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Wiki Wiki Summary
Financial condition report In accounting, a financial condition report (FCR) is a report on the solvency condition of an insurance company that takes into account both the current financial status, as reflected in the balance sheet, and an assessment of the ability of the company to survive future risk scenarios. Risk assessment in an FCR involves dynamic solvency testing, a type of dynamic financial analysis that simulates management response to risk scenarios, to test whether a company could remain solvent in the face of deteriorating economic conditions or major disasters.
Balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as government or not-for-profit entity. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year.
Financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity.\nRelevant financial information is presented in a structured manner and in a form which is easy to understand.
Financial ratio A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization.
Financial law Financial law is the law and regulation of the insurance, derivatives, commercial banking, capital markets and investment management sectors. Understanding Financial law is crucial to appreciating the creation and formation of banking and financial regulation, as well as the legal framework for finance generally.
Trustmark (bank) Trustmark is a commercial bank and financial services company headquartered in Jackson, Mississippi, United States, with subsidiaries Trustmark National Bank, Trustmark Investment Advisors, and Fisher Brown Bottrell Insurance. The bank's initial predecessor, The Jackson Bank, was chartered by the State of Mississippi in 1889.
Financial analysis Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of finance) refers to an assessment of the viability, stability, and profitability of a business, sub-business or project. \nIt is performed by professionals who prepare reports using ratios and other techniques, that make use of information taken from financial statements and other reports.
Form 10-K A Form 10-K is an annual report required by the U.S. Securities and Exchange Commission (SEC), that gives a comprehensive summary of a company's financial performance. Although similarly named, the annual report on Form 10-K is distinct from the often glossy "annual report to shareholders," which a company must send to its shareholders when it holds an annual meeting to elect directors (though some companies combine the annual report and the 10-K into one document).
Discounted cash flow In finance, discounted cash flow (DCF) analysis is a method of valuing a security, project, company, or asset using the concepts of the time value of money. \nDiscounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management and patent valuation.
Free cash flow In corporate finance, free cash flow (FCF) or free cash flow to firm (FCFF) is the amount by which a business's operating cash flow exceeds its working capital needs and expenditures on fixed assets (known as capital expenditures). It is that portion of cash flow that can be extracted from a company and distributed to creditors and securities holders without causing issues in its operations.
Operating cash flow In financial accounting, operating cash flow (OCF), cash flow provided by operations, cash flow from operating activities (CFO) or free cash flow from operations (FCFO), refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities. Operating activities include any spending or sources of cash that’s involved in a company’s day-to-day business activities.
Net present value The net present value (NPV) or net present worth (NPW) applies to a series of cash flows occurring at different times. The present value of a cash flow depends on the interval of time between now and the cash flow.
Free cash flow to equity In corporate finance, free cash flow to equity (FCFE) is a metric of how much cash can be distributed to the equity shareholders of the company as dividends or stock buybacks—after all expenses, reinvestments, and debt repayments are taken care of. It is also referred to as the levered free cash flow or the flow to equity (FTE).
Cash flow forecasting Cash flow forecasting is the process of obtaining an estimate or forecast of a company's future financial position; the cash flow forecast is typically based on anticipated payments and receivables.\nSee Financial forecast for general discussion re methodology.
Cash flow loan A cash flow loan is a type of debt financing, in which a bank lends funds, generally for working capital, using the expected cash flows that a borrowing company generates as collateral for the loan. Cashflow loans are usually senior term loans or subordinated debt, being used for funding growth or financing an acquisition.
Operation Mincemeat Operation Mincemeat was a successful British deception operation of the Second World War to disguise the 1943 Allied invasion of Sicily. Two members of British intelligence obtained the body of Glyndwr Michael, a tramp who died from eating rat poison, dressed him as an officer of the Royal Marines and placed personal items on him identifying him as the fictitious Captain (Acting Major) William Martin.
Arithmetic Arithmetic (from Ancient Greek ἀριθμός (arithmós) 'number', and τική [τέχνη] (tikḗ [tékhnē]) 'art, craft') is an elementary part of mathematics that consists of the study of the properties of the traditional operations on numbers—addition, subtraction, multiplication, division, exponentiation, and extraction of roots. In the 19th century, Italian mathematician Giuseppe Peano formalized arithmetic with his Peano axioms, which are highly important to the field of mathematical logic today.
Bitwise operation In computer programming, a bitwise operation operates on a bit string, a bit array or a binary numeral (considered as a bit string) at the level of its individual bits. It is a fast and simple action, basic to the higher-level arithmetic operations and directly supported by the processor.
Operations management Operations management is an area of management concerned with designing and controlling the process of production and redesigning business operations in the production of goods or services. It involves the responsibility of ensuring that business operations are efficient in terms of using as few resources as needed and effective in meeting customer requirements.
Emergency operations center An emergency operations center (EOC) is a central command and control facility responsible for carrying out the principles of emergency preparedness and emergency management, or disaster management functions at a strategic level during an emergency, and ensuring the continuity of operation of a company, political subdivision or other organization.\nAn EOC is responsible for strategic direction and operational decisions and does not normally directly control field assets, instead leaving tactical decisions to lower commands.
Operation (mathematics) In mathematics, an operation is a function which takes zero or more input values (called operands) to a well-defined output value. The number of operands (also known as arguments) is the arity of the operation.
Operation Condor Operation Condor (Spanish: Operación Cóndor, also known as Plan Cóndor; Portuguese: Operação Condor) was a United States-backed campaign of political repression and state terror involving intelligence operations and assassination of opponents. It was officially and formally implemented in November 1975 by the right-wing dictatorships of the Southern Cone of South America.Due to its clandestine nature, the precise number of deaths directly attributable to Operation Condor is highly disputed.
Stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only traded privately, such as shares of private companies which are sold to investors through equity crowdfunding platforms. Investment is usually made with an investment strategy in mind.
Common stock Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States.
Convertible bond In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value. It is a hybrid security with debt- and equity-like features.
Preferred stock Preferred stock (also called preferred shares, preference shares, or simply preferreds) is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Preferred stocks are senior (i.e., higher ranking) to common stock but subordinate to bonds in terms of claim (or rights to their share of the assets of the company, given that such assets are payable to the returnee stock bond) and may have priority over common stock (ordinary shares) in the payment of dividends and upon liquidation.
Assets under management In finance, assets under management (AUM), sometimes called funds under management, measures the total market value of all the financial assets which an individual or financial institution—such as a mutual fund, venture capital firm, or depository institution—or a decentralized network protocol controls, typically on behalf of a client. These funds may be managed for clients/users or for themselves in the case of a financial institution which has mutual funds or holds its own venture capital.
Life Insurance Corporation Life Insurance Corporation of India (LIC) is an Indian statutory insurance and investment corporation headquartered in the city of Mumbai, India. It is under the ownership of Government of India.
Ivor Montagu Ivor Goldsmid Samuel Montagu (23 April 1904, in Kensington, London – 5 November 1984, in Watford) was an English filmmaker, screenwriter, producer, film critic, writer, table tennis player, and Communist activist in the 1930s. He helped to develop a lively intellectual film culture in Britain during the interwar years, and was also the founder of the International Table Tennis Federation.
The Day the Music Died On February 3, 1959, American rock and roll musicians Buddy Holly, Ritchie Valens, and "The Big Bopper" J. P. Richardson were killed in a plane crash near Clear Lake, Iowa, together with pilot Roger Peterson. The event later became known as "The Day the Music Died" after singer-songwriter Don McLean referred to it as such in his 1971 song "American Pie".
Decree nisi A decree nisi or rule nisi (from Latin nisi 'unless') is a court order that will come into force at a future date unless a particular condition is met. Unless the condition is met, the ruling becomes a decree absolute (rule absolute), and is binding.
North American Free Trade Agreement The North American Free Trade Agreement (NAFTA ; Spanish: Tratado de Libre Comercio de América del Norte, TLCAN; French: Accord de libre-échange nord-américain, ALÉNA) was an agreement signed by Canada, Mexico, and the United States that created a trilateral trade bloc in North America. The agreement came into force on January 1, 1994, and superseded the 1988 Canada–United States Free Trade Agreement between the United States and Canada.
Risk Factors
VELOCITY EXPRESS CORP ITEM 1A RISK FACTORS The following are certain risk factors that could affect our business, financial condition, operating results and cash flows
These risk factors should be considered in connection with evaluating the forward-looking statements contained in this report because these risk factors could cause our actual results to differ materially from those expressed in any forward-looking statement
The risks we have highlighted below are not the only ones we face
If any of these events actually occur, our business, financial condition, results of operations or cash flows could be negatively affected and the market price of our common stock could decline
We caution you to keep in mind these risk factors and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of this report
Risks Related to Our Business Given our history of losses and our recent acquisition of CD&L, we cannot predict whether we will be able to achieve or sustain profitability or positive cash flow
If we cannot achieve or sustain profitability or positive cash flow, the market price of our common stock could decline significantly
Our net losses applicable to common stockholders for the fiscal years ended July 1, 2006 and July 2, 2005, were dlra23dtta6 million and dlra106dtta9 million, respectively
The respective periods’ net losses were dlra16dtta0 million and dlra49dtta8 million
The increased amount of net losses applicable to common stockholders for such periods was caused by beneficial conversion charges of dlra5dtta0 million and dlra57dtta0 million, and preferred stock dividends paid-in-kind of dlra2dtta6 million and dlra0dtta0 million for the respective periods
To achieve profitability, we expect we will be required to successfully integrate CD&L and pursue new revenue opportunities, effectively limit the impact of competitive pressures on pricing and freight volumes, and fully implement our technology initiatives and other cost-saving measures
We cannot assure you that we will ever achieve or sustain profitability or positive cash flow
If we cannot achieve or sustain profitability or positive cash flow, the market price of our common stock could decline significantly
If we are not successful in integrating CD&L, we will likely have higher costs and fail to achieve expected cost savings, which could have a material adverse effect on our results of operations
The success of the CD&L acquisition will depend, in part, upon our ability to realize the anticipated cost savings, synergies and growth opportunities from combining our business with that of CD&L To realize the anticipated benefits of the acquisition, members of the management team must develop strategies and implement a business plan that will: • effectively combine operations, management, independent contractors, technologies and infrastructure; • effectively and efficiently integrate policies, procedures and operations; • successfully achieve savings through reductions in occupancy and staffing costs, corporate and public company expenses, insurance costs and management of drivers and increased customer density; • successfully retain and attract employees, including operating personnel, as well as continuing to retain and attract independent drivers for delivery operations; and • while integrating operations, maintain focus on the core business to take advantage of competitive opportunities and to respond to competitive challenges
Problems or delays in integrating CD&L may result in substantial unanticipated costs and the diversion of management’s attention from our existing operations
In addition, integration delays could cause us to lose key employees and customers of CD&L, thereby diluting the value of the CD&L acquisition
To the extent we pursue other acquisitions in the future, the integration risks summarized above could increase
In addition, if we pursue other acquisitions in the future, we would face additional risks, including the following: • diversion of management’s time away from managing our business, whether or not such pursuits are successful; 8 ______________________________________________________________________ [37]Table of Contents • the possible need to finance such acquisitions with debt or equity, if available to us; and • increased legal risks, for example, regarding inherited employee benefit plans and inadequate reserves
If any of these risks were to materialize, it could have a material adverse effect on our results of operations
We may be unable to fund our future capital needs, and we may need additional funds sooner than anticipated
We have depended, and if we are unable to execute against our business plans, are likely to continue to depend, on our ability to obtain additional financing to fund our future liquidity and capital needs
We may not be able to continue to obtain additional capital when needed, and additional capital may not be available on satisfactory terms
Achieving our financial goals involves maximizing the effectiveness of the variable cost model, the implementation of customer-driven technology solutions, continued leverage of the consolidated back office selling, general and administrative platform and effectively and efficiently integrating CD&L To date, we have primarily relied upon debt and equity investments to fund these activities
We may be required to engage in additional financing activities to raise capital required for our operations
If we issue additional equity securities or convertible debt to raise capital, the issuance may be dilutive to the holders of our common stock
In addition, any additional issuance may require us to grant rights or preferences that adversely affect our business, including financial or operating covenants
Early termination or non-renewal of contracts could negatively affect our operating results
Our contracts with our commercial customers typically have a term of one to three years, but are often terminable earlier at will upon 30 or 60 days’ notice
We often have significant start-up costs when we begin servicing a new customer in a new location
Termination or non-renewal of these contracts, including contracts originally entered into by CD&L, could have a material adverse effect on our business, financial condition, operating results and cash flows
We are highly dependent upon sales to a few customers
The loss of any of these customers, or any material reduction in the amount of our services they purchase, could materially and adversely affect our business, financial condition, results of operations and cash flows
For the fiscal year end July 1, 2006, after giving pro forma effect to the CD&L acquisition, we had one customer that accounted for more than 10prca of our pro forma revenues and our top ten customers in aggregate account for approximately 43prca of our pro forma revenues
The loss of the one large customer or some of the top ten customers or a material reduction in their purchases of our services could materially and adversely affect our business, financial condition, results of operations and cash flows
The industry in which we operate is highly competitive, and competitive pressures from existing and new companies could materially and adversely affect our business, financial condition, results of operations and cash flows
We face intense competition, particularly for basic delivery services
The industry is characterized by high fragmentation, low barriers to entry, competition based on price and competition to retain qualified drivers, among other things
Nationally, we compete with other large companies having same-day transportation operations in multiple markets, many of which have substantial resources and experience in the same-day transportation business
Price competition could erode our margins and prevent us from increasing our prices to our customers commensurate with cost increases
We cannot assure you that we will be able to effectively compete with existing or future competitors
9 ______________________________________________________________________ [38]Table of Contents As a time definite logistics company, our ability to service our clients effectively often depends upon factors beyond our control
Our revenues and earnings are especially sensitive to events beyond our control that can affect our industry, including: • extreme weather conditions; • economic factors affecting our significant customers; • mergers and consolidations of existing customers; • ability to purchase insurance coverage at reasonable prices; • US business activity; and • the levels of unemployment
If we lose any of our executive officers, or are unable to recruit, motivate and retain qualified personnel, our ability to manage our business could be materially and adversely affected
Our success depends on the skills, experience and performance of certain key members of our management
The loss of the services of any of these key employees could have a material adverse effect on our business, financial condition, results of operations and cash flows
Our future success and plans for growth also depend on our ability to attract and retain skilled personnel in all areas of our business
There is strong competition for skilled management personnel in the time definite logistics businesses and many of our competitors have greater resources than we have to hire qualified personnel
Accordingly, if we are not successful in attracting or retaining qualified personnel in the future, our ability to manage our business could be materially and adversely affected
Because we are exposed to litigation stemming from the accidents or other activities of our drivers and messengers, if we were to experience a material increase in the frequency or severity of accidents, liability claims, workers’ compensation claims, unfavorable resolutions of claims or insurance costs, our business, financial condition, results of operations and cash flows could be materially adversely affected
We utilize the services of approximately 5cmam700 drivers and messengers, after giving effect to the CD&L acquisition
From time to time, these persons are involved in accidents or other activities that may give rise to liability claims against us
We cannot assure you that claims against us will not exceed the applicable amount of our liability insurance coverage, that our insurer will be solvent at the time of settlement of an insured claim, that the liability insurance coverage held by our independent contractors will be sufficient or that we will be able to obtain insurance at acceptable levels and costs in the future
If we were to experience a material increase in the frequency or severity of accidents, liability claims, workers’ compensation claims, unfavorable resolutions of claims or insurance costs, our business, financial condition, results of operations and cash flows could be materially adversely affected
If the IRS or any state were to successfully assert that our independent contractors are in fact our employees, we would be required to pay withholding taxes and extend employee benefits to these persons, and could be required to pay penalties or be subject to other liabilities as a result of incorrectly classifying employees
Substantially all of our drivers are independent contractors and not our employees
From time to time, federal and state taxing authorities have sought to assert that independent contractor drivers in the same-day transportation and transportation industries are employees
We do not pay or withhold federal or state employment taxes with respect to drivers who are independent contractors
Although we believe that the independent contractors we utilize are not employees under existing interpretations of federal and state laws, we cannot guarantee that federal and state authorities will not challenge this position or that other laws or regulations, including tax laws and laws relating to employment and workers’ compensation, will not change
If the IRS or any state were to successfully assert that our independent contractors are in fact our employees, we 10 ______________________________________________________________________ [39]Table of Contents would be required to pay withholding taxes and extend employee benefits to these persons, and could be required to pay penalties or be subject to other liabilities as a result of incorrectly classifying employees
If drivers are deemed to be employees rather than independent contractors, we could be required to increase their compensation
Any of the foregoing possibilities could increase our operating costs and have a material adverse effect on our business, financial condition, operating results and cash flows
If we are unable to recruit, motivate and retain qualified delivery personnel, our business, financial condition, results of operations and cash flows could be materially and adversely affected
We depend upon our ability to attract and retain, as employees or through independent contractor or other arrangements, qualified delivery personnel who possess the skills and experience necessary to meet the needs of our operations
We compete in markets in which unemployment is generally relatively low and the competition for independent contractors and other employees is intense
In addition, the independent contractors we utilize are responsible for all vehicle expense including maintenance, insurance, fuel and all other operating costs
We make every reasonable effort to include fuel cost adjustments in customer billings that are paid to independent contractors to offset the impact of fuel price increases
However, if future fuel cost adjustments are insufficient to offset independent contractors’ costs, we may be unable to attract a sufficient number of independent contractors
We must continually evaluate and upgrade our pool of available independent contractors to keep pace with demands for delivery services
We cannot assure you that qualified delivery personnel will continue to be available in sufficient numbers and on terms acceptable to us
The inability to attract and retain qualified delivery personnel, could materially and adversely affect our business, financial condition, results of operations and cash flows
Our failure to maintain required certificates, permits or licenses, or to comply with applicable laws, ordinances or regulations could result in substantial fines or possible revocation of our authority to conduct certain of our operations
Although certain aspects of the transportation industry have been significantly deregulated, our delivery operations are still subject to various federal, state and local laws, ordinances and regulations that in many instances require certificates, permits and licenses
Our failure to maintain required certificates, permits or licenses, or to comply with applicable laws, ordinances or regulations could result in substantial fines or possible revocation of our authority to conduct certain of our operations
Our reputation will be harmed, and we could lose customers, if the information and telecommunication technologies on which we rely fail to adequately perform
Our business depends upon a number of different information and telecommunication technologies as well as our ability to develop and implement new technologies enabling us to manage and process a high volume of transactions accurately and timely
Any impairment of our ability to process transactions in this way could result in the loss of customers and negatively affect our reputation
In addition, if new information and telecommunication technologies develop, we may need to invest in them to remain competitive, which could reduce our profitability and cash flow
If our goodwill or other intangible assets were to become impaired, our results of operations could be materially and adversely affected
The value of our goodwill and other intangible assets is significant relative to our total assets and stockholders equity
We review goodwill and other intangible assets for impairment on at least an annual basis
Changes in business conditions or interest rates could materially impact our estimates of future operations and result in an impairment
As such, we cannot assure you that there will not be a material impairment of our goodwill and other intangible assets
If our goodwill or other intangible assets were to become impaired, our results of operations could be materially and adversely affected
11 ______________________________________________________________________ [40]Table of Contents We face trademark infringement and related risks
There can be no assurance that any of our trademarks and service marks (collectively, the “marks”), if registered, will afford us protection against competitors with similar marks that may have a use date prior to that of our marks
In addition, no assurance can be given that others will not infringe upon our marks, or that our marks will not infringe upon marks and proprietary rights of others
Furthermore, there can be no assurance that challenges will not be instituted against the validity or enforceability of any mark claimed by us, and if instituted, that such challenges will not be successful
We may face higher litigation and settlement costs than anticipated
We have made estimates of our exposure in connection with the lawsuits and claims that have been made
As a result of litigation or settlement of cases, the actual amount of exposure in a given case could differ materially from that projected
In addition, in some instances, our liability for claims may increase or decrease depending upon the ultimate development of those claims
In estimating our exposure to claims, we are relying upon our assessment of insurance coverages and the availability of insurance
In some instances insurers could contest their obligation to indemnify us for certain claims, based upon insurance policy exclusions or limitations
In addition, from time to time, in connection with routine litigation incidental to our business, plaintiffs may bring claims against us that may include undetermined amounts of punitive damages
Such punitive damages are not normally covered by insurance
Risks Related to Our Capital Structure We have a substantial amount of debt outstanding and may incur additional indebtedness in the future that could negatively affect our ability to achieve or sustain profitability and compete successfully in our markets
We have a significant amount of debt outstanding
For the year ended July 1, 2006, after giving pro forma effect to the CD&L acquisition, we had dlra78dtta2 million in aggregate principal amount of long-term debt outstanding and dlra94dtta1 million of stockholders equity
The degree to which we are leveraged could have important consequences for you, including: • requiring us to dedicate a substantial portion of our cash flow from operations to make interest payments on our debt, which we currently expect to be approximately dlra4dtta7 million in fiscal year 2007 and approximately dlra9dtta4 million for each year thereafter, thereby reducing funds available for operations, future business opportunities and other purposes; • limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • making it more difficult for us to satisfy our debt and other obligations; • limiting our ability to borrow additional funds, or to sell assets to raise funds, if needed, for working capital, capital expenditures, acquisitions or other purposes; • increasing our vulnerability to general adverse economic and industry conditions, including changes in interest rates; and • placing us at a competitive disadvantage compared to our competitors that have less debt
In addition, we may incur additional indebtedness in the future, subject to certain restrictions, exceptions and financial tests set forth in the indenture governing our senior notes
As of September 29, 2006, except for our ability to enter into a new revolving credit facility under certain circumstances, we would have been restricted from incurring additional debt under the terms of our indenture
While we are currently negotiating a new revolving credit facility with prospective lenders, we cannot assure you that we will be successful in entering into any such facility on commercially reasonable terms or at all
12 ______________________________________________________________________ [41]Table of Contents If we cannot generate sufficient cash from our operations to meet our debt service and repayment obligations, we may need to reduce or delay capital expenditures, the development of our business generally and any acquisitions
If for any reason we are unable to meet our debt service and repayment obligations, we would be in default under the terms of the agreements governing our debt, which would allow the debt holders to declare all borrowings outstanding to be due and payable
Our senior notes and preferred stock contain restrictive covenants that limit our operating and financial flexibility
The indenture pursuant to which we issued our senior notes imposes significant operating and financial restrictions on us
These restrictions limit or restrict among other things, our ability and the ability of our subsidiaries that are restricted by these agreements to: • incur additional debt and issue preferred stock; • make restricted payments, including paying dividends on, redeeming, repurchasing or retiring our capital stock and making investments and prepaying or redeeming debt; • create liens; • sell or otherwise dispose of assets, including capital stock of subsidiaries; • enter into agreements restricting our subsidiaries’ ability to pay dividends, make loans or transfer assets to us; • engage in transactions with affiliates; • engage in sale and leaseback transactions; • make capital expenditures; • engage in business other than our current businesses; • consolidate or merge; and • under certain circumstances, enter into a senior credit facility (or refinance any such facility) without first giving the holders of the senior notes a right of first refusal to provide such financing
The indenture also contains certain financial covenants under which we must maintain cash and cash equivalents at specified levels and cash, cash equivalents and qualified accounts receivable at specified levels
In addition, we expect to enter into a new credit facility that we expect will require us to comply with similar covenants as well as specified financial ratios, including ratios regarding interest coverage, total leverage, senior secured leverage and fixed charge coverage
Our ability to comply with these ratios may be affected by events beyond our control
A breach of any of these covenants could result in an event of default, or possibly a cross-default or cross-acceleration of other debt that may be outstanding in the future
In that event, the holders of the senior notes and any other then outstanding debt could allow the holders of that debt to declare all borrowings outstanding to be due and payable
In the event of a default under the indenture, the holders of the senior notes, and any other secured debt then outstanding, could foreclose on the collateral pledged to secure our obligations under that debt, assets and capital stock pledged to them
The senior notes are secured by a first-priority lien, subject to permitted liens, on collateral consisting of substantially all of our tangible and intangible assets
We cannot assure you that our assets would be sufficient to repay in full the money owed to these secured debt holders
The certificates of designation of several series of our outstanding preferred stock impose similar restrictions on us, including on the following: • authorizing or issuing additional series of preferred stock that ranks senior to, or on a par with, the outstanding preferred stock; 13 ______________________________________________________________________ [42]Table of Contents entering into mergers or similar transactions if our existing stockholders immediately before the transaction do not own 50prca or more of the voting power of our capital stock after the transaction; • entering into affiliate transactions; • selling all or substantially all of our assets; • materially changing our lines of business; • selling, leasing or licensing our intellectual property or technology other than pursuant to non-exclusive licenses granted to customers in connection with ordinary course sales of our products; • raising capital by specified equity lines of credit or similar arrangements or issue any floating or variable priced equity instrument or specified other equity financings; and • until the earlier of December 21, 2007 and the date on which the original investors in our Series M Convertible Preferred Stock beneficially own less than 10prca of our outstanding common stock, we are prohibited from issuing any preferred stock or convertible debt unless such preferred stock or convertible debt has a fixed conversion ratio
Similarly, we may not issue any of our common stock other than for a fixed price
Our inability to finance our operations in such ways may have an adverse effect on our business, financial condition, operating results and cash flows
Because we expect to need to refinance our existing debt, we face the risks of either not being able to do so or doing so at higher interest expense
We may not be able to refinance our senior notes or renew or refinance any new credit facility we may enter into, or any renewal or refinancing may occur on less favorable terms
If we are unable to refinance or renew our senior notes or any new credit facility, our failure to repay all amounts due on the maturity date would cause a default under the indenture or the applicable credit agreement
In addition, our interest expense may increase significantly if we refinance our senior notes, which bear interest at 12prca per year, or any new credit facility, on terms that are less favorable to us than the existing terms of our senior notes or any new credit facility
If we fail to achieve certain financial performance targets, we may be required to redeem up to half of our senior notes
Holders of our senior notes have the right to cause us to redeem, at a redemption price of 100prca of the principal amount of the notes, subject to certain exceptions: • up to 25prca of the original principal amount of senior notes if our consolidated cash flow, for the period of four consecutive fiscal quarters preceding the second anniversary of the issue date of the senior notes, is less than dlra20 million; and • up to an additional 25prca of the original principal amount of senior notes issued if our consolidated cash flow, for the period of four consecutive fiscal quarters preceding the third anniversary of the issue date, is less than dlra25 million
In addition, upon a change of control of our company, holders of the senior notes also have the right to require us to repurchase all or any part of their notes at an offer price equal to 101prca of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of purchase
If we were then required to raise additional capital to do so, we cannot assure you that we would be able to do so on commercially reasonable terms or at all
In addition, any new credit facility we enter into may have similar provisions or may cause us to be in default if a change of control occurs
14 ______________________________________________________________________ [43]Table of Contents Because we are a holding company with no operations, we will not be able to pay interest on our debt or pay dividends unless our subsidiaries transfer funds to us
As a holding company, we have no direct operations and our principal assets are the equity interests we hold in our subsidiaries
Our subsidiaries are legally distinct from us and have no obligation to transfer funds to us
As a result, we are dependent on the results of operations of our subsidiaries and, based on their existing and future debt agreements, the state corporation law of the subsidiaries and any state regulatory requirements, their ability to transfer funds to us to meet our obligations, to pay interest and principal on our debt and to pay any dividends in the future
Our stock prices is subject to fluctuation and volatility
The price of our common stock in the secondary market may be influenced by many factors, including the depth and liquidity of the market for our common stock, investor perception of us, variations in our operating results, general trends in the transportation/logistics industry, government regulation and general economic and market conditions, among other things
The stock market has, on occasion, experienced extreme price and volume fluctuations that have often particularly affected market prices for smaller companies and that have often been unrelated or disproportionate to the operating performance of the affected companies
The price of our common stock could be affected by such fluctuations
Future issuances, or the perception of future issuances, of a substantial amount of our common stock may depress the price of the shares of our common stock
Future issuances, or the perception or the availability for sale in the public market, of substantial amounts of our common stock could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital through future sales of equity securities
Certain of our stockholders have registration rights with respect to their common stock and preferred stock, and the holders of our warrants and preferred stock may be forced to exercise and convert these securities into our common stock if specified conditions are met
We may issue shares of our common stock, or other securities, from time to time as consideration for future acquisitions and investments
In the event any such acquisition or investment is significant, the number of shares of our common stock, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be significant
We may also grant registration rights covering those shares or other securities in connection with any such acquisitions and investments
The issuance of additional equity securities in a future financing could trigger the anti-dilution provisions of our outstanding preferred stock and warrants
If we were to issue additional equity securities at a per share price lower than the current market price (in the case of our outstanding warrants) or the conversion price (in the case of our outstanding warrants and preferred stock), then the exercise price of such warrants and the conversion price of such preferred stock would automatically adjust downward
While we have no current plans to issue securities in a manner that would trigger these anti-dilution provisions, we could elect to do so in the future or be required to do so in order to finance the company
Such adjustments would have a dilutive effect on our existing common stockholders
We do not intend to pay cash dividends on our common stock in the foreseeable future
We do not anticipate paying cash dividends on our common stock in the foreseeable future
Any payment of cash dividends will depend on our financial condition, capital requirements, earnings and other factors deemed relevant by our board of directors
Further, the terms of our credit facilities limit our ability to pay dividends
15 ______________________________________________________________________ [44]Table of Contents If we do not maintain our NASDAQ listing, you may have difficulty trading our securities
We will need to maintain certain financial and corporate governance qualifications to keep our securities listed on the NASDAQ Capital Market (“NASDAQ”)
At various times in the past, we have received notices from NASDAQ that we would be delisted due to a variety of matters, including failure to maintain a minimum bid price of dlra1dtta00, failure to timely hold an annual stockholders meeting and failure to meet the minimum levels of stockholders’ equity
In each instance, we have taken the actions required by NASDAQ to maintain continued listing, but we cannot assure you that we will at all times meet the criteria for continued listing
In the event of delisting, trading, if any, would be conducted in the over-the-counter market in the so-called “pink sheets” or on the OTC Bulletin Board
In addition, our securities could become subject to the SEC’s “penny stock rules
” These rules would impose additional requirements on broker-dealers who effect trades in our securities, other than trades with their established customers and accredited investors
Consequently, the delisting of our securities and the applicability of the penny stock rules may adversely affect the ability of broker-dealers to sell our securities, which may adversely affect your ability to resell our securities
If any of these events take place, you may not be able to sell as many securities as you desire, you may experience delays in the execution of your transactions and our securities may trade at a lower market price than they otherwise would
Our organizational documents and applicable law could limit or delay another party’s ability to acquire us and, therefore, could deprive our investors of the opportunity to obtain a takeover premium for their shares
A number of provisions in our certificate of incorporation and bylaws make it difficult for another company to acquire us
These provisions include, among others, the following: • requiring the affirmative vote of holders of not less than 62dtta5prca of our Series M Convertible Preferred Stock and Series N Convertible Preferred Stock, each voting separately as a class, to approve certain mergers, consolidations or sales of all or substantially all of our assets; • requiring stockholders to provide us with advance notice if they wish to nominate any persons for election to our board of directors or if they intend to propose any matters for consideration at an annual stockholders meeting; and • authorizing the issuance of so-called “blank check” preferred stock without common stockholder approval upon such terms as the board of directors may determine
In addition, TH Lee Putnam Ventures, LP beneficially owned, as of September 30, 2006, approximately 19dtta2prca of our outstanding common stock on a fully diluted basis, which means it can influence matters requiring stockholder approval, including important corporate matters such as a change in control of our company
For example, section 203 of the Delaware General Corporation Law prohibits us from engaging in a business combination with an interested stockholder for a period of three years from the date the person became an interested stockholder unless certain conditions are met
As a result of the foregoing, it will be difficult for another company to acquire us and, therefore, could limit the price that possible investors might be willing to pay in the future for shares of our common stock
These provisions may also have the effect of making it more difficult for third parties to cause the replacement of our current management team without the concurrence of our board of directors
We may be exposed to risks relating to our internal controls and may need to incur significant costs to comply with applicable requirements
Under Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules requiring public companies to include a report of management on internal control over financial reporting in their annual reports
In addition, the independent registered public accounting firm auditing a public company’s financial statements must attest to and report on management’s assessment of the effectiveness of the company’s internal control over financial reporting as well as the operating effectiveness of the company’s internal controls over financial reporting
We do not expect to be subject to these requirements for fiscal 2007
We are evaluating our internal controls over financial reporting in order to allow our management to report on, and our independent registered public accounting firm to attest to, our internal controls, as a required part of our annual report, beginning with our annual report for fiscal 2008
16 ______________________________________________________________________ [45]Table of Contents We expect to expend significant resources during fiscal 2007 in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act
But, there is a risk that we will not comply with all of the requirements imposed thereby
Accordingly, we cannot assure you that we will not receive an adverse report on our assessment of our internal controls over financial reporting and/or the operating effectiveness of our internal controls over financial reporting from our independent registered public accounting firm
If we identify significant deficiencies or material weaknesses in our internal controls over financial reporting that we cannot remediate in a timely manner or we receive an adverse report from our independent registered public accounting firm with respect to our internal controls over financial reporting, investors and others may lose confidence in the reliability of our financial statements and our ability to obtain equity or debt financing could be adversely affected
In addition, if our independent registered public accounting firm is unable to rely on our internal controls over financial reporting in connection with their audit of our financial statements, and in the further event that they are unable to devise alternative procedures in order to satisfy themselves as to the material accuracy of our financial statements and related disclosures, it is possible that we could receive a qualified or adverse audit opinion on those financial statements
In that event, the market for our common stock could be adversely affected
Investors and others may lose confidence in the reliability of our financial statements and our ability to obtain equity or debt financing could be adversely affected