funds necessary for the closing with FOGADE on the Closing Date shall be
provided as follows:
(a) The Company shall pay US$7,967,817, the proceeds of the loan from
Valores, to FOGADE at closing.
(b) The remaining amount to be paid to FOGADE on the Closing Date,
US$49,909,854, shall be obtained through financing obtained by Custravalca
Brink's, pursuant to loan agreements negotiated by BSI with Banco Mercantil on
behalf of itself and other banks (collectively, "Banco Mercantil") and approved
and authorized by the current Board of Directors of the Company. The loans (both
short and long term), which are to be repaid by the Company, will be guaranteed
by the Company and its operating subsidiaries, but not by the Company's
Shareholders. By execution of this Agreement, Valores and the Investors hereby
acknowledge and consent to the terms of the loan agreements as may be agreed
upon by BSI and Banco Mercantil on behalf of Custravalca
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Brink's and agree that neither BSI, nor its parent, subsidiary or affiliated
companies, nor any of the directors of the Company, shall have any obligation or
liability to Valores, the Investors, Custravalca Brink's, Custravalca or any
other individual or entity in connection with or arising from the negotiation
and/or final execution of the loan documents.
(c) BSI's contribution to payment of the successful bid price of
US$68,100,999 shall be the value of its existing 15% interest in Custravalca
which was included in the shares subject to public auction by FOGADE.
ARTICLE 3. STATUTES AND ORGANIZATION RULES
3.1 (a) The Articles of Incorporation and the By-Laws of Custravalca Brink's
shall be modified as soon as practicable following the Closing Date and/or the
mergers referred to in Article 1.5 above to reflect the terms of this Agreement.
The modified Articles of Incorporation and By-Laws shall be substantially in the
form of Attachment A, annexed hereto and incorporated by reference herein.
3.2 Notwithstanding the provisions of Article 3.1, in the event of any conflict
between the terms of this Agreement and the Articles of Incorporation and
By-Laws of Custravalca Brink's, the terms of this Agreement shall prevail and
the Parties hereto shall cause the appropriate Shareholders' (and/or Board of
Directors') meeting to be held and shall vote in favor of the amendment of the
said Articles and By-Laws so as to remove any such conflict. To the extent that
it is not practicable to draw up the Articles and By-Laws to incorporate any or
all of the provisions of this Agreement, the Parties are agreed that the
provisions of this Agreement shall govern and be conditions precedent to the
continuation of the existence and operations of the Company.
ARTICLE 4. BUSINESS OF THE COMPANY AND CAPITAL CONTRIBUTIONS
4.1 The business of the Company (the "Business") shall include the following
services in Venezuela: armored car services for the transportation of currency,
diamonds and jewelry, precious metals and other valuables and securities;
servicing of automated teller machines, including cash replenishment, deposit
pick-up and maintenance; processing, counting and wrapping coin; processing and
counting paper currency; providing various vaulting services; providing ground
support for international air courier services and such other services as shall
be mutually agreed by the Parties. In addition, to the extent and for any period
that the Company continues to hold the shares of companies engaged in businesses
which differ from the above description, e.g., printing, transportation of
non-valuable packages, the business of the Company shall also include the
business of these various subsidiaries in Venezuela.
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4.2. The Parties agree that, to the extent possible, the financing of the
Company's business shall be from the Company's retained earnings from the
operation or from indebtedness. It in order to obtain indebtedness in the future
(following acquisition of the shares of Custravalca) on terms acceptable to the
Company it is necessary for such indebtedness to be wholly or partially
guaranteed, the Shareholders, if required, shall each guarantee their pro rata
share of such indebtedness, provided that such limited several guarantees shall
in each case be in such form as the Shareholder may reasonably approve. The
Parties hereby acknowledge that until the indebtedness of the Company is reduced
to an amount below the initial stockholders equity level or subsequent
stockholders equity levels, whichever is lower, it is their intention that all
surplus cash shall be applied to the reduction of the indebtedness of the
Company.
4.3 In addition to any capital contributions to be made as described in this
Agreement, each Shareholder shall be obligated to contribute to the Company a
pro rata share of the funds necessary for the purpose of funding the business,
as shall from time to time be called for and approved by the Shareholders in
accordance with this Agreement. Additional shares of the Company will be issued
to each Party making such capital contribution, on a pro rata basis based upon
the percentage of shareholding in the Company and the capital contributed. In
addition to any other remedy for non-payment of such contribution which may be
available to the Parties, failure to make the required capital contributions
will result in dilution of a shareholder's interest in the Company; the
proportional dilution shall be based upon the Company's shareholders equity (per
its most recent monthly financial statements) and the amount of capital
contributions made by the Shareholders.
4.5 The Company may pay dividends on its common stock if and to the extent
declared by Shareholders, upon resolution of the Board of Directors, provided,
however, that any distribution shall be permitted by the laws of Venezuela. The
payment of dividends by the Company shall, however, be subject to the following
general guidelines:
(a) It is anticipated that dividends will not be paid in the first four or
five years of operation following the Parties acquisition of the shares of
Custravalca as provided herein, as the Company will be in the process of
retiring the majority of the debt balance incurred in January 1997 (as set
forth in Section 2.1(b)).
(b) Thereafter, it is anticipated that dividends will be paid under the
following general conditions:
(i) Retained earnings are positive;
(ii) Stockholders' Equity is equal to or greater than Debt
(obligations for borrowed money); and
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(iii) The Company has achieved its break-even point, defined as
total cash inflows from operations equaling or exceeding total
cash expenditures (including capital expenditures).
If all of the conditions specified in (b)(i) through (iii) above are met,
then the amount of dividend is anticipated to be in the range of 30% to 90%
of net earnings after income taxes (net income after income tax).
ARTICLE 5. THE BOARD OF DIRECTORS
5.1 Immediately following the filing of the modified Articles of Incorporation
as required by Section 3.1, the Board of Directors of the Company shall be
increased to five (5) Directors. The holder of Class A shares (BSI) shall have
the right to appoint three (3) Directors and their respective alternates. The
holder of Class B shares (Valores) shall have the right to appoint two (2)
Directors and their respective alternates. The failure of any Party to appoint
its respective number of directors as set forth above shall not be deemed a
waiver of its right to make such an appointment in the future.
5.2 In case of a vacancy occurring in the Board of Directors caused by death,
resignation, removal, disqualification or any cause affecting any Director, the
party who designated said Director shall have the right to designate his
successor who shall then be elected by the Shareholders.
5.3 In the election of Directors pursuant to any of the provisions of this
Article, the Parties shall use their respective voting powers and do all such
acts and things as may be necessary to ensure that the Shareholders shall duly
elect the Directors (and alternates) appointed or designated by Class A and
Class B shareholders (BSI and Valores), respectively. Such actions shall
include, but not be limited to, agreeing to the prompt scheduling of a
Shareholders' Meeting for the purpose of electing any Director or filling any
vacancy on the Board of Directors.
5.4 (a) Resolutions of the Board of Directors can be passed either by a meeting
of directors (or their alternates), present in person or by video or telephone
conference call, or by Written Consent of Directors (as set forth in (b) below).
The quorum required for the first and second call of any Board of Directors
meetings shall be four out of the five Directors. The quorum for a third call of
any Board of Directors meeting shall be three out of the five Directors.
(b) Notwithstanding anything contained in this Article to the contrary, any
action required to be taken by the Board of Directors may be taken by means of a
Written
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Consent, which must be signed by all Directors. A signature reflected on a
telecopy (facsimile), thereafter confirmed by hard copy shall be sufficient for
such action.
(c) At least 14 days written notice shall be provided for any meeting of
the Board of Directors, unless shorter notice is necessary and the Directors
unanimously agree to such shorter notice, provided, however, that in an urgent
matter, shorter notice shall be permitted if a majority of the Directors agree
to such shorter notice. The notice shall state the purpose or purposes for which
the meeting is being called. Only five (5) days notice shall be required for the
second call of any Board of Directors' meeting. Written notice shall not be
required for a third call of any Board of Directors' meeting; a third call shall
occur within 24 hours of the second call.
(d) All decisions of the Board of Directors shall be by a majority present,
in person or by video or telephone conference, and voting.
(e) Unless otherwise agreed by the Shareholders in any specific case, no
Director shall receive any remuneration or fees from the Company for serving as
a Director nor shall he be entitled to make a claim against the Company for any
expenses incurred by him in connection with his service as a Director.
5.5 The Chairman and the Secretary of the Board of Directors shall be directors
(or their alternates) appointed by the holders of Class A shares and shall be
appointed by the holders of Class A shares.
5.6 Except for those issues reserved exclusively for Shareholders' by law or by
this Agreement, all decisions regarding the Company will be made by the Board of
Directors.
ARTICLE 6. SHAREHOLDERS' MEETINGS
6.1 Shareholders holding a majority of the issued common stock of the Company,
whether present in person or by proxy, shall form a quorum for any general or
special meeting of the Company. Except as set forth in Section 6.3 below, all
decisions of Shareholders will be validly adopted when the majority of the
shares present at the meeting vote in favor of the decision.
6.2 At all meetings of Shareholders, the Shareholders shall vote shares held by
them in such a manner as to comply with and effectuate the provisions of this
Agreement. In addition, each of the Shareholders shall ensure that their
designated Directors shall act and vote toward the objective of giving full
force and effect to the provisions of this Agreement.
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6.3 Notwithstanding anything in this Agreement to the contrary (with the
exception of the provisions of Section 6.4 below), the affirmative vote of
holders of 75% of the issued common stock (whether Class A or Class B) of the
Company shall be required for the following actions:
a) Change in the business of the Company as defined by this Agreement;
b) Amendment of the Articles of Incorporation and By-Laws involving the
matters set forth in these provisions, provided, however, that the
amendments required by Article 3.1 of this Agreement, as reflected in
Attachment A, are deemed approved as required hereunder,
c) Except as set forth in 6.4 below, the sale of assets of the Company with
a value in excess of US$2 Million, which amount shall be adjusted annually
for inflation,
d) The decision to wind-up, dissolve or liquidate the Company or to place
the Company in bankruptcy;
e) Any merger or consolidation of the Company with an unrelated company;
f) Any change in the dividend policy of the Company as set forth in Section
4.5;
g) Any agreement between the Company and any Party or Investor, not in the
ordinary course of business, provided, however, that: (i) the Management
Agreement and Trademark License Agreement attached hereto as Attachments B
and C shall be deemed approved by the Shareholders as required hereunder;
(ii) the sale of Custravalca's shares in Brink's Peru to BSI as provided in
Section 6.4 below shall be deemed approved by the Shareholders as required
hereunder; and (iii) the Parties hereby acknowledge and agree that
agreements between the Company and any Brink's related entity in connection
with the international transportation of valuables, as set forth in Section
9.3, are agreements made in the ordinary course of business and are,
therefore, excluded from this provision;
h) Any decision seeking additional capital contributions from the
Shareholders in an aggregate amount in excess of USD 5,000,000 (Five
Million U.S. Dollars) per year or seeking a guarantee by the Shareholders
of indebtedness of the Company in an aggregate amount in excess of
USD 5,000,000 (Five Million U.S. Dollars) per year, and
i) Any decision to submit the shares of the Company to a public auction.
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6.4 By execution of this Agreement, the Shareholders hereby approve and consent
to the following provisions and agree that it shall not be necessary to convene
a Shareholders' Meeting to take the actions set forth herein. Furthermore, it is
agreed that, notwithstanding anything set forth in Section 6.3 above to the
contrary, none of the actions set forth below shall require the approval of a
75% majority vote; to the extent, however, that a 75% majority vote is deemed
necessary for such actions (pursuant to this Agreement or otherwise), by
execution of this Agreement, the action is hereby approved by the requisite 75%
of issued common stock. The Shareholders hereby agree to take such additional
action, if any, as is necessary to effectuate the actions set forth below.
a) BSI shall have the option to purchase all of the shares of Brink's Peru
currently held by Custravalca (directly or indirectly) (either through a
direct purchase of the shares or through some other mechanism which, in the
discretion of BSI is more advantageous to accomplish the transfer of
Brink's Peru shares, e.g. the purchase of the shares of the subsidiary
holding the shares of Brink's Peru) for a total purchase price of
US$5,278,000. The proceeds of this sale (net of applicable taxes) would be
used, along with other assets of Custravalca (including, but not limited
to, existing cash reserves) to repay the short term debt of Custravalca
Brink's.
b) The Shareholders approve of the sale of any subsidiary or affiliate of
the Company which is not engaged in the cash-in-transit (CIT) business,
including, but not limited to, Radio Contacto, C.A. and Grapho Formas
Petare, C.A., for purposes of reducing the debt of the Company and
specifically authorize the Board of Directors to take such action as it
deems appropriate, by majority vote, in connection with the sale of any
such company. No further action by Shareholders' shall be required to
approve or authorize any such sale.
c) The Board of Directors and/or Shareholders of the Company, as existing
at the time of the execution of this Agreement or as thereafter
constituted, shall be authorized to take such action as is necessary to:
(i) cause the merger of Custodia y Traslado de Valores, C.A. and Servicio
Panamericano de Proteccion, C.A. into Custravalca Brink's, C.A.; (ii) issue
new shares to BSI and Valores, respectively, as described in Section 1.5 of
this Agreement; (iii) provide a mechanism for addressing the holders of the
0.08% shares of Custravalca, as described in Section 1.5; and (iv) change
the name of the Company to Brink's - Servicio Panamericano de Proteccion,
C.A.
d) The Shareholders approve, subject to the approval of the Board of
Directors, the future participation of Banco Provincial as a shareholder of
the Company, either through a contribution of assets (cash and/or non-cash)
or by means of a merger of Banco Provincial's current armored
transportation business or both.
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The Board of Directors is hereby authorized to pursue such participation,
to negotiate the details of any such transaction and to approve, by
majority vote, the terms of such future participation, subject only to the
conditions of this section. The Shareholders understand and agree that any
such future participation by Banco Provincial shall reduce their interest
in the Company in proportion to their respective shareholding interest in
the Company at the time such participation is approved by the Board of
Directors. Should Banco Provincial become a shareholder of the Company, the
Shareholders' hereby agree to take necessary action to amend this Agreement
and the Articles to effectuate such participation, including, but not
limited to, issuance of a new class of shares (Class C) and, if appropriate
by the terms of the transaction, increasing the number of directors on the
Board of Directors to provide Banco Provincial's representation on the
Board, provided, however, that any such amendments will retain BSI's
majority status on the Board of Directors and as shareholder, as well as
the right of Valores to two directors on the Board of Directors. Banco
Provincial shall be required to become signatory to this Agreement as a
condition of becoming a shareholder of the Company.
6.5 The Shareholders shall appoint two (2) Principal Examiners and their
respective alternates at the annual meeting of Shareholders. One of the
Examiners shall be appointed by the holders of Class A shares and the second
shall be appointed by the holders of Class B shares. The shareholders making
the initial appointment (Class A or Class B) shall have the right to remove
the Principal Examiner appointed by them and to replace the same.
ARTICLE 7. TRANSFER OF SHARES
7.1 Restrictions on Transfer. No party hereto shall sell, transfer, mortgage,
pledge, assign or in any way dispose of or encumber the beneficial ownership of
any shares owned by it at any time except as set forth in this Article 7.
7.2 Right of First Refusal. If a Party wishes to sell or transfer shares of the
Company (the "Offeror"), then the Offeror shall first give written notice by
overnight mail (Fed Ex or DHL) (the "Sale Notice") to the other Party (the
"Offeree"), offering to sell any or all of its shares in the Company (the
"Offered Shares") to the Offeree, in accordance with the provisions of this
Article.
(a) If the Offeror has not yet received a bona fide offer from a third
party, the Offeror shall offer the shares at fair market value as of the date
the offer is made or deemed to have been made as determined in accordance with
Article 7.3. The Offeree shall have thirty (30) days following receipt of the
Sale Notice or following the final determination of fair market value under
Article 7.3 (whichever is later) to accept or reject the offer to buy all of the
Offered Shares by written notice to the Offeror. Failure to
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provide written notice of its intent to accept or reject within this thirty
(30) day period shall be deemed a rejection.
If accepted, the sale or transfer shall be completed within thirty days. If
rejected after the process outlined above, then the Offeror shall have the right
to sell or transfer the Offered Shares to a third party, provided that: (a) the
selling price and the terms of the sale or transfer to the third party shall not
be more favorable than those offered to the Offeree; (b) any transfer to the
third party must be completed within three months following the final rejection
of the offer by the Offeree; (c) the Offeree consents, in writing, to the sale
or transfer to that third party, which consent shall not be unreasonably
withheld; and (d) the third party complies with the provisions of Clause 7.6
hereof.
(b) If the Offeror has received a bona fide offer from a third party to
purchase the Offered Shares which the Offeror is prepared to accept, then a copy
of that third party offer shall be attached to the Sale Notice to be provided to
the Offeree. The Sale Notice shall constitute an offer, irrevocable within the
time hereinafter specified for acceptance, by the Offeror to sell all of the
Offered Shares to the Offeree at the same price per share of each class and on
the same terms and conditions as set forth in the third party offer to purchase
attached to the Sale Notice. The Offeree shall have thirty (30) days following
receipt of the Sale Notice from the Offeror to accept or reject the offer to buy
all of the Offered Shares by written notice to the Offeror. Failure to provide
written notice of its intent to accept or reject within this thirty (30) day
period shall be deemed a rejection.
If accepted, the sale or transfer shall be completed within thirty (30) days. If
rejected after the process outlined above, then the Offeror shall have the right
to sell or transfer the Offered Shares to any third party (whether or not the
third party making the original offer), provided that: (a) the sale or transfer
shall be completed pursuant to the term no more favorable than those contained
in the third party offer and which were attached to the Sale Notice; (b) any
sale or transfer to the third party must be completed within three months
following the final rejection of the offer by the Offeree; (c) the Offeree
consents, in writing, to the sale or transfer to that third party, which
consent shall not be unreasonably withheld; and (d) the third party complies
with the provisions of Article 7.6 hereof.
(c) In the case of a proposed sale or transfer to a third party, no such
transfer or sale shall be registered by the Directors of the Company nor given
effect in any way by the Company unless all of the provisions of this Article
have been satisfied.
(d) In no event shall any Shareholder offer or transfer its shares to a
third party which is a competitor of BSI or the Company, without the prior
written consent of BSI.
(e) In the event that BSI seeks to sell all of its shares to a third party
and that Valores rejects the Offer to purchase the shares as provided above, BSI
agrees that, upon
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written request of Valores received by BSI within 10 days of the rejection of
the Offer for Valores to purchase the shares, BSI shall seek to sell the shares
of both BSI and Valores, on the same terms, to a third party (and not only its
own shares), provided, however, that should a purchaser not be found for the
purchase of all of the shares at a price acceptable to BSI during a twelve month
period following receipt of such written request from Valores, BSI shall not
thereafter be precluded from selling its own shares in Custravalca Brink's,
without the shares held by Valores. It is further agreed that the provisions of
this Section (e) shall not apply in the event of a public offering of the
shares.
7.3 Fair Market Value: The determination of the aggregate fair market value of
all of the shares at any time shall be done: (a) by mutual agreement of the
Parties taking into account any factors which the Parties shall consider to be
relevant; or (b) if mutual agreement shall not be reached within thirty (30)
days of receipt of the Sale Notice, by a valuation performed by an
internationally recognized investment bank or a firm with significant valuation
expertise such as an internationally recognized accounting firm (the
"international investment firm") or such other valuation firm to be mutually
selected by the Parties or by a panel as described below, which valuation shall
be final and binding. The Parties shall make every effort to reach agreement as
to the selection of an international investment firm. Failing such agreement
within forty five (45) days of receipt of the Sale Notice, each of the Parties
shall then, within the following fifteen (15) days, designate an individual from
the international investment firm of its choosing, provided, however, that in no
event shall they be from the same firm. These two individuals appointed by the
Parties shall appoint a third individual from a different international
investment firm within fifteen (15) days following their appointment. These
three individuals shall constitute the panel, which shall decide upon the fair
market value. In the event that all three individuals do not agree upon the fair
market value, then the fair market value agreed upon by any two of the three
individuals shall be deemed to be the fair market value of the shares; if no two
individuals shall agree, the average of the two closest of such appraisals shall
be deemed to be the fair market value. The cost of the valuation shall be paid
by the Parties on an equal basis if selected by mutual agreement. In the event
of a panel, each Party shall pay the cost of the individual selected by it and
share equally the cost of the third individual.
The Parties agree that time is of the essence in reaching an aggregate fair
market valuation under the foregoing paragraph and further agree that any such
valuation shall be reached within forty five (45) calendar days after the
appointment of the international investment firm or panel, as described above,
or such longer period as to which the parties agree; The determination of fair
market value shall be communicated to each of the Parties in writing as soon as
practicable after the determination is made. Shares shall be valued as of the
date of the final determination of fair market value.
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7.4 Legend. All certificates evidencing the common stock shall have the
following legend (translated into Spanish) placed on the front thereof
simultaneously with the purchase of such common stock and duly noted in the
Share Registry Book:
"No transfer or encumbrance may be made of the shares evidenced by this
certificate, except upon compliance with the terms of the Articles of
Incorporation and By-Laws of the Corporation as from time to time amended
and of any shareholders' agreement."
7.5 Transfer to BSI Affiliates: The restrictions contained in Article 7.1 and
7.2 shall not apply to a transfer, assignment or other disposition by BSI to an
affiliate. Transfers or assignments to affiliates of BSI shall be permitted,
without limitation, provided only that as a condition of such transfer or
assignment, BSI causes the affiliate to execute this Agreement and acknowledge
its terms. An "affiliate" when used in this clause means, with respect to any
person at any time, an other person that, directly or indirectly, through one
or more intermediaries controls, is controlled by or is under common control
with such person. "Control" (including the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any person shall means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person and majority ownership of
such person.
7.6 Applicability of Restriction on Transfer. All transfers, assignments or
other disposition of shares to any person who is not then a party to this
Agreement shall be subject to the execution and delivery by such transferee of a
written instrument evidencing the agreement of such party to be bound by this
Agreement effective upon acquisition of any interest in the shares.
7.7 Transfer upon Change in Ownership of Valores: In the event of the triggering
events detailed in Section (a) below, the shares of the Company held by Valores
shall be offered to BSI (or its designee), upon the terms and conditions
detailed in Section (b) below:
(a) The triggering events requiring the provision of an option to BSI (or
its designee) to purchase the shares held by Valores are as follows:
(i) The Investors (as of the date of this Agreement) collectively no
longer control Valores or Grand Value, respectively,, as "control" is
defined in Section 7.5 above;
(ii) The Investors no longer represent, directly or indirectly, the
interests of banking institutions in Venezuela, provided, however, that
this shall not constitute
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a triggering event if Gill and Vargas continue to "control" Valores
(directly or through control of Grand Value),, as "control" is defined in
Section 7.5 above;
(iii) To the extent that any of the Investors are individuals, the
individual Investor dies or otherwise becomes incapacitated, provided that
such death or incapacity shall not be a triggering event if the remaining
Investors collectively continue to control Valores and Grand Value,
respectively, as "control" is defined in Section 7.5 above;
(iv) Any of the Investors become insolvent or declare bankruptcy;
(v) Any of the Investors are charged with any criminal activity; or
(vi) Any transfer, sale, assignment, pledge or other disposition of
shares of Valores or Grand Value to any individual or entity which has
not been approved by BSI pursuant to this Agreement, provided,
however, that the Parties agree that the inclusion of this
circumstance as a triggering event under this section shall be in
addition to any claims, rights or remedies available to BSI for such
breach of the Agreement.
(b) In the event of a triggering event requiring that BSI (or its designee)
be given the option to purchase the shares of Custravalca held by Valores, BSI
(or its designee) shall have six (6) months from the date that BSI has knowledge
of the triggering event within which to provide notice of its intent to exercise
such option. Failure to provide written notice of its intent to exercise the
option within such six month period shall be deemed a rejection of the option.
In the event that BSI (or its designee) provides notice of its intent to
exercise the option, the purchase price for the option shall be the fair market
value for the shares, as determined by the procedure set forth in Section 7.3
above. BSI (or its designee) shall, however, have the right to decline to
purchase the shares, notwithstanding any prior notice to the contrary, in its
sole discretion, within 30 days following the determination of the fair market
value. Should BSI decide to proceed with the option to purchase the shares
following the determination of fair market value, the shares shall be
transferred within thirty five (35) days after the determination of fair market
value.
(c) Notwithstanding anything in this Agreement to the contrary, BSI shall
have the right, at all times, to approve any new investors or shareholders in
Valores and/or in Grand Value (whether by transfer, assignment, sale, pledge of
shares, issuance of new shares or otherwise). In addition to BSI approval,
Valores and the Investors agree that any new investor or shareholder in Valores
and/or in Grand Value must agree to be bound by the terms of this Agreement, by
execution and delivery to BSI of a written instrument evidencing the agreement
of such party to be so bound. Although subject to
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the approval of BSI, the transfer of shares of Valores or Grand Value to any new
investor or shareholder shall not trigger a right of first refusal under this
Article. In addition, the transfer of Valores' shares in Custravalca Brink's to
an affiliate under common control of Valores, as "control" is defined in Section
7.5 above, shall not trigger a right of first refusal to BSI as set forth in
this Article, although any such transfer shall be subject to approval of BSI,
which approval shall not be unreasonably withheld. For purposes of this Section,
Valores and/or Grand Value shall provide written notice to BSI identifying any
new investor or shareholder of Valores or Grand Value, respectively, at least
forty five days prior to such individual or entity becoming a shareholder of
Valores or Grand Value, respectively; BSI shall provide written notice of its
decision (to approve or not to approve) within thirty days of receipt of such
written notice from Valores and/or Grand Value.
ARTICLE 8. CONDITIONS
8.1 This Agreement is subject to the following conditions:
(a) the purchase of shares of the Company for payment of US$858 and the
transfer of funds as a loan to the Company in the amount of US$7,967,817, in
accordance with Section 1.3; and
(b) The final closing with FOGADE on the Closing Date; and
(c) The execution of the Management Agreement and the Trademark License
Agreement attached hereto as Attachments B and C;
(collectively, the "Conditions").
8.2 In the event that the Conditions referred to under Clause 8.1 are not fully
satisfied in the time set forth in applicable provisions of this Agreement, this
Agreement shall terminate, without any liability to any other Party. Should the
Agreement terminate as a result of the failure of the conditions in (b) and (c)
above following payment of US$7,967,817 to the Company as provided in Section
1.3(b), this loan shall be repaid to Valores, provided, however, that all shares
in the Company held by Valores are transferred to BSI or to the Company (as may
be designated by BSI at the time).
ARTICLE 9. MANAGEMENT OF THE COMPANY AND RELATIONS WITH AFFILIATES
9.1 Management of the Company: (a) In light of its expertise in the industry,
BSI or its designated affiliate shall have the right to manage the Company and
shall enter into a Management Agreement with the Company in the form annexed as
Attachment B, as soon
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as practicable following the Closing Date. BSI (or its designated affiliate)
shall provide advice to management personnel and shall provide know-how and
technical support to the Company for the management of its day-to-day
activities. BSI (or its designated affiliate) shall be entitled to take action
to assure that the Company is managed in accordance with Brink's standards.
Brink's shall be entitled to reimbursement of certain costs and expenses
incurred in connection therewith in accordance with the Management Service
Agreement.
(b) Pursuant to the Management Agreement, BSI or its designated affiliate
shall provide access to the Company for its use in engaging in the Business,
such proprietary software (which contains technology and information systems) as
is available to other Brink's related companies (at no acquisition cost),
provided, however, that neither BSI nor its designated affiliate assumes any
obligation to create any software for use in Venezuela or to otherwise modify
its existing software. In addition, BSI or its designated affiliate shall make
available to the Company for its use in engaging in the Business, any products,
components, hardware or other equipment which may be available to other Brink's
related companies, at a cost to be mutually agreed upon by the Company and
Brink's.
(c) BSI or its designated affiliate shall have the right to nominate the
individuals to serve as President and/or General Manager and other senior
officers of the Company (and/or its subsidiary or affiliated companies), which
nominations shall be subject to the approval of the Board of Directors. BSI or
its designated affiliate shall also have the right, subject to approval and
action by the Board of Directors, to recommend and/or approve the dismissal of
any individuals serving as President and/or General Manager or as other senior
officers.
(d) The President and/or General Manager and other senior management of the
Company shall be responsible for the hiring of necessary employees and the
overall supervision and conduct of the day-to-day business of the Company.
Management shall make all operational and security decisions relating to the
Company's business and objectives in accordance with Brink's standards.
Management shall prepare and implement budgets and business plans as approved by
the Board of Directors and shall prepare such periodic reports for presentation
to the Board of Directors as the Board may reasonably request from time to time.
Management shall be responsible for establishing guidelines for customer
contracts, including, but not limited to, pricing and liability-issues, which
guidelines shall be subject to review and approval by BSI.
9.2 Local and Market Support: Valores shall provide local logistical support for
the Company and shall, through the respective bank affiliations of the
Investors, provide a portion of the customer base for Custravalca Brink's and
its subsidiary and affiliated companies.
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9.3 International Air Courier Shipments: The Company shall provide ground
support in Venezuela for international air courier shipments on behalf of
Brink's (including all affiliated and related companies in its international
network of companies), whether in connection with exports from or imports into
Venezuela. The Shareholders agree that, notwithstanding anything contained in
this Agreement to the contrary, the Company shall be authorized to perform such
ground support services on behalf of Brink's at rates to be mutually agreed upon
between the Brink's company and the Company.
9.4 Accounting and Auditing: (a) The Company will establish and maintain
accurate and complete accounting records according to accounting principles
generally accepted in Venezuela and in the United States and in accordance with
standards prescribed by applicable law and regulation.
(b) The fiscal year of the Company shall end on December 31 of each year,
unless otherwise agreed by the Board of Directors. The Company shall, at its
expense, cause the books of the Company to be audited at the end of each fiscal
year by KPMG Peat Marwick Alcaraz, Cabrera, Vasquez ("KPMG") or such other "Big
Six" internationally recognized firm of independent public accountants as the
Shareholders shall appoint and shall provide each of the parties with a copy of
its audited financial report within 7 days from receipt from the auditors and in
no event later than 120 days after the end of the relevant fiscal year. The
first auditor shall be KPMG. In addition, copies of all annual tax returns for
the Company shall be provided to the Shareholders within 7 days of filing with
the appropriate government entities.
9.5 Right of Inspection: BSI and Valores, through their duly authorized
representatives, shall each have the right at any time during office hours to
inspect the books and records of the Company and to obtain copies, at their own
cost, of statements, contracts, minutes, reports, correspondence and other
records and documents of the Company, subject to the confidentiality provisions
of this Agreement and any confidentiality requirements relating to the
information subject to inspection hereunder.
ARTICLE 10. TRADEMARKS
10.1 The Company shall have the non-exclusive rights by way of license during
the term of this Agreement to use the name "Brink's" and also the Brink's logos
(collectively referred to herein as the "Brink's Trademarks") in Venezuela in
connection with the business of the Company, as more fully defined in and
pursuant to the terms of the Trademark License Agreement in the form annexed as
Attachment C. The Parties expressly recognize that the Brink's Trademarks shall
at all times remain the exclusive property of Brink's. The Parties shall cause
the Company to execute the Trademark
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License Agreement in the form attached hereto, as soon as practicable
following the Closing Date.
10.2 If this Shareholders' Agreement shall be terminated for any reason or if
Brink's shall no longer be a majority shareholder of the Company or if the
Management Agreement between Brink's (or its designated affiliate) and the
Company is terminated for any reason whatsoever or if any other conditions
described the Trademark License Agreement exist for termination, any right to
use the Brink's Trademarks or to otherwise indicate an affiliation with Brink's
shall thereupon immediately terminate. Upon termination of such right, the
Company, Valores and the Investors hereby undertake to Brink's and BSI that they
will neither claim any right to adopt or use, or will adopt or use, in any way
or for any reason the name of, or the trademarks (or any marks similar thereto
or any derivation therefrom) or other intellectual property rights belonging to,
or used by, Brink's. Furthermore, each of the Parties hereto and the Investors
undertake that upon the termination of the license, they will take all necessary
measures, including passing an appropriate resolution, to immediately change the
name of the Company to a name not including any word or words similar to Brink's
or any word or words which are likely to deceive or cause confusion and to
assure that the Company ceases any use of the Brink's Trademarks. The
obligations set forth in this section shall survive expiration or termination of
this Agreement.
ARTICLE 11. ROYALTIES
11.1 Commencing on January 1, 2000 (or such later date as may be mutually agreed
upon by the Parties hereto in the future), the Company shall pay to BSI, or its
designated affiliate, a royalty of three percent (3%) of the gross revenue of
the Company from whatever source derived. This royalty shall be in consideration
of the license to the Company of the Brink's name and other trademarks pursuant
to the terms of the Trademark License Agreement and recognizes the technology
and know-how to be provided to the Company by BSI pursuant to this Agreement and
the Management Agreement. It is understood that no royalty shall be payable
until such future date due to the financial obligations of the Company,
including its obligations to financial institutions in connection with the loans
referred to in Section 2.2(b) above.
11.2 The royalty payments required hereunder shall be paid on a quarterly basis.
The payment shall be made in U.S. Dollars, converted from local currency at the
average official rate of exchange for that quarter. Each royalty payment shall
be accompanied by a written report from the Company of the amounts of gross
revenue of the Company during such period and a statement giving an account of
the royalties due thereon.
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ARTICLE 12. CONFIDENTIALITY AND NON-COMPETITION
12.1 The Parties hereto and the Investors covenant with each other that, during
the term of this Agreement and for a two year period following its termination,
each shall maintain in strict confidence and secrecy and shall not, directly or
indirectly, use or disclose to a third party, any information of a proprietary
nature that it shall receive, directly or otherwise, pursuant to this Agreement
or in connection with the operation of the business of the Company, whether
relating or belonging to the Company or to any of the Parties or to the
Investors (except where the regulations relating to the stock exchange on which
a party or its parent company is quoted, requires certain disclosures, in which
case, disclosure shall be limited to the information required to be disclosed
and notice shall be provided to the other Shareholder). If warranted, any
disclosure and publicity by the Company or any one Party hereto or the Investors
must be through the written consent of the other Shareholder.
12.2 The Parties and the Investors agree that Brink's proprietary rights to its
technology, products, processes and know-how shall remain the sole and exclusive
property of Brink's and that neither the Company, Valores nor the Investors
shall obtain or attempt to assert any right or interest in such rights. Neither
the Company, Valores nor the Investors shall at any time use any such
information received from BSI or Brink's for any purpose other than for the sole
purpose of engaging in the Business of the Company in Venezuela, as set forth in
this Agreement.
12.3 (a) Valores and the Investors undertake that, during the term of this
Agreement, and for two years following the termination of the Agreement, they
will not participate, either directly or indirectly, in any business or company
in Venezuela which competes with the business of the Company.
(b) Valores and the Investors further undertake that, during the term of
this Agreement and for two years following its termination, they will not use,
directly or indirectly, any information of any nature whatsoever regarding the
Company and/or BSI or Brink's, including, but not limited to, information
regarding the operation of the business of the Company or Brink's, policies,
procedures, practices and/or customers, in connection with any business, whether
or not in Venezuela, which provides services in competition with the business of
Brink's.
(c) For avoidance of doubt, nothing in this Article shall preclude Valores
or the Investors' continued participation as shareholders of the Company upon
termination of this Agreement by BSI. In addition, nothing in this Article shall
preclude the continued operation of Custravalca Brink's in Venezuela following a
termination of the Agreement by BSI; the Company shall be entitled to continue
the Business of the Company (as defined in Section 4.1) in Venezuela following
such termination of this Agreement.
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12.4 BSI undertakes that, during the term of this Agreement and for a two year
period following its voluntary sale of its shares in the Company thereby
terminating this Agreement, it will not participate, either directly or
indirectly, in any business or company in Venezuela which provides domestic
ground transportation by armored car and related services in Venezuela which
competes with the business of the Company as defined in Section 4.1 of this
Agreement. For avoidance of doubt, the Parties acknowledge and agree that
nothing in this section shall restrict or otherwise limit or preclude the right
of BSI or Brink's to engage, directly or indirectly, in the business of
international air courier shipments, for any commodity, either in connection
with imports into or exports from Venezuela, provided, however, that neither BSI
or Brink's shall itself perform domestic ground transportation for such shipment
in Venezuela.
12.5 The non-compete and confidentiality requirements set forth in this section
are of the essence to this Agreement. The Shareholders and the Investors
acknowledge and agree that a breach of the non-competition provisions would
cause damage estimated at USD 2,000,000 (Two Million U.S. Dollars), which amount
shall be paid as liquidated damages in the event of such breach.
ARTICLE 13. DURATION
13.1 This Agreement shall come into immediate effect when duly executed by all
the Parties and the Investors and shall continue in effect indefinitely unless
terminated as provided in Articles 8 and 14 hereof.
ARTICLE 14. TERMINATION
14.1 (a) BSI shall have the right to terminate this Agreement, by giving written
notice to Valores, upon the occurrence of any of the following events:
(i) The Company or Valores or the Investors is or becomes insolvent
(defined as the inability to pay off debts in the normal course of
business);
(ii) Proceedings in bankruptcy or under any insolvency law or for
reorganization, receivership or dissolution are instituted by or against
the Company or Valores or the Investors;
(iii) The Company shall fail to have or maintain any license, permit or
other regulatory approval or authorization required for the performance of
its activities under this Agreement or otherwise ceases to engage in the
business for a period of twelve consecutive months;
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(iv) The Company or Valores or the Investors shall be voluntarily or
involuntary dissolved or wound-up;
(v) Valores or the Investors is in default of any material obligation under
this Shareholders' Agreement (not to include the attachments hereto) and
such default is not cured in accordance with Article 14.2; and
(vi) There is any change or anticipated change in the laws of Venezuela
which adversely impacts BSI's shareholding interest in the Company and
rights as set forth in this Agreement and the attachments thereto.
(b) Valores shall have the right to terminate this Agreement, by giving
written notice to BSI, upon the occurrence of any of the following events:
(i) The Company or BSI is or becomes insolvent (defined as the inability to
pay off debts in the normal course of business);
(ii) Proceedings in bankruptcy or under any insolvency law or for
reorganization, receivership or dissolution are instituted by or against
the Company or BSI;
(iii) The Company shall fail to have or maintain any license, permit or
other regulatory approval or authorization required for the performance of
its activities under this Agreement or otherwise ceases to engage in the
business for a period of twelve consecutive months;
(iv) The Company or BSI shall be voluntarily or involuntarily dissolved or
wound-up; and
(v) BSI is in default of any material obligation under this Shareholders'
Agreement (not to include the attachments hereto) and such default is not
cured in accordance with Article 14.2.
14.2 Upon the default by a Party in the performance of any material obligation
set forth in this Shareholders' Agreement (not to include the attachments
hereto), the other Party may give notice in writing to the Party in default
specifying the thing or matter in default. Unless such default is cured within
ninety (90) days following the giving of such notice, the Party giving such
notice may terminate the Agreement by providing written notice of termination
to the Party in default; this Agreement will then terminate upon the date set
forth in the notice. The exercise of the right to terminate this Agreement shall
be in addition to, and not in substitution for, any other remedies that may be
available to the Party serving such notice against the Party in default and any
termination of this
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Agreement hereunder shall not relieve any Party from any obligations accrued
to the date of termination or relieve the Party in default from liability
and damages to the other for breach of this Agreement. Waiver by any Party
of a single default or a succession of defaults shall not deprive such Party
of any right to terminate this Agreement, or to have recourse to
arbitration, arising by reason of any subsequent default.
14.3 The right to terminate pursuant to Article 14.2 shall not arise from any
delays in or failure by a Party hereto in the performance hereunder if and to
the extent that it is caused by occurrences beyond such Party's control,
including, but not limited to, acts of God, strikes or other labor disturbances,
war, sabotage, governmental action or policy and any other cause or causes,
whether similar or dissimilar to those specified herein which cannot be
controlled by such Party.
14.4 In the event of a termination of the Agreement pursuant to Article 14.1,
the Parties undertake to cause the prompt winding-up of the Company and to take
all measures for attaining this purpose, unless otherwise agreed upon by all the
Parties to this Agreement. This notwithstanding, the Parties agree as follows:
(a) In the event of a termination due to a default as set forth in Sections
14.1 (a)(v), 14.1(b)(v) or 14.2 or due to financial situation of a Party (as
defined more fully in Sections 14.1(a)(i), (ii) and (iv) and 14.1(b)(i), (ii)
and (iv) above), the non-defaulting Party or the Party not experiencing the
difficulties giving rise to termination as defined in Sections 14.1(a)(i), (ii)
or (iv) or 14. l(b)(i), (ii) or (iv), as the case may be, shall have the option
to purchase the shares of such other Party or to find a third party purchaser
for such shares, at the fair market value of the shares at the time of
termination. If the Parties cannot agree as to the fair market value of the
shares, the procedures set forth in Article 7.3 shall be applied.
(b) In the event of a termination of the Agreement by BSI pursuant to
Article 14.1(a)(vi), Valores shall have the option to purchase the shares of BSI
or to find a third party purchaser for such shares, at fair market value based
upon the percentage shareholding interest held by BSI immediately prior to such
adverse government action. Should Valores not purchase the shares and a third
party purchaser not be found, thereby requiring a winding-up of the Company, BSI
shall receive a distribution of the assets based upon its percentage
shareholding prior to the adverse government action. If the parties cannot agree
as to the fair market value of the shares, the procedures set forth in Article
7.3 shall be applied, provided, however, that the determination of fair market
value shall be based upon the number of shares and the value of such shares
immediately prior to such adverse government action and provided, further, that
if the government action adversely impacts the value of the entire Company, the
international investment firms shall take this fact into account in reaching
such valuation.
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14.5 This Agreement may also be terminated by any Party by providing one year's
written notice to the other of its intent to terminate the Agreement. In the
event such termination notice is provided, the following procedure shall apply,
commencing at the time that the termination notice is provided:
The Party seeking to terminate the Agreement ("Terminating Party") shall
offer to sell its shares to the other Party at either the fair market value of
said shares (to be determined in accordance with the procedure set forth in
Article 7.3) or at the price and under the terms offered by a third party (which
third party offer must be attached to the termination notice) (the "Offer
Price"). The other Party hereto shall have thirty (30) days following the offer
to accept or reject. Failure to provide written notice of its intent to accept
or reject within said thirty (30) day period shall be deemed a rejection. (A
partial purchase of the Offeror's shares shall not be permissible.) If accepted,
the transfer or sale of shares shall be completed within thirty (30) days. This
Agreement shall terminate on the date such sale or transfer is completed. If
rejected, then the Parties shall both use best efforts to sell the Terminating
Party's shares to a third party. This Agreement shall terminate with respect to
the Terminating Party on the date such sale or transfer to the third party is
completed; this Agreement shall, however, continue in effect as between the
other Shareholder and the third party, as provided in this Agreement.
ARTICLE 15. MUTUAL COOPERATION AND RELATIONSHIP
15.1 Each of the Parties and the Investors shall use their best efforts to
promote the success of the business of the Company and this Agreement and to
ensure that the Company shall operate as efficiently and profitably as possible.
15.2 With respect to this Agreement, each of the Parties and the Investors
hereto desire to establish the principle that they shall be just and faithful to
each other in all transactions relating to the business of the Company and to
exercise the utmost good faith and maintain the highest integrity in dealing
with one another.
15.3 The relationship between the Parties, as well as between BSI and the
Investors, under and in relation to this Agreement shall be limited to the
matters herein contained and what is provided for by law as the liability of a
shareholder to a Company, and nothing herein provided shall be considered or
interpreted as constituting the relationship of the parties or any of them as a
partnership, association or other relationship in which any one party may be
liable for the acts or omissions of the other party, nor shall anything herein
contained be considered or interpreted as constituting any party as the agent of
the other party.
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15.4 The Parties agree that any agreements entered into between the Company and
any Shareholder or Investor shall be an arm's length transaction.
ARTICLE 16. GOVERNING LAW AND ARBITRATION
16.1 Except as otherwise provided in the attachments hereto, this Agreement
shall be governed by the laws of Venezuela.
16.2 If a dispute arises in connection with the interpretation or implementation
of this Agreement, the Parties will attempt to resolve such dispute through
friendly consultations. If the dispute cannot be resolved in this manner within
sixty (60) days after the commencement of discussions, said disputes shall be
finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce, by one (1) arbitrator appointed in accordance
with said Rules. The site of the arbitration shall be in Paris, France. The
language of the proceedings, including documentation, shall be English.
The arbitrator shall not be entitled to award punitive damages. The arbitration
award, when filed with the parties hereto, shall be final and binding upon the
Parties. If necessary, judgment may be entered upon the final decision of the
arbitrator in any court having competent jurisdiction. The costs of the
arbitration shall be borne by the losing Party unless otherwise determined by
the arbitrator, provided, however, that each side shall bear its own cost of
counsel.
The above notwithstanding, BSI shall be permitted to proceed with arbitration in
Venezuela should it deem it appropriate under the circumstances presented to do
so.
ARTICLE 17. GENERAL PROVISIONS
17.1 Entire Agreement. This Agreement, including appendices hereto, embodies all
the terms and conditions agreed upon among the Parties hereto as to the subject
matter of this Agreement and supersedes and cancels in all respects all previous
agreements and undertakings, if any, among the Parties hereto, whether oral or
written.
17.2 Manner of Modification. This Agreement shall not be altered, changed,
supplemented or amended except in writing signed by the duly authorized
representatives of the Parties hereto.
17.3 Effect of Headings. The headings herein are for the purposes of reference
only and shall not form part of this Agreement or affect the construction or
interpretation hereof.
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17.4 Severability. If for any reason any provision of this Agreement is or at
any time becomes illegal, invalid or unenforceable in any respect, the legality,
validity and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired.
17.5 Successors. This Agreement and all provisions hereof shall inure to the
benefit of and shall be binding upon the heirs, executors, legal
representatives, next of kin, transferees, successors and assigns of the Parties
hereto.
17.6 Notices. Except as otherwise provided in this Agreement, all notices
required or permitted to be given hereunder shall be in writing and in the
English language and shall be sent by telefax, confirmed by registered air mail
effective on the date of the telefax confirmation if the hard copy confirmation
is mailed on the same day or within two business days thereafter, to the
following addresses:
(a) For BSI:
One Thorndal Circle
Darien, Ct. 06820
U.S.A.
Attention: President
Telephone No: (203) 662-7800
Telefax No.: (203) 662-7854
(With a copy to the General Counsel of Brink's, Incorporated at the same address
and to local counsel as designated by BSI.)
(b) For Valores, Cartera Central, C.A., Grand Value and Victor Gill:
Av. Urdaneta, Esq. Animas
Edif. Banco International, Piso 3
Caracas, VENEZUELA
Telephone No: (582) 408-6310
Telefax No: (582) 408-6325
(c) For Cartera de Inversiones Venezolanas and for Victor Vargas:
Calle Guaicaipuro
entre Av. Las Mercedes y Carabobo
Torre Forum, Piso 10
El Rosal
Caracas VENEZUELA
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Telephone: (582) 952-8109
Telefax No: (582) 952-8638
17.7 Expenses. The Parties and the Investors agree that all expenses incurred by
BSI relating or incident to the purchase of the shares of Custravalca at the
public auction held by FOGADE, the establishment of Custravalca Brink's (except
for the required capital contributions from Shareholders), determination of the
structure of Custravalca Brink's and the negotiation and implementation of the
terms of this Agreement, including, but not limited to, all reasonable legal and
out-of-pocket expenses and all costs and fees relating to or in connection with
obtaining any and all equity and debt financing for the purchase of the shares
of Custravalca, shall be paid by the Company following the Closing Date.
17.8 Governing Language: This Agreement, including the appendices thereto, and
all further agreements, if any, between or among the Parties or the Investors or
the Company and BSI or Brink's shall be in the English language and English
shall be the governing language for all agreements. Should it be necessary to
translate any of the agreements for submission to any government entity or for
other legal purposes, an official Spanish translation will be provided which
shall be approved by counsel for all Parties. Notwithstanding that a translation
has been prepared, however, in the event of any discrepancy between the English
version and the translation, the English version shall prevail and English shall
remain the governing language.
17.9 Authorization. (a) The Parties hereto warrant that they are fully
authorized and empowered to enter into this Agreement on behalf of their
respective companies and that such action does not contravene any existing
statute, decree, contract or other provision of whatever nature and that the
signatures set forth below are authorized signatures and create a binding
agreement upon each of the Parties and the Investors.
(b) The Parties hereto also agree that this Agreement may be signed in
counterparts and that fax copies of signature pages shall constitute a valid and
binding commitment of the Parties. Original signature pages until be provided to
each of the Parties as quickly as possible following execution.
IN WITNESS WHEREOF, the Parties have signed this Agreement on the day and
year first hereinabove written.
BRINK'S SECURITY INTERNATIONAL, INC.
By: [Signature illegible]
-------------------------------------
Its: Vice President, General Counsel &
& Secretary
-------------------------------------
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VALORES TAMANACO, C.A.
By: [Signature illegible]
-------------------------------------
Its:
-------------------------------------
CARTERA CENTRAL, C.A.
By: [Signature illegible]
-------------------------------------
Its:
-------------------------------------
CARTERA DE INVERSIONES
VENEZOLANAS, C.A.
By: [Signature illegible]
-------------------------------------
Its:
-------------------------------------
INVERSIONES GRAND VALUE, C.A.
By: [Signature illegible]
-------------------------------------
Its:
-------------------------------------
VICTOR GILL (Individually)
Victor Gill
-----------------------------------------
VICTOR VARGAS (Individually)
Victor Vargas
-----------------------------------------
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Draft Attachment "A"
Amended Art. of Inc.
BPMA&W, Jan. 10, 1997
MINUTES OF THE SPECIAL SHAREHOLDERS MEETING
OF
CUSTRAVALCA BRINK'S. C.A.
HELD ON JANUARY _ , 1997 AT _ A.M.
IN THE COMPANY'S OFFICES IN CARACAS
On the date and at the time mentioned above, the following shareholders met
after proper notice:
Mr. _______________________________,
representing BRINK'S SECURITY INTERNATIONAL,
INC., holder of ........................... shares
Mr. _______________________________,
representing VALORES TAMANACO, C.A.
holder of ................................. shares
Total shares
Messrs. _______________________________________ were also
present. Mr. ________________________ was designated to chair
the Meeting and Mr. __________________ to act as Secretary of
the Board of Directors.
The Secretary stated that the Meeting should be considered
legally met since the entire capital stock of the Company was
represented.
The Meeting then considered the following items:
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1. An increase of the Company's capital, the issuance of new shares and the
subscription of the latter;
2. The amendment of the Articles of Incorporation-Bylaws of the Company;
and
3. The designation of Members of the Board of Directors, Officers of the
Board of Directors and Examiners.
One: The Chairman of the Meeting set forth the need to increase the
Company's equity capital to __________________________________________________
___________BOLIVARS (Bs. )____________________, fully paid in, by the issuance
of ____________________ (___________________ ) common registered shares of ONE
THOUSAND BOLIVARS (8s. 1,000) each, with the same characteristics as the
previous shares.
The motion having been submitted for consideration and after proper
discussion, the Meeting approved it unanimously. The shareholders then
subscribed the new shares as follows: BRINK'S SECURITY INTERNATIONAL, INC.
subscribed ________________ (_________) shares, equal to____________________
BOLIVARS (Bs._____________), that it has paid in _______________________; and
VALORES TAMANAC0, C.A. subscribed _____________________________________
(____________) shares, equal to _____________ (Bs.____________), that it has
paid in ____________________ .
Two: The Chairman then submitted to the consideration of the Meeting the
draft of the amended Articles of Incorporation and By-laws, which were discussed
and unanimously approved by the Meeting, to read as follows:
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ARTICLES OF INCORPORATION AND BY-LAWS
OF
CUSTRAVALCA BRINK'S C.A.
CHAPTER I
Name, Domicile, Purpose and Duration
ARTICLE 1: The name of the Company is CUSTRAVALCA BRINK'S C.A.
ARTICLE 2: The Company shall have its domicile in the city of Caracas, but may
establish and keep facilities, offices, branches and agencies anywhere the Board
of Directors decides, in the Republic of Venezuela or in any other country.
ARTICLE 3: The purpose of the Company will be:
To contract for the transportation of valuables and collection of money, cash,
coins, gold, silver, platinum, and other precious metals or substances, gold or
silver articles, jewels, furs and precious stones, bank notes, legal tender,
checks, drafts, bills of exchange, guaranties, postal or express orders, bank or
pension drafts, bonds, debentures, certificates, coupons, acceptances, shares of
stock, negotiable or non-negotiable securities, as well as any other valuable
documents or objects, whether mentioned herein or not, using for the proper
means such purpose; to render courier and correspondence delivery services, as
well as interoffice or internal memoranda between customers of the Company; to
perform such investigation as may be required by insurance companies, banks, or
otherwise, and for such purpose to request, prepare and supply reports on the
representation, solvency, commercial standing or capacity of any individual or
corporation, as well as on any other relevant aspects concerning such individual
or corporation; to lease, purchase, sell or distribute warning, protection or
other
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safety appliances, devices, or equipment, and the services deriving therefrom;
as well as to represent in Venezuela or in any other country or territory,
corporations that engage in manufacturing, sale or distribution of said
appliances, devices or equipment, and to render personal call and paging
services through radio communication stations.
In general, the Company may carry out all acts, contracts and negotiations
relating to the corporate purposes, proceeding as principal, agent,
representative, contractor or otherwise, acting on its own or jointly with one
or more individuals or corporations.
This list is merely illustrative, not limitative; consequently, the Company
may engage in such other lawful activity or business as may be resolved by the
Shareholders Meeting or the Board of Directors, or any other lawful transactions
or business related to such activities.
ARTICLE 4: The duration of the Company shall be ninety-nine (99) years,
commencing on the date of registration at the Mercantile Registry. This term
shall be extended for equal periods unless the shareholders resolve otherwise.
CHAPTER II
Capital. Shareholders and Shares
ARTICLE 5: The capital of the Company is ________________________________
BOLIVARS (Bs._______________ ), represented by and divided into__________
_______ (________) registered shares, which may not be changed to bearer shares,
having a par value of ONE THOUSAND BOLIVARS (Bs. 1,000) each, divided in
________________ (________) Class "A" shares and _____________ (________) Class
"B" shares, all of which have the same rights and obligations and
characteristics, except with regard
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to the election of directors, officers of the Board of Directors and Examiners,
as provided for herein.
ARTICLE 6: The capital of the Company has been entirely subscribed and paid
in_______________, as follows: BRINK'S SECURITY INTERNATIONAL, INC. has
subscribed______________________ (_____________) shares
for_____________________BOLIVARS (Bs._____________); and VALORES TAMANACO, C.A.
subscribed __________________ (____________) shares for BOLIVARS
(Bs.___________).
ARTICLE 7: The stock certificates may include any number of shares and shall be
signed by the Chairman of the Board of Directors or whoever replaces him and by
one (1) principal or alternate member of the Board of Directors.
ARTICLE 8: Title to the registered shares shall be proven by the record in the
Company's Stock Register, an entry that must be signed by the holder, or his
attorney-in-fact who may be appointed by letter-proxy.
ARTICLE 9: The assignment of the registered shares, following compliance with
Article 8, shall be implemented by a statement in the Company's Stock Register,
signed by the assignor and the assignee, or by their attorneys-in-fact, who may
be appointed by letter-proxy.
Assignment, lien or disposal of any kind with respect to the shares shall
be subject to the following provisions:
1) No shareholder may sell, transfer, encumber, pledge, assign or in any
manner dispose of the shares held without complying with the provisions of this
document. Any action taken in violation of these provisions will be null and
void for the company and/or the other shareholders.
2) If a shareholder wishes to sell or transfer shares of the
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Company (the "Offeror"), then the Offeror shall first give written notice (the
"Sale Notice") to the other shareholder (the "Offeree"), offering to sell any or
all of its shares in the Company (the "Offered Shares") to the Offeree, in
accordance with the provisions of this Article.
(a) If the Offeror has not yet received a bona fide offer from a third
party, the Offeror shall offer the shares at fair market value as of the date
the offer is made or deemed to have been made as determined in accordance with
Article 9.3. The Offeree shall have thirty (30) calendar days following receipt
of the Sale Notice or following the final determination of fair market value
under Article 9.3 (whichever is later) to accept or reject the offer to buy all
of the Offered shares by written notice to the Offeror. Failure to provide
written notice of its intent to accept or reject within this thirty (30)
calendar day period shall be deemed a rejection.
If accepted, the sale or transfer shall be completed within thirty (30)
calendar days. If rejected after the process outlined above, then the Offeror
shall have the right to sell or transfer the Offered Shares to a third party,
provided that: (a) the selling price and the terms of the sale or transfer to
the third party shall not be more favorable than those offered to the Offeree;
(b) any transfer to the third party must be completed within three months
following the final rejection of the offer by the Offeree; (c) the Offeree
consents, in writing, to the sale or transfer to that third party, which consent
shall not be unreasonably withheld; and (d) the third party complies with the
provisions of any agreement between the Shareholders related with the Company.
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(b) If the Offeror has received a bona fide offer from a third party to
purchase the Offered Shares which the Offeror is prepared to accept, then a copy
of that third party offer shall be attached to the Sale Notice to be provided to
the Offeree. The Sale Notice shall constitute an offer, irrevocable within the
time hereinafter specified for acceptance, by the Offeror to sell all of the
Offered Shares to the Offeree at the same price per share of each class and on
the same terms and conditions as set forth in the third party offer to purchase
attached to the Sale Notice. The Offeree shall have thirty (30) calendar days
following receipt of the Sale Notice from the Offeror to accept or reject the
offer to buy all of the Offered Shares by written notice to the Offeror. Failure
to provide written notice of its intent to accept or reject within this thirty
(30) calendar days period shall be deemed a rejection.
If accepted, the sale or transfer shall be completed within thirty (30)
calendar days. If rejected after the process outlined above, then the Offeror
shall have the right to sell or transfer the Offered Shares to any third party
(whether or not the third party making the original offer), provided that: (i)
the sale or transfer shall be completed pursuant to terms no more favorable than
those contained in the third party offer and which were attached to the Sale
Notice; (ii) any sale or transfer to the third party must be completed within
three months following the final rejection of the offer by the Offeree; (iii)
the Offeree consents, in writing, to the sale or transfer to that third party,
which consent shall not be unreasonably withheld; and (iv) the third party
complies with any agreements between the Shareholders related to the Company.
ARTICLE 10: The shares shall grant equal rights to their holders
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and shall be indivisible to the Company, which shall recognize only one holder
per share; therefore, should a share come to be held by two (2) or more persons,
it must be represented by one person alone.
ARTICLE 11: The shares which must be deposited in the corporate treasury,
pursuant to these Articles of Incorporation and By-laws, for purposes of Article
244 of the Commercial Code, shall be inalienable and they are to be handled as
provided for in said Article 244.
CHAPTER III
General Shareholders Meetings
ARTICLE 12: The supreme management of the Company is vested in the Shareholders
Meeting and all lawful decisions thereof shall be binding on all the
shareholders.
ARTICLE 13: The Annual Shareholders Meeting shall be held once a year, wherever
specified by the Board of Directors, within three (3) months following the end
of the Company's fiscal year, and must be called by the Board of Directors no
less than fifteen (15) days in advance by notice to the shareholders or their
representatives or publication in one of the newspapers of the Company's
domicile, stating the purpose, date, place and time of the meeting. Special
Shareholders Meetings shall be called with the notice specified above when
deemed necessary by the Board of Directors or at the request of shareholders
representing one fifth of the equity capital.
The provisions of the Commercial Code in this regard shall apply to any
second call for an Annual or Special Shareholders Meeting.
ARTICLE 14: The Annual Shareholders Meeting has the following powers:
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1) To discuss and approve, amend or revise the balance sheet and the
accounts, having seen the Examiner's Report;
2) To elect the principal and alternate Directors;
3) To appoint the Examiners and their alternates;
4) To set the salaries and remunerations, if any, of the members of the
Board of Directors and the Examiners; and
5) To consider any other item duly placed before it.
ARTICLE 15: For the validity of the deliberations and decisions of the Annual
and Special Shareholders Meetings, the presence or representation of
shareholders representing one half plus one of all the shares in the Company and
the approval of the simple majority of the votes present at the meeting shall be
required.
The above notwithstanding, the presence and favorable vote of shareholders
representing at least seventy-five percent (75%) of the Company's equity capital
shall be required for the validity of deliberations and decisions on the
following special matters:
a) Change in the business of the Company as defined by this Agreement;
b) Amendment of the Articles of Incorporation and By-Laws involving the
matters set forth in these provisions;
c) Except as otherwise agreed upon by the shareholders in any written
agreement, the sale of assets of the Company with a value in excess of the
Bolivar equivalent of US$2 Million, which amount shall be adjusted annually for
inflation;
d) The decision to wind-up, dissolve or liquidate the Company or to place
the Company in bankruptcy;
e) Any merger or consolidation of the Company with unrelated Company;
f) Any change in the dividend policy of the Company;
g) Any agreement between the Company and any shareholder or
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Investor, not in the ordinary course of business;
h) Any decision seeking additional capital contributions from the
Shareholders in an aggregate amount in excess of the Bolivar equivalent of USD
5,000,000 (Five Million U.S. Dollars) per year or seeking a guarantee by the
Shareholders of indebtedness of the Company in an aggregate amount in excess of
the Bolivar equivalent USD 5,000,000 (Five Million U.S. Dollars) per year; and
i) Any decision to submit the shares of the Company to a public auction.
Solely for purposes of Article 95 of the Law at the Central Bank of Venezuela,
all amounts given in foreign currency are equivalent to , and at
the current rate of exchange of Bs 475 per US$1.00,
Shareholders who are unable to attend the Shareholders Meeting in person
for any reason or cause are entitled to be represented thereat by proxies
appointed by letter, cable, telex, telefax or any other means of electronic
transmission, addressed to the Board of Directors.
ARTICLE 16: The Annual and Special Shareholders Meetings shall be considered
validly met to deliberate and resolve, without the need to comply with the
requirement of prior call, whensoever all the shareholders or their duly
appointed proxies are present.
ARTICLE 17: Minutes of every Shareholders Meeting are to be drawn up during a
recess called for this purpose, and shall be signed by all those present,
stating their names, the assets represented and the decisions reached. These
minutes are to be entered in the Minute Book of the Shareholders Meetings.
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CHAPTER IV
Administration
ARTICLE 18: The management and administration of the Company shall be vested in
a Board of Directors comprising of five (5) Directors who shall have their
respective alternates. The principal and alternate Directors may or may not be
shareholders of the Company and shall be elected at the Annual Shareholders
Meeting as follows: a) Class "A" shareholders will elect, separately from the
other shareholders, three (3) principal directors and their respective
alternates; and Class "B" shareholders shall elect, separately from the other
shareholders, two (2) principal directors and their respective alternates. The
Directors shall remain in office for one (1) year, unless the Shareholders
Meeting decides on early dismissal, or until their successors have been
appointed and have taken office. In the event of the absence of a Director, the
alternate representing the same class of shares shall perform his duties. In the
event of a permanent absence of one of the principal members of the Board of
Directors, the latter must call a Special Shareholders Meeting within thirty
(30) days to appoint the person who is to hold office for the remainder of the
term. The holders of each class of shares shall have the right to remove the
directors designated by them, for which purpose a Special Shareholders Meeting
shall be called, at which the holders of the other class of shares shall be
bound to be present and vote favorably.
The Annual Shareholders Meeting shall proceed to designate as Chairman of
the Board of Directors a director proposed by the Class "A" shareholders.
The Shareholders Meeting shall also designate as the Secretary of the Board
of Directors and his alternate, persons who may or may
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not be members of the Board of Directors, proposed by the Class "A"
shareholders.
ARTICLE 19: The Board of Directors shall meet regularly; however, it can also
meet when it deems it necessary in the Company's best interests. Any 2 Directors
may request the Chairman to call for a Board Meeting. The meetings shall be
called by the Chairman of the Board of Directors or whoever replaces him, by
means of notices to the directors, indicating the purpose of the meeting,
regularly at least fourteen (14) calendar days in advance, except if the
directors unanimously agree on shorter notice or if the urgency of the matter to
be discussed justifies it and with the consent of at least three (3) directors.
For a second meeting of the Board of Directors, in the event of a lack of quorum
at the first meeting, the call may be made at least five (5) days in advance;
and if a third meeting is necessary due to the lack of quorum at the second
meeting, the third meeting will be automatically deemed to have been called on
the business day following the date of the second meeting, at the same place and
time. The Board of Directors Meetings may be held by means of a communication
among the directors by means of video or telephone conference or other
electronic means.
ARTICLE 20: The presence of at least four (4) directors shall be required for
the validity of the meetings of the Board of Directors, at the first and second
call, if any. In the event of a third call, the presence of three (3) directors
will suffice. The resolutions of the Board of Directors shall be adopted with
the favorable vote of the majority of the directors present.
ARTICLE 21: For the purposes set forth in Article 244 of the Commercial Code,
one (1) Company share must be deposited in the corporate treasury by each of the
members of the Board of Directors
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or by a shareholder on his behalf.
ARTICLE 22: The Board of Directors shall be vested with full powers for the
administration and control of the Company's business. Without prejudice to the
general powers granted herein, the Board of Directors may specifically:
1) Carry out the administration of the Company;
2) Approve, authorize and enter into contracts of all kinds, including
loans, credit and advances of any kind, as and under the terms and conditions it
deems advisable;
3) As part of the corporate purposes, decide upon the purchase, addition or
disposal of any of its real or personal assets;
4) Appoint managers, assistant managers, representatives and
attorneys-in-fact, as well as employees, and set the remuneration and other
terms of employment of all corporate personnel;
5) Authorize the granting of general and special powers of attorney to
represent the Company in or out of court and authorize the revocation of said
powers of attorney;
6) Establish the administration of the Company and determine the rules and
regulations for the proper operation thereof, and require whatever bonds and
security it deems necessary from the personnel;
7) Use the legal reserve fund in accordance with the legal provisions
relating thereto;
8) Place before the Annual Shareholders Meeting a summary statement of the
Company's operations, a balance sheet and a profit and loss statement; .
9) Decree the distribution of dividends from the net profits among the
shareholders;
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10) Appoint the individuals authorized to open, sign on and close bank
accounts;
11) Appoint the individuals authorized to issue, sign, accept and negotiate
checks, drafts, promissory notes or credit instruments of all kinds;
12) Represent the Company through the Chairman, or any other Board member
authorized for this purpose, before the judicial, administrative and labor
authorities, with the express power to dismiss proceedings or actions brought by
the Company, invoke ordinary and extraordinary legal remedies of any kind, bring
and defend suits; submit to arbitration, either that governed by equitable
principles or that restricted to application of the law and, in general,
represent the Company with the same full powers;
13) Call the Annual and Special Shareholders Meetings;
14) Exercise any other authority or power needed to achieve the corporate
purpose, with the exception of those specifically attributed by law or the
By-laws to another officer or body.
The powers, rights and obligations listed above are for illustrative and
not limitative purposes and therefore do not restrict the powers of the Board of
Directors, which has full powers when no Shareholders Meeting is being held, and
authorize it to represent and do business on behalf of the Company with no
reservations whatsoever except for the authority expressly granted to the
Shareholders Meeting or the Examiners.
The Board of Directors may delegate any of its powers to directors,
officers or such persons as it chooses, but this delegation shall appear in
specific and written form.
ARTICLE 23: The Chairman of the Board of Directors shall be the out-of-court
legal representative of the Company and shall have the
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powers granted to him by these Articles and by the law as well as those
delegated by the Shareholders Meeting or the Board of Directors. Without
prejudice to the powers and responsibilities assigned to him by these entities,
the Chairman shall specifically:
1) Chair and conduct the Shareholders Meetings.
2) Chair and conduct the meetings of the Board of Directors.
3) Call the Shareholders Meetings and the Board of Directors meetings.
4) Comply with and see to the enforcement of the resolutions of the Board of
Directors.
ARTICLE 24: The Secretary of the Board shall have the powers and duties
specified by the Board of Directors, inter alia, specifically, to keep the legal
books of the Company and to certify minutes of the Board of Directors' and
Shareholders Meetings. The alternate, when designated, will act in the Principal
Secretary's absence.
CHAPTER V
The Judicial Representative
Article 25: The representation of the Company for all judicial actions and
matters shall be entrusted to a Judicial Representative, who shall be elected by
a Shareholders Meeting and may be dismissed at any time by a Shareholders
Meeting. The Judicial Representative shall be the only person, with the
exception of duly appointed attorneys-in-fact, authorized to represent the
company on judicial matters and, as such, may accept any service of process
and/or judicial notice addressed to the company. Moreover, the Judicial
Representative shall be the only person, with the exception of duly appointed
attorneys-in-fact, authorized on behalf of the company to initiate, answer,
bring and oppose legal actions, demurrers and
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counterclaims of all kinds; to receive processes, summons and/or notices; to
accept service of process; to conduct cases at the trial and appellate levels
and to appeal, even before the Supreme Court of Justice; to file, announce,
formalize, continue and withdraw ordinary and extraordinary legal remedies,
including the remedy of cessation; to call for, furnish and contest proof of any
kind; to petition, seek enforcement of, process and oppose preventive or
executive judicial measures of all kinds and, in general, to do all he considers
advisable and/or necessary to best defend the company's judicial interests, as
the foregoing enumeration of powers is illustrative and not limitative. It is,
however, expressly understood that the Judicial Representative may consent to
entry of judgment in accordance with the complaint, dismiss proceedings,
compromise and settle, submit to arbitration, either that governed by equitable
principles or that restricted to enforcement of the law, make bids and purchase
goods at auctions and give or receive sums of money, provided the Board of
Directors has given its prior authorization in writing.
The aforementioned Judicial Representative is the only person authorized to
give sworn testimony before the courts of the Republic of Venezuela on behalf of
the Company, without prejudice to the power of delegation provided for in the
Code of Civil Procedure.
The Judicial Representative shall have an alternate to act in his temporary
absence.
The appointment of the Company's Judicial Representative is without
prejudice to the Board of Directors' right to appoint special or general
judicial attorneys-in-fact to represent the Company before the administrative or
judicial bodies, when considered to be in the Company's best interests
specifying their
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powers. The aforementioned attorneys-in-fact are to exercise their powers
jointly or severally with the Judicial Representative, as provided for in the
relevant power of attorney.
CHAPTER VI
The Examiner
ARTICLE 26: The Company shall have two (2) Examiners, one proposed by the Class
"A" shareholders and the other proposed by the Class "B" shareholders. Each
principal shall have an alternate proposed in the same manner, who will fill the
absences of the respective principal. The principal and alternate Examiners
shall have the powers and prerogatives which the Commercial Code assigns to that
office. They shall be elected by the Annual Shareholders Meeting and shall hold
office for one (1) year, unless removed from office earlier by a decision of a
Shareholders Meeting, or until their successors have been elected and taken
office.
CHAPTER VII
Fiscal Year. Balance Sheets and Profits
ARTICLE 27: The Company's first fiscal year started on the date it was
registered at the Mercantile Registry and shall end on December 31, 1997;
thereafter the Company's fiscal year shall commence on January 1 and end on
December 31 every year.
ARTICLE 28: At the end of each fiscal year, the Board of Directors shall prepare
the balance sheet as provided for in Article 304 of the Commercial Code and
shall deliver it to the Examiner at least one (1) month before the day set for
the Annual Shareholders Meeting at which it is to be discussed.
ARTICLE 29: The net profits shall be determined by deducting the
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general expenses, amortization, and corporate liabilities from the Company's
entire gross income.
ARTICLE 30: At least five percent (5%) of said net profit shall be set aside
annually to create the reserve fund provided for in Article 262 of the
Commercial Code until said fund totals the equivalent of ten percent (10%) of
the equity capital. Furthermore, any other amounts deemed advisable by the Board
of Directors and the Shareholders Meeting that approves the balance sheet shall
be set aside for reserve or guaranty funds.
The balance, in other words the net profit, shall be placed at the disposal
of the Board of Directors to be distributed among the shareholders as a dividend
or to be invested in the Company's benefit or for any other purpose which the
Board of Directors considers appropriate. Dividends declared and not claimed
shall not earn interest.
CHAPTER VIII
Dissolution and Liquidation
ARTICLE 31: The Company may be dissolved before expiration of the duration for
any of the reasons set forth in Article 340 of the Commercial Code."
Three: The Meeting then proceeded to make the following designations:
1. Members of the Board of Directors:
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FOR CLASS "A" SHARES
<TABLE>
<S> <C> <C> <C>
PRINCIPAL DIRECTORS:
Name Identification Nationality
---- -------------- -----------
ALTERNATE DIRECTORS:
Name Identification Nationality
---- -------------- -----------
FOR CLASS "B" SHARES
PRINCIPAL DIRECTORS:
Name Identification Nationality
---- -------------- -----------
ALTERNATE DIRECTORS:
Name Identification Nationality
---- -------------- -----------
</TABLE>
2. For the first term of the Board of Directors (identify)
-----------------------
_______ is appointed Chairman of the Board of Directors: (identify)
---------------------
________ is appointed Secretary; and (identify) is
-----------------------------
appointed Alternate Secretary.
3. __________________________________ is appointed Judicial Representative and
________________________________, his alternate, both being attorneys at law,
Venezuelan citizens, of this domicile and registered at the
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Attorneys' Social Welfare Institute under No.__________ and No._____________,
respectively.
4. The following Examiners are appointed: For Class "A" shareholders,
__________________, a public accountant, of this domicile, bearer of ID Card
__________________________ and registered at the Public Accountants Association
of _____, CPA No._____, and his alternate________________________, a public
accountant, of this domicile, bearer of ID Card _____________________ and
registered at the Public Accountants Association of_______________, CPA No.
______. For Class "B" shares:_________________, a public accountant, of this
domicile, bearer of ID Card _________________ and registered at the Public
Accountants Association of______________, CPA No.________, and his
alternate__________________, a public accountant, of this domicile,
bearer of ID Card _________________________ and registered at the
Public Accountants Association of __________________, CPA No.______
There being no further business, the meeting adjourned, authorizing the
Secretary of the Board of Directors to certify the minutes and______________ to
take the appropriate legal steps.
(Sgd)__________________ (Sgd)___________________
CERTIFICATION
<PAGE>
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Attachment B
MANAGEMENT AGREEMENT
This Management Agreement, made this ___ day of January, 1997, by and
between CUSTRAVALCA BRINK'S, C.A. (the "Company"), a company organized and
existing under the laws of Venezuela, and BRINK'S INTERNATIONAL MANAGEMENT
GROUP, INC. ("BIMG"), a company organized and existing under the laws of
Delaware, U.S.A.
WHEREAS, the Company provides the following services in Venezuela: armored
car services for the transportation of currency, diamonds and jewelry, bullion
and other valuables and securities; servicing of automated teller machines,
including cash replacement, deposit pick-up and maintenance; processing,
counting and wrapping coin; processing and counting paper currency; providing
various currency vaulting services; and providing ground support for air courier
services (collectively, the "Services");
WHEREAS, BIMG, by itself and through its parent corporation, Brink's,
Incorporated, and affiliated companies (collectively "Brink's"), has long been
engaged in and has significant expertise in providing such Services on a
worldwide basis;
WHEREAS, the Company desires to have BIMG provide to it various management
and related services in order to establish and maintain quality and efficient
Services in Venezuela, and BIMG is willing to provide such services to the
Company.
NOW THEREFORE, in consideration of the promises and mutual covenants
contained herein the parties hereto agree as follows:
1. (a) BIMG shall provide technical assistance and management services to the
Company to assist it in establishing and maintaining on an ongoing basis the
Services in Venezuela. Such technical assistance and management services shall
include advice and assistance with respect to operational and security
procedures and policies, training, insurance, sales and marketing, management
information systems, accounting systems and procedures, financial, legal and tax
matters and employee relations.
(b) BIMG shall select the President and/or General Manager of the Company,
who shall serve subject to the approval of the Board of Directors. BIMG shall
have the right to assist the President and/or General Manager in the selection
of other senior
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officers of the Company and its subsidiary and affiliated companies and shall
have the right to approval all such appointments. BIMG shall also have the right
to recommend and approve the removal of the President and/or General Manager or
any other management employee.
(c) To the extent necessary, BIMG shall provide training to management
personnel of the Company and shall assist the Company in the development of
ongoing training programs.
(d) BIMG shall provide assistance and recommendations to the Company in
connection with preparation of annual budgets and business plans, for submission
to the Board of Directors and/or Shareholders of the Company for their approval.
BIMG shall also provide assistance and recommendations to management of the
Company for the establishment of guidelines for customer contracts, including,
but not limited to, pricing and liability issues, which guidelines shall be
subject to approval by BIMG.
(e) As and to the extent requested by the Company, BIMG shall, subject to
availability of such qualified personnel, provide services in relation to such
other matters as may be covered by such request.
2. Although day-to-day management of the Company shall remain the responsibility
of the Company's management personnel, BIMG shall be entitled to take such
action as it deems appropriate to assure that the Services are provided by the
Company in accordance with Brink's standards, including, but not limited to,
securing the implementation by the Company: (a) of appropriate policies and
procedures; and (b) of recommendations regarding such items as staffing,
customer contracts, insurance, vehicles, security concerns and such other
matters as appropriate under the circumstances presented or as BIMG, in its
sole discretion, deems necessary for security and/or insurance purposes.
3. The Company shall pay to BIMG as compensation for the above services an
amount which represents full reimbursement of costs and expenses incurred in
connection with providing these services, to include travel and related expenses
(e.g., hotel, food, transportation) for any Brink's personnel providing services
to the Company under this Agreement and reimbursement of salary for any Brink's
employee who spends at least one week in Venezuela providing services to the
Company, and such other costs and expenses as may be agreed in the future by the
Company and BIMG.
4. (a) BIMG agrees to provide access to the Company for its use in providing the
Services such proprietary software (which contains technology and information
systems) as is available to other Brink's related companies (at no acquisition
cost to the
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Company), provided, however, that BIMG does not assume any obligation hereunder
to create any software for use in Venezuela or to otherwise modify its existing
software.
(b) In addition, BIMG agrees to make available to the Company for its use
in providing the Services any products, components, hardware or other equipment
which may be available to other Brink's related companies, at a cost to be
mutually agreed upon by the parties.
(c) The above notwithstanding, the parties acknowledge and agree that
Brink's proprietary rights to its technology, products, processes and know-how
shall at all times remain the sole and exclusive property of Brink's and that
the Company shall not obtain or attempt to assert any right or interest in such
rights. Further, the Company shall not at any time use any such information
received from Brink's for any purpose other than for the sole purpose of
providing the Services in Venezuela.
(d) Upon the expiration or termination of this Agreement for any reason,
the Company shall cease using and shall not thereafter use for any purpose
whatsoever, any proprietary software, technology, products, processes and
know-how of Brink's, or any information relating thereto, and shall, upon the
request of BIMG, return to Brink's copies of any software, products or material
made available to the Company by Brink's in connection with this Agreement.
5. The Company hereby further agrees to maintain the strict confidentiality
of and not to disclose, directly or indirectly, to third parties, any
information it acquires during the course of or in connection with this
Agreement relating in any way to the business of Brink's, including, but not
limited to, policies, procedures, practices, training programs, customers or
insurance. This paragraph shall not apply to: (i) information which is in the
public domain, provided that it is not in the public domain through a breach
of this Agreement by the receiving party; (ii) information which can be
demonstrated to be independently developed by the receiving party; or
(iii) information which the parties agree is no longer confidential.
6. Nothing in this Agreement shall be deemed to create a partnership, agency or
other relationship between the parties. The parties enter into this Agreement as
independent contractors.
7. (a) BIMG shall not be liable for non-performance or delays not caused by its
fault or neglect, nor for non-performance or delays caused by strikes, lockouts
or other labor disturbances, riots, acts of God or means beyond BIMG's control.
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(b) In no event shall BIMG have any liability under this Agreement which
exceeds the amount of compensation paid to it pursuant to this Agreement for the
prior twelve month period.
(c) The Company shall indemnify and hold BIMG and Brink's harmless,
including, but not limited to, reasonable attorneys' fees, in connection with
any claim, lawsuit and/or demand by any of the Company's shareholders or third
parties with respect to any act or decision of the Company, whether or not such
act or decision was taken pursuant to the recommendation of BIMG or Brink's.
8. This Agreement shall terminate: (i) upon the termination of the Shareholders'
Agreement dated January 10, 1997 by and between Valores Tamanaco, C.A. and
Brink's Security International, Inc. ("BSI"); (ii) at such time as BSI (or
another Brink's affiliated company) ceases to be a shareholder of the Company;
or (iii) upon the termination of the Trademark License Agreement between the
Company and Brink's Network, Inc.
9. Any notice required hereunder shall be given to the other party in writing in
the English language by registered mail or registered air express service as the
addresses set forth below or at such other address as may be specified in a
written notice given by either party to the other.
10. No amendment, alteration, change or addition hereto shall be made other than
by a writing signed by authorized representatives of both parties.
11. BIMG shall have the right to assign this Agreement to any affiliated company
which is controlled, directly or indirectly, by Brink's, Incorporated.
12. (a) This agreement shall be construed under the laws of the State of
Delaware, United States of America.
(b) Any dispute arising out of or in connection with this Agreement shall
be finally settled by arbitration in accordance with the Rules of Conciliation
and Arbitration of the International Chamber of Commerce by one arbitrator in
accordance with such Rules. The arbitration proceedings shall be conducted in
Paris, France. Arbitration proceedings, including documentation, shall be in
the English language. The above notwithstanding, BIMG shall, at its discretion,
have the right to seek injunctive relief in any court of competent jurisdiction
in the event of any breach of this Agreement.
The arbitrator shall not be entitled to award punitive damages. The
arbitration award, when filed by the parties hereto, shall be final and binding
upon the parties. If necessary, judgment may be entered upon the final decision
of the arbitrator in any court
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<PAGE>
of competent jurisdiction. The costs of the arbitration shall be borne by the
losing party, unless otherwise determined by the arbitration panel, provided,
however, that each side shall bear its own cost of counsel.
13. The governing language for this Agreement shall be English. In the event a
translation should be legally required, the Agreement shall be translated by a
public translator; the translation shall be approved by the Company and BIMG.
Notwithstanding the existence of a translation, in the event of any discrepancy
between the English version and the translated version, the English version
shall prevail and English shall remain the governing language.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the
day and year first hereinabove written.
CUSTRAVALCA BRINK'S, C.A. BRINK'S INTERNATIONAL
MANAGEMENT GROUP, INC.
By By
_______________________________ ___________________________________
Name/Title Name/Title
Address: Address:
5
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<PAGE>
Attachment C
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT, effective as of ___________________________ (hereinafter
referred to as the "EFFECTIVE DATE"), by and between Brink's Network,
Incorporated, a Delaware Corporation, with its principal office for the
transaction of business at One Thorndal Circle, Darien, Connecticut 06820
(hereinafter referred to as "LICENSOR"), and Custravalca Brink's, C.A., a
corporation incorporated under the laws of Venezuela, with principal office for
the transaction of business at ___________________________, Venezuela
(hereinafter referred to as "LICENSEE").
WITNESSETH:
WHEREAS, Brink's, Incorporated, a Delaware corporation, has for many years used
one or more of its TRADE SYMBOLS (as hereinafter defined), has obtained
registrations for its trademarks and servicemarks and has established
substantial goodwill throughout the world in connection with said trademarks and
servicemarks;
WHEREAS, LICENSOR has been granted the right by Brink's, Incorporated to license
the TRADE SYMBOLS to third parties, in countries, areas or territories as
LICENSOR shall deem necessary and desirable;
WHEREAS, LICENSEE desires to provide services as defined below (hereinafter
referred to as the "SERVICES"), utilizing the TRADE SYMBOLS, in the TERRITORY,
as hereinafter defined, under grant of right by LICENSOR;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. Definitions
For the purpose of this Agreement, the following definitions shall apply:
a) The term "TRADE SYMBOLS" shall mean:
i) the trademark or servicemark "Brink's" and variations thereof; and
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<PAGE>
ii) such slogans, labels, copyrights, emblems, insignia, and other
trade identifying symbols used or registered by Brink's,
Incorporated and/or LICENSOR anywhere in the world in connection
with the sale of the SERVICES or hereafter designated by LICENSOR
in writing for use in connection with the SERVICES,
whether or not said TRADE SYMBOLS be registered in the TERRITORY.
b) The term "TERRITORY" shall mean Venezuela.
c) The term "affiliated business organizations", "affiliated company" or
"affiliates" shall mean any person, firm or corporation that directly or
indirectly, through one or more intermediaries, controls or is controlled by
or is under common control with the company named.
d) The term "control" (including the terms "controlling", "controlled by"
and "under common control with") as used herein shall mean the possession,
direct or indirect, or the power to direct or cause the direction of the
management and policies of any person, firm or corporation, whether through
ownership of voting securities, by contract or otherwise.
e) the term "SERVICES" shall mean armored car services for the
transportation of currency, diamonds and jewelry, precious metals and other
valuables and securities; servicing of automated teller machines, including
cash replacement, deposit pick-up and maintenance; processing, counting and
wrapping coin; processing and counting paper currency; providing various
vaulting services; providing international freight forwarding services for
valuables (including customs clearance) and providing ground support for air
courier services and all other services related to the foregoing.
2. Grant or Right to Use of the TRADE SYMBOLS
LICENSOR, to the extent that it may be able lawfully to do so, hereby
grants to LICENSEE, during the term of this Agreement and subject to its terms
and conditions, a non-exclusive and non-transferable right to use of the TRADE
SYMBOLS in relation to the SERVICES within the TERRITORY. It is expressly
understood that the rights granted herein do not extend to any other item,
except those specific items set forth as the SERVICES, which such rights are
expressly reserved to LICENSOR. Nothing herein contained shall prohibit, limit
or restrict Brink's, Incorporated, or LICENSOR, in any form or manner from
using, in the TERRITORY, the TRADE SYMBOLS, or any of
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them either alone or as a component of another trademark and nothing herein
contained shall prohibit, limit or restrict Brink's, Incorporated or LICENSOR
from licensing or otherwise disposing of such use, in the TERRITORY, to any
other person, firm or corporation. LICENSOR reserves the right to change or
alter the definition, scope, design and/or content of the TRADE SYMBOLS and the
TERRITORY during the continuance of this Agreement in which event, LICENSEE
agrees to conform to and abide by such changes or alterations. LICENSEE shall
have no right to sub-license the use of TRADE SYMBOLS.
3. Quality Control and Inspection
a) The permitted use by LICENSEE of the TRADE SYMBOLS shall be subject to
the instructions of LICENSOR furnished to LICENSEE from time to time, and
shall be made only in relation to the SERVICES which conform to standards
and specifications furnished and/or approved, from time-to-time by
LICENSOR. LICENSEE shall upon request by the LICENSOR submit to LICENSOR
for approval designs, materials, packages, labels promotional materials
and advertising for use in relation to the SERVICES. LICENSEE shall not
offer for sale any of the SERVICES using the TRADE SYMBOLS which are of
a quality or a standard inferior to that approved by LICENSOR or which
will tend to injure the reputation and goodwill attached to the
TRADE SYMBOLS.
b) LICENSEE shall at all times permit LICENSOR by representatives
designated by LICENSOR, to inspect the SERVICES provided by LICENSEE under
the TRADE SYMBOLS and the facilities where or by means of which the
SERVICES are provided. At all times, LICENSEE shall comply with the
reasonable quality control procedures furnished or approved, from time to
time, by LICENSOR.
4. Title to TRADE SYMBOLS
a) LICENSEE recognizes and acknowledges Brink's, Incorporated's exclusive
title to the TRADE SYMBOLS and LICENSOR'S right to license the TRADE
SYMBOLS to LICENSEE hereunder and LICENSEE shall not, at any time, do or
cause to be done any act or things which will in any way impair the rights
of Brink's, Incorporated or LICENSOR in and to the TRADE SYMBOLS. It is
understood and LICENSEE acknowledges that LICENSEE shall not acquire and
shall not claim title to the TRADE SYMBOLS adverse to Brink's, Incorporated
or LICENSOR by virtue of this license granted to LICENSEE or through
LICENSEE'S use of the TRADE SYMBOLS, it being
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the intention of the parties that all of the use of TRADE SYMBOLS by
LICENSEE, including any and all goodwill arising from LICENSEE'S use
thereof, shall at all times inure to the benefit of Brink's, Incorporated
and LICENSOR. LICENSEE further undertakes that in the event any
infringement of the rights of Brink's, Incorporated and LICENSOR to any of
the TRADE SYMBOLS in the TERRITORY comes to the notice of LICENSEE during
the term of this Agreement, LICENSEE shall promptly notify LICENSOR, in
writing, and shall join with LICENSOR, if requested by LICENSOR, in taking
such steps, if any, as LICENSOR may deem advisable against the
infringement, or otherwise, for the protection of LICENSOR'S and Brink's,
Incorporated's rights. LICENSEE shall take no such action without the
express written consent of LICENSOR.
b) LICENSEE shall, at LICENSOR'S request, execute, acknowledge and deliver
to LICENSOR any documents and/or instruments that LICENSOR may, from time
to time, deem necessary or desirable to evidence, protect, enforce or
defend Brink's, Incorporated's rights and LICENSOR'S rights in and to the
TRADE SYMBOLS. LICENSOR and LICENSEE shall cooperate in good faith in all
actions to protect the TRADE SYMBOLS.
c) Upon termination or cancellation of this Agreement, by expiration or
otherwise, LICENSEE shall immediately discontinue and shall thereafter
refrain from the use of the TRADE SYMBOLS, or any of them, in any way or
for any purpose whatsoever, and will not use at any time, any trademarks,
servicemarks, trade names, slogans, labels, copyrights, emblems, insignia,
packages and other trades identifying symbols bearing resemblance to the
TRADE SYMBOLS or any of them.
d) Upon termination of this Agreement, LICENSEE shall ship to LICENSOR,
upon request of LICENSOR, any and all printed matter, displaying any TRADE
SYMBOL.
5. Royalties
a) Commencing January l, 2000 (or such later date as may be mutually agreed
upon by the parties), LICENSEE shall pay to LICENSOR, in consideration of
the rights granted to LICENSEE by LICENSOR hereunder, a royalty equal to
three percent (3%) of LICENSEE'S gross revenue per year from all sources,
payable during the continuance of this Agreement on a quarterly basis.
4
<PAGE>
<PAGE>
b) LICENSEE shall maintain itemized, complete and accurate books of account
with respect to its performance under this Agreement.
c) All payments due to LICENSOR hereunder shall be made to LICENSOR in
United States Dollars, converted from local currency at the average
official rate of exchange during the quarter immediately prior to such
payment, at LICENSOR'S Treasurer's office, or in such manner or at such
other place as may be designated by LICENSOR in writing.
d) Any taxes, duties or imposts, other than income or profit taxes assessed
or imposed upon the sums due hereunder to LICENSOR or upon or with respect
to this Agreement, shall be borne and discharged by LICENSEE and no part
thereof shall be deducted from any amount payable to LICENSOR under any
clause of this Agreement, said amounts to be net to LICENSOR, free of any
and all deductions, except as provided herein.
6. Promotional Activities
LICENSEE shall conscientiously work and fully develop the TERRITORY, use
its best efforts to fully adequately promote the sale of the SERVICES under
the TRADE SYMBOLS in the TERRITORY, and maintain the high standards of
LICENSOR as to advertising and all other promotion and promotional material.
LICENSOR retains the right to review and approve all advertising and other
promotional material. All advertising and promotional material will be
prepared in accordance with applicable law.
7. Disclaimer of Warranty
While LICENSOR believes that none of the TRADE SYMBOLS licensed hereunder
will infringe on any rights, trademark or otherwise, owned by any other person,
firm or corporation, it does not warrant that any such TRADE SYMBOLS do not or
will not infringe on any rights, trademark or otherwise in any part of the
world.
8. Term
Unless sooner terminated as provided for in this Agreement, this Agreement
shall remain in effect only during the term of the Shareholders' Agreement,
dated January 10, 1997, by and between Brink's Security International, Inc.
("BSI") and Valores Tamanaco, C.A. (the "Shareholders' Agreement"). This
Agreement shall immediately terminate upon: (i) the termination of the
Shareholders' Agreement for any reason
5
<PAGE>
<PAGE>
whatsoever, (ii) BSI (or another Brink's affiliate) ceasing to be a shareholder
of the LICENSEE; (iii) the termination of the Management Agreement between BSI
(or another Brink's affiliate) and LICENSEE, dated January __. 1997; or (iv) the
existence of any other ground for termination as set forth in this Agreement.
9. Termination
a) Either party to this Agreement shall have, in addition to any other
rights and remedies it may have hereunder or at law or in equity, the right
to terminate the same on thirty (30) days' written notice to the other, if
the other party shall breach or default in the performance of any material
provision hereof; provided, however, that if the party receiving such
notice of termination shall cure the breach or default within such thirty
(30) day period, the Agreement shall continue in full force and effect.
b) LICENSOR shall have the right, notwithstanding any other provisions of
this Agreement, and in addition to any other rights and remedies it may
have, to terminate this Agreement forthwith and at any time if LICENSEE
becomes insolvent or if LICENSEE files a petition in bankruptcy or
insolvency; or if LICENSEE is adjudicated bankrupt or insolvent; or if
LICENSEE files any petition or answer seeking reorganization, readjustment,
or arrangement of LICENSEE'S business under any law relating to bankruptcy
or insolvency; or if a receiver, trustee or liquidation is appointed for
any of the property of LICENSEE and within sixty (60) days thereof LICENSEE
fails to secure a dismissal thereof; or if LICENSEE makes any assignment
for the benefit of creditors.
c) LICENSOR shall have, notwithstanding any other provisions of this
Agreement, and in addition to any other rights and remedies it may have,
the right to terminate this Agreement, at any time, one thirty (30) days'
written notice to LICENSEE if any competitor of LICENSOR is, or becomes, an
affiliate of LICENSEE.
d) In any event, termination shall not prejudice any cause of action or
claim of either party accrued or to accrue by reason of any breach by the
other party.
10. Indemnification
LICENSEE agrees to indemnify LICENSOR and Brink's, Incorporated and hold
LICENSOR and Brink's, Incorporated harmless from any and all claims, suits,
losses,
6
<PAGE>
<PAGE>
costs and/or expenses arising out of or in connection with LICENSEE'S
performance under this Agreement.
11. Exoneration from Responsibility
Neither LICENSOR nor its employees shall have any responsibility for the
operation or performance of the facilities contemplated under this Agreement,
nor for any decisions which may be made in connection therewith, whether upon
the recommendation of LICENSOR or otherwise.
12. Governing Law; Jurisdiction
a) The laws of the State of Connecticut (without giving effect to
principles of conflicts of law), to the exclusion of the laws of any other
state, shall be applicable to this Agreement, its construction,
interpretation, effect, performance or non-performance, or the consequences
thereof, as well as to all transactions contemplated by this Agreement, and
their construction, interpretation, effect, performance or non-performance
and the consequences thereof.
b) Any dispute arising out of or in connection with the present Agreement
shall be finally settled by Arbitration in accordance with the Rules of
Conciliation and Arbitration of the International Chamber of Commerce by
one arbitrator in accordance to said Rules. Arbitration proceedings will be
conducted in Paris, France. The language of the proceedings, including all
documentation, shall be English. The above notwithstanding, LICENSOR shall,
at its discretion, have the right to seek injunctive relief in any court of
competent jurisdiction in the event of any breach of this Agreement.
c) The arbitrator shall not be entitled to award punitive damages. The
arbitration award, when filed by the parties hereto, shall be final and
binding upon the parties. If necessary, judgment may be entered upon the
final decision of the arbitrator in any court having competent
jurisdiction. The costs of the arbitration shall be borne by the losing
party unless otherwise determined by the arbitrator, provided, however,
that each side shall bear its own cost of counsel.
13. Independent Contractor
Nothing contained in this Agreement shall constitute LICENSEE the agent or
legal representative of LICENSOR for any purpose whatsoever. LICENSEE is not
7
<PAGE>
<PAGE>
granted any right or authority to assume or create any obligation or
responsibility, express or implied, on behalf of, or in the name of LICENSOR, or
to bind LICENSOR in any manner, or with respect to any thing whatsoever.
14. Assignment - Sale - Merger
This Agreement shall not be assignable in whole or in part by either party
hereto, except that LICENSOR shall have the unconditional right to assign this
Agreement to another member of its corporate group. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, and their
successors and assigns (where permitted by the terms of this Agreement).
If any of the following events occur during the continuance of this
Agreement, this Agreement shall automatically by these terms be terminated as of
the effective date of the event:
a) the merger or consolidation of LICENSEE, unless approved by LICENSOR;
b) the transfer or sale of all or substantially all of the assets of
LICENSEE to a third party(ies); or
c) the transfer or sale of all or a majority of the stock of LICENSEE to a
third party(ies).
15. Notices
All notices, requests, demands and other communications which are required
or may be given under this Agreement shall be in writing, in English and shall
be deemed to have been given if delivered personally or sent by telefax,
confirmed by registered air mail effective on the date of the telefax
confirmation if the hard copy confirmation is mailed on the same day or within
two business days thereafter, to the following addresses:
If to LICENSOR to:
Senior Vice President, Finance
Brink's Network, Incorporated
One Thorndal Circle
P.O. Box 1225
8
<PAGE>
<PAGE>
Darien, CT 06820
U.S.A.
Telefax No: (203) 662-7854
(With a copy to the General Counsel of Brink's, Incorporated at the same
address.)
If to LICENSEE to:
-------------------------
Custravalca Brink's, C.A.
-------------------------
-------------------------
-------------------------
Venezuela
Telefax No.:
-------------
or to such other address and/or individual as may be furnished, from time to
time, in writing, by the parties hereto.
16. Miscellaneous
a) This Agreement contains the entire agreement of the parties hereto and
no provision of this Agreement may be changed or modified except in writing
signed by the parties hereto.
b) The failure of either party to enforce any right hereunder shall not be
deemed a waiver of any other right hereunder or any other breach or failure
by said party, whether of a similar nature or otherwise.
c) If any provision of this Agreement shall be declared void by any court,
or administrative body of competent jurisdiction, the validity of any other
provision which may nonetheless be given effect shall not be affected
thereby.
d) The governing language for this Agreement shall be English. In the event
a translation should be legally required, the translation shall be provided
by the Secretary of the LICENSEE, which translation shall be approved by
LICENSOR and LICENSEE. Notwithstanding the existence of a translation, in
the event of any discrepancy between the English version and the translated
version, the English version shall prevail and English shall remain the
governing language.
9
<PAGE>
<PAGE>
e) The parties hereto warrant that they are fully authorized and empowered
to enter into this Agreement on behalf of their respective companies and
that such action does not contravene any existing statute, decree, contract
or other provision of whatever nature.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
BRINK'S NETWORK, INCORPORATED
(LICENSOR)
By
---------------------------
Title
------------------------
WITNESS:
- ----------------------
CUSTRAVALCA BRINK'S, C.A.
(LICENSEE)
By
---------------------------
Title
------------------------
WITNESS:
- ----------------------
10
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>6
<DESCRIPTION>EXHIBIT 13A
<TEXT>
<PAGE>
Pittston Brink's Group
- -------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------
The following Selected Financial Data reflects the results of operations and
financial position of the businesses which comprise Pittston Brink's Group
("Brink's Group") and should be read in connection with the Brink's Group's
financial statements. The financial information of the Brink's Group, Pittston
BAX Group ("BAX Group") and Pittston Minerals Group ("Minerals Group")
supplements the consolidated financial information of The Pittston Company and
Subsidiaries ("the Company") and, taken together, includes all accounts which
comprise the corresponding consolidated financial information of the Company.
FIVE YEARS IN REVIEW
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1998 1997 1996 1995 1994
===============================================================================================
<S> <C> <C> <C> <C> <C>
SALES AND INCOME (a):
Operating revenues $1,451,267 1,101,434 909,813 788,395 656,993
Net income (a), (b) 79,104 73,622 59,695 51,093 41,489
- -----------------------------------------------------------------------------------------------
FINANCIAL POSITION (a):
Net property, plant and equipment $490,727 346,672 256,759 214,653 180,930
Total assets 977,004 692,330 551,665 484,726 426,887
Long-term debt, less current maturities 93,345 38,682 5,542 5,795 7,990
Shareholder's equity 461,410 380,480 313,378 258,805 215,531
- -----------------------------------------------------------------------------------------------
AVERAGE PITTSTON BRINK'S GROUP COMMON
SHARES OUTSTANDING (c), (d):
Basic 38,713 38,273 38,200 37,931 37,784
Diluted 39,155 38,791 38,682 38,367 38,192
===============================================================================================
PITTSTON BRINK'S GROUP COMMON SHARES
OUTSTANDING (c) 40,961 41,130 41,296 41,574 41,595
- -----------------------------------------------------------------------------------------------
PER PITTSTON BRINK'S GROUP COMMON SHARE (b), (c):
NET INCOME (c):
Basic $ 2.04 1.92 1.56 1.35 1.10
Diluted 2.02 1.90 1.54 1.33 1.09
Cash dividends .10 .10 .10 .09 .09
Book value (e) 11.87 9.91 8.21 6.81 5.70
===============================================================================================
</TABLE>
(a) See Management's Discussion and Analysis for discussion of acquisitions.
(b) As of January 1, 1992, Brink's Home Security, Inc. ("BHS") elected to
capitalize categories of costs not previously capitalized for home security
installations to more accurately reflect subscriber installation costs. The
effect of this change in accounting principle was to increase income before
cumulative effect of accounting changes and net income of the Brink's Group by
$3,852 or $0.10 per basic and diluted share in 1998, $3,213 in 1997, $2,723 in
1996, $2,720 in 1995 and $2,486 in 1994. The net income per basic and diluted
share impact was $0.08 in 1997 and for 1994 through 1996 was $0.07.
(c) All share and per share data presented reflects the completion of the
Brink's Stock Proposal which occurred on January 18, 1996. Shares outstanding
at the end of the period include shares outstanding under the Company's Employee
Benefits Trust of 2,076 shares, 2,734 shares, 3,141 shares, 3,553 shares and
3,779 shares at December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
Average shares outstanding do not include these shares. The initial dividends
on Brink's Stock were paid on March 1, 1996. Dividends paid by the Company on
Services Stock have been attributed to the Brink's Group in relation to the
initial dividends paid on the Brink's and BAX Stocks.
(d) The net income per share amounts prior to 1997 have been restated, as
required, to comply with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share". For further discussion of net income per share, see Note
10 to the Brink's Group Financial Statements.
(e) Calculated based on the number of shares outstanding at the end of the
period excluding shares outstanding under the Company's Employee
Benefits Trust.
6
<PAGE>
<PAGE>
Pittston Brink's Group
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
The financial statements of the Pittston Brink's Group (the "Brink's Group")
include the balance sheets, results of operations and cash flow of the Brink's,
Incorporated ("Brink's") and Brink's Home Security, Inc. ("BHS") operations of
the Pittston Company (the "Company"), and a portion of the Company's corporate
assets and liabilities and related transactions which are not specifically
identified with operations of a particular segment. The Brink's Group's
financial statements are prepared using the amounts included in the Company's
consolidated financial statements. Corporate amounts reflected in these
financial statements are determined based upon methods which management believes
provide a reasonable and equitable estimate of costs, assets and liabilities
attributable to the Brink's Group.
The Company provides holders of the Pittston Brink's Group Common Stock
("Brink's Stock") separate financial statements, financial reviews, descriptions
of business and other relevant information for the Brink's Group in addition to
consolidated financial information of the Company. Holders of Brink's Stock are
shareholders of the Company, which is responsible for all its liabilities.
Therefore, financial developments affecting the Brink's Group, the Pittston BAX
Group (the "BAX Group") or the Pittston Minerals Group (the "Minerals Group")
that affect the Company's financial condition could therefore affect the results
of operations and financial condition of each of the Groups. Accordingly, the
Company's consolidated financial statements must be read in connection with the
Brink's Group's financial statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Brink's Group's results of operations, liquidity and
capital resources. This discussion must be read in conjunction with the
financial statements and related notes of the Brink's Group and the Company.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands) 1998 1997 1996
- ---------------------------------------------------------
<S> <C> <C> <C>
Brink's:
North America $541,142 482,182 418,941
Europe 370,178 146,464 128,848
Latin America 310,064 266,445 182,481
Asia/Pacific 26,297 26,760 23,741
- ---------------------------------------------------------
Total Brink's 1,247,681 921,851 754,011
BHS 203,586 179,583 155,802
- ---------------------------------------------------------
Total operating revenues 1,451,267 1,101,434 909,813
=========================================================
Operating profit:
Brink's:
North America $49,046 40,612 34,387
Europe 27,080 10,039 4,734
Latin America 23,571 28,711 15,243
Asia/Pacific (1,277) 2,229 2,459
- ---------------------------------------------------------
Total Brink's 98,420 81,591 56,823
BHS 53,032 52,844 44,872
- ---------------------------------------------------------
Total segment operating
profit 151,452 134,435 101,695
General corporate expense (9,178) (6,871) (7,457)
- ---------------------------------------------------------
Total operating profit 142,274 127,564 94,238
=========================================================
Depreciation and amortization
Brink's $45,742 30,758 24,293
BHS 36,630 30,344 30,115
General corporate 238 229 158
- ---------------------------------------------------------
Total depreciation and
amortization 82,610 61,331 54,566
- ---------------------------------------------------------
Cash capital expenditures
Brink's $74,716 45,234 32,149
BHS 81,671 70,927 61,522
- ---------------------------------------------------------
General corporate 204 109 2,083
- ---------------------------------------------------------
Total cash capital
expenditures 156,591 116,270 95,754
=========================================================
</TABLE>
The Brink's Group's net income amounted to $79.1 million ($2.02 per share) in
1998, compared with the $73.6 million ($1.90 per share) earned in 1997. Revenues
for 1998 increased $349.8 million (32%) as compared to 1997, of which $325.8
million related to Brink's and $24.0 million to BHS. Operating profit totaled
$142.3 million, $14.7 million (12%) higher than the amounted reported in 1997,
due to increases in both Brink's and BHS, partially offset by higher corporate
expenses.
7
<PAGE>
<PAGE>
The Brink's Group's net income amounted to $73.6 million ($1.90 per share) in
1997, compared with the $59.7 million ($1.54 per share) earned in 1996. Revenues
for 1997 increased $191.6 million (21%) as compared to 1996, of which $167.8
million related to Brink's and $23.8 million to BHS. Operating profit totaled
$127.6 million, $33.3 million (35%) higher than the amounted reported in 1996,
due to increases in both Brink's and BHS, along with lower corporate expenses.
BRINK'S
Brink's worldwide consolidated revenues totaled $1.2 billion in 1998 compared to
$921.9 million in 1997, a 35% increase. Brink's 1998 operating profit of $98.4
million represented a 21% increase over the $81.6 million of operating profit
reported in 1997.
Revenues from North American operations increased $59.0 million (12%), to $541.1
million in 1998 from $482.2 million in 1997. North American operating profit
increased $8.4 million (21%) to $49.0 million in the current year from $40.6
million in 1997. The revenue and operating profit improvement for 1998 primarily
resulted from improvements in its armored car operations which includes ATM
services.
Revenues and operating profit from European operations in 1998 amounted to
$370.2 million and $27.1 million, respectively. These amounts represented
increases of $223.7 million and $17.0 million, respectively, from 1997. The 153%
increase in revenue was primarily due to the acquisition of substantially all of
the remaining shares (62%) of the Brink's subsidiary in France in the first
quarter of 1998 (discussed below) and of its subsidiary in Germany (50%) in the
second quarter of 1998. The 170% increase in operating profits primarily
reflects improved results from operations in France, as well as the increased
ownership. However, this improvement was partially offset by lower results in
Belgium, caused by industry-wide labor unrest in that country which was resolved
in the first quarter of 1998.
In 1998, Latin American revenues increased 16% to $310.1 million, while
operating profit decreased 18% to $23.6 million as compared to 1997. The
increased revenues were primarily attributable to operations in Venezuela.
Operating profit was favorably impacted by higher results from Venezuela which
were more than offset by costs associated with start-up operations in Argentina
and an equity loss from Brink's 20% owned affiliate in Mexico.
Revenues from Asia/Pacific operations were $26.3 million and $26.8 million in
1998 and 1997, respectively, while the operating loss was $1.3 million in 1998
and the operating profit was $2.2 million in 1997. The lower level of profit in
1998 was primarily due to additional expenses associated with the expansion of
operations in Australia.
Brink's worldwide consolidated revenues totaled $921.9 million in 1997 compared
to $754.0 million in 1996, a 22% increase. Brink's 1997 operating profit of
$81.6 million represented a 44% increase over the $56.8 million of operating
profit reported in 1996.
Revenues from North American operations increased $63.2 million (15%), to $482.2
million in 1997 from $418.9 million in 1996. North American operating profit
increased $6.2 million (18%) to $40.6 million in 1997 from $34.4 million in
1996. The revenue and operating profit improvement for 1997 primarily resulted
from improvements in its armored car operations which includes ATM services.
Revenues and operating profit from European operations in 1997 amounted to
$146.5 million and $10.0 million, respectively. These amounts represented
increases of $17.6 million (14%) and $5.3 million (112%) from 1996. The
improvement in revenues and operating profit in 1997 was due to stronger results
in most European countries, partially offset by lower results from the then 38%
owned affiliate in France.
In Latin America, revenues and operating profit increased 46% to $266.4 million
and 88% to $28.7 million, respectively, from 1996 to 1997. These increases were
primarily due to the consolidation of the results of Brink's Venezuelan
subsidiary, Custodia y Traslado de Valores, C.A. ("Custravalca"), where Brink's
increased its ownership from 15% to 61% in January 1997.
Revenues and operating profits from Asia/Pacific operations in 1997 were $26.8
million and $2.2 million respectively, compared to $23.7 million and $2.5
million, respectively, in 1996.
BHS
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Years Ended December 31
(Dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------
<S> <C> <C> <C>
Monitoring and service $73,245 63,457 48,814
Net marketing, sales and installation (20,213) (10,613) (3,942)
- ------------------------------------------------------------------
Operating profit $53,032 52,844 44,872
==================================================================
Monthly recurring revenues (a) 15,104 12,893 10,676
==================================================================
Number of subscribers:
Beginning of period 511,532 446,505 378,659
Installations 113,491 105,630 98,541
Disconnects, net (b) (39,458) (40,603) (30,695)
- ------------------------------------------------------------------
End of period 585,565 511,532 446,505
==================================================================
</TABLE>
(a) Monthly recurring revenues are calculated based on the number of subscribers
at period end multiplied by the average fee per subscriber received in the last
month of the period for monitoring, maintenance and related services.
(b) Includes 4,281 of special limited service contracts for a large homeowners'
association that were discontinued as of December 31, 1997.
8
<PAGE>
<PAGE>
Revenues for BHS increased by $24.0 million (13%) to $203.6 million in 1998 from
$179.6 million in 1997. Revenues in 1997 were $23.8 million (15%) higher than
the $155.8 million earned in 1996. The increase in revenues in both years was
predominantly the result of higher ongoing monitoring and service revenues
caused by growth of the subscriber base (14% in 1998 and 15% in 1997), as well
as higher average monitoring fees. As a result of such growth, monthly recurring
revenues grew 17% and 21%, respectively, in the 1998 and 1997 periods.
Installation revenue for 1998 and 1997 decreased 4% and 3%, respectively, over
the earlier year. While the number of new security system installations
increased, the revenue per installation decreased in response to continuing
competitive pricing pressures.
Operating profit in 1998 increased $0.2 million to $53.0 million as compared to
1997. In 1997, operating profit of $52.8 million represented an $8.0 million
increase over 1996. The increase in 1997 operating profit includes a $8.9
million reduction in depreciation expense resulting from a change in estimate
(discussed below). Operating profit in both 1998 and 1997 was favorably impacted
by increases in operating profit generated from monitoring and service
activities of $9.8 million (15%) and $14.6 million (30%), respectively. The
improvement during both years was due to the growth in the subscriber base
combined with the higher average monitoring fees. However, growth in overall
operating profit was negatively impacted by the increases in the net cost of
marketing, sales and installation related to gaining new subscribers which
increased $9.6 million and $6.7 million during 1998 and 1997, respectively, as
compared to the earlier year. The increase in this upfront net cost in both
years is due to higher levels of sales and marketing costs incurred and
expensed, combined with lower levels of installation revenue. Both of these
factors are a consequence of the continuing competitive environment in the
residential security market. Management expects to slow the relative increases
of these upfront costs during 1999 through intensified focus on marketing and
sales efficiencies.
It is BHS' policy to depreciate capitalized subscriber installation expenditures
over the estimated life of the security system based on subscriber retention
percentages. BHS initially developed its annual depreciation rate based on
information about subscriber retention which was available at the time. However,
accumulated historical data about actual subscriber retention has indicated that
subscribers remained active for longer periods of time than originally
estimated. Therefore, in order to reflect the higher demonstrated retention of
subscribers, and to more accurately match depreciation expense with monthly
recurring revenue generated from active subscribers, beginning in the first
quarter of 1997, BHS prospectively adjusted its annual depreciation rate from 10
to 15 years for capitalized subscriber installation costs. BHS will continue its
practice of charging the remaining net book value of all capitalized subscriber
installation expenditures to depreciation expense as soon as a system is
identified for disconnection. This change in estimate reduced depreciation
expense for capitalized installation costs in 1997 by $8.9 million. As of
January 1, 1992, BHS elected to capitalize categories of costs not previously
capitalized for home security installations. The additional costs not previously
capitalized consisted of costs for installation labor and related benefits for
supervisory, installation scheduling, equipment testing and other support
personnel and costs incurred in maintaining facilities and vehicles dedicated to
the installation process. The effect of this change in accounting principle was
to increase operating profit for the Brink's Group and the BHS segment for 1998,
1997 and 1996 by $6.1 million, $4.9 million and $4.5 million, respectively. The
effect of this change increased diluted net income per common share of Brink's
Stock by $0.10 in 1998, $0.08 in 1997 and by $0.07 in 1996.
FOREIGN OPERATIONS
A portion of the Brink's Group financial results is derived from activities in a
number of foreign countries located in Europe, Asia and Latin America, each with
a local currency other than the US dollar. Because the financial results of the
Brink's Group are reported in US dollars, they are affected by changes in the
value of the various foreign currencies in relation to the US dollar. Changes in
exchange rates may also adversely affect transactions which are denominated in
currencies other than the functional currency. Brink's periodically enters into
such transactions in the course of its business. The diversity of foreign
operations helps to mitigate a portion of the impact that foreign currency
fluctuations may have in any one country on the translated results. Brink's,
from time to time, uses foreign currency forward contracts to hedge
transactional risks associated with foreign currencies. (See "Market Risk
Exposures" below.) Translation adjustments of net monetary assets and
liabilities denominated in the local currency relating to operations in
countries with highly inflationary economies are included in net income, along
with all transaction gains or losses for the period. A subsidiary in Venezuela
and an affiliate in Mexico operate in such highly inflationary economies. Prior
to January 1, 1998, the economy in Brazil, in which Brink's has a subsidiary,
was also considered highly inflationary. As of January 1, 1999, the economy of
Mexico will no longer be considered hyperinflationary.
The Brink's Group is also subject to other risks customarily associated with
doing business in foreign countries, including labor and economic conditions,
political instability, controls on repatriation of earnings and capital,
nationalization, expropriation and other forms of restrictive action by local
governments. The future effects, if any, of such risks on the Brink's Group
cannot be predicted.
CORPORATE EXPENSES
A portion of the Company's corporate general and administrative expenses and
other shared services has been allocated to the Brink's Group based upon
utilization and other methods and criteria which management believes to be an
equitable and a
9
<PAGE>
<PAGE>
reasonable estimate of the cost attributable to the Brink's Group. These
attributions were $9.2 million in 1998, $6.9 million in 1997 and $7.5 million
in 1996.
Corporate expenses in 1998 include additional expenses of approximately $5.8
million related to a retirement agreement between the Company and its former
Chairman and CEO. Approximately $2.0 million of this $5.8 million of expenses
have been attributed to the Brink's Group. Corporate expenses in the 1998 period
also included costs associated with a severance agreement with a former member
of the Company's senior management.
Higher 1996 corporate expenses were primarily due to the relocation of the
Company's corporate headquarters to Richmond, Virginia, during September 1996,
which amounted to $2.9 million. Approximately $1 million of these costs were
attributed to the Brink's Group.
OTHER OPERATING INCOME, NET
Other net operating income increased $0.3 million to $2.1 million in 1998 and
decreased $0.6 million to $1.8 million in 1997. Other operating income
principally includes the equity earnings of Brink's foreign affiliates and
foreign currency exchange gains and losses. Equity earnings in 1998 decreased
$0.2 million as the earnings improvement and subsequent consolidation of Brink's
affiliate in France, which recorded an equity loss in 1997, was more than offset
by higher equity losses of Brink's 20% owned affiliate in Mexico in 1998.
INTEREST EXPENSE, NET
Net interest expense increased $9.6 million to $18.4 million in 1998 and
increased $9.7 million to $8.7 million in 1997. The increase in 1998 was due to
unusually high interest rates in Venezuela associated with local currency
borrowings in that country as well as higher average borrowings related to the
acquisitions in France and Germany. The increase in 1997 was due to Custravalca
acquisition debt and higher average interest rates in Venezuela.
OTHER INCOME/EXPENSE, NET
Other net income/expense, which principally includes foreign translation gains
and losses and minority interest expense or income, was income of $1.6 million
in 1998 and expense of $5.6 million and $5.4 million in 1997 and 1996,
respectively. The 1998 year reflects higher foreign translation gains, lower
minority interest ownership expense and higher gains on sale of investments. The
higher level of expense in 1997 also reflects an increase in minority interest
expense, resulting from the consolidation of the now 61% owned Custravalca
(early 1997).
INCOME TAXES
The provision for income taxes was 37% in 1998, 35% in 1997 and 33% in 1996. The
1998 rate exceeded the statutory federal income tax rate of 35% primarily due to
increased taxes on foreign income. In 1996 the provision for income taxes was
less than the statutory federal income tax rate of 35% due to lower taxes on
foreign income partially offset by additional provisions for state income taxes.
FINANCIAL CONDITION
A portion of the Company's corporate assets and liabilities has been attributed
to the Brink's Group based upon utilization of the shared services from which
assets and liabilities are generated. Management believes this attribution to
provide a reasonable and equitable estimate of the assets and liabilities
attributable to the Brink's Group.
Corporate assets which were allocated to the Brink's Group consisted primarily
of pension assets and deferred income taxes and amounted to $66.9 million and
$58.2 million at December 31, 1998 and 1997, respectively.
CASH FLOW REQUIREMENTS
Cash flow from operating activities increased $22.7 million to $169.7 million.
The increase primarily reflects higher levels of net income, which included
higher amounts for depreciation and amortization and other non-cash charges
partially offset by increased funding requirements for working capital. Cash
generated from operating activities was sufficient to fund investing activities,
primarily capital expenditures, and acquisition of increased ownership positions
in affiliates.
CAPITAL EXPENDITURES
Cash capital expenditures for 1998 totaled $156.6 million, of which $74.7
million was spent by Brink's and $81.7 million was spent by BHS. In 1998, $77.7
million (50%) of the Brink's Group's total cash capital expenditures was
attributable to BHS customer installations, principally reflecting expansion of
the subscriber base. Capital expenditures made by Brink's during 1998 were
primarily for expansion, replacement or maintenance of assets used in ongoing
business operations. Cash capital expenditures totaled $116.3 million in 1997.
Cash capital expenditures in 1999 are currently expected to approximate $165
million. The higher level of capital expenditures is expected to result largely
from expenditures at BHS, reflecting continued growth of the subscriber base,
and at Brink's for expansion of North America and international operations.
The foregoing amounts exclude expenditures that have been or are expected to be
financed through capital and operating leases, or acquisition expenditures.
FINANCING
The Brink's Group intends to fund cash capital expenditures through cash flow
from operating activities. Shortfalls, if any, will be financed through the
Company's revolving credit agreements, other borrowing arrangements or
repayments from the Minerals Group (as described under "Related Party
Transactions").
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Total debt outstanding at December 31, 1998 was $145.2 million, $89.9 million
higher than the $55.3 million at December 31, 1997. The increase in debt is
largely attributable to additional borrowings associated with the acquisition of
substantially all the remaining shares of Brink's subsidiary in France
(discussed below).
The Company has a $350.0 million credit agreement with a syndicate of banks (the
"Facility"). The Facility includes a $100.0 million term loan and permits
additional borrowings, repayments and reborrowings of up to an aggregate of
$250.0 million. The maturity date of both the term loan and the revolving credit
portion of the Facility is May 2001. Interest on borrowings under the Facility
is payable at rates based on prime, certificate of deposit, Eurodollar or money
market rates. As of December 31, 1998 and 1997, borrowings of $100.0 million
were outstanding under the term loan and $91.6 million and $25.9 million,
respectively, of additional borrowings were outstanding under the revolving
portion of the Facility. No portion of the total amount outstanding under the
Facility at December 31, 1998 or at December 31, 1997 was attributed to the
Brink's Group.
Under the terms of the Facility, the Company has agreed to maintain at least
$400.0 million of Consolidated Net Worth, as defined, and can incur additional
indebtedness of approximately $398 million at December 31, 1998.
In the first quarter of 1998, in connection with its purchase of the remaining
share (62%) of the Brink's French affiliate ("Brink's S.A."), the company made a
note to the seller for a principal amount of US $27.5 million payable in annual
installments plus interest through 2001. In addition, borrowings of
approximately US $19 million and capital leases of approximately US $30 million
were assumed.
In connection with its acquisition of Custravalca, Brink's entered into a
borrowing arrangement with a syndicate of local Venezuelan banks. The borrowings
consisted of a long-term loan denominated in the local currency equivalent to US
$40.0 million and a $10.0 million short-term loan denominated in US dollars
which was repaid during 1997. The long-term loan bears interest based on the
Venezuelan prime rate and is payable in installments through the year 2000. As
of December 31, 1998, total borrowings under this arrangement were equivalent to
US $27.2 million.
RELATED PARTY TRANSACTIONS
At December 31, 1998, under an interest bearing borrowing arrangement, the
Minerals Group owed the Brink's Group $20.3 million, a decrease of $6.7 million
from the $27.0 million owed at December 31, 1997. At December 31, 1998 and 1997,
the Brink's Group owed the Minerals Group $12.9 million and $19.4 million,
respectively, for tax payments representing the Minerals Group's tax benefits
utilized by Brink's Group in accordance with the Company's tax sharing policy,
of which $10.0 million is expected to be paid within one year. The Brink's Group
paid the Minerals Group $17.7 million for the utilization of such tax benefits
during 1998.
MARKET RISK EXPOSURES
The Brink's Group has activities in a number of foreign countries located in
Europe, Latin America and Asia, which expose it to a variety of market risks,
including the effects of changes in foreign currency exchange rates and interest
rates. These financial exposures are monitored and managed by the Brink's Group
as an integral part of its overall risk management program. The diversity of
foreign operations helps to mitigate a portion of the impact that foreign
currency rate fluctuations may have in any one country on the translated
results. The Brink's Group's risk management program considers this favorable
diversification effect as it measures the Brink's Group's exposure to financial
markets and as appropriate, seeks to reduce the potentially adverse effects that
the volatility of certain markets may have on its operating results.
Brink's primarily enters into non-derivative hedging instruments, as discussed
below, to hedge its foreign currency and interest rate exposures. The risk that
counterparties to such instruments may be unable to perform is minimal.
Management of Brink's does not expect any losses due to such counterparty
default.
The Brink's Group assesses interest rate and foreign currency risks by
continually identifying and monitoring changes in interest rate and foreign
currency exposures that may adversely impact expected future cash flows and by
evaluating hedging opportunities. The Brink's Group maintains risk management
control systems to monitor these risks attributable to both Brink's outstanding
and forecasted transactions as well as offsetting hedge positions. The risk
management control systems involve the use of analytical techniques to estimate
the expected impact of changes in interest rates and foreign currency rates on
Brink's future cash flows. Brink's does not use derivative instruments for
purposes other than hedging.
The sensitivity analyses discussed below for the market risk exposures were
based on several assumptions. The disclosures with respect to foreign exchange
and interest rate risks do not take into account forecasted foreign exchange and
interest rate transactions. Actual results will be determined by a number of
factors that are not under management's control and could vary significantly
from those disclosed.
Interest Rate Risk
Brink's primarily uses variable-rate debt denominated in foreign currencies,
including the Venezuela bolivar and French franc, to finance its foreign
operations. These debt obligations expose Brink's to variability in interest
expense due to changes in the general level of interest rates in these
countries. Venezuela is considered a highly inflationary economy, and therefore,
the effects of increases or decreases in that country's interest rates may be
partially offset by corresponding decreases or increases in the currency
exchange rates which will affect the US dollar value of the underlying debt.
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Brink's also has fixed-rate debt denominated in foreign currencies, primarily
French francs. The fixed rate debt is subject to fluctuations in its fair value
as a result of changes in interest rates.
Based on the overall interest rate level of both US dollar and foreign currency
denominated variable rate debt outstanding at December 31, 1998, a hypothetical
10% change (as a percentage of interest rates on outstanding debt) in Brink's
effective interest rate from year-end 1998 levels would over a 12 month period
change interest expense by approximately $2.1 million. The effect on the fair
value of foreign currency denominated fixed rate debt for a hypothetical 10%
uniform shift (as a percentage of market interest rates) in the yield curves for
interest rates in various countries from year-end 1998 levels would be
immaterial.
Foreign Currency Risk
The Brink's Group has certain exposures to the effects of foreign exchange rate
fluctuations on reported results in US dollars of foreign operations. Due in
part to the favorable diversification effects resulting from operations in
various countries within Europe, Asia and Latin America, including Canada,
Australia, the United Kingdom, France, Holland, Germany, Mexico, Brazil,
Venezuela, and Colombia, the Brink's Group does not generally enter into foreign
exchange hedges to mitigate these exposures.
The Brink's Group is exposed periodically to the foreign currency rate
fluctuations that affect transactions not denominated in the functional currency
of domestic and foreign operations. Such exposures during the period were
immaterial to the results of the Brink's Group.
The Brink's Group holds net investments in a number of foreign subsidiaries
which are translated at exchange rates at the balance sheet date. Resulting
cumulative translation adjustments are recorded as a separate component of
shareholders' equity and exposes the Brink's Group to adjustments resulting from
foreign exchange rate volatility. The Brink's Group, at times, uses
non-derivative financial instruments to hedge this exposure. Currency exposure
related to the net assets of the Brink's subsidiary in France are managed, in
part, through a foreign currency denominated debt agreement (seller financing)
entered into as part of the acquisition by Brink's. Gains and losses in the net
investment in subsidiaries are offset by losses and gains in the debt
obligations. All other hedges of net investments in foreign subsidiaries were
immaterial to the Brink's Group. The translation adjustments for
hyperinflationary economies in which the Brink's Group operates (currently
Mexico and Venezuela) are recorded as a component of net income and exposes the
Brink's Group to adjustments resulting from foreign exchange rate volatility.
The effects of a hypothetical simultaneous 10% appreciation in the US dollar
from year end 1998 levels against all other currencies of countries in which the
Brink's Group operates were measured for their potential impact on 1)
translation of earnings into US dollars based on 1998 results, 2) transactional
exposures, and 3) translation of balance sheet net equity accounts. The
hypothetical effects would be approximately $2.1 million unfavorable from the
translation of earnings into US dollars, approximately $1.3 million favorable
earnings effect from transactional exposures and approximately $12.9 million
unfavorable for the translation of balance sheet equity accounts.
READINESS FOR YEAR 2000: SUMMARY
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. If not corrected, many
date-sensitive applications could fail or create erroneous results by or in the
year 2000. The Brink's Group understands the importance of having systems and
equipment operational through the year 2000 and beyond and is committed to
addressing these challenges while continuing to fulfill its business obligations
to its customers and business partners. Both BHS and Brink's have established
Year 2000 Project Teams intended to make their information technology assets,
including embedded microprocessors ("IT assets"), non-IT assets, products,
services and infrastructure Year 2000 compliant.
READINESS FOR YEAR 2000: STATE OF READINESS
BHS
The BHS Year 2000 Project Team has divided its Year 2000 readiness program
into four phases: (i) assessment, (ii) remediation/replacement, (iii) testing
and (iv) integration. As of December 31, 1998, BHS has completed the assessment
and remediation/replacement phases. BHS is currently in both the testing and
integration phases. BHS plans to have completed all phases of its Year 2000
readiness program on a timely basis prior to Year 2000. As of December 31,
1998, at least 90% of BHS' IT and non-IT assets systems had been tested and
verified as Year 2000 ready.
Brink's
The Brink's Year 2000 Project Team has divided its Year 2000 readiness program
into six phases: (i) inventory, (ii) assessment, (iii) renovation, (iv)
validation/testing, (v) implementation and (vi) integration. Worldwide, Brink's
is largely in the renovation, validation/testing and implementation phases of
its Year 2000 readiness program.
Brink's North America
With respect to Brink's North America operations, all core IT systems have been
identified, renovation has taken place and the Year 2000 project is currently in
both the implementation and integration phase. The implementation phase of the
core operational systems is expected to be completed by the second quarter of
1999. Non-IT systems, including armored vehicles, closed circuit televisions,
videocassette recorders and certain currency processing equipment, are in the
assessment phase and certain renovation/replacement has been done. The
renovation and validation phases for non-IT systems are expected to continue
through the second quarter of 1999. As of December 31, 1998, most of Brink's
North America IT systems
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have been tested and validated as Year 2000 ready. Brink's believes that all
its IT and non-IT systems will be Year 2000 compliant or that there will be no
material adverse effect on operations or financial results due to
non-compliance.
Brink's International
All international affiliates have been provided with an implementation plan,
prepared by the Global Year 2000 Project Team. In addition, there is senior
management sponsorship in all international countries. The implementation plan
requires semi-monthly reports as to the status of each category in each country.
The categories include core systems, non-core systems, hardware, facilities,
special equipment, voice/data systems, etc. Countries in Europe, Latin America
and Asia/Pacific are in varying phases of the Year 2000 readiness program. In
Europe, core systems have been identified, some are in the remediation and
validation/testing phase, with others currently in the implementation and
integration phase. In both Latin America and Asia/Pacific, most countries are
currently in active renovation with several completing testing and
implementation on core systems. Brink's plans to have completed all phases of
its Year 2000 readiness program on a timely basis prior to Year 2000.
Brink's Group
As part of their Year 2000 projects, both BHS and Brink's North America have
sent comprehensive questionnaires to significant suppliers, and others with
which they do business, regarding their Year 2000 compliance and both are in the
process of identifying significant problem areas with respect to these business
partners. The Brink's Group is relying on such third parties' representations
regarding their own readiness for Year 2000. This process will be ongoing and
efforts with respect to specific problems identified will depend in part upon
its assessment of the risk that any such problems may have a material adverse
impact on its operations.
Further, the Brink's Group relies upon government agencies, utility companies,
telecommunication service companies and other service providers outside of its
control. As with most companies, the companies of the Brink's Group are
vulnerable to significant suppliers', customers' and other third parties'
inability to remedy their own Year 2000 issues. As the Brink's Group cannot
control the conduct of its suppliers or other third parties, there can be no
guarantee that Year 2000 problems originating with a supplier or other third
party will not occur.
READINESS FOR YEAR 2000: COSTS TO ADDRESS
The Brink's Group anticipates incurring remediation and acceleration costs for
its Year 2000 readiness program. Remediation includes identification,
assessment, remediation and testing phases of its Year 2000 readiness program.
Remediation costs include the costs of modifying existing software and hardware
as well as purchases that replace existing hardware and software that is not
Year 2000 ready. Most of these costs will be incurred by Brink's. Acceleration
costs include costs to purchase and/or develop and implement certain information
technology systems whose implementation have been accelerated as a result of the
Year 2000 readiness issue. Again, most of these costs will be incurred by
Brink's but were included in the normal budget cycle. Brink's does not
separately track the internal costs incurred for Year 2000, but these costs are
principally the related payroll for the information systems group and are also
included in the normal budget cycle. Additional IT initiatives, unrelated to
Year 2000, are continuing.
Total anticipated remediation and acceleration costs are detailed in the table
below:
<TABLE>
<CAPTION>
Acceleration
(In millions) Capitalized Expensed Total
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ 4.0 0.8 4.8
Incurred through December 31, 1998 1.5 0.3 1.8
- ---------------------------------------------------------------------
Remainder $ 2.5 0.5 3.0
=====================================================================
Remediation
Capitalized Expensed Total
- ---------------------------------------------------------------------
Total anticipated Year 2000 costs $10.0 3.6 13.6
Incurred through December 31, 1998 5.2 1.3 6.5
- ---------------------------------------------------------------------
Remainder $ 4.8 2.3 7.1
=====================================================================
Total
Capitalized Expensed Total
- ---------------------------------------------------------------------
Total anticipated Year 2000 costs $14.0 4.4 18.4
Incurred through December 31, 1998 6.7 1.6 8.3
- ---------------------------------------------------------------------
Remainder $ 7.3 2.8 10.1
=====================================================================
</TABLE>
READINESS FOR YEAR 2000: THE RISKS OF THE YEAR 2000 ISSUE
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect results
of operations, liquidity and financial condition of the Brink's Group.
BHS has begun an analysis of the operational problems and costs that would be
reasonably likely to result from the failure by BHS and certain third parties to
complete efforts necessary to achieve Year 2000 readiness on a timely basis. BHS
believes its most reasonably likely worst case scenario is that its ability to
receive alarm signals from some or all of its customers may be
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disrupted due to temporary regional service outages sustained by third party
electric utilities, local telephone companies, and/or long distance telephone
service providers. Such outages could occur regionally, affecting clusters of
customers, or could occur at BHS's principal monitoring facility, possibly
affecting the ability to provide service to all customers. BHS currently
believes that these problems will not be overwhelming and are not likely to
have a material effect on the company's operations or financial results.
Brink's believes its most reasonably likely worst case scenario is that it will
experience a number of minor system malfunctions and errors in the early days
and weeks of the Year 2000 that were not detected during its renovation and
testing efforts. Brink's currently believes that these problems will not be
overwhelming and are not likely to have a material effect on the company's
operations or financial results. Brink's may experience some additional
personnel expenses related to Year 2000 failures, but such expenses are not
expected to be material. As noted above, the Brink's Group is vulnerable to
significant suppliers', customers' and other third parties inability to remedy
their own Year 2000 issues. As the Brink's Group cannot control the conduct of
its suppliers or other third parties, there can be no guarantee that Year 2000
problems originating with a supplier, customer or other third party will not
occur. However, Brink's program of communication with major third parties with
whom they do business is intended to minimize any potential risks related to
third party failures.
READINESS FOR YEAR 2000: CONTINGENCY PLAN
BHS has begun to develop a contingency plan, which is expected to be completed
in the first half of 1999, for dealing with the most reasonably likely worst
case scenario. This contingency planning document will address the issue of what
BHS's response would be should it sustain a service outage encountered by the
third party electric utility, local telephone company, and/or primary long
distance telephone service provider at its principal monitoring facility. This
includes, among other things, the testing of redundant system connectivity
routed through multiple switching stations of the local telephone company, and
testing of backup electric generators at both BHS's principal and backup
monitoring facilities.
A contingency planning document, which was developed with the assistance of an
external facilitator, is being finalized for Brink's North American operations.
Brink's provides a number of different services to its customers and each type
of service line was reviewed during the contingency planning sessions. This
contingency planning document addresses the issue of what Brink's response would
be should a system/device fail, as well as what preparations and actions are
required beforehand to ensure continuity of services if those identified systems
failed. This includes, in some cases, reverting to paper processes to track and
handle packages, additional staff if required and increased supervisory
presence. Brink's may experience some additional personnel expenses related to
any Year 2000 failures, but they are not expected to be material. This
contingency planning document is being made available to Brink's International
operations to use as a guidance in developing appropriate contingency plans at
each of their locations and for the specific services they provide to their
customers.
READINESS FOR YEAR 2000: FORWARD LOOKING INFORMATION
This discussion of the Brink's Group companies' readiness for Year 2000,
including statements regarding anticipated completion dates for various phases
of the Brink's Group's Year 2000 project, estimated costs for Year 2000
readiness, the determination of likely worst case scenarios, actions to be taken
in the event of such worst case scenarios and the impact on the Brink's Group
of any delays or problems in the implementation of Year 2000 initiatives by the
Brink's Group and/or any public or private sector suppliers and service
providers and customers involve forward looking information which is subject to
known and unknown risks, uncertainties, and contingencies which could cause
actual results, performance or achievements, to differ materially for those
which are anticipated. Such risks, uncertainties and contingencies, many of
which are beyond the control of the Brink's Group, include, but are not limited
to, government regulations and/or legislative initiatives, variations in costs
or expenses relating to the implementation of Year 2000 initiatives, changes
in the scope of improvements to Year 2000 initiatives and delays or problems
in the implementation of Year 2000 initiatives by the Brink's Group and/or any
public or private sector suppliers and service providers and customers.
EURO CONVERSION
As part of the European Economic and Monetary Union, a single currency (the
"Euro") will replace the national currencies of most of the European countries
in which the Brink's Group conducts business. The conversion rates between the
Euro and the participating nations' currencies were fixed irrevocably as of
January 1, 1999, with the participating national currencies being removed from
circulation between January 1 and June 30, 2002 and replaced by Euro notes and
coinage. The Brink's Group is able to receive Euro denominated payments and
invoice in Euro as requested by vendors and suppliers as of January 1, 1999 in
the affected countries. Full conversion of all affected country operations to
Euro is expected to be completed by the time national currencies are removed
from circulation. The effects of the conversion to the Euro on revenues, costs
and various business strategies is not expected to be material.
CONTINGENT LIABILITIES
Under the Coal Industry Retiree Health Benefit Act of 1992 (the "Health Benefit
Act"), the Company and its majority-owned subsidiaries at July 20, 1992,
including certain companies of the Brink's Group are jointly and severally
liable with certain companies of the Minerals Group and of the BAX Group for the
costs of health care coverage provided for by that Act. For a description of the
Health Benefit Act and certain of such costs, see Note 14 to the Company's
consolidated
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financial statements. At this time, the Company expects the Minerals Group
to discharge its obligations under the Act.
In April 1990, the Company entered into a settlement agreement to resolve
certain environmental claims against the Company arising from hydrocarbon
contamination at a petroleum terminal facility ("Tankport") in Jersey City, New
Jersey, which operations were sold in 1983. Under the settlement agreement, the
Company is obligated to pay 80% of the remediation costs. Based on data
available to the Company and its environmental consultants, the Company
estimates its portion of the cleanup costs on an undiscounted basis using
existing technologies to be between $6.6 million and $11.2 million and to be
incurred over a period of up to five years. Management is unable to determine
that any amount within that range is a better estimate due to a variety of
uncertainties, which include the extent of the contamination at the site, the
permitted technologies for remediation and the regulatory standards by which the
cleanup will be conducted. The estimate of costs and the timing of payments
could change as a result of changes to the remediation plan required, changes in
the technology available to treat the site, unforeseen circumstances existing at
the site and additional cost inflation.
The Company commenced insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgment that all amounts payable by the Company pursuant to the Tankport
obligation were reimbursable under comprehensive general liability and pollution
liability policies maintained by the Company. In August 1995, the District Court
ruled on various Motions for Summary Judgment. In its decision, the Court found
favorably for the Company on several matters relating to the comprehensive
general liability policies but concluded that the pollution liability policies
did not contain pollution coverage for the types of claims associated with the
Tankport site. On appeal, the Third Circuit reversed the District Court and held
that the insurers could not deny coverage for the reasons stated by the District
Court, and the case was remanded to the District Court for trial. In the latter
part of 1998, the Company concluded a settlement with its comprehensive general
liability insurer and has settlements with three other groups of insurers. If
these settlements are consummated, only one group of insurers will be remaining
in this coverage action. In the event the parties are unable to settle the
dispute with this group of insurers, the case is scheduled to be tried in June
1999. Management and its outside legal counsel continue to believe that recovery
of a substantial portion of the cleanup costs will ultimately be probable of
realization. Accordingly, based on estimates of potential liability, probable
realization of insurance recoveries, related developments of New Jersey law and
the Third Circuit's decision, it is the Company's belief that the ultimate
amount that it would be liable for related to the remediation of the Tankport
site will not significantly adversely impact the Brink's Group's results of
operations or financial position.
CAPITALIZATION
The Company has three classes of common stock: Brink's Stock, Pittston BAX Group
Common Stock ("BAX Stock") and Pittston Minerals Group Common Stock ("Minerals
Stock") which were designed to provide shareholders with separate securities
reflecting the performance of the Brink's Group, BAX Group and Minerals Group,
respectively, without diminishing the benefits of remaining a single corporation
or precluding future transactions affecting any of the Groups. The Brink's Group
consists of the Brink's and BHS operations of the Company. The BAX Group
consists of the BAX Global Inc. ("BAX Global") operations of the Company. The
Minerals Group consists of the Pittston Coal Company ("Pittston Coal") and
Pittston Mineral Ventures ("Mineral Ventures") operations of the Company. The
Company prepares separate financial statements for the Brink's, BAX and Minerals
Groups, in addition to consolidated financial information of the Company.
The Company has the authority to issue up to 2,000,000 shares of preferred
stock, par value $10 per share. In January 1994, the Company issued $80.5
million (161,000 shares) of Series C Cumulative Convertible Preferred Stock (the
"Convertible Preferred Stock"), convertible into Minerals Stock. The Convertible
Preferred Stock, which is attributable to the Minerals Group, pays an annual
cumulative dividend of $31.25 per share payable quarterly, in cash, in arrears,
out of all funds of the Company legally available; therefore, when, as and if
declared by the Board and bears a liquidation preference of $500 per share, plus
an attributed amount equal to accrued and unpaid dividends thereon.
Under the share repurchase programs authorized by the Board of Directors of the
Company (the "Board"), the Company purchased shares in the periods presented as
follows:
<TABLE>
<CAPTION>
Years Ended December 31
(Dollars in millions, shares in thousands) 1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Brink's Stock:
Shares 150 166
Cost $ 5.6 4.3
Convertible Preferred Stock:
Shares 0.4 1.5
Cost $ 0.1 0.6
Excess carrying amount (a) $ 0.0 0.1
=================================================================
</TABLE>
(a) The excess of the carrying amount of the Convertible Preferred Stock over
the cash paid to holders for repurchases made during the years which is
deducted from preferred dividends in the Company's Statement of Operations.
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As of December 31, 1998, the Company had the remaining authority to repurchase
an additional $24.2 million of the Convertible Preferred Stock. As of December
31, 1998, the Company had remaining authority to purchase over time 1.0 million
shares of Pittston Brink's Common Stock. The aggregate purchase price limitation
for all common stock was $24.7 million at December 31, 1998. The authority to
repurchase shares remains in effect in 1999.
DIVIDENDS
The Board intends to declare and pay dividends, if any, on Brink's Stock based
on the earnings, financial condition, cash flow and business requirements of the
Brink's Group. Since the Company remains subject to Virginia law limitations on
dividends, losses by the Minerals Group or the BAX Group could affect the
Company's ability to pay dividends in respect of stock relating to the Brink's
Group.
During 1998 and 1997, the Board declared and the Company paid dividends on
Brink's Stock of $0.10 per share.
In 1998 and 1997, dividends paid on the Convertible Preferred Stock were $3.5
million and $3.6 million, respectively.
ACCOUNTING CHANGES
The Brink's Group adopted SFAS No. 130, "Reporting Comprehensive Income" in the
first quarter of 1998. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in financial statements.
Comprehensive income generally represents all changes in shareholders' equity
except those resulting from investments by or distributions to shareholders.
Effective January 1, 1998, the Brink's Group implemented AICPA Statement of
Position ("SOP") No. 98-1 "Accounting for the Costs of Computer Software
Developed for Internal Use." SOP No. 98-1 requires that certain costs related to
the development or purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software. The adoption of this
standard had no material impact on the Brink's Group.
The Brink's Group implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in the financial statements for the year
ended December 31, 1998. SFAS No. 131 superseded FASB Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
requires publicly-held companies to report financial and descriptive information
about operating segments in financial statements issued to shareholders for
interim and annual periods. The SFAS also requires additional disclosures with
respect to products and services, geographic areas of operation, and major
customers. The adoption of SFAS No. 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information. See
Note 16.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999; the Brink's Group has elected to adopt SFAS No. 133 as of October 1, 1998.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Changes in the fair value of derivatives are
recorded each period currently in earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction. The adoption of SFAS
No. 133 did not have a material impact on the Brink's Group balance sheet or
statement of operations.
PENDING ACCOUNTING CHANGES
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5, which provides guidance on the reporting of
start-up costs and organization costs, requires that such costs be expensed as
incurred. This SOP is effective for the Brink's Group for the year beginning
January 1, 1999. Initial application of the SOP is required to be reported as a
cumulative effect of a change in accounting principle as of the beginning of the
year of adoption. Management does not expect that the implementation of the new
statement will have a material effect on the Brink's Group's results of
operations and/or financial position.
FORWARD LOOKING INFORMATION
Certain of the matters discussed herein, including statements regarding the
ability to slow cost increases in the home security business, the readiness for
Year 2000, the conversion to the Euro, the Minerals Group's ability to discharge
its Health Benefit Act obligations, environmental clean-up estimates, and
projected capital spending, involve forward looking information which is subject
to known and unknown risks, uncertainties, and contingencies which could cause
actual results, performance or achievements to differ materially from those
which are anticipated. Such risks, uncertainties and contingencies, many of
which are beyond the control of the Brink's Group and the Company, include, but
are not limited to, overall economic and business conditions, the demand for the
Brink's Group's services, pricing and other competitive factors in the industry,
new government regulations and/or legislative initiatives, variations in costs
or expenses, insufficient cash flow of the Minerals Group, changes in the scope
of Year 2000 and/or Euro initiatives, and delays or problems in the
implementation of Year 2000 and/or Euro initiatives by the Brink's Group and/or
any public or private sector suppliers, service providers and customers.
16
<PAGE>
<PAGE>
Pittston Brink's Group
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of The Pittston Company (the "Company") is responsible for
preparing the accompanying Pittston Brink's Group (the "Brink's Group")
financial statements and for their integrity and objectivity. The statements
were prepared in accordance with generally accepted accounting principles.
Management has also prepared the other information in the annual report and is
responsible for its accuracy.
In meeting our responsibility for the integrity of the financial statements, we
maintain a system of internal controls designed to provide reasonable assurance
that assets are safeguarded, that transactions are executed in accordance with
management's authorization and that the accounting records provide a reliable
basis for the preparation of the financial statements. Qualified personnel
throughout the organization maintain and monitor these internal controls on an
ongoing basis. In addition, the Company maintains an internal audit department
that systematically reviews and reports on the adequacy and effectiveness of the
controls, with management follow-up as appropriate.
Management has also established a formal Business Code of Ethics which is
distributed throughout the Company. We acknowledge our responsibility to
establish and preserve an environment in which all employees properly understand
the fundamental importance of high ethical standards in the conduct of our
business.
The accompanying financial statements have been audited by KPMG LLP, independent
auditors. During the audit they review and make appropriate tests of accounting
records and internal controls to the extent they consider necessary to express
an opinion on the Brink's Group's financial statements.
The Company's Board of Directors pursues its oversight role with respect to the
Brink's Group's financial statements through the Audit and Ethics Committee,
which is composed solely of outside directors. The Committee meets periodically
with the independent auditors, internal auditors and management to review the
Company's control system and to ensure compliance with applicable laws and the
Company's Business Code of Ethics.
We believe that the policies and procedures described above are appropriate and
effective and do enable us to meet our responsibility for the integrity of the
Brink's Group's financial statements.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Pittston Company
We have audited the accompanying balance sheets of Pittston Brink's Group (as
described in Note 1) as of December 31, 1998 and 1997, and the related
statements of operations, shareholder's equity and cash flows for each of the
years in the three-year period ended December 31, 1998. These financial
statements are the responsibility of The Pittston Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements of Pittston Brink's Group present
fairly, in all material respects, the financial position of Pittston Brink's
Group as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
As more fully discussed in Note 1, the financial statements of Pittston Brink's
Group should be read in connection with the audited consolidated financial
statements of The Pittston Company and subsidiaries.
KPMG LLP
Richmond, Virginia
January 27, 1999
17
<PAGE>
<PAGE>
Pittston Brink's Group
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(In thousands) 1998 1997
================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 52,276 37,694
Short-term investments 1,767 2,227
Accounts receivable:
Trade 229,976 164,527
Other 14,794 6,045
- --------------------------------------------------------------------------------
244,770 170,572
Less estimated uncollectible amounts 14,222 9,660
- --------------------------------------------------------------------------------
230,548 160,912
Receivable--Pittston Minerals Group (Note 2) 10,321 8,003
Inventories 9,466 3,469
Prepaid expenses and other current assets 19,011 16,672
Deferred income taxes (Note 8) 23,541 18,147
- --------------------------------------------------------------------------------
Total current assets 346,930 247,124
Property, plant and equipment, at cost (Note 5) 809,109 623,129
Less accumulated depreciation and amortization 318,382 276,457
- --------------------------------------------------------------------------------
490,727 346,672
Intangibles, net of accumulated amortization (Note 6) 62,706 18,510
Deferred pension assets (Note 14) 28,818 31,713
Deferred income taxes (Note 8) 7,912 3,612
Other assets 39,911 44,699
- --------------------------------------------------------------------------------
Total assets $ 977,004 692,330
================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings (Note 9) $ 19,800 9,073
Current maturities of long-term debt (Note 9) 32,062 7,576
Accounts payable 59,608 36,337
Accrued liabilities:
Taxes 42,250 14,350
Workers' compensation and other claims 19,195 17,487
Payroll and vacation 53,730 38,388
Deferred monitoring revenues 14,641 15,351
Miscellaneous (Note 14) 65,266 39,786
- --------------------------------------------------------------------------------
195,082 125,362
- --------------------------------------------------------------------------------
Total current liabilities 306,552 178,348
Long-term debt, less current maturities (Note 9) 93,345 38,682
Postretirement benefits other than pensions (Note 14) 4,354 4,097
Workers' compensation and other claims 11,229 11,277
Deferred income taxes (Note 8) 53,876 45,324
Payable--Pittston Minerals Group (Note 2) 2,943 391
Other liabilities 18,071 8,929
Minority interests 25,224 24,802
Commitments and contingent liabilities (Notes 9, 13 and
17)
Shareholder's equity (Notes 3, 11 and 12) 461,410 380,480
- --------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 977,004 692,330
================================================================================
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
<PAGE>
Pittston Brink's Group
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands, except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 1,451,267 1,101,434 909,813
- --------------------------------------------------------------------------
Costs and expenses:
Operating expenses 1,103,874 815,005 687,175
Selling, general and administrative
expenses 207,256 160,676 130,833
- ----------------------------------------------------------------------------
Total costs and expenses 1,311,130 975,681 818,008
Other operating income, net (Note 15) 2,137 1,811 2,433
- ----------------------------------------------------------------------------
Operating profit 142,274 127,564 94,238
Interest income (Note 2) 3,747 2,760 2,745
Interest expense (Note 2) (22,114) (11,478) (1,810)
Other income (expense), net 1,621 (5,571) (5,407)
- ----------------------------------------------------------------------------
Income before income taxes 125,528 113,275 89,766
Provision for income taxes (Note 8) 46,424 39,653 30,071
- ----------------------------------------------------------------------------
Net income $ 79,104 73,622 59,695
============================================================================
Net income per common share (Note 10):
Basic $ 2.04 1.92 1.56
Diluted 2.02 1.90 1.54
===========================================================================
Weighted average common shares outstanding (Note 10):
Basic 38,713 38,273 38,200
Diluted 39,155 38,791 38,682
===========================================================================
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
<PAGE>
Pittston Brink's Group
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $380,480 313,378 258,805
- ------------------------------------------------------------------------------
Comprehensive income:
Net income 79,104 73,622 59,695
Other comprehensive income, net of tax:
Foreign currency translation adjustments,
net of tax effect of $488, $322 and $263 (7,188) (8,237) (1,423)
Other, net of tax of ($64) 109 -- --
- --------------------------------------------------------------------------------
Comprehensive income 72,025 65,385 58,272
- --------------------------------------------------------------------------------
Brink's stock options exercised (Note 11) 6,230 6,292 1,940
Brink's shares released from employee benefits trust
to emp1oyee benefits plan (Note 12) 7,531 6,369 5,633
Retirement of Brink's stock under share repurchase
programs (Note 12) (5,617) (4,349) (6,937)
Common dividends declared (Note 12) (3,874) (3,755) (3,902)
Cost of Brink's stock proposal (Note 11 -- -- (1,238)
Tax benefit of Brink's stock options exercised
(Note 8) 3,738 1,156 805
- -------------------------------------------------------------------------------
Balance at end of period $461,410 380,480 313,378
================================================================================
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
<PAGE>
Pittston Brink's Group
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $79,104 73,622 59,695
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 82,610 61,331 54,566
Provision for deferred income taxes 2,091 990 62
Provision for pensions, noncurrent 3,683 1,398 1,149
Provision for uncollectible accounts receivable 8,265 6,094 4,416
Equity in (earnings) losses of unconsolidated
affiliates, net of dividends received (442) 1,996 (1,755)
Minority interest expense 1,360 5,432 3,902
Gain on sales of property, plant and
equipment and other assets and investments (2,393) (712) (1,567)
Other operating, net 5,511 4,596 3,304
Change in operating assets and liabilities, net
of effects of acquisitions and dispositions:
Increase in accounts receivable (19,739) (25,259) (15,556)
Increase in inventories (3,333) (398) (276)
Decrease (increase) in prepaid expenses 1,714 82 (1,300)
Increase in accounts payable and accrued
liabilities 7,516 19,341 12,989
Increase in other assets (2,712) (2,398) (4,742)
Increase (decrease) in other liabilities 1,047 3,025 (949)
Other, net (4,535) (2,100) (155)
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 169,747 147,040 113,783
- ------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (156,591) (116,270) (95,754)
Proceeds from disposal of property, plant and
equipment 4,662 1,007 2,798
Acquisitions, net of cash acquired, and related
contingency payments (5,686) (55,349) --
Other, net (2,823) 5,455 843
- ------------------------------------------------------------------------------------
Net cash used by investing activities (160,438) (165,157) (92,113)
- ------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 22,277 59,936 1,842
Reductions of debt (19,877) (15,542) (9,375)
Payments from (to) Minerals Group 6,681 (2,977) (6,082)
Repurchase of common stock (6,346) (4,349) (6,936)
Proceeds from exercise of stock options
and employee stock purchase plan 6,230 2,297 2,072
Dividends paid (3,692) (3,566) (3,918)
Cost of stock proposal -- -- (1,238)
- ------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 5,273 35,799 (23,635)
- ------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 14,582 17,682 (1,965)
Cash and cash equivalents at beginning of period 37,694 20,012 21,977
- ------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $52,276 37,694 20,012
====================================================================================
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
<PAGE>
Pittston Brink's Group
NOTES TO FINANCIAL STATEMENTS
(In thousands, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
As used herein, the "Company" includes The Pittston Company except as otherwise
indicated by the context. The Company is comprised of three separate groups -
Pittston Brink's Group, Pittston BAX Group, and Pittston Minerals Group. The
financial statements of the Brink's Group include the balance sheets, the
results of operations and cash flows of the Brink's, Incorporated ("Brink's")
and Brink's Home Security, Inc. ("BHS") operations of the Company, and a portion
of the Company's corporate assets and liabilities and related transactions which
are not specifically identified with operations of a particular segment. The
Brink's Group's financial statements are prepared using the amounts included in
the Company's consolidated financial statements. Corporate allocations reflected
in these financial statements are determined based upon methods which management
believes to provide a reasonable and equitable allocation of such items (Note
2).
The Company provides to holders of Pittston Brink's Group Common Stock ("Brink's
Stock") separate financial statements, financial review, descriptions of
business and other relevant information for the Brink's Group in addition to the
consolidated financial information of the Company. Notwithstanding the
attribution of assets and liabilities (including contingent liabilities) among
the Minerals Group, the Brink's Group and the BAX Group for the purpose of
preparing their respective financial statements, this attribution and the change
in the capital structure of the Company as a result of the approval of the
Brink's Stock Proposal did not affect legal title to such assets or
responsibility for such liabilities for the Company or any of its subsidiaries.
Holders of Brink's Stock are common shareholders of the Company, which continues
to be responsible for all its liabilities. Financial impacts arising from one
group that affect the Company's financial condition could therefore affect the
results of operations and financial condition of each of the groups. Since
financial developments within one group could affect other groups, all
shareholders of the Company could be adversely affected by an event directly
impacting only one group. Accordingly, the Company's consolidated financial
statements must be read in connection with the Brink's Group's financial
statements.
PRINCIPLES OF COMBINATION
The accompanying financial statements reflect the combined accounts of the
businesses comprising the Brink's Group and their majority-owned subsidiaries.
The Brink's Group's interests in 20% to 50% owned companies are carried on the
equity method unless control exists, in which case, consolidation accounting is
used. All material intercompany items and transactions have been eliminated
in combination. Certain prior year amounts have been reclassified to conform to
the current year's financial statement presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits and investments
with original maturities of three months or less.
SHORT-TERM INVESTMENTS
Short-term investments are those with original maturities in excess of three
months, but not exceeding one year, and are carried at cost which approximates
market.
INVENTORIES
Inventories are stated at cost (determined under the first-in, first-out or
average cost method) or market, whichever is lower.
PROPERTY, PLANT AND EQUIPMENT
Expenditures for maintenance and repairs are charged to expense, and the costs
of renewals and betterments are capitalized. Depreciation is provided
principally on the straight-line method at varying rates depending upon
estimated useful lives.
Subscriber installation costs for home security systems provided by BHS are
capitalized and depreciated over the estimated life of the assets and are
included in machinery and equipment. The security system that is installed
remains the property of BHS and is capitalized at the cost to bring the revenue
producing asset to its intended use. When an installation is identified for
disconnection, the remaining net book value of the installation is fully
reserved and charged to depreciation expense.
INTANGIBLES
The excess of cost over fair value of net assets of businesses acquired is
amortized on a straight-line basis over the estimated periods benefited.
The Brink's Group evaluates the carrying value of intangibles and the periods of
amortization to determine whether events and circumstances warrant revised
estimates of asset value or useful lives. The Brink's Group annually assesses
the recoverability of the excess of cost over net assets acquired by determining
whether the amortization of the asset balance over its remaining life can be
recovered through projected undiscounted future operating cash flows. Evaluation
of asset value as well as periods of amortization are performed on a
disaggregated basis.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax
22
<PAGE>
<PAGE>
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which these
items are expected to reverse.
See Note 2 for allocation of the Company's US federal income taxes to the
Brink's Group.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Postretirement benefits other than pensions are accounted for in accordance with
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", which requires employers to accrue the cost of such retirement
benefits during the employees' service with the Company.
STOCK BASED COMPENSATION
The Brink's Group has implemented the disclosure-only provisions of SFAS No.
123, "Accounting for Stock Based Compensation" (Note 11). The Brink's Group
continues to measure compensation expense for its stock-based compensation plans
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees."
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations have been translated at rates of
exchange at the balance sheet date and related revenues and expenses have been
translated at average rates of exchange in effect during the year. Resulting
cumulative translation adjustments have been included in shareholder's equity.
Translation adjustments relating to operations in countries with highly
inflationary economies are included in net income, along with all transaction
gains and losses for the period.
A portion of the Brink's Group's financial results is derived from activities in
a number of foreign countries in Europe, Asia and Latin America, each with a
local currency other than the US dollar. Because the financial results of the
Brink's Group are reported in US dollars, they are affected by changes in the
value of various foreign currencies in relation to the US dollar. The diversity
of foreign operations helps to mitigate a portion of the foreign currency risks
associated with market fluctuations in any one country and the impact on
translated results.
REVENUE RECOGNITION
Brink's--Revenues are recognized when services are performed.
BHS--Monitoring revenues are recognized when earned and amounts paid in advance
are deferred and recognized as income over the applicable monitoring period,
which is generally one year or less.
NET INCOME PER SHARE
Basic and diluted net income per share for the Brink's Group are computed by
dividing net income by the basic weighted-average common shares outstanding and
the diluted weighted average common shares outstanding, respectively. Diluted
weighted average common shares outstanding includes additional shares assuming
the exercise of stock options. However, when the exercise of stock options is
antidilutive, they are excluded from the calculation. The shares of Brink's
Stock held in The Pittston Company Employee Benefits Trust (the "Trust" - See
Note 12) are subject to the treasury stock method and effectively are not
included in the basic and diluted net income per share calculations.
USE OF ESTIMATES
In accordance with generally accepted accounting principles, management of the
Company has made a number of estimates and assumptions relating to the reporting
of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements. Actual results could differ
from those estimates.
ACCOUNTING CHANGES
The Brink's Group adopted SFAS No. 130, "Reporting Comprehensive Income" in the
first quarter of 1998. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in financial statements.
Comprehensive income generally represents all changes in shareholders' equity
except those resulting from investments by or distributions to shareholders.
Effective January 1, 1998, the Brink's Group implemented AICPA Statement of
Position ("SOP") No. 98-1 "Accounting for the Costs of Computer Software
Developed for Internal Use." SOP No. 98-1 requires that certain costs related to
the development or purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software. The adoption of this
standard had no material impact on the Brink's Group.
The Brink's Group implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in the financial statements for the year
ended December 31, 1998. SFAS No. 131 superseded FASB Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise". SFAS No. 131
requires publicly-held companies to report financial and descriptive information
about operating segments in financial statements issued to shareholders for
interim and annual periods. The SFAS also requires additional disclosures with
respect to products and services, geographic areas of operation, and major
customers. The adoption of SFAS No. 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information. See
Note 16.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999; the Brink's Group has elected to adopt SFAS No. 133 as of October
23
<PAGE>
<PAGE>
1, 1998. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. Changes in the fair value of
derivatives are recorded each period currently in earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, depending on the type of hedge transaction.
The adoption of SFAS No. 133 did not have a material impact on the Brink's Group
balance sheet or statement of operations.
2. RELATED PARTY TRANSACTIONS
The following policies may be modified or rescinded by action of the Company's
Board of Directors (the "Board"), or the Board may adopt additional policies,
without approval of the shareholders of the Company, although the Board has no
present intention to do so. The Company allocated certain corporate general and
administrative expenses, net interest expense and related assets and liabilities
in accordance with the policies described below. Corporate assets and
liabilities are primarily deferred pension assets and liabilities, income taxes
and accrued liabilities. See Note 12 for Board policies related to disposition
of properties and assets.
FINANCIAL
As a matter of policy, the Company manages most financial activities of the
Brink's Group, BAX Group and Minerals Group on a centralized, consolidated
basis. Such financial activities include the investment of surplus cash; the
issuance, repayment and repurchase of short-term and long-term debt; the
issuance and repurchase of common stock and the payment of dividends. In
preparing these financial statements, transactions primarily related to invested
cash, short-term and long-term debt (including convertible debt), related net
interest and other financial costs have been attributed to the Brink's Group
based upon its cash flows for the periods presented after giving consideration
to the debt and equity structure of the Company. The Company attributes
long-term debt to the Brink's Group based upon the purpose for the debt in
addition to the cash requirements of the Brink's Group. At December 31, 1998 and
1997 none of the long-term debt of the Company was attributed to the Brink's
Group. The portion of the Company's interest expense, net of amounts
capitalized, allocated to the Brink's Group for 1998, 1997 and 1996 was $0, $123
and $106, respectively. Management believes such method of allocation to provide
a reasonable and equitable estimate of the costs attributable to the Brink's
Group.
To the extent borrowings are deemed to occur between the Brink's Group, the BAX
Group and the Minerals Group, intergroup accounts are established bearing
interest at the rate in effect from time to time under the Company's unsecured
credit lines or, if no such credit lines exist, at the prime rate charged by
Chase Manhattan Bank from time to time. At December 31, 1998 and 1997, the
Minerals Group owed the Brink's Group $20,321 and $27,004, respectively, as the
result of such borrowings. Interest income for the Brink's Group associated with
such borrowings was $811 and $481 for 1998 and 1997, respectively.
INCOME TAXES
The Brink's Group and its domestic subsidiaries are included in the consolidated
US federal income tax return filed by the Company.
The Company's consolidated provision and actual cash payments for US federal
income taxes are allocated between the Brink's Group, BAX Group and Minerals
Group in accordance with the Company's tax allocation policy and reflected in
the financial statements for each Group. In general, the consolidated tax
provision and related tax payments or refunds are allocated among the Groups,
for financial statement purposes, based principally upon the financial income,
taxable income, credits and other amounts directly related to the respective
Group. Tax benefits that cannot be used by the Group generating such attributes,
but can be utilized on a consolidated basis, are allocated to the Group that
generated such benefits and an intergroup account is established for the benefit
of the Group generating the attributes. As a result, the allocated Group amounts
of taxes payable or refundable are not necessarily comparable to those that
would have resulted if the Groups had filed separate tax returns. In accordance
with the policy, at December 31, 1998 and 1997, the Brink's Group owed the
Minerals Group $12,943 and $19,391, respectively, for such tax benefits, of
which $2,943 and $391, respectively, were not expected to be paid within one
year from such dates. The Brink's Group paid the Minerals Group $17,667 in 1998
and $15,794 in 1997 for the utilization of such tax benefits.
SHARED SERVICES
A portion of the Company's corporate general and administrative expenses and
other shared services has been allocated to the Brink's Group based upon
utilization and other methods and criteria which management believes to provide
a reasonable and equitable estimate of the costs attributable to the Brink's
Group. These allocations were $9,178, $6,871 and $7,457 in 1998, 1997 and 1996,
respectively.
PENSION
The Brink's Group's pension cost related to its participation in the Company's
noncontributory defined benefit pension plan is actuarially determined based on
its respective employees and an allocable share of the pension plan assets and
calculated in accordance with SFAS No. 87, "Employers' Accounting for Pensions".
Pension plan assets have been allocated to the Brink's Group based on the
percentage of its projected benefit obligation to the plan's total projected
benefit obligation. Management believes such method of allocation to provide a
reasonable and equitable estimate of the assets and costs attributable to the
Brink's Group.
24
<PAGE>
<PAGE>
3. SHAREHOLDER'S EQUITY
The cumulative foreign currency translation adjustment deducted from
shareholder's equity is $36,892, $29,704 and $21,467 at December 31, 1998, 1997
and 1996, respectively.
4. ACQUISITIONS
All acquisitions have been accounted for as purchases. Accordingly, the costs of
the acquisitions were allocated to the assets acquired and liabilities assumed
based on their respective fair values. The results of operations of the
businesses acquired have been included in the accompanying financial statements
of the Brink's Group from their respective dates of acquisition. The excess of
the purchase price over fair value of the net assets acquired is included in
goodwill. Some purchase agreements provide for contingent payments based on
specified criteria. Any such future payments are generally capitalized as
goodwill when paid. Unless otherwise indicated, goodwill is amortized on a
straight-line basis over forty years.
In the first quarter of 1998, the Brink's Group purchased 62% (representing
substantially all of the remaining shares) of its Brink's affiliate in France
("Brink's S.A.") for payments aggregating US $39,000, including interest, over
three years. In addition, estimated liabilities assumed approximated US $125,700
(See Note 9). The fair value of assets acquired approximated US $127,000
(including US $9,200 in cash). The acquisition was funded primarily through a
note to the seller (See Note 9). Based on an estimate of fair values of assets
acquired and liabilities assumed, the acquisition resulted in goodwill of
approximately US $35,000. Brink's S.A. had annual revenues of approximately US
$220,000 in 1997. If this acquisition had occurred on January 1, 1997, the pro
forma impact on the Brink's Group's net income or net income per share would not
have been material.
In addition, during 1998, the Brink's Group acquired additional interests in its
Brink's subsidiaries in Bolivia and Colombia and purchased the remaining 50%
interest in its Brink's affiliate in Germany. A 10% interest in the Hong Kong
subsidiary was sold for an amount approximating book value. If these
acquisitions and disposition had occurred on either January 1, 1997 or 1998, the
pro forma impact on the Brink's Group revenues, net income or net income per
share in 1997 and 1998 would not have been material.
In the first quarter of 1997, the Brink's Group increased its ownership position
in its Venezuelan affiliate, Custodia y Traslado de Valores, C.A.
("Custravalca"), from 15% to 61%. The acquisition was financed through a
syndicate of local Venezuelan banks (See Note 9). In conjunction with this
transaction, Brink's acquired an additional 31% interest in Brink's Peru S.A.
bringing its interest to 36%. If these acquisitions had occurred on January 1,
1996, the pro forma impact on the Brink's Group revenues, net income or net
income per share in 1996 would not have been material.
In addition, throughout 1997, the Brink's Group acquired additional interests in
several subsidiaries and affiliates. Remaining interests were acquired in the
Netherlands, Hong Kong and Taiwan while ownership positions were increased in
Bolivia and Chile. If these acquisitions had occurred on January 1, 1996 or
1997, the pro forma impact on the Brink's Group revenues, net income or net
income per share in 1996 and 1997 would not have been material.
There were no material acquisitions in 1996.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
As of December 31
1998 1997
- --------------------------------------------------------
<S> <C> <C>
Land $ 16,643 11,928
Buildings 147,651 103,482
Machinery and equipment 644,815 507,719
- --------------------------------------------------------
Total $ 809,109 623,129
========================================================
</TABLE>
The estimated useful lives for property, plant and equipment are as follows:
<TABLE>
<CAPTION>
Years
- --------------------------------------------------------
<S> <C>
Buildings 10 to 40
Machinery and equipment 2 to 20
========================================================
</TABLE>
Depreciation of property, plant and equipment aggregated $80,654 in 1998,
$60,119 in 1997 and $53,285 in 1996.
25
<PAGE>
<PAGE>
Changes in capitalized subscriber installation costs for home security systems
included in machinery and equipment were as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
- ------------------------------------------------------
<S> <C> <C> <C>
Capitalized subscriber
installation costs
--beginning of year $ 172,792 134,850 105,336
Capitalized cost of security
system installations 77,460 64,993 57,194
Depreciation, including amounts
recognized to fully depreciate
capitalized costs for
installations disconnected
during the year (32,657)(27,051)(27,680)
- ------------------------------------------------------
Capitalized subscriber
installation
costs--end of year $ 217,595 172,792 134,850
======================================================
</TABLE>
Based on demonstrated retention of customers, beginning in the first quarter of
1997, BHS prospectively adjusted its annual depreciation rate from 10 to 15
years for capitalized subscribers' installation costs. This change more
accurately matches depreciation expense with monthly recurring revenue generated
from customers. This change in accounting estimate reduced depreciation expense
for capitalized installation costs in 1997 for the Brink's Group and the BHS
segment by $8,915. The effect of this change increased net income of the Brink's
Group in 1997 by $5,794 ($0.15 per share).
New subscribers were approximately 113,500 in 1998, 105,600 in 1997 and 98,500
in 1996.
As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security system installations. This change in
accounting principle, is preferable because it more accurately reflects
subscriber installation costs. The additional costs not previously capitalized
consisted of costs for installation labor and related benefits for supervisory,
installation scheduling, equipment testing and other support personnel (in the
amount of $2,949 in 1998, $2,600 in 1997 and $2,517 in 1996) and costs incurred
for maintaining facilities and vehicles dedicated to the installation process
(in the amount of $3,165 in 1998, $2,343 in 1997 and $2,022 in 1996). The effect
of this change in accounting principle was to increase operating profit of the
Brink's Group in 1998, 1997 and 1996 by $6,114, $4,943 and $4,539, respectively,
and net income of the Brink's Group in 1998, 1997 and 1996 by $3,852, $3,213 and
$2,723, respectively, or by $0.10 per basic and diluted common share in 1998,
$0.08 per basic and diluted common share in 1997 and $0.07 per basic and diluted
common share in 1996. Prior to January 1, 1992, the records needed to identify
such costs were not available. Thus it was impossible to accurately calculate
the effect on retained earnings as of January 1, 1992. However, the Brink's
Group believes the effect on retained earnings as of January 1, 1992, was
immaterial.
Because capitalized subscriber installation costs for prior periods were not
adjusted for the change in accounting principle, installation costs for
subscribers in those years will continue to be depreciated based on the lesser
amounts capitalized in prior periods. Consequently, depreciation of capitalized
subscriber installation costs in the current year and until such capitalized
costs prior to January 1, 1992 are fully depreciated will be less than if such
prior periods' capitalized costs had been adjusted for the change in accounting.
However, the Brink's Group believes the effect on net income in 1998, 1997 and
1996 was immaterial.
6. INTANGIBLES
Intangibles consist entirely of the excess of cost over fair value of net assets
of businesses acquired and are net of accumulated amortization of $10,891 and
$9,101 at December 31, 1998 and 1997, respectively. The estimated useful life of
intangibles is generally forty years. Amortization of intangibles aggregated
$1,598 in 1998, $982 in 1997 and $967 in 1996.
In the first quarter of 1998, the Brink's Group purchased 62% (representing
nearly all the remaining shares) of its Brink's affiliate in France ("Brink's
S.A.") for payments aggregating US $39,000 over three years and the assumption
of estimated liabilities of US $125,700. Based on an estimate of assets acquired
and liabilities assumed, the acquisition of the remaining 62% interest resulted
in goodwill of approximately $35,000. See Note 4.
In 1997, the Brink's Group acquired the remaining 35% interest in Brink's
subsidiary in the Netherlands ("Nedlloyd") for approximately $2,000 with
additional contingent payments aggregating $1,100 based on certain performance
criteria of Brink's-Nedlloyd, of which approximately $800 was paid in 1998 with
the remainder to be paid in 1999. The original 65% acquisition in the Nedlloyd
partnership resulted in goodwill of approximately $13,200. The acquisition of
the remaining 35% interest resulted in a credit to goodwill of approximately
$6,600 as the remaining interest was purchased for less than the book value.
7. FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Brink's Group to
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade receivables. The Brink's Group places its cash
and cash equivalents and short-term investments with high credit quality
financial institutions. Also, by policy, the amount of credit exposure to any
one financial institution is limited. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of customers comprising
the Brink's Group's customer base, and their dispersion across many different
geographic areas.
26
<PAGE>
<PAGE>
The following details the fair values of financial instruments for which it is
practicable to estimate the value:
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The carrying amounts approximate fair value because of the short maturity of
these instruments.
ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The carrying amounts approximate fair value because of the short maturity of
these instruments.
DEBT
The aggregate fair value of the Brink's Group's long-term debt obligations,
which is based upon quoted market prices and rates currently available to the
Brink's Group for debt with similar terms and maturities, approximates the
carrying amount.
HEDGING ACTIVITIES
Brink's utilizes financial instruments, from time to time, to hedge its foreign
currency and other market exposures such as net investments in foreign
operations. The risk that counterparties to such instruments may be unable to
perform is minimized by limiting the counterparties to major financial
institutions.
Hedges of Net Investments in Foreign Operations
The Brink's Group has net investments in a number of foreign subsidiaries, which
are exposed to foreign exchange rate volatility. The Brink's Group uses
non-derivative financial instruments to hedge this exposure.
Currency exposure related to the net assets of the Brink's subsidiary in France
are managed in part through a foreign currency denominated debt agreement
(seller financing) entered into as part of the acquisition by Brink's. Gains and
losses in the net investment in subsidiaries are offset by losses and gains in
the debt obligations.
For the year ended December 31, 1998, approximately $2,800 of net losses related
to the foreign currency denominated debt agreements were included in the
cumulative foreign currency translation adjustment in the balance sheet of the
Brink's Group.
8. INCOME TAXES
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
US
Federal Foreign State Total
- -------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
Current $25,821 15,312 3,200 44,333
Deferred 3,834 (2,830) 1,087 2,091
- -------------------------------------------------------
Total $29,655 12,482 4,287 46,424
=======================================================
1997:
Current $23,694 11,820 3,149 38,663
Deferred 1,013 (42) 19 990
- -------------------------------------------------------
Total $24,707 11,778 3,168 39,653
=======================================================
1996:
Current $18,079 8,830 3,100 30,009
Deferred 1,634 (1,760) 188 62
- -------------------------------------------------------
Total $19,713 7,070 3,288 30,071
=======================================================
</TABLE>
The significant components of the deferred tax expense were as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense (benefit), exclusive
of the components listed below $ 7,572 (2,073) 1,479
Net operating loss carryforwards (3,431) (405) (1,851)
Alternative minimum tax credits (2,050) 3,468 434
- ------------------------------------------------------------------------
Total $ 2,091 990 62
========================================================================
The tax benefit for compensation expense related to the exercise of certain
employee stock options for tax purposes in excess of compensation expense for
financial reporting purposes is recognized as an adjustment to shareholder's
equity.
27
<PAGE>
<PAGE>
The components of the net deferred tax liability as of December 31, 1998 and
December 31, 1997 were as follows:
</TABLE>
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Accounts receivable $ 4,110 2,953
Postretirement benefits other than
pensions 2,522 2,433
Workers' compensation and other
claims 6,743 7,014
Other liabilities and reserves 23,749 16,935
Miscellaneous 2,696 3,026
Net operating loss carryforwards 9,042 5,611
Alternative minimum tax credits 11,792 8,176
- --------------------------------------------------------
Total deferred tax assets 60,654 46,148
- --------------------------------------------------------
DEFERRED TAX LIABILITIES:
Property, plant and equipment 44,560 31,234
Pension assets 11,349 16,037
Other assets 1,525 2,792
Investments in foreign affiliates 6,882 9,331
Miscellaneous 18,761 10,319
- --------------------------------------------------------
Total deferred tax liabilities 83,077 69,713
- --------------------------------------------------------
Net deferred tax liability $ 22,423 23,565
========================================================
</TABLE>
The recording of deferred federal tax assets is based upon their expected
utilization in the Company's consolidated federal income tax return and the
benefit that would accrue to the Brink's Group under the Company's tax
allocation policy.
The following table accounts for the difference between the actual tax provision
and the amounts obtained by applying the statutory US federal income tax rate of
35% in 1998, 1997 and 1996 to the income before income taxes.
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
- ------------------------------------------------------
<S> <C> <C> <C>
Income before income
taxes:
United States $ 91,597 83,179 63,569
Foreign 33,931 30,096 26,197
- ------------------------------------------------------
Total $125,528 113,275 89,766
======================================================
Tax provision computed at
statutory rate $ 43,935 39,646 31,418
Increases (reductions) in
taxes due to:
State income taxes (net of
federal tax benefit) 2,787 2,059 2,137
Difference between total taxes
on foreign income and the
US federal statutory rate (763) (2,449) (4,149)
Miscellaneous 465 397 665
- ------------------------------------------------------
Actual tax provision $ 46,424 39,653 30,071
======================================================
</TABLE>
It is the policy of the Brink's Group to accrue deferred income taxes on
temporary differences related to the financial statement carrying amounts and
tax bases of investments in foreign subsidiaries and affiliates which are
expected to reverse in the foreseeable future. As of December 31, 1998 and
December 31, 1997, the unrecognized deferred tax liability for temporary
differences of approximately $49,274 and $17,780, respectively, related to
investments in foreign subsidiaries and affiliates that are essentially
permanent in nature and not expected to reverse in the foreseeable future was
approximately $17,246 and $6,223, respectively.
The Brink's Group and its domestic subsidiaries are included in the Company's
consolidated US federal income tax return.
As of December 31, 1998, the Brink's Group had $11,792 of alternative minimum
tax credits allocated to it under the Company's tax allocation policy. Such
credits are available to offset future US federal income taxes and, under
current tax law, the carryforward period for such credits is unlimited.
The tax benefits of net operating loss carryforwards of the Brink's Group as of
December 31, 1998 were $9,042 and related to various state and foreign taxing
jurisdictions. The expiration periods primarily range from 5 to 15 years.
9. LONG-TERM DEBT
Total long-term debt of the Brink's Group consists of the following:
<TABLE>
<CAPTION>
As of December 31
1998 1997
- --------------------------------------------------------
<S> <C> <C>
Senior obligations:
5% amortizing French franc
seller's note maturing in 2001 $ 19,646 --
Venezuelan bolivar term loan due
in 2000 (year-end rate 50.40%
in 1998 and 26.40% in 1997) 18,723 31,072
French franc notes maturing in 2002
(year-end average rate 5.38%
in 1998) 12,523 --
All other 13,217 3,799
- --------------------------------------------------------
64,109 34,871
- --------------------------------------------------------
Obligations under capital leases
(average rates 7.95% in 1998 and
8.60% in 1997) 29,236 3,811
- --------------------------------------------------------
Total long-term debt, less current
maturities 93,345 38,682
Current maturities of long-term debt:
Senior obligations 23,982 5,384
Obligations under capital leases 8,080 2,192
- --------------------------------------------------------
Total current maturities of
long-term debt 32,062 7,576
- --------------------------------------------------------
Total long-term debt including
current maturities $125,407 46,258
========================================================
</TABLE>
28
<PAGE>
<PAGE>
For the four years through December 31, 2003, minimum repayments of long-term
debt outstanding are as follows:
<TABLE>
<S> <C>
2000 $45,633
2001 25,082
2002 10,461
2003 3,109
</TABLE>
The Company has a $350,000 credit agreement with a syndicate of banks (the
"Facility"). The Facility includes a $100,000 term loan and permits additional
borrowings, repayments and reborrowings of up to an aggregate of $250,000. The
maturity date of both the term loan and the revolving credit portion of the
Facility is May 2001. Interest on borrowings under the Facility is payable at
rates based on prime, certificate of deposit, Eurodollar or money market rates
plus applicable margin. A term loan of $100,000 was outstanding at December 31,
1998 and 1997. Additional borrowings of $91,600 and $25,900 were outstanding at
December 31, 1998 and 1997, respectively under the revolving credit portion of
the Facility. The Company pays commitment fees (.125% per annum at December 31,
1998) on the unused portion of the Facility. No portion of the total amount
outstanding under the Facility at December 31, 1998 or December 31, 1997 was
attributed to the Brink's Group.
Under the terms of the Facility, the Company has agreed to maintain at least
$400,000 of Consolidated Net Worth, as defined, and can incur additional
indebtedness of approximately $398,000 at December 31, 1998.
In 1998, Brink's purchased 62% (representing nearly all the remaining shares) of
its Brink's affiliate in France. As part of the acquisition, Brink's assumed a
note to the seller denominated in French francs of approximately the equivalent
of US $27,500 payable in annual installments plus interest through 2001. In
addition, Brink's assumed previously existing debt approximating US $49,000,
which included borrowings of US $19,000 and capital leases of US $30,000. At
December 31, 1998, the long-term portion of the note to the seller was the
equivalent of US $19,646 and bore a fixed interest rate of 5.00%. The equivalent
of US $ 9,823 is payable in 1999 and included in current maturities. At December
31, 1998, the long-term portion of borrowings and capital leases of Brink's
affiliate in France were the equivalent of US $ 12,523 and US $23,709,
respectively. The equivalent of US $4,349 and US $5,805, respectively, are
payable in 1999 and included in current maturities. At December 31, 1998, the
average interest rates for the borrowings and capital leases were 5.38% and
4.90%, respectively.
In 1997, Brink's entered into a borrowing arrangement with a syndicate of local
Venezuelan banks in connection with the acquisition of Custravalca. The
borrowings consisted of a long-term loan denominated in Venezuelan bolivars
equivalent to US $40,000 and a $10,000 short-term loan denominated in US dollars
which was repaid during 1997. The long-term loan bears interest based on the
Venezuelan prime rate and is payable in installments through the year 2000. At
December 31, 1998, the long-term portion of the Venezuelan debt was the
equivalent of US $18,723. The equivalent of US $8,470 is payable in 1999 and is
included in current maturities of long-term debt.
Various international operations maintain lines of credit and overdraft
facilities aggregating approximately $23,000 with a number of banks on either a
secured or unsecured basis. At December 31, 1998, $19,800 was outstanding under
such agreements and was included in short-term borrowings. Average interest
rates on these lines of credit and overdraft facilities at December 31, 1998
approximated 17.6%. Commitment fees paid on the lines of credit and overdraft
facilities are not significant.
At December 31, 1998, the Company's portion of outstanding unsecured letters of
credit allocated to the Brink's Group was $44,634 primarily supporting the
Brink's Group's obligations under its various self-insurance programs.
10. NET INCOME PER SHARE
The following is a reconciliation between the calculation of basic and diluted
net income per share:
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
- -------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income-Basic and diluted net
income per share numerator $79,104 73,622 59,695
Denominator:
Basic weighted average common
shares outstanding 38,713 38,273 38,200
Effect of dilutive securities:
Stock options 442 518 482
- --------------------------------------------------------
Diluted weighted average common
shares outstanding 39,155 38,791 38,682
========================================================
</TABLE>
Options to purchase 356, 19 and 23 shares of Brink's Stock, at prices between
$37.06 and $39.56 per share, $37.06 and $38.16 per share, and $28.63 and $29.50
per share, were outstanding during 1998, 1997 and 1996, respectively, but were
not included in the computation of diluted net income per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.
29
<PAGE>
<PAGE>
11. STOCK OPTIONS
The Company has various stock-based compensation plans as described below.
STOCK OPTION PLANS
The Company grants options under its 1988 Stock Option Plan (the "1988 Plan") to
executives and key employees and under its Non-Employee Directors' Stock Option
Plan (the "Non-Employee Plan") to outside directors, to purchase common stock at
a price not less than 100% of quoted market value at date of grant. The 1988
Plan options can be granted with a maximum term of ten years and can vest within
six months from the date of grant. The majority of grants made in 1998, 1997 and
1996 have a maximum term of six years and vest 100% at the end of the third
year. The Non-Employee Plan options can be granted with a maximum term of ten
years and can vest within six months from the date of grant. The majority of
grants made in 1998, 1997 and 1996 have a maximum term of six years and vest
ratably over the first three years. The total number of Brink's shares
underlying options authorized for grant, but not yet granted, under the 1988
Plan is 2,228. Under the Non-Employee Plan, the total number of shares
underlying options authorized for grant, but not yet granted is 144.
The Company's 1979 Stock Option Plan (the "1979 Plan") and the 1985 Stock Option
Plan (the "1985 Plan") terminated in 1985 and 1988, respectively.
As part of the Brink's Stock Proposal (described in the Company's Proxy
Statement dated December 31, 1995 resulting in the modification of the capital
structure of the Company to include an additional class of common stock), the
1988 and Non-Employee Plans were amended to permit option grants to be made to
optionees with respect to Brink's Stock or BAX Stock in addition to Minerals
Stock. At the time of the approval of the Brink's Stock Proposal, a total of
2,383 shares of Services Stock were subject to options outstanding under the
1988 Plan, the Non-Employee Plan, the 1979 Plan and the 1985 Plan. Pursuant to
antidilution provisions in the option agreements covering such plans, the
Company converted these options into options for shares of Brink's Stock or BAX
Stock, or both, depending on the employment status and responsibilities of the
particular optionee. In the case of optionees having Company-wide
responsibilities, each outstanding Services Stock option was converted into
options for both Brink's Stock and BAX Stock. In the case of other optionees,
each outstanding option was converted into a new option only for Brink's Stock
or BAX Stock, as the case may be. As a result, upon approval of the Brink's
Stock Proposal, 1,750 shares of Brink's Stock and 1,989 shares of BAX Stock were
subject to options.
The table below summarizes the related plan activity.
<TABLE>
<CAPTION>
Aggregate
Exercise
Shares Price
- -------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995 -- $ --
Converted in Brink's Stock Proposal1 1,750 26,865
Granted 369 9,527
Exercised (166) (1,800)
Forfeited or expired (37) (734)
- -------------------------------------------------------
Outstanding at December 31, 1996 1,916 $33,858
Granted 428 13,618
Exercised (190) (2,296)
Forfeited or expired (104) (2,497)
- -------------------------------------------------------
Outstanding at December 31, 1997 2,050 $42,683
Granted 365 13,748
Exercised (439) (6,230)
Forfeited or expired (35) (985)
- -------------------------------------------------------
Outstanding at December 31, 1998 1,941 $49,216
=======================================================
</TABLE>
Options exercisable at the end of 1998, 1997 and 1996, respectively, for Brink's
Stock, on an equivalent basis, were 922, 905 and 1,099.
The following table summarizes information about stock options outstanding as of
December 31, 1998.
<TABLE>
<CAPTION>
--------------------- --------------
Stock Options Stock Options
Outstanding Exercisable
- -------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Life Exercise Exercise
Exercise Prices Shares (Years) Price Shares Price
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9.82 to 13.79 189 1.66 $ 10.68 189 $10.68
16.77 to 21.34 711 2.06 19.38 711 19.38
25.57 to 31.94 686 4.06 28.94 19 29.74
37.06 to 39.56 355 5.68 38.22 3 39.56
- -------------------------------------------------------
Total 1,941 922
=======================================================
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
Under the 1994 Employee Stock Purchase Plan (the "Plan"), the Company is
authorized to issue up to 750 shares of Brink's Stock to its employees who have
six months of service and who complete minimum annual work requirements. Under
the terms
30
<PAGE>
<PAGE>
of the Plan, employees may elect each six-month period (beginning January 1 and
July 1), to have up to 10 percent of their annual earnings withheld to purchase
the Company's stock. Employees may purchase shares of any or all of the three
classes of Company common stocks. The purchase price of the stock is 85% of the
lower of its beginning-of-the-period or end-of-the-period market price. Under
the Plan, the Company sold 41, 43 and 45 shares of Brink's Stock to employees
during 1998, 1997 and 1996, respectively. The share amounts for Brink's Stock
include the restatement for the Services Stock conversion under the Brink's
Stock Proposal.
ACCOUNTING FOR PLANS
The Company has adopted the disclosure - only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", but applies APB Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized in the accompanying financial statements.
Had compensation costs for the Company's plans been determined based on the fair
value of awards at the grant dates, consistent with SFAS No. 123, the Brink's
Group's net income and net income per share would approximate the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------
<S> <C> <C> <C>
NET INCOME ATTRIBUTED TO
common shares
Brink's Group
As Reported $79,104 73,622 59,695
Pro Forma 76,251 71,240 58,389
NET INCOME PER COMMON SHARE
Brink's Group
Basic, As Reported 2.04 1.92 1.56
Basic, Pro Forma 1.97 1.86 1.53
Diluted, As Reported 2.02 1.90 1.54
Diluted, Pro Forma 1.95 1.84 1.51
=======================================================
</TABLE>
Note: The pro forma disclosures shown may not be representative of the effects
on reported net income in future years.
The fair value of each stock option grant used to compute pro forma net income
and earnings per share disclosures is estimated at the time of the grant using
the Black-Scholes option-pricing model. The weighted-average assumptions used in
the model are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 0.3% 0.3% 0.4%
Expected volatility 31% 32% 30%
Risk-Free interest rate 5.3% 6.2% 6.3%
Expected term (in years) 5.1 4.9 4.7
=======================================================
</TABLE>
Using these assumptions in the Black-Scholes model, the weighted-average fair
value of options granted during 1998, 1997 and 1996 is $4,593, $5,155 and
$3,341, respectively.
Under SFAS 123, compensation cost is also recognized for the fair value of
employee stock purchase rights. Because the Company settles its employee stock
purchase rights under the Plan at the end of each six-month offering period, the
fair value of these purchase rights was calculated using actual market
settlement data. The weighted-average fair value of the stock purchase rights
granted in 1998, 1997 and 1996 was $166, $366 and $224, respectively, for the
Brink's Group.
12. CAPITAL STOCK
Effective May 4, 1998, the designation of Pittston Burlington Group Common Stock
and the name of Pittston Burlington Group were changed to Pittston BAX Group
Common Stock and Pittston BAX Group, respectively. All rights and privileges of
the holders of such Stock are otherwise unaffected by such changes.
The Company, at any time, has the right to exchange each outstanding share of
BAX Stock for shares of Brink's Stock (or, if no Brink's Stock is then
outstanding, Minerals Stock) having a fair market value equal to 115% of the
fair market value of one share of BAX Stock. In addition, upon the disposition
of all or substantially all of the properties and assets of the BAX Group to any
person (with certain except