<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-99716
AMERITRUCK DISTRIBUTION CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2619368
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
City Center Tower II, Suite 1101,
301 Commerce Street, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
(817) 332-6020
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
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AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION Page
----
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Part II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
i
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
1998* 1997* 1998* 1997*
----- ----- ----- -----
<S> <C> <C> <C> <C>
Operating revenue $ 75,782 $60,287 $155,288 $115,955
-------- ------- -------- --------
Operating expenses:
Salaries, wages and fringe benefits 28,531 20,314 58,595 39,530
Purchased transportation 16,752 14,635 34,718 27,644
Fuel and fuel taxes 8,558 7,453 17,957 14,938
Operating supplies and expenses 6,067 4,016 12,801 7,627
Depreciation and amortization of capital leases 4,728 4,014 10,057 7,732
Claims and insurance 2,452 2,209 5,493 4,527
Operating taxes and licenses 1,144 1,383 2,798 2,666
General supplies and expenses 3,933 2,874 9,002 5,486
Building and office equipment rents 521 471 1,093 933
Amortization of intangibles 567 372 1,133 665
Gain on disposal of property and equipment (361) (106) (895) (60)
Gain on sale of TBI (12,475) - (12,475) -
Restructuring charge - 7,184 - 7,184
-------- ------- -------- --------
Total operating expenses 60,417 64,819 140,277 118,872
-------- ------- -------- --------
Operating income (loss) 15,365 (4,532) 15,011 (2,917)
Interest expense 5,721 4,778 11,755 9,272
Amortization of financing fees 242 147 531 271
Other income, net (54) (83) (88) (166)
-------- ------- -------- --------
Income (loss) before income taxes
and extraordinary item 9,456 (9,374) 2,813 (12,294)
Income tax provision (benefit) 2,408 (2,889) 216 (4,057)
-------- ------- -------- --------
Income (loss) before extraordinary item 7,048 (6,485) 2,597 (8,237)
Extraordinary item, loss on early retirement of debt,
net of taxes of $120 - (243) - (243)
-------- ------- -------- --------
Net income (loss) $ 7,048 $(6,728) $ 2,597 $ (8,480)
======== ======= ======== ========
</TABLE>
* Comparisons between periods are affected by acquisitions - see Note 2.
See accompanying notes to consolidated financial statements.
1
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AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21 $ 21
Accounts and notes receivable, net 39,214 49,017
Prepaid expenses 17,358 14,782
Repair parts and supplies 2,285 2,123
Deferred income taxes 3,717 3,717
Other current assets 4,242 5,092
-------- --------
Total current assets 66,837 74,752
Property and equipment, net 102,220 117,774
Goodwill, net 61,747 59,971
Other assets 15,008 11,003
-------- --------
Total assets $245,812 $263,500
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 24,153 $ 22,534
Accounts payable and accrued expenses 26,119 31,735
Claims and insurance accruals 3,815 3,496
Other current liabilities 754 986
-------- --------
Total current liabilities 54,841 58,751
Long-term debt 186,863 203,696
Deferred income taxes 4,655 4,410
Other liabilities 6,100 5,887
-------- --------
Total liabilities 252,459 272,744
-------- --------
Commitments and contingencies (Note 6)
Redeemable preferred stock 3,165 3,091
Stockholders' equity (deficiency):
Common stock; $.01 par value; 4,230 shares
issued and outstanding 42 42
Additional paid-in capital 2,726 2,800
Loans to stockholders (1,401) (1,401)
Accumulated deficit (11,179) (13,776)
-------- --------
Total stockholders' deficiency (9,812) (12,335)
-------- --------
Total liabilities and stockholders' deficiency $245,812 $263,500
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
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AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998* 1997*
----- -----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,597 $ (8,480)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization of capital leases 10,057 7,732
Amortization of intangibles 1,133 665
Gain on disposal of property and equipment (13,370) (60)
Provision (benefit) for deferred income taxes 216 (4,057)
Extraordinary item, loss on early retirement of debt, net of taxes - 243
Restructuring charge - 7,184
Restructuring costs paid (258) (1,043)
Other, net (2,856) (1,744)
Changes in current assets and liabilities, net of effects
from acquisitions:
Accounts and notes receivable, net 5,126 (1,939)
Prepaid expenses (2,818) (232)
Repair parts and supplies (207) (503)
Other current assets 871 (32)
Accounts payable and accrued expenses (3,524) (11)
Claims and insurance accruals (126) (712)
Other current liabilities (231) (137)
-------- --------
Net cash used in operating activities (3,390) (3,126)
-------- --------
INVESTING ACTIVITIES:
Net proceeds from sale of TBI 15,576 -
Payments for acquisitions - (17,139)
Purchase of property and equipment (1,506) (2,747)
Proceeds from sale of property and equipment 9,213 4,257
Other, net 323 317
-------- --------
Net cash provided by (used in) investing activities 23,606 (15,312)
-------- --------
FINANCING ACTIVITIES:
Revolving line of credit, net (2,061) 19,524
Repayment of long-term debt (15,703) (6,525)
Proceeds from issuance of redeemable preferred stock - 3,000
Proceeds from issuance of common stock - 2,000
Checks in excess of cash balances (1,416) -
Other, net (1,036) (295)
-------- --------
Net cash provided by (used in) financing activities (20,216) 17,704
-------- --------
Net decrease in cash and cash equivalents - (734)
Cash and cash equivalents, beginning of period 21 734
-------- --------
Cash and cash equivalents, end of period $ 21 $ -
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 11,857 $ 9,035
Income taxes (net of refunds) 57 39
Property and equipment financed through capital lease obligations and other debt 2,425 1,241
Noncash consideration for acquisitions - 1,000
</TABLE>
* Comparisons between periods are affected by acquisitions - see Note 2.
See accompanying notes to consolidated financial statements.
3
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AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. ACCOUNTING POLICIES AND INTERIM RESULTS
The 1997 Annual Report on Form 10-K for AmeriTruck Distribution Corp.
("AmeriTruck" or the "Company") and its wholly-owned subsidiaries includes a
summary of significant accounting policies and should be read in conjunction
with this Form 10-Q. The statements for the periods presented are condensed
and do not contain all information required by generally accepted accounting
principles to be included in a full set of financial statements. In the
opinion of management, all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of June
30, 1998 and December 31, 1997, and the results of operations for the three-
month and six-month periods ended June 30, 1998 and 1997, and cash flows for
the six-month periods ended June 30, 1998 and 1997 have been included. The
results of operations for any interim period are not necessarily indicative
of the results of operations to be expected for the entire year. Certain
prior year data has been reclassified to conform to current year
presentation.
Separate financial statements of the Company's subsidiaries are not
included because (a) all of the Company's direct and indirect subsidiaries
have guaranteed the Company's obligations under the Indenture, dated as of
November 15, 1995 (the "Indenture"), among the Company, such subsidiaries (in
such capacity, the "Guarantors"), and The Bank of New York, as Trustee, (b)
the Guarantors have fully and unconditionally guaranteed the 12 1/4% Senior
Subordinated Notes due 2005 ("Subordinated Notes") issued under the Indenture
on a joint and several basis, (c) the Company is a holding company with no
independent assets or operations other than its investments in the Guarantors
and (d) the separate financial statements and other disclosures concerning
the Guarantors are not presented because management has determined that they
would not be material.
As of June 30, 1998, the Company's principal subsidiaries were W&L
Services Corp. ("W&L"), CMS Transportation Services, Inc. ("CMS"), Scales
Transport Corporation ("Scales"), AmeriTruck Refrigerated Transport, Inc.
("ART"), KTL, Inc. ("KTL"), and AmeriTruck Logistics Services, Inc. ("ALS),
(the "Operating Companies"). Effective January 1998, the Company caused the
merger of its wholly-owned subsidiaries, J.C. Bangerter & Sons, Inc.
("Bangerter"), Lynn Transportation Co., Inc. ("Lynn"), Monfort Transportation
Company ("Monfort") and Tran-Star, Inc. ("Tran-Star") into ART, with ART as
the surviving corporation. All significant intercompany accounts and
transactions have been eliminated.
2. ACQUISITIONS
In June 1997, AmeriTruck purchased all the outstanding stock of Tran-
Star, which was owned by Allways Services, Inc. The purchase price of $2.6
million included $1.6 million in cash and a $1 million note payable. Prior to
its January 1998 merger into ART, Tran-Star was a carrier of refrigerated and
non-refrigerated products. Headquartered in Waupaca, Wisconsin, Tran-Star
operated primarily between the upper midwestern U.S. and the northeast and
southeast, with terminals in Etters and Wyalusing, Pennsylvania.
In May 1997, AmeriTruck purchased the capital stock of Monfort and Lynn,
both subsidiaries of ConAgra, Inc. ("ConAgra"). The purchase price of $15
million was paid in cash. The Tran-Star, Monfort and Lynn acquisitions were
accounted for using the purchase method of accounting. Accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values at the date of acquisition. The total
purchase price including cash, note payable, miscellaneous acquisition costs
and liabilities assumed was $42.4 million for Tran-Star and $35.8 million for
Monfort and Lynn. The excess of the purchase price over fair values of the
net assets acquired has been recorded as goodwill.
4
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Monfort and Lynn operated primarily as in-house carriers for the red-meat
division of Monfort, Inc., a ConAgra subsidiary, and the poultry and turkey
divisions of ConAgra Poultry Company, a ConAgra subsidiary. In connection
with this acquisition, the Company entered into a Transportation Services
Agreement ("the Original ConAgra Agreement") with subsidiaries of ConAgra.
Pursuant to the Original ConAgra Agreement, ConAgra subsidiaries had agreed
to tender freight from Monfort, Inc.'s red-meat division, ConAgra Poultry
Company's poultry and turkey divisions and Swift-Ekrich, Inc.'s processed
meats division in designated lanes and minimum annual volumes. The term of
the Original ConAgra Agreement was four years, with pricing fixed for the
first two years and adjusted prices in the third and fourth years.
In July 1998, the Company entered into an Amended and Restated
Transportation Services Agreement with certain ConAgra subsidiaries (the
"Amended ConAgra Agreement"). The Amended ConAgra Agreement terminated the
Original ConAgra Agreement. The Amended ConAgra Agreement has a term of four
years. The ConAgra subsidiaries and the Company have agreed to use their
respective good faith efforts to generate at least $20 million in annual
freight revenues for the Company under the Amended ConAgra Agreement, subject
to certain conditions, including satisfactory pricing and service
requirements. In connection with the execution and delivery of the Amended
ConAgra Agreement, ConAgra paid the Company $10 million, offset by certain
amounts owed by the Company. After writing off the intangible value assigned
to the Original ConAgra Agreement in purchase accounting and other related
amounts, the Company will recognize a gain of approximately $5 million during
July 1998. Subsequent to entering into the Amended ConAgra Agreement,
seasonally-adjusted volumes tendered by ConAgra have not been impacted.
3. DISPOSITIONS
On May 1, 1998, AmeriTruck sold its Thompson Bros., Inc. subsidiary
("TBI") to Contract Mail Company for $15.5 million in cash. TBI, having
transferred its refrigerated customers, assets and business to ART, is
primarily involved in contract mail carriage. Net proceeds to the Company,
after payment of certain TBI-related debt and related expenses, were
approximately $12.5 million.
The net assets of TBI were approximately $3 million, resulting in a book
gain on sale of $12.5 million. At the time of sale, TBI's revenue
attributable to its contract mail carriage and other remaining businesses was
approximately $13 million on an annualized basis.
4. RESTRUCTURING CHARGE
With the addition of Tran-Star, Monfort and Lynn to the AmeriTruck
organization, the Company is currently organized into three operating groups
to better serve its customers. The AmeriTruck Refrigerated Carrier Group was
formed to offer regional and nationwide, truckload refrigerated service. This
new group combined the resources of ART, Bangerter, Tran-Star, Monfort, Lynn
and the refrigerated operations of TBI. The AmeriTruck Specialized Carrier
Group was formed to service customers with unique needs in transportation and
distribution. This group includes W&L, the largest interstate hauler of new
furniture in the United States, CMS, serving the medical distribution
industry, Scales, offering regional just-in-time dry van service, and ALS, a
freight broker. The AmeriTruck Regional LTL Group offers less-than-truckload,
refrigerated and non-refrigerated service. The lead carrier in this group is
KTL, offering service to and from the Florida market. The LTL operations of
Lynn in Nevada and Southern California were integrated into this group.
In connection with the above reorganization and to eliminate the
duplicate facility and employee costs related to the acquired entities, the
Company announced a plan in the second quarter of 1997 to restructure its
refrigerated carrier group. The Company recorded $7.2 million in
restructuring costs, which included $2.3 million for employee termination
costs, $4.2 million for duplicate facility costs, including the impairment of
certain long-lived assets, and $650,000 of other costs. As of June 30, 1998,
the Company has remaining liabilities recorded of $175,000 related to the
restructuring charge. During the first six months of 1998, the Company
incurred termination costs which exceeded the estimate recorded in connection
with the 1997 restructuring charge.
5
<PAGE>
5. LONG-TERM DEBT
FINOVA Credit Facility
In May 1997, the Company and its subsidiaries entered into a Loan and
Security Agreement and related documents (collectively, the "FINOVA Credit
Facility") with FINOVA Capital Corporation ("FINOVA") pursuant to which
FINOVA has agreed to provide a $60 million credit facility to the Company.
The initial borrowings under the FINOVA Credit Facility were used to
refinance the Company's prior credit facility with NationsBank of Texas, N.A.
and to fund the 1997 acquisitions. Additional borrowings under the FINOVA
Credit Facility can be used for acquisitions, capital expenditures, letters
of credit, working capital and general corporate purposes. Pursuant to the
FINOVA Credit Facility, FINOVA has agreed to provide a $60 million revolving
credit facility, with a $10 million sublimit for the issuance of letters of
credit, maturing on May 5, 2000 (subject to additional one year renewal
periods at the discretion of FINOVA). The FINOVA Credit Facility is also
subject to a borrowing base consisting of eligible receivables and eligible
revenue equipment.
In May 1998, the Company used the net proceeds from the sale of TBI to
pay down the FINOVA Credit Facility. The Company also amended the FINOVA
Credit Facility to increase both the total amount of the FINOVA Credit
Facility to $62.5 million and the borrowing base availability thereunder (the
"Second Temporary Overadvance"), in each case for a period not to exceed 120
days, or September 15, 1998. The amendment to the FINOVA Credit Facility
provided for the payment of a $160,000 fee in connection with the Second
Temporary Overadvance. While the Second Temporary Overadvance is outstanding,
all loans bear interest at a per annum rate equal to either the prime rate
plus a margin equal to 1.75 percent or the rate of interest offered in the
London interbank market plus a margin equal to 3.75 percent. The Company also
pays a monthly unused facility fee and a monthly collateral monitoring fee in
connection with the FINOVA Credit Facility. The Company anticipates that when
the Second Temporary Overadvance expires, total availability under the FINOVA
Credit Facility will decrease by approximately $5 million as a result of the
advance rate on the appraised value of equipment declining from 75 percent to
60 percent. This decrease will require a repayment by the Company which,
based on the Company's borrowing base on August 14, 1998 would be
approximately $4 million. This decrease in availability will have an adverse
effect on the Company's liquidity and failure to make this payment would be
an event of default under the FINOVA Credit Facility. The Company intends to
raise additional financing or take other actions to improve its liquidity.
As of June 30, 1998, the Company's borrowing base supported borrowings of
approximately $62.5 million. Revolving credit loans under the
FINOVA Credit Facility were $56.0 million at June 30, 1998. There were also
$4.5 million in letters of credit outstanding at June 30, 1998, leaving $2.0
million available for borrowings.
The Company's obligations under the FINOVA Credit Facility are
collateralized by substantially all of the unencumbered assets of the Company
and its subsidiaries and are guaranteed in full by each of the Operating
Companies. For purposes of the Indenture, the borrowings under the FINOVA
Credit Facility constitute Senior Indebtedness of the Company and Guarantor
Senior Indebtedness of the Operating Companies.
The FINOVA Credit Facility contains customary representations and
warranties and events of default and requires compliance with a number of
affirmative, negative and financial covenants, including a limitation on the
incurrence of indebtedness and a requirement that the Company maintain a
specified Current Ratio, Net Worth, Debt Service Coverage Ratio and Operating
Ratio.
Volvo Credit Facilities
In February 1996, the Company and the Operating Companies then owned by
the Company entered into a Loan and Security Agreement, a Financing
Integration Agreement and related documents (collectively, the "Volvo Credit
Facilities") with Volvo Truck Finance North America, Inc.
6
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("Volvo") pursuant to which Volvo has committed, subject to the terms and
conditions of the Volvo Credit Facilities, to provide (i) a $10 million line
of credit facility (the "Volvo Line of Credit") to the Company and the
Operating Companies, and (ii) up to $28 million in purchase money or lease
financing (the "Equipment Financing Facility") in connection with the
Operating Companies' acquisition of new tractors and trailers manufactured by
Volvo GM Heavy Truck Corporation. Borrowings under the Volvo Line of Credit
are secured by certain specified tractors and trailers of the Company and the
Operating Companies (which must have a value equal to at least 1.75 times the
outstanding amount of borrowings under the Volvo Line of Credit) and are
guaranteed in full by each of the Operating Companies. Borrowings under the
Volvo Line of Credit bear interest at the prime rate. The Volvo Line of
Credit contains customary representations and warranties and events of
default and requires compliance with a number of affirmative and negative
covenants, including a profitability requirement and a coverage ratio.
The Equipment Financing Facility was provided by Volvo in connection with
the Operating Companies' agreement to purchase 400 new trucks manufactured by
Volvo GM Heavy Truck Corporation. The borrowings under the Equipment
Financing Facility are collateralized by the specific trucks being financed
and are guaranteed in full by each of the Operating Companies. Borrowings
under this facility bear interest at the prime rate. Financing for an
additional 150 new trucks for approximately $11.3 million was committed
during 1997, all of which was obtained through operating leases.
At June 30, 1998, borrowings outstanding under the Volvo Line of Credit
were $7.6 million. This amount will likely decrease as a result of the normal
periodic appraisal process and expected declines in the value of collateral.
The outstanding debt balance under the Equipment Financing Facility was $2.0
million at June 30, 1998; however, the remaining financing under this
facility was obtained through operating leases.
The Equipment Financing Facility contains customary representations and
warranties, covenants and events of default. For purposes of the Indenture,
the borrowings under the Volvo Credit Facilities constitute Senior
Indebtedness of the Company and Guarantor Senior Indebtedness of the
Operating Companies.
6. COMMITMENTS AND CONTINGENCIES
Transamerica Lease Facility
In August 1997, the Company entered into a lease agreement with
Transamerica Business Credit Corporation ("TBCC") to provide the Company and
its subsidiaries with an arrangement to lease up to 300 new 1998 model
tractors (the "TBCC Lease"). The Company has leased all 300 trucks under this
agreement, and the line used under the TBCC Lease was approximately $22.8
million. The lease term is 48 months and is subject to a terminal rental
adjustment clause at the end of the term. The Company treated this lease as
an operating lease for accounting purposes. Terms of the arrangement were set
forth in a Master Lease Agreement dated as of August 14, 1997.
Environmental Matters
Under the requirements of the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and certain other laws, the
Company is potentially liable for the cost of clean-up of various
contaminated sites identified by the U.S. Environmental Protection Agency
("EPA") and other agencies. The Company cannot predict with any certainty
that it will not in the future incur liability with respect to environmental
compliance or liability associated with the contamination of sites owned or
operated by the Company and its subsidiaries, sites formerly owned or
operated by the Company and its subsidiaries (including contamination caused
by prior owners and operators of such sites), or off-site disposal of
hazardous material or waste that could have a material adverse effect on the
Company's consolidated financial condition, operations or liquidity.
7
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Other
The Company is a defendant in legal proceedings considered to be in the
normal course of business, none of which, singularly or collectively, are
considered to be material to the financial condition, results of operations
or liquidity of the Company.
7. OTHER INCOME, NET
Other income consists of the following (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Interest income $52 $85 $79 $127
Miscellaneous, net 2 (2) 9 39
--- --- --- ----
$54 $83 $88 $166
=== === === ====
8. REDEEMABLE PREFERRED AND COMMON STOCK
In conjunction with the 1997 acquisitions of Monfort, Lynn and Tran-Star,
the Company issued 3,000 shares of Series A Redeemable Preferred Stock and
727,272 shares of Common Stock with warrants to certain existing
stockholders, directors and executive officers of the Company. The Preferred
Stock was issued at $1,000 per share for a total purchase price of $3.0
million. Dividends on each share of the Preferred Stock accrue cumulatively
on a daily basis at a rate of 5 percent per annum on the liquidation value
thereof, provided that the rate will increase to 10 percent per annum upon
the earlier of the date of a Disposition Event (as defined) and November 15,
1998. The dividends are payable in kind on the last day of each fiscal
quarter. The Company will redeem all of the Series A Preferred Stock
outstanding on December 31, 2005 at a liquidation value of $1,000 per share.
The Common Stock, along with detached warrants for 1,500,000 shares of Common
Stock, was issued for $2.75 per share ($.01 par value) for a total purchase
price of $2.0 million. The detached warrants can be exercised any time prior
to May 23, 2007 at $2.00 per share.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis should be read in conjunction with the consolidated
financial statements included in Item 1 - "Financial Statements." Results for
the three and six months ended June 30, 1997 include W&L, TBI, Bangerter, CMS,
Scales, ART, KTL, and ALS for the entire periods. The results for Monfort and
Lynn have been included for one month in 1997. Results for the three and six
months ended June 30, 1998 include W&L, CMS, Scales, ART, KTL and ALS for the
entire periods. Effective January 1998, the Bangerter, Monfort, Lynn and Tran-
Star subsidiaries, were merged into ART, with ART as the surviving corporation.
During 1998, TBI was primarily involved in contract mail carriage, after
transferring its refrigerated customers, assets and business to ART. Results
for the mail carriage operations of TBI have been included through April 1998,
as TBI was sold on May 1, 1998.
In May 1997, the Company entered into a Transportation Services Agreement
("the Original ConAgra Agreement") with subsidiaries of ConAgra. Pursuant to
the Original ConAgra Agreement, ConAgra subsidiaries had agreed to tender
freight from Monfort, Inc.'s red-meat division, ConAgra Poultry Company's
poultry and turkey divisions and Swift-Ekrich, Inc.'s processed meats division
in designated lanes and minimum annual volumes.
In July 1998, the Company entered into an Amended and Restated
Transportation Services Agreement with certain ConAgra subsidiaries (the
"Amended ConAgra Agreement"). The Amended ConAgra Agreement terminated the
Original ConAgra Agreement. The Amended ConAgra Agreement has a term of four
years. The ConAgra subsidiaries and the Company have agreed to use their
respective good faith efforts to generate at least $20 million in annual freight
revenues for the Company under the Amended ConAgra Agreement, subject to certain
conditions, including satisfactory pricing and service requirements. In
connection with the execution and delivery of the Amended ConAgra Agreement,
ConAgra paid the Company $10 million, offset by certain amounts owed by the
Company. After writing off the intangible value assigned to the Original ConAgra
agreement in purchase accounting and other related amounts, the Company will
recognize a gain of approximately $5 million during July 1998. Subsequent to
entering into the Amended ConAgra Agreement, seasonally-adjusted volumes
tendered by ConAgra have not been impacted.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
Net Income (Loss)
For the quarter ended June 30, 1998, the Company had net income of $7.0
million compared with a net loss of $6.7 million for the same period in 1997.
Results for the second quarter of 1998 include the gain on sale of TBI of $12.5
million; whereas, the results for the second quarter of 1997 were negatively
impacted primarily by a $7.2 million charge to restructure the Company's
refrigerated carrier group. The net loss in 1997 includes an extraordinary item,
loss on early retirement of debt of $243,000, net of taxes. This loss related
primarily to the write off of the deferred financing costs with respect to the
Company's prior senior credit facility with NationsBank.
During 1998, the Company eliminated certain unprofitable business inherited
from the companies acquired in 1997 and downsized its equipment fleet and
workforce. Due to the necessary timing of such actions, the Company eliminated
more revenue in the second quarter of 1998 than overhead expenses, which had a
negative impact on operating results. Results for the second quarter of 1998
also continue to be negatively impacted primarily by costs associated with
transitioning to a common computer system, driver recruitment and training
costs, and increased interest costs.
Revenues
Second quarter revenues for 1998 were $75.8 million, compared with revenues
of $60.3 million for the second quarter of 1997. The increase in revenues,
primarily due to the acquisitions of Monfort, Lynn and Tran-Star, was partially
offset by the sale of TBI.
During the second quarter of 1998, the Original ConAgra Agreement had still
not reached the contractually committed volumes and prices. As a result cash
flow for the second quarter has been negatively impacted.
9
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Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related variance from 1998 to 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, VARIANCE
--------------------- INCREASE
1998 1997 (DECREASE)
---- ---- ----------
<S> <C> <C> <C>
Salaries, wages and fringe benefits 37.7 % 33.7% 4.0%
Purchased transportation 22.1 24.2 (2.1)
Fuel and fuel taxes 11.3 12.3 (1.0)
Operating supplies and expenses 8.0 6.7 1.3
Depreciation and amortization of capital leases 6.2 6.7 (0.5)
Claims and insurance 3.2 3.7 (0.5)
Operating taxes and licenses 1.5 2.3 (0.8)
General supplies and expenses 5.2 4.8 0.4
Building and office equipment rents 0.7 0.8 (0.1)
Amortization of intangibles 0.8 0.6 0.2
Gain on disposal of property and equipment (0.5) (0.2) (0.3)
Gain on sale of TBI (16.5) - (16.5)
Restructuring charge - 11.9 (11.9)
----- ----- ------
Operating Ratio 79.7% 107.5% (27.8)%
===== ===== ======
</TABLE>
Salaries, wages and fringe benefits for the second quarter of 1998
increased 4.0 percentage points as a percent of revenue. This increase is
primarily due to an increase in driver wages, which occurred because company
drivers were used more extensively and owner operators were used less
extensively than in the second quarter of 1997. The acquisition of Tran-Star,
which had primarily a company-driver work force, contributed to the increased
usage of company drivers. Company driver costs are included in salaries, wages
and fringe benefits while owner operator costs are included in purchased
transportation. The increase is also due to the Company's elimination of
revenue which progressed faster than the elimination of headcount. While the
Company continues to reduce headcount, separation expenses will preclude any
meaningful decline in salaries and wages during the third quarter of 1998.
Purchased transportation costs decreased 2.1 percentage points as a percent
of revenue when compared with the second quarter of 1997. The decrease is due
primarily to the acquisition of Tran-Star at the end of the second quarter of
1997, which had primarily a company-driver work force. This decrease in
percentage of revenue was partially offset by a higher percentage of equipment
held under operating leases, which resulted in increased equipment rents. This
increase in equipment rents is expected to continue as the Company finances new
equipment purchases primarily with operating leases.
Fuel and fuel taxes for the second quarter of 1998 decreased 1.0 percentage
points as a percent of revenue when compared with the second quarter of 1997.
This decrease is primarily due to lower fuel prices during the second quarter of
1998. The decrease was partially offset by a higher percentage of fuel being
purchased by the Company versus owner operators, as a result of the Tran-Star
acquisition adding primarily a company-driver work force.
Operating supplies and expenses increased 1.3 percentage points as a
percent of revenue during the second quarter of 1998. This increase is
primarily due to the acquisitions of Monfort, Lynn and Tran-Star which
contributed to higher outside service costs for trailer positioning and
load/unloading services. Some of these outside services are being transitioned
to company employees.
Depreciation and amortization of capital leases decreased 0.5 percentage
points as a percent of revenue when compared with the second quarter of 1997.
This decrease is due to the acquisition of new tractors through operating
leases.
10
<PAGE>
Claims and insurance expenses for the second quarter of 1998 decreased 0.5
percentage points as a percentage of revenue when compared with the second
quarter of 1997. This decrease is primarily due to a more favorable claims
experience as well as cost savings in purchasing insurance on a combined basis.
Operating taxes and licenses for the second quarter of 1998 decreased 0.8
percentage points as a percent of revenue when compared with the second quarter
of 1997 primarily due to a decrease in fuel taxes. Lower fleet licensing expense
also contributed to this decrease.
General supplies and expenses for the second quarter of 1998 increased 0.4
percentage points as a percent of revenue when compared with the same period in
1997. The increase is primarily attributable to added costs for system and
mobile communications, which the Company anticipates should be partially offset
in the future by improved operating efficiencies, although no assurances can be
made in this regard. This increase is also due to increased driver recruitment
and training costs, primarily attributable to increased driver turnover.
During the second quarter of 1998, TBI was sold to Contract Mail Company
for $15.5 million in cash. TBI, having transferred its refrigerated customers,
assets and business to ART, is primarily involved in contract mail carriage. Net
proceeds to the Company, after payment of certain TBI-related debt and related
expenses, were approximately $12.5 million. The net assets of TBI were
approximately $3 million, resulting in a book gain on sale of $12.5 million. At
the time of sale, TBI's revenue attributable to its contract mail carriage and
other remaining businesses was approximately $13 million on an annualized basis.
In connection with AmeriTruck's plans to organize into three operating
groups and to eliminate the duplicate facility and employee costs related to the
acquired entities, the Company announced a plan in the second quarter of 1997 to
restructure its refrigerated carrier group. The Company recorded $7.2 million in
restructuring costs, which included $2.3 million for employee termination costs,
$4.2 million for duplicate facility costs, including the impairment of certain
long-lived assets, and $650,000 of other costs. See Notes to Consolidated
Financial StatementsNote 4. Restructuring Charge. During the second quarter of
1998, the Company incurred termination costs which exceeded the estimate
recorded in connection with the 1997 restructuring charge.
Interest expense increased $943,000 for the quarter ended June 30, 1998
over the same period in 1997. Interest on the revolving lines of credit, which
were used to fund acquisitions, were the primary contributors to this increase.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Net Income (Loss)
For the six months ended June 30,1998, the Company had net income of $2.6
million compared with a net loss of $8.5 million for the same period in 1997.
Results for the first six months of 1998 include the gain on sale of TBI of
$12.5 million; whereas, the results for the first six months of 1997 were
negatively impacted primarily by a $7.2 million charge to restructure the
Company's refrigerated carrier group. The net loss in 1997 includes an
extraordinary item, loss on early retirement of debt of $243,000, net of taxes.
This loss related primarily to the write off of the deferred financing costs
with respect to the Company's prior senior credit facility with NationsBank.
During 1998, the Company eliminated certain unprofitable business inherited
from the companies acquired in 1997 and downsized its equipment fleet and
workforce. Due to the necessary timing of such actions, the Company eliminated
more revenue in the first six months of 1998 than overhead expenses, which had a
negative impact on operating results. Results for the first six months of 1998
also continue to be negatively impacted primarily by costs associated with
transitioning to a common computer system, driver recruitment and training
costs, and increased interest costs.
11
<PAGE>
Revenues
Revenues for the first six months of 1998 were $155.3 million, compared
with revenues of $116.0 million for the first six months of 1997. The increase
in revenues, primarily due to the acquisitions of Monfort, Lynn and Tran-Star,
was partially offset by the sale of TBI.
During the first six months of 1998, the Original ConAgra Agreement had
still not reached the contractually committed volumes and prices. As a result
cash flow for the first six months has been negatively impacted.
Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related
variance from 1998 to 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, VARIANCE
------------------ INCREASE
1998 1997 (DECREASE)
---- ---- ---------
<S> <C> <C> <C>
Salaries, wages and fringe benefits 37.7% 34.1% 3.6%
Purchased transportation 22.4 23.8 (1.4)
Fuel and fuel taxes 11.6 12.9 (1.3)
Operating supplies and expenses 8.2 6.6 1.6
Depreciation and amortization of capital leases 6.5 6.7 (0.2)
Claims and insurance 3.5 3.9 (0.4)
Operating taxes and licenses 1.8 2.3 (0.5)
General supplies and expenses 5.8 4.7 1.1
Building and office equipment rents 0.7 0.8 (0.1)
Amortization of intangibles 0.7 0.6 0.1
Gain on disposal of property and equipment (0.6) (0.1) (0.5)
Gain on sale of TBI (8.0) - (8.0)
Restructuring charge - 6.2 (6.2)
---- ----- ------
Operating Ratio 90.3% 102.5% (12.2)%
==== ===== ======
</TABLE>
Salaries, wages and fringe benefits for the first six months of 1998
increased 3.6 percentage points as a percent of revenue. This increase is
primarily due to an increase in driver wages, which occurred because company
drivers were used more extensively and owner operators were used less
extensively than in the first six months of 1997. The acquisition of Tran-Star,
which had primarily a company-driver work force, contributed to the increased
usage of company drivers. Company driver costs are included in salaries, wages
and fringe benefits while owner operator costs are included in purchased
transportation. The increase is also due to the Company's elimination of
revenue which progressed faster
12
<PAGE>
than the elimination of headcount. While the Company continues to reduce
headcount, separation expenses will preclude any meaningful decline in salaries
and wages during the third quarter of 1998.
Purchased transportation costs decreased 1.4 percentage points as a percent
of revenue when compared with the first six months of 1997. The decrease is due
primarily to the acquisition of Tran-Star at the end of the second quarter of
1997, which had primarily a company-driver work force. This decrease in
percentage of revenue was partially offset by a higher percentage of equipment
held under operating leases, which resulted in increased equipment rents. This
increase in equipment rents is expected to continue as the Company finances new
equipment purchases primarily with operating leases.
Fuel and fuel taxes decreased 1.3 percentage points as a percent of revenue
when compared with the first six months of 1997. This decrease is primarily due
to lower fuel prices during the first six months of 1998. The decrease was
partially offset by a higher percentage of fuel being purchased by the Company
versus owner operators, as a result of the Tran-Star acquisition adding
primarily a company-driver work force.
Operating supplies and expenses increased 1.6 percentage points as a
percent of revenue when compared with the first six months of 1997. This
increase is primarily due to the acquisitions of Monfort, Lynn and Tran-Star
which contributed to higher outside service costs for trailer positioning and
load/unloading services. Some of these outside services are being transitioned
to company employees.
Depreciation and amortization of capital leases decreased 0.2 percentage
points as a percent of revenue when compared with the first six months of 1997.
This decrease is due to the acquisition of new tractors through operating
leases. This decrease is partially offset by depreciation expense attributable
to the purchase of new computer equipment used in the consolidation of the
Company's computer systems.
Claims and insurance expenses for the six months of 1998 decreased 0.4
percentage points as a percent of revenue when compared with the six months of
1997. This decrease is primarily due to a more favorable claims experience as
well as cost savings in purchasing insurance on a combined basis.
Operating taxes and licenses for the first six months of 1998 decreased 0.5
percentage points as a percent of revenue when compared with the first six
months of 1997 primarily due to a decrease in fuel taxes. Lower fleet licensing
expense also contributed to this decrease.
General supplies and expenses for the first six months of 1998 increased
1.1 percentage points as a percent of revenue when compared with the same period
in 1997. The increase is primarily attributable to added costs for system and
mobile communications, which the Company anticipates should be partially offset
in the future by improved operating efficiencies, although no assurances can be
made in this regard. This increase is also due to increased driver recruitment
and training costs, primarily attributable to increased driver turnover.
During the second quarter of 1998, TBI was sold to Contract Mail Company
for $15.5 million in cash. TBI, having transferred its refrigerated customers,
assets and business to ART, is primarily involved in contract mail carriage. Net
proceeds to the Company, after payment of certain TBI-related debt and related
expenses, were approximately $12.5 million. The net assets of TBI were
approximately $3 million, resulting in a book gain on sale of $12.5 million. At
the time of sale, TBI's revenue attributable to its contract mail carriage and
other remaining businesses was approximately $13 million on an annualized basis.
In connection with AmeriTruck's plans to organize into three operating
groups and to eliminate the duplicate facility and employee costs related to the
acquired entities, the Company announced a plan in the second quarter of 1997 to
restructure its refrigerated carrier group. The Company recorded $7.2 million in
restructuring costs, which included $2.3 million for employee termination costs,
$4.2 million for duplicate facility costs, including the impairment of certain
long-lived assets, and $650,000 of other costs. See Notes to Consolidated
Financial StatementsNote 4. Restructuring Charge. During the first six months of
1998, the Company incurred termination costs which exceeded the estimate
recorded in connection with the 1997 restructuring charge.
13
<PAGE>
Interest expense increased $2.5 million for the six months ended June 30,
1998 over the same period in 1997. Interest on the revolving lines of credit,
which were used to fund acquisitions, were the primary contributors to this
increase.
CONTINGENCIES
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 and certain other laws, the Company is
potentially liable for the cost of clean-up of various contaminated sites
identified by the U.S. Environmental Protection Agency ("EPA") and other
agencies. The Company cannot predict with any certainty that it will not in the
future incur liability with respect to environmental compliance or liability
associated with the contamination of sites owned or operated by the Company and
its subsidiaries, sites formerly owned or operated by the Company and its
subsidiaries (including contamination caused by prior owners and operators of
such sites), or off-site disposal of hazardous material or waste that could have
a material adverse effect on the Company's consolidated financial condition,
operations or liquidity.
The Company is a defendant in legal proceedings considered to be in the
normal course of business, none of which, singularly or collectively, are
considered to be material to the financial condition, results of operations or
liquidity of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six months ended June 30,
1998 and 1997 was $3.4 million and $3.1 million, respectively. The increase in
cash used in operating activities of $264,000 was primarily attributable to the
decrease in the net income from operations, excluding the impact for
depreciation and amortization, the gain on sale of TBI in 1998, the
restructuring charge recorded in 1997 and the related deferred taxes, and a
change from December to June in the timing of license plate purchases for
equipment.
During the first six months of 1998, the Original ConAgra Agreement had still
not reached the contractually committed volumes and prices. As a result cash
flow for the first six months has been negatively impacted.
On May 1, 1998, AmeriTruck sold TBI to Contract Mail Company for $15.5
million in cash. TBI, having transferred its refrigerated customers, assets and
business to ART, is primarily involved in contract mail carriage. Net proceeds
to the Company, after payment of certain TBI-related debt and related expenses,
were approximately $12.5 million. The net assets of TBI were approximately $3
million, resulting in a book gain on sale of $12.5 million. At the time of sale,
TBI's revenue attributable to its contract mail carriage and other remaining
businesses was approximately $13 million on an annualized basis.
The Company's current business plan indicates that it will need additional
financing to pay down the temporary extension of credit by FINOVA and carry out
its current business strategy. Accordingly, the Company
14
<PAGE>
intends to raise additional financing in 1998, which may include a refinancing
of the FINOVA Credit Facility. In the event that the Company does not raise
additional financing, sell excess or nonstrategic assets or renegotiate the
terms of existing debt agreements, the Company may be in default of one or more
of its debt agreements. Management believes that borrowings available under its
credit facilities, additional equity, additional financing, asset sales and/or
renegotiation of terms of existing debt agreements should be sufficient to cover
anticipated future cash needs.
Redeemable Preferred and Common Stock
In May 1997, the Company issued 3,000 shares of Series A Redeemable
Preferred Stock and 727,272 shares of Common Stock with warrants to certain
existing stockholders, directors and executive officers of the Company. The
issuance was made in conjunction with the 1997 acquisitions and gross proceeds
which totaled $5 million. See Notes to Consolidated Financial Statements-Note 8.
Redeemable Preferred and Common Stock.
FINOVA Credit Facility
In May 1997, the Company and its subsidiaries entered into a Loan and
Security Agreement and related documents (collectively, the "FINOVA Credit
Facility") with FINOVA Capital Corporation ("FINOVA") pursuant to which FINOVA
has agreed to provide a $60 million credit facility to the Company. The initial
borrowings under the FINOVA Credit Facility were used to refinance the Company's
prior credit facility with NationsBank of Texas, N.A. and to fund the 1997
acquisitions. Additional borrowings under the FINOVA Credit Facility can be
used for acquisitions, capital expenditures, letters of credit, working capital
and general corporate purposes. Pursuant to the FINOVA Credit Facility, FINOVA
has agreed to provide a $60 million revolving credit facility, with a $10
million sublimit for the issuance of letters of credit, maturing on May 5, 2000
(subject to additional one year renewal periods at the discretion of FINOVA).
The FINOVA Credit Facility is also subject to a borrowing base consisting of
eligible receivables and eligible revenue equipment.
In May 1998, the Company used the net proceeds from the sale of TBI to pay
down the FINOVA Credit Facility. The Company also amended the FINOVA Credit
Facility to increase both the total amount of the FINOVA Credit Facility to
$62.5 million and the borrowing base availability thereunder (the "Second
Temporary Overadvance"), in each case for a period not to exceed 120 days, or
September 15, 1998. The amendment to the FINOVA Credit Facility provided for the
payment of a $160,000 fee in connection with the Second Temporary Overadvance.
While the Second Temporary Overadvance is outstanding, all loans bear interest
at a per annum rate equal to either the prime rate plus a margin equal to 1.75
percent or the rate of interest offered in the London interbank market plus a
margin equal to 3.75 percent. The Company also pays a monthly unused facility
fee and a monthly collateral monitoring fee in connection with the FINOVA Credit
Facility. The Company anticipates that when the Second Temporary Overadvance
expires, total availability under the FINOVA Credit Facility will decrease by
approximately $5 million as a result of the advance rate on the appraised value
of equipment declining from 75 percent to 60 percent. This decrease will require
a repayment by the Company which, based on the Company's borrowing base on
August 14, 1998 would be approximately $4 million. This decrease in
availability will have an adverse effect on the Company's liquidity and failure
to make this payment would be an event of default under the FINOVA Credit
Facility. As discussed above, the Company intends to raise additional financing
or take other actions to improve its liquidity.
As of June 30, 1998, the Company's borrowing base supported borrowings of
approximately $62.5 million. Revolving credit loans under the FINOVA Credit
Facility were $56.0 million at June 30, 1998. There were also $4.5 million in
letters of credit outstanding at June 30, 1998, leaving $2.0 million available
for borrowings.
The Company's obligations under the FINOVA Credit Facility are
collateralized by substantially all of the unencumbered assets of the Company
and its subsidiaries and are guaranteed in full by each of the Operating
Companies. For purposes of the Indenture, the borrowings under the FINOVA Credit
Facility constitute Senior Indebtedness of the Company and Guarantor Senior
Indebtedness of the Operating Companies.
The FINOVA Credit Facility contains customary representations and
warranties and events of default and requires compliance with a number of
affirmative, negative and financial covenants, including a limitation on the
incurrence of indebtedness and a requirement that the Company maintain a
specified Current Ratio, Net Worth, Debt Service Coverage Ratio and Operating
Ratio.
15
<PAGE>
Volvo Credit Facilities
In February 1996, the Company and the Operating Companies then owned by the
Company entered into a Loan and Security Agreement, a Financing Integration
Agreement and related documents (collectively, the "Volvo Credit Facilities")
with Volvo Truck Finance North America, Inc. ("Volvo") pursuant to which Volvo
has committed, subject to the terms and conditions of the Volvo Credit
Facilities, to provide (i) a $10 million line of credit facility (the "Volvo
Line of Credit") to the Company and the Operating Companies, and (ii) up to $28
million in purchase money or lease financing (the "Equipment Financing
Facility") in connection with the Operating Companies' acquisition of new
tractors and trailers manufactured by Volvo GM Heavy Truck Corporation.
Borrowings under the Volvo Line of Credit are secured by certain specified
tractors and trailers of the Company and the Operating Companies (which must
have a value equal to at least 1.75 times the outstanding amount of borrowings
under the Volvo Line of Credit) and are guaranteed in full by each of the
Operating Companies. Borrowings under the Volvo Line of Credit bear interest at
the prime rate. The Volvo Line of Credit contains customary representations and
warranties and events of default and requires compliance with a number of
affirmative and negative covenants, including a profitability requirement and a
coverage ratio.
The Equipment Financing Facility was provided by Volvo in connection with
the Operating Companies' agreement to purchase 400 new trucks manufactured by
Volvo GM Heavy Truck Corporation. The borrowings under the Equipment Financing
Facility are collateralized by the specific trucks being financed and are
guaranteed in full by each of the Operating Companies. Borrowings under this
facility bear interest at the prime rate. Financing for an additional 150 new
trucks for approximately $11.3 million was committed during 1997, all of which
was obtained through operating leases.
At June 30, 1998, borrowings outstanding under the Volvo Line of Credit
were $7.6 million. This amount will likely decrease as a result of the normal
periodic appraisal process and expected declines in the value of collateral. The
outstanding debt balance under the Equipment Financing Facility was $2.0 million
at June 30, 1998; however, the remaining financing under this facility was
obtained through operating leases.
The Equipment Financing Facility contains customary representations and
warranties, covenants and events of default. For purposes of the Indenture, the
borrowings under the Volvo Credit Facilities constitute Senior Indebtedness of
the Company and Guarantor Senior Indebtedness of the Operating Companies.
Transamerica Lease Facility
In August 1997, the Company entered into a lease agreement with
Transamerica Business Credit Corporation ("TBCC") to provide the Company and its
subsidiaries with an arrangement to lease up to 300 new 1998 model tractors (the
"TBCC Lease"). The Company has leased all 300 trucks under this agreement, and
the line used under the TBCC Lease was approximately $22.8 million. The lease
term is 48 months and is subject to a terminal rental adjustment clause at the
end of the term. The Company treated this lease as an operating lease for
accounting purposes. Terms of the arrangement were set forth in a Master Lease
Agreement dated as of August 14, 1997.
Capital Expenditures and Resources
The Company had proceeds from property and equipment dispositions in excess
of capital expenditures of $7.7 million for the six months ended June 30, 1998
compared with $1.5 million for the six months ended June 30, 1997. During the
first six months of 1998 and 1997, the Company's acquisition of new tractors and
trailers to replace older equipment were primarily financed through operating
leases.
16
<PAGE>
During the second half of 1998 and the first half of 1999, the Company
plans to purchase approximately 350 to 400 new trucks, to replace existing
tractors. While final arrangements have not been made, these equipment purchases
and commitments will likely be financed primarily with operating leases.
In June 1997, AmeriTruck purchased all the outstanding stock of Tran-Star,
Inc. ("Tran-Star"), which was owned by Allways Services, Inc. The purchase
price of $2.6 million included $1.6 million in cash and a $1 million note
payable. Prior to its January 1998 merger into ART, Tran-Star was a carrier of
refrigerated and non-refrigerated products. Headquartered in Waupaca,
Wisconsin, Tran-Star operated primarily in between the upper midwestern U.S. and
the northeast and southeast, with terminals in Etters and Wyalusing,
Pennsylvania.
In May 1997, AmeriTruck purchased the capital stock of Monfort and Lynn,
both subsidiaries of ConAgra, Inc. ("ConAgra"). The purchase price of $15
million was paid in cash. The Tran-Star, Monfort and Lynn acquisitions were
accounted for using the purchase method of accounting. Accordingly, the purchase
price was allocated to the assets acquired and liabilities assumed based on
their estimated fair values at the date of acquisition. The total purchase price
including cash, note payable, miscellaneous acquisition costs and liabilities
assumed was $42.4 million for Tran-Star and $35.8 million for Monfort and Lynn.
The excess of the purchase price over fair values of the net assets acquired has
been recorded as goodwill.
17
<PAGE>
The Company is a holding company with no operations of its own. The
Company's ability to make required interest payments on the Subordinated Notes
depends on its ability to receive funds from the Operating Companies. The
Company, at its discretion, controls the receipt of dividends or other payments
from the Operating Companies.
OTHER MATTERS
Inflation and Fuel Costs
Inflation can be expected to have an impact on the Company's earnings.
Extended periods of escalating costs or fuel price increases without
compensating freight rate increases would adversely affect the Company's results
of operations. According to a Department of Energy survey, reported by the
American Trucking Association, the average price of diesel fuel for the six
months of 1998 was $1.07 compared with $1.23 for the six months of 1997. The
Company's fuel prices are slightly below the national average due to the
Company's ability to buy fuel at volume discounts. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations Expenses."
Year 2000
The Company is in the process of evaluating its primary accounting and
operational systems for the Year 2000 problem. During 1997, the Company began
consolidating the accounting and operational processing of several operating
companies onto a centralized set of applications and hardware located at
Electronic Data Systems Corporation ("EDS"). An internal study is currently
under way to determine the full scope and related costs of the Year 2000 problem
of these consolidated systems as well as other systems used by the Company. As a
part of the internal study, the Company will also address evaluation of key
vendors and customers to determine the impact, if any, on the Company's
business. Remediation or replacement of critical systems will begin prior to the
study being completed at the end of 1998. Full compliance is expected by the end
of March 1999. The Company currently does not believe that the Year 2000 problem
will have a material impact on the Company's financial condition or results of
operations, although the ultimate impact could be material depending on the
results of the aforementioned internal study.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
From time to time, the Company issues statements in public filings
(including this Form 10-Q) or press releases, or officers of the Company make
public oral statements with respect to the Company, that may be considered
forward-looking within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements in this Form 10-Q include statements concerning future cost savings,
projected levels of capital expenditures and the timing of deliveries of new
trucks and trailers, the Company's financing and equity plans, the Company's
ability to meet its future cash needs from borrowings under its credit
facilities, from cash generated from operations, asset dispositions, and future
equity issuances, the Company's Amended ConAgra Agreement with subsidiaries of
ConAgra, driver recruitment and training, and the Company's pursuit of
opportunistic acquisitions and the anticipated effects on the Company of any
Year 2000 problems. These forward-looking statements are based on a number of
risks and uncertainties, many of which are beyond the Company's control. The
Company believes that the following important factors, among others, could cause
the Company's actual results for its 1998 fiscal year and beyond to differ
materially from those expressed in any forward-looking statements made by, on
behalf of, or with respect to, the Company: the Company's ability to obtain
additional equity financing or raise additional cash through asset sales, the
adverse impact of inflation and rising fuel costs; the Company's substantial
leverage and its effect on the Company's ability to pay principal and interest
on the Subordinated Notes and the Company's ability to incur additional
financing or equity to fund its operations, to pursue other business
opportunities and to withstand any adverse economic and industry conditions; the
risk that the Company will not be able to integrate the Operating Companies'
businesses on an economic basis or that any anticipated economies of scale or
other cost savings will be realized; the ability of the Company to identify
suitable acquisition candidates, complete acquisitions or successfully integrate
any acquired businesses; competition; the ability of the Company to attract and
retain qualified drivers; and the Company's dependence on key management
personnel.
18
<PAGE>
These and other applicable risk factors are discussed in more detail in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 and
other filings the Company has made with the Securities and Exchange Commission
and are incorporated by reference.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in legal proceedings considered to be in the
normal course of business, none of which, singularly or collectively, are
considered to be material by management of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
The following exhibits are filed as part of this report:
Exhibit Number Description
-------------- -----------
10.1 Stock Purchase Agreement, dated as of May 1, 1998,
between Contract Mail Company and AmeriTruck
Distribution Corp.
10.4 Fifth Amendment to Loan and Security Agreement, dated as
of May 14, 1998, between the Company and FINOVA Capital
Corporation.
10.5 Sixth Amendment to Loan and Security Agreement, dated as
of June 30, 1998, between the Company and FINOVA Capital
Corporation.
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
B. Reports on Form 8-K
During the second quarter of 1998, there were no reports filed on Form
8-K.
Items 2, 3, 4 and 5 of Part II were not applicable and have been
omitted.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERITRUCK DISTRIBUTION CORP.
By: /s/ Michael L. Lawrence
---------------------------------
Michael L. Lawrence
Chairman of the Board and
Chief Executive Officer
By: /s/ Kenneth H. Evans, Jr.
---------------------------------
Kenneth H. Evans, Jr.
Treasurer and Chief Financial and
Accounting Officer
Date: August 14, 1998
<PAGE>
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
EXHIBIT INDEX
Page
Exhibit Number Description Number
- -------------- ----------- ------
10.1 Stock Purchase Agreement, dated as of May 1, 1998,
between Contract Mail Company and AmeriTruck
Distribution Corp.
10.4 Fifth Amendment to Loan and Security Agreement,
dated as of May 14, 1998, between the Company
and FINOVA Capital Corporation
10.5 Sixth Amendment to Loan and Security Agreement,
dated as of June 30, 1998, between the Company
and FINOVA Capital Corporation
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
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EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of May
1, 1998, by and between Contract Mail Company, a Delaware corporation (the
"Purchaser"), and AmeriTruck Distribution Corp., a Delaware corporation
("Seller").
RECITALS
WHEREAS, the Seller is the owner of all of the issued and outstanding
shares of common stock (the "Common Stock") of Thompson Bros., Inc., a South
Dakota corporation (the "Company"), and the Common Stock constitute all of the
issued and outstanding capital stock (of all classes) of the Company; and
WHEREAS, the Purchaser desires to purchase from the Seller, and the Seller
desires to sell to the Purchaser, all of the shares of Common Stock (the
"Shares"), upon the terms and conditions set forth herein; and
WHEREAS, the Seller is making certain representations, warranties,
covenants and indemnities herein as an inducement to the Purchaser to enter into
this Agreement, and the Purchaser is making certain representations, warranties,
covenants and indemnities herein as an inducement to the Seller to enter into
this Agreement;
NOW, THEREFORE, in consideration of the recitals and the respective
representations, warranties, covenants and indemnities contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and intending to be legally bound hereby, the parties hereby
agree as follows:
ARTICLE I
SALE OF SHARES; CLOSING
SECTION 1.1 Purchase of Shares. Subject to the terms and conditions of
this Agreement, the Seller will sell to the Purchaser, and the Purchaser will
purchase, the Shares on the Closing Date (as defined below).
SECTION 1.2 Purchase Price.
(a) The purchase price for the Shares shall be $15.5 million, as adjusted
pursuant to Section 1.6 (the "Purchase Price"), payable at the Closing by the
delivery of immediately available funds equal to such amount.
(b) At the Closing, (i) the Seller shall cause the Company and all of its
assets to be released from any obligation under or in respect of all
indebtedness for borrowed money and (ii) to
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the extent not already an obligor thereunder, the Company shall assume and
become solely liable under the operating leases described on Exhibit A attached
hereto and shall use reasonable efforts to cause the Seller and its other
subsidiaries to be released from any obligation under or in respect of such
leases.
SECTION 1.3 Closing. The purchase and sale of the Shares and
consummation of the other transactions described in Section 1.2 (the "Closing")
shall take place at the offices of Purchaser's counsel, Kirkland & Ellis, 200 E.
Randolph Drive, Chicago, Illinois, or at such other place as shall be mutually
agreed by the parties. For purposes of this Agreement, the date on which the
Closing actually occurs shall be the "Closing Date."
SECTION 1.4 Closing Deliveries. The Purchaser and the Seller will
deliver, or cause to be delivered, at the Closing the following instruments
(collectively, the "Transaction Documents") to which they are a party:
(a) certificates representing the Shares duly endorsed by the Seller for
transfer to the Purchaser and bearing a legend referring to the Securities Act
(as defined in Section 3.5);
(b) releases, in form satisfactory to the Purchaser, of all Company
obligations under or in respect of any indebtedness for borrowed money
including, without limitation, all intercompany obligations which shall be
terminated at no cost to the Company;
(c) assumption agreements, in form satisfactory to the Seller and the
Purchaser, providing for the Company's assumption of the operating leases
described on Exhibit A;
(d) an Opinion of the Purchaser's counsel in form and substance reasonably
satisfactory to the Seller;
(e) the Title Policies obtained by the Purchaser pursuant to Section 6.2
hereof;
(f) an Opinion of the Seller's counsel in form and substance reasonably
satisfactory to the Purchaser;
(g) a Disaffiliation Tax Sharing Agreement in the form of Exhibit B
attached hereto (the "Tax Agreement");
(h) an Asset Transfer Agreement between the Seller and the Company in the
form of Exhibit C attached hereto (the "Asset Transfer Agreement");
(i) the Guaranty of Contract Mail Holding, Inc., a Delaware corporation
("CMH"), in the form of Exhibit D attached hereto (the "Holding Guaranty"); and
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(j) such additional information or documents as the Purchaser and the
Seller shall have reasonably required to evidence the consummation of the
transaction contemplated by this Agreement, including, but not limited to all
required consents.
The Purchaser and the Seller shall use reasonable efforts to cause to be
delivered at the Closing, or if not then delivered, promptly after the Closing,
releases in form satisfactory to the Purchaser and the Seller providing for the
release of the Seller and its other subsidiaries from any obligation under or in
respect of the operating leases described on Exhibit A.
SECTION 1.5 Tax Treatment.
(a) The Purchaser and the Seller shall timely make a joint election under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code"), and Treas. Reg. (S)1.338(h)(10)-1(d)(1) (and any corresponding
elections under state, local or foreign tax law) (collectively the "338(h)(10)
Election") with respect to the purchase and sale of the Shares. As promptly as
practicable following the Closing, the Purchaser will prepare the election forms
and provide them to the Seller for the Seller's review. At the Seller's
request, the Seller and the Purchaser will meet to discuss and agree upon the
contents of such forms and resolve any issues. The Seller will execute and
return the election forms (as so revised) to the Purchaser as promptly as
practicable, and the Purchaser will file such election forms on or before the
respective due dates for each such election form. The Purchaser and the Seller
shall use reasonable efforts to agree to an allocation of the deemed purchase
price among the Company's assets in compliance with Temp. Treas. Reg. (S)
1.338(b)-2T(b). However, if they are unable to agree after such reasonable
efforts, each of the Seller and the Purchaser shall be free to use its own
allocation.
(b) The parties each hereby covenant and agree that they will not take a
position with respect to the allocation of the deemed purchase price among the
Company's assets (i) for purposes of any tax return filed with any governmental
agency charged with the collection of any taxes or, for so long as commercially
reasonable, for purposes of any judicial proceeding, that is in any way
inconsistent with the allocations made under Section 1.5(a) or (ii) for
financial reporting or accounting purposes that is in any way inconsistent with
such allocation unless a different allocation for financial reporting or
accounting purposes is required by law, regulation or court order or decree.
SECTION 1.6 Purchase Price Adjustment.
(a) For the purpose of this Section 1.6, the Company's Net Working Capital,
i.e. current assets less current liabilities (excluding the current portion of
long-term debt and all accrued interest thereon and excluding the assets and
liabilities marked with an asterisk (*) on Schedule 1.6 attached hereto) ("Net
Working Capital") shall be calculated in conformity with GAAP (as defined in
Section 10.16) applied on a basis consistent with the accounting methodologies
used to prepare the February 28, 1998 balance sheet of the Company. The
calculation of Net Working Capital as of February 28,1998, is set forth on
Schedule 1.6 attached hereto.
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(b) The Purchase Price shall be adjusted by an amount equal to the Working
Capital Adjustment. For purposes hereof, the "Working Capital Adjustment" shall
equal the difference between the Net Working Capital as of the end of the
business day immediately preceding the Closing Date and $200,000 ("Base Working
Capital"). If the Working Capital Adjustment is positive (i.e., Net Working
Capital as of the Closing Date is greater than Base Working Capital), the
Purchase Price shall be increased by the amount of the Working Capital
Adjustment. The Purchaser shall pay to the Seller any such positive Working
Capital Adjustment in cash, plus interest thereon at a rate of 10% per annum
from the Closing Date, within five days of the Determination Date (hereinafter
defined). If the Working Capital Adjustment is negative (i.e., Net Working
Capital as of the Closing Date is less than Base Working Capital), the Purchase
Price shall be decreased by the amount of the Working Capital Adjustment. The
Seller shall pay to the Purchaser any such negative Working Capital Adjustment
in cash, plus interest thereon at a rate of 10% per annum from the Closing Date,
within five days of the Determination Date.
(c) Within 60 days after the Closing Date, the Purchaser will provide the
Seller with a reasonably detailed calculation of the Working Capital Adjustment
for the Seller's review and approval, which approval shall not be unreasonably
withheld or delayed. In the event an agreement cannot be reached within 15 days
following the date such calculation is provided to the Seller, the parties shall
engage an independent "big six" accounting firm to determine the Working Capital
Adjustment, which determination shall be made in accordance with this Section
1.6 and shall be binding on the parties. Half of the expense incurred in
engaging such accounting firm shall be paid by the Purchaser, and the other half
of such expense shall be paid by the Seller. For purposes hereof,
"Determination Date" shall mean the date on which the final determination of the
Working Capital Adjustment is made in accordance with this Section 1.6.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller makes the representations and warranties set forth in this
Article II to the Purchaser. The Seller has delivered to the Purchaser the
Schedules to this Agreement referred to in this Article II on the date hereof
and such Schedules have been reviewed and accepted by the Purchaser. All matters
set forth in the Schedules shall be deemed to be disclosed not only in
connection with the representation and warranty specifically referenced on a
given Schedule, but for all purposes relating to the representations and
warranties of the Seller set forth in this Article II so long as the relevance
of such disclosure to any other representation or warranty is reasonably
apparent from the terms of such disclosure.
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SECTION 2.1 Organization and Qualification.
(a) The Company is duly incorporated, validly existing and in good standing
under the laws of South Dakota. The Company has all requisite corporate power
and authority to carry on its business as it is now being conducted, and to own,
lease and operate its properties and assets, and to perform all its obligations
under the agreements and instruments to which it is a party or by which it is
bound. The Company is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each state or other jurisdiction in
which the properties and assets owned, leased or operated by it or the nature of
the business conducted by it make such qualification necessary, except in such
jurisdictions where the failure to be duly qualified or in good standing does
not and would not result in a Material Adverse Effect. Each such jurisdiction
in which the Company is so qualified is listed on Schedule 2.1. The Company has
no subsidiaries.
(b) True, correct and complete copies of the Articles of Incorporation and
Bylaws of the Company, with all amendments thereto through the date of this
Agreement, have been delivered by the Seller to the Purchaser.
SECTION 2.2 The Company's Capitalization.
(a) The authorized and outstanding capital stock of the Company is set
forth on Schedule 2.2. Except as set forth on Schedule 2.2, there are no
outstanding subscriptions, options, phantom stock, convertible securities,
rights, warrants, calls, irrevocable proxies or other agreements or commitments
of any kind directly or indirectly obligating the Company to issue any security
of or equity interest in the Company, or irrevocable proxies or any agreements
restricting the transfer of or otherwise relating to any security or equity
interest in the Company. All of the Shares have been duly authorized, validly
issued and are fully paid and non-assessable, and are free of preemptive rights.
All dividends declared prior to the date hereof have been paid.
(b) The Seller is and will be on the Closing Date the record and beneficial
owner and holder of, and has, and on the Closing Date will have, good, valid and
record title to, the Shares. Except for the pledge of the Shares to Finova
Capital Corporation, a Delaware corporation ("Finova"), under the terms of that
certain Pledge Agreement, dated as of May 5, 1997, by and between Seller and
Finova, which the Seller shall cause to be released at the Closing, the Seller
owns the Shares free and clear of any adverse claim of any other person,
including without limitation any lien, mortgage, pledge, security interest or
other encumbrance.
SECTION 2.3 Authority Relative to the Agreement. This Agreement has been
duly and validly executed and delivered by the Seller, and this Agreement
constitutes the valid and binding obligation of the Seller enforceable against
the Seller in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, or other similar laws relating to
creditors' rights generally and general equitable principles.
5
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SECTION 2.4 No Violation. Except as set forth on Schedule 2.4, neither
the execution, delivery nor performance of this Agreement, nor the consummation
of the transactions contemplated hereby, will, as of the Closing Date, (i)
violate any law, order, writ, judgment, injunction, award, decree, rule,
statute, ordinance or regulation applicable to the Company, (ii) be in conflict
with, result in a breach or termination of any provision of, cause the
acceleration of the maturity of any debt or obligation pursuant to, constitute a
default (or give rise to any right of termination, cancellation or acceleration)
under, or result in the creation of any security interest, lien, charge or other
encumbrance upon any currently owned property of the Company pursuant to any
terms, conditions or provisions of any note, license, instrument, indenture,
mortgage, deed of trust or other agreement or understanding, to which the
Company is a party or by which any of the currently owned properties of the
Company are subject or bound, or (iii) conflict with or result in any breach of
any provision of the Articles of Incorporation or Bylaws of the Company.
SECTION 2.5 Consents and Approvals. Except as described on Schedule 2.5
hereto, and except for filing a Notification and Report Form pursuant to the
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), no prior consent, approval or authorization
of, or declaration, filing or registration with any person, domestic or foreign,
(i) is required of or by the Company or the Seller in connection with the
execution, delivery and performance by the Company or the Seller of this
Agreement and the transactions contemplated hereby or (ii) is necessary to
preserve or maintain any material right of the Company after consummation of
such transactions.
SECTION 2.6 Financial Statements.
(a) The Seller has provided the Purchaser with a true and complete copy of
the unaudited balance sheets of the non-refrigerated portion of the operations
of the Company (the "Mail Division") as of December 31, 1997, and the Seller has
provided or will provide the Purchaser with a true and complete copy of the
unaudited balance sheets of the Mail Division of the Company and the related
statements of operations for each monthly period ending after October 31, 1997
through and including, to the extent available, the last month immediately
preceding the Closing Date (all of the foregoing balance sheets and statements
of operations of the Mail Division of the Company, including the notes thereto,
if any, are collectively referred to as the "Financial Statements"). Except as
set forth on Schedule 2.6, the Financial Statements have been prepared from the
books and records of the Mail Division of the Company and fairly present the
assets, liabilities and results of operation of the Mail Division of the Company
at the date and for the periods indicated in accordance with GAAP.
SECTION 2.7 Absence of Changes. Except as and to the extent set forth on
Schedule 2.7, since December 31, 1997 (the "Balance Sheet Date"), the Company
has not directly or indirectly:
(a) made any amendment to its Articles of Incorporation or Bylaws or
changed the character of its business in any material manner;
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(b) suffered any Material Adverse Effect;
(c) entered into or amended any agreement, commitment or transaction,
except in the ordinary course of business or except in connection with the
transactions contemplated by this Agreement;
(d) agreed, whether in writing or otherwise, to take any action the
performance of which would change the representations contained in this Section
in the future so that any such representation would not be true as of the
Closing;
(e) declared, paid or set aside for payment any dividend or other
distribution or payment in respect of shares of its capital stock or redeemed or
repurchased any such capital stock;
(f) entered into any contract or transaction with any Affiliate of the
Company, except for contracts and transactions entered into in the ordinary
course of business whereby the monetary or business consideration arising from
such contract or transaction was substantially as advantageous to the Company as
the monetary and business consideration which it would obtain in a comparable
arm's length transaction and except for any contracts and transactions with
respect to which the Company will have no liability after the Closing; or
(g) entered into any transaction outside the ordinary course of business.
SECTION 2.8 Litigation. Except as set forth on Schedule 2.8, there are
no material actions, suits, or other proceedings pending or, to the knowledge of
the Seller or the Company, threatened against the Company or involving any of
the properties or assets of the Company, at law or in equity or before or by any
foreign, federal, state, municipal, or other governmental court, department,
commission, board, bureau, agency, or other instrumentality or person or any
board of arbitration or similar entity.
SECTION 2.9 Tax Matters.
(a) Seller or the Company has filed or caused to be filed on a timely basis
all tax returns that are or were required to be filed by or with respect to the
Company, either separately or as a member of a group of corporations, pursuant
to applicable legal requirements. The Company or the Seller in respect of the
Company has paid, or made provision for the payment of, all taxes that have or
may have become due pursuant to those tax returns or otherwise, or pursuant to
any assessment received by Seller or Company, except such taxes, if any, as are
listed in Schedule 2.9 and are being contested in good faith.
(b) Except as described in Schedule 2.9, neither Seller nor the Company has
given or been requested to give waivers or extensions (or is or would be subject
to a waiver or extension given by any other person) of any statute of
limitations relating to the payment of taxes of the Company or for which the
Company may be liable.
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(c) Except as set forth on Schedule 2.9, the Company has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code (S)280G (or any corresponding
provision of state, local or foreign income tax law). All taxes that the
Company is or was required to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper governmental
body or other person.
(d) All tax returns filed by (or that include on a consolidated basis) the
Company are true, correct, and complete. Except for the Tax Agreement, there is
no tax sharing agreement that will require any payment by the Company after the
Closing Date.
SECTION 2.10 Employee Benefit Plans. Schedule 2.10 lists each employee
benefit plan (as such term is defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and each other employee
benefit plan, program, or arrangement maintained, sponsored, or contributed to
by the Company or with respect to which the Company has any liability or
potential liability (each a "Benefit Plan"). Except as set forth on Schedule
2.10, each Benefit Plan that is intended to be qualified within the meaning of
Section 401(a) of the Code has received a determination from the Internal
Revenue Service (the "IRS") that such Benefit Plan is qualified under Section
401(a) of the Code, and nothing has occurred since the date of such
determination that could adversely affect the qualification of such Benefit
Plan. Except as set forth on Schedule 2.10, the Company does not maintain,
sponsor, contribute to, or have any liability or potential liability with
respect to any "employee pension benefit plan" (as such term is defined in
Section 3(2) of ERISA) that is subject to Section 302 of ERISA or Section 412 of
the Code or any "multiemployer plan" (as such term is defined in Section 3(37)
of ERISA). Each Benefit Plan and any related trust, insurance contract or fund
has been maintained, funded and administered in material compliance with its
respective terms and the terms of any applicable collective bargaining
agreements and in material compliance with all applicable laws and regulations,
including, but not limited to, ERISA and the Code. No asset of the Company is
subject to any lien under ERISA or the Code, and the Company has no liability
under Title IV of ERISA or to the Pension Benefit Guaranty Corporation. There
are no pending or, to the knowledge of the Seller or the Company, threatened
actions, suits, investigations or claims with respect to any Benefit Plan. The
Company has materially complied with the health care continuation requirements
of Part 6 of Subtitle B of Title I of ERISA; and the Company has no obligation
under any Benefit Plan or otherwise to provide health or life insurance benefits
to former employees of the Company or any other person, except as specifically
required by Part 6 of Subtitle B of Title I of ERISA or applicable state
insurance laws. Neither the Company nor, to the knowledge of the Seller or the
Company, any other "disqualified person" (within the meaning of Section 4975 of
the Code) or "party in interest" (within the meaning of Section 3(14) of ERISA)
has taken any action with respect to any of the Benefit Plans which could
subject any such Benefit Plan (or its related trust) or the Company or any
officer, director or employee of any of the foregoing to any penalty or tax
under Section 502(i) of ERISA or Section 4975 of the Code. The Company does not
have any liability with respect to any "employee benefit plan" (as defined in
Section 3(3) of ERISA) solely by reason of being treated as a single employer
under Section 414 of the Code with any trade, business or entity other than the
Company. With respect to each Benefit
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Plan, the Company has provided the Purchaser with true, complete and correct
copies of (to the extent applicable) (i) all documents pursuant to which the
Benefit Plan is maintained, funded and administered, (ii) the most recent annual
report (Form 5500 series) filed with the IRS (with applicable attachments),
(iii) the most recent financial statement, (iv) the most recent actuarial
valuation of benefit obligations, (v) the most recent summary plan description
provided to participants, and (vi) the most recent determination letter received
from the IRS.
SECTION 2.11 Employment Matters. Except as disclosed on Schedule 2.11,
the Company is not a party to any contracts or agreements granting benefits or
rights to employees or consultants, or any agreement with the Department of
Labor, the Equal Employment Opportunity Commission or any federal, state or
local agency relating to employment practices or labor disputes. Except as
disclosed on Schedule 2.11, there are no unfair labor practice complaints
pending against the Company before the National Labor Relations Board and no
similar claims pending before any similar state, local or foreign agency. There
are no strikes, slowdowns, work stoppages, union organizing efforts, lockouts,
or to the knowledge of the Seller or the Company, threats thereof, by or with
respect to any such employees. The Company has been and is in compliance with
applicable legal requirements related to employment, equal opportunities,
immigration, wage and hour laws, collective bargaining, payment of social
security and similar taxes, and occupational health and safety. The Company has
no unfunded medical liabilities except as disclosed on Schedule 2.11. The
Company has paid wages and benefits as required by the Service Contract Act of
1965 in accordance with the Company's contracts with the United States Postal
Service. True and correct copies of all presently operative wage determinations
have been provided to the Purchaser.
SECTION 2.12 Environmental Compliance. Except as set forth on Schedule
2.12:
(a) The Company and its Business Facilities (as defined in Section 10.16)
are, and have been, in material compliance with all applicable Environmental
Laws.
(b) There are no pending or, to the knowledge of the Seller or the Company,
threatened, claims, litigation, actions, proceedings, encumbrances, or other
restrictions of any nature, resulting from or arising under or pursuant to any
Environmental Law or relating to the release, storage, use or disposal of any
Hazardous Substances (as defined below), with respect to or affecting any of the
Business Facilities.
(c) Neither the Seller nor the Company has received any citation,
directive, inquiry, notice, order, summons, warning, or other communication that
relates to Hazardous Substances, or any alleged, actual, or potential violation
or failure to comply with any Environmental Law, or of any alleged, actual, or
potential obligation to undertake or bear the cost of any environmental
liabilities with respect to any of the Business Facilities or with respect to
any property or facility to which Hazardous Substances generated, manufactured,
refined, transferred, imported, used, or processed by the Seller, the Company,
or any other person for whose conduct they are or may be held responsible, have
been transported, treated, stored, handled, transferred, disposed, recycled, or
received.
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(d) There are no Hazardous Substances present on or in the environment at
the Business Facilities or, to the Seller's or the Company's knowledge, at any
geologically or hydrologically adjoining property, including any Hazardous
Substances contained in barrels, above or underground storage tanks, landfills,
land deposits, dumps, equipment (whether moveable or fixed) or other containers,
either temporary or permanent, and deposited or located in land, water, or any
other part of the Business Facilities or such adjoining property, or
incorporated into any structure therein or thereon.
(e) There has been no release or, to the knowledge of the Seller or the
Company, threat of release, of any Hazardous Substances at or from the Business
Facilities or at any other locations where any Hazardous Substances were
generated, manufactured, refined, transferred, produced, imported, used, or
processed from or by the Business Facilities, or from or by any other properties
in which the Company has or had an interest, or to the knowledge of the Seller
or the Company, any geologically or hydrologically adjoining property, whether
by the Seller, the Company, or any other person.
(f) The Seller has delivered to the Purchaser true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by the Seller or the Company pertaining to Hazardous Substances in,
on, or under the Business Facilities, or concerning compliance by the Seller,
the Company, or any other person for whose conduct they are or may be held
responsible, with Environmental Laws.
"Hazardous Substances" shall mean substances listed under 40 C.F.R. 302.4
as of the date of this Agreement, petroleum products, "pollutants" as defined
under 33 U.S.C. (S) 1362(6) as of the date of this Agreement, and "contaminants"
as defined in 42 U.S.C. (S) 300f(6) as of the date of this Agreement.
"Environmental Laws" shall mean federal, state, local and foreign statutes,
regulations, ordinances and other provisions having the force or effect of law
concerning pollution or protection of the environment, including without
limitation, the laws listed on the attached Exhibit E.
SECTION 2.13 Title to Properties; Encumbrances. The Company has good and
marketable title to all property (real, personal or mixed) currently owned by
the Company. None of the property currently owned by the Company is subject to
any claim, restriction, lease, sublease, license, concession, option, lien,
mortgage, pledge, rights of first refusal, security interest or other
encumbrance except (i) liens, mortgages, pledges, security interests or other
encumbrances securing indebtedness shown on the Financial Statements as securing
specified liabilities or obligations (and which the Seller will cause to be
released at Closing), with respect to which no default (or event which with
notice or lapse of time or both would constitute a default) exists, (ii) liens,
mortgages, pledges, security interests or other encumbrances incurred in
connection with the purchase of property or assets after the Balance Sheet Date,
with respect to which no default (or event which with notice or lapse of time or
both would constitute a default) exists (which the Seller will cause to be
released at Closing), (iii) liens, mortgages, pledges, security interests or
other encumbrances
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described in Schedule 2.13, (iv) liens for taxes, assessments or governmental
charges or levies which are not delinquent and for which appropriate reserves
have been established in accordance with GAAP, and (v) easements, covenants of
record and other similar encumbrances that do not materially interfere with the
Company's use occupancy, and enjoyment of the assets encumbered thereby. The
rolling stock, structures and other material equipment ("Fixed Assets") used by
the Company as of the dates set forth in Schedule 2.13 are listed in Schedule
2.13. Except as set forth on Schedule 2.13, such Fixed Assets, whether leased or
owned, are in good operating condition, adequate in all material respects for
the uses to which they are being put and are not in need of repair except for
ordinary, routine maintenance that is not material in cost or nature. Except for
the Transferred Assets (as defined in Section 4.3) and except as set forth on
Schedule 2.13, the assets, rights and properties of the Company as of the
Closing, including the Fixed Assets, will include all assets, properties and
rights necessary in connection with the Company's business as presently
conducted.
SECTION 2.14 Permits and Licenses. Except as set forth in Schedule 2.14,
the Company has all material permits, licenses, certificates and authorities
(collectively, "Permits") from governmental agencies required to conduct its
businesses as it is now being conducted, and the consummation of the
transactions contemplated by this Agreement will not constitute a violation of
any permit, license, certificate or authority from a governmental agency. The
Company is not in default or violation of any such Permit, all such Permits are
in full force and effect unimpaired by any act or omission of the Company or its
employees or agents and have not been suspended or revoked, and the Company has,
in all material respects, complied with, and will, in all material respects,
continue to comply with, their terms until Closing.
SECTION 2.15 Agreements, Contracts and Commitments. Except as described
in Schedule 2.15, the Company is not a party to and is not bound by (i) any
written or oral contract, agreement or commitment which involves or may involve
aggregate future payments (whether in payment of a debt, as a result of a
guarantee or indemnification, for goods or services or otherwise) by or to the
Company of $25,000 or more and which is not, by its terms, terminable by the
Company without penalty or payment on 30 days notice or less, or (ii) any non-
competition or secrecy agreement, any loan or credit agreement, security
agreement, indenture, mortgage, pledge, conditional sale or title retention
agreement, lease purchase agreement or other instrument evidencing indebtedness
(other than equipment purchases or lease agreements entered into in the ordinary
course of business and providing for Company obligations of less than $15,000),
or any employment, collective bargaining, sales representative, alliance,
partnership, joint venture, joint operating or similar agreement. The Company
has not breached any material provision of, and is not in default under the
material terms of, any such contract, agreement or commitment described in
Schedule 2.15 and to the knowledge of the Seller or the Company, no event has
occurred which, after notice or lapse of time or both, would constitute such a
material default by any third party under the terms of any such contract,
agreement or commitment. Schedule 2.15 includes a list of all of the Company's
Basic Surface Transportation Service Contracts with the United States Postal
Service. All such contracts are in full force and effect and constitute valid,
binding and enforceable obligations of the parties thereto, subject to the
effect of bankruptcy, insolvency, reorganization,
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moratorium or other similar laws relating to creditors' rights generally and
general equitable principles.
SECTION 2.16 Real Property.
(a) Schedule 2.16 sets forth a complete list of all owned U.S. real
property and owned foreign real property (collectively, the "Owned Real
Property") used by the Company in the operation of the Company's business. The
Company has previously provided copies to the Purchaser of all contracts,
agreements, mortgages, concessions, leases and commitments relating to or
affecting any Owned Real Property or any interests therein, including leasehold
interests, to which the Company is a party or by which the Company or any
property of the Company is in any way bound or affected, together with all
amendments and supplements thereto and modifications thereof. All such
contracts, agreements, mortgages, concessions, leases and commitments constitute
valid, binding and enforceable obligations of the parties thereto in accordance
with their terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally and general equitable principles, and the Company has not materially
breached any provision thereof and is not in default in any material respect
under the terms thereof, and the Seller and the Company have no knowledge of any
event which has occurred which after notice or lapse of time would constitute a
material default by any third party thereunder. Except as set forth on Schedule
2.16, none of the Owned Real Property are subject to any lease, sublease or
other agreement granting any party a right to use or occupancy thereof. No
Surveys (as defined in Section 5.8) will disclose any survey defect or
encroachment ("Survey Defects") from or onto any of the TBI Real Property (as
defined in Section 10.16) which materially adversely affects the Company's title
to or the Company's use and enjoyment of the TBI Real Property (or improvements
thereon) as currently used by the Company.
(b) No Proceedings. There are no proceedings in eminent domain or other
similar proceedings pending or, to the knowledge of the Seller or the Company,
threatened, affecting any portion of the Owned Real Property. There exists no
writ, injunction, decree, order or judgment outstanding, nor any litigation,
pending or, to the knowledge of the Seller or the Company, threatened, relating
to the ownership, lease, use, occupancy or operation by any person of the Owned
Real Property.
(c) Current Use. The current use of the Owned Real Property does not
violate in any material respect any instrument of record or agreement affecting
such Owned Real Property. There is no violation of any covenant, condition,
restriction, easement, agreement or order of any governmental authority having
jurisdiction over any of the Owned Real Property that affects such real property
or the use or occupancy thereof. No damage or destruction has occurred with
respect to any of the Owned Real Property that, individually or in the
aggregate, has had or resulted in, or will have or result in, a significant
adverse effect on the operation of the Company's business.
(d) Condition and Operation of Improvements. All buildings and all
components of all buildings, structures and other improvements included within
the Owned Real Property (the
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"Improvements"), including, without limitation, the roofs and structural
elements thereof and the heating, ventilation, air conditioning, air pollution
emission capture and abatement, plumbing, electrical, mechanical, sewer, waste
water and paving and parking equipment systems and facilities included therein,
are in good condition and repair, ordinary wear and tear excepted, and adequate
in all material respects to operate such facilities as currently used, to the
best of the Company's knowledge and belief, there are no facts or conditions
affecting any of the Improvements which would, individually or in the aggregate,
interfere in any significant respect with the use, occupancy or operation
thereof as currently used, occupied or operated or intended to be used, occupied
or operated. To the knowledge of the Seller and the Company, there are no
material structural deficiencies or latent defects affecting any Improvements
located upon the Owned Real Property.
SECTION 2.17 Certain Business Relationships with the Company. Except as
set forth on Schedule 2.17 and except for any business arrangement or
relationship for which the Company will have no liability after the Closing,
none of the Seller and its Affiliates is, or since the Balance Sheet Date has
been, involved in any business arrangement or relationship with the Company, and
none of the Seller and its Affiliates owns any asset, tangible or intangible,
which is used in the business of the Company.
SECTION 2.18 Compliance With Laws. The Company is in material compliance
with all Legal Requirements (as defined in Section 10.16) applicable to it or to
the ownership of its assets or the operation of its business.
SECTION 2.19 Patents, Trademarks and Copyrights.
(a) Schedule 2.19 sets forth all material patents, patent applications,
trademarks and service marks (whether registered or unregistered), trademark
applications, and copyrights (collectively, "Intellectual Property") required by
the Company in its business and operations. Except as set forth on Schedule
2.19, the Company owns free and clear of all liens and encumbrances, has a valid
license in or otherwise has the right to use the Intellectual Property and all
other trade secrets and know-how necessary to conduct the Company's business in
accordance with past custom and practice. Except as otherwise indicated on
Schedule 2.19 or in the ordinary course of business, the Company has not granted
to any other person any license to use any Intellectual Property.
(b) The Company is not in receipt of any notice of any violation of, and to
the knowledge of the Seller or the Company, it is not violating or infringing
upon the rights of any other person or entity in any intellectual property. To
the knowledge of the Company, no other person or entity is infringing any
intellectual property rights of the Company with respect to the Intellectual
Property.
SECTION 2.20 Books and Records. The books of account, minute books,
stock record books, and other records of the Company, all of which have been
made available to Buyer, are complete and correct in all material respects. The
minute books of the Company contain accurate
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and complete records of all meetings held of, and corporate action taken by, the
stockholders, the Boards of Directors, and committees of the Boards of
Directors, and since 1990, no meeting of any such stockholders, Board of
Directors or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At Closing, all of those books and
records will be in the possession of the Company or delivered to the Purchaser.
SECTION 2.21 Accounts Receivable. All accounts receivable of the Company
that are reflected on the Financial Statements or on the accounting records of
the Company as of the Closing Date (collectively, "Accounts Receivable")
represent or will represent valid obligations arising from services actually
performed in the ordinary course of business. Unless paid prior to the Closing
Date, the Accounts Receivable are or will be as of the Closing Date current and
collectible net of the respective reserves shown on the Financial Statements or
on the accounting records of the Company as of the Closing Date (which reserves
are adequate and calculated consistent with past practices). Subject to such
reserves, each of the Accounts Receivable either has been or will be collected
in full, without any set-off, within ninety days after the day on which it first
becomes due and payable. Except as set forth on Schedule 2.21, there is no
contest, claim or right of set-off, under any contract with any obligor of an
Accounts Receivable relating to the amount or validity of such Accounts
Receivable.
SECTION 2.22 Insurance.
(a) The Seller has delivered to the Purchaser:
(i) true and complete copies of all policies of insurance to
which the Company is a party or under which the Company, or any
director of the Company, is or has been covered at any time
within the three years preceding the date of this Agreement; and
(ii) a summary of any self insurance programs maintained now or
in the past by the Company or by the Seller in respect of the
Company.
(b) Schedule 2.22 summarizes loss experience for the Company for the past
three years, including self-insured claims.
(c) Except as set forth on Schedule 2.22, all policies to which the Company
is a party or that provide coverage to the Company or any director or officer of
the Company are enforceable, issued by an insurer that, to the Seller's
knowledge, is financially sound and reputable, and taken together, provide
adequate insurance coverage for the assets and operations of the Company for all
risks to which the Company is normally exposed, and are sufficient for
compliance with all legal requirements and contracts to which the Company is a
party or by which it is bound. Except as set forth Schedule 2.22, since
December 31, 1992, the Company has not received any refusal of coverage or
notice that a defense will be afforded with reservation of rights, or any notice
of cancellation or other indication that any policy is no longer in full force
or effect or will not be
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renewed. The Company has paid all premiums due and otherwise performed its
obligations under each policy to which it is a party or that provides coverage
to the Company or any director thereof.
SECTION 2.23 Certain Payments. To the Seller's knowledge, none of the
Company or any director, officer, agent or employee of the Company has directly
or indirectly made any contribution, gift, bribe, rebate kickback or other
payment to any person, private or public, regardless of form, whether in money,
property or services to obtain favorable treatment in securing business for or
in respect of the Company or in violation of any legal requirement.
SECTION 2.24 Disclosure. To the Seller's knowledge, no representation or
warranty of the Seller in this Agreement (as supplemented by the Schedules) or
in any related agreement contains or will contain any untrue statement of
material fact or will omit to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading.
SECTION 2.25 Undisclosed Liabilities. The Company has no liability
required under GAAP to be reflected or reserved on a balance sheet of the
Company or disclosed in a footnote thereto, except for (i) liabilities set forth
in the Financial Statements and (ii) liabilities which have arisen after the
Balance Sheet Date in the ordinary course of business.
SECTION 2.26 Disclosure of Additional and Implied Warranties. The Seller
is making no representations or warranties, express or implied, of any nature
whatsoever except as specifically set forth in Article II of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby makes the representations and warranties set forth in
this Article III to the Seller.
SECTION 3.1 Organization and Authority. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Purchaser has all requisite corporate power and authority
to carry on its business as it is now being conducted, and to own, lease and
operate its properties and assets, and to perform all its obligations under the
agreements and instruments to which it is a party or by which it is bound. The
Purchaser is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which the
properties and assets owned, leased or operated by it or the nature of the
business conducted by it make such qualification necessary, except in such
jurisdictions where the failure to be duly qualified or in good standing does
not and would not result in a Material Adverse Effect.
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SECTION 3.2 Authority Relative to Agreement. The Purchaser has full
corporate power and authority to execute and deliver this Agreement, and no
further corporate proceedings on the part of the Purchaser are necessary to
consummate the transactions contemplated hereby, which have been duly and
validly authorized by the Board of Directors of the Purchaser. This Agreement
has been duly and validly executed and delivered by the Purchaser, and this
Agreement constitutes the valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium, or other similar
laws relating to creditors' rights generally and general equitable principles,
and subject to such approval of regulatory agencies as may be required by
statute or regulation.
SECTION 3.3 No Violation. Neither the execution, delivery nor
performance of this Agreement, in its entirety, nor the consummation of all of
the transactions contemplated hereby will, as of the Closing Date, (i) violate
any law, order, writ, judgment, injunction, award, decree, rule, statute,
ordinance or regulation applicable to the Purchaser, (ii) be in conflict with,
result in a breach or termination of any provision of, cause the acceleration of
the maturity of any debt or obligation pursuant to, constitute a default (or
give rise to any right of termination, cancellation or acceleration) under, or
result in the creation of any security interest, lien, charge or other
encumbrance upon any property or assets of the Purchaser pursuant to any terms,
conditions or provisions of any note, license, instrument, indenture, mortgage,
deed of trust or other agreement or understanding or any other restriction of
any kind or character, to which the Purchaser is a party or by which any of its
assets or properties are subject or bound or (iii) conflict with or result in
any breach of any provision of the Articles of Incorporation or Bylaws of the
Purchaser.
SECTION 3.4 Consents and Approvals. Except for filing a Notification and
Report Form pursuant to the applicable requirements of the HSR Act, no prior
consent, approval or authorization of, or declaration, filing or registration
with any person, domestic or foreign, is required of or by the Purchaser in
connection with the execution, delivery and performance by the Purchaser of this
Agreement and the transactions contemplated hereby.
SECTION 3.5 Investment Intent. The Purchaser is acquiring the Shares for
its own account for investment and not with a view toward resale or
redistribution in a manner which would require registration under the Securities
Act of 1933, as amended (the "Securities Act"), or the securities laws of any
state, and the Purchaser does not presently have any reason to anticipate any
change in its circumstances or other particular occasion or event which would
cause it to sell the Shares or any part thereof or interest therein. The
Purchaser has not offered or sold the Shares or any part thereof or interest
therein, and has no present intention of dividing the Shares with others or of
reselling or otherwise disposing of the Shares or any part thereof or interest
therein either currently or after the passage of a fixed or determinable period
of time or upon the occurrence or nonoccurrence of any predetermined event or
circumstance. The Purchaser is an "accredited investor" as defined in Rule 501
under the Securities Act.
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SECTION 3.6 Disclaimer of Additional and Implied Warranties. The
Purchaser is making no representations or warranties, express or implied, of any
nature whatsoever except as specifically set forth in Article III of this
Agreement.
ARTICLE IV
COVENANTS
SECTION 4.1 Affirmative Covenants of the Seller and the Company. For so
long as this Agreement is in effect, the Seller shall, from the date of this
Agreement to the Closing, except as specifically contemplated by this Agreement
or as otherwise agreed to by the Purchaser, cause the Company to operate only in
the ordinary course of its business. Without limiting the generality of the
foregoing, the Seller shall, from the date of this Agreement to the Closing,
except as specifically contemplated by this Agreement or as otherwise agreed to
by the Purchaser, cause the Company to:
(a) comply with all material contractual obligations applicable to it;
(b) comply in all material respects with all laws, statutes and regulations
applicable to it and the conduct of its business, including the timely payment
of all taxes (except for those being contested in good faith);
(c) maintain all of the assets of the Company in good repair, order and
condition, reasonable wear and tear excepted, and maintain the insurance
coverages in effect before the date hereof or obtain comparable insurance
coverages from reputable insurers which, in respect to amounts, types and risks
insured, are consistent with such coverages;
(d) maintain proper books of record and account that fairly present its
financial condition and results of operations and make provisions in its
financial statements for all such proper reserves as in each case are required
in accordance with GAAP;
(e) promptly notify the Purchaser upon obtaining knowledge of any default,
event of default or condition which with the passage of time or giving of notice
would constitute an additional default or event of default under any of the
Company's contractual obligations, which default, event of default or condition
could reasonably be expected to have a Material Adverse Effect on the financial
condition of the Company;
(f) promptly notify the Purchaser upon obtaining knowledge of any material
pending or threatened litigation;
(g) maintain and preserve intact its corporate existence, business
organization, and its material assets, licenses, permits, authorizations and
business opportunities;
(h) maintain good accounting practices;
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(i) collect the Company's accounts receivable and pay the Company's
accounts payable in accordance with past custom and practice; and
(j) promptly notify the Purchaser (i) of any condition or event which
constitutes a material breach of any of the covenants or agreements set forth in
this Agreement, specifying the nature and period of existence of any such
condition or event and what action the Company has taken, is taking or proposes
to take with respect thereto or (ii) of any condition or event which, in the
opinion of management of the Company, could reasonably expected to have a
Material Adverse Effect.
SECTION 4.2 Negative Covenants of the Company. For so long as this
Agreement is in effect, the Seller shall, from the date of this Agreement to the
Closing, except as specifically contemplated by this Agreement or as otherwise
agreed to by the Purchaser, cause the Company to not:
(a) make any amendments to its Articles of Incorporation or Bylaws;
(b) make any capital expenditures in excess of $500,000 in the aggregate;
(c) enter into any contract or transaction with any Affiliate of the
Company except for (i) contracts and transactions entered into in the ordinary
course of business whereby the monetary or business consideration arising from
such contract or transaction would be substantially as advantageous to the
Company as the monetary and business consideration which it would obtain in a
comparable arm's length transaction and (ii) the Transaction Documents to which
the Company is a party and other contracts entered into pursuant to this
Agreement;
(d) contract to create any mortgage, pledge, lien, security interest or
encumbrance, restriction, or charge of any kind on the assets of the Company
(other than liens existing as of the date hereof, or liens created in the
ordinary course of business);
(e) incur any indebtedness for borrowed money not in the ordinary course of
business;
(f) issue any equity security or security convertible into or exchangeable
for any equity security;
(g) grant any increase in compensation or pay or agree to pay or accrue
any bonus or like benefit to or for the credit of any director, officer,
employee or other person, except in the ordinary course of business;
(h) declare, pay or set aside for payment any dividend or other
distribution or payment in respect of shares of its capital stock or redeem or
repurchase any such capital stock;
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(i) sell, transfer, distribute, or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and except for
the transfers contemplated by Section 4.3;
(j) take any action that would reasonably be expected to result in a
material breach of any representation or warranty of Seller set forth in this
Agreement; or
(k) enter into any transactions not in the ordinary course of business.
SECTION 4.3 Authorized Transfers.
(a) Notwithstanding the foregoing, pursuant to the Asset Transfer
Agreement, the Company shall, on or before the Closing, at the Seller's expense,
transfer to Seller or one of its Affiliates, those tangible assets not related
to or used directly or indirectly in the Company's business as presently
conducted as set forth on Schedule 4.3 (a) ("Transferred Assets"). From and
after the Closing, Seller agrees to indemnify, defend and hold the Company and
Purchaser harmless from any Loss (as defined in Section 8.2) related to the
Transferred Assets, including without limitation all liabilities related to
Environmental Laws. Liability for indemnification under this Section 4.3 shall
not be subject to the limitations of Section 8.4.
(b) Notwithstanding the foregoing, pursuant to the Asset Transfer
Agreement, the Seller shall, at the Seller's expense, transfer to the Company
those tangible assets related to or used directly or indirectly in the Company's
business as presently conducted as set forth on Schedule 4.3(b).
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Access To, and Information Concerning, Properties and Records.
(a) During the pendency of the transactions contemplated hereby, the
Seller shall cause the Company to give the Purchaser, its legal counsel,
accountants and other representatives full access, upon reasonable request and
at reasonable times, throughout the period prior to the Closing, to all of the
Company's properties, books, contracts, commitments, personnel, agents and
records, permit the Purchaser and such representatives to make such inspections
(including, without limitation, with regard to currently owned properties and
certain properties leased by the Company (collectively, the "Real Property"),
physical inspection of the surface and subsurface thereof) as they may
reasonably require and furnish to the Purchaser and such representatives during
such period all such information concerning the Company and its affairs as they
may reasonably request. The Purchaser agrees to conduct any such investigation
and inspection in a manner so as not to unreasonably interfere with the
Company's business operations.
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(b) All information disclosed by the Company or the Seller to the
Purchaser shall be subject to the terms of the letter agreement, dated as of
April 10, 1998, among the Seller, CMH and Code Hennessy & Simmons III, L.P.
regarding confidentiality (the "Confidentiality Agreement").
(c) The Purchaser agrees to cooperate with and to make available to the
Seller such documents, books, records or information relating to the Company's
operation prior to the Closing Date as the Seller may reasonably require after
the Closing in order to file tax returns, respond to claims asserted by third
parties or otherwise wind up its affiliation with the Company. The Purchaser
agrees to cause the Company to preserve and protect all books, records, files
and data referred to above for a period of six (6) years after the Closing Date.
The Purchaser agrees not to permit the Company to destroy any files or records
which are subject to this paragraph (c) for six (6) years after the Closing
Date, and thereafter, without giving at least thirty (30) days' notice to the
Seller. Upon receipt of such notice, the Seller may (A) cause to be delivered
to it the files or records intended to be destroyed, at the Seller's expense, or
(B) notify the Purchaser that the Seller will pay the cost of storing and
maintaining such files or records (including any necessary costs of moving such
files or records to a location under control of the Seller).
SECTION 5.2 Miscellaneous Agreements and Consents. Subject to the terms
and conditions of this Agreement, the Purchaser and the Seller agree to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations, to consummate and make effective, as soon as practicable
after the date hereof, the transactions contemplated by this Agreement.
SECTION 5.3 Good Faith Efforts. All parties hereto agree that the
parties will use their reasonable good faith efforts to secure all third-party
or regulatory approvals necessary to consummate the transactions provided herein
and to satisfy the other conditions to Closing contained herein as soon as
reasonably practicable. Each party agrees to make copies of its respective
regulatory filings and related correspondence to regulatory agencies available
to the other parties.
SECTION 5.4 Exclusivity. The Seller, the Company and their Affiliates
and advisors shall not (i) directly or indirectly, solicit or initiate any
proposals or offers from any person relating to any acquisition or purchase of
all or a material amount of the assets of, or any securities of, or any merger,
consolidation or business combination with, the Company, or (ii) participate in
any negotiations regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way with, any effort or attempt by any
other person to do or seek any of the foregoing.
SECTION 5.5 Noncompetition and Nonsolicitation.
(a) For a period of 42 months following the Closing, the Seller and its
subsidiaries shall not, directly or indirectly, within the continental United
States carry on, be engaged in, or own any interest or otherwise participate in
or assist any other entity which carries on or is engaged in, any business that
involves providing mail delivery services by highway transportation on a long-
term
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(greater than two years) contractual basis for the United States Postal Service
(a "Competing Business"); provided that (i) such limitation shall not prohibit
the Seller or its subsidiaries from owning not more than 5% of any class of
securities of any entity engaged in a Competing Business (any such entity, a
"Competitive Target") and (ii) such limitation shall not prohibit the Seller or
its subsidiaries from acquiring a Competitive Target so long as (A) if the
percentage of the gross revenues (for the 12-month period immediately preceding
the date of the proposed acquisition) (the "Revenue Percentage") generated by
the Competing Business component of the Competitive Target is equal to or less
than 25%, the Seller provides a written notice to the Company within 30 days
after completion of the proposed acquisition which includes a calculation in
reasonable detail supporting the Revenue Percentage calculation; and (B) if the
Revenue Percentage generated by the Competing Business component of the
Competitive Target is greater than 25%, the Seller provides a written notice
(the "Acquisition Notice") to the Company at least thirty (30) days prior to the
consummation of the proposed acquisition and the Company does not notify the
Seller within ten (10) days after the delivery of the Acquisition Notice that it
would like to pursue an acquisition of the Competitive Target. If the Company
provides such a notice, the Company shall have the exclusive right to pursue an
acquisition of the Competitive Target and, to the extent it is permitted to do
so, the Seller shall assign any and all of its rights to acquire the Competitive
Target to the Company. If the Seller cannot assign its rights to any such
acquisition to the Company, the Seller shall not consummate such acquisition. If
the Company has not elected to pursue an acquisition of the Competitive Target,
the Seller shall have the exclusive right to consummate the acquisition of the
Competitive Target within six months after the delivery of the Acquisition
Notice. Notwithstanding anything to the contrary contained in this Section
5.5(a), if the Seller does not consummate the acquisition of the Competitive
Target within such six-month period, the opportunity to acquire such Competitive
Target will be reoffered to the Company pursuant to this Section 5.5(a).
(b) For a period of two years following the Closing, the Seller and its
subsidiaries shall not, whether for their own account or the account of any
other entity, directly or indirectly solicit for employment or to provide
services any person who at the time of such solicitation is, or within the six
months immediately preceding such time was, an employee of the Company or any of
its subsidiaries.
SECTION 5.6 Use of the Fargo Terminal. Until the earlier of December 31,
1998 and the sale of the Fargo, North Dakota terminal, the Company shall be
permitted to continue its current use and enjoyment of such terminal for
purposes of parking at no cost to the Company.
SECTION 5.7 Use of the "AmeriTruck" name. From and after the Closing, the
Company shall cease further use of the name, "AmeriTruck," in connection with
its business or affairs.
SECTION 5.8 Surveys. Subsequent to the Closing, the Purchaser shall
obtain, at the Purchaser's cost and expense, current surveys of each parcel of
the TBI Real Property for which a Title Commitment (as defined in Section
6.2(h)) is prepared by a surveyor in the jurisdiction where the Owned Real
Property is located, satisfactory to the Purchaser, and conforming to 1992
ALTA/ACSM Minimum Detail Requirements for Urban Land Title Surveys ("Surveys"),
and such
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standards as the Title Insurer may (as defined in Section 6.2(h)) require as a
condition to the removal of any survey exceptions from the Title Policy (as
defined in Section 6.2(h)), and certified to the Purchaser, Purchaser's lender
and the Title Insurer, within 30 days of the Closing Date, in a form
satisfactory to such parties. The Survey shall disclose the location of all
Improvements, easements, party walls, sidewalks, roadways, utility lines and
such matters shown customarily on such surveys, show access affirmatively to
public streets and roads, and include Table A Item Nos. 1-4 and 6-14. The Seller
shall reasonably cooperate with the Purchaser in the Purchaser's efforts to (A)
obtain the Surveys and the Post-Closing Endorsements (as defined in Section
6.2(h)) and (B) cure or insure over any survey defect or encroachments from or
onto any of the TBI Real Property.
5.9 Cash Transition. In order to transition the Company away from
the consolidated cash management system with NationsBank used by the Seller and
its subsidiaries, the Seller and the Purchaser agree to take the following
actions:
(a) Unless otherwise requested by the Company, the Seller will fund any
checks of the Company outstanding at the close of business on the day preceding
the Closing Date. The Purchaser will reimburse or cause the Company to
reimburse the Seller for all checks or other payables (including any payments on
account of "fuel charge" cards) funded by the Seller on behalf of the Company
after the close of business on the day preceding the Closing Date. In addition,
the Seller will fund checks issued by the Company on or after the Closing Date
until the Company has obtained checks for its new bank accounts.
(b) The Seller will remit to the Purchaser or the Company (as directed by
the Purchaser) all payments received by the Seller on account of accounts
receivable of the Company outstanding at the close of business on the day
preceding the Closing Date or generated by the Company thereafter.
(c) The reimbursements and remittances to be made pursuant to paragraphs
(a) and (b) above will be settled on a daily basis.
(d) In addition to the foregoing, the Seller and the Purchaser will
cooperate to transition the Company out of the foregoing cash management system
including signing or revoking bank signature cards and notifying customers.
5.10 Insurance Deposits. The Purchaser acknowledges that, in
connection with the Seller's agreement to be responsible for Claims (as provided
in Section 8.1), the Seller will be entitled to any reserves on the Company's
books which represent tangible assets and any deposits or prepayments or similar
amounts of the Company relating to any insurance policies or programs covering
Claims ; provided that the Purchaser may elect to retain the account or deposit
with Dakota Truck Underwriters by delivery of written notice of such election to
the Seller not later than 30 days after the Closing and, in such event, the
amount of Net Working Capital existing on the Closing Date will be deemed
increased by the amount of such deposit or account. The Purchaser will cause
the Company to cooperate in order to transfer to the Seller these reserves and
funds.
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5.11 TBCC. With respect to the transfer of the Seller's (or its
subsidiary's) rights to $135,730.06 in security deposits transferred in
connection with the transfer of operating leases with TransAmerica Business
Credit Corp. ("TBCC"), the Purchaser agrees that it will deliver to the Seller
any amount of such security deposits it receives from TBCC at the end of the
lease term(s) or any amount of such deposit it applies against lease payments
under the operating leases. The Purchaser also agrees that it will not, and
will not permit any Affiliate to, waive its right to receive the security
deposits and will use and cause its Affiliates to use reasonable efforts to
receive the deposits at the end of the lease term(s).
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.1 Conditions to Each Party's Obligation Under this Agreement.
The respective obligations of (i) the Purchaser to purchase and pay for the
Shares and (ii) the Seller to sell the Shares, at the Closing are subject to
the satisfaction or waiver of the following conditions on or prior to the
Closing Date:
(a) the receipt of regulatory approvals and the expiration of any
applicable waiting period with respect thereto; and
(b) the Closing will not violate any injunction, order or decree of any
court or governmental body having competent jurisdiction, and there will be no
litigation pending which, if adversely determined, would enjoin, materially
interfere with or require the payment of material damages in connection with the
transaction contemplated hereby.
SECTION 6.2 Conditions to the Obligations of the Purchaser Under this
Agreement. The obligations of the Purchaser to purchase and pay for the Shares
at the Closing are subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:
(a) all representations and warranties of the Seller shall be true and
correct in all material respects as of the date hereof and at and as of the
Closing, with the same force and effect as though made on and as of the Closing;
(b) the Seller shall have performed in all material respects all
obligations and agreements and complied in all material respects with all
covenants and conditions contained in this Agreement to be performed or complied
with by it prior to the Closing Date;
(c) the Seller shall have delivered a certificate of its President
certifying to the satisfaction of the conditions contained in Sections 6.2(a)
and 6.2(b);
(d) the Purchaser shall have received the Opinion referenced in Section
1.4(f);
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(e) the Purchaser shall be satisfied that the transfers contemplated in
Section 4.3 have occurred;
(f) the Company shall have been released from or there shall have been
discharged, at no cost to the Company, any and all obligations for indebtedness
for borrowed money (including capitalized leases), including, without
limitation, all intercompany obligations and all liens in connection therewith;
(g) except as otherwise agreed to by the Purchaser, the directors and
officers of the Company shall have submitted their resignations;
(h) Title Insurance. The Purchaser shall have obtained, in preparation
for Closing, at the Purchaser's cost and expense, a commitment for an ALTA
Owner's Title Insurance, Form B-1970, for each parcel of TBI Real Property (the
"Title Commitments"), issued by First American Title Insurance Company (the
"Title Insurer"), in such amount as the Purchaser determines to be the fair
market value (including all improvements thereon), insuring the Purchaser's
interest in such parcel as of Closing. The Purchaser shall have obtained at the
time of delivery of the Title Commitments, copies of all documents of record
referred to therein. The Purchaser will have obtained title insurance policies
("Title Policies") on or before the Closing, from the Title Insurer based upon
the Title Commitments. The Company will deliver to the Title Insurer all
customary affidavits, undertakings and other title clearance documents necessary
to issue the Title Policies and endorsements thereto. Each such Title Policy
will be dated as of the date of closing and (a) insure title to the applicable
parcels of real estate and all recorded easements benefitting such parcels, (b)
contain an "extended coverage endorsement" insuring over the general exceptions
contained customarily in such policies, (c) contain an ALTA Zoning Endorsement
3.1, with parking (or equivalent), (d) contain an endorsement insuring that the
parcel described in such Title Policy is the parcel shown on the survey
delivered with respect to such parcel and a survey accuracy endorsement, (e)
contain an endorsement insuring that each street adjacent to such parcel is a
public street and that there is direct and unencumbered pedestrian and vehicular
access to such street from such parcel, (f) if the real estate covered by such
policy consists of more than one record parcel, contain a "contiguity"
endorsement insuring that all of the record parcels are contiguous to one
another, (g) contain a non-imputation endorsement, (h) contain a tax number
endorsement and (i) contain such other endorsements as the Purchaser and
Purchaser's lender, if any, may reasonably request. Notwithstanding the
foregoing, the Purchaser acknowledges that the endorsements pursuant to
subsection (b), (c), (d), (e), (f) (collectively, the "Post-Closing
Endorsements") will be issued on a post-closing basis in connection with the
Surveys.
(i) FIRPTA Affidavit. Prior to the date of Closing, the Company will
deliver to the Purchaser an affidavit dated as of the Closing and sworn under
penalty of perjury, setting forth the name, address and federal tax
identification number of the Company stating that the Company is not a foreign
person within the meaning of Section 1445 of the Internal Revenue Code.
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(j) all consents, approvals and waivers from third parties and
governmental authorities required to be obtained to (i) consummate the
transactions contemplated by this Agreement, or (ii) permit the Purchaser to own
the Shares and the Company to carry on its business after the Closing in
accordance with past custom and practice shall have been obtained; and
(k) the Purchaser shall have received the Opinion referenced in Section
1.4(e)and such opinion shall permit reliance thereon by the Purchaser's lenders.
SECTION 6.3 Conditions to the Obligations of the Seller Under this
Agreement. The obligations of the Seller to sell the Shares at the Closing is
subject to the satisfaction or waiver of the following conditions on or prior to
the Closing Date:
(a) all representations and warranties of the Purchaser contained herein
shall be true and correct in all material respects as of the date hereof and at
and as of the Closing, with the same force and effect as though made on and as
of the Closing;
(b) the Purchaser shall have performed in all material respects all
obligations and agreements and complied in all material respects with all
covenants and conditions contained in this Agreement to be performed or complied
with by it prior to the Closing Date;
(c) the Purchaser shall have delivered a certificate of its President
certifying to the satisfaction of the conditions contained in Sections 6.3(a)
and 6.3(b);
(d) the Company shall have completed the transfers contemplated by Section
4.3;
(e) the Seller shall have received reasonably satisfactory evidence that
the Company has obtained insurance covering its post-Closing business
operations, and the terms of such insurance shall be reasonably satisfactory to
the Seller;
(f) the Seller shall have received the Opinion referenced in Section
1.4(d); and
(g) the Seller shall have received the Purchase Price payable by the
Purchaser hereunder.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by mutual written consent executed by the parties;
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(b) by the Purchaser if there is a material inaccuracy or breach of any
representation, warranty or covenant of the Seller set forth in this Agreement
which is not cured within 10 days after written notice thereof from the
Purchaser or if any condition to the Purchaser's obligations hereunder becomes
impossible to fulfill;
(c) by the Seller if there is a material inaccuracy or breach of any
representation, warranty or covenant of the Purchaser set forth in this
Agreement which is not cured within 10 days after written notice thereof from
the Seller or if any condition to the Seller's obligations hereunder becomes
impossible to fulfill;
(d) by the Purchaser or the Seller if the Closing Date shall not have
occurred, other than through the failure of any such party to fulfill its
obligations hereunder, on or before the expiration of seven (7) days from the
date of this Agreement or such later date agreed to in writing by the Purchaser
and the Seller; or
(e) by the Purchaser or the Seller if any court of competent jurisdiction
in the United States of America or other (federal or state) governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have been
final and nonappealable.
SECTION 7.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1 hereof, this Agreement
shall thereafter become void and have no effect, without any liability on the
part of any party or its directors, officers or shareholders, other than the
provisions of this Section 7.2, Article VIII and Article X; provided, however,
that nothing contained in this Section 7.2 shall relieve any party from
liability for its breach or violation of this Agreement. The Confidentiality
Agreement will survive any termination of this Agreement, but the
Confidentiality Agreement shall terminate upon consummation of the Closing.
SECTION 7.3 Amendment and Modification. This Agreement may be amended,
modified, terminated, rescinded, or supplemented only by written agreement of
the parties hereto.
SECTION 7.4 Extension; Waiver. At any time prior to the Closing Date,
the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto, or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VII
REMEDIES
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SECTION 8.1 Indemnification by the Seller. Except as otherwise
expressly provided in this Article VIII and subject to the limitations stated in
this Article VIII, the Seller agrees to and shall defend, indemnify and hold
harmless the Purchaser and its Affiliates from and against, and shall reimburse
the Purchaser and its Affiliates for, each and every claim, action, demand,
cost, expense, liability, penalty and other damage incurred by the Purchaser or
its Affiliates, including, without limitation, reasonable attorney's fees
(collectively, a "Loss"), relating to, resulting from or arising out of, or any
allegation by any third party of, the following:
(a) any inaccuracy in any representation or warranty of the Seller under
this Agreement, any Schedule or the certificate to be delivered pursuant to
Section 6.2(c);
(b) any breach or nonfulfillment of any covenant, agreement or other
obligation of the Seller under this Agreement or any Transaction Document;
(c) any Loss resulting from workers' compensation claims and third party
claims for death or injury to person or property as a result of any services
provided by the Company prior to the Closing Date ("Claims"); and
(d) any Loss related to Ronco Management, Inc. vs. AmeriTruck Distribution
Corp. et al., Civil Action No. 5:97 CV151h, U.S. District Court (W.D.N.C.).
With respect to matters not involving any judicial, administrative, arbitration,
or investigatory proceeding or other proceeding, claim or controversy
(collectively, a "Proceeding") brought or asserted by third parties, within ten
days after notification from the Purchaser or its Affiliate supported by
reasonable documentation setting forth the nature of the circumstances entitling
the Purchaser or such Affiliate to indemnity hereunder, the Seller, at no cost
or expense to the Purchaser or such Affiliate, shall diligently commence
resolution of such matters in a manner reasonably acceptable to the Purchaser or
such Affiliate and shall diligently and timely prosecute such resolution to
completion. If the Seller, within ten days after notice, fails to diligently
commence resolution of such matters in a manner reasonably acceptable to the
Purchaser or such Affiliate, the Purchaser or such Affiliate, as the case may
be, shall have the right to undertake the resolution of such matters at the sole
expense of the Seller, to the extent it is subsequently determined that the
Seller is obligated under this Article VIII to indemnify the Purchaser for the
applicable Losses. With respect to those claims that may be satisfied by
payment of a liquidated sum of money, including, without limitation, claims for
reimbursement of expenses incurred in connection with any circumstances
entitling the Purchaser or any of its Affiliates to indemnity hereunder, the
Seller shall pay the full amount so claimed to the extent supported by
reasonable documentation within 15 days of such resolution. If the Seller
disputes its liability in connection with such claim, it shall pay any
undisputed part of such liability, and the Purchaser or its Affiliate, as the
case may be, and the Seller shall have 30 days to resolve any remaining dispute.
If the Purchaser and the Seller are unable to resolve such dispute within 30
days, they shall submit such dispute to non-binding mediation in New York, New
York. The mediation proceedings shall be commenced by either party giving the
other written notice
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("Mediation Notice") that the dispute will be submitted to mediation. Within ten
business days from the date of receipt of the Mediation Notice by the non-
initiating party, the parties shall make a good faith effort to select a person
to mediate the dispute. If no mediator has been selected under this procedure,
the parties shall jointly request a State or Federal District Judge of their
choosing to supply within ten business days a list of potential qualified
attorney-mediators in New York, New York. Within five business days of receipt
of the list, the parties shall rank the proposed mediators in numerical order of
preference, simultaneously exchange such list and select as the mediator the
individual receiving the highest combined ranking. If such mediator is not
available to serve, they shall proceed to contact the mediator who was next
highest in ranking until they select a mediator. In consultation with the
mediator selected, the parties shall promptly designate a mutually convenient
time in New York, New York for the mediation, such time to be no later than 30
days after selection of the mediator. In the mediation, each party shall be
represented by persons with authority and discretion to negotiate a resolution
of the dispute, and may be represented by counsel. The mediator shall determine
the format for the meetings and the mediation sessions shall be in private. The
mediator will keep confidential all information learned in private caucus with
any party unless specifically authorized by such party to make disclosure of the
information to the other party. The parties agree that the mediation shall be
governed by such rules as the mediator shall reasonably prescribe. The fees and
expenses of the mediator shall be borne as mutually agreed by the parties. The
mediator shall be disqualified as a witness, consultant, expert or counsel for
any party with respect to the dispute and any related matters. Mediation is a
compromise negotiation for purposes of federal and state Rules of Evidence and
constitutes privileged communications. The entire mediation process is
confidential, and such conduct, statement, promises, offers, views and opinions
shall not be discoverable or admissible in any Proceeding for any purpose. If
litigation or any other Proceeding is commenced between the Seller and the
Purchaser, the prevailing party in such litigation or other Proceeding shall be
entitled to recover all reasonable costs and expenses incurred in connection
with such litigation or other Proceeding, including, without limitation,
attorneys' fees. If litigation or any other Proceeding is commenced or
threatened by any third party for which the Purchaser is entitled to
indemnification under this Section 8.2, the provisions of Section 8.4 shall
control.
SECTION 8.2 Indemnification by the Purchaser. Except as otherwise
provided in this Article VIII, the Purchaser agrees to and shall defend,
indemnify and hold harmless the Seller from and against, and shall reimburse the
Seller for, each and every Loss, relating to, resulting from or arising out of,
or any allegation by any third party of, the following:
(a) any inaccuracy in any representation or warranty of the Purchaser
under this Agreement or the certificate to be delivered pursuant to Section
6.3(c);
(b) any breach or nonfulfillment of any covenant, agreement or other
obligation of the Purchaser under this Agreement or any Transaction Document; or
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(c) without limiting the Seller's obligations under Section 8.1, any
liabilities arising out of the operation of the Company's business after the
Closing, including, without limitation, any liabilities under the operating
leases transferred to the Company pursuant to Section 4.3(b).
With respect to matters not involving Proceedings brought or asserted by third
parties, within ten days after notification from the Seller supported by
reasonable documentation setting forth the nature of the circumstances entitling
such party to indemnity hereunder, the Purchaser, at no cost or expense to such
party shall diligently commence resolution of such matters in a manner
reasonably acceptable to such party and shall diligently and timely prosecute
such resolution to completion. If the Purchaser, within ten days after notice,
fails to diligently commence resolution of such matters in a manner reasonably
acceptable to such party, that party shall have the right to undertake the
resolution of such matters at the expense of the Purchaser. With respect to
those claims that may be satisfied by payment of a liquidated sum of money, the
Purchaser shall pay the amount so claimed to the extent supported by reasonable
documentation within 15 days of such resolution. If the Purchaser disputes its
liability in connection with such claim, it shall pay any undisputed part of
such liability, and the Purchaser and the party seeking indemnity shall have 30
days to resolve any remaining dispute. If the Purchase and such party are unable
to resolve such dispute within 30 days, they shall submit such dispute to non-
binding mediation in accordance with the procedure set forth in Section 8.2. If
litigation or any other Proceeding is commenced between the Purchaser and the
Seller, the prevailing party in such litigation or other Proceeding shall be
entitled to recover all reasonable costs and expenses incurred in connection
with such litigation or other Proceeding, including, without limitation,
attorneys' fees. If litigation or any other Proceeding is commenced or
threatened by any third party for which the Seller is entitled to
indemnification under this Section 8.3, the provisions of Section 8.4 shall
control.
SECTION 8.3 Notice and Defense of Third Party Claims. If any Proceeding
shall be brought or asserted under this Article by a third party against an
indemnified party (the "Indemnified Person") in respect of which indemnity may
be sought under this Article from an indemnifying person or any successor
thereto (the "Indemnifying Person") pursuant to any Proceeding, the Indemnified
Person shall give prompt written notice of such Proceeding to the Indemnifying
Person who shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Person and the payment of all
reasonable expenses; provided, that any delay or failure so to notify the
Indemnifying Person shall relieve the Indemnifying Person of its obligations
hereunder only to the extent, if at all, that it is prejudiced by reason of such
delay or failure. In no event shall any Indemnified Person be required to make
any expenditure or bring any cause of action to enforce the Indemnifying
Person's obligations and liability under and pursuant to the indemnifications
set forth in this Article. The Indemnified Person shall have the right to
employ separate counsel in any of the foregoing Proceedings and to participate
in the defense thereof, but the reasonable fees and expenses of such counsel
shall be at the expense of the Indemnified Person unless the Indemnified Person
shall in good faith determine that there exist actual or potential conflicts of
interest which make representation by the same counsel inappropriate. The
Indemnified Person's right to participate in the defense or response to any
Proceeding should not be deemed to limit or otherwise modify its obligations
under this Article. In the event that the Indemnifying
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Person, within 20 days after notice of any such Proceeding, fails to assume the
defense thereof, the Indemnified Person shall have the right to undertake the
defense, compromise or settlement of such Proceeding for the account of and at
the expense of the Indemnifying Person. Anything in this Article to the contrary
notwithstanding, the Indemnifying Person shall not, without the Indemnified
Person's prior written consent (which consent shall not be unreasonably
withheld, conditioned or delayed), settle or compromise any Proceeding or
consent to the entry of any judgment with respect to any Proceeding.
SECTION 8.4 Limitations of Liability.
(a) An Indemnifying Person shall have no liability under Section 8.1(a) or
Section 8.2(a) unless written notice of a claim for indemnity, or written notice
of facts as to which an Indemnifiable Loss is expected to be incurred, shall
have been given within 18 months after the Closing Date, provided that the
Purchaser may give notice of and may make a claim relating to the
representations and warranties contained in Section 2.12 (Environmental
Compliance) at any time prior to the expiration of three years after the Closing
Date, and provided further that the Purchaser may give notice of and may make a
claim relating to the representations and warranties contained in Section 2.2
(The Company's Capitalization), Section 2.9 (Tax Matters) or Section 2.10
(Employee Benefit Plans) at any time prior to 5 days after the expiration of the
appropriate statute of limitation with respect to any claim covered by the
representations and warranties in such Sections.
(b) Notwithstanding anything to the contrary contained in this Agreement,
the aggregate liability of an Indemnifying Person for all events or occurrences
giving rise to such Indemnifying Person being required to indemnify an
Indemnified Person under Section 8.1(a) or Section 8.2(a) of this Agreement
shall not exceed $2 million.
(c) Notwithstanding any other provision of this Agreement, an Indemnifying
Person shall be liable for indemnification under Section 8.1(a) or Section
8.2(a) of this Agreement only to the extent that the amount of any indemnifiable
Loss, individually or in the aggregate with all other such Losses covered by
this Agreement, exceeds $150,000 and in such event, the Indemnifying Person
shall be liable only for the amount of all such Losses that exceed the $150,000
limit.
(d) Any payments made pursuant to this Article VIII shall, to the extent
permitted by applicable law, be treated as adjustments to the Purchase Price.
In calculating the amount of any Loss for which any Indemnifying Person is
liable under this Article, there shall be taken into consideration (i) when and
as received, the value of any actual federal or state income tax benefits and
the cost of any actual federal or state income tax detriments as a result of the
receipt of any indemnity payment and (ii) the amount of any insurance
recoveries, including any amounts which are in effect self-insured whether
through retention amounts or otherwise, the Indemnified Person in fact receives
as a direct consequence of the circumstances to which the Loss related or from
which the Loss resulted or arose, except to the extent such insurance recoveries
have or are reasonably anticipated to result in future or retroactive premium
increases.
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(e) The remedies of the parties specifically provided for by this Article
and Article IX shall be the sole and exclusive remedies of the parties for (i)
any breach or inaccuracy of the representations and warranties contained in this
Agreement or in any document furnished or delivered pursuant hereto, (ii) the
failure to perform any covenants, agreements or obligations contained in this
Agreement or in any document furnished or delivered pursuant hereto or (iii) any
Loss, relating to, resulting from or arising out of any transaction or matter
relating in any manner whatsoever to this Agreement or to any document furnished
or delivered pursuant hereto.
SECTION 8.5 Tax Provisions. Notwithstanding the provisions of this
Article VIII, the provisions of the Tax Agreement (and not this Article VIII)
shall govern the allocation of responsibility between the Seller and the
Purchaser for Taxes of the Company.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
SECTION 9.1 Nature and Survival of Representations and Warranties. The
parties hereto agree that except as provided in the sentence immediately next
following this sentence, all of their respective representations and warranties
contained in this Agreement shall survive for a period of 18 months after the
Closing Date. The representations and warranties made in Section 2.12
(Environmental Compliance) shall survive for a period of three years after the
Closing Date, and the representations and warranties made in Section 2.2 (The
Company's Capitalization), Section 2.9 (Tax Matters), and Section 2.10 (Employee
Benefit Plans) shall survive for a period ending on the date 5 days after the
expiration of the appropriate statute of limitation with respect to any claim
covered by the representations and warranties in such Sections.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Expenses. All costs and expenses incurred in connection with
the transactions contemplated by this Agreement shall be paid by the party
incurring such costs and expenses, it being understood that all costs or
expenses incurred by or on behalf of the Company prior to the Closing in
connection with such transactions shall be paid by the Seller.
SECTION 10.2 Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the transactions contemplated hereby
shall be issued, if at all, at such time and in such manner as the Purchaser and
the Seller shall jointly determine. Notwithstanding the foregoing, the
Purchaser acknowledges that the Seller will be required under federal securities
laws to issue a press release relating to this Agreement and may be required to
file a Current Report on Form 8-K with respect to the transactions contemplated
by this Agreement. The foregoing will be subject to the Purchaser's prior
review and consent, not to be unreasonably withheld or delayed. The Purchaser
and the Seller will consult with each other concerning the means by which the
Company's employees, customers and suppliers and others having dealings with the
Company will
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be informed of the transactions contemplated hereby, and the Purchaser shall
have the right to be present for any such communication.
SECTION 10.3 Brokers and Finders. Except for SV Capital Management, Inc.
(whose fees and expenses shall be borne by the Purchaser), all negotiations on
behalf of the Purchaser and the Seller relating to this Agreement and the
transactions contemplated by this Agreement have been carried on by the parties
hereto and their respective agents directly without the intervention of any
other person in such manner as to give rise to any claim against the Purchaser
or the Seller for financial advisory fees, brokerage or commission fees,
finder's fees or other like payment in connection with the consummation of the
transactions contemplated hereby.
SECTION 10.4 Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings other than the
Confidentiality Agreement, both written and oral, among the parties or any of
them with respect to the subject matter hereof, and (b) shall not be assigned by
operation of law or otherwise; provided that the Purchaser shall be entitled to
assign its rights to indemnification hereunder to its lenders but no such
assignment will relieve the Purchaser of its obligations under this Agreement.
SECTION 10.5 Amendment and Modification. This Agreement may be amended,
modified, terminated, rescinded or supplemented only by written agreement of the
parties hereto.
SECTION 10.6 Waiver; Consents. Any failure of a party to comply with any
obligation, covenant, agreement or condition herein may be waived by the party
affected thereby only by a written instrument signed by the party granting such
waiver. No waiver, or failure to insist upon strict compliance, by any party of
any condition or any breach of any obligation, term, covenant, representation,
warranty or agreement contained in this Agreement, in any one or more instances,
shall be construed to be a waiver of, or estoppel with respect to, any other
condition or any other breach of the same or any other obligation, term,
covenant, representation, warranty or agreement. Whenever this Agreement
requires or permits consent by or on behalf of any party hereto, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver.
SECTION 10.7 Further Assurances. From time to time, the Purchaser and the
Seller shall execute and deliver such further agreements, documents,
certificates and other instruments and shall take or cause to be taken such
other actions as shall be reasonably necessary or advisable to carry out the
purposes of and effect the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, the Seller shall, as promptly as
practicable after the Closing, cause the release of all liens on the Company's
assets arising in connection with indebtedness for borrowed money (including
capitalized leases) which have not been released as of the Closing Date.
SECTION 10.8 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
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SECTION 10.9 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by cable, telecopy or telex, or by
registered or certified mail (postage prepaid, return receipt requested), to the
respective parties as follows:
if to the Purchaser:
Mr. Randall G. Mourot
Contract Mail Company
100 Morgan Keegan Dr.
Little Rock, AK 72202
Telecopy No. (501) 280-0111
with a copy to:
Mr. Kevin Evanich
Kirkland & Ellis
200 East Randolph, 56th Floor
Chicago, IL 60601
Telecopy No. (312) 861-2200
if to the Seller:
Mr. Kenneth Evans, Jr.
AmeriTruck Distribution Corp.
301 Commerce, Suite #1101
City Center Tower 2
Fort Worth, TX 76102
Telecopy No.
with a copy to:
Mr. John Utzschneider
Bingham, Dana LLP
150 Federal Street
Boston, MA 02110
Telecopy No. (617) 951-8736
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
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SECTION 10.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 10.11 Service of Process. Any process against the Purchaser or
the Seller in, or in connection with, any suit, action or proceeding arising
out of or relating to this Agreement or any of the transactions contemplated by
this Agreement may be served personally or by certified mail at the address set
forth in Section 10.9 with the same effect as though served on it or him
personally.
SECTION 10.12 Descriptive Headings. The descriptive headings are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
SECTION 10.13 Parties in Interest; No Third Party Beneficiary. This
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 10.14 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 10.15 Incorporation by Reference. Any and all Schedules and
Exhibits referred to herein or attached hereto are incorporated herein by
reference hereto as though fully set forth at the point referred to in the
Agreement.
SECTION 10.16 Certain Definitions. For the purposes of this Agreement,
the following terms shall have the meanings specified or referred to below
whether or not capitalized when used in this Agreement.
(a) "Affiliate" means, with respect to any person or other entity, any
person or other entity that, directly or indirectly, controls, is controlled by,
or is under common control with, such person or other entity in question. For
the purposes of this definition and the definition of Subsidiary, "control"
(including "controlling," "controlled by" and "under common control with") as
used with respect to any person or other entity, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such person or other entity, whether through the ownership of
voting securities, by contract or otherwise.
(b) "Business Facility" includes any real property which the Company
currently leases, operates, owns or manages in any manner.
34
<PAGE>
(c) "GAAP" means generally accepted United States accounting principles,
consistently applied.
(d) "Knowledge" or "known" -- For all purposes of this Agreement, the
Seller or the Company shall be deemed to have "knowledge" of or to have "known"
a particular fact or other matter if and only if any of the following persons
have actual knowledge of the particular fact or matter: Michael Lawrence,
Michael Langevin, Michael May, Ken Evans, Randy Thompson, David Overby, Dan
Rouse and Renee Lunquist.
(e) "Legal Requirement" means any law, statute, decree, order, rule or
regulation.
(f) "Material Adverse Effect" shall mean any material adverse change in
the financial condition, assets or liabilities of the Company (or when the
reference is to the Purchaser, to the Purchaser and its subsidiaries, taken as a
whole).
(g) "TBI Real Property" means the Company's real property located at 3605
Teem Drive, Sioux Falls, South Dakota 57101 and 4200 Speaker Road, Kansas City,
Kansas 66101.
SECTION 10.17 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY RIGHTS THAT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT OR ANY OF THE
RELATED AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS OR
ACTIONS OF ANY OF THEM RELATING THERETO.
35
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Stock Purchase
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
AMERITRUCK DISTRIBUTION CORP.
By: /s/ KENNETH H. EVANS
-----------------------------
Name: Ken Evans
---------------------------
Title: Treasurer
--------------------------
CONTRACT MAIL COMPANY
By: /s/ RICHARD A. LOBE
-----------------------------
Name: Richard A. Lobe
---------------------------
Title: Vice President
--------------------------
36
<PAGE>
Schedules to Stock Purchase Agreement (omitted herein)
------------------------------------------------------
Schedule 1.6 Working Capital
Schedule 2.1 Jurisdictions in Which TBI Is Qualified to Do Business
Schedule 2.2 Capitalization; Options
Schedule 2.4 Violations
Schedule 2.5 Consents and Approvals
Schedule 2.6 Financial Statements
Schedule 2.7 Absence of Changes - Exceptions
Schedule 2.8 Litigation
Schedule 2.9 Tax Matters
Schedule 2.10 Employee Benefits Plans
Schedule 2.11 Employment Matters
Schedule 2.12 Environment Compliance
Schedule 2.13 Assets Used by the Company
Schedule 2.14 Permits and Licenses - Exceptions
Schedule 2.15 Agreements, Contracts, Commitments
Schedule 2.16 Real Property
Schedule 2.17 Assets Owned by Affiliates
Schedule 2.19 Patents, Trademarks and Copyrights
Schedule 2.21 Contests, Claims, or Rights of Set Off Under Contracts
with Obligors or any Account Receivable
Schedule 2.22 Insurance
Schedule 4.3(a) Assets Transferred to Seller
Schedule 4.3(b) Assets Transferred to the Company
Exhibits to Stock Purchase Agreements (omitted herein)
------------------------------------------------------
Exhibit A Operating Leases
Exhibit B Disaffiliation Tax Sharing Agreement
Exhibit C Asset Transfer Agreement
Exhibit D Guaranty of Contract Mail Holding, Inc.
The Company will furnish supplementally a copy of any omitted schedule or
exhibit to the Securities and Exchange Commission upon request.
<PAGE>
EXHIBIT 10.4
FIFTH AMENDMENT AND WAIVER TO
LOAN AND SECURITY AGREEMENT
This Fifth Amendment and Waiver to Loan and Security Agreement (this
"Amendment"), is made and entered into effective as of the 14th day of May, 1998
by and between FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender") and
AMERITRUCK DISTRIBUTION CORP., a Delaware corporation ("Borrower"). This
Amendment modifies and amends that certain Loan and Security Agreement, dated
May 5, 1997, between Lender and Borrower (the "Agreement"). All terms used
herein with initial capital letters, unless otherwise specifically defined
herein, shall have the same meanings as set forth in the Agreement. All
references to the Agreement shall include the Schedule.
R E C I T A L S:
WHEREAS, Borrower has informed Lender that Borrower is attempting to
obtain Twenty Million Dollars ($20,000,000) in connection with a private
placement of its capital stock or indebtedness;
WHEREAS, Borrower has also informed Lender that Events of Default
exist as a result of a breach of the Current Ratio, Net Worth, Debt Service
Coverage Ratio and Operating Ratio set forth in Section 13.14 of the Agreement
for the period ending March 31, 1998 (the "March 31 Events of Default");
WHEREAS, in connection therewith, Borrower has requested that Lender
waive the March 31 Events of Default, and Borrower and Lender desire to amend
the Agreement in certain respects;
WHEREAS, such amendments to the Agreement will provide Borrower with
additional loans;
NOW, THEREFORE, in consideration of the foregoing premises and other
valuable consideration, the parties hereto agree as follows:
1. Waiver. Lender hereby waives the March 31 Events of Default. The
------
waiver of the March 31 Events of Default shall not constitute a waiver of any
other Events of Default which may exist or hereafter arise under the Agreement
or any of the other Loan Documents or an agreement by Lender to waive any other
Events of Default. Without limiting the foregoing, Borrower's failure to comply
with the covenants contained in Section 13.14 for any period ending after March
31, 1998 shall constitute an Event of Default.
2. Amendment to Schedule. Subject to the terms and conditions of
---------------------
Section 3 below, the Agreement is amended as follows:
<PAGE>
(a) Section 18.1 of the Agreement shall be amended to add the
following definition in the appropriate alphabetical order:
"Second Additional Availability Period" means the 120 day period
-------------------------------------
commencing on May 15, 1998 and ending on the earliest of (A) September 15,
1998, (B) the date a Qualified Private Placement is consummated and (C) the
date Borrower notifies Lender in writing of its desire to terminate the
Second Additional Availability Period.
(b) Section 18.1 of the Agreement shall be amended to amend and
restate in its entirety the definition of "Qualified Private Placement" as
follows:
"Qualified Private Placement" means any non-public sale of shares of
---------------------------
any class of Borrower's capital stock or indebtedness yielding gross cash
proceeds to Borrower of at least Ten Million Dollars ($10,000,000).
(c) Section 1.1 of the Schedule to the Agreement is amended and
restated in its entirety as follows:
TOTAL FACILITY (Section 1.1): $60,000,000; provided, that during the
--------
Second Additional Availability Period, the
Total Facility shall be $62,500,000
(d) Section 1.2 of the Schedule to the Agreement is amended and
restated in its entirety as follows:
LOANS (SECTION 1.2):
REVOLVING LOANS: A revolving line of credit
(the "Revolving Loans") consisting of loans
against Eligible Receivables and against
Eligible Equipment in an aggregate
outstanding principal amount not to exceed
the lesser of:
(a) Total Facility
(b) the sum of:
(i) an amount equal to eighty-five
percent (85%) of the net amount
of the Eligible Receivables that
are billed; plus
(ii) an amount (not to exceed the
lesser of (A) Four Million
Dollars ($4,000,000) and (B) an
amount equal to three (3)
working days' revenue (based on
the most recent
-2-
<PAGE>
monthly financials)) equal to
seventy percent (70%) of
Eligible Receivables that are
unbilled less than five (5)
Business Days; plus
(iii) an amount equal to the Equipment
Advance Rate multiplied by the
Orderly Liquidation Value of the
Eligible Equipment; plus
(iv) during the Second Additional
Availability Period only, an
amount equal to the product of
(A) the amount by which seventy-
five percent (75%) exceeds the
Equipment Advance Rate
multiplied by (B) the Orderly
Liquidation Value of the
Eligible Equipment; less
(v) the aggregate undrawn face
amount of all Letters of Credit
issued under Section 1.4 of this
Agreement; less
(vi) the amount of the Landlord
Reserve and such other reserves
as Lender, in its reasonable
credit judgment, deems proper
from time to time based on the
results of its examinations,
Appraisals or other credit or
collateral considerations which
indicate a deterioration in
Eligible Receivables or Eligible
Equipment from the date hereof,
such that additional reserves
for Eligible Receivables and/or
Eligible Equipment are
warranted.
Notwithstanding the foregoing, (A) the loans
against Eligible Equipment shall not exceed
$35,000,000 at any time and (B) the
availability described in clause (iv) above
shall not be available at any time other
than during the Second Additional
Availability Period. The Revolving Loans
shall be segregated into two tranches:
revolving loans under tranche A (the
"Revolving A Loans") and revolving loans
under tranche B (the "Revolving B Loans").
The maximum outstanding principal amount of
Revolving A Loans is Thirty Million Dollars
($30,000,000) and the maximum outstanding
principal amount of Revolving
-3-
<PAGE>
B Loans is Thirty Million Dollars
($30,000,000); provided, that during the
--------
Second Additional Availability Period, the
maximum outstanding principal amount of
Revolving B Loans shall be Thirty-Two
Million Five Hundred Thousand Dollars
($32,500,000). With respect to each request
for a Revolving Loan or Letter of Credit,
Borrower shall designate whether such
request is for a Revolving A Loan (or under
the tranche for Revolving A Loans in the
case of Letters of Credit) or a Revolving B
Loan (or under the tranche for Revolving B
Loans in the case of Letters of Credit).
With each request for a Revolving B Loan (or
a Letter of Credit to be issued under the
tranche for Revolving B Loans), Borrower
shall provide Lender with a certificate of
the chief financial officer of Borrower, in
form and substance satisfactory to Lender
that such Revolving B Loan or Letter of
Credit, as applicable, will not result in a
breach or violation of the Indenture, and at
the request of Lender, with an opinion of
Borrower's counsel that such Revolving B
Loan or Letter of Credit, as applicable,
will not result in a breach or violation of
the Indenture.
(e) The first section of Section 3.1(A) of the Schedule to the
Agreement is amended and restated in its entirety as follows:
INTEREST AND FEES (SECTION 3.1):
A. INTEREST.
--------
(i) The Revolving Loans shall bear interest
on the unpaid principal amount thereof
from the date such Revolving Loans are
made and until paid in full at one of
the following rates, as selected by
Borrower from time to time as provided
in this Section 3.1:
(a)
Base Rate Option. That portion
of the outstanding principal
balance of the outstanding
principal balance of the
Revolving Loan subject to this
option shall bear interest at a
fluctuating rate per annum equal
to (A) if the Second Additional
Availability Period has not
ended, the Base Rate plus one
and three-quarters percent
(1.75%) and (B) the Base Rate
plus three-quarters of one
-4-
<PAGE>
percent (0.75%) at all other
times; and
(b) LIBOR Rate Option. That portion
of the outstanding principal
balance of the Revolving Loan
subject to this option shall
bear interest at a fixed rate
per annum equal to (A) if the
Second Additional Availability
Period has not ended, the LIBOR
Rate applicable to such LIBOR
Rate Portion plus three and
three-quarters percent (3.75%)
and (B) the LIBOR Rate
applicable to such LIBOR Rate
Portion plus two and three-
quarters percent (2.75%) at all
other times.
(f) A new Section 3.1(E) is added to the Schedule to the Agreement
as follows:
E. Fees for Second Additional Availability
---------------------------------------
Period; Waiver Fee. Borrower shall pay
------------------
to Lender a Second Additional
Availability Facility Fee equal to One
Hundred Sixty Thousand Dollars
($160,000) which shall be payable as
follows: (i) Forty Thousand Dollars
($40,000) on the first day of the
Second Additional Availability Period,
(ii) Thirty Thousand Dollars ($30,000)
on June 15, 1998, (iii) Thirty Thousand
Dollars ($30,000) on July 15, 1998,
(iv) Thirty Thousand Dollars ($30,000)
on August 15, 1998, and (v) Thirty
Thousand Dollars ($30,000) on September
15, 1998; provided that upon
termination of this Agreement or the
Second Additional Availability Period,
the entire unpaid Second Additional
Availability Facility Fee shall be
immediately due and payable. In
addition, Borrower shall also pay to
Lender a Waiver Fee equal to Thirty
Five Thousand Dollars ($35,000) which
shall be payable on the first day of
the Second Additional Availability
Period.
3. Conditions to Effectiveness. As a condition precedent to the
---------------------------
effectiveness of this Amendment, Borrower agrees to fulfill its obligations
under Section 4 below.
-5-
<PAGE>
4. Other Agreements. In consideration of providing the waiver set
----------------
forth above and amending the Agreement to provide additional loans to Borrower,
Borrower agrees to (a) promptly upon the request to Lender, deliver to Lender
such documents as Lender shall require and shall have delivered to Borrower to
perfect its lien on the vehicles listed on Exhibit A and (b) cause its
subsidiary, AmeriTruck, Ltd., an Ohio corporation, to execute and deliver to
Lender a guaranty of the obligations of Borrower and a security agreement
granting a lien on substantially all of its assets to secure such guaranty.
5. Confirmation of Liens. This Amendment in no way acts as a release
---------------------
or relinquishment of any of the liens, security interests, rights or remedies
securing payment of the Loans or of the enforcement thereof. Such liens,
security interests, rights and remedies are hereby ratified, confirmed,
preserved, renewed and extended by Borrower in all respects.
6. Reaffirmation of the Loan Documents. All terms, conditions and
-----------------------------------
provisions of the Agreement and the other Loan Documents are hereby reaffirmed
and continued in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby.
7. Representations and Warranties. Borrower represents and warrants to
------------------------------
Lender that the execution and delivery by Borrower of this Amendment has been
duly and properly made and authorized. The Loan Documents and this Amendment
each constitute valid and binding obligations of Borrower, enforceable in
accordance with their respective terms.
8. Benefit of the Amendment. The terms and provisions of this
------------------------
Amendment and the other Loan Documents shall be binding upon and inure to the
benefit of Lender and Borrower and their respective successors and assigns,
except that Borrower shall not have any right to assign its rights under this
Amendment or any of the Loan Documents or any interest therein without the prior
written consent of Lender.
9. Choice of Law. The Loan Documents and this Amendment shall be
performed and construed in accordance with the laws of the State of Arizona.
10. Entire Agreement. Except as modified by this Amendment, the Loan
Documents remain in full force and effect. The Loan Documents, as modified by
this Amendment, embody the entire agreement and understanding between Borrower
and Lender, and supersede all prior agreements and understandings between said
parties relating to the subject matter thereof.
11. Counterparts; Telecopy Execution. This Amendment may be executed
in any number of separate counterparts, each of which, when taken together,
shall constitute one and the same agreement, admissible into evidence,
notwithstanding the fact that all parties have not signed the same counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of a manually executed
-6-
<PAGE>
counterpart of this Amendment. Any party delivering an executed counterpart of
this Amendment by telefacsimile shall also deliver a manually executed
counterpart of this Amendment, but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the day, month, and year first above written.
FINOVA CAPITAL CORPORATION, a Delaware
corporation
By
----------------------------------------
Name
--------------------------------------
Title
-------------------------------------
AMERITRUCK DISTRIBUTION CORP., a Delaware
corporation
By
----------------------------------------
Name
--------------------------------------
Title
-------------------------------------
-7-
<PAGE>
REAFFIRMATION OF GUARANTORS
DATED MAY 14, 1998
Each of the undersigned hereby (i) confirms that it has read the
foregoing Fifth Amendment and Waiver, and (ii) reaffirms its obligations under
the Continuing Guaranty that it executed in favor of FINOVA Capital Corporation.
AMERITRUCK EQUIPMENT CORP.
AMERITRUCK LOGISTICS SERVICES, INC.
AMERITRUCK REFRIGERATED TRANSPORT, INC.
CMS TRANSPORTATION SERVICES, INC.
KTL, INC.
SCALES TRANSPORTATION CORPORATION
SCALES LEASING COMPANY, INC.
W&L SERVICES CORP.
W&L MOTOR LINES, INC.
AMERITRUCK OPERATIONS SERVICES, INC.
BEST WAY MOTOR LINES, INC.
PRO-TRANS SERVICES, INC.
By
----------------------------------------
Name
--------------------------------------
Title of each Guarantor
---------------------
<PAGE>
EXHIBIT A
See Attached.
<PAGE>
EXHIBIT 10.5
SIXTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Sixth Amendment to Loan and Security Agreement (this
"Amendment"), is made and entered into effective as of the 30th day of June,
1998 by and between FINOVA CAPITAL CORPORATION, a Delaware corporation
("Lender") and AMERITRUCK DISTRIBUTION CORP., a Delaware corporation
("Borrower"). This Amendment modifies and amends that certain Loan and Security
Agreement, dated May 5, 1997, between Lender and Borrower (the "Agreement").
All terms used herein with initial capital letters, unless otherwise
specifically defined herein, shall have the same meanings as set forth in the
Agreement. All references to the Agreement shall include the Schedule.
R E C I T A L S:
WHEREAS, Borrower has informed Lender that an Overline in the amount
of Five Million Seven Hundred Thirty Thousand Dollars ($5,730,000) exists as a
result of the reappraisal of the Equipment of the Loan Parties;
WHEREAS, in connection therewith, Borrower has requested that Lender
temporarily permit the Overline to remain outstanding;
WHEREAS, Lender has agreed to temporarily permit the Overline to
remain outstanding as provided herein;
NOW, THEREFORE, in consideration of the foregoing premises and other
valuable consideration, the parties hereto agree as follows:
1. Amendment. The Agreement is amended as follows:
---------
(a) Section 1.3 of the Agreement shall be amended and restated in
its entirety as follows:
"1.3 Overlines. If at any time or for any reason the outstanding
---------
amount of advances made pursuant hereto exceeds any of the dollar or
percentage limitations contained in the Schedule (any such excess, an
"Overline"), then Borrower shall, upon Lender's demand, immediately pay to
Lender, in cash, the full amount of such Overline; provided, that if the
--------
amount of such Overline is less than Five Hundred Thousand Dollars
($500,000), Borrower shall pay to Lender, in cash, the full amount of such
Overline within five (5) Business Days following demand by Lender; provided
--------
further, that the Overline in the amount of Five Million Seven Hundred
-------
Thirty Thousand Dollars ($5,730,000) (the "Temporary Overline") arising as
a result of the reappraisal of the Equipment of the Loan Parties by Taylor
& Martin pursuant to the Appraisal dated June 2, 1998 may remain
outstanding until the
<PAGE>
"Temporary Overline Expiration Date" (as defined below), at which time the
Temporary Overline shall be immediately due and payable. "Temporary
Overline Expiration Date" means the earlier of (A) July 31, 1998 and (B)
the date either Congress Financial Corporation (Southwest) and/or Madeline,
L.L.C. terminate the Commitment Letter dated June 19, 1998 issued by them
to Borrower. Without limiting Borrower's obligation to repay to Lender on
demand the amount of any Overline, Borrower agrees to pay Lender interest
on the outstanding principal amount of any Overline, on demand, at the rate
set forth on the Schedule."
(b) The first section of Section 3.1(A) of the Schedule to the
Agreement is amended and restated in its entirety as follows:
INTEREST AND FEES (SECTION 3.1):
A. INTEREST.
--------
(i) The Revolving Loans shall bear interest on the
unpaid principal amount thereof from the date
such Revolving Loans are made and until paid in
full at one of the following rates, as selected
by Borrower from time to time as provided in
this Section 3.1:
(a) Base Rate Option. That portion of the
----------------
outstanding principal balance of the
Revolving Loan subject to this option
shall bear interest at a fluctuating rate
per annum equal to (A) if the Second
Additional Availability Period has not
ended, the Base Rate plus one and three-
quarters percent (1.75%) and (B) the Base
Rate plus three-quarters of one percent
(0.75%) at all other times; and
(b) LIBOR Rate Option. That portion of the
-----------------
outstanding principal balance of the
Revolving Loan subject to this option
shall bear interest at a fixed rate per
annum equal to (A) if the Second
Additional Availability Period has not
ended, the LIBOR Rate applicable to such
LIBOR Rate Portion plus three and three-
quarters percent (3.75%) and (B) the LIBOR
Rate applicable to such LIBOR Rate
-2-
<PAGE>
Portion plus two and three-quarters
percent (2.75%) at all other times;
provided, that at all times on and after
--------
July 1, 1998 that any portion of the
Temporary Overline (as defined in Section
1.3) is outstanding, the outstanding
principal balance of the Revolving Loan
shall bear additional interest, in
addition to the interest set forth above,
of one percent (1%) per annum.
2. Confirmation of Liens. This Amendment in no way acts as a release
---------------------
or relinquishment of any of the liens, security interests, rights or remedies
securing payment of the Loans or of the enforcement thereof. Such liens,
security interests, rights and remedies are hereby ratified, confirmed,
preserved, renewed and extended by Borrower in all respects.
3. Reaffirmation of the Loan Documents. All terms, conditions and
-----------------------------------
provisions of the Agreement and the other Loan Documents are hereby reaffirmed
and continued in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby. Without limiting the foregoing, Borrower
reaffirms its obligation to pay a Early Termination Fee of Two Hundred Thousand
Dollars ($200,000) in accordance with the terms of the Loan Agreement in the
event the Obligations are refinanced.
4. Representations and Warranties. Borrower represents and warrants
------------------------------
to Len that the execution and delivery by Borrower of this Amendment has been
duly and properly made and authorized. The Loan Documents and this Amendment
each constitute valid and binding obligations of Borrower, enforceable in
accordance with their respective terms.
5. Benefit of the Amendment. The terms and provisions of this
------------------------
Amendment and the other Loan Documents shall be binding upon and inure to the
benefit of Lender and Borrower and their respective successors and assigns,
except that Borrower shall not have any right to assign its rights under this
Amendment or any of the Loan Documents or any interest therein without the prior
written consent of Lender.
6. Choice of Law. The Loan Documents and this Amendment shall be
-------------
performed and construed in accordance with the laws of the State of Arizona.
7. Entire Agreement. Except as modified by this Amendment, the Loan
----------------
Documents remain in full force and effect. The Loan Documents, as modified by
this Amendment, embody the entire agreement and understanding between Borrower
and Lender, and supersede all prior agreements and understandings between said
parties relating to the subject matter thereof.
-3-
<PAGE>
8. Counterparts; Telecopy Execution. This Amendment may be executed
--------------------------------
in any number of separate counterparts, each of which, when taken together,
shall constitute one and the same agreement, admissible into evidence,
notwithstanding the fact that all parties have not signed the same counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Amendment. Any party delivering an executed counterpart of this Amendment by
telefacsimile shall also deliver a manually executed counterpart of this
Amendment, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the day, month, and year first above written.
FINOVA CAPITAL CORPORATION, a Delaware
corporation
By
---------------------------------------
Name
-------------------------------------
Title
------------------------------------
AMERITRUCK DISTRIBUTION CORP., a
Delaware corporation
By
---------------------------------------
Name
-------------------------------------
Title
------------------------------------
-4-
<PAGE>
REAFFIRMATION OF GUARANTORS
DATED JUNE 30, 1998
Each of the undersigned hereby (i) confirms that it has read the
foregoing Sixth Amendment, and (ii) reaffirms its obligations under the
Continuing Guaranty that it executed in favor of FINOVA Capital Corporation.
AMERITRUCK EQUIPMENT CORP.
AMERITRUCK LOGISTICS SERVICES, INC.
AMERITRUCK REFRIGERATED TRANSPORT, INC.
CMS TRANSPORTATION SERVICES, INC.
KTL, INC.
SCALES TRANSPORTATION CORPORATION
SCALES LEASING COMPANY, INC.
W&L SERVICES CORP.
W&L MOTOR LINES, INC.
AMERITRUCK OPERATIONS SERVICES, INC.
BEST WAY MOTOR LINES, INC.
PRO-TRANS SERVICES, INC.
By
----------------------------------------
Name
--------------------------------------
Title
------------------- of each Guarantor
<PAGE>
EXHIBIT 12
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratio amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ --------------------
1998* 1997* 1998* 1997*
----- ----- ----- -----
<S> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes and
extraordinary item $ 9,456 $ (9,374) $ 2,813 $(12,294)
-------- -------- -------- --------
Fixed charges:
Interest expense and amortization of debt
discount and premium on all indebtedness 5,721 4,778 11,755 9,272
Portion of rent under long-term operating
leases representative of an interest factor 1,451 718 2,880 1,401
Redeemable preferred stock dividend
requirements 25 23 80 23
-------- -------- -------- --------
Total fixed charges 7,197 5,519 14,715 10,696
-------- -------- -------- --------
Earnings (loss) before income taxes,
extraordinary item and fixed charges $ 16,653 $ (3,855) $ 17,528 $ (1,598)
======== ======== ======== ========
Ratio of earnings to fixed charges /(1)/ 2.31 - 1.19 -
======== ======== ======== ========
</TABLE>
/(1)/ The Company's earnings were insufficient to cover fixed charges by $9,374
for the three month period ended June 30, 1997 and by $12,294 for the six
month period ended June 30, 1997.
* Comparisons between periods are affected by acquisitions see Note 2
contained in the unaudited Notes to Consolidated Financial Statements.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITRUCK
DISTRIBUTION CORP'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDING
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
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3,165
0
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