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As filed with the Securities and Exchange Commission on January 11, 2019

Registration No. 333-227428

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

PRE-EFFECTIVE AMENDMENT NO. 2

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Roadrunner Transportation Systems, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   4731   20-2454942

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

1431 Opus Place, Suite 530

Downers Grove, Illinois 60515

(414) 615-1500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Curtis W. Stoelting

Chief Executive Officer

Roadrunner Transportation Systems, Inc.

1431 Opus Place, Suite 530

Downers Grove, Illinois 60515

(414) 615-1500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Brian H. Blaney, Esq.

Jeremy D. Zangara, Esq.

Greenberg Traurig, LLP

2375 East Camelback Road

Suite 700

Phoenix, Arizona 85016

(602) 445-8000

 

Harald Halbhuber, Esq.

Merritt Johnson, Esq.

Shearman & Sterling LLP

599 Lexington Avenue

New York, New York 10022

(212) 848-4000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum

Aggregate

Offering Price(1)

 

Amount of

Registration Fee

Common stock, par value $0.01 per share

  $450,000,000(2)   $56,025(3)

Rights to purchase common stock, par value $0.01 per share

  N/A   $0.00(4)

 

 

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Act”).

(2)

Represents the proposed maximum aggregate gross proceeds from the exercise of the maximum number of rights that may be issued.

(3)

Previously paid.

(4)

The rights are being issued for no consideration. Pursuant to Rule 457(g) under the Act, no separate registration fee is payable with respect to the rights being offered because the rights are being registered in the same registration statement as the common stock underlying the rights.

 

 

This registration statement shall hereafter become effective in accordance with the provisions of section 8(a) of the Securities Act of 1933.

 

 

 


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The information in this prospectus may be changed. We may not sell these securities nor may offers to buy these securities be accepted until the Registration Statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS

 

 

LOGO

Roadrunner Transportation Systems, Inc.

38,897,137 Subscription Rights to Purchase Shares of Common Stock

Up to 900,000,000 Shares of Common Stock Issuable Upon Exercise of Rights to Subscribe for Such Shares at $0.50 per Share

 

 

We are distributing at no charge to the holders of our common stock on January 30, 2019, which we refer to as the record date, transferable subscription rights to purchase up to an aggregate of 900,000,000 new shares of our common stock. We will distribute to you, a rights holder, one transferable subscription right for every share of our common stock that you own on the record date. Each transferable subscription right entitles the holder to purchase 23.1379497159 shares of our common stock, which we refer to as the basic subscription right, at the subscription price of $0.50 per whole share of common stock, which we refer to as the subscription price. Rights holders who fully exercise their basic subscription rights, other than as described herein, will be entitled to subscribe for additional shares of our common stock that remain unsubscribed as a result of any unexercised basic subscription rights, which we refer to as the over-subscription right. The over-subscription right allows a rights holder to subscribe for additional shares of our common stock up to the number of shares purchased under such holder’s basic subscription right at the subscription price. Each subscription right, referred to as a right or the rights, gives the holder one basic subscription right and one over-subscription right. Rights may only be exercised in aggregate for whole numbers of shares of our common stock; no fractional shares of our common stock will be issued in this rights offering. Any fractional shares of our common stock created by the exercise of the rights will be rounded to the nearest whole share.

The rights will expire at 5:00 p.m., Eastern Time, on February 19, 2019, which date and time we refer to as the expiration date, unless extended as described herein. We may extend the period for exercising the rights, subject to the terms of the Standby Purchase Agreement that we have entered into, as described below. You may not revoke the exercise of a right after receipt of the payment of the subscription price as described in this prospectus. Rights that are not exercised prior to the expiration date will expire and have no value. There is no minimum number of shares of our common stock that we must sell in order to complete this rights offering.

We have entered into a standby purchase agreement, which we refer to as the Standby Purchase Agreement, with funds affiliated with Elliott Management Corporation, which collectively we refer to as Elliott or the backstop purchaser. On January 11, 2019, Elliott beneficially owned approximately 13.5% of our common stock and all of our outstanding preferred stock, and two of our ten directors have been designated by Elliott pursuant to its rights under the documents governing the issuance of our preferred stock. The two directors designated by Elliott have not participated in any discussions regarding the terms of this rights offering or the Standby Purchase Agreement and the transactions contemplated thereby, and have abstained from all votes related to this rights offering and the Standby Purchase Agreement and the transactions contemplated thereby. As a holder of our common stock on the record date, Elliott has agreed under the Standby Purchase Agreement to exercise its basic subscription right in full, although Elliott will not be entitled to subscribe for additional shares under the over-subscription right. Further, under the Standby Purchase Agreement, we have agreed to issue and sell to Elliott, and Elliott has agreed to purchase from us, at a price per share equal to the subscription price, all unsubscribed shares of common stock in this rights offering, which transaction, together with Elliott’s exercise of its basic subscription right in full, we refer to as the backstop commitment. The backstop commitment is subject to various terms and conditions that we negotiated with Elliott, which are described in this prospectus, and any description of the terms and conditions of the backstop commitment is qualified in its entirety by reference to the Standby Purchase Agreement, which was filed as Exhibit 10.48 to our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission, or the SEC, on November 9, 2018 and is incorporated by reference herein. The purchase of shares of our common stock by Elliott pursuant to the backstop commitment will be effected in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, or the Securities Act, and will not be registered pursuant to the registration statement of which this prospectus forms a part.


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Pursuant to the Standby Purchase Agreement, we will use the proceeds received from the exercise of the rights and the backstop commitment to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all expenses incurred by Elliott in connection with this rights offering, the backstop commitment, and the transactions contemplated thereby, including fees for legal counsel to Elliott, which we collectively refer to as the Elliott Transaction Expenses, and to pay all of our fees and expenses in connection with this rights offering, including, without limitation, filing and printing fees, fees and expenses of the rights and information agents, fees and expenses of our legal counsel and financial advisor, accounting fees and expenses, certain fees and expenses of the dealer manager, including certain fees and disbursement of counsel to the dealer manager, costs associated with clearing the shares offered for sale in this rights offering under applicable state securities laws, listing fees, and filing fees under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the HSR Act, or any other competition law or regulation, which we collectively refer to as the Company Transaction Expenses. We expect to pay approximately $403 million in the aggregate to pay the dividends and redeem the preferred stock. We will use any remaining proceeds for general corporate purposes, which amount will vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. Assuming 0%, 25%, 50%, 75%, and 100% of our stockholders other than Elliott exercise rights and purchase shares of our common stock in this rights offering, we estimate proceeds remaining for general corporate purposes will be approximately $37.2 million, $34.9 million, $32.1 million, $28.0 million, and $22.5 million, respectively, if this rights offering closes by March 1, 2019. Elliott will receive substantially all of the proceeds from this rights offering. However, in order to comply with the covenant in our asset-based lending facility requiring us to retain $30 million in net cash proceeds from this rights offering and to use such proceeds for general corporate purposes, if a sufficient percentage of our stockholders other than Elliott exercise rights such that the proceeds remaining for general corporate purposes would fall below $30 million, Elliott has agreed to waive, in connection with the redemption of its preferred stock, the payment of accrued and unpaid dividends in an amount sufficient to leave us with $30 million in net cash proceeds from this rights offering.

Through Elliott’s purchase of shares of common stock pursuant to the backstop commitment, Elliott will effectively convert shares of our preferred stock that it holds into shares of our common stock at a ratio that values the preferred stock at the sum of the liquidation preference, the applicable redemption premium and accrued and unpaid dividends to the date of redemption, other than dividends accrued and unpaid after November 30, 2018 and any additional accrued and unpaid dividends waived as described herein, and values shares of our common stock at the subscription price in this rights offering. Unless holders other than Elliott exercise rights for at least approximately 57.2% of the total number of shares of common stock offered to such holders in this rights offering, Elliott would own the majority of our outstanding common stock following the closing of this rights offering. If no other holders exercise their rights, Elliott would own approximately 96.4% of our outstanding common stock following the closing of this rights offering.

Our common stock is traded on the New York Stock Exchange, or NYSE, under the symbol “RRTS.” On January 9, 2019, the closing price of our common stock as reported on the NYSE was $0.53. We urge you to obtain a current market price for the shares of our common stock before making any determination with respect to the exercise of your rights. The rights are transferable, and we expect the rights will be admitted for trading on the NYSE under the symbol “RRTS RT” during the course of this rights offering. The rights will not be admitted for trading on the NYSE at the commencement of this rights offering if the stock price is not at or greater than the $0.50 subscription price; however, once the stock price is at or above $0.50 during the course of this rights offering, the NYSE will list the rights for trading beginning on the next trading day. Our common stock must consistently trade at or above $0.50 in order for the rights to remain listed on the NYSE during the course of this rights offering, and subsequent removal of the rights from listing is subject to the NYSE’s discretion.

This rights offering is being made directly by us. We have retained Barclays Capital Inc. to act as dealer manager in connection with this rights offering. The dealer manager will provide financial structuring, marketing and soliciting services in connection with this rights offering and will solicit the exercise of basic subscription rights and participation in the over-subscription rights. The dealer manager is not underwriting this rights offering and has no obligation whatsoever to purchase, or procure purchases of, the rights or the common stock underlying the rights offered hereby. The dealer manager makes no recommendation as to whether you should exercise, transfer or let


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lapse your rights. We are not using an underwriter or selling agent. We have engaged American Stock Transfer & Trust Company, LLC, or AST, to serve as our rights agent for this rights offering. AST will hold in escrow the funds we receive from holders who exercise rights until we complete or cancel this rights offering.

 

 

An investment in our common stock involves risks. See “Risk Factors” beginning on page 15 of this prospectus.

 

     Per
Share
     Total
Minimum(1)
     Total
Maximum(2)
 

Subscription Price

   $ 0.50      $ 450,000,000      $ 450,000,000  

Dealer Manager Fees(3)

      $ 3,500,000      $ 18,200,000  

Proceeds to Us, After Dealer Manager Fees and Before Other Expenses

      $ 446,500,000      $ 431,800,000  
  (1)

Assumes none of the stockholders (other than Elliott) exercise their rights, and Elliott through its backstop commitment acquires all of the shares offered in this rights offering.

  (2)

Assumes all stockholders exercise their rights, and Elliott purchases only the shares of common stock that it receives by exercising its basic subscription right in full. The maximum dealer manager fee is estimated based on Elliott’s beneficial ownership of 5,242,855 shares of our common stock as of January 11, 2019 and our share count as of January 30, 2019.

  (3)

The dealer manager fees vary based upon the amount of rights exercised by stockholders other than Elliott. We refer you to “Plan of Distribution” beginning on page 80 for additional information regarding dealer manager compensation.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

We and our board of directors are not making any recommendation regarding your exercise of the rights. As a result of the terms of this rights offering, stockholders who do not fully exercise their rights will own, upon completion of this rights offering, a smaller proportional interest in our common stock than otherwise would be the case had they fully exercised their rights. See “Risk Factors” beginning on page 15 of this prospectus for more information.

If you have any questions or need further information about this rights offering, please call Innisfree M&A Incorporated, or Innisfree, our information agent for this rights offering, at (888) 750-5834 (toll-free).

It is anticipated that delivery of the common stock purchased in this rights offering will be made on or about February 25, 2019.

 

 

Dealer Manager

Barclays

The date of this prospectus is February 1, 2019.


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TABLE OF CONTENTS

 

About this Prospectus

     ii  

Questions and Answers Relating to the Rights Offering

     iii  

Prospectus Summary

     1  

Risk Factors

     15  

Cautionary Statement Regarding Forward-Looking Statements

     44  

Use of Proceeds

     46  

Capitalization

     47  

The Rights Offering

     48  

Price Range of Common Stock

     72  

Dividend Policy

     73  

Description of Capital Stock

     74  

Material U.S. Federal Income Tax Considerations

     77  

Plan of Distribution

     80  

Description of Business

     82  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     95  

Executive Compensation

     129  

Director Compensation

     133  

Legal Matters

     135  

Experts

     135  

Where You Can Find More Information

     135  

Incorporation of Certain Information by Reference

     136  

Index to Financial Statements

     F-1  

 

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ABOUT THIS PROSPECTUS

You should rely only on the information contained in this prospectus or incorporated by reference in this prospectus. We have not and the dealer manager has not authorized anyone to provide you with additional or different information. If anyone provides you with additional, different, or inconsistent information, you should not rely on it. The distribution of this prospectus and sale of these securities in certain jurisdictions may be restricted by law. Persons in possession of this prospectus are required to inform themselves about and observe any such restrictions. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only, and any information incorporated by reference is accurate only as of the date of the document incorporated by reference, in each case, regardless of the time of delivery of this prospectus or any exercise of the rights. Our business, financial condition, results of operations and prospects may have changed since that date.

Persons who come into possession of this prospectus and any applicable free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this rights offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.

 

 

In this prospectus, unless otherwise indicated or the context otherwise requires, the terms “Roadrunner,” “we,” “our,” “us” and the “Company” refer to Roadrunner Transportation Systems, Inc., a Delaware corporation, and its subsidiaries on a consolidated basis.

 

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QUESTIONS AND ANSWERS RELATING TO THE RIGHTS OFFERING

The following are examples of what we anticipate will be common questions about this rights offering. The answers are based on selected information from this prospectus and the documents incorporated by reference herein. The following questions and answers do not contain all of the information that may be important to you and may not address all of the questions that you may have about this rights offering. This prospectus and the documents incorporated by reference herein contain more detailed descriptions of the terms and conditions of this rights offering and provide additional information about us and our business, including potential risks related to this rights offering, our common stock and our business.

Exercising the rights and investing in our common stock involves risks. We urge you to carefully read the section entitled “Risk Factors” beginning on page 15 of this prospectus and all other information included or incorporated by reference in this prospectus in its entirety before you decide whether to exercise your rights.

What is a rights offering?

A rights offering is a distribution of subscription rights on a pro rata basis to all stockholders of a company. We are distributing to holders of our common stock as of the close of business on January 30, 2019, the record date, at no charge, rights to purchase shares of our common stock. You will receive one transferable right for every share of our common stock you owned at the close of business on the record date. The rights will be evidenced by rights certificates.

What is a right?

Each right gives our stockholders the opportunity to purchase 23.1379497159 shares of our common stock for $0.50 per share and carries with it a basic subscription right and an over-subscription right, as described below.

How many shares may I purchase if I exercise my rights?

We are granting to you, as a stockholder of record on the record date, one transferable right for every share of our common stock you owned at that time. Each right contains the basic subscription right and the over-subscription right. The basic subscription right gives our stockholders the opportunity to purchase 23.1379497159 shares of our common stock for each right at the subscription price of $0.50 per share. For example, if you owned 1,000 shares of our common stock on the record date, you would be granted 1,000 rights and have the right to purchase 23,138 shares of our common stock for $0.50 per share under the basic subscription right (rounded to the nearest whole share as described herein). You may exercise any number of your basic subscription rights, or you may choose not to exercise any basic subscription rights.

The over-subscription right of each right entitles you, if you have fully exercised your basic subscription right, to subscribe for additional shares of our common stock (up to the number of shares for which you subscribed under your basic subscription right) at the same subscription price per share on a pro rata basis if any shares are not purchased by other holders of rights under their basic subscription rights as of the expiration date. Pro rata means in proportion to the number of shares of our common stock that all rights holders who have fully exercised their basic subscription rights on their common stock holdings have requested to purchase pursuant to the over-subscription right.

Pursuant to the Standby Purchase Agreement, Elliott is not entitled to subscribe for additional shares under the over-subscription right but is not restricted from purchasing unexercised rights in the open market and then exercising them with respect to the basic subscription right.

 

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If you hold your shares in street name through a broker, bank, or other nominee who uses the services of The Depository Trust Company, or DTC, then DTC will issue one transferable right to your nominee for every share of our common stock you own at the record date. Each right can then be used to purchase 23.1379497159 shares of common stock for each right for $0.50 per share. As in the example above, if you owned 1,000 shares of our common stock on the record date, your nominee would receive 1,000 rights and you would have the right to purchase 23,138 shares of common stock for $0.50 per share.

Will fractional shares be issued upon exercise of the rights?

No. We will not issue fractional shares of common stock in this rights offering. Any fractional shares of our common stock created by the exercise of the rights will be rounded to the nearest whole share. Any excess subscription payments received by the rights agent will be returned by mail within ten business days after the expiration of this rights offering, without interest or deduction.

What if there is an insufficient number of shares to satisfy the over-subscription requests?

If there is an insufficient number of shares of our common stock available to fully satisfy the over-subscription requests of rights holders, rights holders who exercised their over-subscription right will receive the available shares pro rata based on the number of shares each rights holder has subscribed for under the over-subscription right. Any excess subscription payments will be returned by mail, without interest or deduction, within ten business days after the expiration of this rights offering.

What will happen if I choose not to exercise my subscription rights?

If you do not exercise your rights, the number of shares of our common stock you own will not change. Although your ownership interest will be diluted following the consummation of this rights offering because we have obtained the backstop commitment, you can avoid such dilution by fully exercising your rights. See “The Rights Offering—Effects on the Backstop Purchaser’s Stock and Ownership.” Additionally, if you do not exercise your basic subscription right in full, you will not be entitled to the over-subscription right.

Why are we conducting this rights offering?

We are conducting this rights offering to raise $450 million in equity capital to improve our capital structure. Pursuant to the Standby Purchase Agreement, we will use the proceeds received from the exercise of the rights and the backstop commitment to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all of the Elliott Transaction Expenses, and to pay all of the Company Transaction Expenses. We expect to pay approximately $403 million in the aggregate to pay the dividends and redeem the preferred stock. We will use any remaining proceeds for general corporate purposes, which amount will vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. Assuming 0%, 25%, 50%, 75%, and 100% of our stockholders other than Elliott exercise rights and purchase shares of our common stock in this rights offering, we estimate proceeds remaining for general corporate purposes will be approximately $37.2 million, $34.9 million, $32.1 million, $28.0 million, and $22.5 million, respectively, if this rights offering closes by March 1, 2019. However, in order to comply with the covenant in our asset-based lending facility requiring us to retain $30 million in net cash proceeds from this rights offering and to use such proceeds for general corporate purposes, if a sufficient percentage of our stockholders other than Elliott exercise rights such that the proceeds remaining for general corporate purposes would fall below $30 million, Elliott has agreed to waive, in connection with the redemption of its preferred stock, the payment of accrued and unpaid dividends in an amount sufficient to leave us with $30 million in net cash proceeds from this rights offering.

 

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The purpose of this rights offering is to raise capital and to use the capital raised in this rights offering to improve and simplify our capital structure in a manner that gives the existing stockholders the opportunity to participate on a pro rata basis and, if all stockholders exercise their rights, avoid dilution of their ownership interest in the Company. By improving and simplifying our capital structure we believe it will increase the speed and likelihood of a full operational recovery. See “The Rights Offering—Background and Reasons for the Rights Offering.”

How was the subscription price of $0.50 per share determined?

A special financing alternatives committee, or the special committee, of independent directors on our board of directors determined the subscription price after considering, among other things, (i) the trading price of our common stock over the past several months, (ii) the likely cost of capital from other sources, (iii) the price at which our stockholders might be willing to participate in this rights offering, and (iv) the price at which Elliott would be willing to backstop this rights offering. The $0.50 subscription price is not intended to bear any relationship to the book value of our assets or our past operations, cash flows, losses, financial condition, net worth, or any other established criteria used to value securities.

There can be no assurance that our common stock will trade at prices near or above the subscription price after the date of this prospectus, and our common stock could trade below that price. You should not consider the subscription price to be an indication of the fair value of our common stock or the price at which our common stock or a right will trade following this rights offering.

Am I required to exercise all of the rights I receive in this rights offering?

No. You may exercise any number of your rights, or you may choose not to exercise any rights. If you do not exercise any rights, the number of shares of our common stock you own will not change. However, because we have obtained the backstop commitment, if you do not exercise all of your rights, your percentage ownership will be materially diluted after the completion of this rights offering. See “The Rights Offering—The Backstop Purchaser.” Additionally, if you do not exercise your basic subscription right in full, you will not be entitled to the over-subscription right.

How soon must I act to exercise my rights?

The rights may be exercised during the period commencing on February 1, 2019, and ending at 5:00 p.m., Eastern Time, on February 19, 2019, unless extended as described below in “Can the board of directors cancel, terminate, amend, or extend this rights offering?”, which we refer to as the subscription period. If you elect to exercise any rights, the rights agent must actually receive all required documents and payments from you or your broker or nominee at or before the expiration date. If you cannot deliver your rights certificate to the rights agent prior to the expiration of the rights offering, you may follow the guaranteed delivery procedures described under “The Rights Offering—Guaranteed Delivery Procedures.” In some cases, you may be required to provide additional documentation.

When will I receive my rights certificate?

Promptly after the date of this prospectus, the rights agent will send a rights certificate to each registered holder of our common stock as of the close of business on the record date, based on our stockholder registry maintained at the transfer agent for our common stock. If you hold your shares of common stock in “street name” through a brokerage account, bank, or other nominee, you will not receive a physical rights certificate. Instead, as described in this prospectus, you must instruct your broker, bank, or nominee whether or not to exercise rights on your behalf. If you wish to obtain a separate rights certificate, you should promptly contact your broker, bank, or other nominee and request a separate rights certificate. It is not necessary to have a physical rights certificate to elect to exercise your rights if your shares are held by a broker, bank, or other nominee.

 

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May I transfer my rights?

Yes. The rights will be transferable during the course of the subscription period. We expect the rights will be admitted for trading on the NYSE under the symbol “RRTS RT” beginning on February 1, 2019, until the close of trading on the NYSE on February 15, 2019, the last business day prior to the scheduled expiration date of this rights offering (or if the offer is extended, on the business day immediately prior to the extended expiration date). The rights will not be admitted for trading on the NYSE at the commencement of this rights offering if the stock price is not at or greater than the $0.50 subscription price; however, once the stock price is at or above $0.50 during the course of this rights offering, the NYSE will list the rights for trading beginning on the next trading day. Our common stock must consistently trade at or above $0.50 in order for the rights to remain listed on the NYSE during the course of this rights offering, and subsequent removal of the rights from listing is subject to the NYSE’s discretion. As a result, you may transfer or sell your rights during the course of the subscription period if you do not want to purchase any shares of our common stock. However, the rights are a new issue of securities with no prior trading market, and we cannot provide you any assurances as to the liquidity of any trading market for the rights or the market value of the rights. The rights agent will only facilitate subdivisions or transfers of the physical subscription rights until 5:00 p.m., Eastern Time, on February 13, 2019, three business days prior to the scheduled February 19, 2019 expiration date.

Are there any conditions to the completion of this rights offering?

Yes. Our obligation under the Standby Purchase Agreement to consummate this rights offering is subject to the satisfaction prior to the closing of this rights offering of each of the following closing conditions (which may be waived in whole or in part by the Company with the consent of Elliott):

(i) this rights offering shall have been conducted in accordance with the Standby Purchase Agreement in all material respects;

(ii) all material governmental and third-party notifications, filings, consents, waivers, and approvals required for the consummation of this rights offering shall have been made or received;

(iii) no action shall have been taken, no statute, rule, regulation, or order shall have been enacted, adopted, or issued by any federal, state, or foreign governmental or regulatory authority, and no judgment, injunction, decree, or order of any federal, state or foreign court shall have been issued that, in each case, prohibits the implementation of this rights offering and the issuance and sale of our common stock in this rights offering or materially impairs the benefit of implementation thereof, and no action or proceeding by or before any federal, state, or foreign governmental or regulatory authority shall be pending or threatened wherein an adverse judgment, decree, or order would be reasonably likely to result in the prohibition of or material impairment of the benefits of the implementation of this rights offering and the issuance and sale of our common stock in this rights offering;

(iv) the registration statement relating to this rights offering shall have been declared effective by the SEC and shall continue to be effective and no stop order shall have been entered by the SEC with respect thereto;

(v) approval from the requisite stockholder vote of (a) an amendment to our Amended and Restated Certificate of Incorporation to increase the authorized number of shares of our common stock from 105,000,000 to 1,100,000,000 shares; (b) the issuance and sale of the 900,000,000 shares of our common stock upon exercise of rights to purchase shares of our common stock at a subscription price of $0.50 per share to raise $450 million pursuant to a rights offering; (c) the issuance and sale of the unsubscribed shares of our common stock to Elliott pursuant to the backstop commitment in accordance with the Standby Purchase Agreement; (d) an amendment to our Amended and Restated Certificate of Incorporation to permit our stockholders to take action by written consent; (e) an amendment to our Amended and Restated Certificate of Incorporation to permit our stockholders that hold a majority of our outstanding common stock to request that we call a special meeting of stockholders; (f) an amendment to our Amended and Restated Certificate of Incorporation to permit our

 

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stockholders holding a majority of our outstanding common stock to remove directors with or without cause; (g) an amendment to our Amended and Restated Certificate of Incorporation to permit our stockholders holding a majority of our outstanding common stock to amend or repeal our Amended and Restated Certificate of Incorporation or any provision thereof; (h) an amendment to our Amended and Restated Certificate of Incorporation to permit our stockholders holding a majority of our outstanding common stock to amend or repeal our Second Amended and Restated Bylaws or any provision thereof; (i) an amendment to our Amended and Restated Certificate of Incorporation to designate the courts in the state of Delaware as the exclusive forum for all legal actions unless otherwise consented to by the Company; (j) an amendment to our Amended and Restated Certificate of Incorporation to opt-out of Section 203 of the Delaware General Corporation Law; and (k) an amendment to our Amended and Restated Certificate of Incorporation to renounce any interest or expectancy of the Company in, or in being offered an opportunity to participate in, any business opportunity that is presented to Elliott or its directors, officers, shareholders, or employees (we collectively refer to (a) through (k) above as the Rights Offering Proposals and we collectively refer to (d) through (k) above as the Corporate Governance Proposals);

(vi) all terminations or expirations of waiting periods imposed under any necessary filing under the HSR Act or any other competition laws or regulations shall have occurred;

(vii) we shall have received a waiver by the lenders of the necessary provisions under our asset-based lending facility to avoid the mandatory use of proceeds received in this rights offering to prepay the principal outstanding under the asset-based lending facility and to waive any event of default that may be deemed to occur as a result of the consummation of this rights offering and the issuance of the common stock to Elliott in connection with purchasing all unsubscribed shares of common stock in this rights offering;

(viii) the shares of our common stock to be issued in this rights offering shall have been approved for listing on the NYSE, subject to official notice of issuance; provided, however, that this condition shall not apply in the event our common stock ceases to be listed and traded on the NYSE on or prior to the closing date of this rights offering; and

(ix) the concurrent closing of the purchase by Elliott of the unsubscribed shares of our common stock in this rights offering pursuant to the Standby Purchase Agreement such that the gross proceeds from this rights offering and the backstop commitment aggregate to $450 million.

As of the date of this prospectus, we have received the requisite stockholder vote to approve the Rights Offering Proposals and have received the requisite waiver by our lenders of the necessary provisions under our asset-based lending facility. See “The Rights Offering—Conditions to the Rights Offering.”

How does the backstop commitment work?

We have entered into a standby purchase agreement, the Standby Purchase Agreement, with funds affiliated with Elliott Management Corporation, which collectively we refer to as Elliott or the backstop purchaser. As of January 11, 2019, Elliott beneficially owned approximately 13.5% of our common stock and all of our outstanding preferred stock, and two of our ten directors have been designated by Elliott pursuant to its rights under the documents governing the issuance of our preferred stock. The two directors designated by Elliott have not participated in any discussions regarding the terms of this rights offering or the Standby Purchase Agreement and the transactions contemplated thereby, and have abstained from all votes related to this rights offering and the Standby Purchase Agreement and the transactions contemplated thereby. As a holder of our common stock on the record date, Elliott has agreed under the Standby Purchase Agreement to exercise its basic subscription right in full, although Elliott will not be entitled to subscribe for additional shares under the over-subscription right. Further, under the Standby Purchase Agreement, we have agreed to issue and sell to Elliott, and Elliott has agreed to purchase from us, at a price per share equal to the subscription price, all unsubscribed shares of common stock in this rights offering, which transaction, together with Elliott’s exercise of its basic subscription

 

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right in full, we refer to as the backstop commitment. The backstop commitment is subject to various terms and conditions that we negotiated with Elliott, which are described in this prospectus, and any description of the terms and conditions of the backstop commitment is qualified in its entirety by reference to the Standby Purchase Agreement, which was filed as Exhibit 10.48 to our Current Report on Form 8-K filed with the SEC on November 9, 2018 and is incorporated by reference herein. The purchase of shares of our common stock by Elliott pursuant to the backstop commitment will be effected in a transaction exempt from the registration requirements of the Securities Act, and will not be registered pursuant to the registration statement of which this prospectus forms a part. See “The Rights Offering—The Backstop Purchaser.”

Why is there a backstop purchaser?

We have obtained the backstop commitment from Elliott under the Standby Purchase Agreement to ensure that we will receive gross proceeds from this rights offering and the backstop commitment of $450 million in order to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all of the Elliott Transaction Expenses, and to pay all of the Company Transaction Expenses. We expect to pay approximately $403 million in the aggregate to pay the dividends and redeem the preferred stock. We will use any remaining proceeds for general corporate purposes, which amount will vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. Assuming 0%, 25%, 50%, 75%, and 100% of our stockholders other than Elliott exercise rights and purchase shares of our common stock in this rights offering, we estimate proceeds remaining for general corporate purposes will be approximately $37.2 million, $34.9 million, $32.1 million, $28.0 million, and $22.5 million, respectively, if this rights offering closes by March 1, 2019. Elliott will receive substantially all of the proceeds from this rights offering. However, in order to comply with the covenant in our asset-based lending facility requiring us to retain $30 million in net cash proceeds from this rights offering and to use such proceeds for general corporate purposes, if a sufficient percentage of our stockholders other than Elliott exercise rights such that the proceeds remaining for general corporate purposes would fall below $30 million, Elliott has agreed to waive, in connection with the redemption of its preferred stock, the payment of accrued and unpaid dividends in an amount sufficient to leave us with $30 million in net cash proceeds from this rights offering.

Are there any conditions to the backstop purchaser’s obligations to purchase shares? Are there any conditions to our obligation to sell all unsubscribed shares to the backstop purchaser?

Yes. The obligations of us and Elliott to consummate the transactions contemplated by the Standby Purchase Agreement are subject to the satisfaction prior to the closing of this rights offering of each of the following conditions, referred to as the joint conditions (which may be waived in whole or in part by the Company or Elliott in their sole discretion): (i) the registration statement relating to this rights offering shall have been declared effective by the SEC and shall continue to be effective and no stop order shall have been entered by the SEC with respect thereto; (ii) this rights offering shall have been conducted in accordance with the Standby Purchase Agreement in all material respects without the waiver of any condition thereto; (iii) all material governmental and third-party notifications, filings, consents, waivers, and approvals required for the consummation of the transactions contemplated by the Standby Purchase Agreement, including this rights offering shall have been made or received; (iv) all terminations or expirations of waiting periods imposed under any necessary filing under the HSR Act or any other competition law or regulations shall have occurred; (v) no action shall have been taken, no statute, rule, regulation, or order shall have been enacted, adopted, or issued by any federal, state, or foreign governmental or regulatory authority, and no judgment, injunction, decree, or order of any federal, state or foreign court shall have been issued that, in each case, prohibits the implementation of this rights offering and the issuance and sale of our common stock in this rights offering or materially impairs the benefit of implementation thereof, and no action or proceeding by or before any federal, state, or foreign

 

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governmental or regulatory authority shall be pending or threatened wherein an adverse judgment, decree, or order would be reasonably likely to result in the prohibition of or material impairment of the benefits of the implementation of this rights offering and the issuance and sale of our common stock in this rights offering; (vi) approval of the Rights Offering Proposals; (vii) the shares of our common stock to be issued in this rights offering shall have been approved for listing on the NYSE, subject to official notice of issuance; provided, however, that this condition shall not apply in the event our common stock ceases to be listed and traded on the NYSE on or prior to the closing date of this rights offering; and (viii) there are no restrictions on our ability to redeem all outstanding shares of our preferred stock in accordance with the terms of the Standby Purchase Agreement.

In addition to the joint conditions, our obligation to issue and sell to Elliott all shares of our common stock offered in this rights offering that remain unsubscribed at the end of the subscription period is subject to the satisfaction prior to the closing of this rights offering of each of the following conditions (which may not be waived, in whole or in part, without the prior written consent of Elliott): (i) the representations and warranties of Elliott made in the Standby Purchase Agreement shall be true and correct in all material respects as described in the Standby Purchase Agreement; and (ii) Elliott shall have performed and complied in all material respects with all covenants and agreements contained in the Standby Purchase Agreement and in any other Transaction Agreement (as defined in the Standby Purchase Agreement).

In addition to the joint conditions, Elliott’s obligation to purchase all of our unsubscribed shares of common stock in this rights offering is subject to the satisfaction prior to the closing of this rights offering of each of the following conditions (which may be waived in whole or in part by Elliott in its sole discretion): (i) we shall have received a waiver by the lenders of the necessary provisions under our asset-based lending facility to avoid the mandatory use of proceeds received in this rights offering to prepay the principal outstanding under the asset-based lending facility and to waive any event of default that may be deemed to have occurred as a result of the consummation of this rights offering and the issuance of the common stock pursuant to the backstop commitment; (ii) we shall have executed and delivered to Elliott an amended and restated registration rights agreement (a form of which is attached to the Standby Purchase Agreement); (iii) we shall have executed and delivered to Elliott an amended and restated stockholders’ agreement (a form of which is attached to the Standby Purchase Agreement); (iv) our representations and warranties made in the Standby Purchase Agreement shall be true and correct in all material respects as described in the Standby Purchase Agreement; (v) we shall have performed and complied in all material respects with all covenants and agreements contained in the Standby Purchase Agreement and in any other Transaction Agreement (as defined in the Standby Purchase Agreement); and (vi) we shall have taken all necessary and required corporate action to adopt and shall have implemented the Corporate Governance Proposals.

As of the date of this prospectus, we have received the requisite stockholder vote to approve the Corporate Governance Proposals, received the requisite waiver by our lenders of the necessary provisions under our asset-based lending facility, and have taken all necessary and required corporate action to adopt, and have implemented, the Corporate Governance Proposals. See “The Rights Offering—Conditions to the Rights Offering.” Any description of the terms and conditions of the backstop commitment is qualified in its entirety by reference to the Standby Purchase Agreement, which was filed as Exhibit 10.48 to our Current Report on Form 8-K filed with the SEC on November 9, 2018 and is incorporated by reference herein.

How can the Standby Purchase Agreement be terminated and the transactions contemplated thereby abandoned?

The Standby Purchase Agreement may be terminated and the transactions contemplated thereby may be abandoned at any time prior to the closing of this rights offering and the backstop commitment:

 

   

by mutual written agreement of Elliott and us;

 

   

by either us or Elliott, if the transactions contemplated by the Standby Purchase Agreement do not close by March 1, 2019; provided, however, that the right to terminate the Standby Purchase

 

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Agreement is not available to any party whose failure to comply with any provision of the Standby Purchase Agreement is the cause of, or resulted in, the failure of the closing to occur on or prior to such date;

 

   

by us, (i) if there has been a breach of any covenant or a breach of any representation or warranty of Elliott, which breach would cause the failure of Elliott to satisfy any of its conditions, provided that any such breach of a covenant or representation or warranty is not reasonably capable of cure on or prior to March 1, 2019; or (ii) upon the occurrence of any event that results in a failure to satisfy any of the joint conditions, which failure is not reasonably capable of cure on or prior to March 1, 2019; provided that all determinations made for the Company prior to the closing of this rights offering with respect to the foregoing clauses (i) and (ii) shall be made by the special committee; or

 

   

by Elliott, (i) if there has been a breach of any covenant or a breach of any representation or warranty of the Company, which breach would cause the failure of the Company to satisfy any of its conditions, provided that any such breach of a covenant or representation or warranty is not reasonably capable of cure on or prior to March 1, 2019; or (ii) upon the occurrence of any event that results in a failure to satisfy any of the joint conditions, which failure is not reasonably capable of cure on or prior to March 1, 2019.

The Standby Purchase Agreement includes a customary fiduciary out provision that allows us to terminate this rights offering at any time prior to the commencement of the subscription period. The Standby Purchase Agreement will not prevent us from cancelling, terminating, amending, or extending this rights offering prior to the commencement of the subscription period. However, once the subscription period is commenced, any such cancellation, termination, or amendment will require the prior written consent of Elliott, except for an extension of the subscription period by not more than 10 days, unless the Standby Purchase Agreement is terminated. Any decision to cancel, terminate, amend or extend this rights offering will be made by us.

Will the backstop purchaser be compensated for providing the backstop commitment?

No. Elliott will not receive any fees for providing the backstop commitment; however, we will reimburse Elliott for all of the Elliott Transaction Expenses.

Will any shares of our preferred stock continue to be outstanding following the consummation of this rights offering?

No. If this rights offering closes, we will receive gross proceeds of $450 million from this rights offering after giving effect to the backstop commitment. We will use the proceeds received from the exercise of the rights and the backstop commitment to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all of the Elliott Transaction Expenses, and to pay all of the Company Transaction Expenses. We expect to pay approximately $403 million in the aggregate to pay the dividends and redeem the preferred stock. We will use any remaining proceeds for general corporate purposes, which amount will vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. Assuming 0%, 25%, 50%, 75%, and 100% of our stockholders other than Elliott exercise rights and purchase shares of our common stock in this rights offering, we estimate net proceeds remaining for general corporate purposes will be approximately $37.2 million, $34.9 million, $32.1 million, $28.0 million, and $22.5 million, respectively, if this rights offering closes by March 1, 2019. However, in order to comply with the covenant in our asset-based lending facility requiring us to retain $30 million in net cash proceeds from this rights offering and to use such proceeds for general corporate purposes, if a sufficient percentage of our stockholders other than Elliott exercise rights such that the proceeds remaining for general corporate purposes would fall below $30 million, Elliott has agreed to waive, in connection with the redemption of its preferred stock, the payment of

 

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accrued and unpaid dividends in an amount sufficient to leave us with $30 million in net cash proceeds from this rights offering. Assuming this rights offering closes no later than March 1, 2019, the amount of cash required to pay the dividends and redeem all of our preferred stock in accordance with its terms immediately following the closing of this rights offering will not exceed approximately $403 million. See “Use of Proceeds.”

Who will receive the proceeds from this rights offering?

We will use the proceeds received from the exercise of the rights and the backstop commitment to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all of the Elliott Transaction Expenses, and to pay all of the Company Transaction Expenses. We expect to pay approximately $403 million in the aggregate to pay the dividends and redeem the preferred stock. We will use any remaining proceeds for general corporate purposes, which amount will vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. Assuming 0%, 25%, 50%, 75%, and 100% of our stockholders other than Elliott exercise rights and purchase shares of our common stock in this rights offering, we estimate net proceeds remaining for general corporate purposes will be approximately $37.2 million, $34.9 million, $32.1 million, $28.0 million, and $22.5 million, respectively, if this rights offering closes by March 1, 2019. However, in order to comply with the covenant in our asset-based lending facility requiring us to retain $30 million in net cash proceeds from this rights offering and to use such proceeds for general corporate purposes, if a sufficient percentage of our stockholders other than Elliott exercise rights such that the proceeds remaining for general corporate purposes would fall below $30 million, Elliott has agreed to waive, in connection with the redemption of its preferred stock, the payment of accrued and unpaid dividends in an amount sufficient to leave us with $30 million in net cash proceeds from this rights offering. Elliott will receive substantially all of the proceeds from this rights offering. See “Use of Proceeds.”

What are the economic consequences to Elliott from this rights offering?

To the extent this rights offering is subscribed by holders other than Elliott, Elliott will realize a cash return on its investment in our preferred stock equal to the sum of the liquidation preference, the applicable redemption premium and accrued and unpaid dividends to the date of redemption, other than dividends accrued and unpaid after November 30, 2018. To the extent Elliott purchases shares of common stock pursuant to the backstop commitment, Elliott will effectively convert its shares of our preferred stock into common stock at a ratio that values (i) each series of the preferred stock at the sum of the liquidation preference, the applicable redemption premium and accrued and unpaid dividends to the date of redemption, other than dividends accrued and unpaid after November 30, 2018 and any additional accrued and unpaid dividends waived as described herein and (ii) our common stock at the subscription price in this rights offering. See “Use of Proceeds” for additional detail.

How will this rights offering affect Elliott’s ownership of our stock?

On January 11, 2019, Elliott beneficially owned approximately 13.5% of our outstanding common stock. Elliott has agreed under the Standby Purchase Agreement to subscribe for and purchase shares of our common stock under its basic subscription right in this rights offering although Elliott is not entitled to subscribe for additional shares under the over-subscription right. If all of our stockholders exercise the basic subscription rights issued to them under this prospectus and this rights offering is therefore fully subscribed, Elliott’s beneficial ownership percentage will not change. If Elliott is the only holder of rights who exercises its rights in this rights offering, and if Elliott is required to purchase all shares unsubscribed for in this rights offering pursuant to the Standby Purchase Agreement, the Company will issue an aggregate of 900,000,000 shares of common stock to Elliott. Under such circumstances, Elliott’s ownership percentage of our outstanding common stock would

 

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increase to approximately 96.4% after giving effect to this rights offering. Unless holders other than Elliott exercise rights for at least 57.2% of the total number of shares of common stock offered to such holders in this rights offering, Elliott will own the majority of our outstanding common stock following the closing of this rights offering.

Will Elliott be restricted from purchasing unexercised rights?

No. Elliott is not restricted from purchasing unexercised rights in the open market and subsequently exercising them with respect to the basic subscription right. Elliott would not, however, have an over-subscription right with respect to these rights.

Can we cancel, terminate, amend, or extend this rights offering?

The Standby Purchase Agreement includes a customary fiduciary out provision that will allow us to terminate this rights offering at any time prior to the commencement of the subscription period. In addition, the Standby Purchase Agreement permits us to cancel, terminate, amend, or extend this rights offering at any time prior to the expiration of the subscription period. However, once the subscription period is commenced, any such cancellation, termination, or amendment will require the prior written consent of Elliott, except for an extension of the subscription period by not more than 10 days, unless the Standby Purchase Agreement is terminated. Any decision to cancel, terminate, amend, or extend this rights offering will be made by us.

Has our board of directors made a recommendation to our stockholders regarding the exercise of rights under this rights offering?

No. Neither our board of directors nor the special committee has made, nor will they make, any recommendation to stockholders regarding the exercise of rights under this rights offering. You should make an independent investment decision about whether or not to exercise your rights. Stockholders who exercise rights risk investment loss on new money invested. We cannot assure you that the market price for our common stock will remain above the subscription price or that anyone purchasing shares at the subscription price will be able to sell those shares in the future at the same price or a higher price. If you do not exercise or sell your rights, your unexercised rights will be null and void and will have no value, and if you do not exercise your rights in full, your percentage ownership interest in the Company will be materially diluted. For more information on the risks of participating in this rights offering, see the section of this prospectus entitled “Risk Factors.”

On January 11, 2019, Elliott beneficially owned approximately 13.5% of our common stock and all of our outstanding preferred stock, and two of our ten directors have been designated by Elliott pursuant to its rights under the documents governing the issuance of our preferred stock. The two directors designated by Elliott have not participated in any discussions regarding the terms of this rights offering or the Standby Purchase Agreement and the transactions contemplated thereby, and have abstained from all votes related to this rights offering and the Standby Purchase Agreement and the transactions contemplated thereby. You should not view the intentions of Elliott as a recommendation or other indication, by it or any member of our board of directors, that the exercise of the rights is in your best interests.

How do I exercise my rights? What forms and payment are required to purchase the shares of common stock?

If you wish to participate in this rights offering, you must take the following steps, unless your shares are held by a broker, bank, or other nominee:

 

   

deliver payment to the rights agent using the methods outlined in this prospectus; and

 

   

deliver a properly completed rights certificate to the rights agent at or before 5:00 p.m., Eastern Time, on February 19, 2019, unless extended.

 

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If you send a payment that is insufficient to purchase the number of shares you requested, or if the number of shares you requested is not specified in the rights certificate, the payment received will be applied to exercise your basic subscription right. Unless you have specified the number of shares you wish to purchase upon exercise of your over-subscription right, any payment in excess of that required to exercise your basic subscription right will be refunded. If the payment exceeds the subscription price for the full exercise of the basic and over-subscription rights (to the extent specified by you), the excess will be refunded. You will not receive interest on any payments refunded to you under this rights offering.

If you cannot deliver your rights certificate to the rights agent prior to the expiration of the rights offering, you may follow the guaranteed delivery procedures described under “The Rights Offering—Guaranteed Delivery Procedures.” In some cases, you may be required to provide additional documentation.

What should I do if I want to participate in this rights offering, but my shares are held in the name of my broker, bank, or other nominee?

If you hold your shares of our common stock in the name of a broker, bank, or other nominee, then your broker, bank, or other nominee is the record holder of the shares you own. The record holder must exercise the rights on your behalf for the shares of common stock you wish to purchase.

If you wish to participate in this rights offering and purchase shares of common stock, please promptly contact the record holder of your shares. We will ask your broker, bank, or other nominee to notify you of this rights offering. You should complete and return to your record holder the form entitled “Beneficial Holder Election Form.” You should receive this form from your record holder with the other rights offering materials.

If I exercise my rights, when will I receive my new shares?

We will issue the shares for which subscriptions pursuant to the basic subscription right and the over-subscription right have been properly received promptly following the later of the expiration date or the satisfaction or waiver of the closing conditions of this rights offering, if we have received a properly completed and executed rights certificate, together with payment of the subscription price for each share of common stock subscribed for pursuant to the basic subscription right and over-subscription right (and after all pro rata allocations and adjustments have been completed with respect to the over-subscription right and taking into account the guaranteed delivery period).

After I send in my payment and rights certificate, may I change or cancel my exercise of rights?

No. All exercises of rights are irrevocable. You should not exercise your rights unless you are certain that you wish to purchase additional shares of our common stock at a price of $0.50 per share.

If this rights offering is not complete, will my subscription payment be refunded to me?

Yes. The rights agent will hold all funds it receives in a segregated bank account until completion of this rights offering. If this rights offering is not completed, all subscription payments received by the rights agent will be promptly returned, without interest. If your shares are held in the name of a custodian bank, broker, dealer, or other nominee, it may take longer for you to receive the refund of your subscription payment than if you were a record holder of your shares because the rights agent will return payments through the record holder of your shares.

How much money will the Company receive from this rights offering?

While this rights offering has no minimum purchase requirement, if this rights offering is completed, the Company will receive $450 million of gross proceeds in this rights offering after giving effect to the backstop

 

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commitment. We will use the proceeds received from the exercise of the rights and the backstop commitment to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all of the Elliott Transaction Expenses, and to pay all of the Company Transaction Expenses. We expect to pay approximately $403 million in the aggregate to pay the dividends and redeem the preferred stock. We will use any remaining proceeds for general corporate purposes, which amount will vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. Assuming 0%, 25%, 50%, 75%, and 100% of our stockholders other than Elliott exercise rights and purchase shares of our common stock in this rights offering, we estimate net proceeds remaining for general corporate purposes will be approximately $37.2 million, $34.9 million, $32.1 million, $28.0 million, and $22.5 million, respectively, if this rights offering closes by March 1, 2019. However, in order to comply with the covenant in our asset-based lending facility requiring us to retain $30 million in net cash proceeds from this rights offering and to use such proceeds for general corporate purposes, if a sufficient percentage of our stockholders other than Elliott exercise rights such that the proceeds remaining for general corporate purposes would fall below $30 million, Elliott has agreed to waive, in connection with the redemption of its preferred stock, the payment of accrued and unpaid dividends in an amount sufficient to leave us with $30 million in net cash proceeds from this rights offering. See “Use of Proceeds.”

Have any stockholders agreed that they will exercise their rights?

As a holder of our common stock on the record date, Elliott has agreed under the Standby Purchase Agreement to exercise its basic subscription right in full, although Elliott will not be entitled to subscribe for additional shares under the over-subscription right. Further, under the Standby Purchase Agreement, we have agreed to issue and sell to Elliott, and Elliott has agreed to purchase from us, at a price per share equal to the subscription price, all unsubscribed shares of common stock in this rights offering, which transaction, together with Elliott’s exercise of its basic subscription right in full, we refer to as the backstop commitment. The backstop commitment is subject to various terms and conditions that we negotiated with Elliott, which are described in this prospectus, and any description of the terms and conditions of the backstop commitment is qualified in its entirety by reference to the Standby Purchase Agreement, which was filed as Exhibit 10.48 to our Current Report on Form 8-K filed with the SEC on November 9, 2018 and is incorporated by reference herein. The purchase of shares of our common stock by Elliott pursuant to the backstop commitment will be effected in a transaction exempt from the registration requirements of the Securities Act, and will not be registered pursuant to the registration statement of which this prospectus forms a part. See “The Rights Offering—The Backstop Purchaser.”

Are there risks in exercising my rights?

Yes. The exercise of your rights involves risks. Exercising your rights means buying additional shares of our common stock and should be considered as carefully as you would consider any other equity investment. You should carefully read the section entitled “Risk Factors” beginning on page 15 of this prospectus and all other information included or incorporated by reference in this prospectus in its entirety before you decide whether to exercise your rights.

How many shares of common stock will be outstanding after this rights offering?

As of January 30, 2019, we had 38,897,137 shares of common stock issued and outstanding. Upon completion of this rights offering, we will have 938,897,137 shares of common stock outstanding, excluding any shares that may be issued pursuant to the exercise of 1,820,361 outstanding vested and unvested stock options and delivery of stock pursuant to restricted stock units as of January 30, 2019.

 

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How do I exercise my rights if I live outside the United States?

The rights agent will hold rights certificates for stockholders having addresses outside the United States. In order to exercise rights, holders with addresses outside the United States must notify the rights agent and timely follow other procedures described in the section of this prospectus entitled “The Rights Offering—Foreign Stockholders.”

What fees or charges apply if I purchase shares of common stock?

We are not charging any fee or sales commission to issue rights to you or to issue shares of our common stock to you if you exercise your rights. If you exercise your rights through the record holder of your shares, you are responsible for paying any fees your record holder may charge you.

What are the U.S. federal income tax consequences of the receipt or exercise of rights?

While the matter is not free from doubt, the Company intends to take the position that a U.S. holder (as defined in the section of this prospectus entitled “Material U.S. Federal Income Tax Considerations”) will not recognize income, gain, or loss for U.S. federal income tax purposes in connection with the receipt or exercise of rights in this rights offering. You should consult your tax advisor as to the particular consequences to you of this rights offering. For a detailed discussion, see the section of this prospectus entitled “Material U.S. Federal Income Tax Considerations.”

To whom should I send my forms and payment?

If your shares are held in the name of a broker, bank, or other nominee, then you should send the nominee holder certification, notice of guaranteed delivery (if applicable), and payment to that record holder in accordance with the instructions you receive from that record holder. If you are the record holder, then you should send the nominee holder certification, notice of guaranteed delivery (if applicable), and rights certificate by hand delivery, first class mail, or courier service to:

 

By Mail:    By Overnight Courier or By Hand:
American Stock Transfer & Trust Company, LLC    American Stock Transfer & Trust Company, LLC
Operations Center    Operations Center
Attn: Reorganization Department    Attn: Reorganization Department
P.O. Box 2042    6201 15th Avenue
New York, New York 10272-2042    Brooklyn, New York 11219

If you are a record holder, your payment of the subscription price must be made in United States dollars for the full number of shares of common stock for which you are subscribing by either:

 

   

cashier’s or certified check drawn upon a United States bank payable to the rights agent at the address set forth above; or

 

   

wire transfer of immediately available funds, to the subscription account maintained by the rights agent at JPMorgan Chase Bank, 55 Water Street, New York, New York 10005, SWIFT Code CHASUS33, ABA #021000021, Account #530-354616, Beneficiary: American Stock Transfer, Reference: AST as Subscription Agent for Roadrunner Transportation Systems, Inc. (please include rights holder’s name in reference).

You are solely responsible for completing delivery to the rights agent of your subscription documents, rights certificate, and payment. We urge you to allow sufficient time for delivery of your subscription materials to the rights agent.

 

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Who is the dealer manager?

Barclays Capital Inc., or Barclays, will act as the dealer manager for this rights offering. The dealer manager will provide financial structuring, marketing and soliciting services in connection with this rights offering and will solicit the exercise of basic subscription rights and participation in the over-subscription rights. The dealer manager is not underwriting this rights offering and has no obligation whatsoever to purchase, or procure purchases of, the rights or the common stock underlying the rights offered hereby. The dealer manager makes no recommendation as to whether you should exercise, transfer or let lapse your rights. We have agreed to pay the dealer manager certain fees for acting as dealer manager and to reimburse the dealer manager for certain fees and expenses incurred in connection with this rights offering.

Whom should I contact if I have other questions?

If you have other questions or need assistance, please contact the information agent, Innisfree, at (888) 750-5834.

For a more complete description of this rights offering, see “The Rights Offering” beginning on page 47.

 

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PROSPECTUS SUMMARY

The following summary provides an overview of certain information about Roadrunner and this rights offering and may not contain all the information that is important to you. This summary is qualified in its entirety by, and should be read together with, the information contained in other parts of this prospectus and the documents we incorporate by reference. You should read this entire prospectus, including the risk factors, and the documents that we incorporate by reference carefully before making a decision about whether to exercise your rights.

Roadrunner Transportation Systems, Inc.

Overview

We are a leading asset-right transportation and asset-light logistics service provider offering a full suite of solutions under the Roadrunner, Active On-Demand and Ascent Global Logistics brands. The Roadrunner brand offers less-than-truckload, temperature controlled and intermodal services. Active On-Demand offers premium mission critical air and ground transportation solutions. Ascent Global Logistics offers domestic freight management and brokerage, warehousing and retail consolidation, international freight forwarding, and customs brokerage. We serve a diverse customer base in terms of end-market focus and annual freight expenditures. We are headquartered in Downers Grove, Illinois with operations primarily in the United States.

Effective January 1, 2018, we changed our segment reporting when we integrated our truckload brokerage business into our Ascent domestic freight management business. Segment information for prior periods has been revised to align with the new segment structure. Our three segments are as follows:

Truckload & Express Services, or TES. Within our TES segment we serve customers throughout North America. We provide air and ground expedite services, scheduled truckload services, intermodal services, temperature controlled truckload services, and other truckload and logistics services. We specialize in the transport of automotive and industrial parts, frozen and refrigerated foods including dairy, poultry and meat, and consumer products including foods and beverages. Our Active On-Demand ground and air expedited services business features proprietary bid technology supported by our fleets of ground and air assets. Roadrunner Intermodal Services and Roadrunner Temperature Controlled businesses provide specialized truckload services to beneficial cargo owners and freight management partners and brokers. We believe this array of technology, services, and specialization best serves our customers and provides us with more consistent shipping volumes in any given year.

Less-than-Truckload, or LTL. Our LTL segment involves the pickup, consolidation, linehaul, deconsolidation, and delivery of LTL shipments throughout the United States and parts of Canada. With a large network of LTL service centers and third-party pick-up and delivery agents, we are designed to provide customers with high reliability at an economical cost. We generally employ a point-to-point LTL model that we believe serves as a competitive advantage over the traditional hub and spoke LTL model in terms of lower incidence of damage and reduced fuel consumption.

Ascent Global Logistics, or Ascent. Within our Ascent segment, we offer a full portfolio of domestic and international transportation and logistics solutions, including access to cost-effective and time-sensitive modes of transportation within our broad network. Ascent provides domestic freight management solutions including asset-backed truckload brokerage, specialized/heavy haul, LTL shipment execution, LTL carrier rate negotiations, access to our transportation management system, or TMS, and freight audit/payment. Ascent also provides clients with international freight forwarding, customs brokerage, regulatory compliance services and project management. We also specialize in retail consolidation, with 2.5 million square feet of our own food-grade warehousing space (both dry and temperature controlled) and full truckload consolidation to retailers to



 

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improve On Time In Full, or OTIF, compliance. Ascent serves its customers through either its direct sales force or through a network of independent agents. Our customized Ascent offerings are designed to allow our customers to reduce operating costs, redirect resources to core competencies, improve supply chain efficiency, and enhance customer service.

Our Industry

Over-the-Road Freight

The over-the-road freight sector includes both private fleets and “for-hire” carriers. According to the American Trucking Associations, or ATA, the U.S. freight sector represented revenue of approximately $900.6 billion in 2017 and accounted for approximately 80% of domestic freight transportation spend. The ATA estimates that U.S. freight transportation will increase to over $1.6 trillion by 2028. Private fleets consist of tractors and trailers owned and operated by shippers that move their own goods and, according to the ATA, accounted for revenue of approximately $327.7 billion in 2017. For-hire carriers transport truckload and LTL freight belonging to others and, according to the ATA, accounted for revenue of approximately $391.5 billion in 2017.

Truckload carriers generally dedicate an entire trailer to one shipper from origin to destination and are categorized by the type of equipment they use to haul a shipper’s freight, such as temperature-controlled, dry van, tank, or flatbed trailers. According to the ATA, excluding private fleets, revenue in the U.S. Truckload market was approximately $333.3 billion in 2017.

LTL carriers specialize in consolidating shipments from multiple shippers into truckload quantities for delivery to multiple destinations. LTL carriers are traditionally divided into two categories—national and regional. National carriers typically focus on two-day or longer service across distances greater than 1,000 miles and often operate without time-definite delivery, while regional carriers typically offer time-definite delivery in less than two days. According to the ATA, the U.S. LTL market generated revenue of approximately $58.2 billion in 2017.

On-Demand Air Charter

On-demand air charter is the segment of the air cargo industry focused on the time critical movement of goods that requires the timely launch of an aircraft to move freight. These critical movements of freight are typically necessary to prevent a disruption in the supply chain due to lack of components. There are approximately 50 certified airlines providing this on demand service in North America and Mexico. The primary users of on-demand air charter services are auto manufacturers, component manufacturers, and other heavy equipment makers or just-in-time manufacturers.

Third-Party Logistics

Third-party logistics, or 3PL, providers offer transportation management solutions and distribution services, including the movement and storage of freight and the assembly of inventory. The U.S. 3PL sector revenue increased from approximately $89.4 billion in 2004 to approximately $166.8 billion in 2016 (and experienced growth each year during such period other than from 2008 to 2009), according to Armstrong & Associates, Inc., a leading supply chain market research firm. In addition, only 11.0% of logistics expenditures by U.S. businesses were outsourced in 2016, according to Armstrong & Associates. In fiscal 2017, U.S. 3PL sector revenues were approximately $184.3 billion, a 10.5% increase from approximately $166.8 billion in 2016. We believe that the market penetration of 3PL providers will expand in the future as companies increasingly redirect their resources to core competencies and outsource their transportation and logistics requirements as they realize the cost-effectiveness of 3PL providers.



 

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Our Strategy

Our goal is to be the leading asset-right transportation and asset-light logistics service provider in North America. Our strategy includes continuing to:

Generate Free Cash Flows. Our scalable business model and low capital expenditures (as a percentage of our revenues) enhance our ability to generate strong free cash flows and returns on our invested capital and assets.

Gain New Customers. We continue to expand our customer base, and we will continue to pursue increased market share in the TES, LTL, and Ascent markets. Our expansive geographic reach and broad service offering provides us with the ability to add new customers seeking transportation and logistics solutions. We also believe the pool of potential new customers will grow as the benefits of third-party transportation management solutions continue to be embraced.

Increase Penetration with Existing Customers. With our comprehensive service offering and large global network, we have substantial cross-selling opportunities and the potential to capture a greater share of existing customers’ annual transportation and logistics expenditures.

Increase Levels of Integration. We adopted a long-term brand and go-to-market service offering plan in the fourth quarter of 2016. Over the next three years, in order to implement this plan, we expect to increase the level of integration within each of our three segments in order to improve our ability to serve customers. For example, in November of 2016, we re-branded our Roadrunner LTL business as Roadrunner Freight and in January of 2017, we re-branded our Global Solutions business as Ascent Global Logistics. In the first quarter of 2018, we announced the integration and rebranding of several operating companies, including Roadrunner Truckload Plus, into Ascent Global Logistics and in the second quarter of 2018, we restructured our temperature controlled truckload business by completing the integration of multiple operating companies into one operating unit. These are first steps in the implementation of our long-term brand and go-to-market service offering plan.

The Rights Offering and Backstop Commitment

The Offer

We are distributing at no charge to the holders of our common stock on January 30, 2019, which we refer to as the record date, transferable rights to purchase up to an aggregate of 900,000,000 new shares of our common stock. We will distribute to you, a rights holder, one transferable right for every share of our common stock that you own on the record date. Each right entitles the rights holder to purchase 23.1379497159 shares of our common stock, which we refer to as the basic subscription right, at the subscription price of $0.50 per whole share of common stock, which we refer to as the subscription price. The gross proceeds from this rights offering will be $450 million after giving effect to the backstop commitment.

Over-Subscription Right

Rights holders who fully exercise their basic subscription rights will be entitled to subscribe for additional shares of our common stock that remain unsubscribed as a result of any unexercised basic subscription rights, which we refer to as the over-subscription right. The over-subscription right allows a rights holder to subscribe for additional shares of our common stock up to the number of shares purchased under such holder’s basic subscription right at the subscription price. Pursuant to the Standby Purchase Agreement, Elliott is not entitled to subscribe for additional shares under the over-subscription rights. See “The Rights Offering—The Rights.”

Exercise of Rights

We refer to the basic subscription rights and over-subscription rights collectively as rights. Rights may be exercised at any time during the subscription period, which commences on February 1, 2019, and ends at



 

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5:00 p.m., Eastern Time, on February 19, 2019, the expiration date, unless extended by us. The subscription period may be extended as described below. The rights are transferable, and we expect the rights will be admitted for trading on the NYSE under the symbol “RRTS RT” during the course of this rights offering. During the subscription period, the terms of this rights offering may not be amended without the consent of Elliott; however, we may extend the subscription period for up to 10 days without the prior written consent of Elliott. See “The Rights Offering.”

Rights may only be exercised in aggregate for whole numbers of shares of our common stock; no fractional shares of our common stock will be issued in this rights offering. Any fractional shares of our common stock created by the exercise of the rights will be rounded to the nearest whole share. All exercises of basic subscription rights and over-subscription rights are irrevocable.

Cancellation, Termination, Amendment, or Extension

The Standby Purchase Agreement may be terminated and the transactions contemplated thereby may be abandoned at any time prior to the closing of this rights offering and the backstop commitment:

 

   

by mutual written agreement of Elliott and us;

 

   

by either us or Elliott, if the transactions contemplated by the Standby Purchase Agreement do not close by March 1, 2019; provided, however, that the right to terminate the Standby Purchase Agreement is not available to any party whose failure to comply with any provision of the Standby Purchase Agreement is the cause of, or resulted in, the failure of the closing to occur on or prior to such date;

 

   

by us, (i) if there has been a breach of any covenant or a breach of any representation or warranty of Elliott, which breach would cause the failure of Elliott to satisfy any of its conditions, provided that any such breach of a covenant or representation or warranty is not reasonably capable of cure on or prior to March 1, 2019; or (ii) upon the occurrence of any event that results in a failure to satisfy any of the joint conditions, which failure is not reasonably capable of cure on or prior to March 1, 2019; provided that all determinations made for the Company prior to the closing of this rights offering with respect to the foregoing clauses (i) and (ii) shall be made by the special committee;

 

   

by Elliott, (i) if there has been a breach of any covenant or a breach of any representation or warranty of the Company, which breach would cause the failure of the Company to satisfy any of its conditions, provided that any such breach of a covenant or representation or warranty is not reasonably capable of cure on or prior to March 1, 2019; or (ii) upon the occurrence of any event that results in a failure to satisfy any of the joint conditions, which failure is not reasonably capable of cure on or prior to March 1, 2019.

The Standby Purchase Agreement includes a customary fiduciary out provision that allows us to terminate this rights offering at any time prior to the commencement of the subscription period. The Standby Purchase Agreement will not prevent us from cancelling, terminating, amending, or extending this rights offering prior to the commencement of the subscription period. However, once the subscription period is commenced, any such cancellation, termination, or amendment will require the prior written consent of Elliott, except for an extension of the subscription period by not more than 10 days, unless the Standby Purchase Agreement is terminated. Any decision to cancel, terminate, amend or extend this rights offering will be made by us.

See “The Rights Offering—The Backstop Purchaser—Termination.” If this rights offering is terminated, all rights will expire without value and we will promptly arrange for the refund, without interest, of all funds received from holders of rights. All monies received by the rights agent in connection with this rights offering will be held by the rights agent, on our behalf, in a segregated interest-bearing account at a negotiated rate. All such interest shall be payable to us even if we determine to terminate this rights offering and return your subscription payment.



 

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Sale of Rights

The rights are evidenced by a rights certificate and are transferable until the close of trading on the NYSE on February 15, 2019 (or if this rights offering is extended, until the extended expiration date). We expect the rights will be admitted for trading on the NYSE under the symbol “RRTS RT.” We will use our best efforts to ensure that an adequate trading market for the rights will exist. However, no assurance can be given that a market for the rights will develop. Trading in the rights, if admitted for trading on the NYSE, may be conducted until close of trading on the NYSE on February 15, 2019 (or, if this rights offering is extended, on the business day immediately prior to the extended expiration date). See “The Rights Offering—Sale of Rights.” The rights will not be admitted for trading on the NYSE at the commencement of this rights offering if the stock price is not at or greater than the $0.50 subscription price; however, once the stock price is at or above $0.50 during the course of this rights offering, the NYSE will list the rights for trading beginning on the next trading day. Our common stock must consistently trade at or above $0.50 in order for the rights to remain listed on the NYSE during the course of this rights offering, and subsequent removal of the rights from listing is subject to the NYSE’s discretion.

Backstop Commitment; Standby Purchase Agreement

On November 8, 2018, we entered into the Standby Purchase Agreement with Elliott which was subsequently amended on January 10, 2019 to extend the date by which we are required to consummate this rights offering. As of January 11, 2019, Elliott beneficially owned approximately 13.5% of our common stock and all of our outstanding preferred stock, and two of our ten directors have been designated by Elliott pursuant to its rights under the documents governing the issuance of our preferred stock. The two directors designated by Elliott have not participated in any discussions regarding the terms of this rights offering or the Standby Purchase Agreement and the transactions contemplated thereby, and have abstained from all votes related to this rights offering and the Standby Purchase Agreement and the transactions contemplated thereby.

As a holder of our common stock on the record date, Elliott has agreed under the Standby Purchase Agreement to exercise its basic subscription right in full, although Elliott will not be entitled to subscribe for additional shares under the over-subscription right. Further, under the Standby Purchase Agreement, we have agreed to issue and sell to Elliott, and Elliott has agreed to purchase from us, at a price per share equal to the subscription price, all unsubscribed shares of common stock in this rights offering, which transaction, together with Elliott’s exercise of its basic subscription right in full, we refer to as the backstop commitment. The backstop commitment is subject to various terms and conditions that we negotiated with Elliott, which are described in this prospectus, and any description of the terms and conditions of the backstop commitment is qualified in its entirety by reference to the Standby Purchase Agreement, which was filed as Exhibit 10.48 to our Current Report on Form 8-K filed with the SEC on November 9, 2018 and is incorporated by reference herein. The purchase of shares of our common stock by Elliott pursuant to the backstop commitment will be effected in a transaction exempt from the registration requirements of the Securities Act, and will not be registered pursuant to the registration statement of which this prospectus forms a part.

The obligations of us and Elliott to consummate the transactions contemplated by the Standby Purchase Agreement are subject to the satisfaction prior to the closing of this rights offering of each of the following joint conditions (which may be waived in whole or in part by the Company or Elliott in their sole discretion): (i) the registration statement relating to this rights offering shall have been declared effective by the SEC and shall continue to be effective and no stop order shall have been entered by the SEC with respect thereto; (ii) this rights offering shall have been conducted in accordance with the Standby Purchase Agreement in all material respects without the waiver of any condition thereto; (iii) all material governmental and third-party notifications, filings, consents, waivers, and approvals required for the consummation of the transactions contemplated by the Standby Purchase Agreement, including this rights offering shall have been made or received; (iv) all terminations or



 

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expirations of waiting periods imposed under any necessary filing under the HSR Act or any other competition law or regulations shall have occurred; (v) no action shall have been taken, no statute, rule, regulation, or order shall have been enacted, adopted, or issued by any federal, state, or foreign governmental or regulatory authority, and no judgment, injunction, decree, or order of any federal, state or foreign court shall have been issued that, in each case, prohibits the implementation of this rights offering and the issuance and sale of our common stock in this rights offering or materially impairs the benefit of implementation thereof, and no action or proceeding by or before any federal, state, or foreign governmental or regulatory authority shall be pending or threatened wherein an adverse judgment, decree, or order would be reasonably likely to result in the prohibition of or material impairment of the benefits of the implementation of this rights offering and the issuance and sale of our common stock in this rights offering; (vi) approval of the Rights Offering Proposals; (vii) the shares of our common stock to be issued in this rights offering shall have been approved for listing on the NYSE, subject to official notice of issuance; provided, however, that this condition shall not apply in the event the Company’s common stock ceases to be listed and traded on the NYSE on or prior to the closing date of this rights offering; and (viii) there are no restrictions on our ability to redeem all outstanding shares of our preferred stock in accordance with the terms of the Standby Purchase Agreement.

In addition to the joint conditions, our obligation to issue and sell to Elliott all shares of our common stock offered in this rights offering that remain unsubscribed at the end of the subscription period will be subject to the satisfaction prior to the closing of this rights offering of each of the following conditions (which may not be waived, in whole or in part, without the prior written consent of Elliott): (i) the representations and warranties of Elliott made in the Standby Purchase Agreement shall be true and correct in all material respects as described in the Standby Purchase Agreement; and (ii) Elliott shall have performed and complied in all material respects with all covenants and agreements contained in the Standby Purchase Agreement and in any other Transaction Agreement (as defined in the Standby Purchase Agreement).

In addition to the joint conditions, Elliott’s obligation to purchase all of our unsubscribed shares of common stock in this rights offering will be subject to the satisfaction prior to the closing of this rights offering of each of the following conditions (which may be waived in whole or in part by Elliott in its sole discretion): (i) we shall have received a waiver by the lenders of the necessary provisions under our asset-based lending facility to avoid the mandatory use of proceeds received in this rights offering to prepay the principal outstanding under the asset-based lending facility and to waive any event of default that may be deemed to have occurred as a result of the consummation of this rights offering and the issuance of the common stock pursuant to the backstop commitment; (ii) we shall have executed and delivered to Elliott an amended and restated registration rights agreement (a form of which is attached to the Standby Purchase Agreement); (iii) we shall have executed and delivered to Elliott an amended and restated stockholders’ agreement (a form of which is attached to the Standby Purchase Agreement); (iv) our representations and warranties made in the Standby Purchase Agreement shall be true and correct in all material respects as described in the Standby Purchase Agreement; (v) we shall have performed and complied in all material respects with all covenants and agreements contained in the Standby Purchase Agreement and in any other Transaction Agreement (as defined in the Standby Purchase Agreement); and (vi) we shall have taken all necessary and required corporate action to adopt, and shall have implemented, the Corporate Governance Proposals.

As of the date of this prospectus, we have received the requisite stockholder vote to approve the Corporate Governance Proposals, received the requisite waiver by our lenders of the necessary provisions under our asset-based lending facility, and have taken all necessary and required corporate action to adopt, and have implemented, the Corporate Governance Proposals. See “The Rights Offering—Conditions to the Rights Offering.” Any description of the terms and conditions of the backstop commitment is qualified in its entirety by reference to the Standby Purchase Agreement, which was filed as Exhibit 10.48 to our Current Report on Form 8-K filed with the SEC on November 9, 2018 and is incorporated by reference herein.



 

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Elliott will not receive any fees for providing the backstop commitment; however, we will reimburse Elliott for all of the Elliott Transaction Expenses.

See “The Rights Offering—The Backstop Purchaser” for additional information.

Use of Proceeds

We expect to receive $450 million in gross proceeds from this rights offering after giving effect to the backstop commitment. We will use the proceeds received from the exercise of the rights and the backstop commitment to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all of the Elliott Transaction Expenses, and to pay all of the Company Transaction Expenses. We expect to pay approximately $403 million in the aggregate to pay the dividends and redeem the preferred stock. We will use any remaining proceeds for general corporate purposes, which amount will vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. Assuming 0%, 25%, 50%, 75%, and 100% of our stockholders other than Elliott exercise rights and purchase shares of our common stock in this rights offering, we estimate net proceeds remaining for general corporate purposes will be approximately $37.2 million, $34.9 million, $32.1 million, $28.0 million, and $22.5 million, respectively, if this rights offering closes by March 1, 2019. However, in order to comply with the covenant in our asset-based lending facility requiring us to retain $30 million in net cash proceeds from this rights offering and to use such proceeds for general corporate purposes, if a sufficient percentage of our stockholders other than Elliott exercise rights such that the proceeds remaining for general corporate purposes would fall below $30 million, Elliott has agreed to waive, in connection with the redemption of its preferred stock, the payment of accrued and unpaid dividends in an amount sufficient to leave us with $30 million in net cash proceeds from this rights offering. As of January 11, 2019, Elliott beneficially owned approximately 13.5% of our common stock and all of our outstanding preferred stock, and two of our ten directors have been designated by Elliott pursuant to its rights under the documents governing the issuance of our preferred stock. The two directors designated by Elliott have not participated in any discussions regarding the terms of this rights offering or the Standby Purchase Agreement and the transactions contemplated thereby, and have abstained from all votes related to this rights offering and the Standby Purchase Agreement and the transactions contemplated thereby. See “Use of Proceeds.”

Purpose of the Rights Offering

The purpose of this rights offering is to improve and simplify our capital structure in a manner that gives the existing stockholders the opportunity to participate on a pro rata basis and, if all stockholders exercise their rights, avoid dilution of their ownership interest in the Company. By improving and simplifying our capital structure, we believe it will increase the speed and likelihood of a full operational recovery.

The Company’s preferred stock has since its issuance in 2017 and 2018 provided the Company flexibility with the ability to pay the accrued dividends in cash or to defer them. However, as the business faced certain operational headwinds, refinancing the capital structure became increasingly challenging as the preferred stock balances continued to grow. Despite the ongoing efforts of our management to reduce our costs and turn around the business, our value for common stockholders has continued to erode. In light of these circumstances, our board of directors appointed a special committee of independent directors to evaluate strategic financing alternatives. The two directors designated by Elliott have not participated in any discussions regarding the terms of this rights offering or the Standby Purchase Agreement and the transactions contemplated thereby, and have



 

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abstained from all votes related to this rights offering and the Standby Purchase Agreement and the transactions contemplated thereby. After evaluating our strategic financing alternatives, the special committee and our board of directors determined that a rights offering was the best alternative and would (i) deleverage our balance sheet, and (ii) provide us with additional liquidity to fund operations. To the extent that they wish to do so, existing stockholders can participate in this rights offering. The backstop commitment has ensured that we will have $450 million in gross proceeds from this rights offering to fully pay down the preferred stock and provide additional liquidity. In addition, we will substantially reduce our combined preferred and debt leverage and, as a result, provide the Company with greater financial flexibility to invest in the business over the next several years.

Effects on the Backstop Purchaser’s Stock and Ownership

Elliott’s beneficial ownership of our common stock following this rights offering will be dependent upon the level of participation in this rights offering by the existing holders of our common stock other than Elliott. Set forth below, for illustrative purposes only, are four scenarios that indicate the effect that this rights offering and related share issuance could have on Elliott’s relative interest following this rights offering. Each scenario assumes that Elliott does not buy any unexercised rights in the open market. All numbers are approximated and included for illustrative purposes only.

Scenario A. All rights are exercised on a pro rata basis by all of the stockholders to whom the rights were issued. Because all of the basic subscription rights are exercised, no shares are issuable pursuant to the over-subscription right and Elliott purchases only the shares of common stock that it receives by exercising its basic subscription right in full.

Scenario B. None of the holders (other than Elliott) exercise their rights, and Elliott through its backstop commitment under the Standby Purchase Agreement will acquire all of the shares offered in this rights offering.

Scenario C. Holders of half of the shares (not including shares held by Elliott) of our common stock exercise their basic subscription right (with such holders not exercising their over-subscription rights), and Elliott through its backstop commitment under the Standby Purchase Agreement will acquire the remaining shares offered in this rights offering.

Scenario D. Holders of half of the shares (not including shares held by Elliott) of our common stock exercise their basic subscription right and fully exercise their over-subscription rights, and Elliott through its backstop commitment under the Standby Purchase Agreement will acquire the remaining shares pursuant to the backstop commitment under the Standby Purchase Agreement.

 

Scenario

   Total Shares
Offered
     Shares Purchased by or
Issued to Elliott
     Gross Proceeds      Elliott
Voting%(1)
 

A

     900,000,000        121,308,915      $ 450,000,000        13.5

B

     900,000,000        900,000,000      $ 450,000,000        96.4

C

     900,000,000        450,000,000      $ 450,000,000        48.5

D

     900,000,000        121,308,915      $ 450,000,000        13.5

 

(1)

As of January 11, 2019, Elliott beneficially owned 5,242,855 shares of our common stock and 13.5% of the voting power of all of the shares of our capital stock.

Rights and Information Agent

Innisfree M&A Incorporated, or Innisfree, will act as the information agent in connection with this rights offering. You may contact Innisfree, which we refer to as the information agent, with questions toll-free at



 

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(888) 750-5834. American Stock Transfer & Trust Company, LLC, or AST, will act as the rights agent in connection with this rights offering. You may contact AST, which we refer to as the rights agent, with questions toll-free at (800) 937-5449.

How to Obtain Subscription Information

 

   

Contact your broker-dealer, trust company, or other nominee where your rights are held, or

 

   

Contact the information agent toll-free at (888) 750-5834.

How to Subscribe

 

   

Deliver a completed rights certificate, nominee holder certification (if applicable), and the required payment to the rights agent by the expiration date, or

 

   

If your shares are held in an account with your broker-dealer, trust company, bank or other nominee, which qualifies as an Eligible Guarantor Institution under Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, have your Eligible Guarantor Institution deliver a notice of guaranteed delivery to the rights agent by the expiration date, along with the required payment. See “The Rights Offering—Guaranteed Delivery Procedures.”

Important Dates to Remember

Set forth below are certain important dates for this rights offering, which are generally subject to extension:

 

Record Date

     January 30, 2019  

Commencement of Subscription Period Date

     February 1, 2019  

Expiration Date(1)

     February 19, 2019  

Deadline for Delivery of Rights Certificates and Payment for Shares(2)

     February 19, 2019  

Deadline for Delivery of Notice of Guaranteed Delivery and Payment for Shares(2)

     February 19, 2019  

Deadline for Delivery of Rights Certificate and Nominee Holder Certificate (if applicable) pursuant to Notice of Guaranteed Delivery

     February 21, 2019  

Confirmations Mailed to Participants

     February 22, 2019  

Anticipated delivery of common stock purchased in this rights offering

     February 25, 2019  

 

(1)

Unless extended by us, which extension, once the subscription period is commenced, requires the written consent of Elliott, except for an extension of the subscription period by not more than 10 days, unless the Standby Purchase Agreement is terminated.

(2)

Participating rights holders must, by the expiration date of this rights offering (unless this rights offering is extended), either (i) deliver a rights certificate and payment for shares or (ii) cause to be delivered on their behalf a notice of guaranteed delivery and payment for shares.

Shares Outstanding Before and After the Rights Offering

We had 38,897,137 shares of our common stock outstanding as of January 30, 2019. Immediately after the completion of this rights offering, 938,897,137 shares of our common stock will be outstanding, excluding any shares that may be issued pursuant to the exercise of 1,820,361 outstanding vested and unvested stock options and delivery of stock pursuant to restricted stock units as of January 30, 2019.

Risk Factors

Investing in our common stock involves a high degree of risk. You should consider carefully the information found in “Risk Factors” beginning on page 15.



 

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Meeting of our Stockholders

On December 19, 2018, we held an annual meeting of stockholders at which the requisite number of our stockholders approved, among other proposals, the following proposals in connection with this rights offering: (a) an amendment to our Amended and Restated Certificate of Incorporation to increase the authorized number of shares of our common stock from 105,000,000 to 1,100,000,000 shares; (b) the issuance and sale of the 900,000,000 shares of our common stock upon exercise of rights to purchase shares of our common stock at a subscription price of $0.50 per share to raise $450 million pursuant to a rights offering; (c) the issuance and sale of the unsubscribed shares of our common stock to Elliott pursuant to the backstop commitment in accordance with the Standby Purchase Agreement; (d) an amendment to our Amended and Restated Certificate of Incorporation to permit our stockholders to take action by written consent; (e) an amendment to our Amended and Restated Certificate of Incorporation to permit our stockholders that hold a majority of our outstanding common stock to request that we call a special meeting of stockholders; (f) an amendment to our Amended and Restated Certificate of Incorporation to permit our stockholders holding a majority of our outstanding common stock to remove directors with or without cause; (g) an amendment to our Amended and Restated Certificate of Incorporation to permit our stockholders holding a majority of our outstanding common stock to amend or repeal our Amended and Restated Certificate of Incorporation or any provision thereof; (h) an amendment to our Amended and Restated Certificate of Incorporation to permit our stockholders holding a majority of our outstanding common stock to amend or repeal our Second Amended and Restated Bylaws or any provision thereof; (i) an amendment to our Amended and Restated Certificate of Incorporation to designate the courts in the state of Delaware as the exclusive forum for all legal actions unless otherwise consented to by the Company; (j) an amendment to our Amended and Restated Certificate of Incorporation to opt-out of Section 203 of the Delaware General Corporation Law; and (k) an amendment to our Amended and Restated Certificate of Incorporation to renounce any interest or expectancy of the Company in, or in being offered an opportunity to participate in, any business opportunity that is presented to Elliott or its directors, officers, shareholders, or employees (we collectively refer to (a) through (k) above as the Rights Offering Proposals and we collectively refer to (d) through (k) above as the Corporate Governance Proposals).

Pursuant to the Standby Purchase Agreement, at the 2018 annual meeting Elliott voted (or caused to be voted) the shares of our common stock owned by it in favor of the Rights Offering Proposals.

Interests of Our Officers, Directors, and Principal Stockholders in the Rights Offering

As of January 11, 2019, Elliott beneficially owned approximately 13.5% of our common stock and all of our outstanding preferred stock. Two of our ten directors have been designated by Elliott, and Elliott will be entitled to appoint additional directors commensurate to its voting rights following consummation of this rights offering. We have entered into the Standby Purchase Agreement with Elliott, under which Elliott has agreed to exercise its basic subscription right in full and purchase from us, at the subscription price, unsubscribed shares of common stock such that gross proceeds of this rights offering will be $450 million. The two directors designated by Elliott have not participated in any discussions regarding the terms of this rights offering or the Standby Purchase Agreement and the transactions contemplated thereby, and have abstained from all votes related to this rights offering and the Standby Purchase Agreement and the transactions contemplated thereby. We will use the proceeds received from the exercise of the rights and the backstop commitment to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all of the Elliott Transaction Expenses, and to pay all of the Company Transaction Expenses. We expect to pay approximately $403 million in the aggregate to pay the dividends and redeem the preferred stock. We will use any remaining proceeds for general corporate purposes, which amount will vary based upon the amount of rights



 

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exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. Assuming 0%, 25%, 50%, 75%, and 100% of our stockholders other than Elliott exercise rights and purchase shares of our common stock in this rights offering, we estimate net proceeds remaining for general corporate purposes will be approximately $37.2 million, $34.9 million, $32.1 million, $28.0 million, and $22.5 million, respectively, if this rights offering closes by March 1, 2019. However, in order to comply with the covenant in our ABL Facility (as defined herein) requiring us to retain $30 million in net cash proceeds from this rights offering and to use such proceeds for general corporate purposes, if a sufficient percentage of our stockholders other than Elliott exercise rights such that the proceeds remaining for general corporate purposes would fall below $30 million, Elliott has agreed to waive, in connection with the redemption of its preferred stock, the payment of accrued and unpaid dividends in an amount sufficient to leave us with $30 million in net cash proceeds from this rights offering. In the event our stockholders do not exercise their rights in full, Elliott will increase its percentage ownership of our issued and outstanding common stock.

In addition, a change in control under certain of our management compensation plans and agreements would require the accelerated vesting of all outstanding and unvested equity awards. If a change in control were to occur following the completion of this rights offering, certain members of management would be entitled to cash-based severance payments, health and welfare benefits, and bonus payments if such members of senior management are terminated without cause or for good reason (each as defined in their respective employment agreements) within 24 months following the change in control. Our senior management and directors waived these change in control provisions for their outstanding equity awards and certain other benefits that may have been subject to acceleration as a result of a change in control of the Company that could result upon consummation of this rights offering; however, we have not obtained waivers from other employees and plan participants.

See “Risk Factors—Risks Related to the Rights Offering—If Elliott owns greater than 35% of our common stock after this rights offering, such acquisition will be deemed a change in control under certain management compensation plans and agreements. Such change in control could cause a material adverse effect on our liquidity, financial condition, and results of operations. In addition, the ownership by Elliott of a substantial percentage of our common stock after this rights offering may be deemed a change in control under certain of our other arrangements and agreements with customers, suppliers, or other parties, which could cause a material adverse effect on our liquidity, financial condition, and results of operations.”

Fees and Expenses

Pursuant to the Standby Purchase Agreement, we have agreed to pay all of the Elliott Transaction Expenses and to pay all of the Company Transaction Expenses.

Corporate Information

We maintain our principal executive offices at 1431 Opus Place, Suite 530, Downers Grove, Illinois 60515, and our telephone number is (414) 615-1500. Our website address is www.rrts.com. The information contained on our website or that can be accessed through our website is not part of, and is not incorporated by reference into, this prospectus, and you should not consider it part of this prospectus.



 

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SELECTED FINANCIAL DATA

The following tables present selected financial data for each fiscal year in the five-year period ended December 31, 2017. The selected financial data below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited and unaudited consolidated financial statements and related notes contained elsewhere in this prospectus, including Note 3 “Acquisitions and Divestitures” to our audited consolidated financial statements. The consolidated statement of operations data includes the results of operations of our acquired companies since the date of their acquisition and our divested companies through the date of divestiture.

We have derived the consolidated statements of operations and other data for the years ended December 31, 2017, 2016, and 2015 and the consolidated balance sheet data as of December 31, 2017 and 2016 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the consolidated statements of operations data and other data for the years ended December 31, 2014 and 2013 and the consolidated balance sheet data as of December 31, 2015, 2014, and 2013 from our consolidated financial statements not included in this prospectus. The summary historical consolidated financial data as of September 30, 2018 and for the nine months ended September 30, 2018 and 2017 has been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated financial data as of September 30, 2017 has been derived from our unaudited condensed consolidated financial statements not included in this prospectus. In the opinion of the Company’s management, such unaudited financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary for the fair presentation of the interim periods. The data shown below is not necessarily indicative of the results of operations or financial condition that may be expected for any future period or date, and the results for the interim period ended September 30, 2018 are not necessarily indicative of the results for the full fiscal year. The selected financial data below is not intended to replace the consolidated financial statements and related notes included elsewhere in this prospectus.

 

    Nine Months Ended
September 30,
    Year Ended December 31,  
(In thousands, except per share amounts)   2018     2017     2017     2016     2015     2014     2013  

Consolidated Statement of Operations Data:

             

Revenues(1)

  $ 1,664,594     $ 1,530,932     $ 2,091,291     $ 2,033,200     $ 1,992,166     $ 1,872,470     $ 1,361,410  

Purchased transportation costs

    1,146,713       1,033,197       1,430,378       1,364,055       1,310,396       1,294,724       944,275  

Personnel and related benefits

    229,843       223,345       296,925       286,134       263,254       213,661       151,935  

Other operating expenses

    291,206       291,711       393,731       374,979       323,955       271,210       170,053  

Depreciation and amortization

    27,803       27,834       37,747       38,145       31,626       24,254       15,444  

Impairment charges

    —         4,402       4,402       373,661       —         —         —    

Gain on sale of Unitrans

    —         (35,440     (35,440     —         —         —         —    

Acquisition transaction expenses

    —         —         —         —         564       2,305       851  

Operations restructuring costs

    4,655       —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (35,626     (14,117     (36,452     (403,774     62,371       66,316       78,852  

Interest on debt

    8,002       11,659       14,345       22,827       19,439       13,363       7,883  

Interest on preferred stock

    71,571       33,723       49,704       —         —         —         —    

Loss on debt extinguishment

    —         15,876       15,876       —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (115,199     (75,375     (116,377     (426,601     42,932       52,953       70,969  

(Benefit from) provision for income taxes

    (8,040     (7,516     (25,191     (66,281     17,312       20,243       25,049  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

  $ (107,159   $ (67,859   $ (91,186   $ (360,320   $ 25,620     $ 32,710     $ 45,920  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) earnings per share:

             

Basic

  $ (2.78   $ (1.77   $ (2.37   $ (9.40   $ 0.67     $ 0.86     $ 1.27  

Diluted

  $ (2.78   $ (1.77   $ (2.37   $ (9.40   $ 0.65     $ 0.83     $ 1.21  

Weighted average common stock outstanding:

             

Basic

    38,490       38,399       38,405     38,318     38,179       37,852       36,133  

Diluted

    38,490       38,399       38,405       38,318     39,180       39,259       37,913  

 

(1)

Due to our adoption of Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), which was updated in August 2015 by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), on a modified retrospective basis, the Revenue presented for the nine months ended September 30, 2018 is presented on a different basis from prior periods.    



 

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CONSOLIDATED BALANCE SHEET DATA

 

    September 30,     December 31,  
(in thousands)   2018     2017     2017     2016     2015     2014     2013  

Total assets

  $ 863,196     $ 862,511     $ 876,043     $ 933,554     $ 1,307,753     $ 1,250,638     $ 859,492  

Adjusted working capital(1)

    83,557       139,976       123,469       138,692       153,626       155,950       98,255  

Total debt (including current maturities)

    159,329       193,077       199,410       445,589       432,830       423,945       187,165  

Preferred stock

    368,767       255,646       263,317       —         —         —         —    

Capital lease obligation

    30,023       8,629       9,565       6,245       12,464       1,730       1,934  

Total stockholders’ investment

    5,885       133,597       110,847       197,468       556,439       524,287       485,141  

 

(1)

We use adjusted working capital to evaluate how well short-term assets and liabilities are being utilized to run our operations. Our calculation of adjusted working capital excludes current maturities of debt and short-term capital lease obligations (i.e. financing items) from the traditional measure of working capital. Management believes adjusted working capital provides useful supplemental information for investors since it relates purely to the operational aspects of our business. Adjusted working capital is not a financial measure presented in accordance with GAAP. The following is a reconciliation of adjusted working capital from current assets:

 

     September 30,      December 31,  
(in thousands)    2018      2017      2017      2016      2015      2014      2013  

Current assets

   $ 373,165      $ 376,790      $ 398,386      $ 374,487      $ 346,564      $ 349,139      $ 211,115  

Less: Current liabilities

     307,524        246,331        287,264        684,037        630,918        617,367        124,001  

Plus: Short-term capital lease obligation

     7,828        1,920        2,397        2,653        5,150        233        203  

Plus: Current maturities of debt

     10,088        7,597        9,950        445,589        432,830        423,945        10,938  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted working capital

   $ 83,557      $ 139,976      $ 123,469      $ 138,692      $ 153,626      $ 155,950      $ 98,255  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


 

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ADJUSTED EBITDA

The following is a reconciliation of Adjusted EBITDA from net (loss) income:

 

    Nine Months Ended
September 30,
    Year Ended December 31,  
(In thousands)   2018     2017(1)     2017(1)     2016(1)     2015(1)     2014(1)     2013(1)  

Net (loss) income

  $ (107,159   $ (67,859   $ (91,186   $ (360,320   $ 25,620     $ 32,710     $ 45,920  

Plus: Total interest expense

    79,573     45,382     64,049     22,827     19,439       13,363       7,883  

Plus: (Benefit from) provision for income taxes

    (8,040     (7,516     (25,191     (66,281     17,312       20,243       25,049  

Plus: Depreciation and amortization

    27,803     27,834     37,747     38,145     31,626       24,254       15,444  

Plus: Impairment charges

    —         4,402       4,402     373,661     —         —         —    

Plus: Long-term incentive compensation expenses

    1,954     1,810     2,450     2,232     2,500       2,255       1,503  

Plus: Gain on sale of Unitrans

    —         (35,440     (35,440     —         —         —         —    

Plus: Loss on debt extinguishments

    —         15,876     15,876     —         —         —         —    

Plus: Operations restructuring costs

    4,655     —         —         —         —         —         —    

Plus: Corporate restructuring and restatement costs

    15,537     23,591     32,321     —         —         —         —    

Plus: Adjustments for contingent purchase obligation

    —         —         —         (2,458     (2,931     (1,722     (10,443
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(2)

  $ 14,323   $ 8,080   $ 5,028   $ 7,806     $ 93,566     $ 91,103     $ 85,356  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Adjusted EBITDA for the nine months ended September 30, 2017 and for the years ended December 31, 2017, 2016 and 2015 included Adjusted EBITDA from Unitrans, which was divested in September of 2017 of $6.6 million, $6.6 million, $9.3 million, and $9.8 million, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Adjusted EBITDA for the year ended December 31, 2014 included Adjusted EBITDA from Unitrans of $7.7 million. Adjusted EBITDA for the year ended December 31, 2013 did not include Adjusted EBITDA from Unitrans, which was acquired by the Company in March 2014.

(2)

EBITDA represents earnings before interest, taxes, depreciation and amortization. We use Adjusted EBITDA, which excludes impairment and other non-cash gains and losses, long-term incentive compensation expenses, losses from debt extinguishments, restructuring and restatement costs associated with legal matters, including our internal investigation, SEC compliance and debt restructuring costs, and adjustments to contingent purchase obligation, as a supplemental measure in evaluating our operating performance and when determining executive incentive compensation. We believe Adjusted EBITDA is useful to investors in evaluating our performance compared to other companies in our industry because it assists in analyzing and benchmarking the performance and value of a business. The calculation of Adjusted EBITDA eliminates the effects of financing, income taxes, impairments, and the accounting effects of capital spending. These items may vary for different companies for reasons unrelated to the overall operating performance of a company’s business. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. Although our management uses Adjusted EBITDA as a financial measure to assess the performance of our business compared to that of others in our industry, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

   

Adjusted EBITDA does not reflect our cash expenditures, future requirements for capital expenditures, or contractual commitments;

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

   

Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt or dividend payments on our preferred stock;

 

   

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; and

 

   

Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our results of operations under GAAP. See the consolidated statements of operations included in our consolidated financial statements included elsewhere in this prospectus.



 

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RISK FACTORS

You should carefully consider the risk factors set forth below, the other information contained in this Form S-1, including our consolidated financial statements and related notes, and any other risks described in our filings with the SEC, before making an investment decision. Any of the following risks could materially and adversely affect our business, financial condition, or results of operations. In such a case, you may lose all or part of your investment. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially adversely affect our business, financial condition, or results of operations.

Risks Related to our Business

We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, investor confidence in our Company, and the value of our common stock.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and based upon the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, the COSO framework. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and preparation of our financial statements for external purposes in accordance with generally accepted accounting principles, or GAAP. Management is also responsible for reporting on the effectiveness of internal control over financial reporting.

We have not maintained an effective control environment based on the criteria established in the COSO framework. We have identified deficiencies in the principles associated with the control environment of the COSO framework. Specifically, these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to: (i) our commitment to integrity and ethical values, (ii) the ability of our board of directors to effectively exercise oversight of the development and performance of internal control, as a result of failure to communicate relevant information within our organization and, in some cases, withholding information, (iii) appropriate organizational structure, reporting lines, and authority and responsibilities in pursuit of objectives, (iv) our commitment to attract, develop, and retain competent individuals, and (v) holding individuals accountable for their internal control related responsibilities. These material weaknesses resulted in material accounting errors.

We have not maintained an effective control environment to enable the identification and mitigation of risks of material accounting errors, based on the contributing factors to material weakness in the control environment, including:

 

   

The tone from former executive management was insufficient to create the proper environment for effective internal control over financial reporting and to ensure that (i) there were adequate processes for oversight, (ii) there was accountability for the performance of internal control over financial reporting responsibilities, (iii) identified issues and concerns were raised to appropriate levels within our organization, (iv) corrective activities were appropriately applied, prioritized, and implemented in a timely manner, and (v) relevant information was communicated within our organization and not withheld from our independent directors, our Audit Committee, and our independent auditors.

 

   

In certain operating companies and at our corporate headquarters there were inconsistent accounting systems, policies, and procedures. Additionally, in certain locations we did not attract, develop, and retain competent management, accounting, financial reporting, internal audit, and information systems personnel or resources to ensure that internal control responsibilities were performed and that information systems were aligned with internal control objectives.

 

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Our oversight processes and procedures that guide individuals in applying internal control over financial reporting were not adequate in preventing or detecting material accounting errors, or omissions due to inadequate information and, in certain instances, management override of internal controls, including recording improper accounting entries, recording accounting entries that were inconsistent with information known by management at the time, not communicating relevant information within our organization and, in some cases, withholding information from our independent directors, our Audit Committee, and our independent auditors.

Additionally, we have identified control deficiencies that constituted material weaknesses in all of the principles associated with the risk assessment, control activities, information and communication and monitoring activities components of the COSO framework. See Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, incorporated herein by reference, for more information.

As a result of such material weaknesses, our management concluded that our disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2017.

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. We are actively engaged in developing and implementing a remediation plan designed to address these material weaknesses, but our remediation efforts are not complete and are ongoing. Although we are working to remedy the ineffectiveness of our internal control over financial reporting, there can be no assurance as to when the remediation plan will be fully developed or implemented, the effectiveness of the remediation plan when fully implemented, or the aggregate cost of implementation. Until our remediation plan is fully implemented, our management will continue to devote significant time and attention to these efforts. If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there will continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our future consolidated financial statements could contain errors that will be undetected. If we are unable to report our results in a timely and accurate manner, we may not be able to comply with the applicable covenants in our financing arrangements, and may be required to seek additional amendments or waivers under these financing arrangements, which could adversely impact our liquidity and financial condition. Further and continued determinations that there are material weaknesses in the effectiveness of our internal control over financial reporting could reduce our ability to obtain financing or could increase the cost of any financing we obtain and require additional expenditures of both money and our management’s time to comply with applicable requirements.

Any failure to implement or maintain required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses or material misstatements in our future consolidated financial statements. Any new misstatement could result in a further restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability to obtain financing, increase the cost of any financing we obtain, or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price. We cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting.

Further, we may be the subject of negative publicity focusing on the restatement of our previously issued financial results and related matters, and may be adversely impacted by negative reactions from our stockholders, creditors, or others with which we do business. This negative publicity may impact our ability to attract and retain customers, employees, drivers, and vendors. The occurrence of any of the foregoing could harm our business and reputation and cause the price of our securities to decline.

 

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The restatement of our previously issued financial results has resulted in private litigation, derivative lawsuits, and government agency investigations and actions, and could result in additional litigation, government agency investigations, and enforcement actions.

Following our press release on January 30, 2017, three putative class actions were filed in the United States District Court for the Eastern District of Wisconsin against us and our former officers, Mark A. DiBlasi and Peter R. Armbruster. On May 19, 2017, the Court consolidated the actions under the caption In re Roadrunner Transportation Systems, Inc. Securities Litigation (Case No. 17-cv-00144), and appointed Public Employees’ Retirement System as lead plaintiff. On March 12, 2018, the lead plaintiff filed a Consolidated Amended Complaint, or CAC, on behalf of a class of persons who purchased our common stock between March 14, 2013 and January 30, 2017, inclusive. The CAC alleges (i) we and Messrs. DiBlasi and Armbruster violated Section 10(b) of the Exchange Act and Rule 10b-5, and (ii) Messrs. DiBlasi and Armbruster, our former Chairman Scott Rued, HCI Equity Partners, L.L.C., and HCI Equity Management, L.P. violated Section 20(a) of the Exchange Act, by making or causing to be made materially false or misleading statements, or failing to disclose material facts, regarding (a) the accuracy of our financial statements; (b) our true earnings and expenses; (c) the effectiveness of our disclosure controls and controls over financial reporting; (d) the true nature and depth of financial risk associated with our tractor lease guaranty program; (e) our leverage ratios and compliance with our credit facilities; and (f) the value of the goodwill we carried on our balance sheet. The CAC seeks certification as a class action, compensatory damages, and attorney’s fees and costs. On July 23, 2018, we and the individual defendants filed motions to dismiss to which the lead plaintiff responded on September 21, 2018. The defendants’ time to file their reply has been extended pending the parties’ mediation, which is ongoing.

On May 25, 2017, Richard Flanagan filed a complaint alleging derivative claims on our behalf in the Circuit Court of Milwaukee County, State of Wisconsin (Case No. 17-cv-004401) against Scott Rued, Mark DiBlasi, Christopher Doerr, John Kennedy, III, Brian Murray, James Staley, Curtis Stoelting, William Urkiel, Judith Vijums, Michael Ward, Chad Utrup, Ivor Evans, Peter Armbruster, and Brian van Helden. Count I of the complaint alleges the Director Defendants breached their fiduciary duties by “knowingly failing to ensure that we implemented and maintained adequate internal controls over its accounting and financial reporting functions,” and seeks unspecified damages. Count II of the complaint alleges the Officer Defendants DiBlasi, Armbruster, and van Helden received substantial performance-based compensation and bonuses for fiscal year 2014 that should be disgorged. The action has been stayed by agreement pending a decision on an anticipated motion to dismiss the amended complaint filed in the securities class action described above. While the case was stayed, the plaintiff obtained permission to file an amended complaint adding claims against two former Company employees: Bret Naggs and Mark Wogsland. The parties are currently engaged in mediation.

On June 28, 2017, Jesse Kent filed a complaint alleging derivative claims on our behalf and class action claims in the United States District Court for the Eastern District of Wisconsin. On December 22, 2017, Chester County Employees Retirement Fund filed a complaint alleging derivative claims on our behalf in the United States District Court for the Eastern District of Wisconsin. On March 21, 2018, the Court entered an order consolidating the Kent and Chester County actions under the caption In re Roadrunner Transportation Systems, Inc. Stockholder Derivative Litigation (Case No. 17-cv-00893). On March 28, 2018, plaintiffs filed their Verified Consolidated Shareholder Derivative Complaint alleging claims on our behalf against Peter Armbruster, Mark DiBlasi, Scott Dobak, Christopher Doerr, Ivor Evans, Brian van Helden, John Kennedy III, Ralph Kittle, Brian Murray, Scott Rued, James Staley, Curtis Stoelting, William Urkiel, Chad Utrup, Judith Vijums, and Michael Ward. Count I alleges that several of the defendants violated Section 14(a) of the Exchange Act and Rule 14a-9 based upon alleged misrepresentations and omissions in several of our proxy statements. Count II alleges that all the defendants breached their fiduciary duty. Count III alleges that all the defendants wasted corporate assets. Count IV alleges that certain of the defendants were unjustly enriched. The complaint seeks monetary damages, improvements to our corporate governance and internal procedures, an accounting from defendants of the damages allegedly caused by them and the improper amounts the defendants allegedly obtained, and punitive damages. The parties are currently engaged in mediation.

 

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Given the status of the matters above, we concluded in the third quarter of 2018 that a liability is probable and recorded the estimated loss of $22 million and a corresponding insurance reimbursement receivable of $20 million as of September 30, 2018.

In addition, subsequent to our announcement that certain previously filed financial statements should not be relied upon, we were contacted by the SEC, the Financial Industry Regulatory Authority, Inc., or FINRA, and the Department of Justice, or the DOJ. The DOJ and Division of Enforcement of the SEC have commenced investigations into the events giving rise to the restatement. We have received formal requests for documents and other information. In addition, in June 2018 two of our former employees were indicted on charges of conspiracy, securities fraud, and wire fraud as part of the ongoing DOJ and SEC investigation. We are cooperating fully with the joint DOJ and SEC investigation. Given the status of this matter, we are unable to reasonably estimate the potential costs or range of costs at this time.

We cannot predict the outcome of these matters, or whether any other actions or proceedings will be filed against us in the future, and the cost of defending such actions or proceedings could be material. Furthermore, defending such actions or proceedings could divert our management and key personnel from our business operations. If we are found liable in any actions or proceedings, we may have to pay substantial damages or change the way we conduct our business, either of which may have a material adverse effect on our business, operating results, financial condition, and prospects. There may also be negative publicity associated with litigation or regulatory proceedings that could harm our business and reputation and cause the price of our securities to decline.

The restatement of our previously issued financial statements was time-consuming and expensive and could expose us to additional risks that could adversely affect our financial position, results of operations, and cash flows.

As described in Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2015, Amendment No. 1 to our Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2016, June 30, 2016, and September 30, 2016, and Note 15 “Restatement of Previously Issued Financial Statements” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016, we restated our previously issued consolidated financial statements for the years ended December 31, 2015, 2014, and 2013, and each of the quarters ended March 31, 2016, June 30, 2016, and September 30, 2016, as well as the quarters in the years ended December 31, 2015 and 2014. The restatement was time-consuming and expensive and could expose us to a number of additional risks that could adversely affect our financial position, results of operations, and cash flows.

In particular, we have incurred significant expense, including audit, legal, consulting, and other professional fees, as well as fees related to amendments to our prior senior credit facility, the Investment Agreement, dated May 1, 2017, with Elliott, referred to as the 2017 Investment Agreement, and our ABL Facility, in connection with the restatement of our previously issued consolidated financial statements and the ongoing remediation of material weaknesses in our internal control over financial reporting. We have taken a number of steps, including both adding internal personnel and hiring outside consultants, and intend to continue to take appropriate and reasonable steps to strengthen our accounting function and reduce the risk of additional misstatements in our financial statements. For more details about our remediation plan, see Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, incorporated herein by reference. To the extent these steps are not successful, we may have to incur additional time and expense. Our management’s attention has also been, and may further be, diverted from the operation of our business in connection with the restatement and ongoing remediation of material weaknesses in our internal controls.

We are also subject to claims, investigations, and proceedings arising out of the errors in our previously issued financial statements, including securities class action litigation, derivative lawsuits, and government agency investigations.

 

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One or more significant claims or the cost of maintaining our insurance could have an adverse effect on our results of operations.

We employ approximately 1,400 drivers and use the services of thousands of independent contractors, or ICs, and transportation companies and their drivers in connection with our transportation operations. We also provide air freight services with our fleet of 11 cargo jets. From time to time, these drivers or pilots are, or may be, involved in accidents which may cause injuries and in which goods carried by them are lost or damaged. Such accidents usually result in equipment damage and, unfortunately, can also result in injuries or death. Although most of these drivers are ICs or work for third-party carriers, from time to time claims may be asserted against us for their actions or for our actions in retaining them. Claims against us may exceed the amount of our insurance coverage, or may not be covered by insurance at all. Our involvement in the transportation of certain goods, including, but not limited to, hazardous materials, could also increase our exposure in the event of an accident resulting in injuries or contamination. The resulting types and/or amounts of damages may under any of these circumstances be excluded by or exceed the amount of our insurance coverage or the insurance coverage maintained by the contracted carrier. A material increase in the frequency or severity of accidents, claims for lost or damaged goods, liability claims, workers’ compensation claims, or unfavorable resolutions of any such claims could adversely affect our results of operations to the extent claims are not covered by our insurance or such losses exceed our reserves. Significant increases in insurance costs or the inability to purchase insurance as a result of these claims could also reduce our profitability and have an adverse effect on our results of operations. The timing of the incurrence of these costs could also significantly and adversely impact our operating results compared to prior periods.

Increased insurance premium costs could have an adverse effect on our results of operations.

Insurance carriers may increase premiums for transportation companies generally. We could also experience additional increases in our insurance premiums in the future if our claims experience worsens. If our insurance or claims expense increases and we are unable to offset the increase with higher freight rates, our results of operations could be adversely affected. Furthermore, we may not be able to maintain or obtain sufficient or desired levels of insurance at reasonable rates. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, it could have an adverse effect on our results of operations and financial position.

The cost of compliance with, liability for violations of, or modifications to existing or future governmental laws and regulations could adversely affect our business and results of operations.

Our operations are regulated and licensed by various federal and state agencies in the United States and similar governmental agencies in foreign countries in which we operate. These regulatory agencies have authority and oversight of domestic and international transportation services and related activities, licensure, motor carrier operations, safety and security, and other matters. We must comply with various insurance and surety bond requirements to act in the capacities for which we are licensed. Our subsidiaries and ICs must also comply with applicable regulations and requirements of such agencies.

Through our subsidiaries, we hold various licenses required to carry out our domestic and international services. These licenses permit us to provide services as a motor carrier, property broker, air carrier, indirect air carrier, ocean transportation intermediary, non-vessel operating common carrier, freight forwarder, and ocean freight forwarder. We also are subject to regulations and requirements promulgated by, among others, the DOT (or Department of Transportation), FMCSA (or Federal Motor Carrier Safety Administration), DHS (or U.S. Department of Homeland Security), CBP (or Bureau of Customs and Border Protection), TSA (or Transportation Security Administration), U.S. Federal Maritime Commission, IATA (or International Air Transport Association), U.S. Food and Drug Administration, U.S. Department of Agriculture, U.S. Fish and Wildlife Service, Bureau of Alcohol, Tobacco, Firearms and Explosives, FAA (or the Federal Aviation Administration) and various other international, domestic, state, and local agencies and port authorities. Our failure to maintain

 

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our required licenses, or to comply with applicable regulations, could materially and adversely affect our business, results of operations, or financial condition. See the section entitled “Description of Business—Regulation” for more information.

In addition, DHS regulations applicable to our customers who import goods into the United States and our contracted ocean carriers may impact our ability to provide and/or receive services with and from these parties. Enforcement measures related to violations of these regulations can slow and/or prevent the delivery of shipments, which may negatively impact our operations.

We incur significant costs to operate our business and monitor our compliance with applicable laws and regulations. The regulatory requirements governing our operations are subject to change based on new legislation and regulatory initiatives, which could affect the economics of the transportation industry by requiring changes in operating practices or influencing the demand for, and the cost of providing, transportation services. We cannot predict what impact future regulations may have on our business. Compliance with existing, new, or more stringent measures could disrupt or impede the timing of our deliveries and our ability to satisfy the needs of our customers. We have adopted various policies and procedures intended to ensure our compliance with regulatory requirements. We cannot provide assurance that these policies and procedures will be adequate or effective. Additionally, we are also subject to the risk that our employees may inadvertently or deliberately circumvent established controls. The financial and reputational impact of control failures could be significant. In addition, we may experience an increase in operating costs, such as security costs, as a result of governmental regulations that have been and will be adopted in response to terrorist activities and potential terrorist activities. The cost of compliance with existing or future measures could adversely affect our results of operations. Further, we could become subject to liabilities as a result of a failure to comply with applicable regulations.

On December 22, 2017, the Tax Cuts and Jobs Act, referred to as the Tax Reform Act, was signed into United States law, and most changes became effective as of January 1, 2018. Although we expect that, as a result of the reduction in the corporate income tax rates from 35% to 21% and other changes to law, the Tax Reform Act will be financially and cash flow beneficial to us, we are continuing to review the provisions of the Tax Reform Act and have not yet fully determined the effect they will have on us.

Jeffrey Cox and David Chidester filed a complaint against certain of our subsidiaries in state court in California in a post-acquisition dispute. The complaint alleges contract, statutory and tort based claims arising out of the Stock Purchase Agreement, dated November 2, 2012, between the defendants, as buyers, and the plaintiffs, as sellers, for the purchase of the shares of Central Cal Transportation, Inc. and Double C Transportation, Inc., or the Central Cal Agreement. The plaintiffs claim that a contingent purchase obligation payment is due and owing pursuant to the Central Cal Agreement, and that defendants have furnished fraudulent calculations to the plaintiffs to avoid payment. The plaintiffs also claim violations of California’s Labor Code related to the plaintiffs’ respective employment with Central Cal Transportation, LLC. On October 27, 2017, the state court granted our motion to compel arbitration of all non-employment claims alleged in the complaint. The plaintiffs are now required to comply with the dispute resolution process outlined in the Central Cal Agreement, and submit the dispute to a settlement accountant. In February 2018, Plaintiff David Chidester agreed to dismiss his employment-related claims from the Los Angeles Superior Court matter, while Plaintiff Jeffrey Cox transferred his employment claims from Los Angeles Superior Court to the related employment case pending in the Eastern District of California. The parties are proceeding with discovery.

In addition to the legal proceeding described above, we are a defendant in various purported class-action lawsuits alleging violations of various California labor laws and one purported class-action lawsuit alleging violations of the Illinois Wage Payment and Collection Act. Additionally, the California Division of Labor Standards and Enforcement has brought administrative actions against us alleging that we violated various California labor laws. In 2017 and 2018, we reached settlement agreements on a number of these labor related lawsuits and administrative actions. As of December 31, 2017, and December 31, 2016, we recorded a reserve for settlements, litigation, and defense costs related to these labor matters and post-acquisition disputes of

 

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approximately $13.2 million and $10.4 million, respectively, which are recorded in accrued expenses and other current liabilities.

In December 2018, a class action lawsuit was brought against us in the Superior Court of the State of California by Fernando Gomez, on behalf of himself and other similarly situated persons, alleging violation of California labor laws. This is a new lawsuit and we are currently determining its effects. We intend to vigorously defend against such claims; however, there can be no assurance that we will be able to prevail. It is impossible to predict the probable outcome of these legal proceedings at this time in light of the relatively early state of the proceedings.

Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties.

From time to time, we arrange for the movement of hazardous materials at the request of our customers. As a result, we are subject to various environmental laws and regulations relating to the handling, transport, and disposal of hazardous materials. If our customers or carriers are involved in an accident involving hazardous materials, or if we are found to be in violation of applicable laws or regulations, we could be subject to substantial fines or penalties, remediation costs, or civil and criminal liability, any of which could have an adverse effect on our business and results of operations. In addition, current and future laws and regulations relating to carbon emissions and the effects of global warming can be expected to have a significant impact on the transportation sector generally and the operations and profitability of some of our carriers in particular, which could adversely affect our business and results of operations.

A decrease in levels of capacity in the over-the-road freight sector could have an adverse impact on our business.

The current operating environment in the over-the-road freight sector resulting from fluctuating fuel costs, industry-specific regulations (such as the Compliance, Safety, and Accountability Program, or CSA, and hours-of-service rules and the changes implemented under Moving Ahead for Progress in the 21st Century, or MAP-21), a shortage of qualified drivers, and other economic factors are causing a tightening of capacity in the sector generally, and in our carrier network specifically, which could have an adverse impact on our ability to execute our business strategy and on our business.

We have not successfully managed, and may not in the future manage, our growth or operations.

We have grown substantially, including by expanding our internal resources, making acquisitions, and entering into new markets. We have experienced, and may in the future experience, difficulties and higher-than-expected expenses in executing this strategy as a result of unfamiliarity with new markets, change in revenue and business models, and entering into new geographic areas. For example, as described in Part II, Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, incorporated herein by reference, based on the Audit Committee Investigation, current management determined that there were deficiencies in the design and/or execution of internal controls that constituted material weaknesses, with one of the contributing factors being the increased size and complexity of our Company arising from the acquisition of 25 non-public companies between February 2011 and September 2015.

In 2018, we devised strategies to improve our operational performance, integrate and expand certain of our segments, invest in the long-term recovery of our business and position our business for long-term growth and shareholder value creation. We have, and may in the future, experience delay in the implementation and realization of these strategies. The success of our strategies depend on many factors, some of which are out of our control. There is no assurance that we will be able to successfully implement these strategies or that these strategies will be successful.

Our growth has placed, and will in the future place, a significant strain on our management and our operational and financial resources. We need to continually improve existing procedures and controls as well as

 

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implement new transaction processing, operational and financial systems, and procedures and controls to expand, train, and manage our employee base. Our working capital needs have increased substantially as our operations have grown.

Failure to manage growth effectively, or obtain necessary working capital, has in the past had, and could in the future have, a material adverse effect on our business, results of operations, financial position, and cash flows.

Our outstanding debt and preferred stock could adversely affect our business and limit our ability to expand our business or respond to changes, and we may be unable to generate sufficient cash flow to satisfy our debt service and preferred stock obligations.

As of December 31, 2017, we had debt of $202.9 million and preferred stock of $263.3 million, which is classified as a liability on the consolidated financial statements. See Note 5 “Debt” and Note 6 “Preferred Stock” to the audited consolidated financial statements included elsewhere in this prospectus. On March 1, 2018, we entered into the Series E-1 Investment Agreement with Elliott, pursuant to which we agreed to issue and sell to Elliott from time to time until July 30, 2018, an aggregate of up to 54,750 shares of Series E-1 Preferred Stock at a purchase price of $1,000 per share for the first 17,500 shares of Series E-1 Preferred Stock, $960 per share for the next 18,228 shares of Series E-1 Preferred Stock, and $920 per share for the final 19,022 shares of Series E-1 Preferred Stock, referred to as the 2018 Investment Agreement. On March 1, 2018, the parties held an initial closing pursuant to which we issued and sold to Elliott 17,500 shares of Series E-1 Preferred Stock for an aggregate purchase price of $17.5 million. On April 24, 2018, the parties held a closing pursuant to the 2018 Investment Agreement, pursuant to which we issued and sold to Elliott 18,228 shares of Series E-1 Preferred Stock for an aggregate purchase price of approximately $17.5 million. See Note 16 “Subsequent Events” to the consolidated financial statements included elsewhere in this prospectus for further information. As part of this rights offering and as discussed in this prospectus, we intend to redeem all of our outstanding preferred stock to improve our capital structure.

We may incur additional indebtedness in the future, including any additional borrowings available under the ABL Facility, and we may issue additional shares of preferred stock, including additional shares of Series E-1 Preferred Stock under the 2018 Investment Agreement. Any substantial debt or outstanding preferred stock and the fact that a substantial portion of our cash flow from operating activities could be needed to make payments on our debt or outstanding preferred stock could have adverse consequences, including the following:

 

   

reducing the availability of our cash flow for our operations, capital expenditures, future business opportunities, and other purposes;

 

   

limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, which would place us at a competitive disadvantage compared to our competitors that may have less debt or outstanding preferred stock;

 

   

limiting our ability to borrow additional funds; and

 

   

increasing our vulnerability to general adverse economic and industry conditions.

Our ability to borrow any funds needed to operate and expand our business will depend in part on our ability to generate cash. Our ability to generate cash is subject to the performance of our business as well as general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. If our business does not generate sufficient cash flow from operating activities or if future borrowings are not available to us under our ABL Facility or otherwise in amounts sufficient to enable us to fund our liquidity needs, our operating results, financial condition, and ability to maintain or expand our business may be adversely affected. Moreover, our inability to make scheduled payments on our debt or preferred stock obligations in the future would require us to refinance all or a portion of our debt and/or preferred stock on or before maturity, sell assets, delay capital expenditures, or seek additional equity.

 

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We have had, and may have in the future, difficulties integrating acquired companies.

For acquisitions, success is also dependent upon efficiently integrating the acquired business into our existing operations. We are required to integrate these businesses into our internal control environment, which may present challenges that are different than those presented by organic growth and that may be difficult to manage. For example, as described in Part II, Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, incorporated herein by reference, based on the Audit Committee Investigation, current management determined that there were deficiencies in the design and/or execution of internal controls that constituted material weaknesses, with one of the contributing factors being the increased size and complexity of our Company arising from the acquisition of 25 non-public companies between February 2011 and September 2015. The possible difficulties of integration include, among others: retention of customers and key employees; unanticipated issues in the assimilation and consolidation of information, communications, technology, and other systems; inefficiencies and difficulties that arise because of unfamiliarity with potentially new geographic areas and new assets and the businesses associated with them; consolidation of corporate and administrative infrastructures; the diversion of management’s attention from ongoing business concerns; the effect on internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of 2002; and unanticipated issues, expenses, and liabilities. The diversion of management’s attention from our current operations to the acquired operations and any difficulties encountered in combining operations has prevented us, and could in the future prevent us, from realizing the full benefits anticipated to result from the acquisitions and has adversely impacted, and could in the future adversely impact, our results of operations and financial condition.

Also, following an acquisition, we may discover previously unknown liabilities associated with the acquired business for which we have no recourse under applicable indemnification provisions. In addition, the former owners of the businesses we acquire may seek additional consideration under contingent purchase obligations resulting in increased purchase prices. See “—The cost of compliance with, liability for violations of, or modifications to existing or future governmental laws and regulations could adversely affect our business and results of operations.” If we are unable to successfully integrate and grow these acquisitions and to realize contemplated revenue synergies and cost savings, our business, prospects, results of operations, financial position, and cash flows could be materially and adversely affected.

Any acquisitions that we undertake could be difficult to integrate, disrupt our business, dilute stockholder value, and adversely affect our results of operations.

We may seek to increase our revenue and expand our offerings in the market regions that we serve through the acquisition of complementary businesses. We cannot guarantee that we will be able to identify suitable acquisitions or investment candidates. Even if we identify suitable candidates, we cannot guarantee that we will make acquisitions or investments on commercially acceptable terms, if at all. In addition, we may incur debt or be required to issue equity securities to pay for future acquisitions or investments. The issuance of any equity securities could be dilutive to our stockholders.

Strategic acquisitions involve numerous risks, including the following:

 

   

failure of the acquired company to achieve anticipated revenues, earnings, or cash flows;

 

   

assumption of liabilities that were not disclosed to us or that exceed our estimates;

 

   

problems integrating the purchased operations with our own, which could result in substantial costs and delays or other operational, technical, or financial problems;

 

   

potential compliance issues with regard to acquired companies that did not have adequate internal controls;

 

   

diversion of management’s attention or other resources from our existing business;

 

   

risks associated with entering markets in which we have limited prior experience; and

 

   

potential loss of key employees and customers of the acquired company.

 

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Our ABL Facility contains financial and other restrictive covenants with which we may be unable to comply. A default under these financing arrangements could cause a material adverse effect on our liquidity, financial condition, and results of operations.

The loans outstanding under our ABL Facility are secured by a first priority lien on certain real property owned by our domestic subsidiaries and substantially all of our and our domestic subsidiaries’ tangible and intangible personal property, including a pledge of the capital stock of certain of our direct and indirect subsidiaries. Our ABL Facility contains conditions, representations and warranties, events of default, and indemnification provisions that are customary for financings of this type, including, but not limited to, a minimum fixed charge coverage ratio, and limitations on incurrence of debt, investments, liens on assets, transactions with affiliates, mergers, consolidations, and purchases and sales of assets.

If we incur defaults under the terms of this facility and fail to obtain appropriate amendments to or waivers under the applicable financing arrangement, our borrowings against the facility could be immediately declared due and payable. If we fail to pay the amount due, the lenders could proceed against the collateral by which our loans are secured, our borrowing capacity may be limited, or the facility could be terminated. If acceleration of outstanding borrowings occurs or if the facilities are terminated, we may have difficulty borrowing additional funds sufficient to refinance the accelerated debt or entering into new credit or debt arrangements, and, if available, the terms of the financing may not be acceptable. A default under our ABL Facility could have a material adverse effect on our liquidity and financial condition.

Fluctuations in the price or availability of fuel and limitations on our ability to collect fuel surcharges may adversely affect our results of operations.

We are subject to risks associated with fuel charges from our ICs, purchased power providers, and aircraft in our TES and LTL businesses. The availability and price of fuel are subject to political, economic, and market factors that are outside of our control. Fuel prices have fluctuated dramatically over recent years. Over time we have been able to mitigate the impact of the fluctuations through our fuel surcharges which are closely linked to the market price for fuel. There can be no assurance that our fuel surcharge revenue programs will be effective in the future. Market pressures may limit our ability to assess our fuel surcharges. At the request of our customers, we have at times temporarily capped the fuel surcharges at a fixed percentage pursuant to contractual arrangements that vary by customer. Currently, a minimal number of our customers have contractual arrangements with varying levels of capped fuel surcharges. If fuel surcharge revenue programs, base freight rate increases, or other cost-recovery mechanisms do not offset our exposure to rising fuel costs, our results of operations could be adversely affected.

A significant or prolonged economic downturn in the transportation industry, or a substantial downturn in our customers’ business, could adversely affect our revenue and results of operations.

The transportation industry has historically experienced cyclical fluctuations in financial results due to, among other things, economic recession, downturns in business cycles, increasing costs and taxes, fluctuations in energy prices, price increases by carriers, changes in regulatory standards, license and registration fees, interest rate fluctuations, and other economic factors beyond our control. All of these factors could increase the operating costs of a vehicle and impact capacity levels in the transportation industry. Our ICs or purchased power providers may charge higher prices to cover higher operating expenses, and our operating income may decrease if we are unable to pass through to our customers the full amount of higher purchased transportation costs. Additionally, economic conditions may adversely affect our customers, their need for our services, or their ability to pay for our services.

We operate in a highly competitive industry and, if we are unable to adequately address factors that may adversely affect our revenue and costs, our business could suffer.

Competition in the transportation services industry is intense. We face significant competition in local, regional, national, and international markets. Increased competition may lead to revenue reductions, reduced

 

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profit margins, or a loss of market share, any one of which could harm our business. There are many factors that could impair our ability to maintain our current profitability, including the following:

 

   

competition with other transportation services companies, some of which have a broader coverage network, a wider range of services, and greater capital resources than we do;

 

   

reduction by our competitors of their freight rates to gain business, especially during times of declining growth rates in the economy, which reductions may limit our ability to maintain or increase freight rates, maintain our operating margins, or maintain significant growth in our business;

 

   

solicitation by shippers of bids from multiple carriers for their shipping needs and the resulting depression of freight rates or loss of business to competitors;

 

   

development of a technology system similar to ours by a competitor with sufficient financial resources and comparable experience in the transportation services industry; and

 

   

establishment by our competitors of cooperative relationships to increase their ability to address shipper needs.

We have experienced significant recent turnover in our executive leadership team. If we fail to effectively integrate and retain these new executives, we may not be able to accomplish our growth strategy and our financial performance may suffer.

Since the beginning of 2017, we have experienced significant turnover in our senior management ranks, including the appointment of our new Chief Executive Officer and President and Chief Operating Officer and the hiring of our new Chief Financial Officer. In April 2017, Curtis W. Stoelting was appointed our Chief Executive Officer and Michael L. Gettle was appointed our President and Chief Operating Officer. In May 2017, Terence R. Rogers was appointed our Chief Financial Officer. We also hired a new Corporate Controller, Vice President of Finance and Treasurer, and Director of Internal Audit. In addition, during 2018, our Chief Information Officer resigned and we hired a new Chief Information Officer. This lack of management continuity could adversely affect our ability to successfully execute our growth strategy, as well as result in operational and administrative inefficiencies and added costs, and may make recruiting for future management positions more difficult.

In addition, we must successfully integrate any new management personnel into our organization in order to achieve our operating objectives, and changes in other key management positions may affect our financial performance and results of operations while new management becomes familiar with our business. Accordingly, our future financial performance will depend to a significant extent on our ability to motivate and retain key management personnel. Competition for senior management is intense, and we may not be able to retain our management team or attract additional qualified personnel. The loss of a member of senior management would require our remaining executive officers to divert immediate and substantial attention to fulfilling the duties of the departing executive and to seeking a replacement. The inability to adequately fill vacancies in our senior executive positions on a timely basis could negatively affect our ability to implement our business strategy, which could adversely impact our results of operations.

Our business will be adversely impacted if we fail to develop, implement, maintain, upgrade, enhance, protect, and integrate our information technology systems.

We rely heavily on our information technology systems to efficiently run our business, and they are a key component of our customer-facing and internal growth strategy. In general, we expect our customers to continue to demand more sophisticated, fully integrated information systems from their transportation and logistics providers. To keep pace with changing technologies and customer demands, we must correctly interpret and address market trends and enhance the features and functionality of our technology systems in response to these trends. This process of continuous enhancement may lead to significant ongoing technology development costs

 

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which will continue to increase if we pursue new acquisitions of companies and their current systems. In addition, we may fail to accurately determine the needs of our customers or trends in the transportation services and logistics industries or we may fail to design and implement the appropriate responsive features and functionality for our technology systems in a timely and cost-effective manner. Any such failures could result in decreased demand for our services and a corresponding decrease in our revenues.

We must maintain and enhance the reliability and speed of our information technology systems to remain competitive and effectively handle higher volumes of freight through our network and the various service modes we offer. If our information technology systems are unable to manage additional volume for our operations as our business grows, or if such systems are not suited to manage the various service modes we offer, our service levels and operating efficiency could decline. In addition, if we fail to hire and retain qualified personnel to implement, protect, and maintain our information technology systems or if we fail to upgrade our systems to meet our customers’ demands, our business and results of operations could be harmed. This could result in a loss of customers or a decline in the volume of freight we receive from customers.

A failure of our information technology infrastructure or a breach of our information security systems, networks or processes may materially adversely affect our business.

The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our sales and marketing, accounting and financial and legal and compliance functions, communications, supply chain, order entry, and fulfillment and other business processes. We also rely on third parties and virtualized infrastructure to operate and support our information technology systems. Despite testing, external and internal risks, such as malware, code anomalies, “Acts of God,” data leakage, and human error pose a direct threat to the stability or effectiveness of our information technology systems and operations. The failure of our information technology systems to perform as we anticipate has in the past, and could in the future, adversely affect our business through transaction errors, billing and invoicing errors, internal recordkeeping and reporting errors, processing inefficiencies and loss of sales, receivables collection and customers, in each case, which could result in harm to our reputation and have an ongoing adverse impact on our business, results of operations and financial condition, including after the underlying failures have been remedied.

We have been, and in the future may be, subject to cybersecurity attacks and other intentional hacking. Any failure to identify and address such defects or errors or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market share, liability to our customers or others, the diversion of corporate resources, injury to our reputation and increased service and maintenance costs. On May 30, 2018, we became aware of unauthorized access into our information technology systems, and on July 2, 2018, we became aware of additional unauthorized access, each as a result of a phishing campaign attack upon our employees. After an investigation conducted by third party forensic investigators, we discovered a significant breach and loss of information regarding a substantial portion of our ICs and employees, including, but not limited to, their names, addresses, Social Security numbers, financial account information, medical information, insurance information, and other types of identifying or sensitive information. On November 7, 2018, we were sued in a class action in the United States District Court for the Northern District of Illinois in connection with the foregoing cybersecurity attacks, alleging we failed to adequately safeguard and secure the identifying information of our employees and failed to provide timely notice as to how and when sensitive information regarding our employees had been given to unknown persons. We have referred this claim to our cybersecurity insurance provider and have obtained counsel to defend us in this suit. While we do not expect our exposure under this matter to be material, we cannot guarantee that this matter will not have a material adverse effect on our liquidity, financial condition, and results of operations.

On other occasions, we have experienced other phishing attacks, social engineering and wire fraud affecting our employees and suppliers, which has resulted in leakage of personally identifiable information and loss of funds. Addressing such issues could prove to be impossible or very costly and responding to resulting claims or liability could similarly involve substantial cost. In addition, recently, there has also been heightened regulatory

 

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and enforcement focus on data protection in the United States and abroad, and failure to comply with applicable U.S. or foreign data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties, which could harm our reputation and adversely impact our business, results of operations and financial condition.

We have invested and continue to invest in technology security initiatives, employee trainings, information technology risk management and disaster recovery plans. The development and maintenance of these measures is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly more sophisticated. Despite our efforts, we are not fully insulated from data breaches, technology disruptions or data loss, which could adversely impact our competitiveness and results of operations.

Our reliance on ICs to provide transportation services to our customers could impact our operations and ability to expand.

Our transportation services are conducted in part by ICs, who are generally responsible for paying for their own equipment, fuel, and other operating costs. Our ICs are responsible for providing the tractors and generally the trailers they use related to our business. Certain factors such as increases in fuel costs, insurance costs and the cost of new and used tractors, reduced financing sources available to ICs for the purchase of equipment, or the impact of CSA and hours-of-service rules could create a difficult operating environment for ICs. Turnover and bankruptcy among ICs in the over-the-road freight sector often limit the pool of qualified ICs and increase the competition among carriers for their services. If we are required to increase the amounts paid to ICs in order to obtain their services, our results of operations could be adversely affected to the extent increased expenses are not offset by higher freight rates. Additionally, our agreements with our ICs are terminable by either party upon short notice and without penalty. Consequently, we regularly need to recruit qualified ICs to replace those who have left our pool. If we are unable to retain our existing ICs or recruit new ICs, our results of operations and ability to expand our business could be adversely affected.

Our third-party carriers must meet our needs and expectations, and those of our customers, and their inability to do so could adversely affect our results of operations.

Our business depends to a large extent on our ability to provide consistent, high quality, technology-enabled transportation and logistics solutions. We generally do not own or control the transportation assets that deliver our customers’ freight, and we generally do not employ the people directly involved in delivering the freight. We rely on third parties to provide less-than-truckload, truckload and intermodal brokerage, and domestic and international air services and to report certain information to us, including information relating to delivery status and freight claims. This reliance could cause delays in providing our customers with timely delivery of freight and important service data, as well as in the financial reporting of certain events, including recognizing revenue and recording claims. Carrier bankruptcy may also disrupt our business by delaying movement of the cargo, creating an inability to get access to equipment, and increasing our rates. If we are unable to secure sufficient transportation services to meet our customer commitments, or if any of the third parties we rely on do not meet our needs or expectations, or those of our customers, our results of operations could be adversely affected, and our customers could switch to our competitors temporarily or permanently.

If our ICs are deemed to be employees, our business and results of operations could be adversely affected.

We are a defendant in various purported class-action lawsuits alleging violations of various labor laws. We are a defendant in a number of purported class-action lawsuits alleging violations of various California labor laws and one purported class-action lawsuit alleging violations of the Illinois Wage Payment and Collection Act. Additionally, the California Division of Labor Standards and Enforcement has brought administrative actions against us alleging that we violated various California labor laws. In 2017 and 2018, we reached settlement agreements on a number of these labor related lawsuits and administrative actions. As of December 31, 2017, and

 

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December 31, 2016, we recorded a reserve for settlements, litigation, and defense costs related to these labor matters and post-acquisition disputes of approximately $13.2 million and $10.4 million, respectively, which are recorded in accrued expenses and other current liabilities.

In addition, tax and other regulatory authorities have in the past sought to assert that independent contractors in the trucking industry are employees rather than independent contractors. There can be no assurance that these authorities will not successfully assert this position against us or that tax and other laws that currently consider these persons ICs will not change. If our ICs are determined to be our employees, we would incur additional exposure under federal and state tax, workers’ compensation, unemployment benefits, labor, employment, and tort laws, including for prior periods, as well as potential liability for employee benefits, tax withholdings, and penalties and interest. Our business model relies on the fact that our ICs are independent contractors and not deemed to be our employees, and exposure to any of the above factors could have an adverse effect on our business and results of operations.

California continues to present potential reclassification exposure to our Company’s operations in that state, especially in light of the recent California Supreme Court decision in Dynamix Operations West, Inc. v. Lee, which found that the defendant’s independent contractors were properly classified as employees using the ABC test. Under the ABC test, a worker is presumed to be an employee unless the business proves that (A) the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) the worker performs work that is outside the usual course of the hiring entity’s business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. However, as noted by the Court in Dynamix, any reclassification analysis under the ABC test is subject to the unique facts of each case and thus does not necessarily mean that our contractors in California would be reclassified as employees under California law.

If California interprets individual owner-operators to be in the same business as motor carriers, the individual owner-operators under lease to our companies would be considered employees for purposes of claims governed by wage order number 9, including minimum wage, overtime, meal and rest breaks, and wage statements. We have approximately 300 non-employee drivers in California that may be impacted by this interpretation.

Our financial results may be adversely impacted by potential future changes in accounting practices.

Future changes in accounting standards or practices, and related legal and regulatory interpretations of those changes, may adversely impact public companies in general, the transportation industry, or our operations specifically. New accounting standards or requirements could change the way we record revenues, expenses, assets, and/or liabilities or could be costly to implement. These types of regulations could have a negative impact on our financial position, liquidity, results of operations, and/or access to capital.

Seasonal sales fluctuations and weather conditions could have an adverse impact on our results of operations.

The transportation industry is subject to seasonal sales fluctuations as shipments are generally lower during and after the winter holiday season. The productivity of our carriers historically decreases during the winter season because companies have the tendency to reduce their shipments during that time and inclement weather can impede operations. At the same time, our operating expenses could increase because harsh weather can lead to increased accident frequency rates and increased claims, as well as reduced commodity production (i.e. poultry, beef, fruit, produce). These commodities and other products we transport are also subject to disease, crop failure, reduction in production quantities or adjustments to automotive model changeovers. Any of the fluctuations could have an adverse effect on our revenues. If we were to experience lower-than-expected revenue during any such period, our expenses may not be offset, which could have an adverse impact on our results of operations.

 

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Terrorist attacks, anti-terrorism measures, and war could have broad detrimental effects on our business operations.

As a result of the potential for terrorist attacks, federal, state, and municipal authorities have implemented and continue to follow various security measures, including checkpoints and travel restrictions on large trucks. Such measures may reduce the productivity of our ICs or increase the costs associated with their operations, which we could be forced to bear. For example, security measures imposed at bridges, tunnels, border crossings, and other points on key trucking routes may cause delays and increase the non-driving time of our ICs, which could have an adverse effect on our results of operations. War, risk of war, or a terrorist attack also may have an adverse effect on the economy. A decline in economic activity could adversely affect our revenues or restrict our future growth. Instability in the financial markets as a result of terrorism or war also could impact our ability to raise capital. In addition, the insurance premiums charged for some or all of the coverage currently maintained by us could increase dramatically or such coverage could be unavailable in the future.

Our Ascent business derives a portion of its revenues from inventory management, the loss of which could have a negative impact on our financial condition, results of operations, and cash flows.

A portion of our Ascent business is involved with inventory and freight management for customers whose products are shipped to a limited number of big box retailers. Should these big box retailers change their supply chain practices and direct our customers to deliver product via another source, such change could have a negative impact on our Ascent business.

Our international operations subject us to operational and financial risks.

We provide transportation and logistics services to and from international locations and are, therefore, subject to risks of international business, including, but not limited to, the following:

 

   

changes in tariffs, trade restrictions, trade agreements, and taxations;

 

   

difficulties in managing or overseeing foreign operations and agents;

 

   

limitations on the repatriation of funds because of foreign exchange controls;

 

   

different liability standards; and

 

   

intellectual property laws of countries which do not protect our rights in our intellectual property, including, but not limited to, our proprietary information systems, to the same extent as the laws of the United States.

We are also subject to compliance with the Foreign Corrupt Practices Act, or the FCPA, any sanctions administered or enforced by the Office of Foreign Assets Control of the U.S. Department of the Treasury, or OFAC, and applicable money laundering statutes, rules, and regulations. Failure to comply with the FCPA, OFAC sanctions, money laundering statutes, and local regulations in the conduct of our international business operations may result in legal claims against us.

The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and/or decrease the profitability of our operations in that region.

As we expand our business in foreign countries, we will be exposed to increased risk of loss from foreign currency fluctuations and exchange controls as well as longer accounts receivable payment cycles. We have limited control over these risks, and if we do not correctly anticipate changes in international economic and political conditions, we may not alter our business practices in time to avoid adverse effects.

 

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Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from achieving our growth objectives.

We may in the future be required to raise capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, due to general economic conditions, our capital structure, any operations difficulties which we may face, and other factors, and our failure to raise capital when needed could harm our business. Additional equity financing may dilute the interests of our stockholders, and debt financing, if available, may involve restrictive covenants and could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures. Our ability to raise capital in the future may also be limited if our common stock were delisted from the NYSE. See “—The NYSE could commence procedures to delist our common stock, in which case the market price of our shares might decline and become more volatile and our stockholders’ ability to trade in our stock could be adversely affected.”

Our total assets include goodwill, intangibles and other long-lived assets. If we determine that these items have become impaired in the future, our earnings could be adversely affected.

As of December 31, 2017, we had recorded goodwill of $264.8 million and other intangible assets, net of accumulated amortization, of $49.6 million. Goodwill represents the excess of purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets of a business acquired. Goodwill is evaluated for impairment annually or more frequently, if indicators of impairment exist. If the impairment evaluations for goodwill indicate the carrying amount exceeds the estimated fair value, an impairment loss is recognized in an amount equal to that excess. Our annual impairment evaluations of goodwill are performed at least annually as of July 1 and periodically if indicators of impairment are present.

We changed our segment reporting effective January 1, 2018 when we integrated our truckload brokerage business into the Ascent domestic freight management business. In connection with the change in segments, the Company conducted an impairment analysis as of January 1, 2018 and determined there was no impairment. The Company conducted its annual goodwill impairment analysis for each of its four reporting units as of July 1, 2018 and determined that the fair values of the TES, Domestic and International Logistics, and Warehousing & Consolidation reporting units exceeded their respective carrying values by 5.1%, 12.8%, and 112.2%, respectively; thus no impairment was indicated for these reporting units.

The sale of our wholly owned subsidiary Unitrans, Inc., or Unitrans, which was included in the Ascent reporting unit, resulted in an incremental impairment analysis on the remaining net assets of the Ascent reporting unit. We evaluated the remaining carrying value of the Ascent reporting unit and compared it to the fair value of the remaining businesses in the Ascent reporting unit. As a result of this evaluation, we determined the carrying value exceeded the fair value and recorded a $4.4 million impairment charge in the third quarter of 2017.

As a result of the first step of our goodwill impairment analysis as of July 1, 2016, we determined that the fair value of the Ascent reporting unit exceeded its carrying value by 8.4%; thus, no impairment was indicated for this reporting unit. However, resulting from a combination of the weakened environment, the inability to meet forecast results, and the lower share price, we determined that the fair value of the TES, LTL, and Warehousing & Consolidation reporting units were less than their respective carrying values, requiring us to perform the second step of the goodwill impairment analysis for our TES, LTL, and Warehousing & Consolidation reporting units. We completed the second step of the goodwill impairment analysis for our TES, LTL, and Warehousing & Consolidation reporting units and recorded in the third quarter of 2016 non-cash goodwill impairment charges of $132.4 million, $197.3 million, and $42.4 million for our TES, LTL, and Warehousing & Consolidation reporting units, respectively. No goodwill impairment charges were recorded in 2015.

In addition, throughout the year we may update our assumptions used in the calculation of the fair value of each reporting unit. Changes to our forecasts or the discount rate and/or growth rate assumptions based on current market conditions could affect the fair value of the reporting units and result in an indication of

 

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impairment for one or more of our reporting units. If we determine that our goodwill and intangible assets in any reporting units have become impaired in the future, our results of operations could be adversely affected.

If we are unable to expand the number of our sales representatives, or if a significant number of our existing sales representatives leave us, our ability to increase our revenue could be negatively impacted.

Our ability to expand our business will depend, in part, on our ability to attract additional sales representatives and brokerage agents. Competition for qualified sales representatives can be intense, and we may be unable to attract such persons. Any difficulties we experience in expanding the number of our sales representatives could have a negative impact on our ability to expand our customer base, increase our revenue, and continue our growth.

In addition, we must retain our current sales representatives and properly incentivize them to obtain new customers and maintain existing customer relationships. If a significant number of our sales representatives leave us, our revenue could be negatively impacted. A significant increase in the turnover rate among our current sales representatives could also increase our recruiting costs and decrease our operating efficiency.

Changes in our relationships with our significant customers, including the loss or reduction in business from one or more of them, could have an adverse impact on us.

We had one direct customer that accounted for approximately 12% of our 2017 and 2016 revenue. Our contractual relationships with customers generally are terminable at will by the customers on short notice and do not require the customer to provide any minimum commitment. Our customers could choose to divert all or a portion of their business with us to one of our competitors, demand rate reductions for our services, require us to assume greater liability that increases our costs, or develop their own logistics capabilities. Failure to retain our existing customers or enter into relationships with new customers could materially impact the growth in our business and the ability to meet our current and long-term financial forecasts.

The market value of our common stock may fluctuate or decline and could be substantially affected by various factors.

The price of our common stock on the NYSE constantly changes and has recently experienced a general decline. We expect that the market price of our common stock will continue to fluctuate or may decline further. Our share price may fluctuate or decline as a result of a variety of factors, many of which are beyond our control. These factors include, among others:

 

   

actual or anticipated variations in earnings, financial or operating performance, or liquidity;

 

   

changes in analysts’ recommendations or projections;

 

   

failure to meet analysts’ projections;

 

   

general economic and capital market conditions;

 

   

announcements of developments related to our business;

 

   

operating and stock performance of other companies deemed to be peers;

 

   

actions by government regulators;

 

   

news reports of trends, concerns, and other issues related to us or our industry, including changes in regulations; and

 

   

other factors described in this “Risk Factors” section.

Our common stock price may fluctuate or decline significantly in the future, and these changes may be unrelated to our performance. General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price of our common stock may not be indicative of future market prices.

 

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The NYSE could commence procedures to delist our common stock, in which case the market price of our shares might decline and become more volatile and our stockholders’ ability to trade in our stock could be adversely affected.

The continued listing of our common stock on the NYSE is subject to our compliance with a number of quantitative listing standards, including market capitalization criteria and price per share criteria. On October 4, 2018, we received notice from the NYSE that we were not in compliance with respect to the applicable listing standard set forth in Section 802.01B of the NYSE Listed Company Manual, or Section 802.01B, because our average global market capitalization over a consecutive 30 trading-day period was less than $50,000,000, and at the same time stockholders’ investment was less than $50,000,000. We timely notified the NYSE that we will submit a plan within 45 calendar days from receipt of the notice, advising the NYSE of definitive action we are taking that will bring the Company into compliance with Section 802.01B within 18 months from receipt of the notice. We timely submitted our plan which was subsequently accepted by the NYSE. There can be no guarantee that we will regain compliance within the 18-month cure period. If we are unable to regain compliance within the 18-month cure period, we will be subject to suspension and delisting procedures.

On October 12, 2018, we receive an additional notice from the NYSE that we were not in compliance with respect to the listing standard set forth in Section 802.01C of the NYSE Listed Company Manual, or Section 802.01C, because the average closing price of our common stock over the previous 30 consecutive trading-day period had fallen below $1.00 per share. We timely notified the NYSE that we intend to cure the deficiency and regain compliance with Section 802.01C within the 6-month cure period. There can be no guarantee that we will be able to regain compliance with the 6-month cure period. If we do not regain compliance with Section 802.01C, we will be subject to suspension and delisting procedures.

In addition to the above continued listing standards, if our average global market capitalization over any consecutive 30 trading-day period is less than $15 million, the NYSE may promptly initiate procedures to suspend and delist our common stock from trading on the NYSE. As of January 9, 2019, our global market capitalization was approximately $20.6 million.

If our common stock were delisted, there could be no assurance whether or when it would again be listed for trading on NYSE or any other exchange. A delisting of our common stock could negatively impact us by, among other things: reducing the liquidity and market price and increasing the volatility of our common stock, which may adversely affect the ability of stockholders to trade in our common stock; reducing the number of investors, including institutional investors, willing to hold or acquire our common stock, including institutions whose charters do not allow them to hold securities in unlisted companies, which might sell our shares, perhaps very promptly, which could negatively impact our ability to raise equity financing and have a further adverse effect on the price of our stock; decreasing the amount of news and analyst coverage of us; limiting our ability to issue additional securities, obtain additional financing or pursue strategic restructuring, refinancing or other transactions; impairing our ability to provide equity incentives to our employees; and impacting our reputation and, as a consequence, our ability to attract new business.

In addition, if our common stock were delisted and we were unable to get our common stock listed for trading within one year, a Triggering Event (as defined in the Certificates of Designations for our Preferred Stock) would occur and, among other things, the dividend rate on certain series of our preferred stock would increase by 3.0%. See Note 6 “Preferred Stock” to the audited consolidated financial statements included elsewhere in this prospectus for further information. However, if we redeem all of the preferred stock pursuant to this rights offering, this would no longer be a concern. See also “—Risks Related to the Rights Offering—Depending on the extent to which holders other than Elliott exercise their rights, you may become a minority stockholder in a company controlled by Elliott. There may be very limited liquidity for your common stock, and there may be more limited opportunities for you to realize a control premium. This is the case whether or not you exercise your rights. Since you have no control over the exercise of rights by other holders, you should assume that no holder other than Elliott will exercise their rights.”

 

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Elliott may exercise influence over us, including through their ability to nominate and elect up to two members of our board of directors.

Although the holders of our preferred stock will generally not be entitled to vote on any matters submitted to a vote of our stockholders, so long as any shares of our preferred stock are outstanding, we may not take certain actions without the prior approval of the holders of shares of our preferred stock representing a majority of the aggregate liquidation value of all of the shares of preferred stock, referred to as the Preferred Requisite Vote, voting as a separate class, including, among other matters:

 

   

amending, altering, repealing, or otherwise modifying any provision of our certificate of incorporation, certificate of designations or bylaws in a manner that would alter or change the terms or the powers, preferences, rights, or privileges of our preferred stock;

 

   

declaring, paying, or setting aside for payment any dividends or distributions upon any junior securities;

 

   

repurchasing, redeeming, or otherwise acquiring any junior securities or parity securities (other than for certain ordinary course purposes) for any consideration or paying any moneys or making any moneys available for a sinking fund for the redemption of any shares of such junior securities or parity securities;

 

   

authorizing, creating, increasing the authorized amount of, or issuing any class or series of senior securities or parity securities, including any securities convertible into, or exchangeable or exercisable for, any senior securities or parity securities;

 

   

amending, restating, supplementing, modifying, or replacing any debt agreement or other financing agreement which would restrict the minimum cash dividend payments contemplated by the Certificates of Designations for the Preferred Stock; or

 

   

subject to various exceptions, incurring any indebtedness.

Elliott may have interests that diverge from, or even conflict with, those of our other stockholders. For example, Elliott and its affiliates may have an interest in directly or indirectly pursuing acquisitions, divestitures, financings, or other transactions that, in their judgment, could enhance their other equity investments, even though such transactions might involve risks to us. Elliott and its affiliates are in the business of making or advising on investments in companies, including businesses that may directly or indirectly compete with certain portions of our business. They may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

In addition, the terms of the 2017 Investment Agreement grant Elliott certain rights to designate directors to serve on our board of directors. For so long as (x) any shares of our Series B Preferred Stock or Series C Preferred Stock are issued and outstanding and (y) Elliott holds shares of Preferred Stock collectively representing a majority of the liquidation value of the Preferred Stock, the holders of our Preferred Stock have the exclusive right, acting with the Preferred Requisite Vote, to nominate and elect two (2) individuals selected by the holders of Preferred Stock, or to require that our board of directors fill two (2) vacancies in the board of directors with individuals selected by the holders of our Preferred Stock, to serve as, respectively, a Class II director and a Class III director of our Company, the Preferred Stock Directors. Following the redemption of all shares of our Series B Preferred Stock and Series C Preferred Stock, and until such time as all shares of Series D Preferred Stock are redeemed, for so long as Elliott holds at least 5.0% of the equity value of our Company, the holders of Preferred Stock have the exclusive right acting with the Preferred Requisite Vote, to (i) nominate and elect one (1) Preferred Stock Director, and (ii) designate one (1) individual to act as an observer to our board of directors. Until such time as all shares of Series B Preferred Stock has been redeemed, we will, upon the request of the holders of Preferred Stock, acting with the Preferred Requisite Vote, cause each of our Compensation Committee and Nominating and Corporate Governance Committee to include one Preferred Stock Director, in each case, to the extent permitted under applicable requirements of the NYSE or applicable law.

 

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In addition, in the event of any Triggering Event (as defined in the Certificates of Designations for our Preferred Stock), subject to applicable rules of the NYSE, including, without limitation, independent director requirements, the number of directors constituting our board of directors will be increased such that the number of vacancies on our board of directors resulting from such increase, the Triggering Event Vacancies, together with the Preferred Stock Directors (to the extent then serving on our board of directors), constitutes a majority of the board of directors. The holders of Preferred Stock will have the right, acting with the Preferred Requisite Vote, to nominate and elect individuals selected by the holders of Preferred Stock to fill such Triggering Event Vacancies and thereby serve as directors of our Company, or to require our board of directors to act to fill such Triggering Event Vacancies with individuals selected by such holders of Preferred Stock, to serve as directors of our Company, and the size of our board of directors will be increased as needed. Each such director so elected is referred to as a Triggering Event Director. When a Triggering Event is no longer continuing, then the right of the holders of Preferred Stock to elect the Triggering Event Directors will cease, the terms of office of the Triggering Event Directors will immediately terminate, and the number of directors constituting our board of directors will be reduced accordingly.

While the 2017 Investment Agreement and Elliott’s related director designation and other governance rights would terminate when all of the preferred stock is redeemed, we are currently negotiating certain other governance provisions with Elliott. In addition, Elliott will continue to be able to appoint directors commensurate with its ownership of our common stock. In the event this rights offering is consummated, Elliott’s influence over the Company will likely increase. See “—Risks Related to the Rights Offering.”

Our Preferred Stock has rights, preferences, and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition, and may result in the interests of Elliott differing from those of our common stockholders.

As the holder of certain series of our Preferred Stock, Elliott has the right to receive a liquidation preference entitling it to be paid out of our assets available for distribution to stockholders before any payment may be made to holders of our common stock. In addition, dividends on certain series of our Preferred Stock accrue and are cumulative as a percentage of the liquidation value of such series of Preferred Stock. The holders of our Preferred Stock also have certain redemption rights, including upon certain change in control events involving us, which, if exercised, could require us to repurchase all of the outstanding shares of Preferred Stock at 100% or more of the stated value of the shares, plus all accrued but unpaid dividends. See Note 6 “Preferred Stock” to the audited consolidated financial statements included elsewhere in this prospectus for further information.

These dividend and redemption obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of our Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. The preferential rights could also result in divergent interests between Elliott and the holders of our common stock.

Our current principal stockholders continue to have significant influence over us, and they could delay or deter a change in control or other business combination or otherwise cause us to take action with which you might not agree.

Investment funds affiliated with HCI Equity Partners, or HCI, together owned approximately 20% of our outstanding common stock as of January 11, 2019. On December 27, 2018, we filed a registration statement on Form S-1, including a preliminary prospectus for the offer and sale of up to 7,810,625 shares our common stock by HCI. See “—Risks Related to the Rights Offering—The market price of our common stock may decline before or after the rights expire.” In addition, as of January 11, 2019, Elliott owned approximately 13.5% of our outstanding common stock and, as described above, the terms of the 2017 Investment Agreement grant Elliott certain rights to designate directors to serve on our board of directors.

 

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As a result, these stockholders will have significant influence over the election of our board of directors and our decision to enter into any corporate transaction and may have the ability to delay or deter any transaction that requires the approval of stockholders, regardless of whether or not other stockholders believe that such a transaction is in their own best interests. Such concentration of voting power could have the effect of delaying or deterring a change in control or other business combination that might otherwise be beneficial to our stockholders or could limit the price that some investors might be willing to pay in the future for shares of our common stock. The interests of these stockholders may not always coincide with our interests as a Company or the interests of our other stockholders.

Provisions in our certificate of incorporation, our bylaws, and Delaware law could make it more difficult for a third party to acquire us, discourage a takeover, and adversely affect existing stockholders.

Our certificate of incorporation, our bylaws, and the Delaware General Corporation Law contain provisions that may make it more difficult or delay attempts by others to obtain control of our Company, even when these attempts may be in the best interests of our stockholders. Our certificate of incorporation also authorizes our board of directors, without stockholder approval, to issue one or more series of preferred stock, which could have voting and conversion rights that adversely affect or dilute the voting power of the holders of common stock. On May 2, 2017, we issued shares of our preferred stock to affiliates of Elliott pursuant to the 2017 Investment Agreement. See Note 6 “Preferred Stock” to the audited consolidated financial statements included elsewhere in this prospectus for further information. On March 1 and April 24, 2018, we issued additional shares of our preferred stock to affiliates of Elliott pursuant to the 2018 Investment Agreement. See Note 16 “Subsequent Events” to the audited consolidated financial statements included elsewhere in this prospectus for further information. In addition, our certificate of incorporation provides for our board to be divided into three classes, serving staggered terms. The classified board provision could have the effect of discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. Delaware law also imposes conditions on the voting of “control shares” and on certain business combination transactions with “interested stockholders.”

These provisions and others that could be adopted in the future could deter unsolicited takeovers or delay or prevent changes in our control or management, including transactions in which stockholders might otherwise receive a premium for their shares over then-current market prices. These provisions may also limit the ability of stockholders to approve transactions that they may deem to be in their best interests. Further, our stockholders approved the Corporate Governance Proposals at the 2018 annual meeting held on December 19, 2018. Such provisions could make it more difficult for a third party to acquire us, discourage a takeover, and could adversely affect existing stockholders.

Risks Related to the Rights Offering

Depending on the extent to which holders other than Elliott exercise their rights, you may become a minority stockholder in a company controlled by Elliott. There may be very limited liquidity for your common stock, and there may be more limited opportunities for you to realize a control premium. This is the case whether or not you exercise your rights. Since you have no control over the exercise of rights by other holders, you should assume that no holder other than Elliott will exercise their rights.

We have entered into the Standby Purchase Agreement with Elliott, under which Elliott has agreed to purchase from us, and we have agreed to issue to Elliott, at the subscription price, unsubscribed shares of common stock such that gross proceeds of this rights offering after giving effect to the backstop commitment will be $450 million, an amount sufficient to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all of the Elliott Transaction Expenses, and to pay all of

 

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the Company Transaction Expenses. On January 11, 2019, Elliott beneficially owned approximately 13.5% of our outstanding common stock. Pursuant to the Standby Purchase Agreement, Elliott has also agreed to exercise its basic subscription right in full, but is not be entitled to subscribe for additional shares under the over-subscription right. If Elliott is the only holder of rights who exercises its rights in this rights offering, the Company will issue an aggregate of 900,000,000 shares of common stock to Elliott. Since you have no control over the exercise of rights by other holders, you should assume that no holder other than Elliott will exercise their rights.

Under such circumstances, Elliott’s ownership percentage of our outstanding common stock would increase to approximately 96.4%, after giving effect to this rights offering. As a result, Elliott would be able to exercise substantial control over all matters requiring stockholder approval, including the election of directors, mergers, consolidations and acquisitions, the sale of all or substantially all of our assets and other decisions affecting our capital structure, the amendment of our certificate of incorporation and bylaws, and our winding up and dissolution. In addition, our stockholders approved certain corporate governance proposals at the annual meeting held on December 19, 2018. The corporate governance changes resulting from such approvals would be beneficial to Elliott were it to acquire a controlling interest in the Company as such changes would allow any controlling stockholder to exercise greater control over the Company than it otherwise would have. Your interests as a holder of common stock may differ from the interests of Elliott.

Elliott will not be subject to any lock-up with respect to its shares of our common stock following this rights offering. If Elliott acquires a controlling position in our common stock as a result of this rights offering, it will therefore have the ability to sell that controlling position in a privately negotiated transaction and realize a control premium for the shares of our common stock held by it if it is able to find a buyer that is willing to pay such a premium. You should not assume that in connection with such a sale of control by Elliott there would be a concurrent offer for the shares held by other stockholders or that you would otherwise be able to realize any control premium for your shares. Additionally, if Elliott privately sells a significant equity interest in us, we may become subject to the control of a presently unknown third party. Such third party may have conflicts of interest with the interests of other stockholders.

In addition, we expect that a significant portion of the shares of our common stock held by Elliott following this rights offering may be pledged as part of the collateral securing certain of Elliott’s secured borrowing arrangements. Upon certain events of default, the secured lenders under these arrangements may take possession, hold, collect, sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose of all or any portion of the collateral. Any such enforcement action by Elliott’s secured lenders may result in a change in control of our Company. In addition, upon such events of default, the registration rights we grant to Elliott will immediately and automatically be assigned in full to the secured lenders with respect to any registrable securities held by such secured lenders. We have no obligation to maintain Elliott’s financial viability and Elliott may not remain current on its obligations under its secured borrowing arrangements.

If Elliott owns a significant majority of our outstanding common stock following this rights offering, the liquidity for your shares may be adversely affected. Elliott will also not be required to cause the Company to maintain the listing of our common stock on the NYSE. If, once controlled by Elliott, we were to decide to discontinue the listing of our common stock, this may further adversely affect the liquidity in our common stock. Any such reduced liquidity is likely to materially and adversely affect the trading price for our common stock. Other actions that we may take once controlled by Elliott could have additional material and adverse effects on the liquidity in our common stock and our stock price.

It is also possible that a person or group other than Elliott may acquire control over us by purchasing unexercised rights in the open market or through private transactions and subsequently exercising those rights. The risks related to control by Elliott would similarly apply to the control by another person or group.

 

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Depending on the extent to which holders other than Elliott exercise their rights, we may be a “controlled company” within the meaning of the NYSE listing standards. Consequently, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance rules and requirements.

If, after the completion of this rights offering, Elliott owns more than 50% of our common stock, we will be a controlled company within the meaning of the NYSE listing standards. Under the NYSE listing standards, a controlled company may elect to not comply with certain NYSE corporate governance standards, including the requirements that (i) a majority of the board of directors consist of independent directors, (ii) it maintain a nominating and corporate governance committee that is composed entirely of independent directors with a written charter address addressing the committee’s purpose and responsibilities, (iii) it have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, and (iv) the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees. Following this rights offering, we may utilize any of these exemptions and others afforded to controlled companies. Consequently, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance rules and requirements. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.

While we have entered into the Standby Purchase Agreement with Elliott, if we are unable to satisfy the conditions under the Standby Purchase Agreement, and are therefore unable to consummate the transactions contemplated by the Standby Purchase Agreement, we will not consummate this rights offering.

We entered into the Standby Purchase Agreement with Elliott to provide the backstop commitment and ensure we will receive $450 million in gross proceeds from this rights offering, which was subsequently amended on January 10, 2019 to extend the date by which we are required to consummate this rights offering; however, we cannot guarantee that we will ultimately satisfy the conditions under the Standby Purchase Agreement and consummate the transactions contemplated thereby. Among other conditions, a condition to Elliott’s obligation to provide the backstop commitment is that our representations and warranties made in the Standby Purchase Agreement are true and correct in all material respects as of the closing date of this rights offering, including that the Company has been operated in the ordinary course of business, consistent with past practice, and no Effect has occurred that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect (as defined in the Standby Purchase Agreement). Please see “The Rights Offering—The Backstop Purchaser” for further conditions to the obligation of Elliott to consummate the transactions contemplated by the Standby Purchase Agreement. In the event we do not satisfy the conditions under the Standby Purchase Agreement and obtain the backstop commitment from Elliott, we will not consummate this rights offering. If we do not ultimately consummate this rights offering, we will be forced to find another party to provide a backstop commitment or continue to explore other strategic financing alternatives to improve our capital structure. There can be no guarantee that another party would be willing to provide a backstop commitment or that we would be able to identify a strategic financing alternative that would be as beneficial to our capital structure. Failure to consummate this rights offering could have a materially adverse effect on our financial condition and results of operations.

If Elliott owns greater than 35% of our common stock after this rights offering, such acquisition will be deemed a change in control under certain management compensation plans and agreements. Such change in control could cause a material adverse effect on our liquidity, financial condition, and results of operations. In addition, the ownership by Elliott of a substantial percentage of our common stock after this rights offering may be deemed a change in control under certain of our other arrangements and agreements with customers, suppliers, or other parties, which could cause a material adverse effect on our liquidity, financial condition, and results of operations.

If, after the completion of this rights offering, Elliott owns more than 35% of our common stock, such acquisition will be deemed a change in control under certain management compensation plans and agreements. A

 

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change in control under certain of our management compensation plans and agreements would require the accelerated vesting of all outstanding and unvested equity awards. In addition, if a change in control were to occur following the completion of this rights offering, certain members of management would be entitled to cash-based severance payments, health and welfare benefits, and bonus payments if such members of senior management are terminated without cause or for good reason (each as defined in their respective employment agreements) within twenty-four months following the change in control. Such cash payments and benefits would be difficult for us to make given our current liquidity constraints and would further constrain our liquidity. While we have obtained waivers to these provisions from members of our senior management and directors in the event this rights offering constitutes a change in control, we have not obtained waivers from other employees and plan participants. If we are required to make any payments due to a change in control following consummation of this rights offering, such payments and provision of benefits could have a material adverse effect on our liquidity and financial condition.

In addition, the ownership by Elliott of a substantial percentage of our common stock after this rights offering may be deemed a change in control under certain of our other arrangements and agreements with customers, suppliers, or other parties, which could cause a material adverse effect on our liquidity, financial condition, and results of operations. We are continuing to analyze the effects, if any, such a change in control may have on any such arrangements or agreements.

The market price of our common stock may decline before or after the rights expire.

The market price of our common stock could be subject to wide fluctuations in response to numerous factors, many of which are beyond our control, including:

 

   

this rights offering, which will involve the issuance of an additional 900,000,000 shares of our common stock;

 

   

actual or anticipated fluctuations in our results of operations;

 

   

announcements by us or our competitors of significant business developments, changes in customer relationships, acquisitions, or expansion plans;

 

   

changes in the prices or demand for our services;

 

   

our involvement in litigation;

 

   

our sale of common stock or other securities in the future;

 

   

market conditions in our industry;

 

   

changes in key personnel;

 

   

changes in market valuation or earnings of our competitors;

 

   

the trading volume of our common stock;

 

   

changes in the estimation of the future size and growth rate of our markets; and

 

   

general economic and market conditions.

Additionally, on December 27, 2018, we filed a registration statement on Form S-1, including a preliminary prospectus for the offer and sale of up to 7,810,625 shares of our common stock by HCI. The sale of our common stock or related subscription rights by HCI could impact the market price of our common stock.

We cannot assure you that the market price of our common stock will not decline after you elect to exercise your rights. If that occurs, you may have irrevocably committed to buy shares of our common stock in this rights offering at a price greater than the prevailing market price, and could have an immediate unrealized loss. Moreover, we cannot assure you that following the exercise of your rights you will be able to sell your common

 

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stock at a price equal to or greater than the subscription price. Until shares are delivered upon expiration of this rights offering, you will not be able to sell the shares of our common stock that you purchase in this rights offering. Certificates representing shares of our common stock purchased will be delivered as soon as practicable after expiration of this rights offering. We will not pay you interest on funds delivered to the rights agent pursuant to the exercise of rights.

This rights offering may cause the price of our common stock to decrease and you may be able to purchase our shares of common stock on the open market at a price below the subscription price.

The announcement of this rights offering, the subscription price, and the number of shares of our common stock we could issue if this rights offering is completed could result in an immediate decrease in the trading price of our common stock. This decrease may occur before the expiration of this rights offering and continue after consummation of this rights offering. If such a decrease occurs, your purchase of shares of our common stock in this rights offering may be at a price greater than the prevailing trading price. Further, if a substantial number of rights are exercised and the holders of the shares of our common stock received upon exercise of those rights choose to sell some or all of those shares, the resulting sales could depress the market price of our common stock. Accordingly, you may be able to purchase our shares of common stock on the open market at a price below the subscription price. On January 9, 2019, the closing price of our common stock as reported on the NYSE was $0.53.

If you do not exercise your rights in full in this rights offering, you will suffer significant dilution in your percentage ownership of the Company.

If you do not exercise any rights in this rights offering, the number of shares of our common stock that you own will not change and your percentage ownership will be diluted after completion of this rights offering. In addition, if you do not exercise your rights in full, your percentage ownership will be materially diluted after completion of this rights offering.

We reserve the right to cancel, terminate, amend, or extend this rights offering at any time prior to the expiration of the subscription period. If we cancel this rights offering, neither we nor the rights agent will have any obligation to you, except to return your subscription payments.

We reserve the right to cancel, terminate, amend, or extend this rights offering at any time prior to the expiration of the subscription period. However, once the subscription period is commenced, any such cancellation, termination, or amendment will require the prior consent of Elliott, except for an extension of the subscription period by not more than 10 days, unless the Standby Purchase Agreement is terminated. If this rights offering is terminated, all rights will expire without value and we will promptly arrange for the refund, without interest, of all funds received from holders of rights. All monies received by the rights agent in connection with this rights offering will be held by the rights agent, on our behalf, in a segregated interest bearing account at a negotiated rate. All such interest shall be payable to us even if we determine to terminate this rights offering and return your subscription payment.

The Standby Purchase Agreement permits us to terminate this rights offering at any time prior to the commencement of the subscription period if conditions of a customary fiduciary out provision are satisfied. However, once the subscription period has commenced, any termination, as well as any cancellation, extension or amendment, for any reason, will require the prior consent of Elliott, except for an extension of the subscription period by not more than 10 days.

The Standby Purchase Agreement permits us to terminate this rights offering at any time prior to the commencement of the subscription period if conditions of a customary fiduciary out provision are satisfied. However, once the subscription period has commenced, any termination, as well as any cancellation or amendment, for any reason, will require the prior consent of Elliott, except for an extension of the subscription period by not more than 10 days.

 

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As a result, even if a third party offers to act or indicates an interest to act as backstop purchaser on more favorable terms than Elliott or offers or indicates an interest in a different transaction that would be more favorable to holders of our common stock, we may not be able to engage in any such transaction or discussions relating thereto without Elliott’s consent, unless the Standby Purchase Agreement has expired in accordance with its terms. Either party may terminate the Standby Purchase Agreement and the transactions contemplated thereby may be abandoned at any time prior to the closing of the rights offering and the backstop commitment if the transactions contemplated by the Standby Purchase Agreement do not close by March 1, 2019; provided, however, that the right to terminate the Standby Purchase Agreement is not available to any party whose failure to comply with any provision of the Standby Purchase Agreement is the cause of, or resulted in, the failure of the closing to occur on or prior to such date. See “The Rights Offering—The Backstop Purchaser—Termination.”

The projected financial information incorporated by reference herein is forward-looking in nature and is subject to a number of assumptions and uncertainties.

The projected financial information incorporated by reference herein is forward-looking in nature and subject to a number of assumptions, adjustments, and uncertainties and does not represent our actual results of operations or capitalization. In particular, the projected financial information was prepared in October 2018 for the purpose of informing our board of directors as part of our review of strategic financing alternatives. The projected financial information was not prepared with a view to public disclosure and is for informational purposes only. The projected financial information has been prepared by, and is the responsibility of, our management, and is subjective in many respects. The projected financial information reflects estimates made by our management as to future events that our management believed were reasonable at the time they were prepared but are subject to numerous assumptions with respect to our ability to achieve strategic goals, objectives, and targets, industry performance, regulatory environment, general business, economic, market, and financial conditions and other important factors that may affect actual results and cause the projections to not be achieved. The projected financial information is based on a number of key assumptions, including:

 

   

A stable industry operating environment including demand, pricing, customer retention and competitive intensity;

 

   

Truckload & Express investment in capacity and technology for our active on-demand air and ground expedite business and structural and capacity improvements in our over-the-road capabilities as well as moderate growth in truckload rates from 2018 levels;

 

   

LTL’s recovery based on improvements in shipment reliability, freight profile (including a focus on long-haul and metro-to-metro shipping), yield, rate expansion, volume growth, linehaul costs and operating cost structure (specifically, return to positive contributions from LTL and truckload dry van businesses in 2019 and continued improvement in 2020 onward);

 

   

Ascent Global Logistics growth through increased integration enabling access to more of our brokerage capabilities by more of our customers, and retail consolidation offering continued strong growth from existing and new customers driven by a continued strong demand environment and positive market trends;

 

   

Attracting and retaining drivers necessary for our operations;

 

   

Improvements in the capital structure providing access to the capital needed to fund investments in technology, upgrade our fleets, fund working capital and attract drivers and other talent needed to execute our strategic plan;

 

   

No material acquisitions or divestitures; and

 

   

Reduced costs arising from restatement litigation and government investigations and remediation work for our internal control environment starting in 2020.

 

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There can be no assurance that the projected financial information will or would be realized, and actual results may be materially better or worse than those contained in the projected financial information incorporated by reference herein. Further, the incorporation by reference of this information should not be regarded as an indication that the board of directors, our Company, or any of our affiliates or our or their respective directors, officers, employees, or advisors or any other recipient of this information considered, or now considers, the projected financial information to be material information of our Company or predictive of actual future results nor should it be construed as financial guidance. As a result, you should not place undue reliance on the projected financial information when making a decision to invest in our securities or to participate in this rights offering as our future results may differ materially from those presented in our projected financial information. We do not, as a matter of course, publicly disclose financial projections as to future financial performance, earnings, or other results, and we do not intend, and expressly disclaim any responsibility, to update or otherwise revise such financial projections, except to the extent required by applicable federal securities laws. We, however, may release earnings guidance from time to time, which may amend, supplement or revise previously released earnings guidance or financial projections, including the projected financial information incorporated by reference herein. For example, the projected financial information includes a projection of $25 million of Adjusted EBITDA for the year ended December 31, 2018; however, on November 7, 2018, in connection with the release of our results for the three and nine months ended September 30, 2018, we issued a statement, which is not incorporated by reference herein, that we expect Adjusted EBITDA for the year ended December 31, 2018 to be between $20 million and $25 million.

No prior market exists for the rights. Additionally, the NYSE may suspend trading in the rights if the price per share of our common stock falls below the subscription price.

Although the rights will be listed for trading on the NYSE, the rights will be a new issue of securities with no prior trading market, and we cannot provide you any assurances as to the liquidity of the trading market for the rights or the market value of the rights. Subject to certain earlier deadlines described under “The Rights Offering—Other Transfers,” the rights are transferable until the close of trading on the NYSE on February 15, 2019, the last business day prior to the expiration date of this rights offering (or, if the offer is extended, on the business day immediately prior to the extended expiration date), at which time they will be no longer transferable. The rights agent will only facilitate subdivisions or transfers of the physical subscription rights until 5:00 p.m., Eastern Time, on February 13, 2019 three business days prior to the scheduled February 19, 2019 expiration date. If you wish to sell your rights or the rights agent tries to sell rights on your behalf in accordance with the procedures discussed in this prospectus but such rights cannot be sold, or if you provide the rights agent with instructions to exercise the rights and your instructions are not timely received by the rights agent or if you do not provide any instructions to exercise your rights, then the rights will expire, will be void, and will have no value.

Additionally, our common stock is currently listed on the NYSE. On January 9, 2019, the closing price of our common stock as reported on the NYSE was $0.53. In the event price per share of our common stock falls below the subscription price for this rights offering, the NYSE may suspend trading in the rights. The rights will not be admitted for trading on the NYSE at the commencement of this rights offering if the stock price is not at or greater than the $0.50 subscription price; however, once the stock price is at or above $0.50 during the course of this rights offering, the NYSE will list the rights for trading beginning on the next trading day. Our common stock must consistently trade at or above $0.50 in order for the rights to remain listed on the NYSE during the course of this rights offering, and subsequent removal of the rights from listing is subject to the NYSE’s discretion.

The subscription price determined for this rights offering is not an indication of the fair value of our common stock.

A special financing alternatives committee, or the special committee, of independent directors on our board of directors determined the subscription price after considering, among other things, (i) the trading price of our

 

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common stock over the past several months, (ii) the likely cost of capital from other sources, (iii) the price at which our stockholders might be willing to participate in this rights offering, and (iv) the price at which Elliott would be willing to backstop this rights offering. The subscription price for a right is $0.50 per share. The subscription price is not intended to bear any relationship to the book value of our assets or our past operations, cash flows, losses, financial condition, net worth, or any other established criteria used to value securities. You should not consider the subscription price to be an indication of the fair value of the common stock to be offered in this rights offering. After the date of this prospectus, our common stock may trade at prices above or below the subscription price.

You may not revoke your subscription exercise and could be committed to buying shares above the prevailing market price.

Once you exercise your rights, you may not revoke the exercise of such rights. The public trading market price of our common stock may decline before the rights expire. If you exercise your rights and the public trading market price of our common stock is or afterwards decreases below the subscription price, you will have committed to buy shares of our common stock at a price above the prevailing market price. Our common stock is traded on the NYSE under the symbol “RRTS,” and the closing price of our common stock on the NYSE on January 9, 2019, was $0.53 per share. Moreover, you may be unable to sell shares of common stock that you purchase in this rights offering at a price equal to or greater than the subscription price you paid for such shares.

If you do not act promptly and follow the subscription instructions, your exercise of rights may be rejected.

Stockholders who desire to purchase shares in this rights offering must act promptly to ensure that all required forms and payments are actually received by the rights agent at or before 5:00 p.m., Eastern Time, on February 19, 2019, the expiration date of this rights offering, unless extended. If you are a beneficial owner of shares, you must act promptly to ensure that your broker, bank, or other nominee acts for you and that all required forms and payments are actually received by the rights agent at or before the expiration date of this rights offering. We will not be responsible if your broker, bank, or nominee fails to ensure that all required forms and payments are actually received by the rights agent at or before the expiration date of this rights offering. If you fail to complete and sign the required subscription forms, send an incorrect payment amount or otherwise fail to follow the subscription procedures that apply to your exercise in this rights offering, the rights agent may, depending on the circumstances, reject your subscription or accept it only to the extent of the payment received. Neither we nor our rights agent undertakes to contact you concerning an incomplete or incorrect subscription form or payment, nor are we under any obligation to correct such forms or payment. We have the sole discretion to determine whether a subscription exercise properly follows the subscription procedures.

Significant sales of rights and our common stock, or the perception that significant sales may occur in the future, could adversely affect the market price for the rights and our common stock.

The sale of substantial amounts of the rights and our common stock could adversely affect the price of these securities. Sales of substantial amounts of our rights and our common stock in the public market, and the availability of shares for future sale, including up to 900,000,000 shares of our common stock to be issued in this rights offering, and 1,820,361 shares of our common stock issuable as of January 30, 2019, upon exercise of outstanding options to acquire shares of our common stock and restricted stock units could adversely affect the prevailing market price of our common stock and the rights and could cause the market price of our common stock to remain low for a substantial time. We cannot foresee the impact of such potential sales on the market, but it is possible that if a significant percentage of such available shares and rights were attempted to be sold within a short period of time, the market for our shares and the rights would be adversely affected. It is also unclear whether or not the market for our common stock (and any market that develops for our rights) could absorb a large number of attempted sales in a short period of time, regardless of the price at which they might be offered. Even if a substantial number of sales do not occur within a short period of time, the mere existence of this “market overhang” could have a negative impact on the market for our common stock and the rights. See “—The market price of our common stock may decline before or after the rights expire.”

 

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You may not receive all of the shares you subscribe for pursuant to the over-subscription right.

If an insufficient number of shares are available to fully satisfy all over-subscription right requests, rights holders who exercised their over-subscription right will receive the available shares pro rata based on the number of shares each rights holder has subscribed for under the over-subscription right.

In administering this rights offering, we will be relying on statements, representations and other information provided to us by third parties.

In administering the exercising of rights and the pro rating of over-subscription rights in this rights offering, we will rely on the accuracy of various statements and representations provided to us by brokers, dealers, holders of rights and other third parties. If these statements or representations are false or inaccurate, it may delay or otherwise negatively affect our or the rights agent’s ability to administer this rights offering in accordance with the terms and conditions described in this prospectus.

The dealer manager is not underwriting, or acting as placement agent of, the rights or the common stock underlying the rights.

Barclays Capital Inc. will act as the dealer manager for this rights offering. The dealer manager is not underwriting this rights offering and has no obligation whatsoever to purchase, or procure purchases of, the rights or the common stock underlying the rights offered hereby. The dealer manager makes no recommendation as to whether you should exercise, transfer or let lapse your rights. The dealer manager will not be subject to any liability to us in rendering the services contemplated by the dealer manager agreement except as may be set forth in the dealer manager agreement and any other arrangements we might have. This rights offering may not be successful despite the services of the dealer manager to us in this rights offering.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this prospectus and incorporated by reference into this prospectus may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical fact, included or incorporated into this prospectus regarding our strategy, prospects, plans, objectives, future operations, future revenue and earnings, projected margins and expenses, markets for our services, potential acquisitions or strategic alliances, financial position, and liquidity and anticipated cash needs and availability are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” and similar expressions or the negatives thereof are intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements represent our current reasonable expectations and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, and achievements, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that results and events could differ materially and adversely from those contained in the forward-looking statements due to a number of factors, including, but not limited to, those described in the section entitled “Risk Factors” in this prospectus, and the following:

 

   

the effects of significant liability claims and the cost of maintaining our insurance;

 

   

the effects of increased premium costs;

 

   

the cost of compliance with and the effects of governmental and environmental regulations;

 

   

fluctuations in the levels of capacity in the over-the-road freight sector;

 

   

our ability to successfully execute our acquisition strategy;

 

   

our ability to integrate our acquired companies;

 

   

our international operations;

 

   

our ability to service our debt obligations;

 

   

fluctuations in the price or availability of fuel;

 

   

general economic, political, and other risks that are out of our control, including any prolonged delay in a recovery of the U.S. over-the-road freight sector;

 

   

the competitive nature of the transportation industry;

 

   

our reliance on our executive officers and key personnel;

 

   

our reliance on ICs to provide transportation services to our customers;

 

   

the ability of our carriers to meet our needs and expectations, and those of our customers;

 

   

our ability to maintain, enhance, or protect our proprietary technology systems;

 

   

the effects of any breaches of our information security systems, including any litigation related thereto;

 

   

the outcome of pending securities litigation and related investigations by the DOJ and the SEC;

 

   

our ability to regain compliance with certain NYSE listing standards pertaining to minimum market capitalization and stock price;

 

   

seasonal fluctuations in our business;

 

   

our ability to attract and retain sales representatives;

 

   

the volatility of the market price of our common stock;

 

   

certain provisions in our charter documents that could discourage potential acquisitions or delay, deter, or prevent a change in control;

 

   

the broad discretion of our management in allocating the remaining net cash proceeds of this rights offering retained for general corporate purposes;

 

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the significant influence over our Company by our principal stockholders; and

 

   

other risks and uncertainties described from time to time in our reports filed with the SEC, which are incorporated by reference.

We urge you to consider these factors and to review carefully the section captioned “Risk Factors” in this prospectus for a more complete discussion of the risks associated with an investment in our common stock. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. The forward-looking statements included in or incorporated by reference into this prospectus are made only as of their respective dates, and we undertake no obligation to update these statements to reflect subsequent events or circumstances.

 

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USE OF PROCEEDS

We expect to receive $450 million in gross proceeds from this rights offering after giving effect to the backstop commitment. We will use the proceeds received from the exercise of the rights and the backstop commitment to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all of the Elliott Transaction Expenses, and to pay all of the Company Transaction Expenses. We expect to pay approximately $403 million in the aggregate to pay the dividends and redeem the preferred stock.

We will use any remaining proceeds for general corporate purposes, which amount will vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. Assuming 0%, 25%, 50%, 75%, and 100% of our stockholders other than Elliott exercise rights and purchase shares of our common stock in this rights offering, we estimate net proceeds remaining for general corporate purposes will be approximately $37.2 million, $34.9 million, $32.1 million, $28.0 million, and $22.5 million, respectively, if this rights offering closes by March 1, 2019. However, in order to comply with the covenant in our asset-based lending facility requiring us to retain $30 million in net cash proceeds from this rights offering and to use such proceeds for general corporate purposes, if a sufficient percentage of our stockholders other than Elliott exercise rights such that the proceeds remaining for general corporate purposes would fall below $30 million, Elliott has agreed to waive, in connection with the redemption of its preferred stock, the payment of accrued and unpaid dividends in an amount sufficient to leave us with $30 million in net cash proceeds from this rights offering.

As of January 11, 2019, Elliott beneficially owned approximately 13.5% of our common stock and all of our outstanding preferred stock, and two of our ten directors have been designated by Elliott pursuant to its rights under the documents governing the issuance of our preferred stock. The two directors designated by Elliott have not participated in any discussions regarding the terms of this rights offering or the Standby Purchase Agreement and the transactions contemplated thereby, and have abstained from all votes related to this rights offering and the Standby Purchase Agreement and the transactions contemplated thereby.

 

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CAPITALIZATION

The following table describes our cash and cash equivalents and capitalization as of September 30, 2018 (i) on an actual basis, and (ii) on a pro forma as adjusted basis to give effect to the sale of all 900,000,000 shares offered in this rights offering and pursuant to the backstop commitment (including application of gross proceeds as described under “Use of Proceeds”) at a price of $0.50 per share. The amounts set forth below have been rounded for presentation purposes and as a result total amounts may not represent arithmetical sums of components.

 

     As of September 30, 2018  
    

(Unaudited)

($ in millions, except par value)

 
     Actual      As Adjusted  

Cash and cash equivalents(1)

   $ 10.0      $ 10.0  
  

 

 

    

 

 

 

Debt

     

Revolving credit facility

     122.1        90.1  

Term loans

     40.1        40.1  

Capital leases

     30.0        30.0  
  

 

 

    

 

 

 

Total debt

   $ 192.2      $ 160.2 (3)  
  

 

 

    

 

 

 

Preferred stock

     

Series B Preferred

   $ 187.2        —    

Series C Preferred

     94.4        —    

Series D Preferred

     1.1        —    

Series E Preferred

     43.4        —    

Series E-1 Preferred

     42.7        —    
  

 

 

    

 

 

 

Total preferred stock(2)

   $ 368.8        —    
  

 

 

    

 

 

 

Total debt plus preferred stock

   $ 561.0      $ 160.2 (3)  
  

 

 

    

 

 

 

Stockholders’ investment

     

Common stock $0.01 par value

   $ 0.4        9.4  

Additional paid-in capital

     404.5        845.5  

Retained deficit

     (399.0      (399.0
  

 

 

    

 

 

 

Total stockholders’ investment

   $ 5.9      $ 455.9  
  

 

 

    

 

 

 

Total capitalization(1)

   $ 566.9      $ 616.1  
  

 

 

    

 

 

 

 

  (1)

As adjusted amounts could vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. See “Use of Proceeds.” In order to avoid a default under our ABL Facility, we are required to maintain 10% of Adjusted Excess Availability, defined as the sum of borrowing capacity under our ABL Facility and our cash balance, but not less than $17.5 million.

  (2)

Preferred stock balances are measured using the fair value method, which does not measure the total redemption costs if the preferred stock were redeemed as of September 30, 2018.

  (3)

Assumes we retain $32 million in net proceeds for general corporate purposes and such proceeds are used to reduce our outstanding indebtedness.

 

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THE RIGHTS OFFERING

Background and Reasons for the Rights Offering

Elliott Background

On March 3, 2017, Elliott and investment funds affiliated with Elliott filed a joint Schedule 13G pursuant to Rule 13(g) under the Exchange Act indicating that they collectively owned 2,859,635 shares of our common stock, constituting approximately 7.5% of our outstanding common stock as of such date. On April 3, 2017, Elliott and investment funds affiliated with Elliott filed a joint Schedule 13D pursuant to Rule 13(d) under the Exchange Act indicating that they collectively owned 3,310,483 shares of common stock, constituting approximately 8.6% of our outstanding common stock on such date.

We thereafter entered into negotiations with Elliott to make an additional investment in our Company. These negotiations culminated in the execution of an investment agreement dated May 1, 2017 (the “2017 Investment Agreement”), pursuant to which we issued and sold to Elliott, for an aggregate purchase price of $540,500,100, shares of our Series B, C, D, E, and F Preferred Stock. We used the proceeds of the sale of the preferred stock to pay off and terminate our prior senior credit facility and to provide working capital to support our operations and future growth. In connection with the issuance of the preferred stock and pursuant to the 2017 Investment Agreement, we entered into a warrant agreement with Elliott on May 2, 2017, pursuant to which we issued to Elliott warrants to purchase an aggregate of 379,572 shares of our common stock at an exercise price of $0.01 per share. On May 4, 2017, Elliott and investment funds affiliated with Elliott filed a joint amendment to their Schedule 13D pursuant to Rule 13(d) under the Exchange Act to report that Elliott had acquired the preferred stock, warrants to purchase common stock, and entered into the 2017 Investment Agreement.

On June 6, 2017, our board of directors elected Scott L. Dobak to serve as a Class II director and Ralph “Cody” W. Kittle III to serve as a Class III director. Messrs. Dobak and Kittle were elected to our board of directors pursuant to the 2017 Investment Agreement, which required our board of directors to expand the size of our board of directors and fill the vacancies created by such expansion with the individuals designated by Elliott.

On January 30, 2018, we entered into a $52.5 million standby equity commitment agreement (the “Equity Commitment”) with affiliates of Elliott for the potential issuance of shares of our Series E Preferred Stock, subject to the terms specified in the Equity Commitment. We subsequently entered into an additional investment agreement (the “2018 Investment Agreement”) with Elliott, pursuant to which we sold an aggregate $34,998,880 of Series E-1 Preferred Stock to Elliott over two separate transactions on March 1, 2018 and April 24, 2018. The proceeds of the sale of such shares of Series E-1 Preferred Stock were used to provide working capital to support our operations and future growth and to repay a portion of the indebtedness under our asset-based lending facility with BMO Harris Bank, N.A. and certain other lenders dated July 21, 2019 (as amended, the “ABL Facility”) as required by the credit agreement governing that facility. The 2018 Investment Agreement and ABL Facility were subsequently amended on August 3, 2018 to extend the time period during which the Company is permitted to require Elliott to purchase shares of Series E-1 preferred stock from July 30, 2018 to November 30, 2018 and to terminate the Equity Commitment. The 2018 Investment Agreement and ABL Facility were further amended on September 20, 2018 to extend the time period during which the Company is permitted to require Elliott to purchase shares of Series E-1 preferred stock from November 30, 2018 to January 1, 2019.

On November 12, 2018, Elliott exercised its warrants to purchase 379,572 shares of our common stock at an exercise price of $0.01 per share. On November 16, 2018, two funds affiliated with Elliott each filed a separate Form 3, indicating that it was a beneficial owner of greater than 10% of our common stock. As of January 11, 2019, Elliott and investment funds affiliated with Elliott collectively beneficially owned 5,242,855 shares of common stock, constituting approximately 13.5% of our outstanding common stock as of such date.

As of the date of this prospectus, Elliott holds all of our outstanding shares of preferred stock.

 

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Review and Evaluation of Strategic Alternatives

Our board of directors regularly reviews our results of operations and capital structure. From time to time, our board of directors has discussed potential strategic transactions that would provide financing alternatives to improve our capital structure. The various series of preferred stock issued to Elliott have provided our Company with financial flexibility through the ability to accrue preferred dividends for future payment with limited financial covenants. However, the relatively high rate of the dividend has significantly increased the liquidation value of the preferred stock, resulting in an erosion to the value of our common stock. In addition, the high leverage level has created operational challenges including securing new business, employee retention, and capital investments. In light of these circumstances, our board of directors believed it necessary to evaluate the range of potential refinancing and/or recapitalization transactions available to our Company.

From November 14, 2017 until April 17, 2018, the board of directors had an executive committee consisting of Messrs. Dobak, Doerr, Kennedy, Kittle, Murray, Staley, Stoelting, Urkiel, and Ward. The executive committee was given all of the powers and authority of the full board of directors in the management of the business and affairs of our Company except as expressly prohibited by Delaware law.

During the first quarter of 2018, Mr. Stoelting, at the direction of the executive committee of the board of directors, held discussions with several prominent investment banks in order to determine which firm was best equipped to assist our Company in reviewing possible financing alternatives. At a meeting of the executive committee of the board of directors held on March 15, 2018, the executive committee directed Mr. Stoelting to continue discussions with Barclays Capital Inc. (“Barclays”) regarding their willingness to review strategic financing alternatives for our Company. At that meeting, the executive committee also discussed the advisability of forming a special committee of our board of directors to review and evaluate our financing alternatives.

To that end, on April 17, 2018, our board of directors held a meeting attended by representatives of our senior management team, Barclays and our counsel, Greenberg Traurig, LLP (“GT”). At this meeting, the board of directors approved the establishment of a special financing alternatives committee of our board of directors (the “special committee”), consisting of Messrs. Doerr, Kennedy, and Ward, each of whom is an independent director. The special committee was given all rights, powers, and authority of the board of directors to consider, identify, and evaluate potential alternative strategic financing transactions for our Company and to recommend to the board of directors whether to engage in such transactions. Messrs. Kittle and Dobak abstained from the vote that established the special committee.

The special committee held its first meeting on April 29, 2018 and discussed the current proposed financial terms provided by Barclays for its engagement. This discussion included a discussion of the historical relationship of Barclays and our Company and of Barclays and Elliott, as well as possible asset sale transactions.

The special committee held a meeting on May 3, 2018 and approved the engagement of Barclays by our Company to provide financial advice regarding our capital structure and to provide financial advisory services to our Company in connection with the strategic development of our long-term business plans and to optimize our capital structure. We subsequently entered into an engagement letter with Barclays dated May 14, 2018.

The special committee held a meeting on May 11, 2018 attended by representatives of our senior management team and Barclays. At this meeting, representatives of Barclays provided a preliminary financial analysis regarding our financial condition and various potential alternatives to address our refinancing needs. The alternatives discussed by representatives of Barclays and the special committee included, among others, (i) continuing with the status quo while management focuses on its turnaround efforts, (ii) raising a private investment in public equity, (iii) a sale of all of our Company or select assets, (iv) a restructuring of the preferred stock, and (v) a rights offering. In previous conversations with representatives of Barclays and management, Elliott had orally indicated openness to discussing, at an appropriate time, its potential participation in, and backstop of, a rights offering if the board of directors determined that a rights offering was in the best interests of our Company.

 

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The board of directors held a meeting on May 16 and 17, 2018 attended by representatives of our senior management team and Barclays. During a portion of this meeting, Messrs. Kittle and Dobak excused themselves from the meeting and representatives of Barclays provided a presentation similar to that given to the special committee on May 11. The Barclays presentation included a further review of our financial and operational structure, our capital structure considerations, and a review of our potential alternatives to address its refinancing needs. Following the presentation, Barclays was directed by us to approach Elliott to determine its willingness to make an offer specifying the terms on which Elliott would be willing to backstop a rights offering.

The special committee next held a meeting on May 24, 2018 attended by representatives of our senior management team and Barclays. At this meeting, representatives of Barclays reported that they had spoken to Elliott regarding a possible rights offering, as previously requested by us. Elliott had expressed preliminary openness to participating in a rights offering of approximately $400 to 450 million with a subscription price of $0.50 per share. Elliott had also indicated that it would be likely to provide a backstop for a rights offering on such terms without charging a fee for such backstop. The special committee then engaged in substantial discussion regarding this proposal, including a preliminary analysis by Barclays of the proposed rights offering. The special committee recommended that Barclays identify other parties that may be interested in providing a backstop for a rights offering or an alternative financing proposal. In addition, the special committee recommended that Barclays engage with Elliott to discuss additional terms of a possible rights offering and the possibility of restructuring a portion of the preferred stock with terms more favorable to our Company and our common stockholders.

The special committee then held a meeting on May 29, 2018 attended by representatives of our senior management team and Barclays. At this meeting, representatives of Barclays reported that Elliott had stated it was not willing to provide additional details of a rights offering but was willing to entertain any proposals that we may have.

The special committee held a meeting on May 31, 2018 attended by representatives of our senior management team and Barclays. At this meeting, the special committee, together with representatives of our senior management team and Barclays, discussed potential dual-track processes and timelines for communicating with Elliott on a potential backstop for a rights offering as well as soliciting alternative transaction proposals from other potential investors. The special committee, together with representatives of our senior management team and Barclays, discussed the preparation of a proposed term sheet to present to Elliott, as well as the timing of proposed outreach to other potential investors.

Following this meeting, on June 5, 2018, our management together with representatives of Barclays and GT, prepared an initial draft of a non-binding memorandum of terms (the “term sheet”) for a potential backstopped rights offering with Elliott to provide the backstop commitment. Over the next two weeks, our management, GT, and Barclays discussed, reviewed, and revised the term sheet and solicited feedback from the special committee.

The special committee held a meeting on June 7, 2018 attended by representatives of our senior management team and Barclays. At this meeting, the special committee, together with representatives of our senior management team and Barclays, discussed the summary of key transaction terms to be proposed to Elliott and reviewed an illustrative rights offering transaction overview.

Representatives of Barclays and GT met in person with representatives of Elliott and Debevoise & Plimpton LLP (“Debevoise”), legal counsel to Elliott, in New York on June 18, 2018. At the meeting, the term sheet was discussed including, among other things, that (i) shares issued to Elliott that would increase its ownership percentage in our Company over a certain amount, the ownership limitation, would be issued as non-voting securities; (ii) the proceeds received in the rights offering would be used to pay all accrued and unpaid dividends on the outstanding preferred stock, with any remaining proceeds to redeem as much as possible of the preferred stock without the payment redemption premiums; (iii) Elliott would agree to amend certain provisions of the preferred stock; (iv) Elliott would be prohibited from acquiring and/or transferring its shares of common stock

 

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for a specified period of time commencing with the execution of a backstop agreement and ending after the consummation of a rights offering; and (v) Elliott would be entitled to appoint directors commensurate with its voting rights in our Company, subject to the ownership limitation.

Debevoise provided feedback to GT on the term sheet and potential for Elliott’s participation in the rights offering as the backstop purchaser and specific feedback on the draft term sheet on June 20, 2018.

The special committee held a meeting, also on June 20, 2018, attended by representatives of our senior management team and Barclays. At this meeting, representatives from Barclays summarized the June 18, 2018 meeting with Elliott. In addition, GT provided the special committee with Elliott’s initial response to the draft term sheet as communicated by Debevoise. The special committee also discussed the possible use and timing of a press release to publicly announce that we are examining various financing alternatives, including the interplay between such an announcement and the filing of our results for the first quarter of 2018.

The special committee held a meeting on July 9, 2018 attended by representatives of our senior management team and Barclays. At this meeting, the special committee discussed the use of a press release announcing our evaluation of financing alternatives, a draft of which had been provided to the special committee by our management, and related investor solicitation by Barclays. Representatives of Barclays reviewed a proposed timeline for such solicitation as well as a list of prospective investors.

We issued a press release on July 11, 2018 announcing that our board of directors had appointed the special committee to review and evaluate our financing alternatives and that we had engaged Barclays to provide financial advice regarding our capital structure and to provide financial advisory services in connection with the strategic development of our business plans. Additionally, we disclosed in the press release that our capital raising alternatives could include a rights offering or other forms of new equity or debt capital and that we may enter into discussions with various stakeholders as part of the evaluation.

In addition to engaging in discussions with Elliott regarding a proposed rights offering and backstop commitment, beginning on July 12, 2018, Barclays, on our behalf, began contacting other potential investors regarding their interest in financing alternatives and strategic transactions with our Company including but not limited to a change in control transaction. Over the next several weeks, Barclays held conversations with numerous potential investors regarding a potential financing alternative or strategic transaction with our Company. During this period, Barclays contacted 29 potential investors, sent a public investment summary prepared by us to 20 potential investors, and sent a non-disclosure agreement prepared by GT to 21 potential investors. Also during this period, we negotiated and executed non-disclosure agreements with 14 potential investors and we provided access to a virtual data room with confidential information regarding our Company to 14 potential investors. We requested that the potential investors submit their proposals for a financing alternative or strategic transaction by August 10, 2018.

The special committee held a meeting on July 19, 2018 attended by representatives of our senior management team and Barclays. At this meeting, representatives from Barclays provided the special committee with an update regarding the status of the investor solicitation process. The special committee inquired as to whether any strategic investors had expressed an interest, and representatives of Barclays reported that while strategic investors likely saw our announcement, no strategic investors had contacted Barclays.

The special committee held a meeting on August 8, 2018 attended by representatives of our senior management team and Barclays. At this meeting, representatives from Barclays provided a further update regarding the status of the investor solicitation process. Representatives of Barclays indicated that substantially all of the parties contacted had declined to pursue a transaction. Representatives of Barclays also indicated that, at our direction, it had contacted one of our largest stockholders and that such stockholder was in the process of negotiating a non-disclosure agreement with us so that Barclays could then discuss potential financing alternatives with such stockholder.

 

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Elliott provided a written counterproposal to the term sheet on August 9, 2018. In general, Elliott indicated it was only willing to consider providing a backstop to a rights offering transaction with us if such transaction involved a complete redemption of Elliott’s preferred stock. Among other revisions, Elliott’s counterproposal (i) rejected that shares issued to Elliott that would cause Elliott’s ownership of common stock in our Company to go over the ownership limitation would be issued as non-voting securities; (ii) required that the proceeds received in the rights offering would need to be no less than the amount required to pay all accrued and unpaid dividends on the preferred stock and to redeem all preferred stock, together with all redemption premiums, and that the proceeds received in the rights offering must be used for such purpose; (iii) rejected that Elliott would agree to amend the terms of the outstanding preferred stock because the counterproposal provided for the redemption of all the outstanding preferred stock; (iv) rejected that Elliott would be prohibited from acquiring and/or transferring its shares of common stock for a specified period of time commencing with the execution of a backstop agreement and ending after the consummation of a rights offering; and (v) rejected a provision that would limit Elliott’s right to appoint directors to less than Elliott’s pro rata ownership of common stock.

As of August 10, 2018, the deadline for potential investors to submit proposals, we had only received two proposals for a financing alternative or a strategic transaction. Of the 29 potential investors contacted, 19 affirmatively declined to submit a proposal. Eight potential investors did not affirmatively decline to submit a proposal, but had not contacted us by the August 10 deadline. With respect to the two proposals received from the potential investors, the first proposal did not provide a transaction structure or set purchase price. Instead, the non-binding proposal requested to continue its diligence review to identify and evaluate potential transaction structures. The second proposal provided a non-binding debt proposal for a three-year term loan of up to $85 million with proceeds to be used to refinance existing indebtedness and provide liquidity to us. Following the August 10, 2018 deadline, Barclays contacted two additional potential investors, obtained two additional signed non-disclosure agreements, and provided access to a virtual data room to one of the additional potential investors.

The special committee held a meeting on August 14, 2018 attended by representatives of our senior management team and Barclays. At this meeting, representatives from Barclays reviewed the status of prospective investors as well as the two proposals received thus far. The committee also reviewed and discussed the response to the term sheet received from Elliott.

The board of directors held a meeting on August 15 and 16, 2018. During a portion of that meeting on August 16, during which Messrs. Dobak and Kittle excused themselves from the room, the board of directors discussed (i) the results of the outreach to potential investors and the two proposals received from potential investors, (ii) the counterproposal received from Elliott, and (iii) next steps and timing in connection with the potential rights offering and other alternative financing and strategic transactions. The members of the special committee indicated that the proposed rights offering with Elliott was our best alternative at the present time, and the board of directors discussed the proposed exercise price of the rights and other rights offering terms. The board of directors then invited Mr. Kittle to rejoin the meeting, and solicited his opinion on how the investment community might react to a potential rights offering and how Mr. Kittle would think about valuing a rights offering, based on his experience as an analyst at an investment firm. During this discussion, the board did not attempt to negotiate the terms of Elliott’s possible participation in a rights offering with Mr. Kittle, nor did Mr. Kittle participate in any deliberations by the board of directors regarding a possible rights offering.

Of the two additional potential investors contacted following the August 10, 2018 deadline, one affirmatively declined to submit a proposal as of August 18, 2018.

The special committee held a meeting on August 22, 2018 attended by representatives of our senior management team and Barclays. At the meeting, representatives from Barclays updated the special committee regarding two additional potential investors that had expressed interest in either participating in a small rights offering or otherwise participating in a transaction, which included one of the potential investors contacted following the August 10, 2018 deadline. Upon further discussion, the special committee determined that neither investor was likely to provide a viable alternative to the rights offering being negotiated with Elliott since one of the proposals was not large enough in size, and the second proposal was not reasonably likely to be completed on a timely basis. Representatives of Barclays also provided feedback from a meeting on August 21 that took place with

 

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one of our largest stockholders who had signed a non-disclosure agreement, where Barclays solicited feedback and views from this investor. The special committee continued to discuss the proposed exercise price of the rights.

The special committee held a meeting on August 30, 2018 attended by representatives of our senior management team and Barclays. Representatives from Barclays presented information to the special committee regarding the financial impact of the rights offering and Elliott’s pro forma ownership after the rights offering, giving effect to different proposed rights offering amounts and different exercise prices of the rights. Representatives from Barclays also presented a proposed timeline for the rights offering process. The special committee continued to discuss the exercise price and size of the rights offering. The special committee also discussed the amount of the rights offering to include on the cover page of the initial registration statement to be filed, for the purposes of evaluating investor interest. The special committee ultimately decided to list the value of the rights offering at $450 million on the cover page of the initial filing.

We provided a draft registration statement for the contemplated rights offering (the “Registration Statement”) to the special committee for its review and comment on September 4, 2018. The special committee held a meeting on September 6, 2018. The special committee discussed with GT and management the status of the Registration Statement and the current expected timeline of the rights offering. The special committee provided its approval for GT to provide the draft Registration Statement to Elliott’s counsel for review and comment. Following the meeting, GT provided the draft Registration Statement to Elliott’s counsel.

The special committee held a meeting on September 14, 2018 attended by representatives of our senior management team and Barclays. Representatives from our senior management team, Barclays, and GT provided an update on the potential filing date for the initial Registration Statement for the rights offering and a subsequent proxy statement for a meeting of our stockholders to grant the approvals required for the rights offering, open issues, and the process following the filing of the rights offering prospectus.

The board of directors held a meeting on September 16, 2018 attended by representatives of our senior management team, Barclays, and GT. Messrs. Kittle and Dobak were not present at this meeting. The board of directors discussed with the representatives from Barclays its ability to provide an opinion with respect to the rights offering. The representatives from Barclays informed the board of directors that it would continue to evaluate what it could potentially opine on in relation to the rights offering. The board of directors also discussed with representatives from Barclays the planned outreach by Barclays to potential investors that the board of directors had asked Barclays to undertake and the timing of that outreach. After the representatives from Barclays left the meeting, Mr. Stoelting and GT provided the board of directors with a status update on the Registration Statement, a copy of which had previously been provided to the board of directors. Following a discussion, the directors present at the meeting unanimously approved the filing of the Registration Statement.

The special committee held a meeting on October 10, 2018 attended by representatives of our senior management team and Barclays. Representatives from Barclays provided the special committee with an update on its investor outreach, which was conducted by Barclays at the special committee’s request to evaluate preliminary feedback from investors on whether they would be supportive of a potential rights offering.

The board of directors held a meeting on October 18, 2018 attended by representatives of our senior management team and Barclays. Representatives from Barclays presented an updated financial analysis of the Company and the refined financial projections prepared by our senior management. Representatives from Barclays also described management’s expected use of the gross proceeds in the rights offering and our pro forma capitalization, as of December 31, 2018, with and without giving effect to the rights offering. Following Barclays’ presentation of our pro forma capitalization, Messrs. Kittle and Dobak excused themselves from the meeting. Representatives from Barclays then provided the board of directors, other than Messrs. Kittle and Dobak, with an update on investor outreach and discussions with various shareholders. GT then provided the board of directors, other than Messrs. Kittle and Dobak, with an update on the draft preliminary proxy statement and expected timing for filing of the preliminary proxy statement.

 

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The special committee held a meeting on November 7, 2018 attended by representatives of our senior management team, Barclays, and GT. GT advised the special committee of their duties under Delaware law, particularly the special committee’s “Revlon” duties. Representatives from Barclays then made a presentation to the special committee and discussed (i) the three-year stock price performance and current market valuation, (ii) projected financial information as provided by our management, (iii) an overview of the various alternatives potentially available to us along with certain benefits and considerations in connection with each alternative as provided by our management, (iv) a summary of the outreach to third parties in connection with alternative transactions conducted by Barclays at the Company’s request and direction together with a summary of the proposals received, (v) the pro forma impact of the rights offering on the Company’s capitalization, and (vi) certain potential benefits and considerations of the rights offering to the Company. Barclays then informed the special committee that it was prepared to deliver to our board of directors a letter, dated November 7, 2018 that, as of such date, and based upon and subject to the qualifications, limitations, factors, and assumptions set forth in the letter, Barclays was of the opinion that, from a financial point of view, the Proposed Transaction (as defined in the letter, a copy of which is attached as Annex E to our Definitive Proxy Statement for the 2018 annual meeting of stockholders) was the best alternative reasonably available to the Company under the circumstances. Barclays’ opinion is not intended to be and does not constitute a recommendation to any stockholder, including but not limited to as to whether to exercise rights in connection with the rights offering. The special committee then discussed with Barclays its analysis of the outstanding shares of common stock and votes required, based on the relative percentages of each holder, in order to have sufficient stockholder support to approve the transactions contemplated by the rights offering. Later in the meeting and following deliberations, the special committee then unanimously recommended to the board of directors that the board adopt, approve, and recommend to the stockholders that the stockholders approve the Authorized Share Increase Proposal, the Standby Purchase Agreement Proposal, the Written Consent Proposal, the Special Meeting Proposal, the Director Removal Proposal, the Certificate of Incorporation Amendment Proposal, the Bylaw Amendment Proposal, the Forum Selection Proposal, the Section 203 Opt-Out Proposal, and the Business Opportunity Proposal. In addition, the special committee approved an amended engagement agreement with Barclays.

Later that same day, the board of directors held a meeting attended by representatives of our senior management team, Barclays, and GT. Messrs. Kittle and Dobak were not present at this meeting of the board of directors. GT advised the board of directors of their duties under Delaware law, particularly the board of directors’ “Revlon” duties. Representatives from Barclays then made the same presentation to the board of directors that it has previously made to the special committee. Barclays then informed the board of directors that it was prepared to deliver to the board of directors a letter, dated November 7, 2018 that, as of such date, and based upon and subject to the qualifications, limitations, factors, and assumptions set forth in the letter, Barclays was of the opinion that, from a financial point of view, the Proposed Transaction (as defined in the letter) was the best alternative reasonably available to the Company under the circumstances. Barclays’ opinion is not intended to be and does not constitute a recommendation to any stockholder, including but not limited to as to whether to exercise rights in connection with the rights offering. The board of directors then held a discussion with Barclays similar to the discussion held by the special committee regarding an analysis of the outstanding shares of common stock and votes required, based on the relative percentages of each holder, in order to have sufficient stockholder support to approve the transactions contemplated by the rights offering. Following deliberations, the board of directors, other than Messrs. Kittle and Dobak, unanimously adopted and approved, and recommended to the stockholders that the stockholders approve, all of the proposals in our Definitive Proxy Statement for our 2018 annual meeting of stockholders, including the Authorized Share Increase Proposal, the Rights Offering Proposal, the Standby Purchase Agreement Proposal, the Written Consent Proposal, the Special Meeting Proposal, the Director Removal Proposal, the Certificate of Incorporation Amendment Proposal, the Bylaw Amendment Proposal, the Forum Selection Proposal, the Section 203 Opt-Out Proposal, and the Business Opportunity Proposal.

On November 8, 2018, we entered into the Standby Purchase Agreement with Elliott, which was subsequently amended on January 10, 2019 to extend the date by which we are required to consummate this rights offering.

 

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The Special Committee held a meeting on December 5, 2018 attended by representatives of our senior management team, Barclays, and GT. Representatives from Barclays provided the Special Committee with updates on the status of votes received with respect to the Rights Offering Proposals, the marketing plans for the rights offering, and the timeline for the rights offering.

The board of directors held a meeting on December 17, 2018 attended by representatives of our senior management team, Barclays, and GT. Our senior management team provided the board of directors an update on the votes received for the annual meeting. Representatives from Barclays then discussed the rights offering process and timing, including HCI’s unwillingness to participate in the rights offering. The board of directors discussed filing a resale registration statement so HCI could, given its presumptive affiliate status as a large shareholder, sell its shares of our common stock and related subscription rights. The board of directors were in favor of filing a resale registration statement so other investors could potentially participate in the rights offering.

The board of directors held a meeting on December 31, 2018 attended by representatives of our senior management team and GT. A representative from GT discussed with the board of directors the status of the partial government shutdown and the potential impact on timing of the rights offering, including effectiveness of the Registration Statement. After this discussion, Messrs. Kittle and Dobak left the meeting. The board of directors, other than Messrs. Kittle and Dobak, then approved a rights offering record date of January 9, 2019. In addition, the board of directors, other than Messrs. Kittle and Dobak, appointed Mr. Kennedy to serve as the sole member of the record date committee to change the January 9, 2019 record date if needed due to the impact of the partial government shutdown or otherwise upon the advice of our counsel and senior management.

The board of directors held a meeting on January 8, 2019 attended by representatives of our senior management team and GT. Our senior management team discussed with the board of directors an updated timeline for filing an amendment to the Registration Statement due to the partial government shutdown. The board of directors and senior management discussed filing an amendment to the Registration Statement within a week of the January 8, 2019 meeting.

On January 9, 2019, Mr. Kennedy, acting as the sole member of the record date committee of the board of directors, moved the record date of the rights offering from January 9, 2019 to January 30, 2019 to accommodate the updated timing for the rights offering due to the partial government shutdown.

The Rights

We are distributing to the record holders of our common stock as of January 30, 2019, the record date, rights to purchase shares of our common stock at a price of $0.50 per share, the subscription price. The rights are transferable until the close of trading on the NYSE on February 15, 2019, the last business day prior to the expiration date of this rights offering (or, if the offer is extended, on the business day immediately prior to the extended expiration date), and will entitle the holders of those rights to purchase shares of common stock for an aggregate purchase price of $450 million. See below, including “—Procedures for DTC Participants,” for additional information regarding subscription by DTC participants and stockholders who hold their shares in “street name” with DTC participants.

You will receive one right for every share of our common stock you own at the close of business on the record date. Each basic subscription right will entitle the holder thereof to purchase at the subscription price, at or before the expiration date of this rights offering, 23.1379497159 shares of common stock for each right held by such holder. Stockholders, other than Elliott, who elect to exercise their basic subscription right in full may also subscribe, at the subscription price, for additional shares of our common stock under their respective over-subscription rights (up to the number of shares subscribed for under the basic subscription right) to the extent that other rights holders do not exercise their basic subscription rights in full. If there is not a sufficient number of shares of our common stock to fully satisfy the over-subscription right requests, the available shares of common stock will be sold pro rata to rights holders who exercised their over-subscription right based on the number of shares each rights holder subscribed for under the over-subscription right.

 

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We intend to keep this rights offering open until the expiration date, unless extended by us; provided that, pursuant to the Standby Purchase Agreement, the expiration date of this rights offering may not be extended by more than 10 days without the prior written consent of Elliott.

Expiration of the Rights Offering and Extensions, Amendments, and Termination

You may exercise your rights at any time during the subscription period, which ends at 5:00 p.m., Eastern Time, on February 19, 2019, the expiration date of this rights offering, unless extended by us, provided that, pursuant to the Standby Purchase Agreement, the expiration date of this rights offering may not be extended by more than 10 days without the prior written consent of Elliott.

Subject to the foregoing, we will extend the duration of this rights offering as required by applicable law. We may choose to extend it if we decide that changes in the market price of our common stock warrant an extension or if we decide to give holders of rights more time to exercise their rights in this rights offering. We may extend the expiration date of this rights offering by giving oral or written notice to the rights agent and information agent on or before the scheduled expiration date. If we elect to extend the expiration of this rights offering, we will issue a press release announcing such extension no later than 9:00 a.m., Eastern Time, on the next business day after the most recently announced expiration date.

If you do not exercise your rights at or before the expiration date of this rights offering, your unexercised rights will be null and void and will have no value. We will not be obligated to honor your exercise of rights if the rights agent receives the documents and payment of the subscription price relating to your exercise after this rights offering expires, regardless of when you transmitted the documents.

The Standby Purchase Agreement includes a customary fiduciary out provision that will allow us to terminate this rights offering at any time prior to the commencement of the subscription period. The Standby Purchase Agreement permits us to cancel, terminate, or extend this rights offering prior to the expiration of the subscription period. However, once the subscription period is commenced, any such cancellation, termination, or amendment will require the prior consent of Elliott, except for an extension of the subscription period by not more than 10 days, unless the Standby Purchase Agreement is terminated. Any decision to cancel, terminate, amend or extend this rights offering will be made by us. If this rights offering is terminated, all rights will expire without value, and we will promptly arrange for the refund, without interest, of all funds received from holders of rights. All monies received by the rights agent in connection with this rights offering will be held by the rights agent, on our behalf, in a segregated interest-bearing account at a negotiated rate. All such interest shall be payable to us even if we determine to terminate this rights offering and return your subscription payment.

Basic Subscription Rights and Over-Subscription Rights

Your rights entitle you to a basic subscription right and an over-subscription right.

Basic Subscription Right. You will receive one right for every share of our common stock you owned at the close of business on the record date. The basic subscription right of each right entitles you to purchase 23.1379497159 shares of our common stock at the subscription price of $0.50 per share. You are not required to exercise all of your basic subscription rights unless you wish to purchase shares under your over-subscription right. We will deliver to the holders of record who validly exercise their rights under the basic subscription right and make payment of the subscription price in full, certificates representing the shares purchased with their basic subscription right, or, if you hold your shares in book-entry form and validly exercise your rights under the basic subscription right, we will credit your account with such shares, in each case promptly following the later of the expiration of this rights offering or the satisfaction or waiver of the closing conditions of this rights offering (and after all pro rata allocations and adjustments have been completed with respect to the over-subscription and taking into account the guaranteed delivery period).

 

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All rights issued to a stockholder of record (other than Elliott) who would, in our opinion, be required to obtain prior clearance or approval from any state, federal, or non-U.S. regulatory authority for the ownership or exercise of rights or the ownership of additional shares are null and void and may not be held or exercised by any such holder if, at such time, if applicable, such holder has not obtained such clearance or approval.

Over-Subscription Right. In addition to your basic subscription right, you may subscribe for additional shares of our common stock (up to the number of shares for which you subscribed under your basic subscription right), upon delivery of the required documents and payment of the subscription price of $0.50 per share, before the expiration of this rights offering. The Standby Purchase Agreement does not permit Elliott to subscribe for additional shares of common stock under the over-subscription right. You may only exercise your over-subscription right if you exercised your basic subscription right in full, including payment of the subscription price therefor, and other holders of rights do not exercise their basic subscription rights in full. We will deliver to the holders of record who purchase shares in this rights offering certificates representing the shares purchased with their over-subscription right, or, if you hold your shares in book-entry form and validly exercise your rights under the over-subscription right, we will credit your account with such shares, promptly following the later of the expiration of this rights offering or the satisfaction or waiver of the closing conditions of this rights offering (and after all pro rata allocations and adjustments have been completed with respect to the over-subscription and taking into account the guaranteed delivery period).

Pro Rata Allocation. If there are not enough shares of our common stock to satisfy all subscriptions made under the over-subscription right, we will allocate the remaining shares of our common stock pro rata, after eliminating all fractional shares, among those over-subscribing rights holders. “Pro rata” means in proportion to the number of shares of our common stock that you and the other rights holders have subscribed for under the over-subscription right.

Full Exercise of Basic Subscription Right. You may exercise your over-subscription right only if you exercise your basic subscription right in full. To determine if you have fully exercised your basic subscription right, we will consider only the basic subscription right held by you in the same capacity. For example, suppose that you were granted rights for shares of our common stock that you own individually and shares of our common stock that you own collectively with your spouse. If you wish to exercise your over-subscription right with respect to the rights you own individually, but not with respect to the rights you own collectively with your spouse, you only need to fully exercise your basic subscription right with respect to your individually owned rights. You do not have to subscribe for any shares under the basic subscription right owned collectively with your spouse to exercise your individual over-subscription right.

When you complete the portion of your rights certificate to exercise your over-subscription right, you will be representing and certifying that you have fully exercised your basic subscription right as to shares of our common stock that you hold in that capacity. You must exercise your over-subscription right at the same time you exercise your basic subscription right in full. In exercising the over-subscription right, you must pay the full subscription price for all the shares you are electing to purchase.

Return of Excess Payment. If you exercised your over-subscription right and are allocated less than all of the shares of our common stock for which you wished to subscribe, your excess payment for shares that were not allocated to you will be returned to you by mail, without interest or deduction, within ten business days after the expiration of this rights offering.

The Backstop Purchaser

The Standby Purchase Agreement. We entered into the Standby Purchase Agreement with Elliott under which we agreed to issue and sell to Elliott, and Elliott agreed to purchase from us, at a price per share equal to the subscription price, all unsubscribed shares of common stock in this rights offering, subject to the terms and conditions of the Standby Purchase Agreement, which transaction, together with Elliott’s exercise of its basic

 

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subscription right in full, we refer to as the backstop commitment. The purchase of shares of our common stock by Elliott pursuant to the backstop commitment would be effected in a transaction exempt from the registration requirements of the Securities Act, and would not be registered pursuant to the registration statement of which this prospectus forms a part. Any description of the terms and conditions of the backstop commitment is qualified in its entirety by reference to the Standby Purchase Agreement, which was filed as Exhibit 10.48 to our Current Report on Form 8-K filed with the SEC on November 9, 2018 and is incorporated by reference herein.

The Closing. The obligations of the Company and Elliott to consummate the transactions contemplated by the Standby Purchase Agreement are subject to the satisfaction prior to the closing of this rights offering of each of the following joint conditions (which may be waived in whole or in part by the Company or Elliott in their sole discretion): (i) the registration statement relating to this rights offering shall have been declared effective by the SEC and shall continue to be effective and no stop order shall have been entered by the SEC with respect thereto; (ii) this rights offering shall have been conducted in accordance with the Standby Purchase Agreement in all material respects without the waiver of any condition thereto; (iii) all material governmental and third-party notifications, filings, consents, waivers, and approvals required for the consummation of the transactions contemplated by the Standby Purchase Agreement, including this rights offering shall have been made or received; (iv) all terminations or expirations of waiting periods imposed under any necessary filing under the HSR Act or any other competition law or regulations shall have occurred; (v) no action shall have been taken, no statute, rule, regulation, or order shall have been enacted, adopted, or issued by any federal, state, or foreign governmental or regulatory authority, and no judgment, injunction, decree, or order of any federal, state or foreign court shall have been issued that, in each case, prohibits the implementation of this rights offering and the issuance and sale of our common stock in this rights offering or materially impairs the benefit of implementation thereof, and no action or proceeding by or before any federal, state, or foreign governmental or regulatory authority shall be pending or threatened wherein an adverse judgment, decree, or order would be reasonably likely to result in the prohibition of or material impairment of the benefits of the implementation of this rights offering and the issuance and sale of our common stock in this rights offering; (vi) approval of the Rights Offering Proposals; (vii) the shares of our common stock to be issued in this rights offering shall have been approved for listing on the NYSE, subject to official notice of issuance; provided, however, that this condition shall not apply in the event the Company’s common stock ceases to be listed and traded on the NYSE on or prior to the closing date of this rights offering; and (viii) there are no restrictions on the Company’s ability to redeem all outstanding shares of the Company’s preferred stock in accordance with the terms of the Standby Purchase Agreement.

In addition to the joint conditions, our obligation to issue and sell to Elliott all shares of our common stock offered in this rights offering that remain unsubscribed at the end of the subscription period will be subject to the satisfaction prior to the closing of this rights offering of each of the following conditions (which may not be waived, in whole or in part, without the prior written consent of Elliott): (i) the representations and warranties of Elliott made in the Standby Purchase Agreement shall be true and correct in all material respects as described in the Standby Purchase Agreement; and (ii) Elliott shall have performed and complied in all material respects with all covenants and agreements contained in the Standby Purchase Agreement and in any other Transaction Agreement (as defined in the Standby Purchase Agreement).

In addition to the joint conditions, Elliott’s obligation to purchase all of our unsubscribed shares of common stock in this rights offering will be subject to the satisfaction prior to the closing of this rights offering of each of the following conditions (which may be waived in whole or in part by Elliott in its sole discretion): (i) we shall have received a waiver by the lenders of the necessary provisions under our ABL Facility to avoid the mandatory use of proceeds received in this rights offering to prepay the principal outstanding under the ABL Facility and to waive any event of default that may be deemed to have occurred as a result of the consummation of this rights offering and the issuance of the common stock pursuant to the backstop commitment; (ii) the Company shall have executed and delivered to Elliott the amended and restated registration rights agreement; (iii) the Company shall have executed and delivered to Elliott the amended and restated stockholders’ agreement; (iv) the representations and warranties of the Company made in the Standby Purchase Agreement shall be true and correct in all material

 

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respects as described in the Standby Purchase Agreement; (v) the Company shall have performed and complied in all material respects with all covenants and agreements contained in the Standby Purchase Agreement and in any other Transaction Agreement (as defined in the Standby Purchase Agreement); and (vi) we shall have taken all necessary and required corporate action to adopt and shall have implemented the Corporate Governance Proposals.

In addition to the foregoing conditions to consummate the purchase and sale of all unsubscribed shares of the Company’s common stock in this rights offering, our obligation under the Standby Purchase Agreement to consummate this rights offering will be subject to the satisfaction prior to the closing of this rights offering of each of the following conditions (which may be waived in whole or in part by the Company with the consent of Elliott): (i) this rights offering shall have been conducted in accordance with the Standby Purchase Agreement in all material respects; (ii) all material governmental and third-party notifications, filings, consents, waivers, and approvals required for the consummation of this rights offering shall have been made or received; (iii) no action shall have been taken, no statute, rule, regulation, or order shall have been enacted, adopted, or issued by any federal, state, or foreign governmental or regulatory authority, and no judgment, injunction, decree, or order of any federal, state or foreign court shall have been issued that, in each case, prohibits the implementation of this rights offering and the issuance and sale of our common stock in this rights offering or materially impairs the benefit of implementation thereof, and no action or proceeding by or before any federal, state, or foreign governmental or regulatory authority shall be pending or threatened wherein an adverse judgment, decree, or order would be reasonably likely to result in the prohibition of or material impairment of the benefits of the implementation of this rights offering and the issuance and sale of our common stock in this rights offering; (iv) the registration statement relating to this rights offering shall have been declared effective by the SEC and shall continue to be effective and no stop order shall have been entered by the SEC with respect thereto; (v) approval of the Rights Offering Proposals; (vi) all terminations or expirations of waiting periods imposed under any necessary filing under the HSR Act or any other competition laws or regulations shall have occurred; (vii) we shall have received a waiver by the lenders of the necessary provisions under our ABL Facility to avoid the mandatory use of proceeds received in this rights offering to prepay the principal outstanding under the ABL Facility and to waive any event of default that may be deemed to have occurred as a result of the consummation of this rights offering and the issuance of the common stock pursuant to the backstop commitment; (viii) the shares of our common stock to be issued in this rights offering shall have been approved for listing on the NYSE, subject to official notice of issuance; provided, however, that this condition shall not apply in the event the Company’s common stock ceases to be listed and traded on the NYSE on or prior to the closing; and (ix) the concurrent closing of the purchase of shares of our common stock by Elliott of the unsubscribed shares of our common stock in this rights offering pursuant to the Standby Purchase Agreement such that the gross proceeds from this rights offering and the backstop commitment aggregate to $450 million.

As of the date of this prospectus, we have received the requisite stockholder vote to approve the Corporate Governance Proposals, received the requisite waiver by our lenders of the necessary provisions under our asset-based lending facility, and have taken all necessary and required corporate action to adopt, and have implemented, the Corporate Governance Proposals. See “—Conditions to the Rights Offering.” The Company and Elliott have filed a Premerger Notification and Report Form under the HSR Act with the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice in connection with Elliott’s acquisition of common stock in this rights offering.

Termination. The Standby Purchase Agreement may be terminated and the transactions contemplated thereby may be abandoned at any time prior to the closing of this rights offering and the backstop commitment:

 

   

by mutual written agreement of Elliott and us;

 

   

by either the us or Elliott, if the transactions contemplated by the Standby Purchase Agreement do not close by March 1, 2019; provided, however, that the right to terminate the Standby Purchase Agreement is not available to any party whose failure to comply with any provision of the Standby Purchase Agreement is the cause of, or resulted in, the failure of the closing to occur on or prior to such date;

 

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by us, (i) if there has been a breach of any covenant or a breach of any representation or warranty of Elliott, which breach would cause the failure of Elliott to satisfy any of its conditions, provided that any such breach of a covenant or representation or warranty is not reasonably capable of cure on or prior to March 1, 2019; or (ii) upon the occurrence of any event that results in a failure to satisfy any of the joint conditions, which failure is not reasonably capable of cure on or prior to March 1, 2019; provided that all determinations made for the Company prior to the closing of this rights offering with respect to this section shall be made by the Special Committee; or

 

   

by Elliott, (i) if there has been a breach of any covenant or a breach of any representation or warranty of the Company, which breach would cause the failure of the Company to satisfy any of its conditions, provided that any such breach of a covenant or representation or warranty is not reasonably capable of cure on or prior to March 1, 2019; or (ii) upon the occurrence of any event that results in a failure to satisfy any of the joint conditions, which failure is not reasonably capable of cure on or prior to March 1, 2019.

The Standby Purchase Agreement includes a customary fiduciary out provision that will allow us to terminate this rights offering at any time prior to the commencement of the subscription period. The Standby Purchase Agreement will not prevent us from cancelling, terminating, amending, or extending this rights offering prior to the commencement of the subscription period. However, once the subscription period is commenced, any such cancellation, termination, or amendment will require the prior consent of Elliott, except for an extension of the subscription period by not more than 10 days, unless the Standby Purchase Agreement is terminated. Any decision to cancel, terminate, amend or extend this rights offering will be made by the Company.

Backstop Fee. Pursuant to the Standby Purchase Agreement, there will be no backstop commitment fee payable to Elliott in connection with this rights offering; however, we have agreed to reimburse Elliott for the Elliott Transaction Expenses.

Indemnification. Pursuant to the Standby Purchase Agreement, we have agreed to indemnify Elliott and its affiliates and their respective officers, directors, members, partners, employees, agents, and controlling persons for losses arising out of circumstances existing on or prior to the closing date of this rights offering to which an indemnified party becomes subject arising out of a claim instituted by a third party with respect to this rights offering (other than with respect to losses due to statements or omissions made in reliance on information provided to us in writing by Elliott for use herein or breaches of the Standby Purchase Agreement).

No Transfer. Elliott has agreed that, during the subscription period, it will not, without the prior written consent of the special committee, sell, assign, transfer, convey, or otherwise dispose of any rights that have been distributed to Elliott. In addition, until the earlier to occur of the closing of this rights offering or the termination of the Standby Purchase Agreement, Elliott will not, without the prior written consent of the special committee, transfer any shares of common stock held, directly or indirectly, by Elliott.

Registration Rights Agreement. We have previously entered into a registration rights agreement with Elliott to provide certain customary demand and piggyback registration rights to Elliott with respect to the shares of common stock owned by Elliott. We have negotiated and expect to enter into an amended and restated registration rights agreement with Elliott to provide Elliott with unlimited Form S-1 registration rights in connection with the Standby Purchase Agreement. Executing and delivering such amended and restated registration rights agreement is a condition to Elliott’s obligation to provide the backstop commitment.

Stockholders’ Agreement. We have previously entered into a stockholders’ agreement with Elliott, which will terminate if we consummate this rights offering and redeem the outstanding preferred stock. We have negotiated and expect to enter into a new stockholders’ agreement with Elliott to, among other things, provide Elliott with certain board representation rights and access to financial information. Executing and delivering such stockholders’ agreement is a condition to Elliott’s obligation to provide the backstop commitment.

Rights. Elliott has agreed to exercise its basic subscription right in full pursuant to the Standby Purchase Agreement.

 

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We have obtained the commitment of Elliott under the Standby Purchase Agreement to ensure that, subject to the consummation of this rights offering, we will receive aggregate gross proceeds from this rights offering, after giving effect to the backstop commitment, of $450 million.

No Fractional Shares of Common Stock

We will not issue fractional shares of common stock or cash in lieu of fractional shares of common stock. Any fractional shares of our common stock created by the exercise of the rights will be rounded to the nearest whole share, with such adjustments as may be necessary to ensure that we offer 900,000,000 shares of common stock in this rights offering. In the unlikely event that, because of the rounding of fractional shares of common stock, this rights offering would have been subscribed in an amount in excess of 900,000,000 shares of common stock, all holders’ shares issued in this rights offering will be reduced in an equitable manner. Any excess subscription funds will be returned to you by mail within ten business days without interest or deduction after completion of this rights offering.

Conditions to the Rights Offering

Our obligation under the Standby Purchase Agreement to consummate this rights offering is subject to the satisfaction prior to the closing of this rights offering of closing conditions (which may be waived in whole or in part by the Company with the consent of Elliott), including:

(i) this rights offering shall have been conducted in accordance with the Standby Purchase Agreement in all material respects;

(ii) all material governmental and third-party notifications, filings, consents, waivers, and approvals required for the consummation of this rights offering shall have been made or received;

(iii) no action shall have been taken, no statute, rule, regulation, or order shall have been enacted, adopted, or issued by any federal, state, or foreign governmental or regulatory authority, and no judgment, injunction, decree, or order of any federal, state or foreign court shall have been issued that, in each case, prohibits the implementation of this rights offering and the issuance and sale of our common stock in this rights offering or materially impairs the benefit of implementation thereof, and no action or proceeding by or before any federal, state, or foreign governmental or regulatory authority shall be pending or threatened wherein an adverse judgment, decree, or order would be reasonably likely to result in the prohibition of or material impairment of the benefits of the implementation of this rights offering and the issuance and sale of our common stock in this rights offering;

(iv) the registration statement relating to this rights offering shall have been declared effective by the SEC and shall continue to be effective and no stop order shall have been entered by the SEC with respect thereto;

(v) approval from the requisite stockholder vote of the Rights Offering Proposals;

(vi) all terminations or expirations of waiting periods imposed under any necessary filing under the HSR Act or any other competition laws or regulations shall have occurred;

(vii) we shall have received a waiver by the lenders of the necessary provisions under our ABL Facility to avoid the mandatory use of proceeds received in this rights offering to prepay the principal outstanding under the ABL Facility and to waive any event of default that may be deemed to occur as a result of the consummation of this rights offering and the issuance of the common stock to Elliott in connection with purchasing all unsubscribed shares of common stock in this rights offering;

(viii) the shares of our common stock to be issued in this rights offering shall have been approved for listing on the NYSE, subject to official notice of issuance; provided, however, that this condition shall not apply in the

 

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event our common stock ceases to be listed and traded on the NYSE on or prior to the closing date of this rights offering; and

(ix) the concurrent closing of the purchase by Elliott of the unsubscribed shares of our common stock in this rights offering pursuant to the Standby Purchase Agreement such that the gross proceeds from this rights offering and the backstop commitment aggregate to $450 million.

As of the date of this prospectus, we have received the requisite stockholder vote to approve the Corporate Governance Proposals, received the requisite waiver by our lenders of the necessary provisions under our asset-based lending facility, and have taken all necessary and required corporate action to adopt, and have implemented, the Corporate Governance Proposals.

Regulatory Limitations

All rights issued to a stockholder of record (other than Elliott) who would, in our opinion, be required to obtain prior clearance or approval from any state, federal, or non-U.S. regulatory authority for the ownership or exercise of rights or the ownership of additional shares are null and void and may not be held or exercised by any such holder if, at such time, if applicable, such holder has not obtained such clearance or approval. We are not undertaking to advise stockholders of any such required clearance or approval or to pay any expenses incurred in seeking such clearance or approval.

We reserve the right to refuse to issue shares of our common stock to any stockholder of record (other than Elliott) who would, in our opinion, be required to obtain prior clearance or approval from any state, federal, or non-U.S. regulatory authority to own or control such shares if, at the time shares are to be issued upon payment therefor, such holder has not obtained such clearance or approval.

We will not offer or sell, or solicit any purchase of, shares in any state or other jurisdiction in which this rights offering is not permitted. We reserve the right to delay the commencement of this rights offering in certain states or other jurisdictions if necessary to comply with local laws. We may elect not to offer shares to residents of any state or other jurisdiction whose laws would require a change in this rights offering in order to carry out this rights offering in such state or jurisdiction.

Method of Subscription—Exercise of Rights

If you are a record holder of shares of our common stock, you may exercise your rights by delivering the following to the rights agent, at or before 5:00 p.m., Eastern Time, on February 19, 2019, the expiration date of this rights offering, unless we extend this rights offering in our sole discretion (unless extended by more than 10 days, in which case we will need the prior written consent of Elliott to extend):

 

   

your properly completed and executed rights certificate with any required signature guarantees or other supplemental documentation;

 

   

your properly completed and executed notice of guaranteed delivery (if applicable); and

 

   

your full subscription price payment for each share subscribed for under your rights.

If you are a beneficial owner of shares of our common stock whose shares are registered in the name of a broker, bank, or other nominee, you should instruct your broker, bank, or other nominee to exercise your rights and deliver all documents and payment on your behalf at or before 5:00 p.m., Eastern Time, on February 19, 2019, the expiration date of this rights offering, unless extended.

Your rights will not be considered exercised unless the rights agent receives from you, your broker, custodian, or nominee, as the case may be, all of the required documents and your full subscription price payment at or before 5:00 p.m., Eastern Time, on February 19, 2019, the expiration date of this rights offering, unless extended.

 

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Method of Payment

Your payment of the subscription price must be made in United States dollars for the full number of shares of common stock for which you are subscribing by either:

 

   

cashier’s or certified check drawn upon a United States bank payable to the rights agent at the address set forth below in “Delivery of Subscription Materials and Payment;” or

 

   

wire transfer of immediately available funds, to the subscription account maintained by the rights agent at JPMorgan Chase Bank, 55 Water Street, New York, New York 10005, SWIFT Code CHASUS33, ABA #021000021, Account # 530-354616, Beneficiary: American Stock Transfer, Reference: AST as Subscription Agent for Roadrunner Transportation Systems, Inc. (please include rights holder’s name in reference).

For wire transfer of funds, please ensure that the wire instructions include the identity of the subscriber paying the subscription price and the rights certificate number. Send your rights certificate via overnight courier to be delivered on the next business day following the day of the wire transfer to the rights agent, which payment must be received by the expiration date. You are responsible for any wire transfer fees.

The rights agent will not accept non-certified checks drawn on personal or business accounts. The rights agent will accept payment only by certified check, cashier’s check, or wire transfer of immediately available funds.

Receipt of Payment

Your payment will be considered received by the rights agent only upon:

 

   

Receipt by the rights agent of any cashier’s or certified check drawn upon a United States bank payable to the rights agent; or

 

   

Receipt of collected funds in the subscription account designated above.

Delivery of Subscription Materials and Payment

You should deliver your rights certificate, notice of guaranteed delivery (if applicable), and subscription payments (other than wire instructions) to the rights agent by one of the methods described below:

 

By Mail:    By Overnight Courier or By Hand:

American Stock Transfer & Trust Company, LLC

Operations Center

Attn: Reorganization Department

P.O. Box 2042

New York, New York 10272-2042

  

American Stock Transfer & Trust Company, LLC

Operations Center

Attn: Reorganization Department

6201 15th Avenue

Brooklyn, New York 11219

Your delivery to an address or by any method other than as set forth above will not constitute valid delivery.

Your payment of the subscription price must be made in accordance with the requirements set forth above in “Method of Payment.”

Guaranteed Delivery Procedures

If you wish to exercise rights, but you do not have sufficient time to deliver the rights certificate evidencing your rights to the rights agent before the expiration of the subscription period, you may exercise your rights by the following guaranteed delivery procedures:

 

   

deliver to the rights agent before the expiration of the subscription period the payment for each share you elected to purchase pursuant to the exercise of rights in the manner set forth above under “—Method of Subscription—Exercise of Rights;”

 

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deliver to the rights agent before the expiration of the subscription period the form entitled “Notice of Guaranteed Delivery;” and

 

   

deliver the properly completed rights certificate evidencing your rights being exercised and the form entitled “Nominee Holder Certification,” if applicable, with any required signatures guaranteed, to the rights agent within two (2) business days following the date you submit your Notice of Guaranteed Delivery.

Your Notice of Guaranteed Delivery must be delivered in substantially the same form provided with the “Form of Instructions for Use of Roadrunner Transportation Systems, Inc. Rights Certificate,” which will be distributed to you with your rights certificate. Your Notice of Guaranteed Delivery must include a signature guarantee from an eligible institution, acceptable to the rights agent. A form of that guarantee is included with the Notice of Guaranteed Delivery.

In your Notice of Guaranteed Delivery, you must provide:

 

   

your name;

 

   

the number of rights represented by your rights certificate and the number of shares of our common stock for which you are subscribing under your basic subscription right and the number of shares of our common stock for which you are subscribing under your over-subscription right; and

 

   

your guarantee that you will deliver to the subscription agent a rights certificate evidencing the rights you are exercising within two (2) business days following the date the subscription agent receives your Notice of Guaranteed Delivery.

You may deliver your Notice of Guaranteed Delivery to the subscription agent in the same manner as your rights certificate at the address set forth above under “Delivery of Subscription Materials and Payment.”

The subscription agent will send you additional copies of the form of Notice of Guaranteed Delivery if you need them. You should call the rights agent at (800) 937-5449 to request additional copies of the form of Notice of Guaranteed Delivery.

Calculation of Rights Exercised

If you do not indicate the number of rights being exercised, or if you do not forward full payment of the total subscription price payment for the number of rights that you indicate are being exercised, then you will be deemed to have exercised your basic subscription right with respect to the maximum number of basic subscription rights that may be exercised with the aggregate subscription price payment you delivered to the rights agent. Unless you have specified the number of shares you wish to purchase upon exercise of your over-subscription right, any payment in excess of that required to exercise your basic subscription right will be refunded. If we do not apply your full subscription price payment to your purchase of shares of our common stock, we or the rights agent will return the excess amount to you by mail, without interest or deduction, after all pro rata allocations and adjustments have been completed within ten business days after the expiration of this rights offering.

Your Funds Will Be Held by the Rights Agent Until Shares of Our Common Stock Are Issued

The rights agent will hold your payment of the subscription price in a segregated account with other payments received from other rights holders until we issue your shares upon completion of this rights offering, and after all pro rata allocations and adjustments have been completed and upon payment of the subscription price for such shares.

 

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Medallion Guarantee May Be Required

Your signature on each rights certificate must be guaranteed by an eligible institution, such as a member firm of a registered national securities exchange or a member of FINRA or a commercial bank or trust company having an office or correspondent in the United States, subject to standards and procedures adopted by the rights agent, unless:

 

   

Your rights certificate provides that shares are to be delivered to you as record holder of those rights; or

 

   

You are an eligible institution.

You can obtain a signature guarantee from a financial institution—such as a commercial bank, savings bank, credit union or broker dealer—that is a participant in any of the following:

 

   

the Securities Transfer Agents Medallion Program (STAMP), whose participants include more than 7,000 U.S. and Canadian financial institutions;

 

   

the New York Stock Exchange Medallion Signature Program (MSP), whose participants include NYSE member firms; or

 

   

the Stock Exchanges Medallion Program (SEMP), whose participants include the regional stock exchange member firms and clearing and trust companies.

If a financial institution is not a member of a recognized Medallion signature guarantee program, it would not be able to provide signature guarantees. Also, if you are not a customer of a participating financial institution, it is likely the financial institution will not guarantee your signature. Therefore, the best source of a Medallion signature guarantee would be a bank, savings and loan association, brokerage firm or credit union with which you do business. The participating financial institution will use a Medallion imprint or stamp to guarantee your signature, indicating that the financial institution is a member of a Medallion signature guarantee program and is an acceptable signature guarantor.

Notice to Brokers and Nominees

If you are a broker, a trustee, or a depositary for securities who holds shares of our common stock for the account of others on January 30, 2019, the record date, you should notify the respective beneficial owners of such shares of this rights offering as soon as possible to find out their intentions with respect to exercising their rights. You should obtain instructions from the beneficial owner with respect to their rights, as set forth in the instructions we have provided to you for your distribution to beneficial owners. If the beneficial owner so instructs, you should complete the appropriate rights certificates and submit them to the rights agent with the proper payment. If you hold shares of our common stock for the account(s) of more than one beneficial owner, you may exercise the number of rights to which all such beneficial owners in the aggregate otherwise would have been entitled had they been direct record holders of our common stock on the record date, provided that you, as a nominee record holder, make a proper showing to the rights agent by submitting the form entitled “Nominee Holder Certification” that was provided to you with your rights offering materials. If you did not receive this form, you should contact the rights agent to request a copy.

Beneficial Owners

If you are a beneficial owner of shares of our common stock or will receive your rights through a broker, bank, or other nominee, we will ask your broker, bank, or other nominee to notify you of this rights offering. If you wish to exercise your rights, you will need to have your broker, bank, or other nominee act for you. If you hold certificates of our common stock directly and would prefer to have your broker, bank, or other nominee act for you, you should contact your nominee and request it to effect the transactions for you. To indicate your decision with respect to your rights, you should complete and return to your broker, bank, or other nominee the form entitled “Beneficial Holder Election Form.” You should receive this form from your broker, bank, or other

 

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nominee with the other rights offering materials. If you wish to obtain a separate rights certificate, you should contact the nominee as soon as possible and request that a separate rights certificate be issued to you. You should contact your broker, bank, or other nominee if you do not receive this form, but you believe you are entitled to participate in this rights offering. We are not responsible if you do not receive the form from your broker, bank, or nominee or if you receive it without sufficient time to respond.

Instructions for Completing Your Rights Certificate

You should read and follow the instructions accompanying the rights certificate carefully.

You are responsible for the method of delivery of your rights(s) certificates with your subscription price payment to the rights agent. If you send your rights(s) certificates and subscription price payment by mail, we recommend that you send them by registered mail, properly insured, with return receipt requested. You should allow a sufficient number of days to ensure delivery to the rights agent prior to the time this rights offering expires. You must pay, or arrange for payment, by means of a certified or cashier’s check or a wire transfer of immediately available funds. Non-certified checks drawn on personal or business accounts will not be accepted.

Determinations Regarding the Exercise of Your Subscription Rights

We will decide, in our sole discretion, all questions concerning the timeliness, validity, form, and eligibility of the exercise of your rights. Any such determinations by us will be final and binding. We, in our sole discretion, may waive, in any particular instance, any defect or irregularity or permit, in any particular instance, a defect or irregularity to be corrected within such time as we may determine. We will not be required to make uniform determinations in all cases. We may reject the exercise of any of your rights because of any defect or irregularity. We will not accept any exercise of rights until all irregularities have been waived by us or cured by you within such time as we decide, in our sole discretion.

Neither we, the rights agent, nor the information agent will be under any duty to notify you of any defect or irregularity in connection with your submission of rights certificates, and we will not be liable for failure to notify you of any defect or irregularity. We reserve the right to reject your exercise of rights if we determine that your exercise is not in accordance with the terms of this rights offering or in proper form. We will also not accept the exercise of your rights if our issuance of shares of our common stock to you could be deemed unlawful under applicable law.

Material U.S. Federal Income Tax Consequences to U.S. Persons

While the matter is not free from doubt, the Company intends to take the position that a U.S. holder (as defined in the section of this prospectus entitled “Material U.S. Federal Income Tax Considerations”) will not recognize income, gain, or loss for U.S. federal income tax purposes in connection with the receipt or exercise of rights in this rights offering. If a U.S. holder (as defined in the section of this prospectus entitled “Material U.S. Federal Income Tax Considerations”) sells or otherwise disposes of the rights received in this rights offering prior to the expiration date, the U.S. holder generally will recognize capital gain or loss equal to the difference between the amount of cash and the fair market value of any property received and the holder’s tax basis, if any, in the rights sold or otherwise disposed of. You should consult your tax advisor as to the particular consequences to you of this rights offering. For a detailed discussion, see the section of this prospectus entitled “Material U.S. Federal Income Tax Considerations.”

Questions about Exercising Rights

If you have any questions or require assistance regarding the method of exercising your rights or requests for additional copies of this document or the Instructions for Use of Roadrunner Transportation Systems, Inc. Rights Certificates, you should contact the information agent at the address and telephone number set forth under “Questions and Answers Relating to the Rights Offering” included elsewhere in this prospectus.

 

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Distribution Arrangement

Barclays Capital Inc. will act as the dealer manager for this rights offering. The dealer manager will provide financial structuring, marketing and soliciting services in connection with this rights offering and will solicit the exercise of basic subscription rights and participation in the over-subscription rights. The dealer manager is not underwriting this rights offering and has no obligation whatsoever to purchase, or procure purchases of, the rights or the common stock underlying the rights offered hereby. The dealer manager makes no recommendation as to whether you should exercise, transfer or let lapse your rights. We have agreed to pay the dealer manager certain fees for acting as dealer manager and to reimburse the dealer manager for certain fees and expenses incurred in connection with this rights offering. See “Plan of Distribution.”

Rights Agent and Information Agent

We have appointed AST to act as rights agent and Innisfree to act as information agent for this rights offering. You should direct any questions or requests for assistance concerning the method of subscribing for the shares of common stock or for additional copies of this prospectus to the information agent.

Expenses

We will pay all fees charged by the rights agent and the information agent. We will also pay the Elliott Transaction Expenses and the Company Transaction Expenses, as described in “—The Backstop Purchaser—Backstop Fee.” You are responsible for paying any other commissions, fees, taxes, or other expenses incurred in connection with the exercise of the rights. Neither we nor the rights agent will pay such expenses.

No Revocation

Once you have exercised your rights, you may not revoke your exercise. Rights not exercised at or before the expiration date of this rights offering will expire and will have no value.

Procedures for DTC Participants

We expect that the exercise of your basic subscription right and your over-subscription right may be made through the facilities of DTC. If your rights are held of record through DTC or you are a stockholder holding your shares in “street name” with DTC participants, you may exercise your basic subscription right and your over-subscription right by instructing DTC to transfer your rights from your account to the account of the rights agent, together with certification as to the aggregate number of rights you are exercising and the number of shares of our common stock you are subscribing for under your basic subscription right and your over-subscription right, if any, and your subscription price payment for each share of our common stock that you subscribed for pursuant to your basic subscription right and your over-subscription right.

Subscription Price

The subscription price is $0.50 per share. For more information with respect to how the subscription price was determined, see “—Background and Reasons for the Rights Offering” and “Questions and Answers Relating to the Rights Offering—How was the subscription price of $0.50 per share determined?” included elsewhere in this prospectus.

Foreign Stockholders

We will not mail rights certificates to stockholders on the record date, or to subsequent transferees, whose addresses are outside the United States. Instead, we will have the rights agent hold the rights certificates for those holders’ accounts. To exercise their rights, foreign holders must notify the rights agent before 11:00 a.m. Eastern

 

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Time on February 13, 2019, which is three business days prior to the initial expiration date, and must establish to the satisfaction of the rights agent that they are permitted to exercise their rights under applicable law. If these procedures are not followed prior to the expiration date, your rights will expire.

Sale of Rights

The rights are transferable until the close of trading on the NYSE on the business day immediately preceding the expiration date (as it may be extended).

We expect the rights will be admitted for trading on the NYSE under the symbol “RRTS RT.” While the Company will use its reasonable best efforts to ensure that an adequate trading market for the rights will exist, no assurance can be given that a market for the rights will develop. Trading in the rights on the NYSE is expected to be conducted beginning on February 1, 2019, and continue until the close of trading on the NYSE on February 15, 2019 (or if the offer is extended, on the business day immediately prior to the extended expiration date). Rights holders are encouraged to contact their broker-dealer, bank, trustee, or other nominees for more information about trading of the rights. The rights will not be admitted for trading on the NYSE at the commencement of this rights offering if the stock price is not at or greater than the $0.50 subscription price; however, once the stock price is at or above $0.50 during the course of this rights offering, the NYSE will list the rights for trading beginning on the next trading day. Our common stock must consistently trade at or above $0.50 in order for the rights to remain listed on the NYSE during the course of this rights offering, and subsequent removal of the rights from listing is subject to the NYSE’s discretion.

Other Transfers

The rights evidenced by a rights certificate may be transferred (1) in whole, by endorsing the rights certificate for transfer in accordance with the accompanying instructions or (2) in part, by delivering to the rights agent a rights certificate properly endorsed for transfer, with instructions to register such portion of the rights evidenced thereby in the name of the transferee and to issue a new rights certificate to the transferee evidencing such transferred rights. In such event, a new rights certificate evidencing the balance of the rights, if any, will be issued to the stockholder or, if the stockholder so instructs, to an additional transferee. The signature on the rights certificate must correspond to the name as written upon the face of the rights certificate, without alteration, enlargement, or any change. A signature guarantee must be provided by an Eligible Guarantor Institution as that term is defined in Rule 17Ad-15 under the Exchange Act, subject to the standards and procedures adopted by us.

Stockholders wishing to transfer all or a portion of their rights should allow at least five business days prior to the expiration date of the offer for (i) the transfer instructions to be received and processed by the rights agent; (ii) a new rights certificate to be issued and transmitted to the transferee or transferees with respect to transferred rights and to the transferor with respect to retained rights, if any; and (iii) the rights evidenced by such new rights certificate to be exercised or sold by the recipients thereof. Neither we nor the rights agent shall have any liability to a transferee or transferor of rights if rights certificates are not received in time for exercise prior to the expiration date of the offer or sale prior to the day immediately preceding the expiration date of the offer (or, if the offer is extended, the extended expiration date).

Except for the fees charged by the rights agent, which will be paid by us, all commissions, fees, and other expenses (including brokerage commissions and transfer taxes) incurred or charged in connection with the purchase, sale, or exercise of rights will be for the account of the transferor of the rights. None of those commissions, fees, or expenses will be paid by us or the rights agent.

We anticipate that the rights will be eligible for transfer through, and that the exercise of the basic subscription right and the over-subscription right may be effected through, the facilities of DTC. Holders of DTC exercised rights may exercise the over-subscription right in respect of such DTC exercised rights by properly completing and duly executing and delivering to the rights agent, at or before 5:00 p.m., Eastern Time, on the

 

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expiration date of this rights offering (as it may be extended), a nominee holder over-rights certificate or a substantially similar form satisfactory to the rights agent, together with payment of the estimated subscription price for the number of shares for which the over-subscription right is to be exercised.

Escrow Arrangements; Return of Funds

The rights agent will hold funds received in payment for shares of our common stock in a segregated account pending completion of this rights offering. The rights agent will hold this money in escrow until this rights offering is completed or is withdrawn and canceled. If this rights offering is withdrawn or canceled for any reason, all subscription payments received by the rights agent will be promptly returned, without interest.

No Board Recommendation

An investment in shares of our common stock must be made according to each investor’s evaluation of his own best interests and after considering all of the information herein, including the risks set forth in the section of this prospectus entitled “Risk Factors.” Neither we, the special committee of our board of directors, nor our board of directors makes any recommendation to rights holders regarding whether they should exercise or sell their rights. You should not view the commitments of Elliott as the backstop purchaser as a recommendation or other indication, by it or by any member of our board of directors, that the exercise or sale of your rights is in your best interests. The two directors designated by Elliott have not participated in any discussions regarding the terms of this rights offering or the Standby Purchase Agreement and the transactions contemplated thereby, have abstained from all votes related to this rights offering and the Standby Purchase Agreement and the transactions contemplated thereby, and make no recommendation or other indication that the sale of your rights is in your best interest.

Interests of Our Officers, Directors, and Principal Stockholders in the Rights Offering

As of January 11, 2019, Elliott beneficially owned approximately 13.5% of our common stock and all of our outstanding preferred stock. Two of our ten directors have been designated by Elliott, and Elliott will be entitled to appoint additional directors commensurate to its voting rights following consummation of this rights offering. We have entered into the Standby Purchase Agreement with Elliott, under which Elliott has agreed to exercise its basic subscription right in full and purchase from us, at the subscription price, unsubscribed shares of common stock such that gross proceeds of this rights offering will be $450 million. The two directors designated by Elliott have not participated in any discussions regarding the terms of this rights offering or the Standby Purchase Agreement and the transactions contemplated thereby, have abstained from all votes related to this rights offering and the Standby Purchase Agreement and the transactions contemplated thereby, and make no recommendation or other indication that the sale of your rights is in your best interest. We will use the proceeds received from the exercise of the rights and the backstop commitment to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if this rights offering is consummated on or prior to March 1, 2019), to redeem all of the outstanding shares of our preferred stock, at liquidation value, together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all of the Elliott Transaction Expenses, and to pay all of the Company Transaction Expenses. We expect to pay approximately $403 million in the aggregate to pay the dividends and redeem the preferred stock. We will use any remaining proceeds for general corporate purposes, which amount will vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott. Assuming 0%, 25%, 50%, 75%, and 100% of our stockholders other than Elliott exercise rights and purchase shares of our common stock in this rights offering, we estimate net proceeds remaining for general corporate purposes will be approximately $37.2 million, $34.9 million, $32.1 million, $28.0 million, and $22.5 million, respectively, if this rights offering closes by March 1, 2019. However, in order to comply with the covenant in our asset-based lending facility requiring us to retain $30 million in net cash proceeds from this rights offering and to use such proceeds for general corporate

 

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purposes, if a sufficient percentage of our stockholders other than Elliott exercise rights such that the proceeds remaining for general corporate purposes would fall below $30 million, Elliott has agreed to waive, in connection with the redemption of its preferred stock, the payment of accrued and unpaid dividends in an amount sufficient to leave us with $30 million in net cash proceeds from this rights offering. In the event our stockholders do not exercise their rights in full, Elliott will increase its percentage ownership of our issued and outstanding common stock.

In addition, a change in control under certain of our management compensation plans and agreements would require the accelerated vesting of all outstanding and unvested equity awards. In addition, if a change in control were to occur following the completion of this rights offering, certain members of management would be entitled to cash-based severance payments, health and welfare benefits, and bonus payments if such members of senior management are terminated without cause or for good reason (each as defined in their respective employment agreements) within twenty-four months following the change in control. While our senior management and directors have provided waivers to these provisions in the event this rights offering constitutes a change in control, we have not obtained waivers from other employees and plan participants.

Shares of Common Stock Outstanding after the Rights Offering

We will issue 900,000,000 shares of common stock in this rights offering and, based on the 38,897,137 shares of our common stock outstanding as of January 30, 2019, 938,897,137 shares of our common stock will be issued and outstanding following this rights offering, excluding any shares that may be issued pursuant to the exercise of 1,820,361 outstanding vested and unvested stock options and delivery of stock pursuant to restricted stock units as of January 30, 2019.

Effect of the Rights Offering on Our Incentive Plans

The Compensation Committee of our board of directors will determine, at the appropriate time, whether the issuance and sale of our common stock in this rights offering will result in an equitable adjustment to outstanding awards under our incentive plans, based upon, among other things, the market price of shares of our common stock for periods prior to and after the record date for this rights offering. In addition, if this transaction results in a change in control, it may trigger certain provisions in our management incentive plans that would accelerate the vesting of outstanding equity awards. While we have obtained waivers from our senior management and directors with respect to these provisions, we have not obtained waivers from other employees and plan participants.

Dilutive Effects of the Rights Offering

If a stockholder does not exercise any rights in this rights offering, the number of shares of our common stock that such stockholder will own will not change. However, because 900,000,000 shares of our common stock will be issued in this rights offering, if a stockholder does not exercise its rights under the basic subscription right in full, its percentage ownership will be materially diluted after this rights offering. Assuming 0%, 50%, and 100% of our stockholders (other than Elliott) exercise their basic subscription rights (and do not exercise their over-subscription rights), we expect Elliott would own approximately 96.4%, 48.5%, and 13.5%, respectively, of our common stock following the consummation of this rights offering pursuant to the backstop commitment, as described in greater detail below.

Effects on the Backstop Purchaser’s Stock and Ownership

Elliott’s beneficial ownership of our common stock following this rights offering will be dependent upon the level of participation in this rights offering by the existing holders of our common stock other than Elliott. Set forth below, for illustrative purposes only, are four scenarios that indicate the effect that this rights offering and related share issuance could have on Elliott’s relative interest following this rights offering. Each scenario assumes that Elliott does not buy any unexercised rights in the open market. All numbers are approximated and included for illustrative purposes only.

 

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Scenario A. All rights are exercised on a pro rata basis by all of the stockholders to whom the rights were issued. Because all of the basic subscription rights are exercised, no shares are issuable pursuant to the over-subscription right and Elliott purchases only the shares of common stock that it receives by exercising its basic subscription right in full.

Scenario B. None of the holders (other than Elliott) exercise their rights, and Elliott through its backstop commitment under the Standby Purchase Agreement will acquire all of the shares offered in the rights offering.

Scenario C. Holders of half of the shares (not including shares held by Elliott) of our common stock exercise their basic subscription right (with such holders not exercising their over-subscription rights), and Elliott through its backstop commitment under the Standby Purchase Agreement will acquire the remaining shares offered in the rights offering.

Scenario D. Holders of half of the shares (not including shares held by Elliott) of our common stock exercise their basic subscription right and fully exercise their over-subscription rights, and Elliott through its backstop commitment under the Standby Purchase Agreement will acquire the remaining shares pursuant to the backstop commitment under the Standby Purchase Agreement.

 

Scenario

   Total Shares
Offered
     Shares Purchased by or
Issued to Elliott
     Gross Proceeds      Elliott
Voting%(1)
 

A

     900,000,000        121,308,915      $ 450,000,000        13.5

B

     900,000,000        900,000,000      $ 450,000,000        96.4

C

     900,000,000        450,000,000      $ 450,000,000        48.5

D

     900,000,000        121,308,915      $ 450,000,000        13.5

 

(1)

As of January 11, 2019, Elliott beneficially owned 5,242,855 shares of our common stock and 13.5% of the voting power of all of the shares of our capital stock.

 

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PRICE RANGE OF COMMON STOCK

Our common stock has been trading on the NYSE under the symbol “RRTS” since May 13, 2010. Prior to that time, there was no public market for our common stock. The following table sets forth, for the periods indicated, the high and low sales prices of our common stock as quoted on the NYSE.

 

     High      Low  

Fiscal Year Ending December 31, 2018

     

Fourth Quarter

   $ 0.95      $ 0.41  

Third Quarter

   $ 3.48      $ 0.75  

Second Quarter

   $ 3.00      $ 1.63  

First Quarter

   $ 8.31      $ 2.54  

Fiscal Year Ended December 31, 2017

     

Fourth Quarter

   $ 9.75      $ 7.56  

Third Quarter

   $ 9.56      $ 6.50  

Second Quarter

   $ 7.98      $ 6.06  

First Quarter

   $ 11.88      $ 6.05  

Fiscal Year Ended December 31, 2016

     

Fourth Quarter

   $ 11.83      $ 6.99  

Third Quarter

   $ 9.15      $ 6.86  

Second Quarter

   $ 12.82      $ 6.67  

First Quarter

   $ 13.67      $ 6.39  

The closing price of our common stock on the NYSE on January 9, 2019 was $0.53. As of January 11, 2019, there were approximately 132 holders of record of our common stock.

 

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DIVIDEND POLICY

We have never declared or paid cash dividends on our common stock. We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations, and capital requirements, as well as other factors deemed relevant by our board of directors. Our current ABL Facility prohibits us from paying dividends on our common stock unless certain payment conditions are satisfied. The 2017 Investment Agreement we have entered into with Elliott prohibits us from paying dividends on our common stock without the consent of Elliott.

In fiscal 2017, we paid Elliott a total of $15.2 million in cash dividends on its preferred stock. In fiscal 2018, we have not paid any cash dividends on our preferred stock. Pursuant to the documentation governing the shares of our preferred stock, at each preferred stock dividend payment date, we have the option to pay the accrued dividends in cash or to defer them. Deferred dividends accrue dividend expense consistent with the underlying shares of preferred stock. We intend to use the net proceeds received from the exercise of the rights and the backstop commitment to, among other things, pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if the rights offering is consummated on or prior to March 1, 2019).

 

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DESCRIPTION OF CAPITAL STOCK

The following is a summary of the material terms of our capital stock. This discussion does not purport to be complete and you are strongly encouraged to read our Amended and Restated Certificate of Incorporation, as amended, Second Amended and Restated Bylaws, and the applicable provisions of the Delaware General Corporation Law.

Authorized and Outstanding Capital Stock

Our Amended and Restated Certificate of Incorporation, as amended, provides that we are authorized to issue a total of 1,115,005,000 shares of capital stock, consisting of 1,100,000,000 shares of common stock, $0.01 par value per share, and 15,005,000 shares of preferred stock, $0.01 par value per share, of which 5,000 shares are designated as Series A Redeemable Preferred Stock (“Series A Preferred Stock”), 155,000 shares are designated as Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”), 55,000 shares are designated as Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”), 100 shares are designated as Series D Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”), 90,000 shares are designated as Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”), 54,750 shares are designated as Series E-1 Cumulative Redeemable Preferred Stock (“Series E-1 Preferred Stock”), and 240,500 shares are designated as Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”).

As of January 30, 2019, we had outstanding 38,897,137 shares of our common stock held by 132 holders of record (as of January 11, 2019) and outstanding options (including vested and unvested options) to purchase 1,107,449 shares of our common stock. We also had outstanding 712,912 restricted stock units, each of which represents the right to receive one share of our common stock on the applicable settlement date. As of January 30, 2019, there were outstanding no shares of Series A Preferred Stock, 155,000 shares of Series B Preferred Stock, 55,000 shares of Series C Preferred Stock, 100 shares of Series D Preferred Stock, 37,500 shares of Series E Preferred Stock, 35,728 shares of Series E-1 Preferred Stock, and no shares of Series F Preferred Stock.

General

Shares of our common stock have the following rights, preferences, and rights:

 

   

Voting rights. Each outstanding share of common stock entitles its holder to one vote on all matters submitted to a vote of our stockholders, including the election of directors. There are no cumulative voting rights. Generally, all matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast by all shares of common stock present or represented by proxy.

 

   

Dividends. Holders of common stock are entitled to receive dividends out of funds legally available for the payment of dividends, at such times and in such amounts as our board of directors may determine in its sole discretion.

 

   

Liquidation. In the event of a liquidation, dissolution, or winding up of our affairs, whether voluntary or involuntary, after payment or provisions for payment of our debts and liabilities and all preferential amounts to which the holders of our preferred stock are entitled, the holders of our common stock shall be entitled to share ratably the remaining assets of the Company available for distribution.

 

   

Rights and preferences. Our common stock has no preemptive, redemption, conversion, or subscription rights. The voting, dividend, and liquidation rights of the holders of our common stock are subject to and qualified by the rights, power, rights, preferences, and priorities of the holders of our preferred stock.

 

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Registration Rights

We entered into a registration rights agreement on May 2, 2017 with Elliott and investment funds affiliated with a significant holder of our common stock, collectively, the registration rights holders. The agreement provides that, upon the request of a registration rights holder, we will register under the Securities Act of 1933, as amended, or the Securities Act, the shares of our common stock held by such registration rights holder for sale in accordance with its intended method of disposition, and will take other actions as are necessary to permit the sale of the shares in various jurisdictions. In addition, the agreement provides piggyback registration rights to the registration rights holders in the event it proposes to register any of its equity securities under the Securities Act. All fees, costs, and expenses of underwritten registrations will be borne by us, other than underwriting discounts, selling commissions, and legal fees which will be borne by the registration rights holders in connection with the sale of their shares. Our obligation to register the shares and take other actions is subject to certain restrictions on, among other things, the frequency of requested registrations, the number of shares to be registered, and the duration of these rights. As a condition to the closing of the transactions contemplated by the Standby Purchase Agreement, including the backstop commitment, we will enter into an Amended and Restated Registration Rights Agreement to provide Elliott and HCI with additional registration rights, including, unlimited registration rights on Form S-1.

Anti-Takeover Effects of Certain Provisions of Our Certificate of Incorporation and Bylaws

Our Amended and Restated Certificate of Incorporation, as amended, which we refer to as the Certificate of Incorporation, and Second Amended and Restated Bylaws, which we refer to as the Bylaws, contain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and that may have the effect of delaying, deferring, or preventing a future takeover or change in control of our Company unless the takeover or change in control is approved by our board of directors. These provisions include the following:

Staggered Board of Directors. Our Certificate of Incorporation and Bylaws provides for a staggered board of directors, divided into three classes, with our stockholders electing one class each year. Between stockholders’ meetings, a majority of the remaining board of directors will be able to appoint new directors to fill vacancies or newly created directorships so that no more than the number of directors in any given class could be replaced each year and it would take three successive annual meetings to replace all directors.

Advance notice procedures for stockholder proposals. Our Certificate of Incorporation and Bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board. Stockholders at our annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given to our secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting.

The foregoing provisions of our Certificate of Incorporation and Bylaws could discourage potential acquisition proposals and could delay or prevent a change in control. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by our board of directors and to discourage certain types of transactions that may involve an actual or threatened change in control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares, and, as a consequence, they also may inhibit fluctuations in the market price of the common stock that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management or delaying or preventing a transaction that might benefit you or other minority stockholders.

 

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Limitations on Liability and Indemnification of Officers and Directors

Our Certificate of Incorporation and Bylaws limit the liability of directors to the fullest extent permitted by the Delaware General Corporation Law. In addition, our Certificate of Incorporation and Bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law. We have entered into indemnification agreements with our current directors and executive officers and expect to enter into similar indemnification agreements with any new directors or executive officers.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15th Avenue, Brooklyn, NY 11219 and its telephone number is (718) 921-8200.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes certain material U.S. federal income tax consequences of the receipt of rights in this rights offering and of the exercise, sale or other disposition and expiration of those rights to U.S. holders (as defined below) of our common stock. This discussion assumes that such U.S. holders hold our common stock and the rights received in this rights offering as capital assets (generally, assets held for investment) for U.S. federal income tax purposes. This discussion is based upon existing U.S. federal income tax law, which is subject to differing interpretations or change (possibly with retroactive effect). This discussion applies only to U.S. holders and does not address all aspects of U.S. federal income taxation that may be relevant to particular holders in light of their individual circumstances or to holders who may be subject to special tax rules, including, without limitation, holders of preferred stock, holders of both preferred stock and common stock, holders subject to Section 1061 of the Internal Revenue Code of 1986, as amended, the Code, partnerships (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes), holders who are dealers in securities or foreign currency, foreign persons, insurance companies, tax-exempt organizations, banks, financial institutions, broker-dealers, holders who hold our common stock as part of a hedge, straddle, conversion, constructive sale or other integrated security transaction, holders who acquired our common stock pursuant to the exercise of compensatory stock options or otherwise as compensation, holders whose functional currency is not the U.S. dollar, or certain former citizens or residents of the U.S., all of whom may be subject to tax rules that differ significantly from those summarized below. This discussion also does not apply to Elliott Management Corporation, or any of its affiliates.

This summary is of a general nature only and is not intended to constitute a complete analysis of all U.S. federal income tax considerations with respect to the receipt, lapse and exercise of the rights. We have not sought, and will not seek, a ruling from the Internal Revenue Service, the IRS, regarding the U.S. federal income tax consequences of this rights offering or the related share issuance. The following discussion does not address the alternative minimum tax or the Medicare tax on net investment income or the tax consequences of this rights offering or the related share issuance under foreign, state, or local tax laws, or other U.S. federal tax laws, including the U.S. federal estate or gift tax laws. Accordingly, each U.S. holder of common stock is urged to consult its tax advisor with respect to the particular tax consequences of this rights offering or the related share issuance to such holder.

For purposes of this description, a “U.S. holder” is a holder of our common stock that is for U.S. federal income tax purposes:

 

   

a citizen or resident of the U.S.;

 

   

a corporation or other entity taxable as a corporation that is organized in or under the laws of the U.S. or any political subdivision thereof;

 

   

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust (or the trust was in existence on August 20, 1996, and validly elected to continue to be treated as a U.S. trust).

Receipt of the Rights

A distribution of rights to acquire stock generally is treated for U.S. federal income tax purposes as a non-taxable stock distribution under Section 305(a) of the Code. However, the distribution of the rights is taxable under Section 305(b) of the Code if it is a distribution or part of a series of distributions, including deemed distributions, that have the effect of the receipt of cash or other property by some of our stockholders and an increase in the proportionate interest of other of our stockholders in our assets or earnings and profits. Redemptions of stock may be treated as deemed distributions for this purpose. Distributions having this effect are referred to as disproportionate distributions. The rules relating to disproportionate distributions are complex

 

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and the determination of whether a particular distribution is a disproportionate distribution may depend on detailed factual and legal determinations. While we intend to redeem all outstanding series of our preferred stock held by Elliott Associates, L.P., Elliott International, L.P., and/or certain of their affiliates and have made other redemptions of preferred stock within the relevant time period set forth in the applicable Treasury regulations, we intend to take the position that such redemptions are isolated redemptions and/or payments made in exchange for the redeemed stock pursuant to Section 302(a) of the Code for these purposes. In addition, we intend to take the position that certain cash distributions we made on certain series of our preferred stock, when viewed as part of a series of distributions that include the distribution of stock rights in this rights offering, do not constitute disproportionate distributions under Section 305(b) of the Code because such distributions do not result in other of our stockholders having an increase in their proportionate interest in our assets or earnings and profits. Thus, while the matter is not free from doubt, we intend to take the position that the distribution of rights will not result in a disproportionate distribution to a U.S. holder. This position is not binding on the IRS, or the courts, however. If this position is determined by the IRS or a court to be incorrect, the receipt of the rights would first be treated as a taxable dividend in an amount equal to the lesser of the fair market value of the rights and the U.S. holder’s allocable share of our current or accumulated earnings and profits, or E&P. Any excess of the fair market value of the rights over the U.S. holder’s share of E&P would then be treated as a non-taxable return of capital to the extent of the U.S. holder’s adjusted tax basis in its common stock, and any further excess would be treated as capital gain.

The remainder of this summary assumes that U.S. holders of our common stock will not be subject to U.S. federal income tax on the receipt of a right.

Tax Basis and Holding Period of the Rights

If the aggregate fair market value of the rights at the time they are distributed is less than 15% of the aggregate fair market value of our common stock at such time, the basis of the rights issued to a U.S. holder will be zero unless such a U.S. holder elects to allocate a portion of its basis of previously owned common stock to the rights issued to such U.S. holder in this rights offering. However, if the aggregate fair market value of the rights at the time they are distributed is 15% or more of the aggregate fair market value of our common stock at such time, or if a U.S. holder elects to allocate a portion of its basis of previously owned common stock to the rights issued to such a U.S. holder in this rights offering, then the U.S. holder’s basis in previously owned common stock will be allocated between such common stock and the rights based upon the relative fair market value of such common stock and the rights as of the date of the distribution of the rights. Thus, if such an allocation is made and the rights are later exercised, the basis in the common stock originally owned by the U.S. holder will be reduced by an amount equal to the basis allocated to the rights. This election is irrevocable if made and would apply to all of the rights received pursuant to this rights offering. The election must be made in a statement attached to the U.S. holder’s U.S. federal income tax return for the taxable year in which the rights are distributed.

The holding period for the rights received in this rights offering will include the holding period for the common stock with respect to which the rights were received.

Sale or Other Disposition of the Rights

If a U.S. holder sells or otherwise disposes of the rights received in this rights offering prior to the expiration date, the U.S. holder will recognize capital gain or loss equal to the difference between the amount of cash and the fair market value of any property received and the holder’s tax basis, if any, in the rights sold or otherwise disposed of. Any capital gain or loss generally should be long-term capital gain or loss if the holding period for the rights, determined as described in “—Tax Basis and Holding Period of the Rights” above, exceeds one year at the time of disposition.

 

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Expiration of the Rights

If the rights expire without exercise while a U.S. holder continues to hold the shares of our common stock with respect to which the rights are received, such U.S. holder will recognize no gain or loss and your tax basis in the common stock with respect to which the rights were received will equal its tax basis before receipt of the rights. If the rights expire without exercise after a U.S. holder has disposed of the shares of our common stock with respect to which the rights are received, such U.S. holder should consult its tax advisor regarding its ability to recognize a loss (if any) on the expiration of the rights.

Exercise of the Rights; Tax Basis and Holding Period of the Shares

The exercise of the rights received in this rights offering will not result in any gain or loss to a U.S. holder. Generally, the tax basis of common stock acquired through exercise of the rights will be equal to the sum of:

 

   

the subscription price per share; and

 

   

the basis, if any, in the rights that a U.S. holder exercised, determined as described in “—Tax Basis and Holding Period of the Rights” above.

The holding period for a share of common stock acquired upon exercise of a right begins with and includes the date of exercise.

If a U.S. holder exercises the rights received in this rights offering after disposing of the shares of our common stock with respect to which the rights are received, such U.S. holder should consult its tax advisor, including with regard to any potential application of the “wash sale” rules under Section 1091 of the Code.

Information Reporting and Backup Withholding

Payments made to a U.S. holder of proceeds from the sale of rights may be subject to information reporting to the IRS and possible U.S. federal backup withholding. Backup withholding will not apply if a U.S. holder furnishes a correct taxpayer identification number (certified on the IRS Form W-9) or otherwise establishes that such U.S. holder is exempt from backup withholding. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. holder’s U.S. federal income tax liability. A U.S. holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and furnishing any required information.

 

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PLAN OF DISTRIBUTION

On February 1, 2019, we will distribute the rights, rights certificates, and copies of this prospectus to individuals who owned shares of common stock on January 30, 2019. If you wish to exercise your rights and purchase shares of common stock, you should complete the rights certificate and return it to the rights agent, AST, at the following address:

 

By Mail:    By Overnight Courier or By Hand:

American Stock Transfer & Trust Company, LLC

Operations Center

Attn: Reorganization Department

P.O. Box 2042

New York, New York 10272-2042

  

American Stock Transfer & Trust Company, LLC

Operations Center

Attn: Reorganization Department

6201 15th Avenue

Brooklyn, New York 11219

Your payment of the subscription price must be made in United States dollars for the full number of shares of common stock for which you are subscribing by either:

 

   

cashier’s or certified check drawn upon a United States bank payable to the rights agent at the address set forth above; or

 

   

wire transfer of immediately available funds, to the subscription account maintained by the rights agent at JPMorgan Chase Bank, 55 Water Street, New York, New York 10005, SWIFT Code CHASUS33, ABA #021000021, Account # 530-354616, Beneficiary: American Stock Transfer, Reference: AST as Subscription Agent for Roadrunner Transportation Systems, Inc. (please include rights holder’s name in reference).

For wire transfer of funds, please ensure that the wire instructions include the identity of the subscriber paying the subscription price and the rights certificate number. Send your rights certificate via overnight courier to be delivered on the next business day following the day of the wire transfer to the rights agent. You are responsible for any wire transfer fees.

If you have any questions, you should contact the information agent, Innisfree, at (888) 750-5834, or the rights agent, AST, at (800) 937-5449.

Barclays is the dealer manager of this rights offering, and under the terms and subject to the conditions contained in the dealer manager agreement we intend to enter into between us and the dealer manager. The dealer manager will provide financial structuring, marketing and soliciting services in connection with this rights offering and will solicit the exercise of basic subscription rights and participation in the over-subscription rights. The dealer manager is not underwriting this rights offering and has no obligation whatsoever to purchase, or procure purchases of, the rights or the common stock underlying the rights offered hereby. The dealer manager makes no recommendation as to whether you should exercise, transfer or let lapse your rights.

Barclays is earning a dealer manager fee in connection with this rights offering consisting of a fixed amount of $3.5 million and a variable amount that increases according to a formula with the number of rights exercised by investors other than Elliott. The variable amount could range from zero to approximately $14.7 million, depending on the number of non-Elliott rights exercised. Both the fixed and the variable amount are payable at and subject to the completion of this rights offering. The above estimate for the maximum variable amount is based on Elliott’s beneficial ownership of 5,242,855 shares of our common stock as of January 11, 2019 and our share count as of January 30, 2019. We have also agreed to reimburse Barclays for its fees and expenses accrued in its capacity as dealer manager, including the fees and disbursements of counsel to Barclays, up to an amount not to exceed $950,000. We have also granted to Barclays certain rights of first refusal to participate in certain future transactions for a period of 12 months after the termination of Barclays’ engagement. Pursuant to FINRA Rule 5110(c)(3)(A)(ix), such rights of first refusal will be deemed to have a compensation value of 1% of the

 

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offering proceeds. We estimate that our total expenses in connection with this rights offering will be approximately $14.5 million. We have agreed to indemnify the dealer manager and its controlling persons against certain liabilities in connection with this rights offering, including liabilities under the Securities Act, or to contribute to payments the dealer manager may be required to make in respect of those liabilities. Barclays’ participation in this rights offering is subject to customary conditions contained in the dealer manager agreement.

Other than the dealer manager, we have not employed any brokers, dealers, or underwriters in connection with the solicitation of exercise of rights, and, except as described herein, no other commissions, fees, or discounts will be paid in connection with this rights offering.

AST is acting as the rights agent and Innisfree is acting as the information agent for this rights offering. We will pay all customary fees and expenses of the rights agent and information agent related to this rights offering and have also agreed to indemnify the rights agent and information agent from liabilities that it may incur in connection with this rights offering.

Other Relationships

The dealer manager and certain of its affiliates have engaged in, and may in the future engage in, investment banking, commercial banking and financial advisory services in the ordinary course of business with us or our affiliates. The dealer manager is acting as a financial advisor to us in connection with our review of strategic alternatives, including this rights offering. In its capacity as financial advisor in connection with this rights offering, Barclays will receive a fee in the amount of $2.5 million. We have also agreed to reimburse Barclays for its fees and expenses accrued in its capacity as financial advisor, including the fees and disbursements of counsel to Barclays, up to an amount not to exceed $250,000.

In addition, in the ordinary course of its business activities, the dealer manager and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The dealer manager and its affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

 

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DESCRIPTION OF BUSINESS

Overview

We are a leading asset-right transportation and asset-light logistics service provider offering a full suite of solutions under the Roadrunner, Active On-Demand and Ascent Global Logistics brands. The Roadrunner brand offers less-than-truckload, temperature controlled and intermodal services. Active On-Demand offers premium mission critical air and ground transportation solutions. Ascent Global Logistics offers domestic freight management and brokerage, warehousing and retail consolidation, international freight forwarding, and customs brokerage. We serve a diverse customer base in terms of end-market focus and annual freight expenditures. We are headquartered in Downers Grove, Illinois with operations primarily in the United States.

Effective January 1, 2018, we changed our segment reporting when we integrated our truckload brokerage business into our Ascent domestic freight management business. Segment information for prior periods has been revised to align with the new segment structure. Our three segments are as follows:

Truckload & Express Services. Within our TES segment we serve customers throughout North America. We provide air and ground expedite services, scheduled truckload services, intermodal services, temperature controlled truckload services, and other truckload and logistics services. We specialize in the transport of automotive and industrial parts, frozen and refrigerated foods including dairy, poultry and meat, and consumer products including foods and beverages. Our Active On-Demand ground and air expedited services business features proprietary bid technology supported by our fleets of ground and air assets. Roadrunner Intermodal Services and Roadrunner Temperature Controlled businesses provide specialized truckload services to beneficial cargo owners and freight management partners and brokers. We believe this array of technology, services, and specialization best serves our customers and provides us with more consistent shipping volumes in any given year.

Less-than-Truckload. Our LTL segment involves the pickup, consolidation, linehaul, deconsolidation, and delivery of LTL shipments throughout the United States and parts of Canada. With a large network of LTL service centers and third-party pick-up and delivery agents, we are designed to provide customers with high reliability at an economical cost. We generally employ a point-to-point LTL model that we believe serves as a competitive advantage over the traditional hub and spoke LTL model in terms of lower incidence of damage and reduced fuel consumption.

Ascent Global Logistics. Within our Ascent segment, we offer a full portfolio of domestic and international transportation and logistics solutions, including access to cost-effective and time-sensitive modes of transportation within our broad network. Ascent provides domestic freight management solutions including asset-backed truckload brokerage, specialized/heavy haul, LTL shipment execution, LTL carrier rate negotiations, access to our TMS and freight audit/payment. Ascent also provides clients with international freight forwarding, customs brokerage, regulatory compliance services and project management. We also specialize in retail consolidation, with approximately 2.5 million square feet of our own food-grade warehousing space (both dry and temperature controlled) and full truckload consolidation to retailers to improve OTIF compliance. Ascent serves its customers through either its direct sales force or through a network of independent agents. Our customized Ascent offerings are designed to allow our customers to reduce operating costs, redirect resources to core competencies, improve supply chain efficiency, and enhance customer service.

Our Industry

Over-the-Road Freight

The over-the-road freight sector includes both private fleets and “for-hire” carriers. According to the ATA, the U.S. freight sector represented revenue of approximately $900.6 billion in 2017 and accounted for approximately 80% of domestic freight transportation spend. The ATA estimates that U.S. freight transportation

 

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will increase to over $1.6 trillion by 2028. Private fleets consist of tractors and trailers owned and operated by shippers that move their own goods and, according to the ATA, accounted for revenue of approximately $327.7 billion in 2016. For-hire carriers transport truckload and LTL freight belonging to others and, according to the ATA, accounted for revenue of approximately $391.5 billion in 2017.

Truckload carriers generally dedicate an entire trailer to one shipper from origin to destination and are categorized by the type of equipment they use to haul a shipper’s freight, such as temperature-controlled, dry van, tank, or flatbed trailers. According to the ATA, excluding private fleets, revenue in the U.S. Truckload market was approximately $333.3 billion in 2017.

LTL carriers specialize in consolidating shipments from multiple shippers into truckload quantities for delivery to multiple destinations. LTL carriers are traditionally divided into two categories — national and regional. National carriers typically focus on two-day or longer service across distances greater than 1,000 miles and often operate without time-definite delivery, while regional carriers typically offer time-definite delivery in less than two days. According to the ATA, the U.S. LTL market generated revenue of approximately $58.2 billion in 2017.

On-Demand Air Charter

On-demand air charter is the segment of the air cargo industry focused on the time critical movement of goods that requires the timely launch of an aircraft to move freight. These critical movements of freight are typically necessary to prevent a disruption in the supply chain due to lack of components. There are approximately 50 certified airlines providing this on-demand service in North America and Mexico. The primary users of on-demand air charter services are auto manufacturers, component manufacturers, and other heavy equipment makers or just-in-time manufacturers.

Third-Party Logistics

3PL providers offer transportation management solutions and distribution services, including the movement and storage of freight and the assembly of inventory. The U.S. 3PL sector revenue increased from approximately $89.4 billion in 2004 to approximately $166.8 billion in 2016 (and experienced growth each year during such period other than from 2008 to 2009), according to Armstrong & Associates, Inc., a leading supply chain market research firm. In addition, only 11.0% of logistics expenditures by U.S. businesses were outsourced in 2016, according to Armstrong & Associates. In fiscal 2017, U.S. 3PL sector revenues were approximately $184.3 billion, a 10.5% increase from approximately $166.8 billion in 2016. We believe that the market penetration of 3PL providers will expand in the future as companies increasingly redirect their resources to core competencies and outsource their transportation and logistics requirements as they realize the cost-effectiveness of 3PL providers.

Factors Important to Our Business

Our success principally depends on our ability to generate revenues through our dedicated sales personnel, long-standing Company relationships, and independent agent network and to deliver freight in all modes safely, on time, and cost-effectively through a suite of solutions tailored to the needs of each customer. Customer shipping demand, over-the-road freight tonnage levels, events leading to expedited shipping requirements, and equipment capacity ultimately drive increases or decreases in our revenues. Our ability to operate profitably and generate cash is also impacted by purchased transportation costs, personnel and related benefits costs, fuel costs, pricing dynamics, customer mix, and our ability to manage costs effectively.

Sales Personnel and Agent Network. In our TES business, we arrange the pickup and delivery of freight either through our direct sales force or other Company relationships including management, dispatchers, or customer service representatives. In our LTL business, we market and sell our LTL services through a sales force

 

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of approximately 80 people, consisting of account executives, sales managers, inside sales representatives, and commissioned sales representatives. In our Ascent business, we have approximately 60 direct salespeople located in 25 Company offices, commissioned sales representatives, and a network of approximately 60 independent agents. Agents complement our Company sales force by bringing pre-existing customer relationships, new customer prospects, and/or access to new geographic markets. Furthermore, agents typically provide immediate revenue and do not require us to invest in incremental overhead. Agents own or lease their own office space and pay for other costs associated with running their operations.

Tonnage Levels and Capacity. Competition intensifies in the transportation industry as tonnage levels decrease and equipment capacity increases. Our ability to maintain or grow existing tonnage levels is impacted by overall economic conditions, shipping demand, over-the-road freight capacity in North America, and capacity in domestic air freight, as well as by our ability to compete effectively in terms of pricing, safety, and on-time delivery. We do business with a broad base of third-party carriers, including ICs and purchased power providers, together with a blend of our own ground and air capacity, which reduces the impact of tightening capacity on our business.

Purchased Transportation Costs. Purchased transportation costs within our TES business are generally based either on negotiated rates for each load hauled or spot market rates for ground and air services. Purchased transportation costs within our LTL business represent payments to ICs, over-the-road purchased power providers, intermodal service providers, brokers and agents, based on a combination of contractually agreed-upon and spot market rates. Within our Ascent business, purchased transportation costs represent payments made to ground, ocean, and air carriers, ICs, brokers and agents, based on a combination of contractually agreed-upon and spot market rates. Purchased transportation costs are the largest component of our cost structure. Our purchased transportation costs typically increase or decrease in proportion to revenues.

Personnel and Related Benefits. Personnel and related benefits costs are a large component of our overall cost structure. We employ approximately 1,400 Company drivers who are paid either per mile or at an hourly rate. In addition, we employ approximately 900 dock and warehouse workers and approximately 2,200 operations and other administrative personnel to support our day-to-day business activities. Personnel and related benefits costs could vary significantly as we may be required to adjust staffing levels to match our business needs.

Fuel. The transportation industry is dependent upon the availability of adequate fuel supplies and the price of fuel. Fuel prices have fluctuated dramatically over recent years. Within our TES and Ascent businesses, we generally pass fuel costs through to our customers. As a result, our operating income in these businesses is less impacted by rises in fuel prices. Within our LTL business, our ICs and purchased power providers pass along the cost of diesel fuel to us, and we in turn attempt to pass along some or all of these costs to our customers through fuel surcharge revenue programs. Although revenues from fuel surcharges generally offset increases in fuel costs, other operating costs have been, and may continue to be, impacted by fluctuating fuel prices. The total impact of higher energy prices on other nonfuel-related expenses is difficult to ascertain. We cannot predict future fuel price fluctuations, the impact of higher energy prices on other cost elements, recoverability of higher fuel costs through fuel surcharges, and the effect of fuel surcharges on our overall rate structure or the total price that we will receive from our customers. Depending on the changes in the fuel rates and the impact on costs in other fuel- and energy-related areas, our operating margins could be impacted.

Pricing. The pricing environment in the transportation industry also impacts our operating performance. Within our TES business, we typically charge a flat rate negotiated on each load hauled. Pricing within our TES business is typically driven by shipment frequency and consistency, length of haul, and customer and geographic mix, but generally has fewer influential factors than pricing within our LTL business. Within our LTL business, we typically generate revenues by charging our customers a rate based on shipment weight, distance hauled, and commodity type. This amount is comprised of a base rate, a fuel surcharge, and any applicable accessorial fees and surcharges. Our LTL pricing is dictated primarily by factors such as shipment size, shipment frequency, length of haul, freight density, customer requirements and geographical location. Within our Ascent business, we

 

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typically charge a variable rate on each shipment in addition to transaction or service fees appropriate for the solution we have provided to meet a specific customer’s needs. Since we offer both truckload and LTL shipping as part of our Ascent offering, pricing within our Ascent business is impacted by similar factors. The pricing environment for all of our operations generally becomes more competitive during periods of lower industry tonnage levels and/or increased capacity within the over-the-road freight sector. In addition, when we provide international freight forwarding services in our Ascent business, we also contract with airlines, ocean carriers, and agents as needed. The international shipping markets are very dynamic and we must therefore adjust rates regularly based on market conditions.

Our Strategy

Our goal is to be the leading asset-right transportation and asset-light logistics service provider in North America. Our strategy includes continuing to:

Generate Free Cash Flows. Our scalable business model and low capital expenditures (as a percentage of our revenues) enhance our ability to generate strong free cash flows and returns on our invested capital and assets.

Gain New Customers. We continue to expand our customer base, and we will continue to pursue increased market share in the TES, LTL, and Ascent markets. Our expansive geographic reach and broad service offering provides us with the ability to add new customers seeking transportation and logistics solutions. We also believe the pool of potential new customers will grow as the benefits of third-party transportation management solutions continue to be embraced.

Increase Penetration with Existing Customers. With our comprehensive service offering and large global network, we have substantial cross-selling opportunities and the potential to capture a greater share of existing customers’ annual transportation and logistics expenditures.

Increased Levels of Integration. We adopted a long-term brand and go-to-market service offering plan in the fourth quarter of 2016. Over the next three years, in order to implement this plan, we expect to increase the level of integration within each of our three segments in order to improve our ability to serve customers. For example, in November of 2016, we re-branded our Roadrunner LTL business as Roadrunner Freight and in January of 2017, we re-branded our Global Solutions business as Ascent Global Logistics. In the first quarter of 2018, we announced the integration and rebranding of several operating companies, including Roadrunner Truckload Plus, into Ascent Global Logistics and in the second quarter of 2018, we restructured our temperature controlled truckload business by completing the integration of multiple operating companies into one operating unit. These are first steps in the implementation of our long-term brand and go-to-market service offering plan.

Our Services

We are a leading asset-right transportation and asset-light logistics service provider offering a full suite of solutions. In each of our service offerings, we utilize a blend of Company-owned and third-party owned equipment to provide the most cost-effective service for our customers. Because of this blend, we are able to focus primarily on providing quality service rather than on asset utilization. Our customers generally communicate their freight needs to one of our transportation specialists on a shipment-by-shipment basis via telephone, fax, Internet, e-mail, or electronic data interchange, or EDI. We leverage a diverse group of third-party carriers and ICs to provide scalable capacity and reliable service to our extensive customer base in North America.

Truckload & Express Services

We provide a comprehensive range of TES solutions for our customers by leveraging our Company drivers, ICs, and a broad base of third-party carriers who operate dry van, temperature-controlled, and/or flatbed capacity.

 

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We arrange the pickup and delivery of TES freight through our 38 TES service centers located throughout the United States. We provide a variety of transportation solutions for dry goods ranging from paper products to steel, refrigerated foods like meat, poultry and beverages, as well as flatbed service for larger industrial load requirements. Our intermodal capabilities include drayage, which is the transport of freight between ocean ports or rail ramps and shipping docks. We also have a strong presence in TES expedited services for our customers with just-in-time and time critical transportation needs. Expedited offerings include ground and air cargo services which are spot bid by qualified and certified ground or air cargo asset-based carriers including our fleet of over 800 trucks and 11 cargo jets. In addition to our spot bid model for expedited offerings, we also offer direct services utilizing our trucks. In either case, we track all shipments using our proprietary technology and our dedicated service team. This hybrid solution provides a unique business model ensuring customers a competitive price, expanded coverage and on-time delivery.

Company Salespeople. Internal sales personnel are responsible for managing existing customer relationships and generating new customer relationships. Because the performance of these individuals is essential to our success, we offer attractive incentive-based compensation packages that we believe keep our sales force motivated, focused, and service-oriented. We supplement our internal salespeople with direct customer relationships from our management, dispatchers, or customer service representatives.

Less-than-Truckload

Based on our industry knowledge, we believe we are one of the largest asset-light provider of LTL transportation services in North America in terms of revenue. We provide LTL service originating from points within approximately 150 miles of our service centers to most destinations throughout the United States and parts of Canada. Within the United States, we offer national, long-haul service (1,000 miles or greater), inter-regional service (between 500 and 1,000 miles), and regional service (500 miles or less). We serve a diverse group of customers within a variety of industries, including retail, industrial, paper goods, manufacturing, food and beverage, health care, chemicals, computer hardware, and general commodities.

We use over 180 third-party LTL delivery agents to complement our service center footprint and to provide cost-effective full state, national, and North American delivery coverage. Delivery agents also enhance our ability to handle special needs of the final consignee, such as scheduled deliveries and specialized delivery equipment.

We generally utilize a point-to-point LTL model that is differentiated from the traditional, asset-based hub and spoke LTL model. Our model does not require intermediate handling at a break-bulk hub (a large terminal where freight is offloaded, sorted, and reloaded), which we believe represents a competitive advantage.

Key aspects of our LTL service offering include the following:

 

   

Pickup. In order to stay as close as possible to our customers, we prefer to directly pick up freight whenever cost-effective. We generally directly pick up freight within 150 miles of one of our service centers, primarily utilizing local ICs. Although we generally do not own the tractors or other powered transportation equipment used to transport our customers’ freight, we own or lease trailers for use in local city pickup and delivery. In 2017, we picked up approximately 79% of our customers’ LTL shipments. The remainder was handled by agents with whom we generally have long-standing relationships.

 

   

Consolidation at Service Centers. Key to our model are our 41 LTL service centers that we lease in strategic markets throughout the United States. At these service centers, numerous smaller LTL shipments are unloaded, consolidated into truckload shipments, and loaded onto a linehaul unit scheduled for a destination city. In order to continuously emphasize optimal load building and enhance operating margins, dock managers review every load before it is dispatched from one of our service centers.

 

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Linehaul. Linehaul is the longest leg of the LTL shipment process. In dispatching a load, a linehaul coordinator uses our technology system to optimize cost-efficiency and service by assigning the load to the appropriate IC, Company driver, or purchased power. In 2017, approximately 55% of our linehaul shipments were handled by over 460 ICs with the remainder shipped via Company driver, purchased power, or rail.

 

   

De-consolidation and Delivery. Within our unique model, linehaul shipments are transported to our service centers, delivery agents, or direct to end users without stopping at a break-bulk hub, as is often necessary under the traditional, asset-based hub and spoke LTL model. This generally reduces physical handling and damage claims. In 2017, we delivered approximately 36% of LTL shipments through our service centers and approximately 64% through our delivery agents.

 

   

Benefits of a Delivery Agent Network. While many national asset-based LTL providers are encumbered by the fixed overhead associated with owning or leasing most or all of their de-consolidation and delivery facilities, we maintain our variable cost structure through the extensive use of delivery agents.

Ascent Global Logistics

Ascent provides domestic freight management, international freight forwarding, and retail consolidation services. We provide the necessary operational expertise, information technology capabilities, and relationships with third-party transportation providers to meet the unique needs of our customers. For customers that require the most comprehensive service plans, we complement their internal logistics and transportation management personnel and operations, enabling them to redirect resources to core competencies, reduce internal transportation management personnel costs, and, in many cases, achieve substantial annual freight savings. Key aspects of our Ascent capabilities include the following:

 

   

Sales. We have Company brokers that not only engage in the routing and selection of our transportation providers, but also supplement our internal Ascent sales force. Company brokers are responsible for managing existing customer relationships and generating new customer relationships. We also maintain a network of independent brokerage agents, who primarily focus on truckload shipments, which complement our network of Company brokers by bringing pre-existing customer relationships, new customer prospects, and/or access to new geographic markets. Furthermore, they typically provide immediate revenue and do not require us to invest in incremental overhead. Brokerage agents own or lease their own office space and pay for their own communications equipment, insurance, and any other costs associated with running their operation. We only invest in the working capital required to execute our quick pay strategy and generally pay a commission to our brokerage agents of the margin we earn on an Ascent shipment. Similar to Company brokers, our brokerage agents engage in the routing and selection of transportation providers for our customer base and perform sales and customer service functions on our behalf. We believe we offer brokerage agents a very attractive partnership opportunity as we offer access to our reliable network of purchased power providers and we invest in the working capital required to pay these carriers promptly and assume collection responsibility. As of December 31, 2017, our brokerage agent network consisted of over 60 agents. Additionally, 22 of our brokerage agents generated more than $1 million in revenue in 2017. We believe our increased development efforts and attractive value proposition will allow us to further expand our brokerage agent network and enhance the growth of our Ascent business.

 

   

Procurement. After an in-depth consultation and analysis with our customer to identify cost savings opportunities, we develop an estimate of our customer’s potential savings and design a plan for implementation. If necessary, we manage a targeted bid process based on the customer’s traffic lanes, shipment volumes, and product characteristics, and negotiate rates with reputable carriers. In addition to a cost-efficient rate, the customer receives a summary of projected savings as well as our carrier recommendation.

 

   

Shipment Planning. Utilizing our technology systems and an expansive multi-modal network of third-party transportation providers, we determine the appropriate mode of transportation and select the ideal

 

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provider. In addition, we provide load optimization services based on freight patterns and consolidation opportunities. We also provide rating and routing services, either on-site with one of our transportation specialists, off-site through our centralized call center, or online through our website. Finally, we offer merge-in-transit coordination to synchronize the arrival and pre-consolidation of high-value components integral to a customer’s production process, enabling them to achieve reduced cycle times, lower inventory holding costs, and improved supply chain visibility.

 

   

Customs Brokerage Services. We provide customs brokerage services to clients importing goods. Our team of highly knowledgeable professionals assist importers in meeting all requirements governing imports by maintaining a detailed knowledge of all customs regulations, tariff schedules, proper classifications, dutiable values, quotas, and other admissibility requirements with other government agency requirements such as the U.S. Food and Drug Administration, Environmental Protection Agency, U.S. Department of Agriculture, and U.S. Fish and Wildlife Services. We submit all required documentation and make appropriate payments to the Bureau of Customs and Border Protection on behalf of our clients and charge them a fee for this service. We also can provide foreign-trade zone entries/withdrawals and facilitate all in-bond entry types. In addition to processing documents for import clearance and payment of duties, our knowledgeable staff can assist with customs compliance issues, provide information on C-TPAT certification, assist with import bonds, and provide duty drawback services.

 

   

International Freight Forwarding. We provide comprehensive air (import/export) and ocean (import/export) freight forwarding solutions. For customers requiring ocean freight solutions, we are an Ocean Transportation Intermediary acting as either an ocean freight forwarder (arranging ocean shipments on our client’s behalf on their ocean contracts) or a non-vessel-operating common carrier (moving shipments on our ocean carrier contracts). We provide full-container-load, less-than-container-load, charters, bulk, refrigerated service, or other unique solutions based on our customers’ requirements. For customers requiring air freight solutions, we can provide express, standard and deferred air freight service. We arrange airport-to-airport, airport-to-door, door-to-airport, or door-to-door shipments. We are well-versed in the many technical aspects of government regulations, state and commerce department licensing requirements, foreign government forms, transportation documents, and international collection and banking procedures. We are an authorized IATA agent and also an Indirect Air Carrier authorized by the TSA. We also provide clients a robust Order Management Solution that includes Vendor Compliance/Education, Purchase Order Management, Regulatory Compliance Management, Origin Logistics, Transportation Management (Origin/Destination), and Global Information Management.

 

   

Shipment Execution. Our transportation specialists are adept at managing all types of shipments (FTL, LTL, partial truckload, expedited, and specialized). With our technology and large carrier base, we are able to provide our clients with route, rate, and mode optimization to reduce their costs and meet their pickup and delivery requirements. We also provide the ability to track and trace shipments either online or by phone through one of our transportation specialists.

 

   

Audit and Payment Services. We capture and consolidate our customers’ entire shipping activity and offer weekly electronic billing. We also provide freight bill audit and payment services designed to eliminate excessive or incorrect charges from our customers’ bills.

 

   

Performance Reporting and Improvement Analysis. Customers utilizing our web reporting system have the ability to review freight bills, develop customized reports online, and access data to assist in financial and operational reporting and planning. Our specialists are also actively driving process improvement by continuously using our technology to identify incremental savings opportunities and efficiencies for our customers.

 

   

Retail Consolidation Solutions. We have five Company-operated facilities with approximately 2.5 million square feet of warehousing space strategically located in the United States. All of our facilities are authorized Food Grade Warehouses with both dry and refrigerated storage. We have

 

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“Superior” ratings with the American Institute of Baking and are cGMP Certified. Retail suppliers ship their inventory to our warehouses for storage. Supplier orders are received and consolidated with other supplier orders based on the retailer’s order write. Consolidated orders are then moved by full truckload to the retailer within the OTIF requirements. By having access to multiple locations to hold inventory and moving orders by truckload versus less-than-truckload, suppliers are able to shorten lead times, reduce their outbound miles, significantly lower their transportation costs, reduce damage, and increase their fill rates thereby improving their ability to meet retailers on shelf availability requirements. We believe we operate best in class warehouse management systems and transportation management systems, which also provides customers with complete online visibility to inventory and receiving/shipping historical activity, along with customized reporting capabilities. We also have an experienced service assurance team that helps clients improve retail compliance conducting detailed forensic analysis into OTIF, looking at root causes to any failures—late, early or unfilled. The team monitors all agreed upon key performance indicators and creates trend analysis by customer, pool, carrier and lane, reviewing all opportunities for improvement.

With a broad Ascent offering, we believe we can accommodate a shipper’s unique needs with any combination of services along our entire spectrum, and cater to their preferred means of shipment processing and communication.

We believe our comprehensive service approach and focus on building long-term customer relationships lead to greater retention of existing business compared to a more short-term gain sharing model employed by many 3PL providers. Before becoming fully operational with a customer, we conduct thorough feasibility and cost savings analyses and collaborate with the customer to create a project scope and timeline with measurable milestones. We believe this approach enables us to identify any potential issues, ensure a smooth integration process, and set the stage for long-term customer satisfaction. Within our Ascent operation, we have consistently met customer implementation deadlines and achieved anticipated levels of freight savings.

Capacity

We offer scalable capacity and reliable service to our extensive customer base in North America through a diverse third-party network of transportation providers and Company drivers and pilots. Our various transportation modes include Truckload, LTL, intermodal, and domestic and international air. No single third-party carrier accounted for more than 1% of our 2017 purchased transportation costs. We ensure that each carrier is properly licensed and we regularly monitor each carrier’s capacity, reliability, and pricing trends. Enhanced visibility provided by our technology systems allows us to leverage the competitive dynamics within our network to renegotiate freight rates and provide our customers with more cost-effective transportation solutions while enhancing our operating margins.

We continuously focus on building and enhancing our relationships with reliable transportation providers to ensure that we not only secure competitive rates, but that we also gain access to consistent capacity. These relationships are critical to our success based on our asset-right transportation and asset-light logistics service provider business model. We typically pay our third-party carriers either a contracted per mile rate or the cost of a shipment less our contractually agreed-upon commission, and generally pay within seven to ten days from the date the shipment is delivered. We pay our third-party carriers promptly in order to drive loyalty and reliable capacity.

Our network of transportation providers can be divided into the following groups:

Independent Contractors. ICs are a key part of our long-term strategy to maintain service and provide cost stability. As of December 31, 2017, we had over 2,000 ICs, which consisted of over 1,600 linehaul, truckload, and intermodal services ICs and over 400 local delivery ICs. In selecting our ICs, we adhere to specific screening guidelines in terms of safety records, length of driving experience, and evaluations. In the event of tightening of over-the-road freight capacity, we believe we are well positioned to increase our utilization of ICs as a cost-effective and reliable solution.

 

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To enhance our relationship with our ICs, we offer per mile rates that we believe are highly competitive and often above prevailing market rates. In addition, we focus on keeping our ICs fully utilized in order to limit the number of “empty” miles they drive. We regularly communicate with our ICs and seek new ways to enhance their quality of life. We believe our efforts increase IC retention, which we believe ultimately leads to better service for our customers.

Purchased Power Providers. In addition to our large base of ICs, we have access to a broad base of purchased power providers. We have established relationships with carriers of all sizes, including large national trucking companies and small to mid-size regional fleets. With the exception of safety incentives, purchased power providers are generally paid under a similar structure as ICs within our LTL and TES businesses. In contrast to contracts established with our ICs, who operate under one of our DOT authorities, we do not cover the cost of liability insurance for our purchased power providers.

Company Drivers. We employ approximately 1,400 drivers across our businesses.

Delivery Agents. For the de-consolidation and delivery stages of our LTL shipment process, our 41 LTL service centers are complemented by over 180 third-party delivery agents. The use of delivery agents is also a key part of our long-term strategy to maintain a variable cost and scalable operating model with minimal overhead.

Flight Operations. We support air freight services, including expedited delivery, with 11 cargo jets, 61 flight operations personnel, including pilots, ground crew, and flight coordinators, and a network of third party air cargo providers.

Ground Expedite. We utilize proprietary bid technology supported by our logistics personnel and our network of Company drivers, ICs, and purchased power providers.

Customers

Our goal is to establish long-term customer relationships and achieve year-over-year growth in recurring business by providing reliable, timely, and cost-effective transportation and logistics solutions. We possess the scale, operational expertise, and capabilities to serve shippers of all sizes. We serve an extensive customer base within a variety of end markets, with one direct customer, General Motors, accounting for approximately 12% of our 2017 revenue. Our diverse customer base reduces our exposure to a decline in shipping demand from any one customer and a cyclical downturn within any particular end market.

Sales and Marketing

We currently market and sell our transportation and logistics solutions through sales personnel located throughout the United States. We are focused on actively expanding our sales force to new geographic markets where we lack a strong presence.

We have a sales team consisting of both sales managers and inside sales representatives. We believe that this sales structure enables our salespeople to better serve our customers by developing an understanding of local, regional, national and international market conditions, as well as the specific transportation and logistics issues facing individual customers. Our sales team seeks additional business from existing customers and pursue new customers based on this knowledge and an understanding of the value proposition we can provide.

As of September 30, 2018, our sales force extends into each segment as follows:

 

   

Truckload and Express Services. We arrange the pickup and delivery of freight either through our direct sales force or other Company relationships including management, dispatchers, or customer service representatives.

 

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Less-than-Truckload. Our LTL sales team of approximately 80 people consists of account executives, sales managers, inside sales representatives, and commissioned sales representatives.

 

   

Ascent Global Logistics. We have approximately 60 direct salespeople, Company brokers, and approximately 60 independent brokerage agents, commissioned sales representatives, and agents.

Competition

We compete in the North American transportation and logistics services sector. Our marketplace is extremely competitive and highly fragmented. We compete with a large number of other asset-light logistics companies, asset-based carriers, integrated logistics companies, and third-party freight brokers, many of whom have larger customer bases and more resources than we do.

In our markets, we compete with global asset-based integrated logistics companies such as FedEx Corporation, United Parcel Service, Inc., and XPO Logistics, Inc., against whom we compete in all of our service lines; asset-based freight haulers, such as Arkansas Best Corporation, Old Dominion Freight Line Inc., and YRC Worldwide, Inc., against whom we compete in our core TES and LTL service offerings; non-asset based and asset-light freight brokerage companies, such as C.H. Robinson Worldwide, Inc., Echo Global Logistics, Inc., and Landstar System, Inc., against whom we compete in all of our service offerings; 3PL providers that offer comprehensive transportation management solutions, such as Schneider Logistics, Inc. and Transplace, Inc., against whom we compete in our Ascent offering; and smaller, niche transportation and logistics companies that provide services within a specific geographic region or end market. In our international freight forwarding business, we compete with a large number of service providers. Depending on the trade lane and solution, these competitors include large multi-national providers, such as Expeditors International of Washington, Inc., Kuehne & Nagel International AG / ADR, and DHL Global Supply Chain; regional providers, such as Mallory Alexander International Logistics and Laufer Group International; and local or niche providers. As a result, our focus remains on continuing to provide our customers with exceptional service.

We believe we compete favorably by offering shippers attractive transportation and logistics solutions designed to deliver the optimal combination of cost and service. To that end, we believe our most significant competitive advantages include:

 

   

our comprehensive suite of transportation and logistics services, which allows us to offer à la carte or a full portfolio value proposition to shippers of varying sizes and to accommodate their diverse needs and preferred means of processing and communication;

 

   

our asset-right transportation and asset-light logistics service provider, variable cost business model, which allows us to generate strong free cash flows and focus greater attention on providing optimal customer service than on asset utilization;

 

   

our technology systems, which allow us to provide scalable capacity and a high level of customer service across a variety of transportation modes; and

 

   

our knowledgeable management team with experience leading high-growth logistics companies and/or business units, which allows us to benefit from a collective entrepreneurial culture focused on growth.

Seasonality

Our operations are subject to seasonal trends that have been common in the North American over-the-road, ocean, and air freight sectors for many years. Our results of operations for the quarter ending in March are on average lower than the quarters ending in June, September, and December. Typically, this pattern has been the result of factors such as inclement weather, national holidays, customer demand, and economic conditions.

Technology

We believe the continued development and innovation of our technology systems is important to providing our customers with the most cost-effective, timely, and reliable transportation and logistics solutions. Our

 

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objective is to allow our customers and vendors to easily do business with us via technology. Our customers have the ability, through a paperless process, to receive immediate pricing, place orders, track shipments, process remittance, receive updates, and review historical shipping data through a variety of reports over the Internet. We provide flexibility for customers and vendors by utilizing multiple technologies, including web, mobile, workflow and EDI.

Our TES operations teams uses technology to dispatch or broker our customers’ freight. Our software enhances our ability to track Company and third-party drivers, tractors, and trailers, which provides customers with visibility into their supply chains. Additionally, our systems allow us to operate as a paperless environment through electronic order entry, resource planning, and dispatch. Our TES expedited air and ground operations utilize proprietary bid technology, which provides customers with real-time market pricing and logistics options for time sensitive shipments, supported by our fleets of ground and air assets.

Our LTL operation utilizes a web-based system with our transportation management applications. Additionally, we make use of EDI and API’s to allow our service centers to communicate electronically with our carriers’ and customers’ internal systems. We offer our customers a paperless process, including document imaging and shipment tracking and tracing.

Our Ascent operation uses a variety of software applications and systems customized to meet the unique needs of our customers. We continuously enhance our applications and systems to help improve our productivity, increase customer visibility, and improve collaboration with our service providers, all while offering customizable content for our customers. Our web-based technology approach allows our Ascent operation to process and service customer orders, track shipments in real time, select optimal modes of transportation, execute customer billing, provide carrier rates, establish customer-specific profiles, and retain critical information for analysis while providing a Company branded solution. We utilize this approach to maximize supply chain efficiency through mode, carrier, and route optimization.

Employees

As of September 30, 2018, we employed approximately 4,700 full-time and part-time personnel, which included drivers, pilots, and warehouse, dock and maintenance workers as well as personnel in our management, sales and marketing, brokerage, logistics, customer service, operations, finance, information technology and human resources functions. None of our employees are covered by a collective bargaining agreement and we consider relations with our employees to be good.

Regulation

The federal government substantially deregulated the provision of ground transportation and logistics services via the enactment of the Motor Carrier Act of 1980, the Trucking Industry Regulatory Reform Act of 1994, the Federal Aviation Administration Authorization Act of 1994, and the ICC Termination Act of 1995. Prices and services are now largely free of regulatory controls, although states have the right to require compliance with safety and insurance requirements, and interstate motor carriers remain subject to regulatory controls imposed by the DOT and its agencies, such as the FMCSA. Motor carrier, freight forwarding, and freight brokerage operations are subject to safety, insurance, and bonding requirements prescribed by the DOT and various state agencies. Any air freight business is subject to commercial standards set forth by the IATA and federal regulations issued by the TSA.

We are also subject to the CSA, which is the FMCSA safety program designed to improve large truck and bus safety and ultimately reduce crashes. CSA is an enforcement and compliance model that involves assessments of a motor carrier’s on-road performance and investigation results for a 24-month period using roadside stops and inspections, resulting in safety performance in the following categories: unsafe driving; hours-of-service compliance; driver fitness; controlled substances/alcohol; vehicle maintenance; hazardous

 

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material compliance; and crash indicator. The evaluations are then used by the FMCSA to select carriers for audit and other interventions.

As part of our 2014 acquisition of Active Aero, we acquired USA Jet Airlines, referred to as USA Jet, which holds certificates of public convenience and necessity issued by the DOT pursuant to 49 U.S.C. § 41102 and an air carrier certificate granted by the FAA pursuant to Part 119 of the federal aviation regulations. The DOT, the FAA, and the DHS, through the TSA, have regulatory authority over USA Jet’s air transportation services. The Federal Aviation Act of 1958, as amended, is the statutory basis for DOT and the FAA authority and the Aviation and Transportation Security Act of 2001, as amended, is the basis for TSA aviation security authority.

The FAA’s authority relates primarily to operational aspects of air transportation, including aircraft standards and maintenance, as well as personnel and ground facilities, which may from time to time affect the ability of USA Jet to operate its aircraft in the most efficient manner. The air carrier certificate granted to USA Jet by the FAA remains in effect so long as we meet the safety and operational requirements of the applicable FAA regulations.

The DOT’s authority relates primarily to economic licensing aspects of air transportation. The DOT’s jurisdiction extends to authorized types of operations and aviation route authority and to other regulatory matters, including the transfer of route authority between carriers. USA Jet holds various certificates issued by the DOT, including a domestic certificate authorizing USA Jet to engage in U.S. air transportation and a foreign certificate authorizing international air transportation of property. In addition, USA Jet is subject to non-U.S. government regulation of aviation rights involving non-U.S. jurisdictions, and non-U.S. customs regulation.

The TSA has responsibility for aviation security. The TSA continues to require USA Jet to comply with a Full All-Cargo Aircraft Operator Standard Security Program and the Twelve-Five Standard Security Program, which contain evolving and strict security requirements. These requirements are not static, but change periodically as the result of regulatory and legislative requirements, imposing additional security costs and creating a level of uncertainty for our operations.

We are also subject to various environmental and safety requirements, including those governing the handling, disposal, and release of hazardous materials, which we may be asked to transport in the course of our operations. If hazardous materials are released into the environment while being transported, we may be required to participate in, or may have liability for response costs and the remediation of such a release. In such a case, we also may be subject to claims for personal injury, property damage, and damage to natural resources. Our business is also subject to changes in legislation and regulations, which can affect our operations and those of our competitors. For example, new laws and initiatives to reduce and mitigate the effects of greenhouse gas emissions could significantly impact the transportation industry. Future environmental laws in this area could adversely affect our ICs’ costs and practices and, consequently, our operations.

We are also subject to regulations to combat terrorism that the DHS and other agencies impose.

The international freight forwarding and customs brokerage services provided by our Ascent business are regulated by a variety of regulatory agencies and bodies including, but not limited to: the U.S. Federal Maritime Commission, the Bureau of Customs and Border Protection and the TSA within the DHS (customs brokerage and security issues); the IATA; the DOT; the U.S. Food and Drug Administration; the U.S. Department of Agriculture; the U.S. Fish and Wildlife Service; the Bureau of Alcohol, Tobacco, Firearms and Explosives; the U.S. Census Bureau; and other agencies or world governing bodies regulating international trade and compliance. Regulations and requirements must be strictly adhered to and can change periodically. Additionally, our Ascent business manages customer activities in numerous countries. As such, there may be risk associated with sudden fluctuations in currency, changes in economic policy, political unrest, changes to tariffs and trade policies/restrictions that are all outside of our control. Compliance with these changes may have a material impact on our operations and may increase our costs to service our customers.

 

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Insurance

We insure our ICs and Company drivers against third-party claims for accidents or damaged shipments and we bear the risk of such claims. We maintain insurance for auto liability, general liability, and cargo damage claims. We maintain an aggregate of $100 million of auto liability and general liability insurance. We maintain auto liability insurance coverage for claims in excess of $1.0 million per occurrence and cargo coverage for claims in excess of $100,000 per occurrence. Because we maintain insurance for our ICs, if our insurance does not cover all or any portion of the claim amount, we may be forced to bear the financial loss. We attempt to mitigate this risk by carefully selecting carriers with quality control procedures and safety ratings.

In addition to auto liability, general liability, and cargo claim coverage, our insurance policies also cover other standard industry risks related to workers’ compensation and other property and casualty risks. We are self-insured up to $1.0 million per claim for workers compensation. We believe our insurance coverage is comparable in terms and amount of coverage to other companies in our industry. We establish insurance reserves for anticipated losses and expenses and periodically evaluate and adjust the reserves to reflect our experience.

Financial Information About Segments

See Note 15 “Segment Reporting” to the audited consolidated financial statements included elsewhere in this prospectus for financial information about our segments.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and nine months ended September 30, 2018 and 2017 has been revised for the effects of the immaterial error described in Note 1 to the unaudited condensed consolidated financial statements included in this prospectus.

MD&A for the Three and Nine Months Ended September 30, 2018 and 2017

This discussion and analysis presents our operating results for the three and nine months ended September 30, 2018 and 2017 and our financial condition as of September 30, 2018. You should read the following discussion and analysis in conjunction with “Selected Financial Data” and our consolidated financial statements and related notes contained elsewhere in this prospectus. This discussion and analysis of our financial condition and results of operations also contains forward looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth in the section entitled “Risk Factors.”

Overview

We are a leading asset-right transportation and asset-light logistics service provider offering a full suite of solutions under the Roadrunner, Active On-Demand and Ascent Global Logistics brands. The Roadrunner brand offers less-than-truckload, temperature controlled and intermodal services. Active On-Demand offers premium mission critical air and ground transportation solutions. Ascent Global Logistics offers domestic freight management and brokerage, warehousing and retail consolidation, international freight forwarding, and customs brokerage. We serve a diverse customer base in terms of end-market focus and annual freight expenditures. We are headquartered in Downers Grove, Illinois with operations primarily in the United States.

Effective January 1, 2018, we changed our segment reporting when we integrated our truckload brokerage business into our Ascent domestic freight management business. Segment information for prior periods has been revised to align with the new segment structure. Our three segments are as follows:

Truckload & Express Services. Within our TES segment, we serve customers throughout North America. We provide air and ground expedite services, scheduled truckload services, intermodal services, temperature controlled truckload services, and other truckload and logistics services. We specialize in the transport of automotive and industrial parts, frozen and refrigerated foods including dairy, poultry and meat, and consumer products including foods and beverages. Our Active On-Demand ground and air expedited services business features proprietary bid technology supported by our fleets of ground and air assets. Roadrunner Intermodal Services and Roadrunner Temperature Controlled businesses provide specialized truckload services to beneficial cargo owners and freight management partners and brokers. We believe this array of technology, services, and specialization best serves our customers and provides us with more consistent shipping volumes in any given year.

Less-than-Truckload. Our LTL segment involves the pickup, consolidation, linehaul, deconsolidation, and delivery of LTL shipments throughout the United States and parts of Canada. With a large network of LTL service centers and third-party pick-up and delivery agents, we are designed to provide customers with high reliability at an economical cost. We generally employ a point-to-point LTL model that we believe serves as a competitive advantage over the traditional hub and spoke LTL model in terms of lower incidence of damage and reduced fuel consumption.

Ascent Global Logistics. Within our Ascent segment, we offer a full portfolio of domestic and international transportation and logistics solutions, including access to cost-effective and time-sensitive modes of transportation within our broad network. Ascent provides domestic freight management solutions including asset-backed truckload brokerage, specialized/heavy haul, LTL shipment execution, LTL carrier rate negotiations, access to our transportation management system and freight audit/payment. Ascent also provides clients with international freight forwarding, customs brokerage, regulatory compliance services and project management. We also specialize in retail consolidation, with 2.5 million square feet of our own food-grade warehousing space (both dry and temperature controlled) and full truckload consolidation to retailers to improve

 

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On Time In Full compliance. Ascent serves its customers through either its direct sales force or through a network of independent agents. Our customized Ascent offerings are designed to allow our customers to reduce operating costs, redirect resources to core competencies, improve supply chain efficiency, and enhance customer service.

Factors Important to Our Business

Our success principally depends on our ability to generate revenues through our dedicated sales personnel, long-standing Company relationships, and independent agent network and to deliver freight in all modes safely, on time, and cost-effectively through a suite of solutions tailored to the needs of each customer. Customer shipping demand, over-the-road freight tonnage levels, events leading to expedited shipping requirements, and equipment capacity ultimately drive increases or decreases in our revenues. Our ability to operate profitably and generate cash is also impacted by purchased transportation costs, personnel and related benefits costs, fuel costs, pricing dynamics, customer mix, and our ability to manage costs effectively.

Sales Personnel and Agent Network. In our TES business, we arrange the pickup and delivery of freight either through our direct sales force or other Company relationships including management, dispatchers, or customer service representatives. In our LTL business, we market and sell our LTL services through a sales force of approximately 80 people, consisting of account executives, sales managers, inside sales representatives, and commissioned sales representatives. In our Ascent business, we have approximately 60 direct salespeople located in 25 Company offices, commissioned sales representatives, and a network of approximately 60 independent agents. Agents complement our Company sales force by bringing pre-existing customer relationships, new customer prospects, and/or access to new geographic markets. Furthermore, agents typically provide immediate revenue and do not require us to invest in incremental overhead. Agents own or lease their own office space and pay for other costs associated with running their operations.

Tonnage Levels and Capacity. Competition intensifies in the transportation industry as tonnage levels decrease and equipment capacity increases. Our ability to maintain or grow existing tonnage levels is impacted by overall economic conditions, shipping demand, over-the-road freight capacity in North America, and capacity in domestic air freight, as well as by our ability to compete effectively in terms of pricing, safety, and on-time delivery. We do business with a broad base of third-party carriers, including ICs and purchased power providers, together with a blend of our own ground and air capacity, which reduces the impact of tightening capacity on our business.

Purchased Transportation Costs. Purchased transportation costs within our TES business are generally based either on negotiated rates for each load hauled or spot market rates for ground and air services. Purchased transportation costs within our LTL business represent payments to independent contractors’, over-the-road purchased power providers, intermodal service providers, brokers and agents, based on a combination of contractually agreed-upon and spot market rates. Within our Ascent business, purchased transportation costs represent payments made to ground, ocean, and air carriers, ICs, brokers, and agents based on a combination of contractually agreed-upon and spot market rates. Purchased transportation costs are the largest component of our cost structure. Our purchased transportation costs typically increase or decrease in proportion to revenues.

Personnel and Related Benefits. Personnel and related benefits costs are a large component of our overall cost structure. We employ approximately 1,400 Company drivers who are paid either per mile or at an hourly rate. In addition, we employ approximately 900 dock and warehouse workers and approximately 2,200 operations and other administrative personnel to support our day-to-day business activities. Personnel and related benefits costs could vary significantly as we may be required to adjust staffing levels to match our business needs.

Fuel. The transportation industry is dependent upon the availability of adequate fuel supplies and the price of fuel. Fuel prices have fluctuated dramatically over recent years. Within our TES and Ascent businesses, we

 

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generally pass fuel costs through to our customers. As a result, our operating income in these businesses is less impacted by rises in fuel prices. Within our LTL business, our ICs and purchased power providers pass along the cost of diesel fuel to us, and we in turn attempt to pass along some or all of these costs to our customers through fuel surcharge revenue programs. Although revenues from fuel surcharges generally offset increases in fuel costs, other operating costs have been, and may continue to be, impacted by fluctuating fuel prices. The total impact of higher energy prices on other nonfuel-related expenses is difficult to ascertain. We cannot predict future fuel price fluctuations, the impact of higher energy prices on other cost elements, recoverability of higher fuel costs through fuel surcharges, and the effect of fuel surcharges on our overall rate structure or the total price that we will receive from our customers. Depending on the changes in the fuel rates and the impact on costs in other fuel- and energy-related areas, our operating margins could be impacted.

Pricing. The pricing environment in the transportation industry also impacts our operating performance. Within our TES business, we typically charge a flat rate negotiated on each load hauled. Pricing within our TES business is typically driven by shipment frequency and consistency, length of haul, and customer and geographic mix, but generally has fewer influential factors than pricing within our LTL business. Within our LTL business, we typically generate revenues by charging our customers a rate based on shipment weight, distance hauled, and commodity type. This amount is comprised of a base rate, a fuel surcharge, and any applicable accessorial fees and surcharges. Our LTL pricing is dictated primarily by factors such as shipment size, shipment frequency, length of haul, freight density, customer requirements and geographical location. Within our Ascent business, we typically charge a variable rate on each shipment in addition to transaction or service fees appropriate for the solution we have provided to meet a specific customer’s needs. Since we offer both TL and LTL shipping as part of our Ascent offering, pricing within our Ascent business is impacted by similar factors. The pricing environment for all of our operations generally becomes more competitive during periods of lower industry tonnage levels and/or increased capacity within the over-the-road freight sector. In addition, when we provide international freight forwarding services in our Ascent business, we also contract with airlines, ocean carriers, and agents as needed. The international shipping markets are very dynamic and we must therefore adjust rates regularly based on market conditions.

Sale of Unitrans

On September 15, 2017, we completed the sale of our wholly-owned subsidiary Unitrans. The results of operations of Unitrans are included in our condensed consolidated financial statements within our Ascent segment through the date of completion of the sale.

 

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Results of Operations

The following tables set forth, for the periods indicated, summary TES, LTL, Ascent, corporate, and consolidated statement of operations data. Such revenue data for our TES, LTL, and Ascent segments are expressed as a percentage of consolidated revenues. Other statement of operations data for our TES, LTL, and Ascent segments are expressed as a percentage of segment revenues. We have also provided a reconciliation of net loss to Adjusted EBITDA and provided Adjusted EBITDA for TES, LTL, Ascent, and corporate for the periods indicated.

 

    Three Months Ended September 30, 2018  
(In thousands, except for %’s)   TES     %     LTL     %     Ascent     %     Corporate/
Eliminations
    Total  

Revenues

  $ 280,335       52.2   $ 113,948       21.2   $ 145,632       27.1   $ (3,331   $ 536,584  

Operating expenses:

         

Purchased transportation costs

    180,440       64.4     81,422       71.5     107,146       73.6     (3,330     365,678  

Personnel and related benefits

    41,680       14.9     17,402       15.3     12,687       8.7     6,349       78,118  

Other operating
expenses(1)

    52,546       18.7     19,288       16.9     17,142       11.8     5,019       93,995  

Depreciation and amortization

    6,456       2.3     876       0.8     1,183       0.8     1,099       9,614  
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Total operating expenses

    281,122       100.3     118,988       104.4     138,158       94.9     9,137       547,405  
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Operating income (loss)

    (787     (0.3 )%      (5,040     (4.4 )%      7,474       5.1     (12,468     (10,821
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Total interest expense

              35,798  
           

 

 

 

Loss before income taxes

              (46,619

Benefit from income taxes

              (5,058
           

 

 

 

Net loss

            $ (41,561
           

 

 

 

 

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    Three Months Ended September 30, 2017  
(In thousands, except for %’s)   TES     %     LTL     %     Ascent     %     Corporate/
Eliminations
    Total  

Revenues

  $ 260,536       50.0   $ 117,618       22.6   $ 145,296       27.9   $ (2,017   $ 521,433  

Operating expenses:

               

Purchased transportation costs

    169,103       64.9     84,249       71.6     107,156       73.8     (2,028     358,480  

Personnel and related benefits

    37,279       14.3     17,597       15.0     14,832       10.2     3,555       73,263  

Other operating
expenses(2)

    49,405       19.0     23,017       19.6     15,904       10.9     (23,643     64,683  

Depreciation and amortization

    6,484       2.5     924       0.8     1,471       1.0     440       9,319  

Impairment charges

    —         —       —         —       4,402       3.0     —         4,402  
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Total operating expenses

    262,271       100.7     125,787       106.9     143,765       98.9     (21,676     510,147  
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Operating income (loss)

    (1,735     (0.7 )%      (8,169     (6.9 )%      1,531       1.1     19,659       11,286  
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Total interest expense

                  10,502  

Loss from debt extinguishment

                  6,049  
               

 

 

 

Loss before income taxes

                  (5,265

Provision for income taxes

                  4,788  
               

 

 

 

Net loss

                $ (10,053
               

 

 

 

 

     Three Months Ended September 30, 2018  
(In thousands)    TES     LTL     Ascent      Corporate/
Eliminations
    Total  

Net (loss) income

   $ (921   $ (5,072   $ 7,319      $ (42,887   $ (41,561

Plus: Total interest expense

     134       32       26        35,606       35,798  

Plus: (Benefit from) provision for income taxes

     —         —         129        (5,187     (5,058

Plus: Depreciation and amortization

     6,456       876       1,183        1,099       9,614  

Plus: Long-term incentive compensation expenses

     —         —         —          951       951  

Plus: Corporate restructuring and restatement costs

     —         —         —          4,713       4,713  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted EBITDA(3)

   $ 5,669     $ (4,164   $ 8,657      $ (5,705   $ 4,457  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

     Three Months Ended September 30, 2017  
(In thousands)    TES     LTL     Ascent      Corporate/
Eliminations
    Total     Less:
Unitrans(4)
     Total w/o
Unitrans
 

Net (loss) income

   $ (1,720   $ (8,206   $ 1,496      $ (1,623   $ (10,053   $ 1,339      $ (11,392

Plus: Total interest expense

     (15     37       35        10,445       10,502       —          10,502  

Plus: Provision for income taxes

     —         —         —          4,788       4,788       —          4,788  

Plus: Depreciation and amortization

     6,484       924       1,471        440       9,319       230        9,089  

Plus: Impairment charges

     —         —         4,402        —         4,402       —          4,402  

Plus: Long-term incentive compensation expenses

     —         —         —          541       541       —          541  

Plus: Gain on sale of Unitrans

     —         —         —          (35,440     (35,440     —          (35,440

Plus: Loss on debt extinguishments

     —         —         —          6,049       6,049       —          6,049  

Plus: Corporate restructuring and restatement costs

     —         —         —          6,841       6,841       —          6,841  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted EBITDA(3)

   $ 4,749     $ (7,245   $ 7,404      $ (7,959   $ (3,051   $ 1,569      $ (4,620
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

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Note: Adjusted EBITDA for the Ascent segment in the third quarter of 2017, excluding Unitrans, was $5.8 million.

 

    Nine Months Ended September 30, 2018  
(In thousands, except for %’s)   TES     %     LTL     %     Ascent     %     Corporate/
Eliminations
    Total  

Revenues

  $ 906,439       54.5   $ 344,237       20.7   $ 425,205       25.5   $ (11,287   $ 1,664,594  

Operating expenses:

               

Purchased transportation costs

    599,743       66.2     245,737       71.4     312,520       73.5     (11,287     1,146,713  

Personnel and related benefits

    120,642       13.3     52,965       15.4     37,293       8.8     18,943       229,843  

Other operating expenses (1)

    164,198       18.1     60,313       17.5     50,358       11.8     20,992       295,861  

Depreciation and amortization

    18,993       2.1     2,689       0.8     3,539       0.8     2,582       27,803  
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Total operating expenses

    903,576       99.7     361,704       105.1     403,710       94.9     31,230       1,700,220  
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Operating income (loss)

    2,863       0.3     (17,467     (5.1 )%      21,495       5.1     (42,517     (35,626
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Total interest expense

                  79,573  
               

 

 

 

Loss before income taxes

                  (115,199

Benefit from income taxes

                  (8,040
               

 

 

 

Net loss

                $ (107,159
               

 

 

 

 

    Nine Months Ended September 30, 2017  
(In thousands, except for %’s)   TES     %     LTL     %     Ascent     %     Corporate/
Eliminations
    Total  

Revenues

  $ 750,820       49.0   $ 348,362       22.8   $ 438,856       28.7   $ (7,106   $ 1,530,932  

Operating expenses:

               

Purchased transportation costs

    471,581       62.8     246,960       70.9     321,751       73.3     (7,095     1,033,197  

Personnel and related benefits

    113,363       15.1     52,334       15.0     45,841       10.4     11,807       223,345  

Other operating expenses(2)

    146,919       19.6     60,384       17.3     45,721       10.4     3,247       256,271  

Depreciation and amortization

    18,957       2.5     2,838       0.8     4,758       1.1     1,281       27,834  

Impairment charges

    —         —       —         —       4,402       1.0     —         4,402  
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Total operating expenses

    750,820       100.0     362,516       104.1     422,473       96.3     9,240       1,545,049  
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Operating income (loss)

    —         —       (14,154     (4.1 )%      16,383       3.7     (16,346     (14,117
 

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Total interest expense

                  45,382  

Loss on debt extinguishment

                  15,876  
               

 

 

 

Loss before income taxes

                  (75,375

Benefit from income taxes

                  (7,516
               

 

 

 

Net loss

                $ (67,859
               

 

 

 

 

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     Nine Months Ended September 30, 2018  
(In thousands)    TES      LTL     Ascent      Corporate/
Eliminations
    Total  

Net (loss) income

   $ 2,710      $ (17,555   $ 21,281      $ (113,595   $ (107,159

Plus: Total interest expense

     153        88       85        79,247       79,573  

Plus: (Benefit from) provision for income taxes

     —          —         129        (8,169     (8,040

Plus: Depreciation and amortization

     18,993        2,689       3,539        2,582       27,803  

Plus: Long-term incentive compensation expenses

     —          —         —          1,954       1,954  

Plus: Operations restructuring costs (1)

     4,655        —         —          —         4,655  

Plus: Corporate restructuring and restatement costs

     —          —         —          15,537       15,537  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted EBITDA(3)

   $ 26,511      $ (14,778   $ 25,034      $ (22,444   $ 14,323  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

     Nine Months Ended September 30, 2017  
(In thousands)    TES     LTL     Ascent      Corporate/
Eliminations
    Total     Less:
Unitrans(4)
     Total w/o
Unitrans