<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------
LANDAIR CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TENNESSEE 62-1743549
(State or other jurisdiction (IRS employer identification number)
of incorporation or organization)
430 AIRPORT ROAD 37745
GREENEVILLE, TENNESSEE (ZIP Code)
(Address of principal executive offices)
</TABLE>
423-636-7000
(Registrant's telephone number, including area code)
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Copies of Communications to:
<TABLE>
<S> <C>
RICHARD H. ROBERTS LEIGH WALTON
LANDAIR CORPORATION BASS, BERRY & SIMS PLC
430 AIRPORT ROAD 2700 FIRST AMERICAN CENTER
GREENEVILLE, TENNESSEE 37745 NASHVILLE, TENNESSEE 37238
</TABLE>
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Securities to be registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value Per Share
(Title of each class to be registered)
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<PAGE> 2
LANDAIR CORPORATION
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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<CAPTION>
ITEM FORM 10 ITEM CAPTION LOCATION IN INFORMATION STATEMENT
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<S> <C> <C>
1. Business........................................ Business; Selected Financial Data
2. Financial Information........................... Selected Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations
3. Properties...................................... Business -- Properties
4. Security Ownership of Certain Beneficial Owners
and Management................................ Security Ownership of Certain Beneficial Owners
and Management
5. Directors and Executive Officers................ Management
6. Executive Compensation.......................... Compensation of Executive Officers in 1997
7. Certain Relationships and Related
Transactions.................................. Relationship between Services and the Company
after the Distribution; Executive Compensation
and Other Matters
8. Legal Proceedings............................... Business -- Legal Proceedings
9. Market Price of Dividends on the Registrant's
Common Equity and Related Shareholder
Matters....................................... The Distribution -- Listing and Trading of the
Landair Corporation Common Stock; Risk
Factors -- No Current Price Market for the
Landair Corporation Common Stock; Possibility
of Significant Price Fluctuations; Dividend
Policy; Description of Company Capital Stock
10. Recent Sales of Unregistered Securities......... None
11. Description of Registrant's Securities to be
Registered.................................... Description of Company Capital Stock; Purposes
and Anti-takeover Effects of Legislation and
Certain Provisions of the Company's Charter
and Bylaws
12. Indemnification of Directors and Officers....... Liability and Indemnification of Directors and
Officers
13. Financial Statements and Supplementary Data..... Selected Financial Data; Pro Forma Condensed
Combined Financial Statements; Index to
Financial Statements
14. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........... None
15. Financial Statements and Exhibits............... Index to Financial Statements; Index to
Exhibits
</TABLE>
<PAGE> 3
, 1998
Dear Shareholder:
I am pleased to inform you that the Board of Directors of Landair Services,
Inc. ("Services") has approved a distribution to our shareholders of all the
outstanding shares of common stock of Landair Corporation, its truckload
subsidiary (the "Company"). The stock distribution is expected to be made on
, 1998 to holders of record of shares of the $.01 par value common
stock of Services (the "Services Common Stock") on , 1998. You will
receive one share of the $.01 par value per share common stock of the Company
(the "Landair Corporation Common Stock") for each share of Services Common Stock
you hold on the record date.
As a result of the distribution of Landair Corporation Common Stock, you
will own shares in two separate public companies. Prior to the distribution of
Landair Corporation Common Stock, Services intends to change its name to Forward
Air Corporation, and will continue to operate its Forward Air network, which
serves the growing deferred air freight market. The Company, on the other hand,
will own and operate the Truckload operations now owned and operated by Landair
Transport, Inc., a subsidiary of Services.
In addition to changing its name to Forward Air Corporation to reflect its
focus on the Forward Air operations, Services will change the symbol under which
it is listed on the Nasdaq National Market to "FWRD." The Company, in turn, will
assume the "LAND" ticker symbol and has applied for listing its stock under that
symbol on the Nasdaq National Market.
Your Board of Directors believes that the distribution, among other things,
will allow investors, analysts and creditors to evaluate better the different
merits of the two distinct businesses and their characteristics and prospects
and thereby enhance the likelihood that each will achieve appropriate market
recognition of its performance. Accordingly, Services believes that the
distribution will position each company to enhance shareholder value and
competitiveness.
The enclosed Information Statement explains the proposed distribution in
detail and provides financial and other important information regarding the
Company. We urge you to read it carefully. Holders of Services Common Stock are
not required to take any action to participate in the distribution. A
shareholder vote is not required in connection with this matter and,
accordingly, your proxy is not being sought.
Sincerely,
Scott M. Niswonger
Chairman, President and Chief
Executive Officer
<PAGE> 4
INFORMATION STATEMENT
LANDAIR CORPORATION
COMMON STOCK
($0.01 par value per share)
This Information Statement is being furnished to shareholders of Landair
Services, Inc., a Tennessee corporation ("Services"), in connection with the pro
rata distribution (the "Distribution") by Services to its shareholders of all of
the outstanding shares of the $0.01 par value per share common stock (the
"Landair Corporation Common Stock") of its wholly-owned subsidiary, Landair
Corporation (the "Company"). Prior to the Distribution, the name of Services
will, subject to the approval of the shareholders of Services, be changed to
"Forward Air Corporation." References herein to "Services" include the newly
named Forward Air Corporation.
The Distribution is expected to be made on , 1998 (the
"Distribution Date") to holders of record of the $0.01 par value per share
common stock of Services (the "Services Common Stock") as of the close of
business on , 1998 (the "Record Date"), subject to the satisfaction
or waiver of certain conditions. The Distribution will be made on the basis of
one share of Landair Corporation Common Stock for each share of Services Common
Stock held on the Record Date. No consideration will be paid by holders of
Services Common Stock for the shares of Landair Corporation Common Stock to be
received in the Distribution, nor will they be required to surrender or exchange
shares of Services Common Stock in order to receive Landair Corporation Common
Stock. See "THE DISTRIBUTION."
There is no current trading market for the Landair Corporation Common
Stock, although a "when issued" market is expected to develop on or about the
Record Date. The Company has applied for listing of the Landair Corporation
Common Stock on the Nasdaq Stock Market's National Market (the "Nasdaq National
Market") under the symbol "LAND." See "THE DISTRIBUTION -- LISTING AND TRADING
OF THE LANDAIR CORPORATION COMMON STOCK."
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IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS INFORMATION
STATEMENT.
---------------------
NO VOTE OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is , 1998
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION....................................... ii
SUMMARY OF INFORMATION STATEMENT............................ 1
SUMMARY FINANCIAL DATA...................................... 6
RISK FACTORS................................................ 7
THE DISTRIBUTION............................................ 12
RELATIONSHIP BETWEEN SERVICES AND THE COMPANY AFTER THE
DISTRIBUTION.............................................. 16
FINANCING................................................... 19
SELECTED FINANCIAL DATA..................................... 20
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 27
BUSINESS.................................................... 32
MANAGEMENT.................................................. 36
COMPENSATION OF EXECUTIVE OFFICERS IN 1997.................. 40
1997 OPTION GRANTS, AGGREGATED OPTION EXERCISES AND OPTION
VALUES.................................................... 40
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION
VALUES.................................................... 41
LANDAIR CORPORATION EMPLOYEE BENEFIT PLANS.................. 43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 46
DESCRIPTION OF COMPANY CAPITAL STOCK........................ 48
PURPOSES AND ANTI-TAKEOVER EFFECTS OF LEGISLATION AND
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS.... 49
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS..... 51
INDEPENDENT AUDITORS........................................ 52
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEX A -- DISTRIBUTION AGREEMENT........................... A-1
</TABLE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a registration statement on Form 10 (such registration statement, as it
may be amended or supplemented, the "Registration Statement") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect
to the Landair Corporation Common Stock. This Information Statement does not
contain all of the information that is set forth in the Registration Statement
and the exhibits and schedules thereto. The Registration Statement and the
annexes, exhibits and schedules thereto are available for inspection and copying
at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street N.W., Washington, D.C. 20549, as well as the Regional Offices of the SEC
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; Seven World Trade Center, Suite 1300, New York, New York 10048; and at
5670 Wilshire Boulevard, Suite 1100, Los Angeles, California 90036. Copies of
such information are obtainable by mail from the Public Reference Section of the
SEC at 450 Fifth Street NW, Washington, D.C. 20549 at prescribed rates. Copies
of such material may also be obtained from the SEC's web site
(http://www.sec.gov).
Following the Distribution, the Company will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports, proxy statements and other information with the SEC. The
reports, proxy statements and other information that will be filed by the
Company with the SEC will be available for inspection and copying at the SEC's
public reference facilities referred to above. Copies of such material will be
obtainable by mail from the Public Reference Section of the SEC at the address
referred to above at prescribed rates and from the SEC's web site referred to
above.
ii
<PAGE> 6
NO PERSON IS AUTHORIZED BY SERVICES OR THE COMPANY TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS
INFORMATION STATEMENT OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY EITHER SERVICES OR THE COMPANY. NEITHER THE
DELIVERY OF THIS INFORMATION STATEMENT NOR CONSUMMATION OF THE DISTRIBUTION
CONTEMPLATED HEREBY SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF, OR
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
iii
<PAGE> 7
SUMMARY OF INFORMATION STATEMENT
This Summary is included for convenience only and should not be considered
complete. This Summary is qualified in its entirety by reference to the more
detailed information, including the Combined Financial Statements and Notes
thereto, set forth elsewhere in this Information Statement and in the
Distribution Agreement set forth as Annex A to this Information Statement (the
"Distribution Agreement"). Shareholders are urged to read this Information
Statement in its entirety. The Company is currently a wholly-owned subsidiary of
Services. Pursuant to the terms of the Distribution Agreement and prior to the
Distribution, Services will be reorganized (the "Reorganization") so that (i)
substantially all of the operations, assets and liabilities related to the
Truckload operations currently being conducted by Services or its subsidiaries
(the "Truckload Business") will be transferred to the Company and its
subsidiaries and (ii) substantially all of the operations, assets and
liabilities related to the less-than-truckload deferred air freight business
currently being conducted by Services or its subsidiaries (the "Forward Air
Business") will continue to be owned by Services and its subsidiaries. Upon
completion of the Reorganization and the Distribution, the Company will be an
independent, separately-traded public company that owns and operates the
Truckload Business. Unless the context otherwise requires, references in this
Information Statement to Services and the Company shall include subsidiaries of
Services and the Company after the Reorganization and the Distribution, and
references in this Information Statement to the Company prior to the
Distribution shall refer to the Truckload Business as operated by Services.
THE COMPANY
The Company is an irregular route, high-service level truckload carrier
that transports a wide range of commodities in both intrastate and interstate
commerce. The Company provides dry van common carrier and dedicated contract
carriage for shippers of a variety of products in the medium- and short-haul
markets. These products include, among others, air freight, automotive parts and
supplies, electronics, furniture, metal products, paper products, retail and
other consumer goods. The preponderance of the Company's business involves
providing high-quality, specialized services to service-sensitive shippers. To
assure the most efficient response to the differing requirements of customers at
numerous shipping locations, the Company has a network of terminals where
over-the-road tractors are based and drivers are domiciled.
The Company utilizes a satellite-linked, computerized operations system to
monitor and facilitate the movement of freight. The Company's operating
philosophy is founded on maintaining the highest level of service at market
competitive prices in the most efficient manner possible.
OPERATIONS
The Company currently conducts operations from eight terminals. Each
terminal is the base for certain over-the-road tractors and is the domicile of
the drivers who operate those tractors. These terminals have facilities and
staff to provide driver supervision, fueling and routine maintenance. The
Company also operates facilities for its dedicated operations. The Company
believes this network of facilities enhances its ability to provide responsive
service to its customers in an efficient manner.
Each customer's shipment is accorded exclusive use of a trailer, with most
shipments being transported directly from customer pick-up locations to
destinations without a change of drivers, relays or circuitous routing via
terminals. The Company operates a centralized customer service and operations
center in Greeneville, Tennessee. All facilities and drivers are linked to a
satellite communication and dispatch system which provides interactive updates
to its operations.
Since January 1998, the Company has recruited commission agents in addition
to its continuing efforts to recruit independent contractors who own and operate
their own tractors ("owner-operators"). The Company believes that the increased
use of owner-operators and commission agents will tend to protect the Company
during business downturns and should provide increased revenue without adding
proportionate fixed costs.
1
<PAGE> 8
The Company's operations are divided into two major categories:
Common Carrier Operations. The Company's common carrier operations serve
customers with a variety of shipping needs. The common carrier operations'
primary traffic consists of medium- and short-haul routes and is concentrated
primarily in the eastern two-thirds of the United States. Customers of the
common carrier operations include Fortune 500 companies who subscribe to a
"core-carrier" strategy as well as smaller companies with regional shipping
needs. Services include just-in-time delivery, satellite communications and
electronic data interchange, as well as tailored services required to meet
specific customer needs such as dedicated capacity, team operations and roller
bed equipment used to serve its air cargo industry customers.
Dedicated Contract Carriage. The Company's dedicated fleet operations
provide dedicated equipment and personnel on a contractual basis to each of its
customers for that customer's exclusive use, frequently as a lower cost
alternative to private carriage. While providing shippers with a higher level of
service, the implementation of a dedicated fleet program frees for other uses
that portion of a shipper's capital that would have been invested in a private
fleet. This ability to redeploy capital allows shippers to better utilize
resources in furtherance of their primary businesses. The dedicated fleet's
service typically includes certain of the staffing requirements associated with
operating a private fleet.
The primary focus of the Company's marketing strategy is to increase
freight density within defined market areas that are consistent with the
Company's growth and profit objectives by capitalizing on the trend of shippers
to use a fewer number of truckload carriers in pursuit of a "core carrier"
partnership strategy and the trend to outsource the private fleet transportation
requirements. The financial and operating goal of the Company is to maximize
profitability by achieving optimal equipment utilization and yield, while
meeting or exceeding customer service requirements.
The Company's principal executive offices are located at 430 Airport Road,
Greeneville, Tennessee 37745 and its telephone number is (423) 636-7000.
2
<PAGE> 9
THE DISTRIBUTION
Set forth below is a brief summary of certain terms of the Distribution and
related transactions. The Distribution Agreement is more fully described herein
under "THE DISTRIBUTION," and is attached as Annex A to this Information
Statement.
Distributing Company....... Landair Services, Inc., a Tennessee corporation
("Services"), which, prior to the Distribution and
subject to the approval of the shareholders of
Services, will change its name to "Forward Air
Corporation."
Distributed Company........ Landair Corporation, a Tennessee corporation (the
"Company"), which upon completion of the
Reorganization and Distribution will be an
independent, separately-traded public company that
owns and operates the Truckload Business.
Distribution Ratio......... One share of Landair Corporation Common Stock for
each share of Services Common Stock held of record
as of the close of business on the Record Date.
Securities to be
Distributed.............. Based on approximately 6,191,185 shares of Services
Common Stock outstanding as of May 31, 1998,
approximately 6,191,185 shares of Landair
Corporation Common Stock will be distributed. The
Landair Corporation Common Stock to be distributed
will constitute all of the outstanding Common Stock
of the Company immediately after the Distribution.
Record Date................ Close of business on , 1998.
Distribution Date.......... On or about , 1998.
Mailing Date............... Certificates representing the shares of Landair
Corporation Common Stock to be distributed pursuant
to the Distribution will be delivered to the
Distribution Agent on the Distribution Date. The
Distribution Agent will mail certificates
representing the shares of Landair Corporation
Common Stock to holders of Services Common Stock as
soon as practicable after the Distribution Date.
Holders of Services Common Stock should not send
stock certificates to Services, the Company or the
Distribution Agent. See "THE DISTRIBUTION -- MANNER
OF EFFECTING THE DISTRIBUTION."
Distribution Agent......... SunTrust Bank, Atlanta will be the distribution
agent (the "Distribution Agent") for the
Distribution.
Conditions to the
Distribution............. The Distribution is conditioned upon, among other
things, receipt of a private letter ruling (the
"Ruling") from the Internal Revenue Service
("IRS"), which ruling has been requested by
Services, or a legal opinion of special tax
counsel, to the effect that, among other things,
the Distribution will qualify as a tax-free
distribution for federal income tax purposes under
Section 355 of the Internal Revenue Code of 1986,
as amended (the "Code"). See "THE
DISTRIBUTION -- CONDITIONS TO DISTRIBUTION; RIGHT
TO ABANDON, DEFER OR MODIFY DISTRIBUTION."
Reasons for the
Distribution............. Services believes that the Distribution will allow
investors, analysts and creditors to evaluate
better the different merits of the two businesses
and their characteristics and prospects, and may
enhance the likelihood that each will achieve
appropriate market recognition of its performance.
Accordingly, Services believes that the
Distribution will position each
3
<PAGE> 10
company to enhance shareholder value and
competitiveness. See "THE
DISTRIBUTION -- BACKGROUND AND REASONS FOR THE
DISTRIBUTION."
Tax Consequences........... Services has requested a private letter ruling from
the IRS to the effect, among other things, that
receipt of shares of the Landair Corporation Common
Stock by shareholders of Services will be tax-free
and that Services will not recognize income, gain
or loss as a result of the Distribution. See "THE
DISTRIBUTION -- CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE DISTRIBUTION." Consummation of the
Distribution is conditioned upon the receipt of
such ruling or a legal opinion of special tax
counsel to the same effect.
Reorganization............. Pursuant to the Distribution Agreement and prior to
the Distribution, Services and its subsidiaries
will effect the Reorganization pursuant to which
(i) substantially all of the operations, assets and
liabilities related to the Truckload Business will
be transferred to the Company and its subsidiaries
and (ii) substantially all of the operations,
assets and liabilities related to the Forward Air
Business will continue to be owned by Services and
its subsidiaries.
Dividend Policy............ The Company currently expects that for the
foreseeable future it will retain earnings to
finance the growth of the Company's business.
Future payment of dividends will depend upon the
financial condition, results of operations,
contractual restrictions and capital requirements
of the Company, as well as other factors deemed
relevant by the Board of Directors of the Company.
See "RISK FACTORS -- DIVIDEND POLICY."
Listing and Trading
Market................... There is not currently a public market for the
Landair Corporation Common Stock, although the
Company expects that a "when-issued" trading market
will develop on or about the Record Date. The
Company has applied for listing of the Landair
Corporation Common Stock on the Nasdaq National
Market under the symbol "LAND," the ticker symbol
currently used by Services. Upon the change of its
name to Forward Air Corporation prior to the
Distribution, Services will also change the symbol
under which it is listed on the Nasdaq National
Market to "FWRD." See "RISK FACTORS -- NO CURRENT
PUBLIC MARKET FOR THE LANDAIR CORPORATION COMMON
STOCK; POSSIBILITY OF SIGNIFICANT PRICE
FLUCTUATIONS" and "THE DISTRIBUTION -- LISTING AND
TRADING OF THE LANDAIR CORPORATION COMMON STOCK."
Certain Provisions of
Charter and Bylaws....... Certain provisions of the Company's Charter and
Bylaws and Tennessee law may have the effect of
delaying or making more difficult an acquisition of
control of the Company in a transaction not
approved by the Board of Directors of the Company.
See "PURPOSES AND ANTI-TAKEOVER EFFECTS OF
LEGISLATION AND CERTAIN PROVISIONS OF THE COMPANY'S
CHARTER AND BYLAWS." Provisions of the Company's
Charter eliminate certain liabilities of its
directors in connection with the performance of
their duties. See "LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS LIMITATION OF LIABILITY."
4
<PAGE> 11
Relationship Between
Services and the Company
After the Distribution... Services will have no stock ownership in the
Company upon consummation of the Distribution. For
purposes of governing certain ongoing relationships
between the Company and Services after the
Distribution and to provide for an orderly
transition, the Company and Services have entered
into or will enter into certain agreements. Such
agreements include (i) the Distribution Agreement,
providing for the terms of the Distribution and the
Reorganization; (ii) the Employee Benefit Matters
Agreement, providing for certain allocations of
responsibilities with respect to employee
compensation and benefit matters; (iii) the Tax
Sharing Agreement pursuant to which the Company and
Services will allocate tax liabilities that relate
to periods prior to the Distribution Date, and
based on subsequent actions of the Company, will
allocate to the Company any liability that would
arise if the Distribution were not tax-free; and
(iv) the Transition Services Agreement, providing
for the performance of certain services between the
Company and Services. See "RELATIONSHIP BETWEEN
SERVICES AND THE COMPANY AFTER THE DISTRIBUTION."
Risk Factors............... Shareholders should carefully consider all of the
information contained in this Information
Statement, including the matters described under
"RISK FACTORS."
5
<PAGE> 12
SUMMARY FINANCIAL DATA
The following table sets forth (i) summary historical financial data of the
Truckload Business for each of the five years ended December 31, 1997 and as of
March 31, 1998 and for the three months ended March 31, 1998 and 1997 and (ii)
summary pro forma financial data of the Truckload Business for the year ended
December 31, 1997 and as of and for the three months ended March 31, 1998. The
summary historical financial data has been derived from the audited combined
financial statements of the Truckload Business, except for the March 31, 1998
and 1997 summary historical financial data derived from the combined financial
statements which are unaudited but, in the opinion of management, have been
prepared on the same basis as the audited combined financial statements and
include all adjustments necessary (consisting of normal recurring adjustments)
for a fair presentation of the results for such periods. The summary pro forma
financial data of the Truckload Business has been derived from the Pro Forma
Condensed Combined Financial Data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------- -----------------------------------------------------------
PRO FORMA PRO FORMA
1998(4) 1998 1997 1997(4) 1997 1996 1995 1994 1993
--------- ------- ------- --------- ------- ------- ------- ------- -------
(IN THOUSANDS)
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INCOME STATEMENT DATA (1)(2):
Operating revenue.................. $25,323 $25,323 $20,545 $91,398 $91,398 $82,242 $87,764 $80,934 $66,083
Income from operations............. 1,578 1,578 155 3,739 3,739 825 4,104 3,642 1,287
Interest expense................... (103) (467) (474) (398) (1,826) (2,221) (2,327) (1,116) (899)
Other income (expense), net........ 6 6 33 (12) (12) 59 227 280 376
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes............................ 1,481 1,117 (286) 3,329 1,901 (1,337) 2,004 2,806 764
Income taxes (benefit)............. 583 441 (92) 1,308 751 (432) 1,067 1,402 343
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)(3)............... $ 898 $ 676 $ (194) $ 2,021 $ 1,150 $ (905) $ 937 $ 1,404 $ 421
======= ======= ======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 617 $ 916
Total assets....................... 78,629 97,014
Long-term obligations, net of
current portion.................. -- 15,485
Shareholder's investment........... 45,234 40,234
</TABLE>
- ---------------
(1) Results for 1994 and 1993 lack comparability to other periods because (i)
1994 includes an $805,000 loss on the sale and winding down of refrigerated
trucking operations, and (ii) 1993 includes bonuses of approximately $1.1
million which represented non-recurring bonuses to key management and
payments to Services' S Corporation shareholder to enable him to pay income
taxes by virtue of Services' S Corporation status through October 29, 1993.
Had these items not been included in the results of operations, income from
operations, income before income taxes and net income would have been
approximately $4.5, $3.6 and $1.8, and $2.4, $1.9, and $1.1 million in 1994
and 1993, respectively.
(2) The historical and pro forma financial information includes certain
allocations of corporate administrative expenses by Services.
(3) Per share data has not been presented because the financial statements of
the Truckload Business include primarily wholly-owned subsidiaries or
divisions of Services.
(4) The summary pro forma balance sheet data of the Truckload Business, as of
March 31, 1998, presents the financial position of the Truckload Business
assuming the Reorganization and the Distribution had occurred on March 31,
1998. The summary pro forma income statement data for the year ended
December 31, 1997 and the three months ended March 31, 1998 present the
results of operations of the Truckload Business assuming the Reorganization
and the Distribution had occurred on January 1, 1997. The summary combined
pro forma financial data incorporates certain assumptions set forth in the
footnotes to the Pro Forma Condensed Combined Financial Statements.
6
<PAGE> 13
RISK FACTORS
Shareholders of Services should be aware that the Reorganization, the
Distribution and the ownership of the Landair Corporation Common Stock involve
certain risks, including those described below and elsewhere in this Information
Statement, which could adversely affect the value of their holdings. Certain
statements contained in this Information Statement constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. When used in this Information Statement, the words
"estimate," "project," "intend," "expect," "anticipate" and similar expressions
are intended to identify forward-looking statements. These forward-looking
statements were based on various factors, many of which are beyond the Company's
control and were derived utilizing numerous assumptions and other important
factors that could cause actual results to differ materially from those in the
forward-looking statements. Actual results in the future could differ materially
from those described in the forward-looking statements as a result of the risk
factors set forth below (which list does not purport to be exhaustive) and the
matters set forth in this Information Statement generally.
NEW STAND-ALONE COMPANY; LACK OF PRIOR INDEPENDENT OPERATING HISTORY
Upon consummation of the Distribution, the Company will be a stand-alone
entity with less capital resources than Services prior to the Distribution.
There can be no assurance that all of the Company's present customers will
continue to do business with it as a stand-alone entity following the
Distribution. Furthermore, the Company's management team has not operated the
Company as a separate public company, and the Company will have a new Board of
Directors, appointed by Services, effective as of the consummation of the
Distribution.
After the Distribution, the Company will have a continuing relationship
with Services under the Transition Services Agreement described in "RELATIONSHIP
BETWEEN SERVICES AND THE COMPANY AFTER THE DISTRIBUTION" for certain services.
The Transition Services Agreement is intended to ensure that the Company's
business will, during the term thereof, receive the same level of services as a
stand-alone operation as it currently receives as a part of Services. There can
be no assurance, however, that Services will be willing to continue providing
such services, or that such services will be provided at a comparable level and
cost, beyond the term of the Transition Services Agreement. The failure of
Services to provide such services to the Company after the expiration of the
Transition Services Agreement or to perform its obligations under the Transition
Services Agreement following the Distribution could have a material adverse
effect on the Company if comparable arrangements cannot be made. The impact of
these and other changes on the Company's operations cannot be predicted. See
"MANAGEMENT" and "RELATIONSHIP BETWEEN SERVICES AND THE COMPANY AFTER THE
DISTRIBUTION."
SUBSTANTIAL CAPITAL REQUIREMENTS; UNAVAILABILITY OF FUTURE FINANCING FROM
SERVICES
In order to compete effectively, the Company must have access to capital.
The Company has relied in part upon Services to provide the cash necessary to
fund capital expenditures and meet other cash requirements. In the future,
Services will not provide the Company with financing or capital contributions.
Accordingly, the Company may need to access the lenders or equity markets or
obtain additional funding sources in order to finance its operations and capital
expenditures. No assurance can be given that the Company will have access to
such financial markets or other funding in the future, or that any such
financing or refinancing will be completed on favorable terms and in a timely
manner.
COMPETITION
The truckload industry is highly competitive, and the Company will compete
with other regional and national carriers and, to a lesser extent, with
less-than-truckload carriers, railroads and other means of transportation. Many
of the Company's competitors have greater financial resources, more equipment or
larger
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freight capacity than the Company. Service and price are the principal means of
competition in the transportation industry. Historically, competition in the
trucking industry has resulted in aggressive pricing, and management has no
reason to believe that these conditions will change.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
To succeed in the competitive truckload industry, the Company must continue
to improve its quality of service and maintain competitive pricing. There can be
no assurance that the Company will be successful in its attempts to meet the
competitive demands of the industry, and the failure to do so would have a
material adverse effect on its business, financial condition or results of
operations.
One customer of the Truckload Business, Federal Express Corporation,
accounted for 29.4% of combined operating revenue of the Company for the year
ended December 31, 1997.
POTENTIAL SALE OF LANDAIR CORPORATION COMMON STOCK BY SCOTT NISWONGER
The Company anticipates that as a condition of the Ruling, Scott Niswonger
will be required, to the extent he sells any shares of Services Common Stock
within twelve months following the Distribution, to dispose of an equal
percentage of shares of Landair Corporation Common Stock within the later of
twelve months following the Distribution or three months following such sale of
Services Common Stock. Any sales by Mr. Niswonger of substantial amounts of
Landair Corporation Common Stock following the Distribution, or the perception
that such sales could occur, could adversely affect the prevailing market price
of the Landair Corporation Common Stock.
AVAILABILITY OF DRIVERS
The trucking industry continues to experience a shortage of qualified,
experienced drivers. The availability of drivers is an important factor in the
Company's ability to serve its customers. Competition for drivers is intense.
The Company has periodically experienced driver shortages in certain
geographical areas. The Company may not be able to employ a sufficient number of
drivers from time to time to meet customer shipment demands, resulting in loss
of revenue that might otherwise be available to the Company. There can be no
assurance that in the future a shortage of qualified drivers would not have a
material adverse effect on the Company's business, financial condition or
results of operations.
POSSIBLE EFFECT OF ECONOMIC DEVELOPMENTS AND MARKET CONDITIONS
Interest rate fluctuations, increases in fuel prices, economic recession,
changes in customers' business cycles and industry capacity are factors over
which the Company has little or no control, but which may adversely affect its
business, financial condition or results of operations.
CERTAIN TAX CONSIDERATIONS
Services has requested a private letter ruling from the IRS to the effect
that, among other things, the Distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Code. Such
ruling is based on the accuracy of certain factual representations and certain
assumptions of Services. Although Services is not aware of any facts or
circumstances that would cause such representations or assumptions to be false,
no assurance can be given in this regard.
If the Distribution were not to qualify as a tax-free distribution for
federal income tax purposes, Services would be subject to tax on the difference
between the fair market value of the Landair Corporation Common Stock and the
adjusted tax basis of the Landair Corporation Common Stock at the time of the
Distribution and each holder of Services Common Stock who received shares of the
Landair Corporation Common Stock in the Distribution would generally be treated
as having received a taxable dividend includible in income in any amount equal
to the fair market value of such Landair Corporation Common Stock received at
the time of the Distribution.
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In order to provide further assurances that the Distribution will qualify
as a tax-free transaction for federal income tax purposes, the Tax Sharing
Agreement restricts the ability of the Company and Services to engage in any
transaction or commit or fail to take any action that would cause the
Reorganization or the Distribution to qualify as a tax free transaction for
federal income tax purposes. Under the Tax Sharing Agreement, the Company will
generally indemnify Services with respect to any taxes incurred by Services in
connection with the Distribution if the Distribution fails to qualify as a
tax-free transaction for Federal income tax purposes as a result of a violation
of any of the foregoing restrictions by the Company or as a result of certain
misrepresentations or omissions by the Company to the IRS or to counsel of
Services. See "RELATIONSHIP BETWEEN SERVICES AND THE COMPANY AFTER THE
DISTRIBUTION -- DISTRIBUTION AGREEMENT."
NO CURRENT PUBLIC MARKET FOR THE LANDAIR CORPORATION COMMON STOCK; POSSIBILITY
OF SIGNIFICANT PRICE FLUCTUATIONS
Although the Company expects that a "when-issued" trading market will
develop on or about the Record Date, there is not currently a public market for
the Landair Corporation Common Stock. In addition, the trading price of the
Landair Corporation Common Stock will be influenced by a variety of factors,
including the Company's operating results, the depth and liquidity of the market
for the Landair Corporation Common Stock, investor perception of the Company and
the industries in which it participates and general economic and market
conditions. Such prices may also be affected by certain provisions of the
Company's Charter and Bylaws, as each will be in effect following the
Distribution, which may have anti-takeover effects. Accordingly, there can be no
assurance as to the prices at which trading in the Landair Corporation Common
Stock will occur on a "when-issued" basis or after the Distribution. Although
the Company has applied for listing the Landair Corporation Common Stock on the
Nasdaq National Market, there can be no assurance that an active public market
will develop for the Landair Corporation Common Stock. The prices at which
trading in the Landair Corporation Common Stock occurs may fluctuate
significantly, particularly until the Landair Corporation Common Stock issued in
the Distribution is fully distributed. See "THE DISTRIBUTION -- LISTING AND
TRADING OF THE LANDAIR CORPORATION COMMON STOCK."
DIVIDEND POLICY
The Company currently expects that it will retain earnings to finance the
growth of the Company's business. Future payment of dividends will depend upon
the financial condition, results of operations, contractual restrictions and
capital requirements of the Company, as well as other factors deemed relevant by
the Board of Directors of the Company.
HOLDING COMPANY STRUCTURE
The Company is a holding company and does not have any material assets
other than the stock of its subsidiaries. Accordingly, the Company's ability to
pay dividends, if any, on the Landair Corporation Common Stock, to service its
indebtedness and meet its other cash needs are substantially dependent upon the
results of operations of its subsidiaries and their cash flow, if any, generated
by the operations of such subsidiaries.
FRAUDULENT TRANSFER AND RELATED CONSIDERATIONS
Prior to the Distribution and as part of the Reorganization, Services and
its subsidiaries will transfer certain assets and liabilities between the
Company and Services relating to the Forward Air Business and the Truckload
Business. Such transfers, as well as the Distribution itself, may be subject to
review under state or federal fraudulent transfer laws in the event of the
bankruptcy or other financial difficulty of either the Company or Services.
Under those laws, if a court in a lawsuit by an unpaid creditor or
representative of creditors of the Company, such as a trustee in bankruptcy or
the Company as debtor in possession in a case under Chapter 11
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of the United States Bankruptcy Code, were to find that at the time of such
transfer of assets and liabilities, the Company either (i) was insolvent, (ii)
was rendered insolvent, (iii) was engaged in a business or transaction for which
its remaining unencumbered assets constituted unreasonably small capital, or
(iv) intended to incur or believed that it would incur debts beyond its ability
to pay as such debts matured, the court could avoid such transfer.
Similarly, if a court in a lawsuit by an unpaid creditor or representative
of creditors of Services, such as a trustee in bankruptcy or Services as debtor
in possession, were to find that at the time of the Distribution one of the
factors identified in clauses (i) through (iv) above applied to Services, such
court could avoid the Distribution and direct the return of all shares of
Landair Corporation Common Stock distributed thereunder to Services or to an
entity to hold for the benefit of Services' creditors.
Moreover, regardless of the factors identified in clauses (i) through (iv)
above, the court could avoid such transfer of assets and liabilities or the
Distribution if, in either case, it found that such transfer or the Distribution
resulted from actual intent to hinder, delay or defraud creditors of the Company
or Services, respectively.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL; CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Charter and Bylaws and Tennessee law
could have the effect of delaying, deferring or preventing a change of control
of the Company in a transaction not approved by the Company's Board of
Directors. See "PURPOSES AND ANTI-TAKEOVER EFFECTS OF LEGISLATION AND CERTAIN
PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS."
TRANSPORTATION REGULATIONS
The business of the Company is subject to regulation by various federal and
state agencies, including the United States Department of Transportation
("DOT"). The trucking industry is subject to regulatory and legislative changes
(including limits on vehicle weights and size) that can affect the economics of
the industry by requiring changes in operating practices or influencing the
costs of providing services to shippers. See "BUSINESS -- TRANSPORTATION
REGULATIONS."
ENVIRONMENTAL REGULATIONS
The trucking industry is subject to stringent environmental laws and
regulations, including laws and regulations dealing with underground fuel
storage tanks and the transportation of hazardous materials. Laws protecting the
environment have become more stringent. Management of the Company believes that
the Company is in material compliance with all laws applicable to its
operations, and is not aware of any situation or condition that it believes is
likely to have a material adverse effect on its financial position or results of
operations. There can be no assurance, however, that environmental matters
existing with respect to the Company, or compliance by the Company with laws
relating to environmental matters, will not have a material adverse effect on
the Company's business, financial condition or results of operations. See
"BUSINESS -- ENVIRONMENTAL REGULATIONS."
SEASONALITY
In the trucking industry, revenue and operating results generally reflect a
seasonal pattern as customers reduce shipments during and after the winter
holiday season and during the summer months. Additionally, the volume of
shipments is often affected by weather variations. The Company's operating
expenses also have
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historically been higher in the winter months, due primarily to decreased fuel
efficiency and increased maintenance costs of revenue equipment in colder
weather.
INFLATION
Significant increases in fuel prices, to the extent not offset by increases
in rates, would have a material adverse effect on the profitability of the
Company. Historically, the Company has responded to periods of sharply higher
fuel prices by implementing fuel surcharge programs or base rate increases, or
both, to recover additional costs, but there can be no assurance that the
Company will be able to successfully implement such surcharges or increases in
response to increased fuel costs in the future.
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THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Services continually reviews its businesses, with a view to increasing
competitiveness and efficiency of its operations and to enhancing the long-term
interests of its shareholders. Following considerable review of available
strategic alternatives for enhancing Services' shareholder value, the Board of
Directors of Services concluded that the Distribution would be in the best
interests of the Company, Services and Services' shareholders. Services believes
that the Distribution will allow investors, analysts and creditors to evaluate
better the different merits of the two businesses and their characteristics and
prospects and may enhance the likelihood that each will achieve appropriate
market recognition of its performance. Accordingly, Services believes that the
Distribution will position each company to enhance long-term shareholder value
and competitiveness.
Financial Reasons. The Board of Directors and management of Services
believe that the separation of the Truckload Business and the Forward Air
Business into two public companies through the Distribution will enable each of
the businesses to raise capital more efficiently, as both lenders and equity
investors will be better able to assess the different risk profiles and
operating characteristics of the Truckload Business and the Forward Air
Business. Currently, the two businesses have different capital requirements,
operating and profit margins, forms of competition, contractual relationships,
regulatory requirements and growth expectations. Services currently intends to
expand the Forward Air Business through the combination of internal growth and
additional acquisitions. The Distribution will give the Forward Air Business
direct access to capital markets and will permit it to raise funds on the basis
of its own operating profile and fundamentals. The Services Board anticipates
that, as an independent entity without the Truckload Business, the Forward Air
Business will be able to raise capital and make acquisitions using common stock
more efficiently because it is expected that the market will value stock in the
Forward Air Business on a price/earnings multiple closer to other low-asset
based transportation service providers, which multiple the Services Board
currently expects will be higher than the multiple historically assigned to
Services and the combined Forward Air and Truckload Businesses.
Similarly, the Company currently intends to expand its business through a
combination of internal growth and additional acquisitions. Separation from the
Forward Air Business will allow investors to assess a potential investment in
the Company based on its capital requirements, operating profile and
fundamentals and growth expectations. Separation of its assets from those of the
Forward Air Business may facilitate asset based lending to the Company to
satisfy some of its future capital needs.
Management and Employee Reasons. Management also expects that the
Distribution will enable both the Company and Services to motivate their
respective key employees, and attract new employees, by offering economic
rewards and incentives, such as stock options whose value will be directly
related to the performance of the Truckload Business and Forward Air Business,
respectively. Prior to the Distribution, employees of Services that were key
employees of either the Truckload Business, exclusively, or the Forward Air
Business, exclusively, received equity-based incentives tied to the combined
results of the Forward Air Business and the Truckload Business.
Potential Customer Concerns. The Forward Air Business currently provides
services to air freight forwarders. These same air freight forwarders and
domestic and international airlines compete with fully integrated air cargo
carriers. The Truckload Business provides transportation services to many of the
same fully integrated air cargo carriers. As a result, the Forward Air Business
may be seen by some as a competitor with several significant customers of the
Truckload Business.
THE REORGANIZATION
Pursuant to the Distribution Agreement and prior to the Distribution,
Services and its subsidiaries will effect the Reorganization pursuant to which
(i) substantially all of the operations, assets and liabilities related
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<PAGE> 19
to the Truckload Business will be transferred to the Company and its
subsidiaries and (ii) substantially all of the operations, assets and
liabilities related to the Forward Air Business will continue to be owned by
Services and its subsidiaries. As part of the Reorganization and pursuant to the
Distribution Agreement, Services has agreed to borrow approximately $12 million
from an unrelated third party and to use the proceeds of such borrowing to pay
any intercompany debt owed by Services to Landair Transport, Inc., currently a
wholly-owned subsidiary of Services ("Landair Transport") that will become a
subsidiary of the Company after the Reorganization and the Distribution. In
addition, as part of the Reorganization and pursuant to the Distribution
Agreement, Services will transfer to the Company $5 million in the form of a
capital contribution which the Company intends to use to pay down long-term debt
and increase the Company's future capacity for maintaining and/or acquiring
equipment.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in the Distribution Agreement which is attached hereto as Annex A. The
Distribution Agreement will be executed on or prior to the Distribution Date. In
the event that all conditions to the Distribution are satisfied or waived, and
subject to the right of the Services Board to abandon, defer or modify the
Distribution and related transactions, the Distribution will be made on or about
the Distribution Date to shareholders of record of Services on the Record Date.
On the Distribution Date, all shares of Landair Corporation Common Stock will be
delivered by Services to the Distribution Agent. As soon as practicable after
the Distribution Date, certificates representing Landair Corporation Common
Stock will be mailed by the Distribution Agent to holders of record of Services
Common Stock entitled thereto on the basis of one share of Landair Corporation
Common Stock for each share of Services Common Stock held on the Record Date.
All such shares will be fully paid and nonassessable and the holders thereof
will not be entitled to preemptive rights. See "DESCRIPTION OF COMPANY CAPITAL
STOCK."
Holders of Services Common Stock will not be required to pay any cash or
other consideration for the shares of Landair Corporation Common Stock received
in the Distribution or to surrender or exchange shares of Services Common Stock
or to take any other action in order to receive Landair Corporation Common
Stock. The Distribution will not affect the number of, or the rights attaching
to, the outstanding shares of Services Common Stock.
HOLDERS OF SERVICES COMMON STOCK SHOULD NOT SEND CERTIFICATES TO THE
COMPANY, SERVICES OR THE DISTRIBUTION AGENT. THE DISTRIBUTION AGENT WILL MAIL
THE STOCK CERTIFICATES REPRESENTING SHARES OF LANDAIR CORPORATION COMMON STOCK
AS SOON AS PRACTICABLE AFTER THE DISTRIBUTION DATE. SERVICES STOCK CERTIFICATES
WILL CONTINUE TO REPRESENT SHARES OF SERVICES COMMON STOCK AFTER THE
DISTRIBUTION IN THE SAME AMOUNT SHOWN ON THE CERTIFICATES.
RESULTS OF THE DISTRIBUTION
After the Distribution, the Company will be a separate public company which
will own and operate the Truckload Business formerly conducted by Services and
its subsidiaries. The number and identity of the holders of Landair Corporation
Common Stock immediately after the Distribution will be substantially the same
as the number and identity of the holders of Services Common Stock on the Record
Date. Immediately after the Distribution, the Company will have approximately
6,191,185 shares of Landair Corporation Common Stock outstanding, based on the
number of record shareholders and outstanding shares of Services Common Stock as
of the close of business on May 31, 1998, and the distribution ratio of one
share of Landair Corporation Common Stock for each share of Services Common
Stock. The actual number of shares of Landair Corporation Common Stock to be
distributed will be determined as of the Record Date. The Distribution will not
affect the number of outstanding shares of Services Common Stock or any rights
of Services shareholders.
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DISTRIBUTION AGENT
The Distribution Agent is the SunTrust Bank, Atlanta, 58 Edgewood Avenue,
Atlanta, Georgia 30303.
CONDITIONS TO DISTRIBUTION; RIGHT TO ABANDON, DEFER OR MODIFY DISTRIBUTION
The Distribution is conditioned upon, among other things, (i) the
consummation of the Reorganization in accordance with the terms and conditions
of the Distribution Agreement and certain internal corporate reorganizations;
(ii) the successful renegotiation of certain Services credit facilities and debt
instruments, including the execution of certain consents, waivers and amendments
thereto by lenders; (iii) the establishment of a separate credit facility for
the Company and Services (iv) the receipt of certain third-party consents
relating to certain contracts, licenses and other agreements; (v) the receipt by
Services of the Ruling, or at the option of the Services Board, an opinion of
special tax counsel to Services, in form and substance satisfactory to the
Services Board, to the effect that, among other things, the Distribution will
constitute such a tax-free distribution under Section 355 of the Code; (vi) the
Registration Statement having become effective and no stop-order being in
effect; (vii) there not being in effect any statute, rule, regulation or order
of any court, governmental or regulatory body that prohibits or makes illegal
the transactions contemplated by the Distribution; and (viii) approval for
listing of the Landair Corporation Common Stock on the Nasdaq National Market.
Pursuant to the Distribution Agreement, the Services Board will receive the
right in its discretion other than with respect to those set forth in clauses
(i), (v), (vi) and (vii) above, to waive the satisfaction of any condition to
the Distribution; provided, however, that the Services Board may abandon, defer
or modify the Distribution and the related transactions at any time prior to the
Distribution Date.
CERTAIN FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
Consummation of the Distribution is conditioned upon the receipt by
Services of the Ruling to the effect that, among other things, the Distribution
will qualify as a tax-free distribution for federal income tax purposes under
Section 355 of the Code, or at the option of the Services Board, an opinion of
special tax counsel to Services, in form and substance satisfactory to the
Services Board, to the effect that, among other things, the Distribution will
constitute such a tax-free distribution under Section 355 of the Code.
Accordingly, Services has requested a Ruling from the IRS to the effect that,
among other things, the Reorganization will qualify as a "reorganization" under
Section 368(a)(1)(D) of the Code or a tax free exchange under Section 351 of the
Code and the Distribution will qualify as a tax-free distribution for federal
income tax purposes under Section 355 of the Code. Based on the Ruling and
opinion (if any) discussed above, the following are the material federal income
tax consequences of the Distribution:
1. No gain or loss will be recognized by a holder of Services Common
Stock as a result of the receipt of shares of Landair Corporation Common
Stock in the Distribution;
2. The aggregate tax basis of the Services Common Stock and the
Landair Corporation Common Stock in the hands of a shareholder of Services
immediately after the Distribution will be the same as the basis of the
Services Common Stock held by such shareholder immediately before the
Distribution, allocated in proportion to the fair market value of the
Services Common Stock and the Landair Corporation Common Stock at the time
of the Distribution;
3. The holding period of the Landair Corporation Common Stock received
by the shareholders of Services in the Distribution will include the
holding period of the Services Common Stock with respect to which the
Distribution was made (assuming such Services Common Stock was held as a
capital asset); and
4. Generally, no gain or loss will be recognized by Services or the
Company as a result of the Distribution.
The Ruling will be based on the accuracy of certain factual representations
and certain assumptions of Services. Although Services is not aware of any facts
or circumstances that would cause such representations or assumptions to be
false, no assurance can be given in this regard. See "RISK FACTORS -- CERTAIN
TAX CONSIDERATIONS."
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For a description of the Tax Sharing Agreement pursuant to which Services
and the Company will provide for various tax matters, see "RELATIONSHIP BETWEEN
SERVICES AND THE COMPANY AFTER THE DISTRIBUTION -- TAX SHARING AGREEMENT." For a
description of certain additional tax considerations, see "RISK
FACTORS -- CERTAIN TAX CONSIDERATIONS."
THE FOREGOING IS A SUMMARY OF THE ANTICIPATED MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW. IT DOES NOT PURPORT TO
ADDRESS ALL FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION, OR TAX
CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS OR THAT
MAY APPLY TO PARTICULAR CATEGORIES OF SHAREHOLDERS, SUCH AS SHAREHOLDERS WHO
RECEIVED THEIR SERVICES COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR
OTHERWISE AS COMPENSATION. EACH SHAREHOLDER SHOULD CONSULT ITS TAX ADVISOR AS TO
THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH SHAREHOLDER, INCLUDING
THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE EFFECT OF
POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED
ABOVE.
LISTING AND TRADING OF THE LANDAIR CORPORATION COMMON STOCK
There is not currently a public market for the Landair Corporation Common
Stock, although the Company expects that a "when-issued" trading market will
develop on or about the Record Date. Prices at which the Landair Corporation
Common Stock may trade prior to the Distribution on a "when-issued" basis or
after the Distribution cannot be predicted and the prices at which such trading
occurs may fluctuate significantly, particularly until the Landair Corporation
Common Stock issued in the Distribution is fully distributed. The prices at
which the Landair Corporation Common Stock trades will be determined by the
market and may be influenced by many factors, including, among others, the
operating results of the Company, the depth and liquidity of the market for
Landair Corporation Common Stock, investor perception of the Company and the
industry in which the Company participates and general economic and market
conditions. Such prices may also be affected by certain provisions of the
Company's Charter and Bylaws and Tennessee law which may have anti-takeover
effects. See "RISK FACTORS -- NO CURRENT PUBLIC MARKET FOR THE LANDAIR
CORPORATION COMMON STOCK; POSSIBILITY OF SIGNIFICANT PRICE FLUCTUATIONS" and
"-- DIVIDEND POLICY" and "PURPOSES AND ANTI-TAKEOVER EFFECTS OF LEGISLATION AND
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS."
Prior to the Distribution, subject to the approval by the shareholders of
Services, Services will change its name to Forward Air Corporation to reflect
its focus on the Forward Air Business. In connection therewith, Services will
also change the symbol under which it is listed on the Nasdaq National Market to
"FWRD", effective immediately following the name change. The Company, in turn,
will assume the "LAND" ticker symbol currently used by Services and has applied
for listing its stock under that symbol on the Nasdaq National Market.
Services has complied with Staff Legal Bulletin No. 4 (the "Bulletin")
issued by the Division of Corporate Finance of the Securities and Exchange
Commission. The Bulletin states the views of the staff of the Division of
Corporate Finance regarding whether Section 5 of the Securities Act of 1933, as
amended (the "Securities Act"), applies to spin-offs. The Bulletin states that
the staff will no longer respond to no-action letter requests about spin-off
issues discussed in the Bulletin. The Bulletin states that a subsidiary does not
have to register the spin-off under the Securities Act if the following five
conditions are met: (i) the parent shareholders do not provide consideration;
(ii) the spin-off is pro rata to the parent shareholders; (iii) the parent
provides adequate information about the spin-off and the subsidiary to its
shareholders and to the trading markets; (iv) the parent has a valid business
purpose; and (v) if the parent spins off "restricted securities," it has held
those securities for at least two years. Services believes that the Distribution
meets the conditions of the Bulletin. Accordingly, the Company believes the
shares of Landair Corporation Common Stock issued in the Distribution will be
freely transferrable, except for shares of Landair Corporation Common
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Stock received by persons who may be deemed "affiliates" of the Company under
the Securities Act. Persons who may be deemed to be affiliates of the Company
after the Distribution generally include persons that control, are controlled by
or are under common control with the Company, and include executive officers and
directors of the Company, as well as any of its controlling shareholders.
Persons who are affiliates of the Company will be permitted to sell shares of
the Landair Corporation Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act.
FUTURE MANAGEMENT OF THE COMPANY
Following the Distribution, it is intended that the Company will continue
to operate the Truckload Business substantially in the manner in which it has
been operated by Services in the recent past, including the further
implementation of certain structural changes intended to enhance the operations
of the Company. See "BUSINESS." The Company and its subsidiaries will have
substantially the same operating management.
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by Services solely to provide
information to Services shareholders who will receive Landair Corporation Common
Stock in the Distribution as required by applicable law. It is not, and is not
to be construed as, an inducement or encouragement to buy or sell any securities
of Services or the Company. The information contained in this Information
Statement is believed by Services and the Company to be accurate as of the date
set forth on its cover. Changes may occur after that date, and neither the
Company nor Services will update the information except in the normal course of
their respective public disclosure practices.
RELATIONSHIP BETWEEN SERVICES AND THE COMPANY AFTER THE DISTRIBUTION
For the purpose of governing certain aspects of the ongoing relationship
between Services and the Company after the Distribution and to provide
mechanisms for an orderly transition following the Distribution, Services and
the Company will enter into various agreements (collectively, the "Transition
Agreements"). Forms of the Transition Agreements are included as exhibits to the
Registration Statement of which this Information Statement is a part, and the
following summaries are qualified by reference to the Transition Agreements as
filed.
DISTRIBUTION AGREEMENT
The Distribution Agreement provides for, among other things, the principal
corporate transactions required to effect the Distribution and for the
allocation of certain assets and liabilities between Services and the Company.
Pursuant to the Distribution Agreement, Services and its subsidiaries will
effect the Reorganization pursuant to which (i) substantially all of the
operations, assets and liabilities related to the Truckload Business will be
transferred to the Company and its subsidiaries and (ii) substantially all of
the operations, assets and liabilities related to the Forward Air Business will
continue to be owned by Services and its subsidiaries. As part of the
Reorganization and pursuant to the Distribution Agreement, Services has agreed
to borrow approximately $12 million from an unrelated third party and to use the
proceeds of such borrowing to pay any intercompany debt owed by Services to
Landair Transport, currently a wholly-owned subsidiary of Services that will
become a subsidiary of the Company after the Reorganization and the
Distribution. In addition, as part of the Reorganization and pursuant to the
Distribution Agreement, Services will transfer to the Company $5 million in the
form of a capital contribution which the Company intends to use to pay down
long-term debt and increase the Company's future capacity for maintaining and/or
acquiring equipment. Each of Services and the Company will bear its own costs
and expenses that (i) are necessary to effect the Distribution and (ii) arise
after the Distribution and are related thereto.
16
<PAGE> 23
The Distribution Agreement provides that Services will indemnify the
Company against certain liabilities, costs and expenses arising out of Services'
pre-Distribution business (other than as relates to the Company's business) and
the Company will indemnify Services against certain liabilities, costs and
expenses of the Company or arising out of its pre-Distribution business, and
each will have sole responsibility for claims arising out of its respective
activities after the Distribution. The Distribution Agreement also provides that
each of Services and the Company will indemnify each other in the event of
certain liabilities arising under the federal securities laws.
The Distribution Agreement will also provide that each of the Company and
Services will be granted mutual access to certain historical records and
information in the possession of the other, and requires the retention by each
of the Company and Services for a period consistent with the document retention
policies in effect at Services and the Company prior to the Distribution Date of
all such information in its possession, and thereafter requires that each party
give the other prior notice of its intention to dispose of such information.
The Distribution Agreement provides that, for a period of three years after
the Distribution Date, neither Services nor the Company will directly solicit
the employment of any employee of the other company or its affiliates without
the prior written consent of such other company.
TRANSITION SERVICES AGREEMENT
Services and the Company currently share certain administrative and other
services. After the Distribution, Services and the Company will provide services
to each other substantially on the basis set forth in the Transition Services
Agreement.
Services will provide the following services to the Company: accounts
payable, payroll, human resources and benefit plan administration,
owner-operator settlement, central purchasing, accounting, administrative and
information technology. The Company will provide the following services to
Services: safety, licensing/permitting/fuel tax, insurance/claims,
recruiting/retention and training. Services performed by Services under the
Transition Services Agreement shall be paid for by Services and the Company at
prices comparable to those which could be achieved through arms-length
negotiations.
The Transition Services Agreement will have an eighteen month term;
provided, however, that Services shall be obligated to provide the information
technology services described above until the third anniversary of the
Distribution Date. The information technology services will be reviewed by
Services and the Company every six months. Notwithstanding the stated term of
the Transition Services Agreement, Services or the Company (as recipients of the
services) will be able to terminate any or all such services at any time on
three months written notice, and Services or the Company (as providers of the
services) may at any time after the first anniversary of the Distribution Date,
terminate any or all of the services on six months notice.
EMPLOYEE BENEFIT MATTERS AGREEMENT
The Employee Benefit Matters Agreement will provide for the treatment of
employee benefit matters and other compensation arrangements for Services and
Company employees after the Distribution. Pursuant to this agreement, Services
will continue sponsorship of the various employee benefit plans and welfare
plans of Services with respect to Services employees after the Distribution, and
the Company will be required to establish a number of similar such plans which
will allow the Company to provide to its employees after the Distribution
substantially the same benefits currently provided to them as employees of
Services.
According to the terms of the Amended and Restated Stock Option and
Incentive Plan of Services, options to purchase shares of Services Common Stock
that are exercisable at the time of the Distribution and that are held by those
employees who will terminate employment with Services and become employees of
the Company upon the Distribution, will be cancelled if not exercised prior to
such employees' termination of employment with Services. Accordingly, employees
leaving Services and continuing as employees of the Company are expected to
exercise their vested options prior to the Distribution. Under the Employee
Benefit Matters Agreement, unexercisable options held by employees of Services
who remain or become employees of the Company upon consummation of the
Distribution will be converted into options to purchase Landair
17
<PAGE> 24
Corporation Common Stock under the Company's 1998 Stock Option and Incentive
Plan (the "Stock Plan"). Such conversion shall be on the basis of a formula
contained in the Employee Benefit Matters Agreement designed to preserve the
fair market value of such converted options on the date of the Distribution.
TAX SHARING AGREEMENT
Services and the Company will, on or prior to the Distribution Date, enter
into a Tax Sharing Agreement to determine their responsibilities for taxes
attributable to periods ending before and after the Distribution. Under the
terms of the Tax Sharing Agreement, Services is generally responsible for filing
all tax returns of the Services consolidated group (including the Company and
its subsidiaries) for periods ending on or before the Distribution Date. The
Company will continue to be responsible for its allocable share of such tax
liability for periods ending on or prior to the Distribution Date and the
Company will make payments to Services in respect of such liability, including
any liability that may arise as a result of an audit of the tax returns for such
periods. See "RISK FACTORS -- CERTAIN TAX CONSIDERATIONS." The Company will
generally be entitled to its allocable share of any refunds attributable to the
reduction of its tax liabilities for such periods. The Company's allocable share
of tax liability (and refunds) for these purposes will generally be determined
based on the proportion that its tax liability, computed as if the Company filed
a separate tax return, bears to the total tax liability of all members of the
Services' consolidated group computed in a similar fashion.
The Company will generally indemnify Services with respect to any taxes
incurred by Services in connection with the Distribution if the Distribution
fails to qualify as a tax-free transaction for federal income tax purposes as a
result of certain transactions by the Company or as a result of certain
misrepresentations or omissions by the Company to the IRS or to counsel for
Services. See "RISK FACTORS -- CERTAIN TAX CONSIDERATIONS."
After the Distribution Date, Services and the Company will each be
separately responsible for filing all tax returns for their respective
affiliated groups of companies and paying the appropriate amounts of all related
taxes. Services will, however, retain full responsibility for and discretion in
amending all tax returns of the consolidated group and handling any tax
controversy, audit or other dispute resolution process with respect to periods
ending on or prior to the Distribution Date, unless Services approves of a
specific request by the Company to handle such a situation that would directly
affect the Company.
LEASES
Services, through a wholly-owned subsidiary, currently leases to a
wholly-owned subsidiary of the Company a portion of its terminal facility in
Atlanta, Georgia. Rental payments under the lease agreement are based upon the
cost of such facility and an agreed upon percentage of usage. In addition, on or
prior to the date of the Distribution, Services will enter into subleases with
the Company pursuant to which Services will sublease to the Company (i) a
portion of its terminal facility in Columbus, Ohio that is leased by Services
from the Director of Development of the State of Ohio; (ii) a portion of the
facility leased by Services in Indianapolis, Indiana; (iii) a portion of its
terminal facility in Chicago, Illinois that is leased by a Services subsidiary;
(iv) a portion of its terminal facility in Detroit, Michigan that is leased by a
Services subsidiary; and (v) a portion of the headquarters of Services in
Greeneville, Tennessee that is leased by Services from the Greeneville-Greene
County Airport Authority. Services expects to sublease the Columbus terminal
facility for consideration based upon the cost of such facility to Services and
an agreed upon percentage of usage. Services expects to sublease the
Indianapolis, Chicago, Detroit and Greeneville facilities for consideration
based upon an agreed upon percentage of usage.
18
<PAGE> 25
FINANCING
In preparation for the Distribution, Services is negotiating with its
present lenders to obtain separate credit facilities for each of the Company and
Services. In addition, Services expects to eliminate guarantees of indebtedness
and cross-collateralization between the Company and Services. The Company's
proposed new credit facilities are to include a working capital line of credit
and an equipment financing facility. These credit facilities are expected to
permit the Company to borrow up to $20 million under the working capital line of
credit and $15 million under the equipment financing facility. Interest rates
for advances under the facilities will vary based on covenants related to total
indebtedness, cash flows, results of operations and other ratios. The facilities
will bear interest at LIBOR plus 1.00% to 2.50%, expire in August 2000, and will
be secured by accounts receivable and certain revenue equipment. Availability
under the proposed line of credit is expected to be reduced by the amount of
outstanding letters of credit. Among other restrictions, the terms of the
proposed line of credit are expected to require maintenance of certain levels of
net worth and other financial ratios.
19
<PAGE> 26
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Truckload
Business as of and for each of the five years ended December 31, 1997 and as of
and for the three months ended March 31, 1998 and 1997. The selected financial
data has been derived from the audited combined financial statements of the
Truckload Business, except for the March 31, 1998 and 1997 selected financial
data derived from the combined financial statements which are unaudited but, in
the opinion of management, have been prepared on the same basis as the audited
combined financial statements and include all adjustments necessary (consisting
of normal recurring adjustments) for a fair presentation of the results for such
periods. This historical financial information includes certain allocations of
corporate administrative expenses by Services. The selected financial data are
qualified by and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Pro Forma Condensed
Combined Financial Statements" and "Combined Financial Statements and Notes"
thereto appearing elsewhere in the Information Statement. Per share data has not
been presented because the financial statements of the Truckload Business
include primarily wholly-owned subsidiaries or divisions of Services.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
----------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Operating revenue......................... $25,323 $20,545 $91,398 $82,242 $87,764 $80,934 $66,083
Income from operations.................... 1,578 155 3,739 825 4,104 3,642 1,287
Interest expense.......................... (467) (474) (1,826) (2,221) (2,327) (1,116) (899)
Other income (expense), net............... 6 33 (12) 59 227 280 376
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes......... 1,117 (286) 1,901 (1,337) 2,004 2,806 764
Income taxes (benefit).................... 441 (92) 751 (432) 1,067 1,402 343
------- ------- ------- ------- ------- ------- -------
Net income (loss)................ $ 676 $ (194) $ 1,150 $ (905) $ 937 $ 1,404 $ 421
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 916 $ 28 $ 614 $ 28 $ 3,687 $ 615 $ 2,678
Total assets.............................. 97,014 87,500 97,208 89,292 95,200 77,719 56,384
Long-term obligations, net of current
portion................................. 15,485 17,174 14,151 19,771 29,990 21,713 9,222
Shareholder's investment.................. 40,234 38,214 39,558 38,408 39,313 38,376 37,955
</TABLE>
- ---------------
(1) Results for 1994 and 1993 lack comparability to other periods because (i)
1994 includes an $805,000 loss on the sale and winding down of refrigerated
trucking operations, and (ii) 1993 includes bonuses of approximately $1.1
million which represented non-recurring bonuses to key management and
payments to Services' S Corporation shareholder to enable him to pay income
taxes by virtue of Services' S Corporation status through October 29, 1993.
Had these items not been included in the results of operations, income from
operations, income before income taxes and net income would have been
approximately $4.5, $3.6 and $1.8, and $2.4, $1.9, and $1.1 million in 1994
and 1993, respectively.
20
<PAGE> 27
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma condensed combined balance sheet of the Company, as
of March 31, 1998, presents the financial position of the Truckload Business
assuming the Reorganization and the Distribution had occurred on March 31, 1998.
The unaudited pro forma condensed combined statements of income of the Company
for the year ended December 31, 1997 and the three months ended March 31, 1998
present the results of operations of the Truckload Business assuming the
Reorganization and the Distribution had occurred on January 1, 1997.
The unaudited pro forma condensed combined financial statements of the
Company should be read in conjunction with the historical combined financial
statements of the Truckload Business contained in this Information Statement.
The pro forma condensed combined statements are for informational purposes only
and do not purport to represent what the results of operations or financial
position of the Truckload Business would have been had the Reorganization and
the Distribution in fact occurred on March 31, 1998 as to the balance sheet or
on January 1, 1997 as to the statements of income, or to project the results of
operations of the Truckload Business in any future period. The pro forma
condensed combined financial statements do not purport to represent what the
results of operations or financial position would have been had the Truckload
Business been operated as a separate entity during the periods presented.
21
<PAGE> 28
LANDAIR CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 916 $ (299)(1) $ 617
Accounts receivable...................................... 10,658 -- 10,658
Other current assets..................................... 6,764 (298)(2) 6,466
Receivable from Services................................. 12,065 (12,065)(3) --
------- -------- -------
Total current assets............................. 30,403 (12,662) 17,741
Property and equipment, net................................ 66,575 (1,116)(1) 60,852
(4,607)(2)
Other assets............................................... 36 -- 36
------- -------- -------
Total assets..................................... $97,014 $(18,385) $78,629
======= ======== =======
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current liabilities:
Accounts payable......................................... $ 3,883 $ -- $ 3,883
Accrued expenses......................................... 12,160 12,160
Current portion of long-term debt........................ 9,838 (1,773)(2) 3,503
(4,562)(4)
Current portion of capital lease obligations............. 3,052 (536)(1) 2,516
------- -------- -------
Total current liabilities........................ 28,933 (6,871) 22,062
Long-term debt, less current portion....................... 14,606 (2,103)(2) --
(12,065)(3)
(438)(4)
Capital lease obligations, less current portion............ 879 (879)(1) --
Deferred income taxes...................................... 12,362 (1,029)(2) 11,333
Shareholder's investment................................... 40,234 5,000(4) 45,234
------- -------- -------
Total liabilities and shareholder's investment... $97,014 $(18,385) $78,629
======= ======== =======
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
22
<PAGE> 29
LANDAIR CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Operating revenue:
Forward Air, Inc.......................................... $ 6,137 $ -- $ 6,137
Other..................................................... 85,261 -- 85,261
------- ------ -------
91,398 -- 91,398
Operating expenses.......................................... 87,659 -- 87,659
------- ------ -------
Income from operations...................................... 3,739 -- 3,739
Other income (expense):
Interest expense.......................................... (1,826) 1,428(5) (398)
Other, net................................................ (12) -- (12)
------- ------ -------
(1,838) 1,428 (410)
------- ------ -------
Income before income taxes.................................. 1,901 1,428 3,329
Income taxes................................................ 751 557(6) 1,308
------- ------ -------
Net income.................................................. $ 1,150 $ 871 $ 2,021
======= ====== =======
Net income per common share:
Basic..................................................... $ 0.33
=======
Diluted................................................... $ 0.33
=======
Weighted average number of common shares outstanding:
Basic..................................................... 6,176(7) 6,176
=======
Diluted................................................... 6,176(7)
40(8) 6,216
=======
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
23
<PAGE> 30
LANDAIR CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Operating revenue:
Forward Air, Inc. ........................................ $ 1,318 $ -- $ 1,318
Other..................................................... 24,005 -- 24,005
------- ------ -------
25,323 -- 25,323
Operating expenses.......................................... 23,745 -- 23,745
------- ------ -------
Income from operations...................................... 1,578 -- 1,578
Other income (expense):
Interest expense.......................................... (467) 364(5) (103)
Other, net................................................ 6 -- 6
------- ------ -------
(461) 364 (97)
------- ------ -------
Income before income taxes.................................. 1,117 364 1,481
Income taxes................................................ 441 142(6) 583
------- ------ -------
Net income.................................................. $ 676 $ 222 $ 898
======= ====== =======
Net income per common share:
Basic..................................................... $ 0.15
=======
Diluted................................................... $ 0.14
=======
Weighted average number of common shares outstanding:
Basic..................................................... 6,176(7) 6,176
=======
Diluted................................................... 6,176(7)
51(8) 6,227
=======
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
24
<PAGE> 31
LANDAIR CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
(1) Reflects the transfer from the Truckload Business to Services of
property and equipment under capital lease related to the Forward Air Business
as follows:
<TABLE>
<S> <C>
Property and equipment, net................................. $(1,116)
Current portion of capital lease obligations................ 536
Capital lease obligations, less current portion............. 879
-------
Cash disbursed.............................................. $ 299
=======
</TABLE>
(2) Reflects the sale by the Truckload Business to Services of property and
equipment and certain assets used in the Forward Air Business, and the use of
the proceeds of such sale to pay down debt of the Truckload Business, as
follows:
<TABLE>
<S> <C>
Property and equipment, net................................. $(4,607)
Other current assets........................................ (298)
Deferred income taxes....................................... 1,029
-------
Proceeds received........................................... (3,876)
=======
Current portion of long-term debt........................... 1,773
Long-term debt, less current portion........................ 2,103
-------
Cash disbursed.............................................. $ 3,876
=======
</TABLE>
(3) Reflects the receipt by the Truckload Business of payment from Services
of intercompany indebtedness, as of March 31, 1998, in the amount of $12,065,
with the proceeds used to pay off long-term debt.
(4) Reflects a $5,000 capital contribution to the Truckload Business by
Services with the proceeds used to pay-off the remaining noncurrent portion of
long-term debt and to reduce current portion of long-term debt.
<TABLE>
<S> <C>
Current portion of long-term debt........................... $ 4,562
Long-term debt, less current portion........................ 438
Shareholder's investment.................................... (5,000)
-------
$ -0-
=======
</TABLE>
(5) Reflects the elimination of historical interest expense and the
reallocation of interest expense based upon Truckload's pro rata share of the
pro forma adjusted long-term debt and capital lease obligations of Truckload and
Services as of March 31, 1998.
(6) Reflects the inclusion of income tax expense based on the combined
federal and state statutory rate of 39% applied to adjusted pre-tax income.
(7) Reflects the estimated shares expected to be issued in the Distribution
based on 6,176 shares of Services Common Stock being outstanding at March 31,
1998.
(8) Reflects the increase in 40 and 51 diluted weighted average common
shares outstanding for the year ended December 31, 1997 and three months ended
March 31, 1998, respectively, relating to the options held by Truckload
employees that are eligible for conversion into Truckload options, as if such
conversion occurred on January 1, 1997.
25
<PAGE> 32
LANDAIR CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(9) Historically, certain working capital accounts relating to the Forward
Air Business, principally consisting of certain accounts payable, accrued
payroll and related items and accrued liabilities, have been maintained by the
Truckload Business as a result of the Truckload Business' participation in
Services central cash management program. Accordingly, management of the Company
estimates that approximately $5 million of net working capital liabilities will
not be continuing obligations of the Company after such liabilities are paid by
the Company subsequent to the Distribution. The impact of the settlement of the
working capital accounts is not reflected in the unaudited pro forma condensed
combined balance sheet of the Company as of March 31, 1998.
26
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of expense items
to operating revenue for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------- ---------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Operating revenue:
Forward Air, Inc..................................... 5.2% 5.6% 6.7% 7.1% 3.7%
Other................................................ 94.8 94.4 93.3 92.9 96.3
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
Operating expenses:
Salaries, wages and employee benefits................ 32.8 31.8 32.7 31.1 27.9
Purchased transportation............................. 24.3 25.4 23.5 26.0 31.2
Fuel and fuel taxes.................................. 11.6 12.8 12.3 12.6 10.0
Depreciation and amortization........................ 8.9 9.7 9.1 10.3 8.2
Insurance and claims................................. 5.4 9.0 7.3 7.6 6.0
Operating leases..................................... 0.9 0.6 0.7 1.3 2.5
Other operating expenses............................. 9.9 10.0 10.3 10.1 9.5
----- ----- ----- ----- -----
Total operating expenses..................... 93.8 99.3 95.9 99.0 95.3
----- ----- ----- ----- -----
Income from operations................................. 6.2 0.7 4.1 1.0 4.7
Interest expense....................................... (1.8) (2.3) (2.0) (2.7) (2.7)
Other income, net...................................... -- 0.2 -- 0.1 0.3
----- ----- ----- ----- -----
Income (loss) before income taxes...................... 4.4 (1.4) 2.1 (1.6) 2.3
Income taxes (benefit)................................. 1.7 (0.5) 0.9 (0.5) 1.2
----- ----- ----- ----- -----
Net income (loss)...................................... 2.7% (0.9)% 1.2% (1.1)% 1.1%
===== ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Operating revenue increased by $4.8 million, or 23%, to $25.3 million in
the first quarter of 1998 from $20.5 million in 1997. The operating revenue
increase in Truckload Business operations resulted primarily from increases in
equipment utilization, yield and additional tractors in service. During the
first three months of 1998 and 1997, the average tractors in service in the
Truckload Business, including owner-operators, were 780 and 695, respectively.
The operating ratio (operating expenses as a percentage of operating
revenue) was 93.8% for the first quarter of 1998 compared to 99.3% for 1997. The
improved operating ratio was due primarily to a lower operating cost structure
resulting from an increase in equipment utilization and yield during the period.
Salaries, wages and employee benefits were 32.8% of operating revenue in
the first three months of 1998 compared to 31.8% in 1997. The increase as a
percentage of operating revenue in 1998 was due primarily to an increase in the
ratio of Company-operated to owner-operator equipment. During the first three
months of 1998, average Company-operated tractors in service were 556 compared
to 486 in 1997.
Purchased transportation was 24.3% of operating revenue in the first three
months of 1998 compared to 25.4% in 1997. The decrease in purchased
transportation as a percentage of operating revenue between periods was
primarily attributable to a reduction in the ratio of owner-operator to
Company-operated equipment in 1998. During the first three months of 1998 and
1997, approximately 224 and 209 of the Company's average tractors in service
were contracted through owner-operators.
27
<PAGE> 34
Fuel and fuel taxes were 11.6% of operating revenue in the first quarter of
1998, compared to 12.8% in 1997. The decrease in fuel and fuel taxes as a
percentage of operating revenue during 1998 resulted from a lower average fuel
price per gallon coupled with improvements in the average miles per gallon and
average revenue per loaded mile of the Company-operated tractor fleet. The
increase in fuel and fuel taxes as a percentage of operating revenue during 1998
was also attributed to an increase in the ratio of Company-operated to
owner-operator equipment.
Depreciation and amortization expense as a percentage of operating revenue
was 8.9% in the first quarter of 1998, compared to 9.7% in 1997. The improvement
in depreciation and amortization expense as a percentage of operating revenue is
primarily attributed to increased utilization of operating assets partially
offset by additional depreciation and amortization as a result of a higher ratio
of Company-operated to owner-operator equipment during the first three months of
1998 compared to the first quarter of 1997.
Insurance and claims were 5.4% of operating revenue for the three months
ended March 31, 1998, compared with 9.0% in 1997. The decrease in insurance and
claims as a percentage of operating revenue is due primarily to a decrease in
the severity of accidents and lower premium costs during the first quarter of
1998 compared with 1997.
Operating leases were 0.9% of operating revenue in the first quarter of
1998 compared to 0.6% in 1997. The increase in operating leases as a percentage
of operating revenue is attributed to an increase in rent expense for revenue
equipment during the period.
Other operating expenses were 9.9% of operating revenue in the first
quarter of 1998 compared to 10.0% in 1997. The decrease in 1998 as a percentage
of operating revenue is attributed to improvements in utilization levels in the
Company's operations partially offset by increased maintenance expense as a
result of a higher ratio of Company-operated to owner-operator equipment during
the first three months of 1998 compared to the same period in the prior year.
Interest expense was $467,000, or 1.8% of operating revenue, in the first
quarter of 1998 compared to $474,000, or 2.3%, for the same period in 1997.
The combined federal and state effective income tax rate for the first
quarter of 1998 was 39.5% compared to a tax benefit at the rate of 32.2% for the
1997 period.
As a result of the foregoing factors, net income increased by $870,000 to
$676,000 for the first quarter of 1998 from a loss of $194,000 for the 1997
period.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Operating revenue increased by $9.2 million, or 11%, to $91.4 million for
1997 from $82.2 million in 1996. The operating revenue increase resulted
primarily from improved equipment utilization and yield. Average tractors in
service in the Truckload Business were 699 during 1997 and 695 in 1996.
The operating ratio for 1997 was 95.9% compared to 99.0% for 1996. The
improved operating ratio in 1997 was due primarily to a lower operating cost
structure resulting from an increase in equipment utilization and yield during
the period.
Salaries, wages and employee benefits were 32.7% of operating revenue in
1997 compared to 31.1% in 1996. The increase in expense as a percentage of
operating revenue in 1997 was due primarily to an increase in the ratio of
Company drivers to owner-operators. The average number of Company-operated
tractors in service was 501 in 1997 and 472 in 1996.
Purchased transportation was 23.5% of operating revenue in 1997 compared to
26.0% in 1996. The decrease in purchased transportation as a percentage of
operating revenue was primarily attributable to a lower ratio of owner-operator
to Company equipment during 1997 as compared to 1996. During 1997 and 1996,
approximately 198 and 223, respectively, of Truckload's average tractors in
service were contracted through owner-operators.
28
<PAGE> 35
Fuel and fuel taxes were 12.3% of operating revenue in 1997 compared to
12.6% in 1996. The decrease in fuel and fuel taxes as a percentage of operating
revenue during 1997 resulted from a lower average fuel price per gallon coupled
with improvements in the average miles per gallon and average revenue per loaded
mile of the Company-operated tractor fleet.
Depreciation and amortization expense as a percentage of operating revenue
was 9.1% in 1997 compared to 10.3% in 1996. The decrease in depreciation and
amortization as a percentage of operating revenue is attributable to substantial
improvements in equipment utilization during 1997, partially offset by increased
ownership of revenue equipment.
Insurance and claims were 7.3% of operating revenue in 1997 compared to
7.6% in 1996. The improvement in insurance and claims expense during 1997 as
compared to 1996 resulted from fluctuations in the frequency and severity of
accidents between years coupled with improvements in claims development trends
and premium costs.
Operating leases were 0.7% of operating revenue in 1997 compared to 1.3% in
1996. The decrease in operating leases as a percentage of operating revenue is
attributed to increased ownership, rather than leasing, of revenue equipment.
Other operating expenses, a large component of which relates to equipment
maintenance, were 10.3% of operating revenue in 1997 compared to 10.1% in 1996.
The increase in other operating expenses as a percentage of operating revenue is
attributed to an increase in the ratio of Company-operated to owner-operator
equipment.
Interest expense was $1.8, or 2.0% of operating revenue, in 1997 compared
to $2.2 million, or 2.7%, in 1996. The decrease in interest expense during 1997
was due to lower average net borrowing during 1997.
The combined federal and state effective tax rate for 1997 was 39.5%
compared to a tax benefit at the rate of 32.3% for 1996. For information
concerning income taxes, as well as information regarding differences between
effective tax rates and statutory rates, see Note 5 of the Notes to Combined
Financial Statements.
As a result of the foregoing factors, net income increased by $2.1 million
to $1.2 million for 1997 from a loss of $905,000 in 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Operating revenue decreased by $5.5 million, or 6.3%, to $82.2 million in
1996 from $87.8 million in 1995. The operating revenue decrease resulted
primarily from decreased equipment utilization and yield. During 1996 and 1995,
average tractors in service in the Truckload Business were 695 and 685,
respectively.
The operating ratio for 1996 was 99.0% compared to 95.3% for 1995. The
decrease in the operating ratio in 1996 was due mainly to a higher cost
structure resulting from a decrease in equipment utilization and yield during
the period.
Salaries, wages and employee benefits were 31.1% of operating revenue in
1996 compared to 27.9% in 1995. The increase as a percentage of operating
revenue in 1996 was due primarily to an increase in the ratio of Company drivers
to owner-operators. During 1996 and 1995, the average Company-operated tractors
in service in the Truckload Business were 472 and 435, respectively.
Purchased transportation was 26.0% of operating revenue in 1996 compared to
31.2% in 1995. The decrease in purchased transportation as a percentage of
operating revenue was primarily attributable to a lower ratio of owner-operators
to Company drivers during 1996 as compared to 1995. During 1996, approximately
223 of Truckload's average tractors in service were contracted through
owner-operators as compared to 250 in 1995.
Fuel and fuel taxes were 12.6% of operating revenue in 1996 compared to
10.0% in 1995. The increase in fuel and fuel taxes as a percentage of operating
revenue during 1996 was primarily attributed to an increase in fuel prices and
an increase in the ratio of Company drivers to owner-operators. Approximately
60.0% of the increase in fuel prices during 1996 was passed on to customers in
the form of a fuel surcharge.
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<PAGE> 36
Depreciation and amortization expense as a percentage of operating revenue
was 10.3% in 1996 compared to 8.2% in 1995. The increase in depreciation and
amortization expense as a percentage of operating revenue for 1996 is
attributable to an increase in the ratio of Company to owner-operator equipment
and to increased ownership of revenue equipment.
Insurance and claims were 7.6% of operating revenue in 1996 compared to
6.0% in 1995. The increase in insurance and claims expense during 1996 as
compared to 1995 resulted from fluctuations in the frequency and severity of
accidents between years coupled with changes in claims development trends and
premium costs.
Operating leases were 1.3% of operating revenue in 1996 compared to 2.5% in
1995. The decrease in operating leases as a percentage of operating revenue is
attributed to increased ownership, rather than leasing, of revenue equipment.
Other operating expenses, a large component of which relates to equipment
maintenance, were 10.1% of operating revenue in 1996 compared to 9.5% in 1995.
The increase in other operating expenses as a percentage of operating revenue is
attributed to an increase in the ratio of Company-operated to owner-operator
equipment.
Interest expense was $2.2, or 2.7% of operating revenue, in 1996 compared
to $2.3 million, or 2.7%, in 1995. The decrease in interest expense during 1996
was due to lower average net borrowing during the year.
The combined federal and state effective tax rate benefit for 1996 was
32.3% compared to an effective tax rate of 53.2% in 1995. For information
concerning income taxes, as well as information regarding differences between
effective tax rates and statutory rates, see Note 5 of the Notes to Combined
Financial Statements.
As a result of the foregoing factors, net income decreased by $1.8 million
resulting in a loss of $905,000 for 1996 compared to net income of $937,000 in
1995.
LIQUIDITY AND CAPITAL RESOURCES
The continued growth of the Truckload Business, and the nature of its
operations, have required significant investment in new equipment. The Truckload
Business has historically financed revenue equipment purchases with cash flows
from operations, and through borrowing under credit agreements with financial
institutions. Working capital needs have generally been met with cash flows from
operations and borrowings under the Services line of credit. Net cash provided
by operating activities of the Truckload Business totaled approximately $16.9,
$9.5 and $14.9 million in 1997, 1996 and 1995, respectively.
Net cash used in investing activities was approximately $14.6 million in
1997, $3.4 million in 1996 and $19.9 million in 1995. Investing activities
consisted primarily of the acquisition of additional revenue equipment and
enhanced management information systems during 1997, 1996 and 1995.
Net cash used in financing activities was $1.7 million in 1997 and $9.8
million in 1996. Net cash provided by financing activities was $8.1 million in
1995. These financing activities included the continued financing of revenue
equipment coupled with repayment of long-term debt and capital leases.
The Truckload Business expects net capital expenditures in 1998 for revenue
equipment and management information systems to be less than $20 million. The
Truckload Business expects to fund these expenditures through cash provided by
operating activities and borrowing under credit facilities which are being
finalized and will be effective as of the Distribution. Additional funds may be
required to fund acquisitions. While the Company expects to be able to borrow
funds to finance acquisitions, no assurance can be given that such financings
can be completed on terms satisfactory to the Company.
In preparation for the Distribution, Services is negotiating with its
present lenders to obtain separate credit facilities for each of the Company and
Services. In addition, Services expects to eliminate guarantees of indebtedness
and cross-collateralization between the Company and Services. The Company's
proposed new credit facilities are to include a working capital line of credit
and an equipment financing facility. These credit facilities are expected to
permit the Company to borrow up to $20 million under the working capital line of
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<PAGE> 37
credit and $15 million under the equipment financing facility. Interest rates
for advances under the facilities will vary based on covenants related to total
indebtedness, cash flows, results of operations and other ratios. The facilities
will bear interest at LIBOR plus 1.00% to 2.50%, expire in August 2000, and will
be secured by accounts receivable and certain revenue equipment. Availability
under the proposed line of credit is expected to be reduced by the amount of
outstanding letters of credit. Among other restrictions, the terms of the
proposed line of credit are expected to require maintenance of certain levels of
net worth and other financial ratios.
IMPACT OF YEAR 2000
Some of the Company's older computer programs and systems were written
using two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognize a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
The Company is in the process of replacing the majority of its key
financial and operational systems as a part of upgrading its systems in the
normal course of business. Management believes that this program will
substantially meet or address its Year 2000 issues. In addition to its
replacement program, the Company will require modifying some of its software and
hardware so that its computer systems will function properly with respect to
dates in the Year 2000 and thereafter. The estimated cost of the remaining
replacement and modification for the Year 2000 issue is not considered material
to the Company's earnings or financial position.
The Company also plans to initiate a formal communication process with all
its significant suppliers and large customers to determine the extent to which
the Company's interface systems are vulnerable to the failure of any third party
to remediate its own Year 2000 issues. There is no guarantee that the systems of
such other companies will be timely converted and would not have an adverse
effect on the Company.
The system replacements and upgrades are estimated to be completed not
later than June 30, 1999, which is prior to any anticipated impact of Year 2000
issues on the Company's operating systems. The Company believes that with the
completion of such replacements and upgrades, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
replacements and upgrades are not made, or are not completed timely, or if third
parties with which the Company's systems interface are not replaced or upgraded,
the Year 2000 issue could have a material impact on the operations of the
Company.
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BUSINESS
The Company is an irregular route truckload carrier that transports a wide
range of commodities in both intrastate and interstate commerce. The Company
provides dry van common carrier and dedicated contract carriage for shippers of
a variety of products in the medium- and short-haul markets. These products
include, among others, air freight, automotive parts and supplies, electronics,
furniture, metal products, paper products, retail and other consumer goods. The
preponderance of the Company's business involves providing high-quality,
specialized services to service-sensitive shippers. To assure the most efficient
response to the differing requirements of customers at numerous shipping
locations, the Company has a network of terminals where over-the-road tractors
are based and drivers are domiciled.
The Company utilizes a satellite-linked, computerized operations system to
monitor and facilitate the movement of freight. The Company's operating
philosophy is founded on maintaining the highest level of service at market
competitive prices in the most efficient manner possible.
OPERATIONS
The Company currently conducts operations from eight terminals. Each
terminal is the base for certain over-the-road tractors and is the domicile of
the drivers who operate those tractors. These terminals have facilities and
staff to provide driver supervision, fueling and routine and heavy maintenance.
The Company also operates facilities for its dedicated operations. The Company
believes this network of facilities enhances its ability to provide responsive
service to its customers in an efficient manner.
Each customer's shipment is accorded exclusive use of a trailer, with most
shipments being transported directly from customer pick-up locations to
destinations without a change of drivers, relays or circuitous routing via
terminals. The Company operates a centralized customer service and operations
center in Greeneville, Tennessee. All facilities and drivers are linked to a
satellite communication and dispatch system which provides interactive updates
to its operations.
Since January 1998, the Company has recruited commission agents in addition
to its continuing efforts to recruit owner-operators. The Company believes that
the increased use of owner-operators and commission agents will protect the
Company during business downturns and will provide increased revenue without
adding proportionate fixed costs.
The Company's operations are divided into two major categories:
Common Carrier Operations. The Company's common carrier operations serve a
broad array of customers with a variety of shipping needs. The common carrier
operations' primary traffic consists of medium- and short-haul routes and is
concentrated primarily in the eastern two-thirds of the United States. Customers
of the common carrier operations include Fortune 500 companies who subscribe to
a "core-carrier" strategy as well as smaller companies with regional shipping
needs. Services include just-in-time delivery, satellite communications and
electronic data interchange, as well as tailored services required to meet
specific customer needs such as dedicated capacity, team operations and roller
bed equipment used to serve its air cargo industry customers.
Dedicated Contract Carriage. The Company's dedicated fleet operations
provide dedicated equipment and personnel on a contractual basis to each of its
customers for that customer's exclusive use, frequently as a lower cost
alternative to private carriage. While providing shippers with a higher level of
service, the implementation of a dedicated fleet program frees for other uses
that portion of a shipper's capital that would have been invested in a private
fleet. This ability to redeploy capital allows shippers to better utilize
resources in furtherance of their primary businesses. The dedicated fleet's
service also includes certain of the staffing requirements associated with
operating a private fleet.
The primary focus of the Company's marketing strategy is to increase
freight density within defined market areas that are consistent with the
Company's growth and profit objectives by capitalizing on the trend of shippers
to use a fewer number of truckload carriers in pursuit of a "core carrier"
partnership strategy and the trend to outsource the private fleet transportation
requirements. The financial and operating goal of the
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Company is to maximize profitability by achieving optimal equipment utilization
and yield, while meeting or exceeding customer service requirements.
REVENUE EQUIPMENT
The Company purchases high quality tractors to help attract and retain
drivers, promote safe operations and minimize maintenance and repair costs. When
purchasing new revenue equipment, the Company typically acquires standardized
tractors and trailers manufactured to the Company's specifications.
Standardization enables the Company to simplify driver training, control the
cost of spare parts inventory and enhance its preventive maintenance program.
The Company has purchased most of its tractors from Freightliner
Corporation and its trailers from Great Dane Corporation. The majority of the
tractors purchased are equipped with Series 60 Detroit Diesel electronic engines
which have contributed significantly to increased fuel efficiency. The Company's
purchase and lease agreements generally provide for a repurchase option by the
manufacturer at guaranteed predetermined trade values for tractors after four
years and for trailers after seven years.
As of May 31, 1998, the Company owned or leased 604 tractors and contracted
for 220 tractors from owner-operators. The average age of the Company-owned
tractor fleet was approximately 2.2 years at May 31, 1998. As of May 31, 1998,
the Company owned or leased 1,707 van trailers, of which substantially all are
53' long and 185 include specialized roller bed equipment required to serve air
cargo industry customers. By having a majority of the Company's trailer fleet
equipped with 53' trailers, the Company is able to provide its customers with
more economy and convenience and increased driver productivity. The average age
of the trailer fleet was approximately 4.2 years at May 31, 1998.
The Company has installed Qualcomm two-way satellite communication systems
in the majority of its tractors. The Qualcomm system provides the Company with
continuous communications capability in the event a driver experiences a service
delay or disruption. The Qualcomm system also allows the Company to track the
exact location and route of any particular shipment and communicate instantly
with drivers to improve operating efficiencies.
EMPLOYEES
Drivers. The Company has established several programs to increase driver
loyalty and to provide a greater stake in the Company to drivers. Drivers are
compensated on the basis of miles driven, and base pay for miles driven
increases with a driver's length of employment with the Company. Following the
Distribution, the Company will maintain a 401(k) benefit plan and stock purchase
plan for Company drivers and other employees.
Safety and Training. The Company conducts comprehensive training programs
to promote safety, customer relations, service standards, productivity and
positive attitudes. Driver training and safety programs are developed by the
Company's safety department. Drivers meet or exceed DOT qualifications. Driver
qualification files are updated at least annually to maintain compliance with
DOT regulations.
The Company's safety department focuses on: (i) recruiting and maintaining
the most qualified drivers; (ii) improving driver and management safety
training; (iii) implementing periodic reviews of driving records; (iv) creating
incentive bonuses for drivers with good safety records and (v) raising awareness
of safety-related issues on a Company-wide basis.
In March 1998, the DOT initiated a safety audit of the Company. On May 13,
1998, the Company was notified that it had retained its satisfactory rating.
OWNER-OPERATORS AND COMMISSION AGENTS
The Company intends to continue to expand its operations with
owner-operators equipment. The Company believes that the owner-operators with
whom it contracts are generally more experienced than the general driver
population and that they have a vested interest in protecting their own
equipment that motivates
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them to operate in a cautious manner. Owner-operators are responsible for paying
all their operating expenses including fuel, maintenance, equipment payments and
all other equipment-related expenses. Owner-operators are compensated by the
Company on a rate per mile or percentage of revenue basis. At March 31, 1998,
29% of the Company's tractors in service were contracted to the Company by
owner-operators.
The Company has recently begun to recruit commission agents. These
commission agents typically have long-term relationships with an established
customer base. Management believes that the use of commission agents may provide
additional opportunities to diversify the Company's customer base and to
establish relationships with owner-operators affiliated with commission agents.
The Company intends in the future to expand the use of commission agents.
INSURANCE AND CLAIMS
The Company's insurance and claims program provides protection of the
Company's assets and interests through a combination of insurance,
self-insurance, and excess and umbrella coverages. The Company believes that the
coverages described below are adequate and appropriate. The Company self-insures
its automobile liability and general liability exposures with a retention of
$100,000 combined single limits per occurrence. The funding obligation within
the retention is secured by letters of credit established for the benefit of its
insurance carriers. Umbrella liability policies increase both automobile and
general liability coverage to $50 million.
Workers' compensation and employer's liability exposure is covered by a
combination of self-insurance programs, self-insured excess insurance contracts
and insurance contracts. A self-insured retention of $250,000 per occurrence
applies in states where self-insurance is permitted under applicable law, with
underwriters assuming excess liability up to statutory limits for workers'
compensation. Workers' compensation and employer's liability exposure is covered
by insurance policies in other states. Coverage is provided to statutory limits
with a deductible/retention of $250,000 per occurrence. Employer's liability
coverage is $1,000,000 per occurrence. The Company's funding obligation within
the deductible retention is secured by letters of credit established for the
benefit of its insurance carriers. The Company's umbrella policy provides
coverage of $49,000,000 in excess of the underlying coverages for workers'
compensation and employer's liability.
Director and officer liability, fiduciary liability and commercial crime
coverage is provided by various policies with limits which management believes
are sufficient for the size and scope of its operations. The Company has cargo
insurance coverage with limits of $1,000,000 per loss with deductibles of
$100,000 per occurrence.
TRANSPORTATION REGULATIONS
Prior to 1996, the Company's operations in interstate commerce were
regulated by the Interstate Commerce Commission ("ICC"). Effective December 29,
1995, President Clinton signed into law the Interstate Commerce Commission
Termination Act of 1995 which closed the ICC and transferred its remaining
responsibilities to a new Surface Transportation Board and the Federal Highway
Administration. In addition, interstate motor carrier operations are subject to
safety requirements prescribed by the Department of Transportation. Such matters
as weight and dimension of equipment are also subject to federal and state
regulations. The Company's Canadian operations are subject to similar
requirements imposed by the laws and regulations of the Dominion of Canada and
various provincial laws and regulations. The Company is subject to various
federal, state and local environmental laws and regulations. Management believes
that the Company is in substantial compliance with applicable regulatory
requirements relating to its operations. Failure of the Company to comply with
the applicable regulations could result in substantial fines or revocation of
the Company's operating permits.
ENVIRONMENTAL REGULATIONS
The Company has aboveground fuel storage tanks at its Atlanta, Georgia;
Indianapolis, Indiana; Greeneville, Tennessee; and Memphis, Tennessee facilities
and underground fuel storage tanks at its
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Columbus, Ohio facility. Such storage tanks are subject to various federal and
state environmental laws and regulations. Management believes that the Company
is in substantial compliance with applicable environmental laws and regulations.
No material increase for expenditures for compliance with federal, state and
local environmental laws and regulations is anticipated in 1998.
COMPETITION AND INDUSTRY TRENDS
The Company competes with regional, inter-regional, national truckload
carriers and private fleets, and, to a lesser extent, with less-than-truckload
carriers, railroads and overnight delivery companies. Many of the Company's
competitors have greater financial resources, more equipment or larger freight
capacity than the Company. Service and price are the principal means of
competition in the transportation industry.
The Company's principal competitive strength is its ability to consistently
provide reliable service at a competitive price. Many of the Company's customers
are high volume, time-sensitive shippers which require a flexible and dependable
motor carrier service tailored to their specific needs, including pick-up and
delivery within specified delivery times.
MAJOR CUSTOMER
One customer of the Company, Federal Express Corporation, accounted for
29.4% of combined operating revenue for the year ended December 31, 1997.
PROPERTIES
The Company's headquarters are located in Greeneville, Tennessee and will,
on or prior to the Distribution, be subleased from Services which leases such
headquarters from the Greeneville-Greene County Airport Authority under a lease
expiring in 2006. The cost to the Company of the headquarters sublease is based
upon an agreed upon percentage of usage, a rate management believes approximates
fair market value. In addition to the existing sublease for operation of its
Atlanta facility through a wholly-owned Services subsidiary, the Company expects
to sublease from Services or one of its subsidiaries a portion of the Columbus,
Indianapolis, Chicago and Detroit facilities. The Company will be responsible
for a portion of the taxes, assessments and other costs of ownership under the
sublease agreements.
As of May 31, 1998, the Company operated terminals at Columbus, Ohio;
Atlanta, Georgia; Chicago, Illinois; Greeneville, Tennessee; Indianapolis,
Indiana; Detroit, Michigan; Dallas, Texas; and Olive Branch, Mississippi (near
Memphis, Tennessee).
LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with the transportation of freight.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.
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MANAGEMENT
EXECUTIVE OFFICERS
As the sole shareholder of the Company prior to the Distribution, Services
has designated the persons who will serve as the directors and executive
officers of the Company immediately following the Distribution, most of whom
have served in similar capacities for Services prior to the Distribution. The
following table sets forth certain information concerning persons who are
currently expected to serve as executive officers of the Company as of the
Distribution.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Scott M. Niswonger..................... 51 Chairman and Chief Executive Officer
Eddie R. Brown......................... 48 President and Chief Operating Officer
Chief Financial Officer, Senior Vice President and
Edward W. Cook......................... 40 Treasurer
Richard H. Roberts..................... 44 Senior Vice President, General Counsel and Secretary
N. Jeffrey Woods....................... 40 Vice President, Operations
Rodney L. Bell......................... 36 Controller
</TABLE>
There are no family relationships between any of the executive officers of
the Company. All officers hold office at the pleasure of the Board of Directors.
The following background material is provided for each executive officer
employed by the registrant, including employment history for at least the last
five years:
Scott M. Niswonger is a co-founder of Services and has served as a director
and as President of Services since its founding in 1981, and as Chairman of the
Board and Chief Executive Officer of Services since February 1988. Mr. Niswonger
also serves as a director of the Regional Advisory Board of First Tennessee Bank
National Association.
Eddie R. Brown joined Landair Transport as President and Chief Operating
Officer in January 1998. Since June 1991, Mr. Brown served in various management
positions for Landstar System, Inc., a $1.3 billion truckload carrier based in
Jacksonville, Florida. He was President of Landstar Ranger Transportation, Inc.
from January 1996 and Executive Vice President and Chief Operating Officer of
Landstar System, Inc. from January 1995 until December 1995. Mr. Brown's first
position with Landstar System, Inc. was as President and Chief Executive Officer
of Landstar Poole, Inc. in Evergreen, Alabama from June 1991 to December 1994.
From January 1986 to June 1991, Mr. Brown served as President and Chief
Executive Officer for Bulldog Trucking Inc. From October 1980 until January
1986, while at Builders Transport, Inc., he served in various capacities,
ranging from Terminal Manager to Vice President, Operations and Sales.
Edward W. Cook joined Services as Chief Financial Officer, Senior Vice
President and director in September 1994. Since May 1995, he also served as
Treasurer of Services. Prior to joining Services, Mr. Cook was employed by Ernst
& Young LLP for eleven years, most recently as a senior manager in the
Nashville, Tennessee office. During the period of March 1986 through February
1988, Mr. Cook served as Controller and Assistant Secretary of Ryder-Temperature
Controlled Carriage in Nashville, Tennessee.
Richard H. Roberts has served as Senior Vice President and General Counsel
of Services since July 1994, and as Secretary and director of Services since May
1995. Prior to joining Services, Mr. Roberts was a partner with the Baker,
Worthington, Crossley & Stansberry law firm from January 1991, and an associate
of the firm from June 1985. Mr. Roberts has also served as a director of Miller
Industries, Inc. since April 1994.
N. Jeffrey Woods has been Vice President of Operations of Landair Transport
since December 1990. From April 1985 to June 1990, Mr. Woods served in various
capacities with Ryder Systems, Inc., including Director of Operations Planning
and Director of Central Operations of Ryder-Temperature Controlled Carriage in
Nashville, Tennessee.
Rodney L. Bell has been with Services since March 1992, first as Assistant
Controller until January 1995 when he became Controller. Prior to joining
Services, Mr. Bell was a senior accountant and auditor for Adams
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& Plucker, CPA, a Greeneville, Tennessee accounting firm from October 1988 until
March 1992. From December 1986 until October 1988, Mr. Bell was a staff
accountant.
OTHER KEY EMPLOYEES
Harry O. Crabtree joined Landair Transport as Vice President, Safety, in
January 1998. Prior to joining Landair Transport, he served as Vice President,
Safety and Quality of Landstar Inway, Inc., a position he held from January
1997. Mr. Crabtree was Vice President, Risk Management, for Landstar TLC, Inc.
from March 1995 to January 1997, and was Director of Safety for Landstar Poole,
Inc. from March 1989 until March 1995. From June 1979 to March 1989, Mr.
Crabtree held various management positions at Landstar Poole, Inc.
Arthur Henry joined Landair Transport as Vice President, Sales and
Marketing, in January 1998. Prior to joining Landair Transport, he served as
Director of Marketing of Transport Corporation of America, Inc., a position he
held from November 1992 to December 1997. From May 1987 to November 1992, he
held a marketing position at Transport Corporation of America, Inc. From October
1978 until May 1987, Mr. Henry was Director of Marketing for Bronaugh Express,
Inc. in Lexington, Kentucky.
Jeffrey S. Kleiber joined Landair Transport in June 1996 as Director of
Claims and served as Vice President, Safety and Risk Management, of Landair
Transport from January 1997 until March 1998, when he was appointed Vice
President, Risk Management. Prior to joining Landair Transport, he served as
President of Mid Atlantic Claims, Inc. in York, Pennsylvania, a third-party
administration company which primarily handled transportation losses and claims
for Goodway Transport, Inc., where he also served as Vice President of Safety
and Risk Management from January 1992 until May 1996. From June 1978 until
January 1992, Mr. Kleiber served as Vice President of Safety at Shaffer
Trucking, Inc. in New Kingstown, Pennsylvania.
Jeffrey W. Maddison joined Landair Transport as Vice President, Maintenance
and Purchasing, in January 1996 and has held the same position with Services
since February 1996. Mr. Maddison served as Executive Vice President for Erin
Truckways, Ltd., d/b/a Digby Truck Lines from January 1992, and was Vice
President of Maintenance for Crete Carrier Corp., Shaffer Trucking, Inc.,
Sunflower Carriers, Inc. and HTL Truck Lines, Inc. from September 1987 until
December 1991.
DIRECTORS
Set forth is certain information concerning persons who are currently
expected to serve as directors of the Company as of the Distribution.
EDDIE R. BROWN
Greeneville, Tennessee
Mr. Brown joined Landair Transport as President and Chief Operating Officer
in January 1998. Since June 1991, Mr. Brown served in various management
positions for Landstar System, Inc., a $1.3 billion truckload carrier based in
Jacksonville, Florida. He was President of Landstar Ranger Transportation, Inc.
from January 1996 and Executive Vice President and Chief Operating Officer of
Landstar System, Inc. from January 1995 until December 1995. Mr. Brown's first
position with Landstar System, Inc. was as President and Chief Executive Officer
of Landstar Poole, Inc. in Evergreen, Alabama from June 1991 to December 1994.
From January 1986 to June 1991, Mr. Brown served as President and Chief
Executive Officer for Bulldog Trucking Inc. From October 1980 until January
1986, while at Builders Transport, Inc., he served in various capacities,
ranging from Terminal Manager to Vice President, Operations and Sales.
SCOTT M. NISWONGER Director of Services since 1981
Greeneville, Tennessee
Mr. Niswonger is a co-founder of Services and has served as President of
Services since its founding in 1981, and Chairman of the Board and Chief
Executive Officer since February 1988. Mr. Niswonger also serves as a director
of the Regional Advisory Board of First Tennessee Bank National Association.
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RICHARD H. ROBERTS Director of Services since 1995
Greeneville, Tennessee
Mr. Roberts has served as Senior Vice President and General Counsel of
Services since July 1994, and as Secretary since May 1995. Prior to joining
Services, Mr. Roberts was a partner with the Baker, Worthington, Crossley &
Stansberry law firm from January 1991, and an associate of the firm from June
1985. Mr. Roberts has also served as a director of Miller Industries, Inc. since
April 1994.
BOARD OF DIRECTORS AND COMMITTEES
In order to facilitate the activities of the Board of Directors of the
Company following the Distribution, the Board of Directors intends to create
several standing committees, including an Executive Committee, an Audit
Committee, a Compensation Committee and a Nominating Committee. These committees
will not have a formal meeting schedule, but will be required to meet at least
once each year.
Executive Committee. Initial members of the Executive Committee are
expected to be Messrs. Brown, Niswonger and Roberts. The Executive Committee
will be authorized to act on behalf of and to carry out the functions of the
Board to the extent permitted by law and the Bylaws of the Company.
Audit Committee. Initial members of the Audit Committee are expected to be
Mr. Niswonger and the non-employee directors. The Audit Committee will recommend
engagement of the independent auditors, consider the fee arrangement and scope
of the audit, review the financial statements and the independent auditors
report, consider comments made by the independent auditors with respect to the
Company's internal control structure, and review internal accounting procedures
and controls with the Company's financial and accounting staff.
Compensation Committee. Initial members of the Compensation Committee are
expected to be Mr. Niswonger and the non-employee directors. The Compensation
Committee will be responsible for determining the overall compensation levels of
certain of the Company's executive officers and administering the Company's
employee stock option plan and other employee benefit plans.
Nominating Committee. Initial members of the Nominating Committee are
expected to be Messrs. Brown and Niswonger. The Nominating Committee will be
responsible for establishing the criteria for and review the qualifications of
individuals for election as members of the Board. When a vacancy on the Board
occurs or is anticipated, the Committee will present its recommendation of a
replacement director to the Board. The Committee will also make recommendations
as to exercise of the Board's authority to determine the number of its members,
within the limits provided by the Bylaws of the Company. Shareholders wishing to
communicate with the Nominating Committee concerning potential director
candidates may do so, following the Distribution, by corresponding with the
Secretary of the Company and including the name and biographical data of the
individual being suggested.
All directors will hold office at the pleasure of the shareholders.
COMPENSATION OF DIRECTORS
Employee directors of the Company will not receive additional compensation
for Board or committee service. In lieu of an annual retainer, non-employee
directors will be paid a fee of $1,500 for each Board meeting and $1,500 for
each committee meeting attended, together with reasonable traveling expenses. No
additional fee will be paid for committee meetings held on the same day as Board
meetings.
DIRECTOR OPTION PLAN
On , 1998, the Board adopted, and Services as the sole shareholder
then approved, the Landair Corporation Non-Employee Director Stock Option Plan
(the "Non-Employee Director Plan"). Pursuant to the Non-Employee Director Plan,
eligible non-employee directors will be granted options to purchase 10,000
shares of Landair Corporation Common Stock on the effective date of the
Non-Employee Director Plan and will be granted options to purchase 5,000 shares
of Landair Corporation Common Stock on the first business
38
<PAGE> 45
day after each annual meeting of shareholders of the Company at an exercise
price equal to the then applicable fair market value of the Landair Corporation
Common Stock as defined in the Non-Employee Director Plan on such date. The
Company has reserved 100,000 shares for issuance pursuant to the Non-Employee
Director Plan.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND OTHERS
The Company and its subsidiaries had no transactions in which any director
or executive officer, or any member of the immediate family of any director or
executive officer, had a material direct interest reportable under applicable
rules of the SEC.
39
<PAGE> 46
COMPENSATION OF EXECUTIVE OFFICERS IN 1997
SUMMARY COMPENSATION TABLE
Prior to the Distribution, the Company has been a wholly-owned subsidiary
of Services, and the Company's officers and directors have not been separately
compensated for acting in such capacities. The following table sets forth the
cash and non-cash compensation paid or to be paid by Services to the Chief
Executive Officer and the two other highest paid executive officers of Services
(the "Named Executive Officers") who are expected to serve in such capacities
for the Company after the Distribution for the years shown in all capacities in
which they served.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (1)
- --------------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Scott M. Niswonger.............. 1997 $269,377 $169,250 $-0- -0- $10,600
Chairman, President & 1996 268,781 -0- -0- -0- 16,061
Chief Executive Officer 1995 262,080 -0- -0- -0- 16,768
Edward W. Cook.................. 1997 104,300 84,975 -0- 10,000 10,133
Chief Financial Officer, 1996 103,753 -0- -0- 10,000 8,919
Senior Vice President & 1995 100,750 -0- -0- -0- 6,359
Treasurer
Richard H. Roberts.............. 1997 90,000 89,250 -0- 10,000 9,952
Senior Vice President, 1996 89,173 -0- -0- 10,000 10,327
General Counsel & Secretary 1995 79,892 -0- -0- -0- 10,301
</TABLE>
- ---------------
(1) Includes car allowance and employer matching portion of 401(k)
contributions.
1997 OPTION GRANTS, AGGREGATED OPTION EXERCISES AND OPTION VALUES
Options granted by Services during the last fiscal year to the Named
Executive Officers are set forth in the following table.
OPTION GRANTS IN THE LAST YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
---------------------------------------------------------- RATES OF
PERCENT OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OR OPTION TERM
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME(1) OPTIONS GRANTED LAST YEAR ($/SHARE) DATE 5% 10%
- ------- --------------- ------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward W. Cook................. 10,000 9.03 10.00 01/31/07 62,889 159,374
Richard H. Roberts............. 10,000 9.03 10.00 01/31/07 62,889 159,374
</TABLE>
- ---------------
(1) Mr. Niswonger has not been granted any options for the purchase of Services
Common Stock nor has he been granted options to purchase shares of Landair
Corporation Common Stock.
40
<PAGE> 47
The following table sets forth the year-end aggregated option exercises by
the Named Executive Officers and the year-end value of unexercised options held
by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
OPTION EXERCISES IN
LAST YEAR NUMBER OF SECURITIES VALUE OF UNEXERCISED
---------------------- UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS HELD AT YEAR-END YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME(1) EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward W. Cook................. -0- -0- 25,000 25,000 165,313 263,438
Richard H. Roberts............. -0- -0- 25,000 25,000 154,063 259,688
</TABLE>
- ---------------
(1) Mr. Niswonger has not been granted any options for the purchase of Services
Common Stock.
(2) Represents the closing price for Services Common Stock on December 31, 1997,
of $24.25, less the exercise price for all outstanding exercisable and
unexercisable options for which the exercise price is less than the December
31, 1997 closing price. Exercisable options have been held at least one year
from the date of grant.
ISSUANCE OF COMPANY OPTIONS AND CONVERSION OF SERVICES OPTIONS
According to the terms of the Amended and Restated Stock Option and
Incentive Plan of Services, options to purchase shares of Services Common Stock
that are exercisable at the time of the Distribution and that are held by those
employees who will terminate employment with Services and become employees of
the Company upon the Distribution will be cancelled if not exercised prior to
such employees' termination of employment with Services. Accordingly, employees
leaving Services and continuing as employees of the Company are expected to
exercise their vested options prior to the Distribution. Under the Employee
Benefit Matters Agreement, unexercisable options held by employees of Services
who remain or become employees of the Company upon consummation of the
Distribution will be converted into options to purchase Landair Corporation
Common Stock pursuant to the terms and conditions of the Stock Plan. Such
conversion shall be on the basis of a formula contained in the Employee Benefit
Matters Agreement designed to preserve the fair market value of such converted
options on the date of the Distribution.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company does not currently, and is not expected to have upon
consummation of the Distribution, any employment agreements with any of the
Named Executive Officers. The Company does currently have an employment
agreement with Eddie R. Brown, who is expected to serve as the Company's
President and Chief Operating Officer following the Distribution. Pursuant to
such employment agreement, Mr. Brown is to be paid a base salary of $156,000 or
such greater rate as the Board of Directors of the Company determines from time
to time. Upon early involuntary termination of Mr. Brown's employment with the
Company, the Company shall pay Mr. Brown an amount equal to any then remaining
payments under the employment agreement. The agreement expires December 31,
1999. In addition to his base salary, Mr. Brown will be granted an option to
purchase 100,000 shares of Landair Corporation Common Stock at an exercise price
equal to the book value of shares of Landair Corporation Common Stock on January
1, 1998, the first day of Mr. Brown's employment.
Awards granted under the Company's Stock Plan become immediately
exercisable or otherwise nonforfeitable in full in the event of a Change in
Control of the Company (as defined in the Stock Plan), notwithstanding specific
terms of the awards providing otherwise. Furthermore, with respect to stock
options granted under the Stock Plan, following a Change in Control, the
Compensation Committee may, in its discretion, permit the cancellation of such
options in exchange for a cash payment in an amount per share equal, generally,
to the difference between the highest closing sales price during the sixty-day
period preceding the Change in Control and the exercise price. A Change in
Control is defined in the Stock Plan to include, among other things, (i) the
acquisition of securities representing a majority of the combined voting power
of
41
<PAGE> 48
all classes of capital stock by any person (other than the Company and other
related entities); (ii) the approval by the shareholders of a merger or
consolidation of the Company into or with another entity (with certain
exceptions), the sale or other disposition of all or substantially all of the
Company's assets, or the adoption of a plan of liquidation; or (iii) a change in
the composition of the Board of Directors in any two-year period such that
individuals who were Board members at the beginning of such period cease to
constitute a majority thereof (with certain exceptions).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company will be comprised of Mr.
Niswonger and two non-employee directors. The Company does not expect there to
be any Compensation Committee interlocks. See "TRANSACTIONS WITH DIRECTORS,
EXECUTIVE OFFICERS AND OTHERS."
42
<PAGE> 49
LANDAIR CORPORATION EMPLOYEE BENEFIT PLANS
1998 LANDAIR CORPORATION STOCK OPTION AND INCENTIVE PLAN
The Company's Board of Directors and shareholders have approved the Stock
Plan to which officers and other key employees as well as key consultants will
be eligible to receive awards of stock options, stock appreciation rights and
restricted stock. Options granted under the Stock Plan may be "incentive stock
options" ("ISOs"), within the meaning of Section 422 of the Code, or
nonqualified stock options ("NQSOs"). Stock Appreciation Rights ("SARs") may be
granted simultaneously with the grant of an option or (in the case of NQSOs) at
any time during its term. Restricted stock may be granted in addition to or in
lieu of any other award granted under the Stock Plan.
The Stock Plan provides that awards may be granted covering up to 500,000
shares of Landair Corporation Common Stock (subject to antidilution and similar
adjustments in the event of a stock split, combination of shares,
recapitalization, or similar changes). The Stock Plan limits the number of
shares with respect to which awards (including options, SARs and restricted
stock) may be granted to any individual to no more than 100,000 shares in any
year. Unless the Stock Plan is terminated earlier by the Company's Board of
Directors, awards may be granted for a period of ten (10) years from the date of
the Distribution.
Unless otherwise determined by the Company's Board of Directors, the Stock
Plan will be administered by the Compensation Committee, which will be comprised
solely of "nonemployee directors" within the meaning of Rule 16b-3 under the
Exchange Act, or by the Company's Board of Directors if the Compensation
Committee is not so comprised (any entity administering the Stock Plan is
referred to as the "Committee"). It is currently anticipated that the members of
the Committee will also be "outside directors" within the meaning of Section
162(m) of the Code. Subject to the provisions of the Stock Plan, the Committee
will determine the type of award, when and to whom awards will be granted, and
the number of shares covered by each award. The Committee will have sole
discretionary authority to interpret the Stock Plan and to adopt rules and
regulations related thereto. In determining the persons to whom awards shall be
granted and the number of shares covered by each award, the Committee will take
into account the contribution to the management, growth and profitability of the
business of the Company by the respective persons and such other factors as the
Committee deems relevant.
The Committee will determine, in its sole discretion, the purchase price of
the shares of stock covered by an option and the kind of consideration payable
with respect to any awards; provided, however, that in the case of the ISOs, the
price must not be less than the "Fair Market Value" (as defined in the Stock
Plan) on the date of grant, and provided further that the option price must be
110% of the Fair Market Value in the case of the ISOs granted to "Ten Percent
Stockholders" (as defined in the Stock Plan). The Committee may provide for the
payment of the option price in cash, by delivery of shares of Landair
Corporation Common Stock having a Fair Market Value equal to such option price,
by a combination thereof or by any other method in accordance with the terms of
the option agreements. The Stock Plan contains special rules governing the time
of exercise in the case of death, disability, or other termination of employment
and also provides for acceleration of the exercisability of options in the event
of a "Change in Control" (as defined in the Stock Plan).
The Stock Plan also permits the Committee to grant SARs with respect to all
or any portion of the shares of Landair Corporation Common Stock covered by
options. Each SAR will confer a right to receive an amount with respect to each
share subject thereto, upon exercise thereof, equal to the excess of (i) the
Fair Market Value of one share of Landair Corporation Common Stock on the date
of exercise over (ii) the grant price of the SAR. The grant price of any SAR
granted in tandem with an option will be equal to the exercise price of the
underlying option, and the grant price of any other SAR will be such price as
the Committee determines. The Committee may, in its sole discretion, condition
the exercise of any SAR upon the attainment of specified Performance Goals (as
defined below).
The Stock Plan also provides for the grant of restricted stock awards,
which are awards of Landair Corporation Common Stock that may not be transferred
or otherwise disposed of, except by will or the laws of descent and
distribution, for such period as the Committee determines (the "Restricted
Period"). The
43
<PAGE> 50
Committee may also impose such other conditions and restrictions on the shares
as it deems appropriate, including the satisfaction of one or more of the
following performance criteria: (i) pre-tax income or after-tax income; (ii)
operating cash flow; (iii) operating profit; (iv) return on equity, assets,
capital or investment; (v) earnings or book value per share; (vi) sales or
revenues; (vii) operating expenses; (viii) Landair Corporation Common Stock
price appreciation; and (ix) implementation or completion of critical projects
or processes (the "Performance Goals"). The Performance Goals may include a
threshold level of performance below which no payment will be made (or no
vesting will occur) levels of performance at which specified payments will be
made (or specified vesting will occur), and a maximum level of performance above
which no additional payment will be made (or at which full vesting will occur).
Each of the Performance Goals will be determined, to the extent applicable, in
accordance with generally accepted accounting principles and will be subject to
certification by the Committee; provided, that the Committee will have the
authority to make equitable adjustments to the Performance Goals in recognition
of unusual or non-recurring events affecting the Company. The Committee may
provide that such restrictions will lapse with respect to specified percentages
of the awarded shares on successive future dates.
During the Restricted Period, the grantee will be entitled to receive
dividends with respect to, and to vote the shares awarded to him or her. If,
during the Restricted Period, the grantee's continuous employment with the
Company terminates for any reason, any shares remaining subject to restrictions
will be forfeited, unless otherwise determined by the Committee. The Committee
has the authority to cancel any or all outstanding restrictions prior to the end
of the Restricted Period, including cancellation of restrictions in connection
with certain types of termination of employment.
The Company's Board of Directors may at any time and from time to time
suspend, amend, modify or terminate the Stock Plan; provided, however, that no
amendment that requires shareholder approval in order for the Stock Plan to
continue to comply with Section 162(m) of the Code or any other applicable law
will be effective unless and until such amendment has received the requisite
approval by the Company's shareholders.
LANDAIR CORPORATION NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
On , 1998, the Board adopted, and the sole shareholder then
approved, the Non-Employee Director Plan. Pursuant to the Non-Employee Director
Plan, eligible non-employee directors will be granted options to purchase 10,000
shares of Landair Corporation Common Stock on the effective date of the Non-
Employee Director Plan and will be granted options to purchase 5,000 shares of
Landair Corporation Common Stock on the first business day after each annual
meeting of shareholders of the Company at an exercise price equal to the then
applicable fair market value of the Landair Corporation Common Stock. The
Company has reserved 100,000 shares for issuance pursuant to the Non-Employee
Director Plan.
LANDAIR CORPORATION EMPLOYEE STOCK PURCHASE PLAN
On , 1998, the Board adopted, and Services as the sole
shareholder then approved, the Landair Corporation Employee Stock Purchase Plan
(the "Stock Purchase Plan"), which Stock Purchase Plan is expected to become
effective upon consummation of the Distribution. Pursuant to the Stock Purchase
Plan, employees of the Company and its subsidiaries may purchase Landair
Corporation Common Stock through regular payroll deduction of up to 10% of the
employee's annual compensation. The Company has reserved 300,000 shares for
issuance pursuant to the Stock Purchase Plan.
In no event may a participant in the Stock Purchase Plan (i) purchase
thereunder during any calendar year Landair Corporation Common Stock that had a
fair market value on the first trading date of the year of more than $25,000 or
(ii) purchase Landair Corporation Common Stock thereunder, if, on the first
trading date of the year the employee would be deemed (under applicable tax
rules) to own 5% or more of the total combined voting power or value of all
classes of stock of the Company issued and outstanding.
The issue price of the Landair Corporation Common Stock under the Stock
Purchase Plan is equal to the lesser of (i) 85% of the market price (as defined
therein) on the first day of each option period or (ii) 85% of the market price
on the exercise date (generally, the last trading day of each option period).
Shares of Landair
44
<PAGE> 51
Corporation Common Stock will not be issued under the Stock Purchase Plan,
however, if the issue price is less than the book value of the Landair
Corporation Common Stock as of the preceding December 31.
LANDAIR CORPORATION EMPLOYEE CASH INCENTIVE PLAN
Effective upon the consummation of the Distribution, the Company will
implement an employee cash incentive plan (the "Cash Incentive Plan"), which
will provide for annual cash incentive payments to employees based on the
Company's results of operations. The goals of the Cash Incentive Plan will be
established based on operating plans for the year, and amounts payable under the
Cash Incentive Plan will be determined based on the results of the Company's
operations. The amount of the cash incentives to be paid under the Cash
Incentive Plan shall be determined annually by the Board.
45
<PAGE> 52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Services will own all of the outstanding shares of the Landair Corporation
Common Stock until the Distribution. The following table sets forth, as of May
31, 1998, certain information with respect to the Services Common Stock
"beneficially owned" (i) by each of the Named Executive Officers of Services who
will continue to be an executive officer of the Company following the
Distribution and (ii) by all anticipated directors, nominees and executive
officers of the Company, both individually and as a group. Except as otherwise
indicated, the shareholders listed in the table have sole voting and investment
powers with respect to the Services Common Stock owned by them.
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE NUMBER OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) SHARES OUTSTANDING(2)
- --------------------------------------- ----------------------- ---------------------
<S> <C> <C>
Rodney L. Bell......................................... 5,118(3) *
Eddie R. Brown......................................... -- --%
Edward W. Cook......................................... 32,328(4) *
Scott M. Niswonger..................................... 3,129,520(5) 51
Richard H. Roberts..................................... 39,554(6) *
N. Jeffrey Woods....................................... 66,293(7) 1
All directors and executive officers as a group (6
persons)............................................. 3,272,813(8) 53
</TABLE>
- ---------------
* Less than one percent
(1) The business address of each listed executive officer and director is c/o
Landair Services, Inc., 430 Airport Road, Greeneville, Tennessee 37745.
(2) For the purpose of determining "beneficial ownership," the rules of the SEC
require that every person who has or shares the power to vote or dispose of
shares of stock be reported as a "beneficial owner" of all shares as to
which such power exists. As a consequence, many persons may be deemed to be
the "beneficial owners" of the same securities. The SEC rules also require
that certain shares of stock that a beneficial owner has the right to
acquire within sixty days of the date set forth above pursuant to the
exercise of stock options are deemed to be outstanding for the purpose of
calculating the percentage of ownership of such owner, but are not deemed
outstanding for the purpose of calculating the percentage ownership of any
other person.
(3) Includes 3,750 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(4) Includes 1,000 shares held by Mr. Cook's spouse and 29,000 shares which are
issuable pursuant to options which are exercisable within sixty days of the
date set forth above.
(5) Includes 300 shares held by Mr. Niswonger as custodian for his grandson and
300 shares which are held by Mr. Niswonger's spouse as custodian for one of
her children.
(6) Includes 37,500 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(7) Includes 41,775 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(8) Includes 112,025 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
46
<PAGE> 53
Based on information provided to the Company, in addition to Mr. Niswonger,
the Company believes the following table sets forth the beneficial owners of
five percent or more of the outstanding Services Common Stock as of the dates
set forth below:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE OF
BENEFICIAL COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
- ------------------------------------ ---------- -------------
<S> <C> <C>
Princeton Services, Inc.(1)................................. 644,100 10%
Wellington Management Company, LLP(2)....................... 434,600 7
</TABLE>
- ---------------
(1) Princeton Services, Inc. ("PSI"), 800 Scudders Mill Road, Plainsboro, NJ
08536, as a parent holding company and the general partner of Merrill Lynch
Asset Management, L.P. d/b/a Merrill Lynch Asset Management ("MLAM") and
Fund Asset Management, L.P. d/b/a Fund Asset Management ("FAM"), may be
deemed to beneficially own Services Common Stock. MLAM and FAM are
investment advisers registered under Section 203 of the Investment Advisers
Act of 1940, as amended, and may be deemed to beneficially own certain
shares by virtue of acting as investment advisers to one or more investment
companies registered under Section 8 of the Investment Company Act of 1940,
as amended, and to certain private accounts. As of May 31, 1998, one such
investment company advised by FAM, the Merrill Lynch Special Value Fund,
Inc., held 428,500 shares of the Services Common Stock. Certain accounts
managed by MLAM held, as of May 31, 1998, 215,600 shares. None of the
companies have sole voting dispositive power over the shares, and each of
the companies has shared voting and dispositive power over all of the
shares.
(2) Wellington Management Company, LLP ("WMC"), 75 State Street, Boston
Massachusetts 02109, is an investment adviser registered with the SEC under
the Investment Advisers Act of 1940, as amended. As of March 31, 1998, WMC,
in its capacity as investment adviser, may be deemed to have beneficial
ownership of 434,600 shares of Services Common Stock that are owned by
numerous investment advisory clients, none of which is known to have such
interest with respect to more than five percent of the class. As of March
31, 1998, WMC did not have sole voting or dispositive power over the shares,
had shared voting power over 260,000 shares and shared dispositive power
over all of the shares.
47
<PAGE> 54
DESCRIPTION OF COMPANY CAPITAL STOCK
The following description of the capital stock of the Company is a summary
and is qualified by reference to the provisions of the forms of Charter of the
Company (the "Company Charter") and the Bylaws of the Company (the "Company
Bylaws"), copies of which have been filed with the SEC as exhibits to the
Registration Statement on Form 10 of which this Information Statement is a part.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of 45,000,000 shares
of Landair Corporation Common Stock and 5,000,000 shares of preferred stock, par
value $.01 per share (the "Preferred Stock"). Based upon approximately 6,191,185
shares of Services Common Stock outstanding as of May 31, 1998, approximately
6,191,185 shares of the Landair Corporation Common Stock will be issued and
outstanding upon completion of the Distribution. No shares of Preferred Stock
are outstanding and none have been reserved for issuance. Of the shares of
Landair Corporation Common Stock authorized for issuance, 500,000 shares are
reserved for issuance under the Stock Option Plan, 100,000 shares are reserved
for issuance under options granted to the Non-Employee Director Plan and 300,000
shares are reserved for issuance under the Stock Purchase Plan.
LANDAIR CORPORATION COMMON STOCK
Holders of Landair Corporation Common Stock are entitled to receive such
dividends, if any, as may from time to time be declared by the Board of
Directors of the Company. Holders of Landair Corporation Common Stock are
entitled to one vote per share on all matters on which the holders of Landair
Corporation Common Stock are entitled to vote. Because Holders of Landair
Corporation Common Stock do not have cumulative voting rights, the holders of a
majority of shares of Landair Corporation Common Stock represented at a meeting
can elect all of the directors, subject to the rights of the holders of any
shares of Preferred Stock which may be outstanding. In the event of liquidation,
dissolution or winding up of the Company, holders of Landair Corporation Common
Stock would be entitled to share ratably in all assets of the Company available
for distribution to the holders of Landair Corporation Common Stock. There are
no preemptive rights applicable to the shares of Landair Corporation Common
Stock. All of the outstanding shares of Landair Corporation Common Stock are,
and the shares of Landair Corporation Common Stock offered hereby will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Landair Corporation Common Stock are subject to, and
may be adversely affected by, the rights of holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
PREFERRED STOCK
The Board of Directors is authorized to issue, from time to time, without
approval of the shareholders, up to 5,000,000 shares of Preferred Stock, in one
or more series and the Board of Directors may fix for each series (i) the rate
of dividend; (ii) the price at and the terms and conditions on which shares may
be redeemed; (iii) the amount payable upon shares in the event of voluntary or
involuntary liquidation; (iv) sinking fund provisions, if any, for the
redemption or purchase of shares; (v) the terms and conditions on which shares
may be converted, if the shares of any series are issued with the privilege of
conversion; and (vi) voting rights, if any.
The Board of Directors may fix the number of votes to which each share of
Preferred Stock of a series is entitled, or deny voting rights to the shares of
any series, except to the extent voting rights are expressly granted by
applicable law. Depending upon the voting rights granted to any series of
Preferred Stock, issuance thereof could result in a reduction in the voting
power of the holders of Landair Corporation Common Stock or other Preferred
Stock.
The holders of each series of the Preferred Stock will be entitled to
receive, when and as declared by the Board of Directors, out of funds legally
available therefor, dividends in cash, property or securities of the Company
including shares of Preferred Stock, at the times and at the rates fixed by the
Board of Directors for
48
<PAGE> 55
that particular series. Dividends may or may not be cumulative. In the event of
any dissolution, liquidation or winding up of the Company, whether voluntary or
involuntary, the holders of each series of the then outstanding Preferred Stock
will be entitled to receive, prior to the distribution of any assets or funds to
the holders of Landair Corporation Common Stock, the amount fixed for such
purpose by the Board of Directors together with all accumulated and unpaid
dividends.
Preferred Stock of any series, or any part thereof, which is by its terms
redeemable, may be redeemed by the Company, subject to and in accordance with
such terms and conditions as may be designated by the Board of Directors in
creating such series. The amount payable by the Company upon redemption of the
Preferred Stock will be the redemption price fixed for the shares of each series
by the Board of Directors together with all accumulated and unpaid dividends.
The Board of Directors is authorized to determine the terms and conditions
on which the shares of any series of Preferred Stock may be converted into any
other shares of capital stock of the Company, if the shares of such series are
issued with the privilege of conversion, and to provide for the redemption or
purchase of any series of the Preferred Stock and to establish sinking or
purchase funds for this purpose.
PURPOSES AND ANTI-TAKEOVER EFFECTS OF LEGISLATION
AND CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
GENERAL
The provisions of the Company Charter, the Company Bylaws and Tennessee law
described in this section may delay or discourage the acquisition of control of
the Company that is not approved by the Company's Board of Directors. These
provisions are designed to discourage certain types of transactions that may
involve an actual or threatened change of control of the Company and to
encourage any person who might seek to acquire control for the Company to
negotiate with the Company's Board of Directors. Management of the Company
believes that generally the interests of the Company's shareholders would be
served best if any change in control resulted from negotiations with the
Company's Board of the proposed terms, such as the price to be paid, the form of
consideration and the anticipated tax effects of the transaction.
The provisions described herein are designed to reduce the vulnerability of
the Company to an unsolicited proposal for a takeover of the Company that does
not contemplate the acquisition of all outstanding shares of capital stock at an
adequate price or is otherwise unfair to its shareholders or an unsolicited
proposal for the restructuring or sale of all or part of the Company.
Management of the Company believes that, as a general rule, such proposals
might not be in the best interests of the Company and its shareholders. However,
to the extent that these provisions do discourage takeover attempts, they could
make it more difficult to accomplish transactions that are opposed by the
incumbent Board and could deprive shareholders of opportunities to realize
takeover premiums for their shares or other advantages that large accumulations
of stock might provide.
Set forth below is a description of the relevant provisions of the Company
Charter and the Company Bylaws. The description is intended as a summary only
and is qualified by reference to the Company Charter and the Company Bylaws,
copies of which have been filed with the SEC as exhibits to the Registration
Statement on Form 10 of which this Information Statement forms a part.
PREFERRED STOCK
The Company Charter authorizes the Board of Directors of the Company,
without shareholder approval, to provide for the issuance of one or more series
of Preferred Stock and to determine, with respect to any series of Preferred
Stock, the terms and rights of such series. See "DESCRIPTION OF COMMON CAPITAL
STOCK -- PREFERRED STOCK."
The Company believes that the availability of the Preferred Stock will
provide the Company with flexibility in structuring possible future financings
and acquisitions, and in meeting other corporate needs
49
<PAGE> 56
which might arise. The authorized shares of Preferred Stock, as well as
authorized but unissued shares of Landair Corporation Common Stock, will be
available for issuance without the expense and delay of shareholder action,
unless such action is required by applicable law or the rules of the Nasdaq
National Market or any other stock exchange on which the Company's securities
may be listed. The Board of Directors has the power (subject to applicable law)
to approve the issuance of a series of Preferred Stock with terms that could
either impede or facilitate the completion of a merger, tender offer or other
takeover attempt.
The Company's Board of Directors will make any determination to issue such
shares based on its judgment as to the best interests of the Company and its
shareholders at the time of issuance.
LEGISLATION
The Tennessee Business Combination Act (the "Combination Act") provides
that any corporation to which the Combination Act applies, including the
Company, shall not engage in any "business combination" with an "interested
shareholder" for a period of five years from the date that such shareholder
became an interested shareholder unless prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder.
The Combination Act defines "business combination" generally to mean any:
(i) merger or consolidation; (ii) share exchange; (iii) sale, lease, exchange,
pledge, mortgage, transfer or other disposition (in one transaction or a series
of transactions) of assets representing 10% or more of (A) the market value of
consolidated assets, (B) the market value of the corporation's outstanding
shares or (C) the corporation's consolidated net income; (iv) issuance or
transfer of shares from the corporation to the interested shareholder; (v) plan
of liquidation; (vi) transaction in which the interested shareholder's
proportionate share of the outstanding shares of any class of securities is
increased; or (vii) financing arrangements pursuant to which the interested
shareholder, directly or indirectly, receives a benefit except proportionately
as a shareholder.
Under the Combination Act an "interested shareholder" generally is defined
as any person who is the direct or indirect beneficial owner of 10% or more of
any class or series of the outstanding voting stock, or any affiliate or
associate of the corporation who has been the direct or indirect beneficial
owner of 10% or more of the voting power of any class or series of the
corporation's stock at any time within the five year period preceding the date
in question. Consummation of a business combination that is subject to the
five-year moratorium is permitted after such period provided the transaction (i)
complies with all applicable Charter and Bylaw requirements and applicable
Tennessee law and (ii) is approved by at least two-thirds of the outstanding
voting stock beneficially owned by the interested shareholder, or when the
transaction meets certain fair price criteria. The fair price criteria include,
without limitation, the requirement that the per share consideration received in
any such business combination by each of the shareholders is equal to the
highest of (i) the highest per share price paid by the interested shareholder
during the preceding five-year period for shares of the same class or series
plus interest thereon from such date at a treasury bill rate less the aggregate
amount of any cash dividends paid and the market value of any dividends paid
other than in cash since such earliest date, up to the amount of such interest;
(ii) the highest preferential amount, if any, such class or series is entitled
to receive on liquidation; or (iii) the market value of the shares on either the
date the business combination is announced or the date when the interested
shareholder reaches the 10% threshold, whichever is higher, plus interest
thereon less dividends as set forth above.
The Tennessee Control Share Acquisition Act (the "Acquisition Act")
prohibits certain shareholders from exercising in excess of 20% of the voting
power in a corporation acquired in a "control share acquisition," as defined in
the Acquisition Act, unless such voting rights have been previously approved by
the disinterested shareholders of the corporation. The Company has not elected
to make the Acquisition Act applicable to it. No assurance can be given that
such election, which must be expressed in a charter or bylaw amendment, will or
will not be made in the future.
The Tennessee Greenmail Act (the "Greenmail Act") prohibits a corporation
from purchasing or agreeing to purchase any of its securities, at a price in
excess of fair market value, from a holder of 3% or more of any class of such
securities who has beneficially owned such securities for less than two years,
unless such purchase has been approved by the affirmative vote of a majority of
the outstanding shares of each class of
50
<PAGE> 57
voting stock issued by the corporation or the corporation makes an offer of at
least equal value per share to all holders of shares of such class.
The purpose of such legislation may be to render more difficult a change of
control of a corporation by delaying, deferring or preventing a tender offer or
takeover attempt that a shareholder might consider to be in such shareholder's
best interest, including an attempt that might result in the payment of a
premium over the market price for the shares held by such shareholder, and may
promote continuity of the corporation's management by rendering it more
difficult for shareholders to remove or change the incumbent members of the
board of directors.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
LIMITATION OF LIABILITY
The Tennessee Business Corporation Act (the "Tennessee Act") authorizes
corporations to limit or eliminate the personal liability of directors to
corporations and their shareholders for monetary damages for breach of
directors' fiduciary duty. The duty of care requires that, when acting on behalf
of the corporation, directors must exercise an informed business judgment based
upon all material information reasonably available to them. Absent the
limitations now authorized by the Tennessee Act, directors are accountable to
corporations and their shareholders for monetary damages only for conduct
constituting gross negligence in the exercise of their duty of care. Although
the statute does not change the directors' duty of care, it enables corporations
to limit available relief to equitable remedies such as injunction or
rescission. The Charter of the Company limits the liability of directors (in
their capacity as directors but not in their capacity as officers) to the
Company or its shareholders to the fullest extent permitted by the laws of the
State of Tennessee, as so amended.
Specifically, directors of the Company will not be personally liable to the
Company or its shareholders for monetary damages for breach of a director's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty; (ii) for any acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; or (iii) for
unlawful distributions. The Charter provides that if the Tennessee Act is
amended after the effective date of the Charter to authorize corporate action
further eliminating or limiting the personal liability of the directors, then
the liability of a director of the Company will be eliminated or limited to the
fullest extent permitted by the laws of the State of Tennessee, as so amended.
The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter shareholders or management from bringing a lawsuit against
directors or officers for breach of their duty of care, even though such an
action, if successful, might otherwise have benefitted the Company and its
shareholders.
INDEMNIFICATION AND INSURANCE
The Company Charter and Bylaws provide that the Company shall indemnify its
directors and officers to the full extent permitted by the law of the State of
Tennessee. Section 48-15-502 of the Tennessee Act provides that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or contemplated action, suit or proceeding,
whether civil, criminal or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
51
<PAGE> 58
The Company has obtained an insurance policy that insures its directors and
officers against certain liabilities.
INDEPENDENT AUDITORS
The Board of Directors of the Company expects to appoint Ernst & Young LLP
as the Company's independent auditors to audit the Company's financial
statements as of and for the year ended December 31, 1998. Ernst & Young has
served as Services' auditors for many years, including the periods covered by
the financial statements included in this Information Statement.
52
<PAGE> 59
TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
ITEM 15(A)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Combined Balance Sheets -- December 31, 1997 and 1996....... F-3
Combined Statements of Income -- Years Ended December 31,
1997, 1996 and 1995....................................... F-4
Combined Statements of Shareholder's Investment -- Years
Ended December 31, 1997, 1996 and 1995.................... F-5
Combined Statements of Cash Flows -- Years Ended December
31, 1997, 1996 and 1995................................... F-6
Notes to Combined Financial Statements -- December 31,
1997...................................................... F-7
Condensed Combined Balance Sheet -- March 31, 1998
(Unaudited)............................................... F-18
Condensed Combined Statements of Income -- Three Months
Ended March 31, 1998 and 1997 (Unaudited)................. F-19
Condensed Combined Statements of Cash Flows -- Three Months
Ended March 31, 1998 and 1997 (Unaudited)................. F-20
Notes to Condensed Combined Financial Statements -- March
31, 1998 (Unaudited)...................................... F-21
Schedule II -- Valuation and Qualifying Accounts............ F-22
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
F-1
<PAGE> 60
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Landair Services, Inc.
We have audited the accompanying combined balance sheets of the Truckload
Business of Landair Services, Inc. (as defined in Note 1) as of December 31,
1997 and 1996, and the related combined statements of income, shareholder's
investment, and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the financial statement schedule
listed in the Index to Financial Statements at Item 15(a). These financial
statements and schedule are the responsibility of the management of the
Truckload Business. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Truckload
Business of Landair Services, Inc. at December 31, 1997 and 1996, and the
combined results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Nashville, Tennessee
July 9, 1998
F-2
<PAGE> 61
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 614 $ 28
Accounts receivable, less allowance of $175 in 1997 and
$78 in 1996............................................ 11,100 9,674
Inventories............................................... 421 340
Prepaid expenses.......................................... 2,827 2,562
Income taxes receivable................................... -- 35
Deferred income taxes..................................... 1,372 887
Receivable from Landair Services, Inc..................... 17,447 19,427
------- -------
Total current assets.............................. 33,781 32,953
Property and equipment:
Revenue equipment......................................... 88,600 75,578
Other equipment........................................... 6,075 5,468
Leasehold improvements.................................... 915 465
------- -------
95,590 81,511
Accumulated depreciation and amortization................. 32,178 25,182
------- -------
63,412 56,329
Other assets................................................ 15 10
------- -------
Total assets...................................... $97,208 $89,292
======= =======
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current liabilities:
Accounts payable.......................................... $ 5,877 $ 4,079
Accrued payroll and related items......................... 3,394 1,641
Insurance and claims accruals............................. 5,542 4,227
Income taxes payable...................................... 44 --
Other accrued expenses.................................... 3,059 2,012
Current portion of long-term debt......................... 10,495 7,701
Current portion of capital lease obligations.............. 2,950 666
------- -------
Total current liabilities......................... 31,361 20,326
Long-term debt, less current portion........................ 12,839 16,838
Capital lease obligations, less current portion............. 1,312 2,933
Deferred income taxes....................................... 12,138 10,787
Commitments and contingencies............................... -- --
Shareholder's investment.................................... 39,558 38,408
------- -------
Total liabilities and shareholder's investment.... $97,208 $89,292
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 62
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating revenue:
Forward Air, Inc.......................................... $ 6,137 $ 5,881 $ 3,238
Other..................................................... 85,261 76,361 84,526
------- ------- -------
91,398 82,242 87,764
Operating expenses:
Salaries, wages and employee benefits..................... 29,865 25,599 24,497
Purchased transportation.................................. 21,471 21,352 27,404
Fuel and fuel taxes....................................... 11,272 10,385 8,730
Depreciation and amortization............................. 8,308 8,438 7,205
Insurance and claims...................................... 6,672 6,217 5,256
Operating leases.......................................... 674 1,061 2,206
Other operating expenses.................................. 9,397 8,365 8,362
------- ------- -------
87,659 81,417 83,660
------- ------- -------
Income from operations...................................... 3,739 825 4,104
Other income (expense):
Interest expense.......................................... (1,826) (2,221) (2,327)
Other, net................................................ (12) 59 227
------- ------- -------
(1,838) (2,162) (2,100)
------- ------- -------
Income (loss) before income taxes........................... 1,901 (1,337) 2,004
Income taxes (benefit)...................................... 751 (432) 1,067
------- ------- -------
Net income (loss)........................................... $ 1,150 $ (905) $ 937
======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 63
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
COMBINED STATEMENTS OF SHAREHOLDER'S INVESTMENT
<TABLE>
<CAPTION>
SHAREHOLDER'S INVESTMENT
------------------------
(IN THOUSANDS)
<S> <C>
Balance at December 31, 1994................................ $38,376
Net income for 1995....................................... 937
-------
Balance at December 31, 1995................................ 39,313
Net loss for 1996......................................... (905)
-------
Balance at December 31, 1996................................ 38,408
Net income for 1997....................................... 1,150
-------
Balance at December 31, 1997................................ $39,558
=======
</TABLE>
See accompanying notes.
F-5
<PAGE> 64
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 1,150 $ (905) $ 937
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 8,308 8,438 7,205
Loss (gain) on sale of property and equipment............. 385 (92) (503)
Provision for losses on receivables....................... 88 45 60
Deferred income taxes..................................... 866 1,998 4,709
Changes in operating assets and liabilities:
Accounts receivable.................................... (1,514) (446) 1,419
Inventories............................................ (81) (194) (3)
Prepaid expenses....................................... (265) (67) (1,383)
Receivable from Landair Services, Inc.................. 1,980 (2,044) 1,795
Accounts payable and accrued expenses.................. 5,913 2,117 1,331
Income taxes........................................... 79 671 (706)
-------- -------- --------
Net cash provided by operating activities......... 16,909 9,521 14,861
INVESTING ACTIVITIES
Purchases of property and equipment......................... (15,841) (4,677) (23,070)
Proceeds from disposal of property and equipment............ 1,259 1,259 3,062
Other....................................................... (5) 5 156
-------- -------- --------
Net cash used in investing activities....................... (14,587) (3,413) (19,852)
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 6,873 1,837 16,329
Payments of long-term debt.................................. (8,078) (10,820) (7,412)
Payments of capital lease obligations....................... (531) (784) (854)
-------- -------- --------
Net cash provided by (used in) financing activities......... (1,736) (9,767) 8,063
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 586 (3,659) 3,072
Cash and cash equivalents at beginning of year.............. 28 3,687 615
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 614 $ 28 $ 3,687
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 65
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts
comprising the truckload operations of Landair Services, Inc. ("Services"), and
are based on historical amounts included in the consolidated financial
statements of Services. The truckload operations are referred to in these
financial statements as the "Truckload Business" or "Truckload". The Truckload
Business is an irregular route, high-service truckload carrier that transports a
wide range of commodities in both intrastate and interstate commerce. The
Truckload Business provides dry van common carrier and dedicated contract
carriage for shippers of a variety of products in the medium- and short-haul
markets. All significant intercompany transactions and accounts between the
combined truckload operations have been eliminated.
On July 9, 1998, the Board of Directors of Services authorized management
to proceed with the pro rata distribution (the "Distribution") by Services to
its shareholders of all of the outstanding shares of common stock of a new
truckload holding company, Landair Corporation. The Distribution will result in
the separation of Services into two publicly-held corporations, one owning and
operating the deferred air freight operations and the other owning and operating
the Truckload Business. The Board's action is subject to, among other things,
receipt of a private letter ruling from the Internal Revenue Service, which
ruling has been requested by Services, or a legal opinion of special tax
counsel, to the effect that, among other things, the Distribution will qualify
as a tax-free distribution for federal income tax purposes under Section 355 of
the Internal Revenue Code. Management anticipates the transaction will be
completed on a date during the third quarter of 1998 (the "Distribution Date").
Pursuant to the Distribution, the common stock of Landair Corporation will
be distributed to the shareholders of Services on a pro rata basis of one share
of Landair Corporation common stock for every one share of Services common stock
held. Subsequent to the Distribution, Landair Corporation will be the legal
entity that will own and operate the Truckload Business through its operating
subsidiaries, and Services will be the legal entity that will continue to own
and operate the deferred air freight operations through its operating
subsidiaries. Landair Corporation and its operating subsidiaries are referred to
in these financial statements as "the Company". The deferred air freight
operations are referred to as "Forward Air".
These historical combined financial statements include the assets and
liabilities and results of operations directly related to the Truckload Business
for all periods presented. Significant changes could have occurred in the
funding and operations of the Truckload Business had it been operated as an
independent stand-alone entity during those periods, which could have had a
significant impact on its financial position and results of operations. As a
result, the financial information included in these financial statements is not
necessarily indicative of the financial position and results of operations of
the Truckload Business which might have occurred had it been an independent
stand-alone entity.
CAPITALIZATION OF TRUCKLOAD
For accounting purposes, the historical equity (shareholder's investment)
of the Truckload Business consists of the contributed capital and the
accumulated retained earnings of the Truckload operations.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE> 66
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
OWNERSHIP
Scott M. Niswonger (Chairman, President and Chief Executive Officer of
Services) will be the majority shareholder of the Company upon the effectiveness
of the Distribution.
OPERATING REVENUE
Operating revenue and related costs are recognized as of the date shipments
are completed.
CASH EQUIVALENTS
The Truckload Business considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories of tires, replacement parts, supplies and fuel for revenue
equipment are stated at the lower of cost or market utilizing the FIFO
(first-in, first-out) method of determining cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated based upon the cost of the asset, reduced by its
estimated salvage value, using the straight-line method over the estimated
useful lives as follows:
<TABLE>
<S> <C>
Revenue equipment........................................... 3-7 years
Other equipment............................................. 3-10 years
Leasehold improvements...................................... 1-15 years
</TABLE>
Interest payments during 1997, 1996 and 1995 were $1,806,000, $2,265,000
and $2,290,000, respectively. No interest was capitalized during the three years
ended December 31, 1997. During 1997, 1996 and 1995, the Truckload Business
added revenue equipment of $1,563,000, $-0- and $2,682,000 through capital
leases, respectively.
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The measurement of possible impairment is based upon determining
whether projected undiscounted future cash flows from the use of the asset over
the remaining depreciation or amortization period is less than the carrying
value of the asset. As of December 31, 1997, in the opinion of management, there
has been no such impairment.
INSURANCE AND CLAIMS ACCRUALS
The primary claims in the Truckload Business are workers' compensation,
property damage, auto liability and medical benefits. Most of Truckload's
insurance coverage provides for self-insurance levels with primary and excess
coverage which management believes is sufficient to adequately protect the
Truckload Business from catastrophic claims. In the opinion of management,
adequate provision has been made for all incurred claims up to the self-insured
limits.
NET INCOME (LOSS) PER SHARE
The financial statements of the Truckload Business include the accounts
comprising the truckload operations of Services. The truckload operations did
not have separate outstanding shares of capital stock. Accordingly, net income
(loss) per share data is not considered to provide meaningful information about
the results of operations of the Truckload Business.
F-8
<PAGE> 67
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
The Company intends to grant options for a fixed number of shares to
employees and outside directors with an exercise price generally equal to the
fair value of the shares at the grant date. The Company intends to account for
stock option grants in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no
compensation expense for the stock option grants issued at fair value.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income. The Statement is effective beginning in
1998, and establishes standards for the reporting and display of comprehensive
income and its components. The Statement requires that all items that are income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. Management does not expect the effect of adoption
of Statement No. 130 to be material to the combined financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 131, Disclosures About Segments of an Enterprise and Related Information,
which is effective for fiscal years beginning after December 15, 1997. Statement
No. 131 changes the way public companies report segment information in annual
financial statements and also requires those companies to report selected
segment information in interim financial reports to shareholders. Management
does not expect the effect of adoption of Statement No. 131 to be material to
the combined financial statements.
MAJOR CUSTOMER
One customer of the Truckload Business, Federal Express Corporation,
accounted for 29.4% and 17.1% of combined operating revenue for the year ended
December 31, 1997 and 1996, respectively. No single customer accounted for more
than 10% of operating revenue in 1995.
COMMON EXPENSES
Certain administrative expenses consisting of payroll, legal, accounting,
rent and depreciation for shared facilities, and other common expenses which
could not be specifically identified to either the deferred air freight
operations or the truckload operations have been allocated by Services to the
Truckload Business based on its relative percentage of consolidated operating
revenue. These administrative expenses, which were allocated to the Truckload
Business and which would have been incurred by the Truckload Business if it had
been operated as an independent stand-alone entity, totaled $4,420,000,
$3,225,000 and $3,778,000 in 1997, 1996 and 1995, respectively.
Interest expense of $1,826,000, $2,221,000 and $2,327,000 for 1997, 1996
and 1995, respectively, has been allocated by Services to the Truckload Business
based upon the pro rata share of average operating assets of Truckload and
Forward Air.
Management believes these allocation methods are reasonable.
2. TRANSACTIONS WITH SERVICES
The Truckload Business and Services routinely engage in intercompany
transactions as the Truckload Business hauls deferred air freight shipments for
Services which are in excess of Services' scheduled capacity. Truckload's
operating revenue from these shipments is shown separately in the accompanying
statements of income.
F-9
<PAGE> 68
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Receivable from Landair Services, Inc. in the accompanying balance
sheets represents the net balance resulting from various intercompany
transactions between Services and the Truckload Business. There are no terms of
settlement or interest charges associated with the account balance. The balance
is primarily the result of Truckload's participation in Services' central cash
management program, wherein all of Services' cash receipts are remitted to a
Truckload Business subsidiary and all cash disbursements are funded by a
Truckload Business subsidiary. Other transactions include intercompany freight
transactions as discussed above, the federal income tax liability (benefit)
provided by the Truckload Business to the consolidated tax liability, and
miscellaneous other common expenses incurred between the Truckload Business and
Services. In connection with the Distribution, Services expects to settle all
intercompany balances for cash, which will then be used to pay down the
long-term debt of the Truckload Business.
An analysis of transactions in the Receivable from Landair Services, Inc.
account follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.............................. $19,427 $17,383 $19,178
Net cash remitted from Services........................... (2,065) (1,492) (1,864)
Net intercompany freight transactions..................... 6,137 5,881 3,238
Current federal income tax benefit provided to Services... 194 3,101 2,936
Net administrative expenses and interest allocated from
Services................................................ (6,246) (5,446) (6,105)
------- ------- -------
Balance at end of year.................................... $17,447 $19,427 $17,383
======= ======= =======
</TABLE>
In connection with the Distribution, Services and the Company will enter
into certain agreements which will be effective upon the actual separation of
the two companies. The agreements are intended to facilitate orderly changes
from an integrated transportation company to separate deferred air freight and
truckload operations companies in a way which is minimally disruptive to each
entity. Following are summaries of the principal agreements:
Distribution Agreement
The Distribution Agreement will provide for, among other things, the
principal corporate transactions required to effect the Distribution and the
allocation of certain assets and liabilities between the Company and Services.
The Distribution Agreement will provide that the Company and Services will each
have sole responsibility for claims arising out of their respective activities
after the Distribution. It also will provide that each party will indemnify the
other in the event of certain liabilities arising under the federal securities
laws, and that, for a period of three years after the Distribution, neither the
Company nor Services will directly solicit the employment of any employee of the
other company or its affiliates without the prior written consent of such other
company.
Transition Services Agreement
The Transition Services Agreement will describe the services which the
Company and Services will provide to each other following the Distribution.
Services performed under the Transition Services Agreement will be negotiated
and paid for on an arm's-length basis. The Transition Services Agreement will
have an eighteen-month term, except that information technology services to be
provided by Services to the Company will have a thirty-six month term.
Notwithstanding the stated term of the Transition Services Agreement, Services
or the Company, as recipients of the services, will be able to terminate any or
all such services at any time on three months' irrevocable written notice, and
Services or the Company, as providers of the services, may at any time after the
first anniversary of the Distribution, terminate any or all of the services,
other than the information technology services, on six months' irrevocable
notice.
F-10
<PAGE> 69
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Benefit Matters Agreement
The Employee Benefit Matters Agreement will provide for the treatment of
employee benefit matters and other compensation arrangements for the employees
of Services and the Company after the Distribution. Pursuant to this agreement,
Services will continue sponsorship of the various employee benefit plans and
welfare plans of Services with respect to Services' employees after the
Distribution and the Company will be required to establish such similar plans
which will allow the Company to provide to its employees after the Distribution
substantially the same benefits currently provided to them as employees of
Services. This Employee Benefit Matters Agreement will also provide for the
adjustment and conversion of the existing non-exercisable stock options of
Services into options of the Company for those employees that continue
employment with the Company after the Distribution. (See Note 4.)
Tax Sharing Agreement
The Tax Sharing Agreement will describe the responsibilities of Services
and the Company with respect to all tax matters occurring prior to and after the
Distribution. The Tax Sharing Agreement will provide for the allocation of tax
expense, assessments, refunds and other tax benefits. The Agreement will also
set forth the responsibility for filing tax returns and provide for reasonable
cooperation in the event of any audit, litigation or other proceeding with
respect to any federal, state or local tax.
Prior to the Distribution, Services is expected to acquire certain assets,
consisting principally of revenue equipment, associated with the Forward Air
operations held by the Truckload Business, at net book value which approximates
fair market value. The net book value of these assets at December 31, 1997 was
$6.4 million. Services will also assume the capital lease obligations related to
these assets. No gain or loss is expected on the transaction for financial
statement or income tax reporting purposes. The operating revenue and expenses
associated with the transportation of Forward Air deferred air freight using
these assets have been included in the statements of income of Services and have
been excluded from the accompanying statements of income of the Truckload
Business.
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Line of credit.............................................. $ -- $ --
Installment Equipment Loan Agreements....................... 13,457 11,387
Installment notes payable with a finance company through
1999, including interest at the 30-day commercial paper
rate plus 1.8% (7.6% and 7.8% at December 31, 1997 and
1996, respectively) and interest ranging from 6.7% to
7.3%, collateralized by revenue equipment................. 7,823 12,025
Other notes payable, including interest ranging from 6.9% to
7.9%...................................................... 2,054 1,127
------- -------
23,334 24,539
Less current portion........................................ 10,495 7,701
------- -------
$12,839 $16,838
======= =======
</TABLE>
Services has a $15 million line of credit agreement with a Tennessee bank
which expires in May 1999. Advances outstanding under the line bear interest at
the bank's base rate less 1.0% (7.5% and 7.3% at December 31, 1997 and 1996,
respectively) and are collateralized primarily by accounts receivable of
Services. The agreement contains, among other things, restrictions that do not
allow the payment of dividends, and requires the maintenance of certain levels
of net worth and other financial ratios. At December 31, 1997,
F-11
<PAGE> 70
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Services had no borrowings outstanding under the line applicable to the
Truckload Business and had utilized $5,182,000 of availability for outstanding
letters of credit for the Truckload Business.
Services has equipment loan agreements (the "Equipment Loan Agreements")
with two Tennessee banks which permit Services to borrow up to $30 million for
the purchase of revenue equipment. Advances outstanding under the Equipment Loan
Agreements bear interest at the 30-day LIBOR rate plus 1.0% to 1.6% (6.7% to
7.3% and 6.4% to 7.0% at December 31, 1997 and 1996, respectively). The advances
are collateralized by revenue equipment purchased with the proceeds from the
Equipment Loan Agreements, are guaranteed by Services, and contain restrictions
and covenants similar to the line of credit agreement described above. At
December 31, 1997, $13,457,000 of borrowings were outstanding under the
Equipment Loan Agreements applicable to the Truckload Business.
Revenue equipment of the Truckload Business collateralizing these
agreements has a carrying value of approximately $27,678,000 and $27,221,000 at
December 31, 1997 and 1996, respectively.
Maturities of long-term debt, before replacing the line of credit and
equipment loan agreements as discussed below, are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $10,495
1999........................................................ 6,596
2000........................................................ 2,617
2001........................................................ 1,474
2002........................................................ 755
Thereafter.................................................. 1,397
-------
$23,334
=======
</TABLE>
In preparation for the Distribution, Services is negotiating with its
present lenders to obtain separate credit facilities for each of the Company and
Services. In addition, Services expects to eliminate guarantees of indebtedness
and cross-collateralization between the Company and Services. The Company's
proposed new credit facilities are to include a working capital line of credit
and an equipment financing facility. These credit facilities are expected to
permit the Company to borrow up to $20 million under the working capital line of
credit and $15 million under the equipment financing facility. Interest rates
for advances under the facilities will vary based on various covenants related
to total indebtedness, cash flows, results of operations and other ratios. The
facilities will bear interest at LIBOR plus 1.00% to 2.50%, expire in August
2000, and will be secured by accounts receivable and certain revenue equipment.
Availability under the proposed line of credit is expected to be reduced by the
amount of outstanding letters of credit. Among other restrictions, the terms of
the proposed line of credit are expected to require maintenance of certain
levels of net worth and other financial ratios.
4. EMPLOYEE BENEFIT PLANS
Employee Stock Option and Incentive Plan. After the Distribution, the
Company plans to follow Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations in accounting for
employee stock options because the alternative fair value accounting provided
for under Statement No. 123, Accounting for Stock-Based Compensation, requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under Opinion No. 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense will be recognized.
In connection with the Distribution, it is anticipated that the Company
will reserve approximately 500,000 shares of its common stock under a Stock
Option and Incentive Plan with terms similar to that of
F-12
<PAGE> 71
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Services'. Options to be issued under the Plan are expected to have a ten year
term and vest over a four year period.
Under the provisions of Services' stock option plan, options to purchase
shares of Services common stock that are exercisable at the time of the
Distribution and that are held by those employees who will terminate employment
with Services and become employees of the Company upon the Distribution will be
cancelled if not exercised prior to such employees' termination of employment
with Services. Accordingly, employees leaving Services and continuing as
employees of the Company are expected to exercise their vested options prior to
the Distribution. Unexercisable options held by employees of Services who remain
or become employees of the Truckload Business upon consummation of the
Distribution will be converted into options to purchase Company common stock
under the Company's Stock Option and Incentive Plan. Such conversion shall be on
the basis of a formula designed to preserve the fair market value of such
converted options on the date of the Distribution.
At December 31, 1997, approximately 82,000 options were outstanding to
purchase Services' common stock that were held by Truckload Business employees
and are eligible for conversion into options of the Company.
Employee Stock Purchase Plan. In connection with the Distribution, the
Company plans to implement an employee stock purchase plan with terms similar to
the existing plan of Services. Under the plan, participating employees will be
entitled to purchase the Company's common stock through payroll deduction of up
to 10% of the employee's annual compensation. The issue price of the common
stock will be equal to the lesser of (1) 85% of market price on the first
trading day of the semi-annual enrollment period or (2) 85% of market price on
the last trading day of the semi-annual enrollment period. The Company plans to
reserve 300,000 shares of its common stock for issuance pursuant to the plan.
Employee 401(k) Plan. In connection with the Distribution, the Company
intends to adopt a retirement savings plan (the "401(k) Plan") with terms
similar to the existing retirement savings plan of Services. Employees of the
Company who participated in Services' 401(k) Plan will be entitled to transfer
their participation into the Company's 401(k) Plan. The 401(k) Plan will be a
defined contribution plan whereby employees who have completed one year of
service, a minimum of 1,000 hours of service and are age 21 or older will be
eligible to participate. The 401(k) Plan is expected to allow eligible employees
to make contributions of 2% to 10% of their annual compensation. Employer
contributions are expected to be made at 25% of the employee's contribution up
to a maximum of 4% of total annual compensation. Employer contributions are
expected to vest 20% after two years of service and continue vesting 20% per
year until fully vested. The matching contribution by the Truckload Business for
1997, 1996 and 1995 was approximately $76,000, $78,000 and $73,000,
respectively.
F-13
<PAGE> 72
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The operations of the Truckload Business have historically been included in
the consolidated federal income tax return of Services. The provision (benefit)
for income taxes reflects an allocation of federal income taxes computed on a
separate return basis. The provision (benefit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................... $ (94) $(2,172) $(3,128)
State..................................................... (21) (258) (514)
----- ------- -------
(115) (2,430) (3,642)
Deferred:
Federal................................................... 748 1,759 4,122
State..................................................... 118 239 587
----- ------- -------
866 1,998 4,709
----- ------- -------
$ 751 $ (432) $ 1,067
===== ======= =======
</TABLE>
The historical income tax expense (benefit) differs from the amounts
computed by applying the federal statutory rate of 34% to income before income
taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense (benefit) at the statutory rate................. $646 $(455) $ 681
State income taxes (benefit), net of federal benefit........ 86 (32) 71
Meals and entertainment..................................... 19 55 315
---- ----- ------
$751 $(432) $1,067
==== ===== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax liabilities and assets of the Truckload Business are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation................................ $11,970 $10,595
Prepaid expenses deductible when paid..................... 1,024 938
Other..................................................... 169 191
------- -------
Total deferred tax liabilities.................... 13,163 11,724
Deferred tax assets:
Accrued expenses.......................................... 2,333 1,796
Allowance for doubtful accounts........................... 64 28
------- -------
Total deferred tax assets......................... 2,397 1,824
------- -------
Net deferred tax liabilities...................... $10,766 $ 9,900
======= =======
</TABLE>
Management believes that the deferred tax assets will ultimately be
realized. Management's conclusion is based on future taxable income that will
result from the reversal of the existing temporary differences. Additionally,
management expects future taxable income from operations, exclusive of the
reversal of temporary differences.
F-14
<PAGE> 73
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The balance sheet classification of deferred income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $(1,372) $ (887)
Noncurrent liabilities...................................... 12,138 10,787
------- -------
$10,766 $ 9,900
======= =======
</TABLE>
Total income tax payments, including payments to (from) Services for
Truckload's allocated share of federal taxes (benefit) during fiscal 1997, 1996
and 1995 were $(194,000), $(3,101,000) and $(2,936,000), respectively.
6. LEASES
The Truckload Business leases certain revenue and other equipment under
capital leases. These leases expire in various years through 2001. Certain of
the revenue equipment leases contain guarantees of residual values which have
been included in minimum lease payments.
Property and equipment include the following amounts for leases that have
been capitalized:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Revenue equipment........................................... $6,659 $5,465
Less accumulated amortization............................... 2,596 2,123
------ ------
$4,063 $3,342
====== ======
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
The Truckload Business also leases certain facilities and revenue equipment
under noncancelable operating leases that expire in 1998. Certain of these
leases may be renewed for periods varying from one to three years. The Truckload
Business also shares certain facilities leased by Services, and has been
allocated a portion of the rent expense related thereto (see Note 1 -- Common
Expenses). As discussed below, the Company will enter into lease or sublease
agreements with Services related to certain facilities on or prior to the date
of the Distribution.
Included in operating leases is a terminal facility leased from a company
wholly-owned by Services' majority shareholder which expired in January 1997,
and the lease was not renewed. The net rent expense for this lease was $-0-,
$60,000 and $84,000 in 1997, 1996 and 1995, respectively.
F-15
<PAGE> 74
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments under capital leases and noncancelable
operating leases with initial terms of one year or more consisted of the
following at December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
- ----------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998........................................................ $3,175 $150
1999........................................................ 616 --
2000........................................................ 612 --
2001........................................................ 200 --
------ ----
Total minimum lease payments...................... 4,603 $150
====
Amounts representing interest............................... (341)
------
Present value of net minimum lease payments
(including current portion of $2,950)..................... $4,262
======
</TABLE>
Payment of certain of the capital and operating leases is guaranteed by
Services. In connection with the Distribution, Services expects to eliminate
guarantees of lease obligations involving the Truckload Business.
Services, through a wholly-owned subsidiary, currently leases to a
wholly-owned subsidiary of the Company a portion of its terminal facility in
Atlanta, Georgia. Rental payments under the lease agreement are based upon the
cost of such facility and an agreed upon percentage of usage. In addition, on or
prior to the date of the Distribution, Services will enter into subleases with
the Company pursuant to which Services will sublease to the Company (i) a
portion of its terminal facility in Columbus, Ohio that is leased by Services
from the Director of Development of the State of Ohio; (ii) a portion of the
facility leased by Services in Indianapolis, Indiana; (iii) a portion of its
terminal facility in Chicago, Illinois that is leased by a Services subsidiary;
(iv) a portion of its terminal facility in Detroit, Michigan that is leased by a
Services subsidiary; and (v) a portion of the headquarters of Services in
Greeneville, Tennessee that is leased by Services from the Greeneville-Greene
County Airport Authority. Services expects to sublease the Columbus terminal
facility for consideration based upon the cost of such facility to Services and
an agreed upon percentage of usage. Services expects to sublease the
Indianapolis, Chicago, Detroit and Greeneville facilities for consideration
based upon an agreed upon percentage of usage.
7. COMMITMENTS AND CONTINGENCIES
The Truckload Business is, from time to time, a party to litigation arising
in the normal course of its business, most of which involve claims for personal
injury and property damage incurred in connection with the transportation of
freight. Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Truckload Business.
8. FINANCIAL INSTRUMENTS
Off Balance Sheet Risk
At December 31, 1997, letters of credit attributable to the Truckload
Business totaled $5,182,000, all of which relate to obligations carried on the
balance sheet.
Concentrations of Credit Risk
Financial instruments that potentially subject the Truckload Business to
significant concentrations of credit risk consist principally of cash
investments and trade accounts receivable. The Truckload Business does not
generally require collateral from its customers. Concentrations of credit risk
with respect to trade accounts
F-16
<PAGE> 75
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
receivable are limited due to the large number of entities comprising
Truckload's customer base and their dispersion across many different industries.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Truckload Business
in estimating its fair value disclosures for financial instruments with third
parties:
Cash and cash equivalents: The carrying amount reported in the
balance sheets for cash and cash equivalents approximates its fair value.
Accounts receivable and accounts payable: The carrying amounts
reported in the balance sheets for accounts receivable and accounts payable
approximate their fair value.
Long-and short-term debt: The fair value of Truckload's long-term
debt and capital lease obligations is estimated using discounted cash flow
analyses, based on Truckload's current incremental borrowing rates for
similar types of borrowing arrangements.
The carrying amounts and fair values of Truckload's financial instruments
with third parties are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 614 $ 614 $ 28 $ 28
Accounts receivable............................. 11,100 11,100 9,674 9,674
Accounts payable................................ 5,877 5,877 4,079 4,079
Long-term debt and capital lease obligations.... 27,596 27,596 28,138 28,138
</TABLE>
F-17
<PAGE> 76
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 916
Accounts receivable, less allowance of $188............... 10,658
Other current assets...................................... 6,764
Receivable from Landair Services, Inc..................... 12,065
--------
Total current assets.............................. 30,403
Property and equipment...................................... 100,528
Less accumulated depreciation and amortization.............. (33,953)
--------
66,575
Other assets................................................ 36
--------
Total assets...................................... $ 97,014
========
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current liabilities:
Accounts payable.......................................... $ 3,883
Accrued expenses.......................................... 12,160
Current portion of long-term debt......................... 9,838
Current portion of capital lease obligations.............. 3,052
--------
Total current liabilities......................... 28,933
Long-term debt, less current portion........................ 14,606
Capital lease obligations, less current portion............. 879
Deferred income taxes....................................... 12,362
Shareholder's investment.................................... 40,234
--------
Total liabilities and shareholder's investment.... $ 97,014
========
</TABLE>
See notes to condensed combined financial statements.
F-18
<PAGE> 77
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating revenue:
Forward Air, Inc.......................................... $ 1,318 $ 1,152
Other..................................................... 24,005 19,393
------- -------
25,323 20,545
Operating expenses:
Salaries, wages, and employee benefits.................... 8,294 6,527
Purchased transportation.................................. 6,155 5,210
Fuel and fuel taxes....................................... 2,937 2,624
Depreciation and amortization............................. 2,252 2,001
Insurance and claims...................................... 1,366 1,842
Operating leases.......................................... 239 133
Other operating expenses.................................. 2,502 2,053
------- -------
23,745 20,390
Income from operations...................................... 1,578 155
Other income (expense):
Interest expense.......................................... (467) (474)
Other, net................................................ 6 33
------- -------
(461) (441)
Income (loss) before income taxes........................... 1,117 (286)
Income taxes (benefit)...................................... 441 (92)
------- -------
Net income (loss)................................. $ 676 $ (194)
======= =======
</TABLE>
See notes to condensed combined financial statements.
F-19
<PAGE> 78
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash from operations........................................ $ 4,934 $ 6,409
Investing activities:
Proceeds from disposal of property and equipment.......... 521 106
Purchases of property and equipment....................... (5,911) (5,114)
Other..................................................... (21) (1)
------- -------
(5,411) (5,009)
Financing activities:
Proceeds from long-term debt.............................. 3,824 652
Payments of long-term debt................................ (2,714) (1,842)
Payments of capital lease obligations..................... (331) (210)
------- -------
779 (1,400)
Increase in cash and cash equivalents....................... $ 302 $ --
======= =======
</TABLE>
See notes to condensed combined financial statements.
F-20
<PAGE> 79
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed combined financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. For further information, refer to the combined financial statements and
footnotes thereto included herein.
NOTE 2. ACCOUNTING PRONOUNCEMENT
As of January 1, 1998, the Truckload Business adopted Statement No. 130,
Reporting Comprehensive Income. Statement No. 130 establishes standards for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Truckload Business' net income
or shareholder's investment. The Truckload Business has no items of other
comprehensive income to be reported under the provisions of Statement No. 130.
NOTE 3. INCOME TAXES
For the three months ended March 31, 1998 and 1997, the effective income
tax rate varied from the statutory federal income tax rate of 34% primarily as a
result of the effect of state income taxes, net of the federal benefit, and
permanent differences.
NOTE 4. CONTINGENCIES
The Truckload Business is, from time to time, a party to litigation arising
in the normal course of its business, most of which involve claims for personal
injury and property damage incurred in connection with the transportation of
freight. Management believes none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of Truckload.
F-21
<PAGE> 80
THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------ ---------- -------------------- ----------- ----------
ADDITIONS
--------------------
(1) (2)
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE AT
BEGINNING AND ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- -------- --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts......... $53 $ 88 $-- $ 16(1) $125
Allowance for revenue adjustments....... 25 226 -- 201(2) 50
--- ---- --- ---- ----
78 314 -- 217 175
Year ended December 31, 1996:
Allowance for doubtful accounts......... 33 45 -- 25(1) 53
Allowance for revenue adjustments....... 20 447 -- 442(2) 25
--- ---- --- ---- ----
53 492 -- 467 78
Year ended December 31, 1995:
Allowance for doubtful accounts......... 32 60 -- 59(1) 33
Allowance for revenue adjustments....... 55 322 -- 357(2) 20
--- ---- --- ---- ----
87 382 -- 416 53
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Adjustments to billed accounts receivable.
F-22
<PAGE> 81
ANNEX A
DISTRIBUTION AGREEMENT
BETWEEN
FORWARD AIR CORPORATION
F/K/A LANDAIR SERVICES, INC.
AND
LANDAIR CORPORATION
A-1
<PAGE> 82
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. DEFINITIONS........................................................ A-3
1.1 General..................................................... A-3
II. THE DISTRIBUTION.................................................. A-5
2.1 Cooperation Prior to the Distribution....................... A-5
2.2 Conditions to Distribution.................................. A-5
2.3 The Distribution............................................ A-6
III. TRANSACTIONS RELATING TO THE DISTRIBUTION........................ A-6
3.1 The Reorganization.......................................... A-6
3.2 Company Charter and Bylaws.................................. A-7
3.3 Other Agreements............................................ A-7
3.4 Operation in the Ordinary Course of Business................ A-7
3.5 Collections and Payments after the Distribution Date........ A-7
IV. INDEMNIFICATION................................................... A-7
4.1 Indemnification by FAF...................................... A-7
4.2 Indemnification by the Company.............................. A-7
4.3 Limitations on Indemnification Obligations.................. A-7
4.4 Procedures for Indemnification.............................. A-8
4.5 Releases.................................................... A-9
4.6 Environmental Liabilities................................... A-9
V. ACCESS TO INFORMATION; SERVICES.................................... A-9
5.1 Access to Information....................................... A-9
5.2 Production of Witnesses..................................... A-10
5.3 Provision of Services....................................... A-10
5.4 Reimbursement............................................... A-10
5.5 Retention of Records........................................ A-10
5.6 Confidentiality............................................. A-10
5.7 Provision of Corporate Records.............................. A-11
5.8 Privileged Matters.......................................... A-11
VI. SHARED CLAIMS..................................................... A-11
6.1 Acknowledgment.............................................. A-11
6.2 Notification................................................ A-11
6.3 Cooperation................................................. A-11
6.4 Liability................................................... A-11
VII. MISCELLANEOUS.................................................... A-12
7.1 Complete Agreement; Construction............................ A-12
7.2 Expenses.................................................... A-12
7.3 Governing Law............................................... A-12
7.4 Notices..................................................... A-12
7.5 Amendments and Waivers...................................... A-12
7.6 Counterparts................................................ A-12
7.7 Successors and Assigns...................................... A-12
7.8 Termination................................................. A-12
7.9 No Third-Party Beneficiaries................................ A-12
7.10 Titles and Headings......................................... A-12
7.11 Legal Enforceability........................................ A-12
7.12 Further Assurances.......................................... A-13
7.13 No Solicitation of Employees................................ A-13
</TABLE>
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DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this
day of , 1998 by and between FORWARD AIR CORPORATION, a
Tennessee corporation f/k/a Landair Services, Inc. ("FAF"), and LANDAIR
CORPORATION, a Tennessee corporation (the "Company").
RECITALS
WHEREAS, FAF is the holder of all of the issued and outstanding shares of
$.01 par value per share common stock of the Company (the "Company Common
Stock");
WHEREAS, the Board of Directors of FAF (the "FAF Board") has determined
that it is advisable and in the best interests of FAF, its shareholders and the
Company to distribute (the "Distribution") all of the issued and outstanding
shares of Company Common Stock to the holders of the $.01 par value per share
common stock of FAF (the "FAF Common Stock"); and
WHEREAS, FAF and the Company have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Distribution and certain other agreements that will govern certain matters
relating to the Distribution and the relationships thereafter between FAF and
the Company and their respective subsidiaries following the Distribution;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth and other good and valuable consideration, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 General. As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
ACTION: any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory
or administrative agency or commission or any arbitration tribunal.
AFFILIATE: as defined in Rule 12b-2 under the Exchange Act.
FAF GROUP: at any time following the Distribution, FAF and all
entities which are Affiliates of FAF at such time.
CODE: the Internal Revenue Code of 1986, as amended.
COMMISSION: the United States Securities and Exchange Commission.
COMPANY GROUP: at any time following the Distribution, the Company
and all entities which are Affiliates of the Company at such time.
DISTRIBUTION AGENT: SunTrust Bank, Atlanta.
DISTRIBUTION DATE: the date (as determined by the FAF Board or a
committee thereof) as of which the Distribution shall be effected.
DISTRIBUTION RATIO: the ratio of FAF Common Stock to Company Common
Stock to be distributed in the Distribution.
EMPLOYEE BENEFIT MATTERS AGREEMENT: the Employee Benefit Matters
Agreement to be entered into by FAF and the Company as of the Distribution
Date, the form of which is attached hereto as Annex A.
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ENVIRONMENTAL LIABILITIES: any Liabilities arising from, under or
relating to any environmental, health or safety law, rule, regulation,
Action, threatened Action, order or consent decree.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
FORM 10: the Registration Statement on Form 10 filed by the Company
with the Commission to effect the registration of the Company Common Stock
under the Exchange Act.
FORWARD AIR: Forward Air, Inc., a Tennessee corporation.
FORWARD AIR BUSINESS: the business of providing the
less-than-truckload movement of deferred air freight as conducted by FAF
prior to the Distribution primarily through the FAF Group.
INFORMATION STATEMENT: the Information Statement on Form 14C filed by
the Company with the Commission and included in the Form 10 at the time of
its effectiveness.
INSURANCE PROCEEDS: those monies (i) received by an insured from an
insurance carrier on an insurance claim or (ii) paid by an insurance
carrier on behalf of an insured on an insurance claim, in either case net
of any applicable deductibles, retentions or costs paid by such insured,
but such term does not refer to proceeds received from an insurer on an
employee benefits group insurance policy.
IRS: the United States Internal Revenue Service.
INTERNATIONAL: Forward Air International Airlines, Inc., a Tennessee
corporation.
LIABILITIES: any and all debts, liabilities, obligations, absolute or
contingent, asserted or unasserted, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, direct or indirect,
whenever arising, including all costs and expenses relating thereto, and
including, without limitation, those debts, liabilities and obligations
arising under any law, rule, regulation, Action, threatened Action, order
or consent decree of any governmental entity or any award of any arbitrator
of any kind, and those arising under any contract, commitment or
undertaking including those arising under this Agreement.
LICENSING: Forward Air Licensing Company, a Delaware corporation.
LOSSES: any and all debts, losses, Liabilities, claims, damages,
obligations, payments or costs and expenses, absolute or contingent,
matured or unmatured, liquidated or unliquidated, accrued or unaccrued,
known or unknown, direct or indirect (including, without limitation, the
costs and expenses of any and all Actions, threatened Actions, demands,
assessments, judgments, settlements and compromises relating thereto and
attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or
threatened Actions).
OTHER AGREEMENTS: the Employee Benefit Matters Agreement, the
Services Agreement, the Tax Sharing Agreement and such other agreements and
understandings as are required to carry out the transactions authorized by
this Agreement.
RECORD DATE: the close of business on the date to be determined by
the FAF Board or a committee thereof as the record date for the
determination of shareholders of record of FAF entitled to receive the
Distribution.
REORGANIZATION: shall have the meaning set forth in SECTION 3.1
hereof.
ROYALTY: Forward Air Royalty Company, a Delaware corporation.
SECURITIES ACT: the Securities Act of 1933, as amended.
SERVICES AGREEMENT: the Transition Services Agreement to be entered
into by FAF and the Company as of the Distribution Date, the form of which
is attached hereto as Annex B.
SUBSIDIARIES: with respect to any entity, unless otherwise indicated,
shall be deemed to refer to both direct and indirect subsidiaries of such
entity.
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TAX SHARING AGREEMENT: the Tax Sharing Agreement to be entered into
by FAF and the Company as of the Distribution Date, the form of which is
attached hereto as Annex C.
TRANSPORT: Landair Transport, Inc., a Tennessee corporation.
TRANSPORTATION PROPERTIES: Transportation Properties, Inc., a
Tennessee corporation.
TRANSPORTATION PROPERTIES (TEXAS): Transportation Properties (Texas),
Inc., a Tennessee corporation.
TRUCKLOAD BUSINESS: the business of providing short- to medium-haul
delivery to the high-service segment of the general commodities truckload
market as conducted by FAF prior to the Distribution primarily through the
Company Group.
VOLUNTEER: Volunteer Adjustment, Inc., a Tennessee corporation.
ARTICLE II
THE DISTRIBUTION
2.1 Cooperation Prior to the Distribution. Prior to the Distribution:
(a) FAF and the Company shall prepare, and the Company shall file with
the Commission, the Form 10. FAF and the Company shall prepare, and FAF
shall mail, prior to the Distribution Date, to the holders of FAF Common
Stock, the Information Statement, which shall set forth appropriate
disclosure concerning the Company, the Distribution and other matters. The
Company shall use reasonable efforts to cause the Form 10 to become
effective under the Exchange Act.
(b) FAF and the Company shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereto that are appropriate to reflect the establishment of or
amendments to any employee benefit and other plans contemplated by the
Employee Benefit Matters Agreement.
(c) Prior to the Distribution, FAF will change the symbol under which
it is listed on The Nasdaq Stock Market to "FWRD" (or such other symbol as
FAF deems appropriate) and the Company shall prepare, file and pursue an
application to permit listing of the Company Common Stock on The Nasdaq
Stock Market (and/or such other exchange as the Company deems appropriate),
under the symbol "LAND" (or such other symbol as the Company deems
appropriate).
2.2 Conditions to Distribution. The FAF Board shall in its discretion
establish the Record Date and the Distribution Date and all appropriate
procedures in connection with the Distribution. The Distribution shall be
subject to satisfaction of each of the following conditions, among other things:
(a) the consummation of the Reorganization in accordance with SECTION 3.1 hereof
and certain internal corporate reorganizations; (b) the renegotiation of certain
FAF credit facilities and debt instruments, including the execution of certain
consents, waivers and amendments thereto by lenders, all on terms satisfactory
to the Board of Directors of FAF; (c) the establishment of separate credit
facilities for the Company and FAF on terms satisfactory to the Board of
Directors of the Company and FAF; (d) the receipt of certain third-party
consents relating to certain contracts, licenses and the Other Agreements; (e)
receipt by FAF of a private letter ruling from the IRS to the effect that, among
other things, the Distribution will qualify as a tax-free distribution for
Federal income tax purposes under Section 355 of the Code, or at the option of
the FAF Board, an opinion of special tax counsel to FAF, in form and substance
satisfactory to the FAF Board, to the effect that, among other things, the
Distribution will constitute such a tax-free distribution under Section 355 of
the Code; (f) the Form 10 having become effective and no stop order being in
effect; (g) there not being in effect any statute, rule, regulation or order of
any court, governmental or regulatory body that prohibits or makes illegal the
transactions contemplated by the Distribution; and (h) approval for listing of
the Company Common Stock on The Nasdaq Stock Market. The FAF Board reserves the
right in its discretion, other than with respect to those set forth in clauses
(a), (e), (f) and (g), to waive the satisfaction of any condition to the
Distribution;
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provided, however, that the FAF Board may abandon, defer or modify the
Distribution and the related transactions at any time prior to the Distribution
Date.
2.3 The Distribution. On the Distribution Date, subject to the conditions
set forth in this Agreement, FAF shall deliver to the Distribution Agent a
certificate or certificates representing the number of then outstanding shares
of Company Common Stock to be distributed in the Distribution, endorsed in
blank, and shall instruct the Distribution Agent to distribute to each holder of
record of FAF Common Stock on the Record Date a certificate or certificates
representing one share of Company Common Stock for one share of FAF Common Stock
so held. The Company agrees to provide all certificates for shares of Company
Common Stock that the Distribution Agent shall require in order to effect the
Distribution.
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION
3.1 The Reorganization. Prior to the Distribution Date, FAF and the Company
shall cause, or have caused, the following transactions to occur (the
"Reorganization"):
(a) FAF shall take all steps necessary to cause Transport, its wholly
owned subsidiary, to incorporate FAF, Inc. ("FAF, Inc.") and Landair
Transportation Properties, Inc. ("LTP") as wholly owned Tennessee
corporations;
(b) FAF shall cause Transport to transfer such of its assets
associated with the Forward Air Business (including all goodwill and other
intangibles associated with such Forward Air Business) to FAF, Inc. in
exchange for all of the issued and outstanding stock of FAF, Inc. plus the
assumption by FAF, Inc. of liabilities associated with the transferred
assets.
(c) FAF shall cause Transport to distribute all of the issued and
outstanding stock of FAF, Inc. to its sole shareholder, FAF.
(d) FAF shall cause Transportation Properties to transfer the real
estate on which a Greene County, Tennessee maintenance facility is being
constructed to LTP in exchange for cash and/or LTP's assumption of the debt
associated with such real estate.
(e) FAF shall borrow approximately $12.1 million from an unrelated
third party, and use the proceeds of any such borrowing to pay any
intercompany debt owed by Forward Air to Transport. In addition, FAF will
transfer to the Company in the form of a capital contribution $5 million.
(f) FAF shall incorporate, or have incorporated, the Company as a
wholly owned Tennessee corporation for the purpose of facilitating the
Distribution and the Reorganization.
(g) FAF shall transfer all of the issued and outstanding stock of each
of Transport and Volunteer and other assets directly held by FAF (including
trademarks, tradenames goodwill and any other intangibles associated with
the Truckload Business) that are associated with the Truckload Business to
the Company in exchange for all of the issued and outstanding stock of the
Company. Immediately thereafter, the Company will transfer to Transport all
of the assets that the Company received from FAF, except for all of the
issued and outstanding stock of Transport and Volunteer and the trademarks
and tradenames associated with the Truckload Business (including any
goodwill associated with such trademarks and tradenames).
(h) Immediately prior to the Distribution Date, FAF and the Company
shall take all steps necessary to increase the outstanding shares of
Company Common Stock so that, immediately prior to the Distribution, FAF
will hold a number of shares of Company Common Stock sufficient to enable
it to complete the Distribution based on the Distribution Ratio. FAF and
the Company shall take all steps necessary to elect as directors of the
Company, on or prior to the Distribution Date, the persons named in the
Form 10 to constitute the board of directors of the Company on the
Distribution Date.
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3.2 Company Charter and Bylaws. On or prior to the Distribution Date, (a)
FAF shall approve and cause the Charter of the Company substantially in the form
of Annex D hereto to be filed with the Secretary of State of Tennessee and to be
in effect on the Distribution Date and (b) FAF shall adopt the Bylaws of the
Company substantially in the form of Annex E hereto to be in effect on the
Distribution Date.
3.3 Other Agreements. On or prior to the Distribution Date, FAF and the
Company shall enter into, and (if applicable) shall cause their respective
Subsidiaries to enter into, the Other Agreements and any other agreements
necessary or appropriate in connection with the transactions contemplated hereby
and thereby. In the event of a conflict between the terms of this Agreement and
the terms of any of the Other Agreements or any such other agreements, the terms
of this Agreement shall govern.
3.4 Operation in the Ordinary Course of Business. Prior to the
Distribution Date, the Company shall, and shall cause each of its Subsidiaries
to, conduct its business and operations in the ordinary course of business,
consistent with past practice, and shall, and shall cause each of its
Subsidiaries to, continue to provide services, pay accounts payable and
invoices, deposit and accept payments, and make capital expenditures in the
ordinary course of business, all consistent with past practice. The Company
shall not, and shall cause each of its Subsidiaries not to, undertake any
arrangement with the intent to delay receipt of any funds by the Company or its
Subsidiaries until on or after the Distribution Date or to accelerate any
payment to be made by the Company or its Subsidiaries prior to the Distribution
Date, except in each case in the ordinary course of business consistent with
past practice.
3.5 Collections and Payments after the Distribution Date. Except as may
be explicitly provided in this Agreement and the Other Agreements, any cash
receipts arising out of or relating to the assets, Liabilities or operations of
the Company or its past or present Subsidiaries received on or after the
Distribution Date shall be retained by the Company and such Subsidiaries, and
any Liabilities or obligations, arising out of, relating to or asserted on the
basis of the assets, Liabilities or operations of the Company or its past or
present Subsidiaries due and unpaid on and after the Distribution Date, or
incurred on and after the Distribution Date, shall be payable by the Company and
such Subsidiaries. The Company and FAF shall settle all payments received from
account debtors of either of them to the effect that amounts properly owing to
the Company are received by the Company and amounts properly owing to FAF are
received by FAF, with such settlements to occur by wire transfer (a) daily, for
the three-month period beginning on the Distribution Date and (b) weekly,
thereafter.
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification by FAF. Except as otherwise provided by any of the
Other Agreements or as contemplated by Section 4.5 or Article VI hereof,
effective as of the Distribution Date, FAF and each other member of the FAF
Group agree to indemnify, defend and hold harmless the Company, each other
member of the Company Group, and their present or former officers, directors,
shareholders, agents, employees, representatives, successors-in-interest,
parents, Affiliates, insurers, attorneys and assigns (the "Company Indemnitees")
from and against any and all Losses of the Company Indemnitees arising out of or
related in any manner to any item set forth on Schedule 4.1 hereto.
4.2 Indemnification by the Company. Except as otherwise provided by any
of the Other Agreements or as contemplated by Section 4.5 or Article VI hereof,
effective as of the Distribution Date, the Company and each other member of the
Company Group agree to indemnify, defend and hold harmless FAF, each other
member of the FAF Group, and their present or former officers, directors,
shareholders, agents, employees, representatives, successors-in-interest,
parents, Affiliates, insurers, attorneys and assigns (the "FAF Indemnitees")
from and against any and all Losses of the FAF Indemnitees arising out of or
related in any manner to any item set forth on Schedule 4.2 hereto.
4.3 Limitations on Indemnification Obligations. The amount that either
FAF or the Company (an "Indemnifying Party") is or may be required to pay to an
indemnified party ("Indemnitee") pursuant to Section 4.1 or 4.2, or any other
section of this Agreement providing for indemnification, shall be reduced by
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<PAGE> 88
any Insurance Proceeds or other amounts actually recovered by or on behalf of
such Indemnitee, in reduction of the related Loss. If an Indemnitee shall have
received the payment required by this Agreement from an Indemnifying Party in
respect of any Loss and shall subsequently actually receive Insurance Proceeds
or other amounts in respect of such Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other
amounts actually received (up to but not in excess of the amount of any
indemnity payment made hereunder). No insurer or other third party shall: (a) be
relieved of the responsibility to pay any claims which it would otherwise be
obligated to pay in the absence of the foregoing indemnification provisions; (b)
solely by virtue of the indemnification provisions hereof have any subrogation
rights with respect to any claims which it would otherwise be obligated to pay;
or (c) be entitled to a benefit it would not be entitled to receive in the
absence of the foregoing indemnification provisions. Any Indemnifying Party
shall succeed to the rights of any Indemnitee with respect to any matter
contemplated by this SECTION 4.3.
4.4 Procedures for Indemnification. (a) If an Indemnitee shall receive
notice or otherwise learn of the assertion of any claim or commencement of any
proceeding (including any governmental investigation) by a person who is not a
party to this Agreement (or any Affiliate of either party) (a "Third-Party
Claim") with respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim setting forth the particulars as to such claim or proceeding
in reasonable detail; provided that the failure of any Indemnitee to give notice
as provided in this SECTION 4.4(A) shall not relieve the related Indemnifying
Party of its obligations under this ARTICLE IV, unless such Indemnifying Party
is actually prejudiced by such failure to give notice, and then only to the
extent of such actual prejudice.
(b) An Indemnifying Party may, to the extent it wishes within 30 days of
receipt of notice of a Third-Party Claim and at its cost and expense, elect to
defend or to seek to settle or compromise any Third-Party Claim; provided that
the Indemnitee may participate in such settlement or defense through its chosen
counsel at its sole cost and expense. After notice from an Indemnifying Party to
an Indemnitee of its election to assume the defense of a Third-Party Claim, such
Indemnifying Party shall not be liable to such Indemnitee under this ARTICLE IV
for any legal or other expenses (except expenses approved in advance by the
Indemnifying Party) subsequently incurred by such Indemnitee in connection with
the defense thereof; provided that if the defendants in any such Third-Party
Claim include both the Indemnifying Party and one or more Indemnitees, and in
any Indemnitee's reasonable judgment a conflict of interest between one or more
of such Indemnitees and such Indemnifying Party exists in respect of such claim,
such Indemnitees shall have the right to employ separate counsel to represent
such Indemnitees. In that event, the reasonable fees and expenses of such
separate counsel (but not more than one separate counsel reasonably satisfactory
to the Indemnifying Party) shall be paid by such Indemnifying Party; provided
further if and to the extent that there is a conflict of defenses or positions
among the Indemnitees, the Indemnitees shall have the right to retain such
number of additional separate counsel, reasonably satisfactory to the
Indemnifying Party, as is reasonably necessary to avoid such conflicts, and the
Indemnifying Party shall be responsible for the reasonable fees and expenses of
such additional separate counsel; provided further that the Indemnitee may
participate in the settlement or defense of a Third-Party Claim through counsel
chosen by such Indemnitee if the fees and expenses of such counsel shall be
borne by such Indemnitee. If an Indemnifying Party elects not to assume
responsibility for defending a Third-Party Claim, such Indemnitee may defend or
seek to compromise or settle such Third-Party Claim, but shall not thereby waive
any right to indemnity therefor pursuant to this Agreement. Notwithstanding the
foregoing, the Indemnifying Party shall not be liable for any settlement of any
Third-Party Claim effected without its written consent. The Indemnifying Party
shall not, except with the consent of the Indemnitee, (i) enter into any such
settlement that does not include as an unconditional term thereof the giving by
the person or persons asserting such Third-Party Claim to all Indemnitees an
unconditional release from all Liability with respect to such Third-Party Claim,
or (ii) consent to entry of any judgment.
(c) Any claim on account of a Loss that does not result from a Third-Party
Claim shall be asserted by written notice given by the Indemnitee to the
Indemnifying Party. Such Indemnifying Party shall have a
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<PAGE> 89
period of 30 days after the receipt of such notice within which to respond
thereto. If such Indemnifying Party does not respond within such 30-day period,
such Indemnifying Party shall be deemed to have refused to accept responsibility
to make payment. If such Indemnifying Party does not respond within such 30-day
period or rejects such claim in whole or in part, such Indemnitee shall be free
to pursue such remedies as may be available to such party under this Agreement
or under applicable law.
(d) In addition to any adjustments required pursuant to SECTION 4.3, if the
amount of any Loss shall, at any time subsequent to the payment required by this
Agreement, be reduced by recovery, settlement or otherwise, the amount of such
reduction that has been received by the Indemnitee, less any expenses properly
incurred in connection therewith, shall promptly be repaid by the Indemnitee to
the Indemnifying Party.
(e) In the event of payment by an Indemnifying Party to any Indemnitee in
connection with any Third-Party Claim, such Indemnifying Party shall have all
rights of subrogation and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third-Party Claim or against any other person. Such
Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner,
and at the cost and expense of such Indemnifying Party, in prosecuting any
subrogated right or claim.
(f) Notwithstanding anything to the contrary herein or in the Other
Agreements, the foregoing indemnification provisions and procedures shall apply
to any other indemnification agreements herein or in the Other Agreements.
4.5 Releases. (a) Subject to ARTICLE VI and effective on the Distribution
Date, the Company and each other member of the Company Group releases and
forever discharges FAF, each other member of the FAF Group, and their present or
former officers, directors, shareholders, agents, employees, representatives,
successors-in-interest, parents, Affiliates, insurers, attorneys and assigns of
and from any and all Liabilities (other than those for which indemnification is
available under this ARTICLE IV and any of the Other Agreements (subject to the
provisions of SECTION 4.3)).
(b) Subject to ARTICLE VI and effective on the Distribution Date, FAF and
each other member of the FAF Group releases and forever discharges the Company,
each other member of the Company Group and their present or former officers,
directors, shareholders, agents, employees, representatives, successors-in-
interest, parents, Affiliates, insurers, attorneys and assigns of and from any
and all Liabilities (other than those for which indemnification is available
under (i) this ARTICLE IV and (ii) any of the Other Agreements (subject to the
provisions of SECTION 4.3)).
4.6 Environmental Liabilities. Notwithstanding anything contained herein
or in any of the Other Agreements to the contrary, neither party shall have any
obligation to indemnify the other party with respect to any Environmental
Liabilities.
ARTICLE V
ACCESS TO INFORMATION; SERVICES
5.1 Access to Information. From and after the Distribution Date, FAF
shall, and shall cause its Subsidiaries to, afford to the Company and its
authorized accountants, counsel and other designated representatives
(collectively, "Representatives") reasonable access (including using reasonable
efforts to give access to the person or firms possessing information) and
duplicating rights during normal business hours to all administrative records,
books, contracts and instruments, and all Company-owned computer software and
computer data and other Company-owned data and information (collectively, but
excluding all software not owned by the Company, "Information") within FAF's or
any such Subsidiary's possession or control relating to the Company or any
Company Subsidiary and to any property owned by FAF that was leased or operated
by the Company or any Company Subsidiary, insofar as such access is reasonably
required by the Company or any Company Subsidiary. Similarly, the Company shall,
and shall cause its Subsidiaries to, afford to FAF and its Representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing Information) and duplicating rights during normal business
hours to Information within the
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Company's or any such Subsidiary's possession or control relating to FAF or any
FAF Subsidiary or relating to the Company prior to the Distribution Date and to
any property owned by the Company that was leased or operated by FAF or any FAF
Subsidiary (other than the Company and its Subsidiaries), insofar as such access
is reasonably required by FAF or any FAF Subsidiary. Information may be
requested under this ARTICLE V for, without limitation, audit, accounting,
claim, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations and for performing this Agreement and the
transactions contemplated hereby.
5.2 Production of Witnesses. After the Distribution Date, each of FAF and
the Company shall, and shall cause its respective Subsidiaries to, use
reasonable efforts to make available to the other party and its Subsidiaries,
upon written request, its directors, officers, employees and agents as witnesses
to the extent that any such person may reasonably be required in connection with
any legal, administrative or other proceedings in which the requesting party may
from time to time be involved.
5.3 Provision of Services. In addition to any services contemplated to be
provided following the Distribution Date by any of the Other Agreements, each
party, upon written request, shall make available to the other party, during
normal business hours and in a manner that will not interfere unreasonably with
such party's business, its financial, tax, accounting, legal, employee benefits
and similar staff services (collectively, "Services") whenever and to the extent
that they may be reasonably required in connection with the preparation of tax
returns, audits, claims, litigation or administration of employee benefit plans,
and otherwise to assist in effecting an orderly transition following the
Distribution.
5.4 Reimbursement. Except to the extent otherwise provided in any of the
Other Agreements, each party providing Information, witnesses or Services under
SECTION 5.1, 5.2 or 5.3 to the other party shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payment for all
out-of-pocket costs and expenses as may be reasonably incurred in providing such
Information, witnesses or Services. For purposes of this SECTION 5.4, salaries
and other compensation payable to employees of either party shall be deemed to
be an out-of-pocket cost or expense reimbursable hereunder.
5.5 Retention of Records. Except as otherwise required by law or agreed
to in writing, each of FAF and the Company shall retain, and shall cause its
respective Subsidiaries to retain following the Distribution Date, all
significant information ("Information") relating to the business of the other
and the other's subsidiaries, for a period (a "Retention Period") consistent
with the document retention policies in effect at FAF and the Company,
respectively. In addition, such Information shall not be destroyed or otherwise
disposed of if during such period a party shall request in writing that any of
the Information be retained for additional specific and reasonable periods of
time at the expense of the party so requesting. After the applicable Retention
Period, any party may destroy or otherwise dispose of any Information at any
time, provided that, prior to such destruction or disposal, (a) such party shall
provide no less than ninety (90) days' prior written notice to the other party,
identifying the Information proposed to be destroyed or disposed of, and (b) if
the recipient of such notice shall request in writing prior to the scheduled
date for such destruction or disposal that any of the Information proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall promptly arrange for the delivery of
such of the Information as was requested at the expense of the requesting party.
5.6 Confidentiality. FAF and each other member of the FAF Group on the
one hand, and the Company and each other member of the Company Group on the
other hand, shall use commercially reasonable efforts to hold, and cause their
Representatives to hold, in strict confidence, all Information concerning the
other in their possession or furnished by the other or the other's
Representatives pursuant to this Agreement or any of the Other Agreements
(except to the extent that such Information is (a) in the public domain through
no fault of such party or (b) later lawfully acquired by such party on a
non-confidential basis from other sources which are not subject to any
confidentiality litigation with the subject party or subsequently developed by
such party), and neither party shall release or disclose such Information to any
other person, except to its auditors, attorneys, financial advisors, bankers and
other consultants and advisors, and on terms and conditions substantially the
same as the terms and conditions on which such party releases
A-10
<PAGE> 91
its own Information, unless compelled to disclose by judicial or administrative
process or, as advised by its counsel, by other requirements of law.
5.7 Provision of Corporate Records. (a) Except as may otherwise be
provided in any of the Other Agreements, FAF shall arrange as soon as
practicable following the Distribution Date, to the extent not previously
delivered, for the delivery to the Company of the Company's books and records in
its possession, except to the extent such items are already in the possession of
the Company. Such books and records shall be the property of the Company, but
shall be available to FAF for review and duplication until FAF shall notify the
Company in writing that such records are no longer of use to FAF.
(b) Except as otherwise provided in any of the Other Agreements, the
Company shall arrange as soon as practicable following the Distribution Date, to
the extent not previously delivered, for the delivery to FAF of FAF's and its
Subsidiaries' books and records in its possession, except to the extent such
items are already in the possession of FAF or a Subsidiary of FAF. Such books
and records shall be the property of FAF, but shall be available to the Company
for review and duplication until the Company shall notify FAF in writing that
such records are no longer of use to the Company.
5.8 Privileged Matters. The Company and FAF recognize that legal and
other professional services that have been and will be provided prior to the
Distribution Date have been and will be rendered for the benefit of both FAF and
the Company and that both FAF and the Company should be deemed to be the client
for the purposes of asserting all privileges related thereto. No party may waive
any privilege which could be asserted under any applicable law, and in
connection with which the other party has a material interest, without the
consent of the other party, except to the extent reasonably required in
connection with any litigation with third parties.
ARTICLE VI
SHARED CLAIMS
6.1 Acknowledgment. Each party acknowledges that, from and after the
Distribution Date, there may be claims and proceedings against such party and
its Subsidiaries that relate (in whole or in part) to activities alleged to have
transpired prior to the Distribution Date and with respect to which it would be
fair and appropriate to apportion Liability therefor between the parties
("Shared Claims").
6.2 Notification. If any party shall receive notice or otherwise learn of
the assertion of any claim or the commencement of any proceeding which such
party believes may constitute a Shared Claim (including, without limitation, any
such claim or proceeding that names or identifies the other party or any of its
Subsidiaries as a responsible party), such party shall (a) immediately assume
the defense thereof and shall in all respects respond thereto in a timely manner
and (b) promptly provide written notice thereof to the other party, setting
forth the particulars as to such claim or proceeding in reasonable detail;
provided that the failure of such party to give such notice shall not relieve
the other party of any obligation to accept Liability unless it is actually
prejudiced by such failure, and then only to the extent of such actual
prejudice.
6.3 Cooperation. The parties shall cooperate with each other in the
defense or settlement of Shared Claims to the effect that (a) subject to the
provisions of SECTION 6.2, the party bearing the greater Liability shall be
responsible for the control and administration of any Shared Claim and (b) the
other party shall cooperate with such party with respect to such control and
administration.
6.4 Liability. The parties shall seek to apportion Liability between them
with respect to any Shared Claim, and in so doing shall take cognizance of all
relevant factors, including but not limited to, the time and duration of any
alleged activity giving rise thereto, the benefit sought to be achieved by the
activity giving rise to the Shared Claim, and the employees involved in the
activity giving rise to the Shared Claim.
A-11
<PAGE> 92
ARTICLE VII
MISCELLANEOUS
7.1 Complete Agreement; Construction. This Agreement and the Other
Agreements, including any schedules and exhibits hereto or thereto, shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter.
7.2 Expenses. Except as otherwise set forth in this Agreement and the
Other Agreements, each party shall bear its own costs and expenses that are
necessary to effect the Distribution and that arise after the Distribution and
are related to the Distribution.
7.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee without regard to the
principles of conflicts of laws thereof.
7.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be delivered by hand,
mailed by registered or certified mail (return receipt requested), or sent by
cable, telegram, telecopy (confirmed by regular, first-class mail), to the
parties at the following addresses (or at such other addresses for a party as
shall be specified by like notice) and shall be deemed given on the date on
which such notice is received:
<TABLE>
<S> <C>
if to FAF: if to the Company:
Forward Air Corporation Landair Corporation
430 Airport Road 430 Airport Road
P.O. Box 1058 P.O. Box 1058
Greeneville, Tennessee 37745 Greeneville, Tennessee 37745
Attn: General Counsel Attn: General Counsel
</TABLE>
7.5 Amendments and Waivers. This Agreement may not be altered or amended,
nor may rights hereunder be waived, except by an instrument in writing executed
by the party or parties to be charged with such amendment or waiver. No waiver
of any term, provision or condition of or failure to exercise or delay in
exercising any rights or remedies under this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, provision, condition, right or remedy or as a waiver of
any other term, provision or condition of this Agreement.
7.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same Agreement.
7.7 Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns.
7.8 Termination. This Agreement may be terminated and the Distribution
abandoned at any time prior to the Distribution Date by and in the sole
discretion of the FAF Board without the approval of the Company or the
shareholders of FAF. In the event of such termination, no party shall have any
Liability of any kind to any other party on account of such termination except
that expenses incurred in connection with the transactions contemplated hereby
shall be paid as provided in Section 7.2.
7.9 No Third-Party Beneficiaries. Except for the provisions of ARTICLE IV
relating to Indemnitees, this Agreement is solely for the benefit of the parties
hereto and their respective Affiliates and should not be deemed to confer upon
third parties (including any employee of the FAF Group or the Company Group) any
remedy, claim, reimbursement, cause of action or other right other than those
existing without reference to this Agreement.
7.10 Titles and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
7.11 Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability
A-12
<PAGE> 93
without invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to any
rights or remedies otherwise available to any party hereto, each party hereto
acknowledges that damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
7.12 Further Assurances. In addition to the actions specifically provided
for elsewhere in this Agreement, each of the parties hereto will use its
reasonable efforts to (a) execute and deliver such further documents and take
such other actions as any other party may reasonably request in order to
effectuate the purposes of this Agreement and to carry out the terms hereof, and
(b) take, or cause to be taken, all actions, and to do, or cause to be done, all
things, reasonably necessary, proper or advisable under applicable laws,
regulations and agreements or otherwise to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
using its reasonable efforts to obtain any consents and approvals and make any
filings and applications necessary or desirable in order to consummate the
transactions contemplated by this Agreement.
7.13 No Solicitation of Employees. For a period of three years after the
Distribution Date, neither FAF nor the Company, nor any of their Subsidiaries,
will directly solicit the employment of any employee of the other company, or
any of its Subsidiaries, without the prior written consent of such other
company.
A-13
<PAGE> 94
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
FORWARD AIR CORPORATION
By:
--------------------------------------
Its:
--------------------------------------
LANDAIR CORPORATION
By:
--------------------------------------
Its:
--------------------------------------
Acknowledged and Agreed by the following entities with respect to the indicated
Sections of this Agreement:
Landair Transport, Inc.
(with respect to Sections 4.1, 4.5 and
5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
Transportation Properties (Texas),
Inc.
(with respect to Sections 4.1, 4.5 and
5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
Volunteer Adjustment, Inc.
(with respect to Sections 4.1, 4.5 and
5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
Landair Transportation Properties,
Inc.
(with respect to Sections 4.1, 4.5 and
5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
Forward Air, Inc.
(with respect to Sections 3.5, 4.2,
4.5 and 5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
FAF, Inc.
(with respect to Sections 3.5, 4.2,
4.5 and 5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
A-14
<PAGE> 95
SCHEDULE 4.1
Items with respect to which FAF shall indemnify the Company Indemnitees
pursuant to SECTION 4.1 in accordance with the provisions of ARTICLE IV of this
Agreement:
1. All Losses arising out of the business conducted or to be conducted
by FAF or any member of the FAF Group, whether such Losses relate to events
occurring, or whether such Losses are asserted, before or after the
Distribution Date, excluding the business conducted or to be conducted by
the Company (either directly or through a Subsidiary or Affiliate of the
Company) or the Subsidiaries and Affiliates of the Company;
2. All of FAF's and any member of the FAF Group's Losses arising out
of this Agreement or any of the Other Agreements, except as otherwise
provided in such Other Agreements;
3. All Losses arising out of or based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, with respect to all information set
forth in the Information Statement or the Form 10 or any amendment thereto,
other than the information having been provided by the Company; and
4. All Losses arising out of Environmental Liabilities with respect to
the presence, use, storage, treatment, disposal (whether on-site or
off-site), escape, release or threatened release of any substance at, near
or from any property owned or leased by any Company Indemnitee to the
extent such presence, use, storage, treatment, disposal, escape, release or
threatened release is related to the operation of the businesses conducted
or to be conducted by FAF or any member of the FAF Group other than the
Company or its Subsidiaries. With respect to such substances, the Company's
right of indemnity hereunder shall be in addition to any rights of
indemnity owed to the Company by reason of the Real Property Leases, but
shall exclude any right of indemnity, right of contribution or other
recovery under any statutory law.
A-15
<PAGE> 96
SCHEDULE 4.2
Items with respect to which the Company will indemnify the FAF Indemnitees
in accordance with SECTION 4.2 of this Agreement:
1. All Losses arising out of the businesses conducted or to be
conducted by the Company or any member of the Company Group, whether such
Losses relate to events occurring, or whether such Losses are asserted,
before or after the Distribution Date, excluding the businesses conducted
or to be conducted by FAF (either directly or through a Subsidiary or
Affiliate of FAF) or the Subsidiaries of FAF;
2. All of the Company's and any member of the Company Group's
Liabilities arising out of this Agreement or any of the Other Agreements,
except as otherwise provided in such Other Agreements;
3. All Losses arising out of or based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, with respect to the information set
forth in the Information Statement or the Form 10 or any amendment thereto,
other than the information having been provided by FAF; and
4. All Losses arising out of Environmental Liabilities with respect to
the presence, use, storage, treatment, disposal (whether on-site or
off-site), escape, release or threatened release of any substance at, near
or from any property owned or leased by any FAF Indemnitee to the extent
such threatened release is related to the operation of the businesses
conduced or to be conducted by the Company or any member of the Company
Group. With respect to such substances, FAF's rights of indemnity hereunder
shall be in addition to any rights of indemnity owed to the Company by
reason of the Real Estate Leases, but shall exclude any right of indemnity,
right of contribution or right of recovery under any statutory law.
A-16
<PAGE> 97
PART II
INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Form of Distribution Agreement between Forward Air
Corporation and Landair Corporation
3.1 -- Charter of Landair Corporation
3.2* -- Bylaws of Landair Corporation
4.1* -- Form of Common Stock Certificate
10.1 -- Form of Transition Services Agreement between Forward Air
Corporation and Landair Corporation
10.2 -- Form of Employee Benefit Matters Agreement between Forward
Air Corporation and Landair Corporation
10.3 -- Form of Tax Sharing Agreement between Forward Air
Corporation and Landair Corporation
10.4* -- Form of Landair Corporation Stock Option and Incentive Plan
10.5* -- Form of Non-Employee Director Stock Option Plan
10.6* -- Form of Employee Stock Purchase Plan
10.7* -- Cash Incentive Plan
21.1* -- Subsidiaries of the Registrant
27.1 -- Financial Data Schedule (for SEC use only)
27.2 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment.
II-1
<PAGE> 98
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
LANDAIR CORPORATION
By: /s/ EDDIE R. BROWN
------------------------------------
Title: President and Chief Operating
Officer
Date: July 13, 1998
II-2
<PAGE> 99
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Form of Distribution Agreement between Forward Air
Corporation and Landair Corporation
3.1 -- Charter of Landair Corporation
3.2* -- Bylaws of Landair Corporation
4.1* -- Form of Common Stock Certificate
10.1 -- Form of Transition Services Agreement between Forward Air
Corporation and Landair Corporation
10.2 -- Form of Employee Benefit Matters Agreement between Forward
Air Corporation and Landair Corporation
10.3 -- Form of Tax Sharing Agreement between Forward Air
Corporation and Landair Corporation
10.4* -- Form of Landair Corporation Stock Option and Incentive Plan
10.5* -- Form of Non-Employee Director Stock Option Plan
10.6* -- Form of Employee Stock Purchase Plan
10.7* -- Cash Incentive Plan
21.1* -- Subsidiaries of the Registrant
27.1 -- Financial Data Schedule (for SEC use only)
27.2 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
DISTRIBUTION AGREEMENT
BETWEEN
FORWARD AIR CORPORATION
F/K/A LANDAIR SERVICES, INC.
AND
LANDAIR CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. DEFINITIONS........................................................ 1
1.1 General..................................................... 1
II. THE DISTRIBUTION.................................................. 3
2.1 Cooperation Prior to the Distribution....................... 3
2.2 Conditions to Distribution.................................. 3
2.3 The Distribution............................................ 4
III. TRANSACTIONS RELATING TO THE DISTRIBUTION........................ 4
3.1 The Reorganization.......................................... 4
3.2 Company Charter and Bylaws.................................. 5
3.3 Other Agreements............................................ 5
3.4 Operation in the Ordinary Course of Business................ 5
3.5 Collections and Payments after the Distribution Date........ 5
IV. INDEMNIFICATION................................................... 5
4.1 Indemnification by FAF...................................... 5
4.2 Indemnification by the Company.............................. 5
4.3 Limitations on Indemnification Obligations.................. 5
4.4 Procedures for Indemnification.............................. 6
4.5 Releases.................................................... 7
4.6 Environmental Liabilities................................... 7
V. ACCESS TO INFORMATION; SERVICES.................................... 7
5.1 Access to Information....................................... 7
5.2 Production of Witnesses..................................... 8
5.3 Provision of Services....................................... 8
5.4 Reimbursement............................................... 8
5.5 Retention of Records........................................ 8
5.6 Confidentiality............................................. 8
5.7 Provision of Corporate Records.............................. 9
5.8 Privileged Matters.......................................... 9
VI. SHARED CLAIMS..................................................... 9
6.1 Acknowledgment.............................................. 9
6.2 Notification................................................ 9
6.3 Cooperation................................................. 9
6.4 Liability................................................... 9
VII. MISCELLANEOUS.................................................... 10
7.1 Complete Agreement; Construction............................ 10
7.2 Expenses.................................................... 10
7.3 Governing Law............................................... 10
7.4 Notices..................................................... 10
7.5 Amendments and Waivers...................................... 10
7.6 Counterparts................................................ 10
7.7 Successors and Assigns...................................... 10
7.8 Termination................................................. 10
7.9 No Third-Party Beneficiaries................................ 10
7.10 Titles and Headings......................................... 10
7.11 Legal Enforceability........................................ 10
7.12 Further Assurances.......................................... 11
7.13 No Solicitation of Employees................................ 11
</TABLE>
<PAGE> 3
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this
day of , 1998 by and between FORWARD AIR CORPORATION, a
Tennessee corporation f/k/a Landair Services, Inc. ("FAF"), and LANDAIR
CORPORATION, a Tennessee corporation (the "Company").
RECITALS
WHEREAS, FAF is the holder of all of the issued and outstanding shares of
$.01 par value per share common stock of the Company (the "Company Common
Stock");
WHEREAS, the Board of Directors of FAF (the "FAF Board") has determined
that it is advisable and in the best interests of FAF, its shareholders and the
Company to distribute (the "Distribution") all of the issued and outstanding
shares of Company Common Stock to the holders of the $.01 par value per share
common stock of FAF (the "FAF Common Stock"); and
WHEREAS, FAF and the Company have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Distribution and certain other agreements that will govern certain matters
relating to the Distribution and the relationships thereafter between FAF and
the Company and their respective subsidiaries following the Distribution;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth and other good and valuable consideration, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 General. As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
ACTION: any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory
or administrative agency or commission or any arbitration tribunal.
AFFILIATE: as defined in Rule 12b-2 under the Exchange Act.
FAF GROUP: at any time following the Distribution, FAF and all
entities which are Affiliates of FAF at such time.
CODE: the Internal Revenue Code of 1986, as amended.
COMMISSION: the United States Securities and Exchange Commission.
COMPANY GROUP: at any time following the Distribution, the Company
and all entities which are Affiliates of the Company at such time.
DISTRIBUTION AGENT: SunTrust Bank, Atlanta.
DISTRIBUTION DATE: the date (as determined by the FAF Board or a
committee thereof) as of which the Distribution shall be effected.
DISTRIBUTION RATIO: the ratio of FAF Common Stock to Company Common
Stock to be distributed in the Distribution.
EMPLOYEE BENEFIT MATTERS AGREEMENT: the Employee Benefit Matters
Agreement to be entered into by FAF and the Company as of the Distribution
Date, the form of which is attached hereto as Annex A.
1
<PAGE> 4
ENVIRONMENTAL LIABILITIES: any Liabilities arising from, under or
relating to any environmental, health or safety law, rule, regulation,
Action, threatened Action, order or consent decree.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
FORM 10: the Registration Statement on Form 10 filed by the Company
with the Commission to effect the registration of the Company Common Stock
under the Exchange Act.
FORWARD AIR: Forward Air, Inc., a Tennessee corporation.
FORWARD AIR BUSINESS: the business of providing the
less-than-truckload movement of deferred air freight as conducted by FAF
prior to the Distribution primarily through the FAF Group.
INFORMATION STATEMENT: the Information Statement on Form 14C filed by
the Company with the Commission and included in the Form 10 at the time of
its effectiveness.
INSURANCE PROCEEDS: those monies (i) received by an insured from an
insurance carrier on an insurance claim or (ii) paid by an insurance
carrier on behalf of an insured on an insurance claim, in either case net
of any applicable deductibles, retentions or costs paid by such insured,
but such term does not refer to proceeds received from an insurer on an
employee benefits group insurance policy.
IRS: the United States Internal Revenue Service.
INTERNATIONAL: Forward Air International Airlines, Inc., a Tennessee
corporation.
LIABILITIES: any and all debts, liabilities, obligations, absolute or
contingent, asserted or unasserted, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, direct or indirect,
whenever arising, including all costs and expenses relating thereto, and
including, without limitation, those debts, liabilities and obligations
arising under any law, rule, regulation, Action, threatened Action, order
or consent decree of any governmental entity or any award of any arbitrator
of any kind, and those arising under any contract, commitment or
undertaking including those arising under this Agreement.
LICENSING: Forward Air Licensing Company, a Delaware corporation.
LOSSES: any and all debts, losses, Liabilities, claims, damages,
obligations, payments or costs and expenses, absolute or contingent,
matured or unmatured, liquidated or unliquidated, accrued or unaccrued,
known or unknown, direct or indirect (including, without limitation, the
costs and expenses of any and all Actions, threatened Actions, demands,
assessments, judgments, settlements and compromises relating thereto and
attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or
threatened Actions).
OTHER AGREEMENTS: the Employee Benefit Matters Agreement, the
Services Agreement, the Tax Sharing Agreement and such other agreements and
understandings as are required to carry out the transactions authorized by
this Agreement.
RECORD DATE: the close of business on the date to be determined by
the FAF Board or a committee thereof as the record date for the
determination of shareholders of record of FAF entitled to receive the
Distribution.
REORGANIZATION: shall have the meaning set forth in SECTION 3.1
hereof.
ROYALTY: Forward Air Royalty Company, a Delaware corporation.
SECURITIES ACT: the Securities Act of 1933, as amended.
SERVICES AGREEMENT: the Transition Services Agreement to be entered
into by FAF and the Company as of the Distribution Date, the form of which
is attached hereto as Annex B.
SUBSIDIARIES: with respect to any entity, unless otherwise indicated,
shall be deemed to refer to both direct and indirect subsidiaries of such
entity.
2
<PAGE> 5
TAX SHARING AGREEMENT: the Tax Sharing Agreement to be entered into
by FAF and the Company as of the Distribution Date, the form of which is
attached hereto as Annex C.
TRANSPORT: Landair Transport, Inc., a Tennessee corporation.
TRANSPORTATION PROPERTIES: Transportation Properties, Inc., a
Tennessee corporation.
TRANSPORTATION PROPERTIES (TEXAS): Transportation Properties (Texas),
Inc., a Tennessee corporation.
TRUCKLOAD BUSINESS: the business of providing short- to medium-haul
delivery to the high-service segment of the general commodities truckload
market as conducted by FAF prior to the Distribution primarily through the
Company Group.
VOLUNTEER: Volunteer Adjustment, Inc., a Tennessee corporation.
ARTICLE II
THE DISTRIBUTION
2.1 Cooperation Prior to the Distribution. Prior to the Distribution:
(a) FAF and the Company shall prepare, and the Company shall file with
the Commission, the Form 10. FAF and the Company shall prepare, and FAF
shall mail, prior to the Distribution Date, to the holders of FAF Common
Stock, the Information Statement, which shall set forth appropriate
disclosure concerning the Company, the Distribution and other matters. The
Company shall use reasonable efforts to cause the Form 10 to become
effective under the Exchange Act.
(b) FAF and the Company shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereto that are appropriate to reflect the establishment of or
amendments to any employee benefit and other plans contemplated by the
Employee Benefit Matters Agreement.
(c) Prior to the Distribution, FAF will change the symbol under which
it is listed on The Nasdaq Stock Market to "FWRD" (or such other symbol as
FAF deems appropriate) and the Company shall prepare, file and pursue an
application to permit listing of the Company Common Stock on The Nasdaq
Stock Market (and/or such other exchange as the Company deems appropriate),
under the symbol "LAND" (or such other symbol as the Company deems
appropriate).
2.2 Conditions to Distribution. The FAF Board shall in its discretion
establish the Record Date and the Distribution Date and all appropriate
procedures in connection with the Distribution. The Distribution shall be
subject to satisfaction of each of the following conditions, among other things:
(a) the consummation of the Reorganization in accordance with SECTION 3.1 hereof
and certain internal corporate reorganizations; (b) the renegotiation of certain
FAF credit facilities and debt instruments, including the execution of certain
consents, waivers and amendments thereto by lenders, all on terms satisfactory
to the Board of Directors of FAF; (c) the establishment of separate credit
facilities for the Company and FAF on terms satisfactory to the Board of
Directors of the Company and FAF; (d) the receipt of certain third-party
consents relating to certain contracts, licenses and the Other Agreements; (e)
receipt by FAF of a private letter ruling from the IRS to the effect that, among
other things, the Distribution will qualify as a tax-free distribution for
Federal income tax purposes under Section 355 of the Code, or at the option of
the FAF Board, an opinion of special tax counsel to FAF, in form and substance
satisfactory to the FAF Board, to the effect that, among other things, the
Distribution will constitute such a tax-free distribution under Section 355 of
the Code; (f) the Form 10 having become effective and no stop order being in
effect; (g) there not being in effect any statute, rule, regulation or order of
any court, governmental or regulatory body that prohibits or makes illegal the
transactions contemplated by the Distribution; and (h) approval for listing of
the Company Common Stock on The Nasdaq Stock Market. The FAF Board reserves the
right in its discretion, other than with respect to those set forth in clauses
(a), (e), (f) and (g), to waive the satisfaction of any condition to the
Distribution;
3
<PAGE> 6
provided, however, that the FAF Board may abandon, defer or modify the
Distribution and the related transactions at any time prior to the Distribution
Date.
2.3 The Distribution. On the Distribution Date, subject to the conditions
set forth in this Agreement, FAF shall deliver to the Distribution Agent a
certificate or certificates representing the number of then outstanding shares
of Company Common Stock to be distributed in the Distribution, endorsed in
blank, and shall instruct the Distribution Agent to distribute to each holder of
record of FAF Common Stock on the Record Date a certificate or certificates
representing one share of Company Common Stock for one share of FAF Common Stock
so held. The Company agrees to provide all certificates for shares of Company
Common Stock that the Distribution Agent shall require in order to effect the
Distribution.
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION
3.1 The Reorganization. Prior to the Distribution Date, FAF and the Company
shall cause, or have caused, the following transactions to occur (the
"Reorganization"):
(a) FAF shall take all steps necessary to cause Transport, its wholly
owned subsidiary, to incorporate FAF, Inc. ("FAF, Inc.") and Landair
Transportation Properties, Inc. ("LTP") as wholly owned Tennessee
corporations;
(b) FAF shall cause Transport to transfer such of its assets
associated with the Forward Air Business (including all goodwill and other
intangibles associated with such Forward Air Business) to FAF, Inc. in
exchange for all of the issued and outstanding stock of FAF, Inc. plus the
assumption by FAF, Inc. of liabilities associated with the transferred
assets.
(c) FAF shall cause Transport to distribute all of the issued and
outstanding stock of FAF, Inc. to its sole shareholder, FAF.
(d) FAF shall cause Transportation Properties to transfer the real
estate on which a Greene County, Tennessee maintenance facility is being
constructed to LTP in exchange for cash and/or LTP's assumption of the debt
associated with such real estate.
(e) FAF shall borrow approximately $12.1 million from an unrelated
third party, and use the proceeds of any such borrowing to pay any
intercompany debt owed by Forward Air to Transport. In addition, FAF will
transfer to the Company in the form of a capital contribution $5 million.
(f) FAF shall incorporate, or have incorporated, the Company as a
wholly owned Tennessee corporation for the purpose of facilitating the
Distribution and the Reorganization.
(g) FAF shall transfer all of the issued and outstanding stock of each
of Transport and Volunteer and other assets directly held by FAF (including
trademarks, tradenames goodwill and any other intangibles associated with
the Truckload Business) that are associated with the Truckload Business to
the Company in exchange for all of the issued and outstanding stock of the
Company. Immediately thereafter, the Company will transfer to Transport all
of the assets that the Company received from FAF, except for all of the
issued and outstanding stock of Transport and Volunteer and the trademarks
and tradenames associated with the Truckload Business (including any
goodwill associated with such trademarks and tradenames).
(h) Immediately prior to the Distribution Date, FAF and the Company
shall take all steps necessary to increase the outstanding shares of
Company Common Stock so that, immediately prior to the Distribution, FAF
will hold a number of shares of Company Common Stock sufficient to enable
it to complete the Distribution based on the Distribution Ratio. FAF and
the Company shall take all steps necessary to elect as directors of the
Company, on or prior to the Distribution Date, the persons named in the
Form 10 to constitute the board of directors of the Company on the
Distribution Date.
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<PAGE> 7
3.2 Company Charter and Bylaws. On or prior to the Distribution Date, (a)
FAF shall approve and cause the Charter of the Company substantially in the form
of Annex D hereto to be filed with the Secretary of State of Tennessee and to be
in effect on the Distribution Date and (b) FAF shall adopt the Bylaws of the
Company substantially in the form of Annex E hereto to be in effect on the
Distribution Date.
3.3 Other Agreements. On or prior to the Distribution Date, FAF and the
Company shall enter into, and (if applicable) shall cause their respective
Subsidiaries to enter into, the Other Agreements and any other agreements
necessary or appropriate in connection with the transactions contemplated hereby
and thereby. In the event of a conflict between the terms of this Agreement and
the terms of any of the Other Agreements or any such other agreements, the terms
of this Agreement shall govern.
3.4 Operation in the Ordinary Course of Business. Prior to the
Distribution Date, the Company shall, and shall cause each of its Subsidiaries
to, conduct its business and operations in the ordinary course of business,
consistent with past practice, and shall, and shall cause each of its
Subsidiaries to, continue to provide services, pay accounts payable and
invoices, deposit and accept payments, and make capital expenditures in the
ordinary course of business, all consistent with past practice. The Company
shall not, and shall cause each of its Subsidiaries not to, undertake any
arrangement with the intent to delay receipt of any funds by the Company or its
Subsidiaries until on or after the Distribution Date or to accelerate any
payment to be made by the Company or its Subsidiaries prior to the Distribution
Date, except in each case in the ordinary course of business consistent with
past practice.
3.5 Collections and Payments after the Distribution Date. Except as may
be explicitly provided in this Agreement and the Other Agreements, any cash
receipts arising out of or relating to the assets, Liabilities or operations of
the Company or its past or present Subsidiaries received on or after the
Distribution Date shall be retained by the Company and such Subsidiaries, and
any Liabilities or obligations, arising out of, relating to or asserted on the
basis of the assets, Liabilities or operations of the Company or its past or
present Subsidiaries due and unpaid on and after the Distribution Date, or
incurred on and after the Distribution Date, shall be payable by the Company and
such Subsidiaries. The Company and FAF shall settle all payments received from
account debtors of either of them to the effect that amounts properly owing to
the Company are received by the Company and amounts properly owing to FAF are
received by FAF, with such settlements to occur by wire transfer (a) daily, for
the three-month period beginning on the Distribution Date and (b) weekly,
thereafter.
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification by FAF. Except as otherwise provided by any of the
Other Agreements or as contemplated by Section 4.5 or Article VI hereof,
effective as of the Distribution Date, FAF and each other member of the FAF
Group agree to indemnify, defend and hold harmless the Company, each other
member of the Company Group, and their present or former officers, directors,
shareholders, agents, employees, representatives, successors-in-interest,
parents, Affiliates, insurers, attorneys and assigns (the "Company Indemnitees")
from and against any and all Losses of the Company Indemnitees arising out of or
related in any manner to any item set forth on Schedule 4.1 hereto.
4.2 Indemnification by the Company. Except as otherwise provided by any
of the Other Agreements or as contemplated by Section 4.5 or Article VI hereof,
effective as of the Distribution Date, the Company and each other member of the
Company Group agree to indemnify, defend and hold harmless FAF, each other
member of the FAF Group, and their present or former officers, directors,
shareholders, agents, employees, representatives, successors-in-interest,
parents, Affiliates, insurers, attorneys and assigns (the "FAF Indemnitees")
from and against any and all Losses of the FAF Indemnitees arising out of or
related in any manner to any item set forth on Schedule 4.2 hereto.
4.3 Limitations on Indemnification Obligations. The amount that either
FAF or the Company (an "Indemnifying Party") is or may be required to pay to an
indemnified party ("Indemnitee") pursuant to Section 4.1 or 4.2, or any other
section of this Agreement providing for indemnification, shall be reduced by
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<PAGE> 8
any Insurance Proceeds or other amounts actually recovered by or on behalf of
such Indemnitee, in reduction of the related Loss. If an Indemnitee shall have
received the payment required by this Agreement from an Indemnifying Party in
respect of any Loss and shall subsequently actually receive Insurance Proceeds
or other amounts in respect of such Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other
amounts actually received (up to but not in excess of the amount of any
indemnity payment made hereunder). No insurer or other third party shall: (a) be
relieved of the responsibility to pay any claims which it would otherwise be
obligated to pay in the absence of the foregoing indemnification provisions; (b)
solely by virtue of the indemnification provisions hereof have any subrogation
rights with respect to any claims which it would otherwise be obligated to pay;
or (c) be entitled to a benefit it would not be entitled to receive in the
absence of the foregoing indemnification provisions. Any Indemnifying Party
shall succeed to the rights of any Indemnitee with respect to any matter
contemplated by this SECTION 4.3.
4.4 Procedures for Indemnification. (a) If an Indemnitee shall receive
notice or otherwise learn of the assertion of any claim or commencement of any
proceeding (including any governmental investigation) by a person who is not a
party to this Agreement (or any Affiliate of either party) (a "Third-Party
Claim") with respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim setting forth the particulars as to such claim or proceeding
in reasonable detail; provided that the failure of any Indemnitee to give notice
as provided in this SECTION 4.4(A) shall not relieve the related Indemnifying
Party of its obligations under this ARTICLE IV, unless such Indemnifying Party
is actually prejudiced by such failure to give notice, and then only to the
extent of such actual prejudice.
(b) An Indemnifying Party may, to the extent it wishes within 30 days of
receipt of notice of a Third-Party Claim and at its cost and expense, elect to
defend or to seek to settle or compromise any Third-Party Claim; provided that
the Indemnitee may participate in such settlement or defense through its chosen
counsel at its sole cost and expense. After notice from an Indemnifying Party to
an Indemnitee of its election to assume the defense of a Third-Party Claim, such
Indemnifying Party shall not be liable to such Indemnitee under this ARTICLE IV
for any legal or other expenses (except expenses approved in advance by the
Indemnifying Party) subsequently incurred by such Indemnitee in connection with
the defense thereof; provided that if the defendants in any such Third-Party
Claim include both the Indemnifying Party and one or more Indemnitees, and in
any Indemnitee's reasonable judgment a conflict of interest between one or more
of such Indemnitees and such Indemnifying Party exists in respect of such claim,
such Indemnitees shall have the right to employ separate counsel to represent
such Indemnitees. In that event, the reasonable fees and expenses of such
separate counsel (but not more than one separate counsel reasonably satisfactory
to the Indemnifying Party) shall be paid by such Indemnifying Party; provided
further if and to the extent that there is a conflict of defenses or positions
among the Indemnitees, the Indemnitees shall have the right to retain such
number of additional separate counsel, reasonably satisfactory to the
Indemnifying Party, as is reasonably necessary to avoid such conflicts, and the
Indemnifying Party shall be responsible for the reasonable fees and expenses of
such additional separate counsel; provided further that the Indemnitee may
participate in the settlement or defense of a Third-Party Claim through counsel
chosen by such Indemnitee if the fees and expenses of such counsel shall be
borne by such Indemnitee. If an Indemnifying Party elects not to assume
responsibility for defending a Third-Party Claim, such Indemnitee may defend or
seek to compromise or settle such Third-Party Claim, but shall not thereby waive
any right to indemnity therefor pursuant to this Agreement. Notwithstanding the
foregoing, the Indemnifying Party shall not be liable for any settlement of any
Third-Party Claim effected without its written consent. The Indemnifying Party
shall not, except with the consent of the Indemnitee, (i) enter into any such
settlement that does not include as an unconditional term thereof the giving by
the person or persons asserting such Third-Party Claim to all Indemnitees an
unconditional release from all Liability with respect to such Third-Party Claim,
or (ii) consent to entry of any judgment.
(c) Any claim on account of a Loss that does not result from a Third-Party
Claim shall be asserted by written notice given by the Indemnitee to the
Indemnifying Party. Such Indemnifying Party shall have a
6
<PAGE> 9
period of 30 days after the receipt of such notice within which to respond
thereto. If such Indemnifying Party does not respond within such 30-day period,
such Indemnifying Party shall be deemed to have refused to accept responsibility
to make payment. If such Indemnifying Party does not respond within such 30-day
period or rejects such claim in whole or in part, such Indemnitee shall be free
to pursue such remedies as may be available to such party under this Agreement
or under applicable law.
(d) In addition to any adjustments required pursuant to SECTION 4.3, if the
amount of any Loss shall, at any time subsequent to the payment required by this
Agreement, be reduced by recovery, settlement or otherwise, the amount of such
reduction that has been received by the Indemnitee, less any expenses properly
incurred in connection therewith, shall promptly be repaid by the Indemnitee to
the Indemnifying Party.
(e) In the event of payment by an Indemnifying Party to any Indemnitee in
connection with any Third-Party Claim, such Indemnifying Party shall have all
rights of subrogation and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third-Party Claim or against any other person. Such
Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner,
and at the cost and expense of such Indemnifying Party, in prosecuting any
subrogated right or claim.
(f) Notwithstanding anything to the contrary herein or in the Other
Agreements, the foregoing indemnification provisions and procedures shall apply
to any other indemnification agreements herein or in the Other Agreements.
4.5 Releases. (a) Subject to ARTICLE VI and effective on the Distribution
Date, the Company and each other member of the Company Group releases and
forever discharges FAF, each other member of the FAF Group, and their present or
former officers, directors, shareholders, agents, employees, representatives,
successors-in-interest, parents, Affiliates, insurers, attorneys and assigns of
and from any and all Liabilities (other than those for which indemnification is
available under this ARTICLE IV and any of the Other Agreements (subject to the
provisions of SECTION 4.3)).
(b) Subject to ARTICLE VI and effective on the Distribution Date, FAF and
each other member of the FAF Group releases and forever discharges the Company,
each other member of the Company Group and their present or former officers,
directors, shareholders, agents, employees, representatives, successors-in-
interest, parents, Affiliates, insurers, attorneys and assigns of and from any
and all Liabilities (other than those for which indemnification is available
under (i) this ARTICLE IV and (ii) any of the Other Agreements (subject to the
provisions of SECTION 4.3)).
4.6 Environmental Liabilities. Notwithstanding anything contained herein
or in any of the Other Agreements to the contrary, neither party shall have any
obligation to indemnify the other party with respect to any Environmental
Liabilities.
ARTICLE V
ACCESS TO INFORMATION; SERVICES
5.1 Access to Information. From and after the Distribution Date, FAF
shall, and shall cause its Subsidiaries to, afford to the Company and its
authorized accountants, counsel and other designated representatives
(collectively, "Representatives") reasonable access (including using reasonable
efforts to give access to the person or firms possessing information) and
duplicating rights during normal business hours to all administrative records,
books, contracts and instruments, and all Company-owned computer software and
computer data and other Company-owned data and information (collectively, but
excluding all software not owned by the Company, "Information") within FAF's or
any such Subsidiary's possession or control relating to the Company or any
Company Subsidiary and to any property owned by FAF that was leased or operated
by the Company or any Company Subsidiary, insofar as such access is reasonably
required by the Company or any Company Subsidiary. Similarly, the Company shall,
and shall cause its Subsidiaries to, afford to FAF and its Representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing Information) and duplicating rights during normal business
hours to Information within the
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<PAGE> 10
Company's or any such Subsidiary's possession or control relating to FAF or any
FAF Subsidiary or relating to the Company prior to the Distribution Date and to
any property owned by the Company that was leased or operated by FAF or any FAF
Subsidiary (other than the Company and its Subsidiaries), insofar as such access
is reasonably required by FAF or any FAF Subsidiary. Information may be
requested under this ARTICLE V for, without limitation, audit, accounting,
claim, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations and for performing this Agreement and the
transactions contemplated hereby.
5.2 Production of Witnesses. After the Distribution Date, each of FAF and
the Company shall, and shall cause its respective Subsidiaries to, use
reasonable efforts to make available to the other party and its Subsidiaries,
upon written request, its directors, officers, employees and agents as witnesses
to the extent that any such person may reasonably be required in connection with
any legal, administrative or other proceedings in which the requesting party may
from time to time be involved.
5.3 Provision of Services. In addition to any services contemplated to be
provided following the Distribution Date by any of the Other Agreements, each
party, upon written request, shall make available to the other party, during
normal business hours and in a manner that will not interfere unreasonably with
such party's business, its financial, tax, accounting, legal, employee benefits
and similar staff services (collectively, "Services") whenever and to the extent
that they may be reasonably required in connection with the preparation of tax
returns, audits, claims, litigation or administration of employee benefit plans,
and otherwise to assist in effecting an orderly transition following the
Distribution.
5.4 Reimbursement. Except to the extent otherwise provided in any of the
Other Agreements, each party providing Information, witnesses or Services under
SECTION 5.1, 5.2 or 5.3 to the other party shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payment for all
out-of-pocket costs and expenses as may be reasonably incurred in providing such
Information, witnesses or Services. For purposes of this SECTION 5.4, salaries
and other compensation payable to employees of either party shall be deemed to
be an out-of-pocket cost or expense reimbursable hereunder.
5.5 Retention of Records. Except as otherwise required by law or agreed
to in writing, each of FAF and the Company shall retain, and shall cause its
respective Subsidiaries to retain following the Distribution Date, all
significant information ("Information") relating to the business of the other
and the other's subsidiaries, for a period (a "Retention Period") consistent
with the document retention policies in effect at FAF and the Company,
respectively. In addition, such Information shall not be destroyed or otherwise
disposed of if during such period a party shall request in writing that any of
the Information be retained for additional specific and reasonable periods of
time at the expense of the party so requesting. After the applicable Retention
Period, any party may destroy or otherwise dispose of any Information at any
time, provided that, prior to such destruction or disposal, (a) such party shall
provide no less than ninety (90) days' prior written notice to the other party,
identifying the Information proposed to be destroyed or disposed of, and (b) if
the recipient of such notice shall request in writing prior to the scheduled
date for such destruction or disposal that any of the Information proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall promptly arrange for the delivery of
such of the Information as was requested at the expense of the requesting party.
5.6 Confidentiality. FAF and each other member of the FAF Group on the
one hand, and the Company and each other member of the Company Group on the
other hand, shall use commercially reasonable efforts to hold, and cause their
Representatives to hold, in strict confidence, all Information concerning the
other in their possession or furnished by the other or the other's
Representatives pursuant to this Agreement or any of the Other Agreements
(except to the extent that such Information is (a) in the public domain through
no fault of such party or (b) later lawfully acquired by such party on a
non-confidential basis from other sources which are not subject to any
confidentiality litigation with the subject party or subsequently developed by
such party), and neither party shall release or disclose such Information to any
other person, except to its auditors, attorneys, financial advisors, bankers and
other consultants and advisors, and on terms and conditions substantially the
same as the terms and conditions on which such party releases
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<PAGE> 11
its own Information, unless compelled to disclose by judicial or administrative
process or, as advised by its counsel, by other requirements of law.
5.7 Provision of Corporate Records. (a) Except as may otherwise be
provided in any of the Other Agreements, FAF shall arrange as soon as
practicable following the Distribution Date, to the extent not previously
delivered, for the delivery to the Company of the Company's books and records in
its possession, except to the extent such items are already in the possession of
the Company. Such books and records shall be the property of the Company, but
shall be available to FAF for review and duplication until FAF shall notify the
Company in writing that such records are no longer of use to FAF.
(b) Except as otherwise provided in any of the Other Agreements, the
Company shall arrange as soon as practicable following the Distribution Date, to
the extent not previously delivered, for the delivery to FAF of FAF's and its
Subsidiaries' books and records in its possession, except to the extent such
items are already in the possession of FAF or a Subsidiary of FAF. Such books
and records shall be the property of FAF, but shall be available to the Company
for review and duplication until the Company shall notify FAF in writing that
such records are no longer of use to the Company.
5.8 Privileged Matters. The Company and FAF recognize that legal and
other professional services that have been and will be provided prior to the
Distribution Date have been and will be rendered for the benefit of both FAF and
the Company and that both FAF and the Company should be deemed to be the client
for the purposes of asserting all privileges related thereto. No party may waive
any privilege which could be asserted under any applicable law, and in
connection with which the other party has a material interest, without the
consent of the other party, except to the extent reasonably required in
connection with any litigation with third parties.
ARTICLE VI
SHARED CLAIMS
6.1 Acknowledgment. Each party acknowledges that, from and after the
Distribution Date, there may be claims and proceedings against such party and
its Subsidiaries that relate (in whole or in part) to activities alleged to have
transpired prior to the Distribution Date and with respect to which it would be
fair and appropriate to apportion Liability therefor between the parties
("Shared Claims").
6.2 Notification. If any party shall receive notice or otherwise learn of
the assertion of any claim or the commencement of any proceeding which such
party believes may constitute a Shared Claim (including, without limitation, any
such claim or proceeding that names or identifies the other party or any of its
Subsidiaries as a responsible party), such party shall (a) immediately assume
the defense thereof and shall in all respects respond thereto in a timely manner
and (b) promptly provide written notice thereof to the other party, setting
forth the particulars as to such claim or proceeding in reasonable detail;
provided that the failure of such party to give such notice shall not relieve
the other party of any obligation to accept Liability unless it is actually
prejudiced by such failure, and then only to the extent of such actual
prejudice.
6.3 Cooperation. The parties shall cooperate with each other in the
defense or settlement of Shared Claims to the effect that (a) subject to the
provisions of SECTION 6.2, the party bearing the greater Liability shall be
responsible for the control and administration of any Shared Claim and (b) the
other party shall cooperate with such party with respect to such control and
administration.
6.4 Liability. The parties shall seek to apportion Liability between them
with respect to any Shared Claim, and in so doing shall take cognizance of all
relevant factors, including but not limited to, the time and duration of any
alleged activity giving rise thereto, the benefit sought to be achieved by the
activity giving rise to the Shared Claim, and the employees involved in the
activity giving rise to the Shared Claim.
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ARTICLE VII
MISCELLANEOUS
7.1 Complete Agreement; Construction. This Agreement and the Other
Agreements, including any schedules and exhibits hereto or thereto, shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter.
7.2 Expenses. Except as otherwise set forth in this Agreement and the
Other Agreements, each party shall bear its own costs and expenses that are
necessary to effect the Distribution and that arise after the Distribution and
are related to the Distribution.
7.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee without regard to the
principles of conflicts of laws thereof.
7.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be delivered by hand,
mailed by registered or certified mail (return receipt requested), or sent by
cable, telegram, telecopy (confirmed by regular, first-class mail), to the
parties at the following addresses (or at such other addresses for a party as
shall be specified by like notice) and shall be deemed given on the date on
which such notice is received:
<TABLE>
<S> <C>
if to FAF: if to the Company:
Forward Air Corporation Landair Corporation
430 Airport Road 430 Airport Road
P.O. Box 1058 P.O. Box 1058
Greeneville, Tennessee 37745 Greeneville, Tennessee 37745
Attn: General Counsel Attn: General Counsel
</TABLE>
7.5 Amendments and Waivers. This Agreement may not be altered or amended,
nor may rights hereunder be waived, except by an instrument in writing executed
by the party or parties to be charged with such amendment or waiver. No waiver
of any term, provision or condition of or failure to exercise or delay in
exercising any rights or remedies under this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, provision, condition, right or remedy or as a waiver of
any other term, provision or condition of this Agreement.
7.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same Agreement.
7.7 Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns.
7.8 Termination. This Agreement may be terminated and the Distribution
abandoned at any time prior to the Distribution Date by and in the sole
discretion of the FAF Board without the approval of the Company or the
shareholders of FAF. In the event of such termination, no party shall have any
Liability of any kind to any other party on account of such termination except
that expenses incurred in connection with the transactions contemplated hereby
shall be paid as provided in Section 7.2.
7.9 No Third-Party Beneficiaries. Except for the provisions of ARTICLE IV
relating to Indemnitees, this Agreement is solely for the benefit of the parties
hereto and their respective Affiliates and should not be deemed to confer upon
third parties (including any employee of the FAF Group or the Company Group) any
remedy, claim, reimbursement, cause of action or other right other than those
existing without reference to this Agreement.
7.10 Titles and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
7.11 Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability
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<PAGE> 13
without invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to any
rights or remedies otherwise available to any party hereto, each party hereto
acknowledges that damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
7.12 Further Assurances. In addition to the actions specifically provided
for elsewhere in this Agreement, each of the parties hereto will use its
reasonable efforts to (a) execute and deliver such further documents and take
such other actions as any other party may reasonably request in order to
effectuate the purposes of this Agreement and to carry out the terms hereof, and
(b) take, or cause to be taken, all actions, and to do, or cause to be done, all
things, reasonably necessary, proper or advisable under applicable laws,
regulations and agreements or otherwise to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
using its reasonable efforts to obtain any consents and approvals and make any
filings and applications necessary or desirable in order to consummate the
transactions contemplated by this Agreement.
7.13 No Solicitation of Employees. For a period of three years after the
Distribution Date, neither FAF nor the Company, nor any of their Subsidiaries,
will directly solicit the employment of any employee of the other company, or
any of its Subsidiaries, without the prior written consent of such other
company.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
FORWARD AIR CORPORATION
By:
--------------------------------------
Its:
--------------------------------------
LANDAIR CORPORATION
By:
--------------------------------------
Its:
--------------------------------------
Acknowledged and Agreed by the following entities with respect to the indicated
Sections of this Agreement:
Landair Transport, Inc.
(with respect to Sections 4.1, 4.5 and
5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
Transportation Properties (Texas), Inc.
(with respect to Sections 4.1, 4.5 and
5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
Volunteer Adjustment, Inc.
(with respect to Sections 4.1, 4.5 and
5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
Landair Transportation Properties, Inc.
(with respect to Sections 4.1, 4.5 and
5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
Forward Air, Inc.
(with respect to Sections 3.5, 4.2,
4.5 and 5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
FAF, Inc.
(with respect to Sections 3.5, 4.2,
4.5 and 5.6)
By:
- --------------------------------------
Its:
- --------------------------------------
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<PAGE> 15
SCHEDULE 4.1
Items with respect to which FAF shall indemnify the Company Indemnitees
pursuant to SECTION 4.1 in accordance with the provisions of ARTICLE IV of this
Agreement:
1. All Losses arising out of the business conducted or to be conducted
by FAF or any member of the FAF Group, whether such Losses relate to events
occurring, or whether such Losses are asserted, before or after the
Distribution Date, excluding the business conducted or to be conducted by
the Company (either directly or through a Subsidiary or Affiliate of the
Company) or the Subsidiaries and Affiliates of the Company;
2. All of FAF's and any member of the FAF Group's Losses arising out
of this Agreement or any of the Other Agreements, except as otherwise
provided in such Other Agreements;
3. All Losses arising out of or based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, with respect to all information set
forth in the Information Statement or the Form 10 or any amendment thereto,
other than the information having been provided by the Company; and
4. All Losses arising out of Environmental Liabilities with respect to
the presence, use, storage, treatment, disposal (whether on-site or
off-site), escape, release or threatened release of any substance at, near
or from any property owned or leased by any Company Indemnitee to the
extent such presence, use, storage, treatment, disposal, escape, release or
threatened release is related to the operation of the businesses conducted
or to be conducted by FAF or any member of the FAF Group other than the
Company or its Subsidiaries. With respect to such substances, the Company's
right of indemnity hereunder shall be in addition to any rights of
indemnity owed to the Company by reason of the Real Property Leases, but
shall exclude any right of indemnity, right of contribution or other
recovery under any statutory law.
<PAGE> 16
SCHEDULE 4.2
Items with respect to which the Company will indemnify the FAF Indemnitees
in accordance with SECTION 4.2 of this Agreement:
1. All Losses arising out of the businesses conducted or to be
conducted by the Company or any member of the Company Group, whether such
Losses relate to events occurring, or whether such Losses are asserted,
before or after the Distribution Date, excluding the businesses conducted
or to be conducted by FAF (either directly or through a Subsidiary or
Affiliate of FAF) or the Subsidiaries of FAF;
2. All of the Company's and any member of the Company Group's
Liabilities arising out of this Agreement or any of the Other Agreements,
except as otherwise provided in such Other Agreements;
3. All Losses arising out of or based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, with respect to the information set
forth in the Information Statement or the Form 10 or any amendment thereto,
other than the information having been provided by FAF; and
4. All Losses arising out of Environmental Liabilities with respect to
the presence, use, storage, treatment, disposal (whether on-site or
off-site), escape, release or threatened release of any substance at, near
or from any property owned or leased by any FAF Indemnitee to the extent
such threatened release is related to the operation of the businesses
conduced or to be conducted by the Company or any member of the Company
Group. With respect to such substances, FAF's rights of indemnity hereunder
shall be in addition to any rights of indemnity owed to the Company by
reason of the Real Estate Leases, but shall exclude any right of indemnity,
right of contribution or right of recovery under any statutory law.
<PAGE> 1
EXHIBIT 3.1
CHARTER
OF
LANDAIR CORPORATION
The undersigned, acting as the incorporator of a corporation under the
Tennessee Business Corporation Act (the "Act"), adopts the following Charter for
such Corporation:
1. The name of the Corporation is:
Landair Corporation (the "Corporation")
2. (a) The street address, ZIP Code and county of the registered office
and registered agent of the Corporation is:
430 Airport Road
Greeneville, Tennessee 37745
Greene County, Tennessee
(b) The registered agent in the registered office is:
Richard H. Roberts
3. The street address and ZIP Code of the principal office of the
Corporation in the State of Tennessee is:
430 Airport Road
Greeneville, Tennessee 37745
4. The duration of the Corporation shall be perpetual.
5. The Corporation is for profit.
6. The name and address of the incorporator is:
Richard H. Roberts
430 Airport Road
Greeneville, Tennessee 37745
7. The purpose or purposes for which the Corporation is organized are:
(a) To engage in the business of moving, conveying and delivering
merchandise and commodities of all kinds via either land transportation or air
transportation; to lease, own and/or operate equipment for the transportation of
commodities and portable goods of every
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<PAGE> 2
description from one location to another; to qualify as a common carrier and to
act as a contractor or as a private carrier; and to act as agent for other
transportation companies;
(b) To hold and manage real estate under lease or by ownership in
fee or otherwise for use by itself or by other corporations or persons for
industrial purposes or otherwise; to lease, sublease, convey, transfer, sell and
buy such real estate;
(c) To generally, and without limitation of the foregoing, carry on,
conduct and engage in any and all businesses, occupations or operations that may
from time to time be deemed to be necessary, required or conducive to the
carrying out of any of the objects or purposes of the Corporation; and
(d) To engage in any other activity permitted by the laws of the
State of Tennessee and the United States.
8. The maximum number of shares of capital stock which the Corporation
shall have the authority to issue is fifty million (50,000,000) shares, of which
forty-five million (45,000,000) shares are designated Common Stock with a par
value of one cent ($.01) per share, and five million (5,000,000) shares are
designated Preferred Stock with a par value of one cent ($.01) per share.
The designations, preferences, privileges and powers and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of the above classes of capital stock shall be as follows:
(a) Preferred Stock.
(1) Shares of Preferred Stock may be divided into and issued in
one or more classes or series at such time or times and for such
consideration as the Board of Directors may determine. Each such
class or series shall be given a distinguishing designation. All
shares of any one class or series shall be of equal rank and
identical in all respects.
(2) Authority is hereby expressly granted to the Board of
Directors to fix and determine from time to time, by resolution or
resolutions providing for the establishment and/or issuance of any
class or series of Preferred Stock, the designation of such series
and the powers, preferences and the relative rights of the shares of
such class or series, and the qualifications, limitations or
restrictions thereof, as the Board of Directors may deem advisable
and to the full extent now or hereafter permitted by the laws of the
State of Tennessee. The resolution or resolutions providing for the
establishment and/or issuance of such class or series of Preferred
Stock shall set forth: (i) the designation and number of
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<PAGE> 3
shares comprising each class or series; (ii) the rate of dividends,
if any, and whether such dividends shall be noncumulative,
cumulative to the extent earned, or cumulative and, if cumulative,
from which date or dates; (iii) whether the shares shall be
redeemable and, if so, the terms and conditions of such redemption;
(iv) whether there shall be a sinking fund for the redemption; (v)
the rights to which the holders of the shares shall be entitled in
the event of voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, and the priority of payment of shares
in any such event; (vi) whether the shares shall be convertible into
or exchangeable for shares of any other class or any other series
and the terms thereof; and (vii) all other preferences, privileges
and powers and relative, participating, optional or other special
rights and qualifications, limitations or restrictions of such class
or series.
(b) Common Stock.
(1) After the requirements with respect to preferential
dividends, if any, on any class or series of Preferred Stock (fixed
pursuant to resolutions as provided in Article 8(a) above) shall
have been met, and after the Corporation shall have complied with
all requirements, if any, with respect to the setting aside of sums
in a sinking fund for the purchase or redemption of shares of any
class or series of Preferred Stock (fixed pursuant to resolutions as
provided in Article 8(a) above), then, and not otherwise, the
holders of Common Stock shall receive, to the extent permitted by
law and to the extent the Board of Directors shall determine, such
dividends as may be declared from time to time by the Board of
Directors.
(2) After distribution in full of the preferential amount, if
any (fixed pursuant to resolutions as provided in Article 8(a)
above), to be distributed to the holders of any class or series of
Preferred Stock in the event of the voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, the
holders of the Common Stock shall be entitled to receive such of the
remaining assets of the Corporation of whatever kind available for
distribution to the extent the Board of Directors shall determine.
(3) Except as may be otherwise required by law or by the Charter
of the Corporation, each holder of Common Stock shall have one vote
in respect of each share of such stock held by him or her on all
matters voted upon by the shareholders.
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<PAGE> 4
(c) Preemptive Rights. The shareholders of the Corporation shall
not have preemptive rights.
9. (a) To the fullest extent permitted by the laws of the State of
Tennessee, including without limitation, the Act, as it exists on the date
hereof or as it may hereafter be amended, no director of the Corporation shall
be personally liable for monetary damages to the Corporation or its shareholders
for any breach of fiduciary duty as a director. If the laws of the State of
Tennessee, including, without limitation, the Act, are amended after adoption of
this Charter to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Act, as so amended. Any repeal or modification of this Article 9 by the
shareholders of the Corporation shall not affect adversely any right or
protection of a director of the Corporation existing at the time of such repeal
or modification, or with respect to events occurring prior to such time.
(b) The Corporation shall indemnify every person who is or was a
party or is or was threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative, or investigative, by reason
of the fact that he or she is or was a director or officer or is or was serving
at the request of the Corporation as a director, officer, employee, agent, or
trustee of another Corporation or of a partnership, joint venture, trust,
employee benefit plan, or other enterprise, including service on a committee
formed for any purpose (and, in each case, his or her heirs, executors and
administrators), against all expense, liability and loss (including counsel
fees, judgments, fines, ERISA excise taxes, penalties and amounts paid in
settlement) actually and reasonably incurred or suffered in connection with such
action, suit, or proceeding, to the fullest extent permitted by applicable law,
as in effect on the date hereof and as hereafter amended. Such indemnification
may include advancement of expenses in advance of final disposition of such
action, suit, or proceeding, subject to the provision of any applicable statute.
The indemnification and advancement of expenses provisions of this
Article 9(b) shall not be exclusive of any other right that any person (and his
or her heirs, executors and administrators) may have or hereafter acquire under
any statute, this Charter, the Corporation's Bylaws, resolution adopted by the
shareholders, resolution adopted by the Board of Directors, agreement, or
insurance, purchased by the Corporation or otherwise, both as to action in his
or her official capacity and as to action in another capacity. The Corporation
is hereby authorized to provide for indemnification and advancement of expenses
through its Bylaws, resolution of shareholders, resolution of the Board of
Directors, or agreement, in addition to that provided by this Charter.
10. All corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be managed under the
direction of, a Board of Directors consisting of not less than three nor more
than nine directors, the exact number of directors to be determined in the
manner provided in the Bylaws of the Corporation. Each director shall be elected
at the annual meeting of shareholders and shall hold office until the next
annual
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<PAGE> 5
meeting and until his or her successor shall be elected and qualified, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. Any vacancy on the Board of Directors, including a vacancy that
results from an increase in the number of directors or a vacancy that results
from the removal of a director with or without cause, shall be filled either by
the Board of Directors or the shareholders.
Any or all of the directors of the Corporation may be removed at any
time for cause by a vote of a majority of the entire Board of Directors and at
any time with or without cause by a proper vote of the shareholders of the
Corporation. "Cause" shall include, but not be limited to, a director willfully
or without reasonable cause being absent from any regular or special meeting for
the purpose of obstructing or hindering the business of the Corporation.
11. The Bylaws of the Corporation may be amended, altered, modified,
or repealed by resolution adopted by the Board of Directors, subject to any
provisions of law then applicable.
12. The Corporation shall hold a special meeting of shareholders
only in the event (a) of a call of the Board of Directors of the Corporation or
the officers authorized to do so by the Bylaws of the Corporation, or (b) the
holders of at least twenty-five percent of all the votes entitled to be cast on
any issue proposed to be considered at the proposed special meeting sign, date
and deliver to the Corporation's secretary one or more written demands for the
meeting describing the purpose or purposes for which it is to be held.
13. The affirmative vote of the holders of at least three-quarters
(3/4) of the voting power of the shares entitled to vote at an election of
directors shall be required to amend, alter, modify or to repeal the provisions
of Articles 10 and 12 and this Article 13 of this Charter.
Date: June 9, 1998
LANDAIR CORPORATION
By: /s/ Richard H. Roberts
------------------------------------
Richard H. Roberts, Incorporator
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<PAGE> 1
EXHIBIT 10.1
TRANSITION SERVICES AGREEMENT
between
FORWARD AIR CORPORATION f/k/a
Landair Services, Inc.
and
LANDAIR CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
SERVICES TO BE PROVIDED..................................................................................1
1.1 Provision of Services...........................................................................1
1.2 Performance Levels..............................................................................2
1.3 Instructions....................................................................................2
1.4 Consents; Indemnification; Assets...............................................................2
1.5 Systems Availability and Data Integrity.........................................................4
1.6 Systems Users...................................................................................4
ARTICLE II
PAYMENT FOR SERVICES.....................................................................................4
2.1 Costs...........................................................................................4
2.2 Invoices; Payment Procedures....................................................................5
2.3 Disputed Fees...................................................................................5
ARTICLE III
TERM; TERMINATION OF SERVICES............................................................................6
3.1 Term............................................................................................6
3.2 Termination of Services.........................................................................6
ARTICLE IV
COOPERATION..............................................................................................7
4.1 Cooperation.....................................................................................7
4.2 Provider Administrative Records.................................................................7
4.3 Periodic Review of Services.....................................................................7
ARTICLE V
FORCE MAJEURE............................................................................................7
5.1 Force Majeure...................................................................................7
ARTICLE VI
CONFIDENTIALITY..........................................................................................8
6.1 Confidentiality.................................................................................8
ARTICLE VII
MISCELLANEOUS............................................................................................9
7.1 Notices.........................................................................................9
7.2 Severability...................................................................................10
7.3 Binding Effect; Assignment.....................................................................10
7.4 No Third Party Beneficiaries...................................................................10
7.5 Interpretation.................................................................................10
7.6 Jurisdiction and Consent to Service............................................................10
7.7 Entire Agreement...............................................................................11
7.8 Governing Law..................................................................................11
7.9 Counterparts...................................................................................11
7.10 Relationship of the Parties....................................................................11
7.11 Waiver.........................................................................................11
7.12 Sole Remedy; No Damages........................................................................12
7.13 Indemnification................................................................................12
</TABLE>
<PAGE> 3
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT (this "Agreement") is made as of
this ____ day of __________, 1998, by and between Forward Air Corporation, a
corporation organized under the laws of the State of Tennessee f/k/a Landair
Services, Inc. (together with its wholly owned subsidiaries, "FAF"), and Landair
Corporation, a corporation organized under the laws of the State of Tennessee
(together with its wholly owned subsidiaries, "Landair Corporation").
W I T N E S S E T H:
WHEREAS, FAF is the holder of all of the issued and outstanding shares
of $.01 par value per share common stock of Landair Corporation (the "Landair
Corporation Common Stock");
WHEREAS, the Board of Directors of FAF has determined that it is
advisable and in the best interests of FAF, its shareholders and Landair
Corporation to distribute (the "Distribution") all of the outstanding shares of
Landair Corporation Common Stock on a pro rata basis to the holders of the $.01
par value per share common stock of FAF pursuant to the terms of the
Distribution Agreement, dated as of _________, 1998, entered into by FAF and
Landair Corporation (the "Distribution Agreement") so that after such
Distribution, Landair Corporation will be an independent public company (all
capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed thereto in the Distribution Agreement); and
WHEREAS, FAF and Landair Corporation have agreed to enter into this
Agreement in order for FAF or Landair Corporation, as the case may be, to
provide the other with certain services and support during a transition period
following the Distribution;
NOW THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth and other good and valuable consideration, the parties
hereto hereby agree as follows:
ARTICLE I
SERVICES TO BE PROVIDED
1.1 Provision of Services. Subject to all of the terms and conditions
hereof, FAF and Landair Corporation hereby agree that FAF shall offer and
provide to Landair Corporation and its subsidiaries those services described on
SCHEDULE A-1 hereto, and Landair Corporation shall offer and provide to FAF and
its subsidiaries the services described on SCHEDULE A-2 hereto (collectively,
the "Services"); provided, however, that each of the parties hereto acknowledges
and agrees that Services may be added to, or deleted from, SCHEDULE A-1 or
SCHEDULE A-2 by mutual consent of the parties at any time (and the Services Fees
(as defined herein) shall be adjusted appropriately). As used herein, (a) the
term "Recipient" means, with respect to any given Service, the recipient of such
Service and for purposes of enforcing this Agreement, FAF or Landair
Corporation, as the case may be, shall be treated as the recipient of all
Services provided to such recipient and its affiliates, and (b) the term
"Provider" means, with respect to any given Service, the provider of such
Service and
<PAGE> 4
for purposes of such definition, FAF or Landair Corporation, as the case may be,
shall be treated as the provider of all Services provided by them or any of
their affiliates.
1.2 Performance Levels. In providing the Services, each party shall
perform according to the performance levels maintained in the past. Each Service
shall be provided priority no less favorably than in the past, consistent with
past practices and without discrimination against the party receiving such
Service. Any Services to be provided hereunder that were not heretofore provided
by FAF or Landair Corporation, as the case may be, shall be provided on a
reasonably timely basis.
1.3 Instructions. The parties agree that the Services provided by
Provider shall be essentially ministerial in nature so that Provider shall, in
all matters requiring the exercise of discretion, follow Recipient's
instructions, which shall be promptly provided to Provider by Recipient to the
extent requested by Provider and which must be provided in writing if so
requested. Notwithstanding the foregoing, Provider shall not be required to
follow any such instructions that, in Provider's reasonable judgment, are
inconsistent with the proper performance of its responsibilities, or that
require the exercise of discretion, including without limitation the making of
decisions regarding the hiring or firing of employees. The parties agree that it
is their intent that Provider not be deemed a fiduciary with respect to plans
subject to the Employee Retirement Income Securities Act of 1974, as amended.
1.4 Consents; Indemnification; Assets. If the provision of any of the
Services by Provider to Recipient would place Provider or any other subsidiary
of Provider in violation or breach of any contract or license between any such
entity and any third party, then Recipient and Provider shall use their
respective commercially reasonable efforts, with all costs thereof to be borne
by Recipient, to obtain forthwith any consent required for Provider to provide
such Services to Recipient, and Recipient shall indemnify and hold harmless
Provider against all Losses and Liabilities relating to any claims arising from
any such alleged violation or breach, such indemnification to be provided in a
like manner to the provision of indemnification under the Distribution
Agreement. If, after the exercise of such efforts, such consent cannot be
obtained, Provider shall use commercially reasonable efforts to provide
Recipient with functionally equivalent Services with any additional costs
required in providing such Services to be borne by Recipient. Recipient shall
indemnify and hold harmless Provider against all Losses and Liabilities which
arise from or in any way relate to (i) the use of any software or hardware
provided by Recipient or (ii) the use of any software or hardware in connection
with the performance of the Services hereunder provided to Recipient, such
indemnification to be provided in a like manner to the provision of
indemnification under the Distribution Agreement.
(a) The Service Fees (as defined herein) to be paid by
Recipient hereunder shall subsume all costs incurred by Provider in
connection with the performance of its obligations hereunder and in
respect of which separate payment or indemnification by Recipient is
not otherwise contemplated hereby, including, but not limited to,
personnel (including fringe benefits and management fees relating
thereto), computer hardware, computer time, printers, voice and data
telecommunications equipment, file cabinets, paper files,
administrative
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<PAGE> 5
records, photocopies, incidentals and all other assets owned by
Provider after the Distribution which are needed in connection with the
provision of such Services on a routine and non-routine basis and
during peak and non-peak periods; and any such equipment may be
replaced from time to time by Provider with functionally equivalent or
upgraded equipment.
(b) All data, software or other property or assets owned or
created by Recipient shall remain the sole and exclusive property and
responsibility (including, without limitation, with respect to
maintenance, modification and upgrade) of Recipient. Provider shall not
acquire any rights to any such data, software or other property or
assets, including any derivative works of Recipient-owned software or
data created by Provider, pursuant to this Agreement or Provider's
performance hereunder.
All data, software or other property or assets which are owned
by Provider, including without limitation derivative works thereof and
new data or software created by Provider at Provider's sole expense
pursuant to the provision of Services ("Provider Software") shall be
the sole and exclusive property and responsibility (including, without
limitation, with respect to maintenance, modification and upgrade) of
Provider and any interest of Recipient therein shall be limited to
licensed materials, if any. Recipient shall not acquire any other
rights to any such data, software or other property or assets pursuant
to this Agreement or Recipient's performance hereunder.
(c) If as a result of unanticipated events or conditions
Recipient reasonably determines that it requires modification of any of
the Services or software used in connection therewith upon Recipient's
request, Provider shall so modify the Services or software used in
connection therewith upon Recipient's request (i) to the extent
commercially reasonable, (ii) to the extent such modifications do not
adversely affect Provider's ability to maintain its computer systems in
connection with its continuing business, and (iii) at Recipient's sole
cost and expense subject to Recipient's approval of Provider's
estimate. Moreover, Provider may suggest modification of software and
may, in its sole discretion, offer to share in the cost thereof if it
determines that any such modifications may be beneficial to Provider.
Recipient shall have exclusive ownership rights to any software
modifications it pays for solely, and shared rights to such
modifications with respect to which, and only to the extent that, it
shares in the payment therefor.
(d) Provider shall provide all support and assistance
reasonably requested by Recipient at an arm's-length, negotiated price,
in connection with the transfer of any and all Services from Provider
to Recipient or any of its affiliates or an alternative third-party
service provider selected by Recipient. Specifically, during the term
of this Agreement, Provider shall deliver to Recipient (or as directed
by Recipient), at the Recipient's request and with minimal interruption
to the operations of Provider or its affiliates, all data and programs
owned by Recipient or licensed by Recipient from third party vendors,
and all backup or archival copies thereof (or any part thereof as
specified by Recipient), in hard copy, electronic, magnetic or any
other form which is then in Provider's possession or
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<PAGE> 6
control, as requested by Recipient, and (in the event that this
Agreement is terminated) copies of all material licensed by Recipient
from Provider (with reasonable instructions for the installation and
use thereof).
1.5 Systems Availability and Data Integrity. Provider shall maintain,
consistent with past practices, operational recovery procedures to ensure the
availability of systems and the integrity of data relating to the Services at
all times. In the event of the unavailability of any such systems or the loss or
destruction of any such data, Provider shall use commercially reasonable efforts
consistent with past practices to restore such systems and recover or replace
such data as quickly and completely as possible.
1.6 Systems Users. In each case as it relates to Recipient's employees,
consultants, affiliates or authorized customers during the term of this
Agreement the addition or deletion of authorized users ("Users"), including
persons authorized at the application level or system level, in regard to any
computer system, the modification of computer system authority or access granted
to any person, and the control generally of access to and use of computer
systems, is to be at the direction of Recipient, and Provider shall permit no
changes in such access or use without prior written notice to and consent from
Recipient. No User will be allowed system authority or access greater than the
application level without the prior written consent of Provider. Each party
shall indemnify and hold harmless the other against all degradations in
performance levels caused by users authorized for system level access on behalf
of, or at the request of, such first party, such indemnification to be provided
in a like manner to the provision of indemnification under the Distribution
Agreement.
ARTICLE II
PAYMENT FOR SERVICES
2.1 Costs. The prices charged for the Services shall initially be those
set forth on SCHEDULES A-1 AND A-2, which have been negotiated on an
arm's-length basis (the "Service Fees"). The Service Fees shall be adjusted on
an arm's-length basis every six months, except that the Service Fees for the
period from the Distribution Date through December 31, 1998 shall be as
indicated on SCHEDULES A-1 AND A-2 and Provider shall, not less than three
months before any proposed adjustment to Service Fees, provide Recipient with
details of any proposed adjustment and justification therefor. The Parties shall
negotiate in good faith to reach an agreement within 30 days. Recipient shall
not be charged a fee for any improvements or upgrades to facilities or equipment
without its prior written consent; provided, however, that Recipient
acknowledges and agrees that its failure to timely provide any such consent may
adversely affect its abilities to receive Services hereunder, and Provider shall
not be liable for any harm to Recipient resulting therefrom. Notwithstanding the
immediately preceding sentence, all maintenance fees relating to software used
in connection with the provision of Services hereunder shall be billed
separately from the Service Fees and shall be paid by Recipient together
therewith.
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2.2 Invoices; Payment Procedures.
(a) Not later than 30 days after the end of each calendar
month, Provider shall send Recipient an invoice that includes a
detailed breakdown of all Service Fees for such month. All invoices
shall be sent as follows:
from FAF to Landair Corporation: from Landair Corporation to FAF :
Landair Corporation Forward Air Corporation
Attention: Controller Attention: Controller
430 Airport Road 430 Airport Road
Greeneville, Tennessee 37745 Greeneville, Tennessee 37745
All payments of such invoices shall be made by wire transfer or interbank
transfer in immediately available funds to Provider's account at such banks as
Provider shall designate to Recipient in writing and shall be made within 15
days after the date of any invoice.
(b) Landair Corporation or one of its subsidiaries shall
establish and maintain an account ("Payroll Account") from which FAF or
one of its subsidiaries shall be authorized to draw in order to meet
Landair Corporation's or one of its subsidiaries' gross payroll
obligations, and Landair Corporation or one of its subsidiaries shall
ensure that such Payroll Account is sufficiently funded at all times.
Notwithstanding any other provision hereof,
(i) Landair Corporation or one of its subsidiaries
shall reimburse FAF or one of its subsidiaries for each
payroll paid by FAF or one of its subsidiaries to the
employees of Landair Corporation or one of its subsidiaries
for the period contemplated above, to the extent that FAF or
one of its subsidiaries elects to provide funds despite a
deficiency in the Payroll Account, and
(ii) Landair Corporation or one of its subsidiaries
shall provide each such reimbursement by wire transfer of
immediately available funds on the day of the issuance of that
payroll to such employees.
2.3 Disputed Fees. In the event that Recipient and Provider have
a good faith dispute with respect to the amount of payment for Services
actually rendered (other than with respect to the underlying schedule of fees
for Services generally), Recipient shall withhold payment only of any unpaid
amount in dispute, and shall deliver to Provider promptly (and within 15 days
following receipt of any invoice from Provider that is the basis of such
dispute) a written statement describing the dispute, which statement shall
provide a reasonably detailed breakdown of the disputed payment amounts. The
parties agree to use their best efforts to resolve any such dispute hereunder
within 15 days following Provider's receipt of Recipient's statement describing
the dispute. In the event the parties cannot resolve the dispute within such
time period, each discrepancy or disagreement which
5
<PAGE> 8
cannot be so resolved shall be submitted to a firm of nationally recognized
independent certified public accountants (agreed upon by Provider and
Recipient), who shall promptly deliver a report setting forth their calculation
of each item that was the subject of discrepancy or disagreement, which report
shall be final and binding on the parties. The fees and expenses of such firm
shall be borne one-half by Provider and one-half by Recipient, and each party
shall bear its own other expenses in connection therewith.
ARTICLE III
TERM; TERMINATION OF SERVICES
3.1 Term.
(a) Subject to Section 3.2 hereof, FAF or one of its
subsidiaries shall be obligated to provide the Services set forth on
SCHEDULE A-1 hereto, and Landair Corporation or one of its subsidiaries
shall be obligated to provide the Services set forth on SCHEDULE A-2
hereto until the earlier of (i) 18 months following the Distribution
Date or (ii) termination of all Services (as defined herein) pursuant
to Section 3.2 hereof; provided, however, that FAF or one of its
subsidiaries shall be obligated to provide the information technology
services described on SCHEDULE A-1 hereto until the third anniversary
of the Distribution Date, unless such Service is terminated by Landair
Corporation prior to such anniversary in accordance with Section 3.2
hereof.
(b) Notwithstanding anything to the contrary in this
Agreement, the provisions of Articles 5 and 6 and Sections 1.4 (solely
as relates to indemnification), 1.6 (solely as relates to
indemnification), 4.2, 7.6, 7.7, 7.8, 7.11, 7.12 and 7.13 shall survive
any termination of this Agreement or the provision of Services
hereunder.
3.2 Termination of Services. Any Recipient may at any time, upon
thirty days irrevocable written notice to Provider, terminate all the Services
or any Service (or any portion thereof) on a Service-by-Service basis. Any
Provider may, at any time after the first anniversary of the date hereof,
terminate any or all of the Services on three months irrevocable written notice
to Recipient; provided, however, Recipient shall be entitled to continue
receiving the information technology services set forth on Schedule A-1 hereto
through the third anniversary date in its sole discretion. The provision of all
Services pursuant hereto shall in any event terminate on or prior to the third
anniversary of the date hereof. Upon termination of any Service, all
administrative records relating to that Service as such records relate solely to
Recipient which have not already been transferred to the sole possession of
Recipient shall be so transferred, it being understood that Provider may retain
copies of such records.
6
<PAGE> 9
ARTICLE IV
COOPERATION
4.1 Cooperation. Each of the parties shall cooperate with and provide
assistance to the other consistent with the terms and conditions hereof
(including, without limitation, any limitations relating to software) to enable
(i) the full performance of all obligations hereunder, (ii) the review and audit
of books and administrative records as they relate to the provision of Services,
and (iii) Recipient, or any of its affiliates or third party service providers,
to assume the performance of any and all Services upon termination or prior
thereto; such cooperation and assistance to include without limitation providing
the other party, its representatives and its agents (including, without
limitation, its outside auditors) with reasonable access, during normal business
hours and upon reasonable advance notice, to its employees, representatives and
agents and its books, administrative records, offices and properties relating to
the Services. Nothing in this Section 4.1 shall operate to grant any right to
Recipient of Provider-owned software, data or other intellectual property.
4.2 Provider Administrative Records. Each party providing Services
hereunder shall keep administrative records regarding the provision of Services
for itself regarding such Services prior to the Distribution, and for each
Service shall retain such records for a period of twelve months following the
cessation of Provider's provision of that Service to the Recipient. Recipient,
its agents and representatives shall have reasonable access to such records
(which term is not to be construed to include Provider Software) during normal
business hours and upon reasonable advance notice from the date hereof through
the end of the period for retaining such records pursuant to this Section 4.2.
4.3 Periodic Review of Services. From time to time during the term of
this Agreement, but not less frequently than once each quarter, the parties
shall meet and discuss the nature, quality, and level of Services covered by
this Agreement, any concerns either party may have in regard to such matters,
and any amendments either party may wish to make to the Services specified on
SCHEDULE A-1 OR A-2 hereto.
ARTICLE V
FORCE MAJEURE
5.1 Force Majeure. Each party shall be relieved of its obligations
hereunder if and to the extent that any of the following events or conditions
directly or indirectly hinder, limit or make impracticable the performance by
that party of any of its obligations hereunder: Act of God, war, riot, fire,
earthquake, explosion, flood, sabotage, national defense requirement, strike,
lockout, job action, injunction, act or order of a governmental agency or
instrumentality thereof (whether of fact or law), act of a public enemy, embargo
or other concerted act of workers, telecommunications failures or electrical
failures; provided, that each party obligated to provide Services hereunder
shall continue to have in place at all times disaster recovery procedures
consistent with past practices to enable rapid recovery from any such event or
condition. Such procedures may be subject to revision by each party obligated to
provide Services hereunder from time to time as may be required in the
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<PAGE> 10
ordinary course of business, provided, that such revisions do not adversely
affect the levels of protection afforded by such procedures. Prior to being
relieved of any obligations hereunder, each party obligated to provide Services
hereunder shall have used commercially reasonable efforts (consistent with past
practice) to remove or otherwise address the effects of any such event or
condition as soon as practicable. Any Recipient hereunder shall be liable for
all costs incurred by the applicable Provider hereunder in connection with any
Service that such Provider fails to complete and provide as a result of any such
event or condition.
ARTICLE VI
CONFIDENTIALITY
6.1 Confidentiality. The parties acknowledge that in connection with
the provision of Services hereunder, each may gain access to confidential and
proprietary information regarding the other's financial and business affairs
(hereinafter "Confidential Information" or "Information"). Each party hereby
agrees to use commercially reasonable efforts to:
(a) confine its access to and examination of Confidential
Information to the minimum Information necessary to enable any Provider
hereunder to provide the Services hereunder and any Recipient hereunder
to operate its business;
(b) limit access to such Information only to those individuals
who reasonably need to receive such access to enable any Provider
hereunder to provide the Services hereunder and any Recipient hereunder
to operate its business;
(c) inform such individuals of the confidential nature of such
Information and take all reasonable steps to secure the compliance of
such individuals with the terms of this Article 6;
(d) use such Information solely to enable any Provider
hereunder to provide the Services hereunder and any Recipient hereunder
to operate its business;
(e) keep such Information confidential and not disclose it to
any third party in any manner except as may be required by law or court
order; and
(f) provide the other party with reasonable access to that
party's employees, representatives and agents and its books and
administrative records relating to the relevant business (including,
without limitation, any and all computer access reports and security
access reports) in order for the other party to monitor compliance with
this Article 6. Notwithstanding the foregoing, disclosures of
Information may be made to third parties:
8
<PAGE> 11
(i) with the prior written consent of the party whose
Information it is;
(ii) if the Information is in the public domain and has
entered the public domain through no fault of the
party seeking to make such disclosure or its
affiliates or representatives;
(iii) if the Information is lawfully acquired by the party
seeking to make such disclosure or its affiliates or
representatives from sources other than the party
whose Information it is or its affiliates or
representatives and the party seeking to make such
disclosure, its affiliates or its representatives is
not aware that such source was under any obligation
(whether contractual, legal or fiduciary) to the
party whose Information it is or any of its
affiliates or representatives to keep such
Information confidential; or
(iv) to the extent disclosure is compelled by law or court
order.
Each party shall be responsible for any breach of this Article 6 caused by
itself or any of its employees, agents or representatives. Anything contained
herein to the contrary notwithstanding, the parties acknowledge and agree that
irreparable damage would occur in the event that any provision of this Article 6
was not performed in accordance with its terms, and that the parties shall be
entitled to specific performance as the sole remedy.
ARTICLE VII
MISCELLANEOUS
7.1 Notices. All notices, requests, demands, consents, waivers and
other communications required or permitted to be given under this Agreement
(excluding invoices as described in Section 2.2 above) shall be in writing and
may be given by any of the following methods: (a) personal delivery; (b)
facsimile transmission; (c) registered or certified mail, postage prepaid,
return receipt requested; or (d) overnight delivery service. Notices shall be
sent to the appropriate party at its address or facsimile number given below (or
at such other address or facsimile number for such party or other person as
shall be specified by notice given hereunder):
If to Provider to: If to Recipient to:
Forward Air Corporation Landair Corporation
Attention: General Counsel Attention: General Counsel
430 Airport Road 430 Airport Road
P.O. Box 1058 P.O. Box 1058
Greeneville, Tennessee 37745 Greeneville, Tennessee 37745
Fax No.: (423) 636-7274 Fax No.: (423) 636-7274
9
<PAGE> 12
All such notices, requests, demands, waivers and communications shall
be deemed received upon actual receipt thereof by the addressee or actual
delivery thereof to the appropriate address.
7.2 Severability. Should any provision of this Agreement for any reason
be declared invalid or unenforceable, such declaration shall not affect the
validity or enforceability of any of the other provisions of this Agreement,
which other provisions shall remain in full force and effect. The application of
such invalid or unenforceable provision to persons or circumstances other than
those as to which it has been held invalid or unenforceable shall be valid and
enforced to the fullest extent permitted by law.
7.3 Binding Effect; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned, directly or indirectly, including, without limitation, by operation
of law, by any party hereto without the prior written consent of the other party
hereto; provided, (a) that either of the parties hereto may without such prior
written consent transfer or assign its rights hereunder to one or more of its
affiliates, but no such transfer arrangement shall release the transferring
party of its obligations hereunder and (b) that any Provider hereunder may
subcontract to any party so long as such Provider remains liable for the
performance of Services provided by any such subcontractor.
7.4 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties and their respective successors and permitted assigns,
and shall not be deemed to confer upon or give to any other party any remedy,
claim, liability, reimbursement, cause of action or other right.
7.5 Interpretation. The section headings contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement.
7.6 Jurisdiction and Consent to Service. In accordance with the laws of
the State of Tennessee, and without limiting the jurisdiction or venue of any
other court, the parties
(a) agree that any suit, action or proceeding arising out of
or relating to this Agreement (other than proceedings arising under
Section 2.3 above with respect to the amount of payment for Services)
shall be brought solely in the state or federal courts of Tennessee;
(b) consent to the exclusive jurisdiction of each such court
in any suit, action or proceeding relating to or arising out of this
Agreement;
10
<PAGE> 13
(c) waive any objection which any of them may have to the
laying of venue in any such suit, action or proceeding in any such
court; and
(d) agree that service of any court paper may be made in any
manner as may be provided under the applicable laws or court rules
governing service of process in such court.
7.7 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof, and supersedes all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof. Any conflicts between the
language herein and the language used in the Distribution Agreement shall be
resolved in favor of the language used herein.
7.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE (REGARDLESS OF THE LAWS
THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO MATTERS OF VALIDITY,
CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES.
7.9 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
7.10 Relationship of the Parties. In carrying out the provisions of
this Agreement, FAF and Landair Corporation are and shall be deemed to be for
all purposes, separate and independent entities. FAF and Landair Corporation
shall select their employees and agents, and such employees and agents shall be
under the exclusive and complete supervision and control of FAF or Landair
Corporation, as the case may be. It is the express intent of this Agreement that
the relationship of FAF to Landair Corporation and Landair Corporation to FAF
shall be solely that of separate and independent companies and not that of a
joint venture, partnership or any other joint relationship.
Neither party shall transact or commit the other party in any manner.
7.11 Waiver. Any failure by either party to comply with any obligation,
covenant or agreement herein or to fulfill any condition herein may be waived
only by a written notice from the party entitled to the benefits thereof. No
failure by either party hereto to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder preclude any other or future exercise of
that right or any other right hereunder by that party.
11
<PAGE> 14
7.12 Sole Remedy; No Damages. If either party becomes dissatisfied with
the quality or level of Services provided hereunder, claims any breach of this
Agreement by the other party or otherwise becomes dissatisfied with any matter
relating hereto or arising herefrom, its sole remedy shall be termination of all
or a part of the Services without right to seek actual, compensatory or
consequential damages. EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT IT IS
HEREBY WAIVING CERTAIN LEGAL RIGHTS AND REMEDIES, AND THAT THIS WAIVER IS A
FUNDAMENTAL ELEMENT OF THE BARGAIN BETWEEN THE PARTIES HERETO, WITHOUT WHICH
PROVIDER WOULD NOT HAVE ENTERED INTO THIS AGREEMENT. EACH PARTY HEREBY
ACKNOWLEDGES AND AGREES FURTHER THAT, NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED HEREIN, THE OTHER PARTY MAY, BUT SHALL IN NO EVENT BE OBLIGATED TO,
ADVANCE FUNDS OR INCUR COSTS IN CONNECTION WITH ITS PERFORMANCE HEREUNDER.
7.13 Indemnification. Each Recipient hereunder, at its own expense,
shall indemnify, defend and hold each Provider hereunder, its subsidiaries and
their present or former officers, directors, shareholders, agents, employees,
representatives, successors-in-interest, parents, affiliates, insurers,
attorneys and assigns (collectively, the "Indemnified Parties") harmless from
and against any claims, judgments, losses, deficiencies, damages, punitive or
exemplary damages, fines or penalties, liabilities, costs and expenses
(including reasonable attorneys' fees, charges and disbursements) whether
required to be paid to a third party or otherwise incurred in connection with or
arising from any claim, suit, action or proceeding ("Claim") against the
Indemnified Party to the extent the basis of such Claim is that: (a) such
Recipient has failed to pay any amounts owed to third parties in connection with
the Services provided by such Provider under this Agreement; (b) a third party
has been or may be injured or damaged in any way by any breach of such Recipient
of any of its duties, representations or warranties under this Agreement; (c)
such Recipient or any of its employees, agents, or servants acted improperly in
connection with the notification, investigation, adjustment or settlement of
claims and losses arising out of the Services described on SCHEDULES A-1 OR A-2
hereto, and (d) there is no other liability or obligation arising out of such
Provider's administration or operation of the Services or functions described on
SCHEDULES A-1 OR A-2 hereto, except to the extent that same arises from the
gross negligence or willful misconduct of such Provider.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
executed by its duly authorized representative as of the day and year first
above written.
FORWARD AIR CORPORATION
f/k/a Landair Services, Inc., on behalf of itself
and its wholly owned subsidiaries
By:
-----------------------------------------------
Its:
-----------------------------------------------
LANDAIR CORPORATION, on behalf of itself and
its wholly owned subsidiaries
By:
-----------------------------------------------
Its:
-----------------------------------------------
13
<PAGE> 16
SCHEDULE A-1
SERVICES PROVIDED BY FAF TO LANDAIR CORPORATION
FAF will provide, or cause to be provided, the following Services to
Landair Corporation or its subsidiaries:
<TABLE>
<CAPTION>
SERVICE COST
<S> <C> <C>
I Accounts payable...................................................... To be charged on a per check processed basis
II Payroll............................................................... To be charged based on the number of employees
III Human resources services and benefit
plan administration................................................... To be charged based on the number of employees
IV Settlement services.................................................... To be charged based on the number of owner-
operators
V Central purchasing services............................................ Items ordered from Central Purchasing to be charged
based on cost plus reasonable mark-up on such costs
VI Accounting and legal services.......................................... To be charged cost of such services prorated 50% to
Landair Corporation and 50% to FAF.
VII General administrative services
(Chairman's salary and support staff,
mail room functions, receptionists,
corporate office maintenance staff, etc.).............................. To be charged cost of such services prorated 50%
to Landair Corporation and 50% to FAF.
VIII Information technology services,
including providing general computing
services. This will include the following:
(a) maintaining connection to the two
FAF Local Area Networks;
(b) maintaining e-mail connection;
(c) [AS 400]; (d) maintain and support
FAF computer applications and provide
Landair Corporation personnel with
access to same......................................................... To be charged cost of such services prorated 50%
to Landair Corporation and 50%
to FAF.
</TABLE>
In connection with the information technology services described above,
such services will be reviewed and adjusted by FAF and Landair Corporation every
six months as needed. Access to FAF's applications and data provided to Landair
Corporation's personnel will be reviewed and approved by the FAF security
administrator.
<PAGE> 17
SCHEDULE A-2
SERVICES PROVIDED BY LANDAIR CORPORATION TO FAF
Landair Corporation will provide, or cause to be provided, the
following Services to FAF or its subsidiaries:
<TABLE>
<CAPTION>
SERVICE COST
<S> <C> <C>
I Safety services............................................................ To be charged based on the number of trucks
II Licensing/permitting/fuel tax.............................................. To be charged based upon number of trucks
III Insurance/claims services (including
maintaining relationships with brokers,
coordination of claims processing and
allocation between parties and assistance
with reserve computations)................................................. To be charged as follows: (i) 50% of the costs of
such services shall be allocated 50%/50% to each of
Landair Corporation and FAF and (ii) 50% of the
costs of such services shall be allocated based on
the number of claims processed.
IV Recruiting/retention services.............................................. To be charged based on the number of drivers hired
V Training center services................................................... To be charged based upon the number of drivers
completing the training and orientation program in
Columbus
</TABLE>
<PAGE> 1
EXHIBIT 10.2
EMPLOYEE BENEFIT MATTERS AGREEMENT
THIS EMPLOYEE BENEFIT MATTERS AGREEMENT (this "Agreement") is made as
of this ____ day of _____________, 1998 by and between FORWARD AIR CORPORATION,
a Tennessee corporation f/k/a Landair Services, Inc. ("FAF"), and LANDAIR
CORPORATION, a Tennessee corporation ("LAC").
RECITALS
WHEREAS, FAF is the holder of all of the issued and outstanding shares
of common stock, $.01 par value per share, of LAC (the "LAC Common Stock");
WHEREAS, the employees of LAC and its Subsidiaries are covered by
various employee benefit plans sponsored by FAF which are limited to employees
of FAF and its Subsidiaries;
WHEREAS, the Board of Directors of FAF has determined that it is
advisable and in the best interests of FAF, its shareholders and LAC to
distribute (the "Distribution") all of the outstanding shares of LAC Common
Stock on a pro rata basis to the holders of the common stock, $.01 par value per
share, of FAF (the "FAF Common Stock"), so that after such Distribution, LAC
will be an independent public company; and
WHEREAS, FAF and LAC have agreed to enter into this Agreement to
provide for the allocation of certain assets and liabilities and certain other
matters relating to employees, employee benefit plans and compensation
arrangements;
NOW THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth and other good and valuable consideration, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used but not otherwise defined herein shall have the
meanings set forth in the Distribution Agreement. As used in this Agreement, the
following terms shall have the following meanings, such meanings to be equally
applicable to both the singular and plural forms of the terms defined:
CURRENT PLAN YEAR - The plan year or fiscal year, to the extent
applicable with respect to any Plan, during which the Distribution occurs.
CUT-OFF DATE - The date immediately preceding the Distribution Date.
DISTRIBUTION AGREEMENT - The Distribution Agreement entered into
between FAF and LAC dated the same date as this Agreement and governing the
terms and conditions of the Distribution.
<PAGE> 2
ERISA - The Employee Retirement Income Security Act of 1974, as
amended, or any successor legislation thereto, and the rules and regulations
thereunder.
FAF EMPLOYEE - Any person employed by FAF or a Subsidiary of FAF
immediately prior to the Distribution (including, without limitation, those who
are actively employed or on lay-off, leave, short-term or long-term disability
or other permitted absence from employment) who is not an LAC Employee.
FAF OPTION - An option to purchase shares of FAF Common Stock granted
pursuant to the Amended and Restated Stock Option and Incentive Plan of FAF,
the Non-Employee Director Option Plan of FAF or the Non-Employee Director Award
of FAF.
LAC EMPLOYEE - Any person employed by LAC or a Subsidiary of LAC
immediately prior to the Distribution (including, without limitation, those who
are actively employed or on lay-off, leave, short-term or long-term disability
or other permitted absence from employment), and any person who is employed by
FAF or any of its Subsidiaries (other than by LAC or a Subsidiary of LAC)
immediately prior to the Distribution and who is identified on the attached
SCHEDULE 1 hereto.
LAC INDIVIDUALS - Any individual who (a) is an LAC Employee, or (b) is
a beneficiary of any individual specified in clause (a).
LAC PARTICIPANT - LAC Employees and their respective beneficiaries.
PLAN - Any plan, policy, arrangement, contract or agreement providing
compensation benefits for any group of Employees or former employees, or any
individual Employee or former employee, or the dependents or beneficiaries of
any such Employee or former employee, whether formal or informal or written or
unwritten, and including, without limitation, any means, whether or not
required, pursuant to which any benefit is provided by an employer to any
Employee or former employee or the beneficiaries of any such Employee or former
employee. The term "Plan" as used in this Agreement does not include any
contract, agreement or understanding entered into by FAF prior to the
Distribution Date or by FAF or LAC after the Distribution Date relating to
settlement of actual or potential employee related litigation claims.
SERVICE CREDIT - The period taken into account under any Plan for
purposes of determining length of service to satisfy eligibility, vesting,
benefit accrual and similar requirements under such Plan.
SUBSIDIARY - A corporation that is a member of a controlled group of
corporations, within the meaning of Internal Revenue Code Section 1563, with FAF
or with LAC, except that LAC and its Subsidiaries shall not be treated as
Subsidiaries of FAF.
2
<PAGE> 3
TERMINEES - Any individual formerly employed by FAF or any Subsidiary
of FAF who terminated such employment prior to the Distribution Date, including
but not limited to any FAF employee who has retired prior to the Distribution
Date.
WELFARE PLAN - An employee welfare benefit plan as defined in Section
3(1) of ERISA, including, without limitation, medical, vision, dental and other
health plans, retiree health plans, life insurance plans, retiree life insurance
plans, accidental death and dismemberment plans, long-term disability plans and
severance pay plans.
ARTICLE II
SEPARATION OF BENEFIT PLANS
2.1 EMPLOYMENT OF LAC EMPLOYEES. LAC shall employ or continue to
employ, effective as of the Distribution Date, all LAC Employees. Subject to the
terms and conditions of, except as otherwise provided in, this Agreement,
effective as of the Distribution Date, LAC shall provide LAC Employees with
terms and conditions of employment, including without limitation, employee
benefits and other perquisites, that are substantially similar to those provided
to LAC Employees immediately prior to the Distribution Date. However, nothing
contained in this Agreement shall impair LAC's ability to make such reasonable
changes in such terms and conditions of employment following the Distribution as
LAC may deem to be necessary or appropriate for the operation of LAC.
2.2 SEPARATE RESPONSIBILITIES. FAF and LAC agree that FAF shall have
sole responsibility for its employee benefit plans, arrangements and policies
for employees of FAF and its Subsidiaries and that LAC shall have sole
responsibility for its employee benefit plans, arrangements and policies for LAC
Employees. FAF and LAC intend that, to the extent possible, LAC Employees shall
look solely to LAC and its Plans, arrangements and policies for the provision of
employee benefits, and that employees of FAF and its Subsidiaries shall look
solely to FAF and its Plans, arrangements and policies for the provision of
employee benefits.
ARTICLE III
RETIREMENT SAVINGS PLANS
3.1 FAF RETIREMENT SAVINGS PLAN.
(a) Effective as of the Distribution Date, FAF shall continue
sponsorship of the FAF Retirement Savings and Investment Plan (the "FAF 401(k)
Plan") for all FAF Employees and Terminees.
(b) On or before the Distribution, LAC shall take, or cause to be
taken, all action necessary and appropriate to establish and administer a new
plan named the Landair Corporation Retirement Savings and Investment Plan (the
"LAC 401(k) Plan") and to provide benefits thereunder after the date of the
establishment of such plan for all participants in or otherwise entitled to
benefits
3
<PAGE> 4
under the FAF 401(k) Plan. The LAC 401(k) Plan shall provide for the same
employer contribution formula for LAC Employees as the FAF 401(k) Plan provides
as of the Distribution Date. The LAC 401(k) Plan shall be intended to qualify
for tax-favored treatment under Sections 401(a) and 401(k) of the Code and to be
in compliance with the requirements of ERISA.
(c) As soon as practicable after the date of the establishment of LAC
401(k) Plan, FAF shall cause the trustees of the FAF 401(k) Plan to transfer to
the trustee or other funding agent of the LAC 401(k) Plan the amounts (in cash,
securities, other property or a combination thereof) representing the account
balances of all LAC Individuals, said amounts to be established as account
balances or accrued benefits of such individuals under the LAC 401(k) Plan. Each
such transfer shall comply with Section 414(l) of the Code and the requirements
of ERISA and the regulations promulgated thereunder. LAC agrees to cause the
trustees or other funding agent of the LAC 401(k) Plan to accept the
plan-to-plan transfer from the FAF 401(k) Plan trustees, and to credit the
accounts of such LAC Individuals under the LAC 401(k) Plan with amounts
transferred on their behalf. Notwithstanding the foregoing, FAF and LAC agree
that if, subsequent to such transfer of account balances to the LAC 401(k) Plan,
a subsequent audit or other review establishes that additional funds should be
transferred to the LAC 401(k) Plan from the FAF 401(k) Plan, or that funds
should be returned from the LAC 401(k) Plan to the FAF 401(k) Plan, both parties
shall take all appropriate steps to effectuate the required transfer between the
trusts maintained for such plans.
(d) FAF shall provide LAC, as soon as practicable after the date of the
establishment of the LAC 401(k) Plan (with the cooperation of LAC to the extent
that relevant information is in the possession of LAC or an LAC Subsidiary) with
a list of LAC Individuals who, to the best knowledge of FAF, were participants
in or otherwise entitled to benefits under the FAF 401(k) Plan on the Cut-off
Date, together with a listing of each participant's Service Credits under such
FAF 401(k) Plan and a listing of each account balance thereunder. FAF shall, as
soon as practicable after the Distribution Date and in accordance with SECTION
7.1 hereof, provide LAC with such additional information in the possession of
FAF or any of its Subsidiaries (and not already in the possession of LAC or any
of its Subsidiaries) as may be reasonably requested by LAC and necessary for LAC
or any of its Subsidiaries to establish and administer the LAC 401(k) Plan
effectively.
(e) LAC and FAF shall, in connection with the plan-to-plan transfer
described in this SECTION 3.1, cooperate in making any and all appropriate
filings required by the Commission or the IRS, or required under the Code or
ERISA or any applicable securities laws and the regulations thereunder, and take
all such action as may be necessary and appropriate to cause such plan-to-plan
transfer to take place as soon as practicable after the date of the
establishment of the LAC 401(k) Plan or otherwise when required by law. Further,
LAC shall seek a favorable IRS determination letter that the LAC 401(k) Plan, as
organized, satisfies all qualification requirements under Section 401(a) of the
Code, and the transfers described in SECTION 3.1(C) shall take place as soon as
practicable after the receipt of such favorable IRS determination letter.
Notwithstanding the foregoing, such transfers may take place pending issuance of
such favorable determination letter, upon receipt of an opinion of counsel for
LAC reasonably satisfactory to FAF that the aforesaid Plan so qualifies, or that
it can be made to so qualify by retroactive amendment, and that any such
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retroactive amendment shall not decrease the accrued benefit of any participant
in such Plan. FAF agrees to provide to LAC's counsel such information in the
possession of FAF or any of its Subsidiaries as may reasonably be requested by
LAC's counsel in connection with the issuance of such opinion. FAF and LAC shall
each make any necessary amendments on a retroactive basis to the FAF 401(k)
Plan, or the LAC 401(k) Plan, respectively, as required by the IRS to issue the
favorable determination letter described above.
ARTICLE IV
EMPLOYEE STOCK PURCHASE PLANS
4.1 EMPLOYEE STOCK PURCHASE PLANS.
(a) After the date of June 30, 1998, FAF shall suspend all regular
payroll deductions from the compensation of Participants (as defined in the LSI
Stock Purchase Plan) under the FAF Stock Purchase Plan until such time as the
Distribution is consummated. After consummation of the Distribution, FAF may, at
its option, resume such deductions under the FAF Stock Purchase Plan with
respect to FAF Employees.
(b) Effective as of the Distribution Date, LAC shall take, or cause to
be taken, all action necessary and appropriate to establish and administer a new
stock purchase plan named the Landair Corporation Employee Stock Purchase Plan,
which plan shall be substantially similar to the FAF Stock Purchase Plan and
shall provide benefits thereunder after the Distribution Date for all eligible
LAC Employees.
ARTICLE V
STOCK OPTION PLANS
5.1 INCENTIVE AND NON-QUALIFIED OPTIONS. FAF and LAC shall cooperate
and take all action necessary to amend, if necessary, or otherwise provide for
adjustments of outstanding awards under the FAF Stock Option and Incentive Plan,
the FAF Non-Employee Director Option Plan and the FAF Non-Employee Director
Award, and to adopt the LAC Stock Option and Incentive Plan and the LAC
Non-Employee Director Option Plan, so that each LAC Individual and each
non-employee director of FAF who will be a non-employee director of LAC and not
of FAF after the Distribution shall exercise or forfeit all exercisable FAF
Options held by such LAC Individual or director prior to the Distribution.
(a) Effective immediately after the Distribution Date, the
number of shares of FAF Common Stock subject to, and the exercise price
of, each FAF Option which immediately prior to the Record Date is
outstanding and not exercised and is held by an FAF Individual shall be
adjusted by FAF so that the number of shares of FAF Common Stock
subject to such FAF Option shall be multiplied by the FAF Conversion
Ratio and the
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exercise price of such FAF Option shall be divided by the FAF
Conversion Ratio. The "FAF Conversion Ratio" shall be equal to the
amount obtained by dividing (i) the average of the daily closing sales
prices for a share of FAF Common Stock on the NASDAQ-NMS for the five
trading days prior to the record date for the Distribution by (ii) the
average of the daily closing sales prices for a share of FAF Common
Stock on the NASDAQ-NMS for the five trading days immediately following
the Distribution Date.
(b) As of the Distribution Date, each FAF Option which
immediately prior to the Distribution Date is outstanding and not then
exercisable and is held by an LAC Individual (a "Converted Option")
shall, without any action on the part of the holder thereof, be
converted (the "Option Conversion") into an option to purchase shares
of LAC Common Stock. As a result of the Option Conversion, each
Converted Option shall provide for the purchase of a number of shares
of LAC Common Stock equal to the number of shares of FAF Common Stock
subject to the Converted Option prior to the Option Conversion
multiplied by the LAC Conversion Ratio. In addition, the per share
exercise price of such Converted Option as a result of the Option
Conversion shall be equal to the per share exercise price of the
Converted Option prior to the Option Conversion divided by the LAC
Conversion Ratio. The "LAC Conversion Ratio" shall be equal to the
amount obtained by dividing (i) the average of the daily closing sales
prices for a share of FAF Common Stock on the NASDAQ-NMS for the five
trading days prior to the record date for the Distribution by (ii) the
average of the daily closing sales prices for a share of LAC Common
Stock on the NASDAQ-NMS for the five trading days immediately following
the Distribution Date.
ARTICLE VI
WELFARE BENEFIT PLANS AND OTHER MATTERS
6.1 WELFARE PLANS. As of the Distribution, LAC will have established,
and will cover LAC Participants under, Welfare Plans and other employee welfare
benefit and fringe benefit arrangements (collectively, "LAC Welfare Plans") that
are substantially similar in all material respects to the Welfare Plans and
other employee welfare benefit and fringe benefit arrangements maintained by FAF
and its Subsidiaries (including members of the FAF Group) immediately prior to
the Distribution for the benefit of LAC Participants ("FAF Welfare Plans"). The
LAC Welfare Plans will be maintained in such form for a period of at least one
year following the Distribution.
(a) The LAC Welfare Plans will provide for the immediate participation
of those LAC Participants who participated in the FAF Welfare Plans immediately
prior to the Distribution. The LAC Welfare Plans will credit each LAC
Participant for all LAC Welfare Plan purposes with all service and any other
item which had been credited to or otherwise accumulated for the benefit of such
LAC Participant under the FAF Welfare Benefit Plans immediately prior to the
Distribution. The transition from the FAF Welfare Plans to the LAC Welfare Plans
will not, in and of itself, adversely affect the LAC Participants. Without
limiting the generality of the foregoing, each LAC Welfare Plan, to the extent
applicable: (i) will recognize all amounts applied to deductibles,
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co-payments, out-of-pocket maximums and lifetime maximum benefits with respect
to LAC Participants under the corresponding FAF Welfare Plan for the plan year
that includes the Distribution and for prior periods (if applicable); (ii) will
recognize all service credited to waiting periods with respect to LAC
Participants under the corresponding FAF Welfare Plan; (iii) will not impose
any limitations on coverage of pre-existing conditions of LAC Participants
except to the extent such limitations applied to such LAC Participants under the
corresponding FAF Welfare Plan immediately before such LAC Welfare Plan became
effective; and (iv) will not impose any other conditions (such as proof of good
health, evidence of insurability or a requirement of a physical examination)
upon the participation by LAC Participants who were participating in the
corresponding FAF Welfare Plan immediately before such LAC Welfare Plan became
effective.
(b) LAC and the LAC Subsidiaries will credit each LAC Employee with the
unused vacation days and personal and sickness days accrued in accordance with
the vacation and personnel policies and labor agreements of FAF and its
Subsidiaries (including members of the LAC Group) applicable to such employees
in effect immediately prior to the Distribution.
(c) From and after the Distribution, except as specifically set forth
in this Agreement, LAC and the LAC Subsidiaries will assume or retrain, as the
case may be, and will be solely responsible for and will fully perform, pay and
discharge, all Liabilities in respect of LAC Participants (and claims by or
relating to LAC Participants) with respect to employee welfare and fringe
benefits (including, without limitation, medical, dental, life, travel,
accident, short-term and long-term disability, hospitalization, workers'
compensation and other insurance benefits), whether under the FAF Welfare Plans,
the LAC Welfare Plans or otherwise, whether incurred before, at or after the
Distribution and whether any claim is made with respect thereto before, at or
after the Distribution. Without limiting the generality of the foregoing, from
and after the Distribution, LAC and the LAC Subsidiaries (or where appropriate,
the LAC Welfare Plans) will assume all Liabilities in respect of LAC
Participants with respect to retiree health benefits and retiree life insurance
benefits, whether under the FAF Welfare Plans, the LAC Welfare Plans or
otherwise, whether incurred before, at or after the Distribution and whether any
claim is made with respect thereto before, at or after the Distribution.
(d) LAC and FAF will cooperate in making all appropriate filings
required by law, implementing all appropriate communications with participants,
exchanging and sharing appropriate records and taking such other actions as may
be necessary or appropriate to implement the provisions of this SECTION 6.1.
6.2 SEVERANCE PAY.
(a) FAF and LAC acknowledge and agree that the transactions
contemplated by the Distribution Agreement, this Agreement, any other Agreement
or any agreement relating to the transactions contemplated by the Distribution
will not constitute a severance of employment of any LAC Employee prior to or as
a result of the transactions contemplated thereby, and that individuals who, in
connection with the Distribution, cease to be FAF Employees and, pursuant to
this
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Agreement, become LAC Employees will not be deemed to have experienced a
termination, layoff or severance of employment from FAF and its Subsidiaries, in
each case for purposes of any policy, plan, program or agreement of FAF or any
of its Subsidiaries (including members of the LAC Group) that provides for the
payment of severance, salary continuation or similar benefits.
(b) LAC and the LAC Subsidiaries will assume and be solely responsible
for, and will fully perform, pay and discharge, all Liabilities in connection
with claims by or on behalf of LAC Participants in respect of severance pay,
salary continuation and similar obligations relating to the termination or
alleged termination (whether voluntary or involuntary) of any such person's
employment, whether such termination or alleged termination occurred before, at
or after the Distribution and whether any claim is made with respect thereto
before, at or after the Distribution (whether or not such claim is based on any
severance policy, agreement, arrangement or program which may exist or arise
under any contract, employment agreement or collective bargaining agreement or
under any federal, state, local, provincial or foreign law).
ARTICLE VII
MISCELLANEOUS
7.1 ACCESS TO INFORMATION, COOPERATION. FAF and LAC and their
authorized agents will be given reasonable access to and may take copies of all
information relating to the subjects of this Agreement (to the extent permitted
by federal and state confidentiality laws) in the custody of the other party,
including any agent, contractor, subcontractor, agent or any other person or
entity under the contract of such party. The parties will provide one another
with such information necessary to administer each party's Plans. The parties
will cooperate with each other to minimize the disruption caused by any such
access and providing of information.
7.2 RIGHTS OF EMPLOYEES. This Agreement is not intended to give any
individual employee or former employee of FAF or LAC or any of their
Subsidiaries any personal right or interest. No employee, shall have any right
under this Agreement to maintain employment with FAF, LAC or any Subsidiary,
become employed by FAF, LAC or any Subsidiary or accrue any benefit with respect
to employment. No employee, former employee, beneficiary or dependent shall have
any right to be designated as an LAC Employee or to be retained as the
responsibility of FAF.
7.3 ENTIRE AGREEMENT. This Agreement, together with the Distribution
Agreement, embodies the entire Agreement and understanding of the parties with
respect to the matters provided for herein and shall supersede any and all prior
agreements, arrangements and understanding relating to such matters. No
amendment, waiver of compliance with any provision or condition hereof or
consent pursuant to this Agreement shall be effective unless evidenced by an
instrument in writing signed by the parties.
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7.4 GOVERNING LAW. The interpretation and performance of this Agreement
shall be governed by the laws of the State of Tennessee without regard for the
choice of law provisions thereof.
7.5 NOTICES. All notices or other communications required or permitted
under this Agreement shall be delivered by hand, mailed by certified or
registered mail, postage prepaid and return receipt requested, or sent by cable,
telegram, telex or telecopy (confirmed by regular, first-class mail), to the
parties at the following addresses (or at such other addresses for a party as
shall be specified by like notice) and shall be deemed given on the date on
which such notice is received:
In the case of FAF, to In the case of LAC, to
Forward Air Corporation Landair Corporation
430 Airport Road 430 Airport Road
Greeneville, Tennessee 37745 Greeneville, Tennessee 37745
Attention: General Counsel Attention: General Counsel
7.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
7.7 TERMINATION. This Agreement shall be terminated if the Distribution
Agreement is terminated or if the Distribution fails to occur. If the Agreement
terminates under this Section 7.7, no party shall have any liability to any
person under this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all on the day and year first
above written.
FORWARD AIR CORPORATION
f/k/a Landair Services, Inc.
By:
---------------------------------
Title:
------------------------------
LANDAIR CORPORATION
By:
---------------------------------
Title:
------------------------------
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<PAGE> 1
EXHIBIT 10.3
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (this "Agreement") is made as of __________,
1998 by and between FORWARD AIR CORPORATION, a Tennessee corporation f/k/a
Landair Services, Inc. ("FAF"), and LANDAIR CORPORATION, a Tennessee corporation
("LAC").
WHEREAS, FAF and LAC have entered into a Distribution Agreement dated
as of the date hereof (the "Distribution Agreement");
WHEREAS, pursuant to the Distribution Agreement all the issued and
outstanding common stock of LAC will be distributed by FAF (pro rata) to the
holders of FAF's common stock (the "Distribution"); and
WHEREAS, the parties hereto desire to provide for the payment of tax
liabilities and entitlement to tax refunds for the taxable periods ending
before, on or after the date of the Distribution, to allocate responsibility and
provide for cooperation in the preparation and filing of tax returns with
respect to such taxable periods, and to provide for certain other related
matters.
NOW, THEREFORE, FAF, on behalf of itself and the FAF Group (as
hereinafter defined), and LAC, on behalf of itself and the LAC Group (as
hereinafter defined), in consideration of the mutual covenants contained herein,
agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and the
plural forms of the terms defined):
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor thereto and the regulations promulgated thereunder.
"DISTRIBUTION DATE" means the date of the Distribution. For all
purposes of this Agreement, the Distribution shall be deemed effective as of the
close of business on the Distribution Date.
"ESTIMATED TAX OR TAXES" means the periodic (quarterly or monthly)
payment of income or franchise taxes (federal, state or local) required to be
made for 1998 including any payment required to be made with an extension to
file any Tax Return.
"FAF BUSINESSES" means the present, former and future subsidiaries,
divisions and businesses of any member of the FAF Group, other than the LAC
Businesses.
"FAF GROUP" means FAF and its present and future subsidiaries, other
than members of the LAC Group.
<PAGE> 2
"FINAL DETERMINATION" shall mean the final resolution of liability for
any Tax for a taxable period, (i) by IRS Form 870-AD (or any successor forms
thereto), on the date of acceptance by or on behalf of the IRS, or by a
comparable form under the laws of other jurisdictions; except that a Form 870-AD
or comparable form that reserves (whether by its terms or by operation of law)
the right of the taxpayer to file a claim for refund and/or the right of the
taxing authority to assert a further deficiency shall not constitute a Final
Determination with respect to the subject matter reserved; (ii) by a decision,
judgment, decree, or other order by a court of competent jurisdiction, which has
become final and unappealable; (iii) by closing agreement or accepted offer in
compromise under Section 7121 or 7122 of the Code, or comparable agreements
under the laws of other jurisdictions; (iv) by any allowance of a refund or
credit in respect of an overpayment of Tax, but only after the expiration of all
periods during which such refund may be recovered (including by way of offset)
by the Tax-imposing jurisdiction; or (v) by any other final disposition,
including by reason of the expiration of the applicable statute of limitations
or by mutual agreement of the parties.
"IRS" means the Internal Revenue Service.
"LAC BUSINESSES" means the present, former and future subsidiaries,
divisions and businesses of any member of the LAC Group which are not, or are
not contemplated by the Distribution Agreement to be, part of the FAF Group
immediately after the Distribution.
"LAC GROUP" means LAC and all former, present and future subsidiaries
of LAC and shall include any business, division or subsidiary which carried on a
LAC Business on or before the Distribution Date.
"RESTRUCTURING TAXES" means any Taxes resulting from or related to the
Distribution, including, without limitation, any Taxes imposed pursuant to or as
a result of Code Section 311.
"TAX" means any of the Taxes.
"TAXES" means all forms of taxation, whenever created or imposed, and
whether of the United States of America or elsewhere, and whether imposed by a
local, municipal, governmental, state, federation or other body, and without
limiting the generality of the foregoing, shall include income, alternative
minimum, superfund, sales, use, ad valorem, gross receipts, value added,
franchise, transfer, recording, withholding, payroll, employment, excise,
occupation, premium or property taxes, together with any related interest,
penalties and additions to tax, or additional amounts imposed by any taxing or
other governmental authority (domestic or foreign) upon the LAC Group, the FAF
Group or any of their respective members or subsidiaries or divisions or
branches or any combination thereof.
"TAX ATTRIBUTE" shall mean any net operating loss, capital loss, or tax
credit allowed by the Internal Revenue Code or equivalent state statute or local
ordinance; including without limitation, alternative minimum tax credits,
foreign tax credits and general business tax credits.
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"TAX BENEFIT" means the amount of the decrease in the liability for
Taxes resulting from any increase or decrease in any item, including, but not
limited to, any item of income or deduction, gain or loss or tax credit.
"TAX DETRIMENT" means the amount of the increase in the liability for
Taxes resulting from any increase or decrease in any item, including, but not
limited to, any item of income or deduction, gain or loss, or tax credit.
"TAX RETURN" means any return, filing, questionnaire or other document
filed or required to be filed, including amended returns that may be filed, for
any period with any taxing or governmental authority (whether domestic or
foreign) in connection with any Tax or Taxes (whether or not a payment is
required to be made with respect to such filing).
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
2.1 MANNER OF PREPARATION; ELECTIONS. All Tax Returns filed after the
Distribution Date shall be prepared on a basis which does not have an adverse
effect on the elections, accounting methods, conventions, closing agreements and
principles of taxation used in any Tax Return filed for any taxable period
ending on or before the Distribution Date, and shall be filed on a timely basis
by the party responsible for such filing under this Agreement. Subject to the
provisions of this Agreement, all decisions relating to the preparation and
filing of Tax Returns and any audit or other review of such Tax Returns shall be
made in the sole discretion of the party responsible under this Agreement for
such filing. Anything herein to the contrary notwithstanding, without the prior
written consent of FAF, which consent shall not be unreasonably withheld, no
member of the LAC Group shall carry back to any taxable period beginning before
the Distribution Date any Tax Attribute arising in any taxable period beginning
on or after the Distribution Date. To the extent any such carryback is not so
consented to by FAF, then FAF shall be entitled to retain for itself any refund
or other benefit obtained from such carryback filed by LAC. LAC shall promptly
reimburse FAF for the amount, if any, by which any Tax Detriment incurred by the
FAF Group or any member thereof as a result of such carryback exceeds the Tax
Benefit(s) to the FAF Group or any member thereof as a result of such carryback,
upon receipt of documentation detailing such Tax Detriment(s) within fifteen
(15) days of receipt of documentation, after which any unpaid amount will accrue
interest at the rate for income tax deficiencies specified in Section 3.1. All
Tax Attributes of the FAF Group and LAC Group will be allocated among the FAF
Group and LAC Group in accordance with the regulations promulgated pursuant to
Section 1502 of the Code (the "Consolidated Return Regulations") and, to the
extent applicable, other provisions of the Code and the regulations promulgated
thereunder (and analogous provisions of state, local or foreign law).
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2.2 PREPARATION AND FILING OF AND ELECTIONS WITH RESPECT TO
PRE-DISTRIBUTION TAX RETURNS.
(a) Consolidated Federal Income Tax Returns. All consolidated federal
income Tax Returns which include a member of the FAF Group and the LAC Group
that are required to be filed for periods beginning before the Distribution Date
shall be prepared and filed by FAF. LAC shall, for each of such aforesaid
taxable periods for which it or any member of the LAC Group is includible in the
consolidated federal income Tax Return of the FAF Group, provide FAF with a
true, complete, and correct (i) separate federal income Tax Returns for LAC and
each member of the LAC Group together with accompanying computations of the
separate federal income Tax liabilities of LAC and each member of the LAC Group
and (ii) a reconciliation of book income to federal taxable income for LAC and
each member of the LAC Group. LAC shall use its best efforts to provide FAF with
such Returns and computations on or before the first day of the sixth month
following the end of the period to which such Returns and computations relate,
but in any event LAC shall provide such Returns and computations no later than
the fifteenth day of the sixth month following the end of the period to which
such Returns and computations relate. FAF shall notify LAC of the intended
filing date of its then due consolidated federal income Tax Return and LAC shall
pay FAF at least seven (7) days prior to such filing date the amount of total
federal income Tax liability, including without limitation, any alternative
minimum tax liability, shown on the above-referenced deemed consolidated federal
income Tax Returns for the members of the LAC Group includible in FAF's
consolidated federal income Tax Return, reduced by all Estimated Tax payments
theretofore made by LAC or any LAC Group member to FAF on account of such Tax
liability, or if such Estimated Tax payments in the aggregate exceed the federal
income Tax liability of LAC and each member of the LAC Group, FAF shall pay such
excess to LAC within thirty (30) days of the filing by FAF of the consolidated
federal income Tax Return with respect to which such overpayment relates.
Anything herein to the contrary notwithstanding, LAC for itself and each member
of the LAC Group shall calculate and shall remit to FAF at least seven (7) days
prior to the due date of each FAF Estimated Tax payment for 1998 the Estimated
Tax liability, attributable to LAC and each member of the LAC Group on a
consolidated basis for the short period beginning on January 1, 1998 and ending
on the Distribution Date. FAF agrees to permit LAC Group to review and comment
on each Tax Return prior to filing and shall make such revisions to such Tax
Returns as reasonably requested by LAC.
(b) Combined or Consolidated State or Local Income or Franchise Tax.
The provisions of Section 2.2(a) shall apply to the applicable filings of all
combined or consolidated state or local income or franchise Tax Returns which
include a member of the FAF Group and a member of the LAC Group that are
required to be filed for periods beginning before the Distribution Date. The Tax
savings, if any, resulting from filing combined or consolidated returns for 1998
will be allocated to LAC in a manner consistent with the most recent period. If
there should be adjustments to any combined or consolidated returns, or to prior
years federal returns as a result of an audit, any tax savings that were
previously credited for the period will be recalculated and the difference
between the tax savings that were previously credited and the recomputed tax
savings will be charged back
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to LAC on the same basis as the savings have been allocated. No tax savings will
be allocated to LAC for the year 1998 or thereafter.
(c) Other Tax Returns. All Tax Returns (other than Tax Returns
described in Sections 2.2(a) and (b)) which include or are filed with respect to
a member of the FAF Group or the LAC Group that are required to be filed for
periods beginning before the Distribution Date shall be filed by the member of
the FAF Group or the LAC Group, as the case may be, which filed the
corresponding Tax Return for the most recent period for which such Tax Return
has been filed, or, if no such corresponding Tax Return has been filed, by the
appropriate member in accordance with applicable law or custom. In the case of
such Tax Returns filed by a member of the FAF Group, LAC shall be liable for and
pay to FAF the portion of the Tax liability on such Tax Returns attributable to
LAC Group members, at the time and in the amount determined in accordance with
past practice. In the case of such Returns filed by a member of the LAC Group,
FAF shall be liable for and pay to LAC the portion of the Tax liability on such
Returns attributable to FAF Group members, at the time and in the amount
determined in accordance with past practice.
(d) Apportionment of Tax Attributes. If all or a portion of any Tax
Attribute arising in any taxable period beginning before the Distribution Date,
is apportioned to a separate return year of LAC pursuant to any Code section (or
equivalent state or local law or regulations), then LAC shall pay to FAF the Tax
Benefit related to the Tax Attribute so apportioned.
(e) Certain Costs and Expenses. LAC or the LAC Group shall reimburse
FAF and the FAF Group for the LAC Group's portion of the costs associated with
the preparation and filing of Tax Returns by FAF pursuant to this Section 2.2.
2.3 FILING OF POST-DISTRIBUTION TAX RETURNS. All Tax Returns and Taxes
for periods beginning on or after the Distribution Date shall be the
responsibility of the FAF Group if such Tax Returns or Taxes relate to FAF
Businesses, and shall be the responsibility of the LAC Group if such Tax Returns
or Taxes relate to LAC Businesses.
2.4 CERTIFICATION. Each Tax Return and computation of tax liability
required to be provided to FAF by LAC and each member of the LAC Group pursuant
to Section 2.2 hereof shall be accompanied by a statement signed by the Chief
Financial Officer of LAC to the effect that such officer has reviewed for
completeness and accuracy the Tax Return and computation of the Tax liability
and the documentation in support thereof and has determined that such Tax Return
and computation properly reflect the taxable income (or loss), Tax liability and
credits of the entity or entities, as the case may be, to which such Tax Return
and computation relate for the period covered thereby.
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ARTICLE III
DEFICIENCIES AND REFUNDS OF TAXES
3.1 PAYMENT OF DEFICIENCIES BY LAC. If any adjustments are made by any
taxing authority with respect to any Tax Return of FAF (or any member of the FAF
Group) in which any member of the LAC Group is included for taxable periods
beginning before the Distribution Date, then to the extent that such adjustments
either increase the net taxable income, reduce the net taxable loss or decrease
the tax credits of any member of the LAC Group and result in a greater Tax (net
of any future tax benefit resulting from such Tax or Tax liability) for such LAC
Group member or any FAF Group member (in either case without regard to any
offsetting adjustments to other members of the FAF Group, other than a member of
the LAC Group), LAC and each other member of the LAC Group shall be liable for
such increases in Taxes (net of any future tax benefit resulting from such Taxes
or Tax liabilities). If any member of the LAC Group shall have any liability as
a result of this Section 3.1, LAC shall pay to FAF, hold FAF harmless and
indemnify FAF for any such Tax liability, costs and attorneys fees, and the
amount thereof shall be paid by LAC to FAF within ten (10) days of the receipt
by LAC of written notice of such liability, together with a computation of the
amount due and supporting documentation in such detail as LAC may reasonably
request to verify the computation of the amount due. Any such required payment
not made within such ten (10) day period shall thereafter bear interest until
paid at the then most recently published rate of interest charged by the IRS on
income tax deficiencies of large corporations pursuant to Code Sections
6621(a)(2) and (c) (1).
3.2 PAYMENT OF REFUNDS TO LAC. If any adjustments are made by any
taxing authority with respect to any Tax Return of FAF (or any member of the FAF
Group) in which any member of the LAC Group is included for any taxable period
beginning before the Distribution Date, then to the extent that such adjustments
either (a) decrease the Tax liability attributable to any member of the LAC
Group and result in a Tax Benefit to FAF or any member of the FAF Group, or (b)
are attributable to a member of the LAC Group and result in a reduced Tax
liability for FAF or any member of the FAF Group (in either case without regard
to any offsetting adjustments to other members of the FAF Group, other than a
member of the LAC Group), then FAF shall remit to LAC any refunds of Taxes
received by or credited to it as a result of the adjustments attributable to a
member of the LAC Group. FAF shall pay any amounts due from it to LAC as a
result of this Section 3.2 within ten (10) days of its receipt of the relevant
refund or credit with respect thereto from the IRS or any state or other
governmental unit, as the case may be. Any such required payment not made within
such ten (10) day period shall thereafter, bear interest until paid at the then
most recently published rate at which the IRS pays interest on tax refunds of
large corporations pursuant to Code Section 6621(a)(1). Such payments shall be
accompanied by a computation of the amount due and supporting documentation in
such detail as LAC may reasonably request to verify the computation of the
amount due. Anything herein to the contrary notwithstanding, except as provided
in this Section 3.2, no member of the LAC Group shall be entitled to any payment
or benefit as a result of the receipt of any Tax refund received by any member
of the FAF Group except to the
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extent such refund is attributable to the overpayment of Estimated Taxes by the
LAC Group or any member thereof.
3.3 RESTRUCTURING TAXES. If as a result of any transaction, act or
omission occurring after the Distribution Date and involving the LAC Businesses,
or the stock, assets or liabilities (or any combination thereof) of any member
of the LAC Group, including, without limitation, a breach by any member of the
LAC Group of any representation made to the IRS in any request for rulings or
act or omission of any member of the LAC Group that causes any condition or
assumption upon which such a ruling is based to fail to be met or be correct, as
the case may be, either (a) the Distribution does not qualify as a
reorganization pursuant to Code Section 368(a)(1)(D) or a tax free distribution
pursuant to Code Section 355 or (b) any Restructuring Taxes are imposed upon or
paid by FAF or any other member of the FAF Group, then LAC shall pay to FAF and
shall indemnify and hold harmless each member of the FAF Group from and against
all Restructuring Taxes. Such payment and indemnification shall be made by LAC
promptly, but in any event within fifteen (15) days after written notice from
FAF, which notice shall be accompanied by a computation of the amounts due. Any
such required payment not made within such fifteen (15) day period shall
thereafter bear interest until paid at the then most recently published rate at
which the IRS charges interest on income tax deficiencies of large corporations
pursuant to Code Sections 6621(a)(2) and (c) (1).
ARTICLE IV
TAX AUDITS, TRANSACTIONS AND OTHER MATTERS
4.1 TAX AUDITS AND CONTROVERSIES.
(a) Federal, State, or Local Income or Franchise Taxes. Except as
otherwise provided in this Section 4.1, FAF shall have the exclusive authority
and obligation to represent each member of the LAC Group before the IRS or any
other governmental agency or authority or before any court with respect to any
matter affecting the federal, state or local income or franchise Tax liability
of any member of either the FAF Group or the LAC Group for any Tax period
beginning before the Distribution Date, in each such case (i) allowing
representatives of the LAC Group, including, without limitation, outside counsel
and consultants, to participate in good faith in all respects in all such Tax
proceedings affecting any member of the LAC Group, and (ii) acting in the best
interests of both the FAF Group and the LAC Group. Such representation shall
include, but shall not be limited to exclusive control over (i) any response to
any examination of federal, state or local income or franchise Tax Returns and
(ii) any contest or litigation through a Final Determination of any issue
included in any Tax Return that includes a member of the FAF Group, including,
but not limited to (A) whether and in what forum to conduct such contest, and
(B) whether and on what basis to settle such contest; except that FAF shall not
settle any claim, suit, action or proceeding in respect of which any member of
the LAC Group may incur any then known (by FAF) future Tax liability, or in
respect of which indemnity for federal, state or local income or franchise Taxes
may be sought hereunder against LAC or any member of the LAC Group without LAC's
consent, which consent
7
<PAGE> 8
shall not be unreasonably withheld. FAF shall give timely notice to LAC of any
inquiry, the assertion of any claim or the commencement of any suit, action or
proceeding in respect of which any member of the LAC Group may incur any then
known (by FAF) future Tax liability or in respect of which indemnity for
federal, state or local income or franchise Taxes may be sought under this
Agreement against LAC or any member of the LAC Group and will give LAC such
information with respect thereto as LAC may reasonably request. Anything in this
Section 4.1 or elsewhere in this Agreement to the contrary notwithstanding, if
LAC contests or litigates any federal, state or local income or franchise tax
issue in any forum, LAC shall pay and shall indemnify and hold harmless each
member of the FAF Group from any and all costs, expenses and/or liabilities of
any type or nature, including, without limitation, any federal income tax
liability (including interest and penalties thereon), that are incurred by or
imposed upon FAF or any member of the FAF Group which FAF or such FAF Group
member would not otherwise have incurred.
(b) Other Taxes. Except as otherwise provided in this Section 4.1, the
party responsible for filing any Tax Return (other than federal, state or local
income or franchise Tax Returns) pursuant to Section 2.2(c) hereof shall, at its
own expense, have the exclusive authority to represent each member of the FAF
Group and of the LAC Group before any governmental agency or authority or before
any court with respect to any matter affecting the Tax liability of any member
of either the FAF Group or the LAC Group for any Tax period beginning before the
Distribution Date in each case (i) allowing representatives of the other group
to participate in good faith in all respects in all such Tax proceedings
affecting any member of the other group, and (ii) acting in the best interests
of both the FAF Group and the LAC Group. Such representation shall include, but
shall not be limited to exclusive control over (i) any response to any
examination by the governmental authority of such Tax Returns and (ii) any
contest through a Final Determination of any issue included in any Tax Return
that includes a member of the LAC Group or the FAF Group, including, but not
limited to (A) whether and in what forum to conduct such contest, and (B)
whether and on what basis to settle such contest; except that FAF or any member
of the FAF Group shall not settle any claim, suit, action or proceeding in
respect of which indemnity for such Taxes may be sought hereunder against LAC or
any member of the LAC Group without LAC's consent, which consent shall not be
unreasonably withheld; and except that LAC or any member of the LAC Group shall
not settle any claim, suit, action or proceeding in respect of which indemnity
for such Taxes may be sought hereunder against FAF or any member of the FAF
Group without FAF's consent, which consent shall not be unreasonably withheld.
4.2 RETENTION OF BOOKS AND RECORDS. LAC and FAF each agrees to retain
and preserve in accessible and reproducible form all Tax Returns, related
schedules and work papers, and all accounting and computer records (in whatever
media) and other documents relating thereto (collectively, the "Tax Documents")
existing on the date hereof or created through or with respect to taxable
periods ending on or before the Distribution Date, until the later of (a) the
expiration of the statute of limitations (including extensions), of the taxable
years to which such Tax Returns and Tax documents relate, or (b) DECEMBER 31,
2005. No Tax Documents shall be destroyed or otherwise disposed of by either FAF
or LAC (or any member of their respective Groups) until the party intending to
make such disposition has given the other party at least thirty (30) days
advance
8
<PAGE> 9
notice thereof, whereupon the party receiving such notice shall have the right,
at its own expense, to take possession of such Tax Documents.
4.3 COOPERATION REGARDING RETURN FILINGS, EXAMINATIONS AND
CONTROVERSIES.
(a) LAC's Obligations. In addition to any obligations imposed pursuant
to the Distribution Agreement, LAC and each other member of the LAC Group shall
fully cooperate with FAF and its representatives, in a prompt and timely manner,
in connection with the preparation and filing of, and any inquiry, audit,
examination, investigation, dispute, or litigation involving, any Tax Return
filed or required to be filed by or for any member of the FAF Group for any
taxable period beginning before the Distribution Date and relating to Taxes.
Such cooperation shall include, but not be limited to, (i) making available to
FAF, during normal business hours, and within thirty (30) days of any request
therefor, all Tax Documents, books, records and information, and the assistance
of all officers and employees, necessary or useful in connection with any Tax
inquiry, audit, examination, investigation, dispute, litigation or any other
matter, and (ii) agreeing to make any election in connection with any such Tax
Return that will not adversely affect LAC or any member of the LAC Group.
LAC agrees on behalf of itself and each member of the LAC Group to
execute and deliver to FAF, when so requested by FAF, any power of attorney
required to allow FAF and its counsel to represent LAC or such other LAC Group
member in any controversy which FAF shall have the right to control pursuant to
the terms of Section 4.1 of this Agreement.
(b) FAF's Obligations. Except as otherwise provided in this Article IV,
FAF shall fully cooperate with LAC and its representatives, in a prompt and
timely manner, in connection with (i) the preparation and filing of and (ii) any
inquiry, audit, examination, investigation, dispute, or litigation involving,
any Tax Return filed or required to be filed pursuant to Section 2.2(c) by or
for any member of the LAC Group and relating to Taxes. Such cooperation shall
include, but not be limited to, (i) making available to LAC, during normal
business hours, and within thirty (30) days of any request therefor, all books,
records and information, and the assistance of all officers and employees,
necessary or useful in connection with any tax inquiry, audit, examination,
investigation, dispute, litigation or any other matter, and (ii) agreeing to
make any election in connection with any such Tax Return that will not adversely
affect FAF or any member of the FAF Group.
FAF agrees on behalf of itself and each member of the FAF Group to
execute and deliver to LAC, when so requested by LAC, any power of attorney
required to allow LAC and its counsel to represent FAF or such other FAF Group
member in any controversy which LAC shall have the right to control pursuant to
the terms of Section 4.1(b) of this Agreement.
LAC Group's items of income and expense for the period ending on or
before the Distribution Date will be allocated based on a closing of the books
as of the Distribution Date.
9
<PAGE> 10
(c) Remedy for Failure to Comply. If FAF reasonably determines that LAC
is not for any reason fulfilling its obligations under Section 4.3(a), or if LAC
reasonably determines that FAF is not for any reason fulfilling its obligations
under Section 4.3(b), then FAF or LAC, as the case may be, shall have the right
to appoint, at the expense of the other, an independent entity such as a
nationally recognized public accounting firm to assist the other in meeting its
obligations under this Section 4.3. Such entity shall have complete access to
all books, records and information, and the complete cooperation of all officers
and employees, of LAC or FAF, as the case may be.
4.4 CERTAIN POST-DISTRIBUTION TRANSACTIONS. Each of FAF and LAC hereby
acknowledges that each of the parties hereto intends that the Distribution
qualify as a reorganization pursuant to Code Section 368(a)(1)(D) (a "Tax-Free
Reorganization") and a tax-free distribution pursuant to Section 355 of the Code
(a "Tax-Free Distribution"), and that such qualification is subject to certain
terms and conditions of the Code. Accordingly, each of FAF and LAC hereby agrees
not to engage in any transaction or commit or fail to take any action that would
cause the Distribution to fail to qualify as a Tax-Free Reorganization or
Tax-Free Distribution.
4.5 SURVIVAL OF AGREEMENT. This Agreement and all covenants contained
herein shall survive for the applicable statute of limitations and any
extensions thereof and any Final Determination applicable to periods beginning
before the Distribution Date.
ARTICLE V
MISCELLANEOUS
5.1 SEVERABILITY. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
5.2 MODIFICATION OF AGREEMENT. No modification, amendment or waiver of
any provision of this Agreement shall be effective unless the same shall be in
writing and signed by each of the parties hereto and then such modification,
amendment or waiver shall be effective only in the specific instance and for the
purpose for which given.
5.3 CONFLICT WITH THE DISTRIBUTION AGREEMENT. Anything in this
Agreement or the Distribution Agreement to the contrary notwithstanding, in the
event and to the extent that there shall be a conflict between the provisions of
this Agreement and the Distribution Agreement, the provisions of this Agreement
shall control.
5.4 NOTICES. All notices or other communications required or permitted
under this Agreement shall be delivered by hand, mailed by certified or
registered mail, postage prepaid and return receipt requested, or sent by cable,
telegram, telex or telecopy (confirmed by regular, first-class mail), to the
parties at the following addresses (or at such other addresses for a party as
shall be specified by like notice) and shall be deemed given on the date on
which such notice is received:
10
<PAGE> 11
In the case of FAF, to In the case of LAC, to
Forward Air Corporation Landair Corporation
430 Airport Road 430 Airport Road
Greeneville, Tennessee 37745 Greeneville, Tennessee 37745
Attention: General Counsel Attention: General Counsel
5.5 APPLICATION TO PRESENT AND FUTURE SUBSIDIARIES. This Agreement is
being entered into by FAF and LAC on behalf of themselves and each member of the
FAF Group and the LAC Group, respectively. This Agreement shall constitute a
direct obligation of each such member and shall be deemed to have been readopted
and affirmed on behalf of any corporation which becomes a member of the FAF
Group or the LAC Group in the future. FAF and LAC hereby guarantee the
performance of all actions, agreements and obligations provided for under this
Agreement of each member of the FAF Group and the LAC Group, respectively. FAF
and LAC shall, upon the written request of the other, cause any of their
respective group members formally to execute this Agreement. This Agreement
shall be binding upon, and shall inure to the benefit of, the successors,
assigns and persons controlling any of the corporations bound hereby.
5.6 TERM. This Agreement shall commence on the date of execution
indicated above and shall continue in effect until otherwise agreed to in
writing by FAF and LAC, or their successors.
5.7 TITLES AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
or to affect the meaning or interpretation of this Agreement.
5.8 SINGULAR AND PLURAL. As used herein, the singular shall include
the plural and vice versa.
5.9 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Tennessee without regard to the principles of conflicts of laws
thereof.
5.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become a binding agreement when one or more counterparts have been signed
by each party and delivered to the other parties.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all on the day and year first
above written.
FORWARD AIR CORPORATION f/k/a
Landair Services, Inc.
By:
--------------------------------------
Title:
-----------------------------------
LANDAIR CORPORATION
By:
--------------------------------------
Title:
-----------------------------------
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES,
INC. FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 916
<SECURITIES> 0
<RECEIVABLES> 10,846
<ALLOWANCES> 188
<INVENTORY> 0
<CURRENT-ASSETS> 30,403
<PP&E> 100,528
<DEPRECIATION> 33,953
<TOTAL-ASSETS> 97,014
<CURRENT-LIABILITIES> 28,933
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 40,234
<TOTAL-LIABILITY-AND-EQUITY> 97,014
<SALES> 0
<TOTAL-REVENUES> 25,323
<CGS> 0
<TOTAL-COSTS> 23,745
<OTHER-EXPENSES> (6)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 467
<INCOME-PRETAX> 1,117
<INCOME-TAX> 441
<INCOME-CONTINUING> 676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 676
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE TRUCKLOAD BUSINESS OF LANDAIR SERVICES INC. FOR THE
YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 614
<SECURITIES> 0
<RECEIVABLES> 11,275
<ALLOWANCES> 175
<INVENTORY> 421
<CURRENT-ASSETS> 33,781
<PP&E> 95,590
<DEPRECIATION> 32,178
<TOTAL-ASSETS> 97,208
<CURRENT-LIABILITIES> 31,361
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,558
<TOTAL-LIABILITY-AND-EQUITY> 97,208
<SALES> 0
<TOTAL-REVENUES> 91,398
<CGS> 0
<TOTAL-COSTS> 87,659
<OTHER-EXPENSES> 12
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,826
<INCOME-PRETAX> 1,901
<INCOME-TAX> 751
<INCOME-CONTINUING> 1,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,150
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
