FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-12058
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KENAN TRANSPORT COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0516485
- ------------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
University Square - West, 143 W. Franklin Street
Chapel Hill, North Carolina, 27516-3910
------------------------------------------------------------
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including Area Code: (919) 967-8221
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Based on the closing sales price of March 6, 1998, the aggregate market
value of the voting stock held by persons other than those who may be
deemed affiliates of the registrant was $33,128,021.
------------
The number of shares outstanding of the registrant's common stock was
2,394,780 at March 6, 1998.
<PAGE>
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
- --------------------------- -------------------------------------
Part III
Items 10, 11, 12 and 13 Portions of the Company's Proxy
Statement dated March 30, 1998 in
connection with its Annual Meeting to
be held on May 4, 1998.
Page 2<PAGE>
<PAGE>
PART I
Item 1. Business
- -------------------------------------------------------------------------
Kenan Transport Company (the Company), a North Carolina
corporation, was incorporated in 1949. The Company is engaged in the
transportation of bulk commodities in intrastate and interstate commerce.
The Company primarily serves the petroleum, propane gas and chemical
industries.
Two recent business acquisitions by the Company have had a
significant impact on the geographic scope and size of its business
operations. On December 1, 1997, Kenan purchased the majority of
transportation assets of Transport South, Inc. ("TSI"), an affiliate of
RaceTrac Petroleum. On February 28, 1998, the Company acquired from CITGO
Petroleum Corporation, 100% of the outstanding stock of its wholly owned
subsidiary, Petro-Chemical Transport, Inc. ("PCT"). The following
disclosures reflect the Company as it existed in 1997.
During 1997, the Company's operations were concentrated in the
Southeast in seven states; Alabama, Florida, Georgia, North Carolina,
South Carolina, Tennessee and Virginia. The purchase of TSI expands the
Company's customer base within its existing markets and adds Kentucky,
Louisiana and Texas to its core service area. The Company provides
intrastate transportation services to customers within these states and
interstate transportation services from these states to points throughout
the United States. One customer accounted for 11% of the Company's
revenue in 1997.
At December 31, 1997, the Company operated a network of terminals
and a fleet of 630 tractors and 910 specialized trailers. The Company's
terminals are strategically located near the major pipeline terminals,
chemical production centers and major ports. The Company's terminals
operate as "profit centers" staffed with experienced terminal managers,
trained dispatchers, maintenance personnel and professional drivers. At
December 31, 1997, the Company had 1,240 employees. Approximately 350
employees were added as a result of the Company's acquisition of TSI.
With the acquisition of PCT in 1998, the Company's operations
expanded to include Arizona, California, Colorado, Illinois, Indiana,
Maryland, Massachusetts, Missouri, Nevada, Oklahoma, Pennsylvania, Utah
and Wisconsin. In addition, through its purchase of PCT, the Company will
operate an inventory control and logistics management system that enables
it to manage gasoline inventories at retail locations for current and
prospective customers. The acquisition of PCT places Kenan Transport
Company among the ten largest tank truck carriers in the country.
The Company has a large number of competitors with no single
competitor being dominant in the industry. The Company competes with the
trucking operations of the major oil and chemical companies as well as
with independent carriers. Competition is primarily based on price and
customer service. The Company considers its business to be somewhat
seasonal with the winter heating season providing the highest demand
levels.
Page 3<PAGE>
<PAGE>
The Company operations include storage of fuel in underground
storage tanks for use in its operations. Management is committed to the
protection of the environment and has procedures in place to ensure
compliance with federal and state regulations and to provide appropriate
response to spills and leaks that occur. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company is involved in various claims and legal actions arising
in the normal course of business. It is the opinion of management that
these matters will have no significant impact on the financial statements
of the Company.
Item 2. Properties
- -------------------------------------------------------------------------
The Company owns twenty-one real properties located in five states;
Florida, Georgia, North Carolina, South Carolina and Virginia. At
December 31, 1997, these properties had a net book value of $12,186,000.
Additionally, the Company leases sixteen real properties located in the
Southeast and Texas, under lease terms from one to five years. The
properties are used for offices, terminals and vehicle maintenance
facilities in the operations of the Company.
The Company transports freight using over-the-road tractors and
trailers. At December 31, 1997, the net book value of the Company's owned
revenue equipment, consisting of 490 tractors and 850 trailers, was
$37,614,000. The balance of the Company's fleet, 140 tractors and 60
trailers, consists of leased equipment with lease terms of one to three
years.
The assets acquired from TSI on December 1, 1997 included 130 tractors
and 210 tank trailers. The tractors and 40 trailers are leased.
With the acquisition of Petro-Chemical Transport, Inc. on February 28,
1998, the Company added 125 tractors and 175 tank trailers to its fleet.
This equipment consists of leased tractors and owned trailers. PCT also
leases its central administrative offices that are located in Dallas,
Texas.
Page 4<PAGE>
<PAGE>
Item 3. Legal Proceedings
- -------------------------------------------------------------------------
There are no material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------------------
No matters were submitted during the fourth quarter of 1997 to a
vote of security holders, through the solicitation of proxies or
otherwise.
Item 4(a). Executive Officers of the Registrant
- -------------------------------------------------------------------------
Information concerning the executive officers of the Company
follows:
Name Age Position
- -------------------- ---- ---------------------------------------
Lee P. Shaffer 59 Director, Chief Executive Officer of
the Company beginning in 1996;
President of the Company since 1975;
Chief Operating Officer of the Company
(1975-1996).
William L. Boone 58 Vice President-Finance and Secretary of
the Company since 1974. Treasurer of
the Company beginning in 1996;
Assistant Treasurer of the Company
(1981-1996).
L. Avery Corning 40 Vice President-Operations and Sales
beginning in 1994; President (1990-
1994), Redwing Carriers, Inc., Tampa,
Florida.
Gary J. Knutson 47 Vice President-Marketing of the Company
beginning in 1994. Vice President-Sales
of the Company (1990-1993).
John E. Krovic 42 Vice President-Human Resources and
Safety of the Company since 1993.
Lee P. Shaffer, III (1) 38 Vice President-Operations Services of
the Company beginning in 1994. Director
of Operations Services of the Company
(1992-1993). Director of Operations of
the Company (1988-1992).
(1) Lee P. Shaffer, III is the son of Lee P. Shaffer, President and
Chief Executive Officer of the Company.
Page 5<PAGE>
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
- -------------------------------------------------------------------------
On October 21, 1986, the Registrant's stock began trading on the
Nasdaq stock market under the symbol KTCO. The Company had approximately
453 shareholders, including holders whose shares are held in street
names, on December 31, 1997.
The high and low sale prices and the cash dividends paid per share
for each quarter in the last two fiscal years are shown below:
1997 1996
--------------------------- ---------------------------
Quarter High Low Dividend High Low Dividend
- -------- -------- ------- -------- -------- ------- --------
First $20.5 $18.5 $.0675 $22 $19 $.065
Second 21 19 .0675 21 18.75 .065
Third 22.75 19.75 .07 21.5 20 .0675
Fourth 41 22.25 .07 21.5 19 .0675
Page 6<PAGE>
<PAGE>
<TABLE>
Item 6. Selected Financial Data
- -------------------------------------------------------------------------
Selected financial data for the past five years is presented below:
<CAPTION>
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations (in thousands)
- ---------------------------------
Operating revenue $73,308 $68,795 $61,717 $59,100 $57,063
Operating income 6,462 6,244 5,124 5,787 5,421
Net income (1) 4,090 3,805 3,323 3,682 3,435
Per Share Data
- ---------------------------------
Basic and Diluted Earnings (1)(2) $ 1.71 $ 1.59 $ 1.39 $ 1.55 $ 1.45
Dividends declared .2775 .2675 .2575 .2475 .2375
Book value 20.61 19.19 17.86 16.72 15.76
Market value 36.63 19.00 20.75 17.50 17.38
Financial Position (in thousands)
- ---------------------------------
Cash, cash equivalents and
short-term investments $ 3,422 $11,181 $10,106 $13,759 $11,996
Working capital 1,753 10,034 9,568 12,260 10,766
Net operating property 52,239 44,133 41,265 35,015 32,747
Total assets 77,115 65,044 61,188 57,625 54,727
Total debt, including
capital lease obligations 5,570 -- -- -- --
Stockholders' equity 49,368 45,843 42,677 39,771 37,363
Ratios and Statistics
- ---------------------------------
Operating ratio 91.2% 90.9% 91.7% 90.2% 90.5%
Return on equity (1) 9% 9% 8% 9% 10%
Current ratio 1.12 2.00 1.98 2.24 2.07
Debt equity ratio .11 -- -- -- --
Shares outstanding (in thousands) 2,395 2,389 2,389 2,378 2,370
<FN>
<F1>
(1) Before the effect of an extraordinary charge in 1994 of
$823,000 ($.35 per share).
(2) All periods restated in accordance with SFAS No. 128.
</FN>
</TABLE>
Page 7<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------
Results of Operations - 1997 Compared to 1996
- ---------------------------------------------
Revenue increased 7% in 1997 to $73,308,000. The $4,513,000 increase
in revenue was generated by approximately $2,300,000 of additional
business resulting from the Transport South, Inc. acquisition on December
1, 1997 and approximately $2,213,000 due to growth in demand for
transportation services. Miles operated increased 7% to 47,252,000 in
1997.
Operating expenses increased 7% in 1997 to $66,846,000. The
$4,295,000 increase was due in large part to the 7% increase in miles
operated, an increase in driver wage expense, higher claims experience in
1997 and a 6% increase in depreciation and amortization expense. Wages
and employee benefits decreased to 50.2% of revenue from 50.3% in 1996. A
10% increase in driver wages was offset by lower workers' compensation
premiums and claims. Fuel, parts, tires and other operating expenses
increased to 19.6% from 19.1% of revenue in 1996. Although fuel prices
decreased 6% in 1997, equipment maintenance and other operating expenses
increased 18%. Accident claims and insurance costs increased to 3.7% of
revenue in 1997 from 3.6%. Communications, utilities and rent expense
remained flat at 2.1% of revenue. Depreciation and amortization expense
decreased slightly to 9.5% of revenue in 1997 compared to 9.6% in 1996.
Net interest income and other expenses increased $144,000 in 1997.
Higher average cash balances and interest rates in 1997 contributed to
the increase.
Results of Operations - 1996 Compared to 1995
- ---------------------------------------------
Revenue increased 11% from 1995 to $68,795,000. The $7,078,000
increase in revenue reflects growth in demand for transportation services
and the effect of higher prices to our customers to cover increased
operating costs. The addition of transportation services to Cary Oil
Company, Inc. in July of 1995 and the expansion into Alabama and
Tennessee markets in 1995 also contributed to revenue growth for the
year. Miles operated increased 8% to 44,177,000 in 1996.
Operating expenses increased 11% in 1996 to $62,551,000. The
$5,958,000 increase was due in large part to the 8% increase in miles
operated, a 23% increase in diesel fuel prices and an 18% increase in
depreciation and amortization expense. Wages and employee benefits
decreased to 50.3% of revenue from 50.9% in 1995. Fuel, parts, tires and
other operating expenses increased from 18.7% to 19.1% of revenue in 1996
due primarily to fuel price increases that were substantially offset by
fuel surcharges that are included in revenue. Accident claims and
insurance costs fell to 3.6% of revenue in 1996 from 4.2% due to lower
insurance premiums and claims cost control. Recently completed terminal
facilities in Atlanta and Fort Lauderdale resulted in lower
communications, utilities and rent expense which decreased to 2.1% of
revenue from 2.5% in 1995. The depreciation and amortization expense
increase to 9.6% of revenue compared to 9.0% in 1995 reflects the impact
of new equipment purchased for the Alabama and Tennessee expansion
markets, and new terminal facilities in Atlanta and Fort Lauderdale
placed in service in 1996.
Page 8<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Continued
- -------------------------------------------------------------------------
Net interest income and other expenses decreased $413,000 from 1995.
The reduction stems from lower interest rates and invested cash balances
in 1996 from 1995 levels as well as losses recorded from the early
retirement of high-mileage tractors.
Liquidity and Capital Resources
- ---------------------------------------------
At the end of 1997, cash and cash equivalents totaled $3,422,000, a
decrease of $7,759,000 from the end of 1996. Working capital of
$1,753,000 was down $8,281,000 from year-end 1996 and the current ratios
were 1.12 and 2.00, respectively. The decline in cash and working capital
balances during 1997 was due to the Company's purchase of the majority of
the transportation assets of Transport South, Inc. on December 1, 1997.
This investment required a total cash outlay of $11,446,000 and the
assumption of net current liabilities of $944,000 which reduced working
capital by $12,390,000 in 1997.
Outstanding debt under the Company's line of credit agreement was
$2,500,000 at the end of 1997, of which $500,000 was classified as
current. On February 13, 1998, the Company entered into a new unsecured
credit agreement that provides a $20,000,000 line of credit. The new
agreement replaces the Company's existing line of credit. Amounts
borrowed in excess of $10,000,000 are subject to certain repayment
provisions. The agreement matures March 2003.
Capital lease obligations, assumed in the Transport South
acquisition, totaled $3,070,000 at December 31, 1997. At the end of 1997,
$995,000 was classified as current. The outstanding balance is payable
over the next four years.
On February 28, 1998, the Company acquired 100% of the outstanding
stock of Petro-Chemical Transport, Inc., a wholly owned subsidiary of
CITGO Petroleum Corporation, for $7,500,000. The Company financed the
acquisition through its new line of credit.
Net capital expenditures for replacement of tractors and tank
trailers are projected to be $8,300,000 in 1998. Management believes cash
flows from operations and the Company's new bank line of credit will be
sufficient to fund these planned expenditures as well as 1998 working
capital requirements, expansion opportunities and other corporate needs.
The Company has evaluated its Year 2000 issues and has implemented a
plan to address and correct all significant issues that involve the Year
2000. These issues are not expected to be material to the Company's
business operations or financial condition.
The Company's operations require the storage of fuel for use in its
tractors in both underground and aboveground tanks. The Company has a
program to maintain its fuel storage facilities in compliance with
environmental regulation. Under the program, the Company incurs costs to
replace tanks, remediate soil contamination resulting from overfills,
spills and leaks and monitor facilities on an ongoing basis. These costs
are recorded when it is probable that a liability has been incurred and
the related amount can be reasonably estimated. Such costs have not been
and are not expected to be material to the Company's operations or
liquidity.
Page 9<PAGE>
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Item 8. Financial Statements and Supplementary Data
- -------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Kenan Transport Company:
We have audited the accompanying consolidated balance sheets of Kenan
Transport Company (a North Carolina corporation) and subsidiary as of
December 31, 1997 and 1996, and the related consolidated statements of
income and retained earnings and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kenan
Transport Company and subsidiary as of December 31, 1997 and 1996, and
the results of their operations and cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Raleigh, North Carolina,
February 19, 1998.
Page 10<PAGE>
<PAGE>
KENAN TRANSPORT COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31
-------------------------
1997 1996
- -------------------------------------------------------------------------
ASSETS
- ---------------------------------------------
Current Assets
Cash and cash equivalents $ 3,422 $11,181
Accounts receivable, net 8,020 4,988
Operating supplies and parts 521 413
Prepaid tires 1,471 1,033
Prepaid insurance, licenses and other 886 698
Deferred income taxes 1,747 1,741
-----------------------
Total Current Assets 16,067 20,054
Operating Property
Land 3,464 3,531
Buildings and leasehold improvements 10,968 9,279
Revenue equipment 65,974 56,015
Other equipment 4,755 3,923
-----------------------
85,161 72,748
Accumulated depreciation and amortization (32,922) (28,615)
-----------------------
Net Operating Property 52,239 44,133
Intangible Assets 7,559 --
Other Assets 1,250 857
-----------------------
$77,115 $65,044
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------
Current Liabilities
Current maturities of long-term debt $ 500 $ --
Capital lease obligations 995 --
Accounts payable 2,517 1,423
Wages and employee benefits payable 6,641 5,136
Claims payable 3,553 3,409
Income taxes currently payable 108 52
-----------------------
Total Current Liabilities 14,314 10,020
Long-term Debt 2,000 --
Capital Lease Obligations 2,075 --
Deferred Income Taxes 9,358 9,181
Stockholders' Equity
Common stock; no par; 20,000,000 shares
authorized; 2,394,780 and 2,389,497
shares issued and outstanding 3,096 2,996
Retained earnings 46,272 42,847
-----------------------
49,368 45,843
-----------------------
$77,115 $65,044
=======================
The Notes to Consolidated Financial Statements are an integral part of
these balance sheets.
Page 11<PAGE>
<PAGE>
KENAN TRANSPORT COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $73,308 $68,795 $61,717
Operating Expenses
Wages and employee benefits 36,804 34,580 31,412
Fuel, parts, tires and other 14,344 13,138 11,566
Taxes and licenses 4,482 4,261 3,926
Claims and insurance 2,692 2,502 2,567
Communications, utilities and rent 1,562 1,472 1,544
Depreciation and amortization 6,962 6,598 5,578
---------------------------------
66,846 62,551 56,593
---------------------------------
Operating Income 6,462 6,244 5,124
Interest expense (40) (20) (28)
Interest income and other expenses, net 174 30 443
---------------------------------
Income before Provision for Income Taxes 6,596 6,254 5,539
Provision for income taxes 2,506 2,449 2,216
---------------------------------
Net Income 4,090 3,805 3,323
Retained earnings, beginning of the year 42,847 39,681 36,973
Cash dividends (665) (639) (615)
---------------------------------
Retained earnings, end of the year $46,272 $42,847 $39,681
=================================
Basic and Diluted Earnings Per Share $ 1.71 $ 1.59 $ 1.39
=================================
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
Page 12<PAGE>
<PAGE>
KENAN TRANSPORT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 4,090 $ 3,805 $ 3,323
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,962 6,598 5,578
Deferred income taxes 171 551 574
Common stock issued under incentive plan 100 -- 198
Other, net (393) (246) (140)
Changes in operating assets and liabilities
net of effects from business acquisition:
Accounts receivable (3,032) (43) (696)
Operating supplies and parts (108) 93 68
Prepayments (152) 146 20
Accounts payable 796 288 (275)
Wages and employee benefits payable 1,380 988 (455)
Claims payable 144 (744) 287
Income taxes currently payable 56 (256) 308
---------------------------------
Net cash provided by operating activities 10,014 11,180 8,790
Cash Flows from Investing Activities:
Purchases of operating property, net (8,037) (9,466) (11,828)
Business acquisition (11,446) -- --
Sales (purchases) of short-term investments, net -- 6,886 (5,886)
---------------------------------
Net cash used by investing activities (19,483) (2,580) (17,714)
Cash Flows from Financing Activities:
Borrowings under line of credit agreement 2,500 -- --
Principal payments on capital lease obligations (125) -- --
Dividends (665) (639) (615)
---------------------------------
Net cash provided by (used for) financing
activities 1,710 (639) (615)
---------------------------------
Net Increase (Decrease) In Cash And Cash Equivalents (7,759) 7,961 (9,539)
Cash and Cash Equivalents at Beginning of Year 11,181 3,220 12,759
---------------------------------
Cash and Cash Equivalents at End of Year $ 3,422 $11,181 $ 3,220
=================================
Noncash Investing and Financing Activities:
Liabilities assumed in business acquisition $ 3,619 -- --
Supplemental Cash Flow Disclosures:
Interest paid $ 38 $ 21 $ 18
Income taxes paid $ 2,279 $ 2,154 $ 1,334
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
Page 13<PAGE>
<PAGE>
KENAN TRANSPORT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies
- ---------------------------------------------------------------
Preparation of Financial Statements
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles and include the accounts of
Kenan Transport Company and its wholly-owned subsidiary which was
merged into Kenan Transport Company effective December 31, 1996. All
significant intercompany accounts and transactions have been
eliminated.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
Cash Equivalents and Short-Term Investments
The Company classifies investments maturing within three months from
the date of purchase as cash equivalents. All investments at December
31, 1997 and 1996 were cash equivalents.
Tires
The cost of replacement tires is included in operating supplies and
parts in the accompanying Consolidated Balance Sheets. When installed
on revenue equipment, tire costs are included in prepayments and
amortized over their useful life based on mileage.
Operating Property
Operating property, including operating property under capital
leases, is recorded at cost, net of tires and is depreciated or
amortized over the estimated useful life of the related assets.
Maintenance and repairs are charged to operating expenses as
incurred; renewals and improvements are capitalized. Depreciation is
computed on the straight-line method using lives of 3 to 15 years for
revenue equipment, 15 to 40 years for buildings, remaining life of
leases for leasehold improvements, and 2 to 10 years for other
equipment.
Claims Payable
Claims payable represents the estimated cost of open claims that is
retained and paid by the Company under its insurance programs for
workers' compensation, group medical, bodily injury and property
damage. These estimates are based on historical information along
with certain assumptions about future cash flows. Changes in
assumptions for such things as medical costs, environmental hazards,
and legal actions, as well as changes in actual experience could
cause these estimates to change. In the accompanying Consolidated
Statements of Income and Retained Earnings, workers' compensation
costs are included in wages and employee benefits expenses, and other
claims costs are included in claims and insurance expenses.
Page 14<PAGE>
<PAGE>
Environmental Expenditures
The Company's operations require the storage of fuel for use in its
tractors in both underground and aboveground tanks. The Company
incurs costs to replace tanks, remediate soil contamination resulting
from overfills, spills and leaks and monitor facilities on an ongoing
basis. These costs are recorded when it is probable that a liability
has been incurred and the related amount can be reasonably estimated.
Income Taxes
The provision for income taxes includes federal and state income
taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets
and liabilities.
Note 2 - Earnings Per Share
- ---------------------------------------------------------------
In 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128 "Earnings per Share" which requires all prior
years presented to be restated. A reconciliation of net income and the
weighted average number of shares outstanding used in calculating basic
and diluted earnings per share for the years ended December 31, 1997,
1996 and 1995 is summarized in the table below (dollars and shares in
thousands except per share amounts):
1997 1996 1995
--------------------------------
Net income $4,090 $3,805 $3,323
================================
Beginning shares outstanding 2,389 2,389 2,378
Shares issued under executive
incentive plan 6 -- 11
------ ------ ------
Basic shares outstanding 2,395 2,389 2,389
Shares earned under executive
incentive plan 1 1 --
------ ------ ------
Diluted shares outstanding 2,396 2,390 2,389
================================
Basic and diluted earnings per share $ 1.71 $ 1.59 $ 1.39
================================
Note 3 - Purchase of Assets
- ---------------------------------------------------------------
On December 1, 1997, the Company purchased the majority of the
transportation assets of Transport South, Inc. for cash and entered into
a long-term contract to provide transportation services to its parent,
RaceTrac Petroleum, Inc. in the southeastern United States and Texas.
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the accompanying consolidated statements of
income include results of operations from December 1, 1997. The purchased
assets and liabilities assumed have been recorded in the Company's
Page 15<PAGE>
<PAGE>
financial statements at their estimated fair market values. The excess of
the purchase cost over the fair value of net assets acquired in the
acquisition (goodwill) is included in intangible assets in the
accompanying consolidated balance sheets and is being amortized over 20
years on a straight-line basis. Amortization expense in 1997 was $32,000
and accumulated amortization at December 31, 1997 was $32,000.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company for 1997 and 1996, as if the
acquisition had occurred as of January 1, 1996. The pro forma information
does not purport to be indicative of what would have occurred had the
acquisition been made as of those dates or of results which may occur in
the future (dollars in thousands except per share amounts).
Pro-Forma Information (unaudited)
--------------------------------------------------------------------
1997 1996
----------------------
Revenue $101,308 $96,795
Operating income 7,802 7,178
Net income 4,631 4,332
Basic and diluted earnings per share 1.93 1.81
Note 4 - Subsequent Events
- ---------------------------------------------------------------
On February 18, 1998, the Company entered into a definitive agreement
to acquire 100% of the outstanding stock of Petro-Chemical Transport,
Inc., a wholly owned subsidiary of CITGO Petroleum Corporation for
$7,500,000. Petro-Chemical Transport is a tank truck carrier serving the
petroleum industry in the Southeast, Midwest and on the West Coast. The
Company will finance the acquisition through its new line of credit
facility (see Note 5). The closing is expected during the first quarter
of 1998.
Note 5 - Bank Line of Credit
- ---------------------------------------------------------------
At December 31, 1997, the Company's borrowings under a Bank Credit
Agreement totaled $2,500,000 of which $500,000 was classified as
currently payable based on management's intent to pay down such amount in
1998. The fair value of debt approximates carrying value at December 31,
1997.
On February 13, 1998, the Company negotiated a new unsecured
$20,000,000 Reducing Line of Credit Facility with the bank. The agreement
replaces the Company's previous $7,000,000 line of credit. The line
reduces $500,000 per quarter beginning July 1, 1998 and matures in March
2003. Interest under the agreement is at variable rates based, at the
Company's option, on the Bank's Prime Rate or LIBOR. The credit agreement
contains various covenants, none of which negatively impact the Company's
liquidity or capital resources at this time.
Page 16<PAGE>
<PAGE>
Note 6 - Income Taxes
- ---------------------------------------------------------------
Deferred income taxes reflect the net tax effect of temporary
differences between the financial statement and tax bases of assets and
liabilities. The tax effects of temporary differences that give rise to
significant portions of the deferred tax liabilities and assets at
December 31, 1997 and 1996 were as follows (dollars in thousands):
1997 1996
---------------------
Liabilities
Depreciation $10,012 $8,715
Prepaid tires 558 392
Other 429 525
---------------------
Deferred tax liabilities 10,999 9,632
Assets
Claims payable 1,349 1,294
Capital lease obligations 1,165 --
Employee benefits 701 610
Other 173 288
---------------------
Deferred tax assets 3,388 2,192
---------------------
Net deferred tax liability $ 7,611 $7,440
=====================
The provisions for income taxes consist of the following (dollars in
thousands):
1997 1996 1995
--------------------------------
Currently payable
Federal $1,949 $1,568 $1,387
State 386 330 255
--------------------------------
2,335 1,898 1,642
Deferred 171 551 574
--------------------------------
$2,506 $2,449 $2,216
================================
The statutory federal income tax rates differ from the effective
income tax rates as follows:
1997 1996 1995
-------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase in tax rate resulting from:
State income taxes, net of federal
tax benefit 4.1 4.0 4.0
Other items, net (.1) 1.2 2.0
-------------------------------
Effective income tax rate 38.0% 39.2% 40.0%
===============================
Page 17<PAGE>
<PAGE>
Note 7 - Lease and Other Commitments
- ---------------------------------------------------------------
Certain terminal facilities, office space and equipment, and revenue
equipment are rented under operating leases expiring at various dates
through 2002. Rent expense charged against income for years ended
December 31, 1997, 1996 and 1995 was $439,000, $440,000 and $604,000,
respectively. At December 31, 1997, total future minimum rental payments
required under leases having initial or remaining noncancellable lease
terms in excess of one year are (dollars in thousands):
1998 $1,246
1999 1,010
2000 177
2001 47
2002 16
The Company acquired capital leases in connection with its purchase
of Transport South, Inc. on December 1, 1997. Capital leases included in
operating property at December 31, 1997 were $2,576,000. Future minimum
lease payments for capitalized lease obligations at December 31, 1997 are
as follows (dollars in thousands):
1998 $1,162
1999 1,514
2000 360
2001 318
------
Total minimum lease payments 3,354
Less amount representing interest at
5% to 7% and taxes 284
------
Present value of net minimum lease payments 3,070
Less current portion 995
------
Long-term obligations $2,075
======
A bank letter of credit of $2,666,000 is outstanding on the Company's
behalf in connection with its insurance program.
The Company is involved in various claims and legal actions arising
in the normal course of business. It is the opinion of management that
these matters will have no significant impact on the financial statements
of the Company.
Note 8 - Retirement Plans
- ---------------------------------------------------------------
The Company has a Profit-Sharing Retirement Plan covering all
employees. Contributions are determined annually by the Board of
Directors. The Plan is funded currently and contributions expensed were
$1,349,000 (1997), $1,173,000 (1996) and $980,000 (1995).
Page 18<PAGE>
<PAGE>
The Company has a Supplemental Executive Retirement Plan (SERP) to
replace retirement benefits lost by certain officers under the Tax Reform
Act of 1986. The SERP is an unfunded deferred compensation plan with
benefits payable upon retirement, death or other termination of
employment under provisions similar to those of the Profit-Sharing
Retirement Plan. Net amounts expensed under the SERP were $143,000
(1997), $127,000 (1996) and $109,000 (1995).
Note 9 - Incentive Plans
- ---------------------------------------------------------------
The Company has a stock incentive plan for key employees that became
effective January 1, 1994. The Plan enables the Company to provide
long-term incentives for key employees while encouraging optimum growth
in Company profits. Over a ten-year period, up to 56,600 shares of common
stock may be earned if targeted increases in net income are attained.
Employees may elect to receive up to half of the value of their incentive
bonuses in cash. No shares were earned in 1995. There were 5,283 shares
of stock earned in 1996 and issued in March of 1997 increasing common
stock by $100,000 in 1997. Approximately 5,400 shares of stock were
earned in 1997 that will be issued in 1998. The actual number of shares
will be based upon the market value of a share on the day preceding
issuance. There would be no impact on reported net income from applying
the disclosure requirements of SFAS 123 "Accounting for Stock-Based
Compensation." Compensation expense related to the Plan is recognized in
the year earned.
Note 10 - Nature of Business
- ---------------------------------------------------------------
The Company transports commodities in bulk for the petroleum and
chemical industries in the southeastern United States and Texas, and its
customers include international corporations in these industries. One
customer accounted for 11% of the Company's revenue in 1997 and 1996, and
12% in 1995. Concentration of credit risks to the Company consists
primarily of trade receivables from petroleum and chemical companies. The
Company maintains an allowance for doubtful accounts which totaled
$313,000 and $290,000 at December 31, 1997 and 1996, respectively, to
cover estimated credit losses.
Page 19<PAGE>
<PAGE>
Note 11 - Summary of Quarterly Financial Information (Unaudited)
- ---------------------------------------------------------------
(Dollars in thousands)
--------------------------------- Diluted
Operating Operating Net Earnings
Quarter Revenue Income Income Per Share
- -------------------------------------------------------------------------
1997
First $17,746 $1,541 $ 976 $.41
Second 17,233 1,230 810 .34
Third 17,450 1,314 834 .35
Fourth 20,879 2,377 1,470 .61
1996
First $17,587 $1,648 $1,040 $.44
Second 16,637 1,221 763 .32
Third 16,638 1,271 716 .30
Fourth 17,933 2,104 1,286 .54
Page 20<PAGE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
- -------------------------------------------------------------------------
None
Page 21<PAGE>
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------------------------------------------------------------------------
Information with respect to directors required by Item 401 of
Regulation S-K, appearing under the heading "Election of Directors" in
the Registrant's proxy statement dated March 30, 1998 for the Annual
Meeting of Shareholders to be held May 4, 1998, is incorporated herein by
reference. Information with respect to executive officers required by
Item 401 of Regulation S-K is included as Item 4(a) in Part I.
Information with respect to directors and executive officers required
by Item 405 of Regulation S-K, appearing under the heading "Section 16(a)
Beneficial Ownership Compliance" in the Registrant's proxy statement
dated March 30, 1998 for the Annual Meeting of Shareholders to be held
May 4, 1998, is incorporated herein by reference.
Item 11. Executive Compensation
- -------------------------------------------------------------------------
Information with respect to executive compensation required by Item
402 of Regulation S-K, appearing under the heading "Compensation and
Related Matters" in the Registrant's proxy statement dated March 30, 1998
for the Annual Meeting of Shareholders to be held May 4, 1998, is
incorporated herein by reference.
Item 12. Securities Ownership of Certain Beneficial Owners and
Management
- -------------------------------------------------------------------------
Information with respect to securities ownership of certain
beneficial owners and management required by Item 403 of Regulation S-K,
appearing under the headings "Principal Shareholders" and "Security
Ownership of Management" in the Registrant's proxy statement dated March
30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998,
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------------------------
Information with respect to certain relationships and related
transactions required by Item 404 of Regulation S-K, appearing under the
heading "Compensation Committee Interlocks and Insider Participation" in
the Registrant's proxy statement dated March 30, 1998 for the Annual
Meeting of Shareholders to be held May 4, 1998, is incorporated herein by
reference.
Page 22<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)(1) Financial Statements
--------------------
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on
Consolidated Form 10-K.
(2) Schedules
---------
None
(3) Exhibits
--------
Exhibits to this report are listed in the accompanying Index to
Exhibits.
(b) Reports on Form 8-K
-------------------
A Current Report on Form 8-K was filed on December 12, 1997,
announcing the Registrant's purchase of the majority of
transportation assets of Transport South, Inc. The financial
statement schedules and pro forma financial information
relating to the purchase was filed on Form 8-K/A, February 13,
1998.
Page 23<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
KENAN TRANSPORT COMPANY
-----------------------
(Registrant)
By: /s/ Lee P. Shaffer
------------------------------------------------------
Lee P. Shaffer, President and Chief Executive Officer
Date: March 16, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
- ------------------------ --------------------------- --------------
Principal Financial Officer:
/s/ William L. Boone Vice President-Finance; March 16, 1998
- ------------------------ Secretary; Treasurer
William L. Boone
Controller or Principal
Accounting Officer:
/s/ J. Earl Cowan Controller March 16, 1998
- ------------------------
J. Earl Cowan
Page 24<PAGE>
<PAGE>
Signature Title Date
- ------------------------ -------------------------- ---------------
Directors:
/S/ Thomas S. Kenan, III Chairman of the Board March 16, 1998
- ------------------------ of Directors
Thomas S. Kenan, III
/S/ Owen G. Kenan Vice Chairman of the March 16, 1998
- ------------------------ Board of Directors
Owen G. Kenan
/S/ William O. McCoy Director March 16, 1998
- ------------------------
William O. McCoy
/S/ Paul J. Rizzo Director March 16, 1998
- ------------------------
Paul J. Rizzo
/S/ William C. Friday Director March 16, 1998
- ------------------------
William C. Friday
/S/ Braxton Schell Director March 16, 1998
- ------------------------
Braxton Schell
/S/ Kenneth G. Younger Director March 16, 1998
- ------------------------
Kenneth G. Younger
Page 25<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Financial Statements in Form 10-K
- --------------------------------------------------------- ------------
Report of Independent Public Accountants relating to the
Consolidated Financial Statements and Notes thereto 10
Consolidated Balance Sheets - December 31, 1997 and 1996 11
Consolidated Statements of Income and Retained Earnings -
For the Years Ended December 31, 1997, 1996 and 1995 12
Consolidated Statements of Cash Flows - For the Years
Ended December 31, 1997, 1996 and 1995 13
Notes to Consolidated Financial Statements 14-20
Page 26<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- ---------------------------------------------------------
2(a) Asset Purchase Agreement between Transport South, Inc.
and the Registrant, dated October 31, 1997, filed as
Exhibit 2 to the Registrant's Form 10-Q Quarterly Report
for the quarter ended September 30, 1997, which is
incorporated herein by reference to such Form 10-Q.
2(b) Amendment to Asset Purchase Agreement between Transport
South, Inc. and the Registrant, dated December 1, 1997,
filed as Exhibit 2.A to the Registrant's Current Report
on Form 8-K, filed December 12, 1997, which is
incorporated herein by reference to such Form 8-K.
2(c) Stock Purchase and Sale Agreement between CITGO Petroleum
Corporation, Petro-Chemical Transport, Inc. and the
Registrant, dated February 18, 1998, filed as Exhibit 2
to the Registrant's Current Report on Form 8-K, filed
March 13, 1998, which is incorporated herein by reference
to such Form 8-K.
3(a) Charter Documents filed as Exhibit 3(a) to the
Registrant's Form 10 Registration of Securities, filed
April 27, 1984, which is incorporated herein by reference
to such Form 10.
3(b) Articles of Amendment dated May 1987, filed as Exhibit
4(b) to the Registrant's Form 10-Q Quarterly Report for
the quarter ended June 30, 1987, which is incorporated
herein by reference to such Form 10-Q.
3(c) Articles of Amendment dated May 1988, filed as Exhibit
4(f) to the Registrant's Form 10-Q Quarterly Report for
the quarter ended June 30, 1988, which is incorporated
herein by reference to such Form 10-Q.
3(d) Bylaws filed as Exhibit 3(b) to the Registrant's Form 10
Registration of Securities, filed April 27, 1984, which
is incorporated herein by reference to such Form 10.
3(e) Amendments to the Bylaws of the Registrant adopted March
15, 1985, March 2, 1987 and March 1, 1990, filed as
Exhibit 4(e) to the Registrant's Form 10-K for the year
ended December 31, 1989, which is incorporated herein by
reference to such Form 10-K.
3(f) Amended and Restated Bylaws of the Registrant adopted
September 26, 1990, filed as Exhibit 4(d) to the
Registrant's Form 10-Q Quarterly Report for the quarter
ended June 30, 1991, which is incorporated herein by
reference to such Form 10-Q.
Page 27<PAGE>
<PAGE>
INDEX TO EXHIBITS - continued
Exhibit No. Description
- ----------- ---------------------------------------------------------
3(g) Amendment to the Bylaws of the Registrant adopted May 6,
1991, filed as Exhibit 4(e) to the Registrant's Form 10-Q
Quarterly Report for the quarter ended June 30, 1991,
which is incorporated herein by reference to such Form
10-Q.
3(h) Amendment to the Bylaws of the Registrant adopted October
7, 1991, filed as Exhibit 4(f) to the Registrant's Form
10-Q Quarterly Report for the quarter ended September 30,
1991, which is incorporated herein by reference to such
Form 10-Q.
3(i) Amendment to the Bylaws of the Registrant as adopted
October 21, 1996 by the Registrant's Board of Directors.
4(a) Specimen Stock Certificate filed as Exhibit 4(a) to the
Registrant's Form 10 Registration of Securities, filed
April 27, 1984, which is incorporated herein by reference
to such Form 10.
Management contracts or compensatory plans or arrangements
Exhibits 10(a) - 10(f)
10(a) Employee Stock Bonus Plan effective January 1, 1985,
filed as Exhibit 10(c) to the Registrant's Form 10-K for
the year ended December 31, 1984, which is incorporated
herein by reference to such Form 10-K.
10(b) Amendment to Employee Stock Bonus Plan dated January 6,
1987, filed as Exhibit 10(d) to the Registrant's Form
10-K for the year ended December 31, 1986, which is
incorporated herein by reference to such Form 10-K.
10(c) Supplemental Executive Retirement Plan, effective January
1, 1990, filed as Exhibit 10(e) to the Registrant's Form
10-K for the year ended December 31, 1990, which is
incorporated herein by reference to such Form 10-K.
10(d) 1994 Stock Bonus Plan effective January 1, 1994, filed as
Exhibit 10(b) to the Registrant's Form 10-Q Quarterly
Report for the quarter ended June 30, 1994, which is
incorporated herein by reference to such Form 10-Q.
10(e) Senior Managers' Life Insurance Plan, effective April 1,
1996, filed as Exhibit 10.A to the Registrant's Form 10-Q
Quarterly Report for the quarter ended June 30, 1997,
which is incorporated herein by reference to such Form
10-Q.
Page 28 <PAGE>
<PAGE>
INDEX TO EXHIBITS - continued
Exhibit No. Description
- ----------- ---------------------------------------------------------
10(f) Senior Management Severance Plan, effective May 5, 1997,
filed as Exhibit 10.A to the Registrant's Form 10-Q
Quarterly Report for the quarter ended June 30, 1997,
which is incorporated herein by reference to such Form
10-Q.
Material contracts Exhibits 10(g) - 10(i)
10(g) Credit Agreement between First Union National Bank and
the Registrant dated May 22, 1984, filed as Exhibit 4(b)
to the Registrant's Form 10-Q Quarterly Report for the
quarter ended June 30, 1984, which is incorporated herein
by reference to such Form 10-Q.
10(h) Loan Agreement between First Union National Bank and the
Registrant dated February 13, 1998.
10(i) Promissory Note between First Union National Bank and the
Registrant dated February 13, 1998.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule for the year ended December 31,
1997.
Page 29 <PAGE>
EXHIBIT 10.H
LOAN AGREEMENT
First Union National Bank
301 South Tryon Street
Charlotte, North Carolina 28202
(Hereinafter referred to as the "Bank")
Kenan Transport Company
143 West Franklin Street
Chapel Hill, North Carolina 27516-3910
(Hereinafter referred to as the "Borrower")
This Loan Agreement ("Agreement") is entered into February 13, 1998, by
and between Bank and Borrower, a Corporation (For profit) organized under
the laws of North Carolina.
Borrower has applied to Bank for a loan or loans (individually and
collectively, the "Loan") evidenced by one or more promissory notes
(whether one or more, the "Note") as follows:
Line of Credit - in the principal amount of $20,000,000.00 which is
evidenced by the Promissory Note executed of even date herewith ("Line
of Credit Note"), under which Borrower may borrow, repay, and reborrow,
from time to time, so long as the total indebtedness outstanding at any
one time does not exceed the principal amount as reduced on a quarterly
basis according to the availability reduction schedule specified in the
Note. The Loan proceeds are to be used by Borrower for refinancing
outstanding obligations, if any, pursuant to Borrower's existing
$7,000,000.00 line of credit with Bank, financing acquisitions and
related capital expenses, working capital and general corporate purposes.
Bank's obligation to advance or readvance under the Line of Credit Note
shall terminate if Borrower is in Default under the Line of Credit Note.
This Agreement applies to the Loan and all Loan Documents. The terms
"Loan Documents" and "Obligations," as used in this Agreement, are
defined in the Note. The term "Borrower" shall include its Subsidiaries.
As used in this Agreement as to Borrower, "Subsidiary" shall mean any
corporation of which more than 80% of the issued and outstanding voting
stock is owned directly or indirectly by Borrower. Each Subsidiary of
the Bank, now existing or hereafter acquired, will execute an
unconditional guaranty of the Note identical in form to that attached
hereto as Exhibit A.
Relying upon the covenants, agreements, representations and warranties
contained in this Agreement, Bank is willing to extend credit to Borrower
upon the terms and subject to the conditions set forth herein, and Bank
and Borrower agree as follows:
REPRESENTATIONS. Borrower represents that from the date of this
Agreement and until final payment in full of the Obligations:
Accurate Information. All information now and hereafter furnished to
Bank is and will be as of the date of any future advance true, correct
and complete provided however that any projections on Borrower's future
performance provided to Bank by Borrower while made in good faith, were
intended to be predictions and are not warranted as to ultimate accuracy.
Any such information relating to Borrower's financial condition will
accurately reflect Borrower's financial condition as of the date(s)
thereof, (including guarantys and contingent liabilities of a type
required by generally accepted accounting principles to be reflected
therein), and Borrower further represents that its financial condition
has not changed materially or adversely since the date(s) of such
documents.
Page 1<PAGE>
<PAGE>
Authorization; Non-Contravention. The execution, delivery and
performance by Borrower and any guarantor, as applicable, of this
Agreement and other Loan Documents to which it is a party are within its
power, have been duly authorized by all necessary action taken by the
duly authorized officers of Borrower and any guarantors and, if
necessary, by making appropriate filings with any governmental agency or
unit and are the legal, binding, valid and enforceable obligations of
Borrower and any guarantors (subject to bankruptcy and other equitable
principles); and do not (i) contravene, or constitute (with or without
the giving of notice or lapse of time or both) a violation of any
provision of applicable law, a violation of the organizational documents
of Borrower or any guarantor, or a default under any agreement, judgment,
injunction, order, decree or other instrument binding upon or affecting
Borrower or any guarantor, (ii) result in the creation or imposition of
any lien (other than the lien(s) created by the Loan Documents) on any of
Borrower's or guarantor's assets, or (iii) give cause for the
acceleration of any obligations of Borrower or any guarantor to any other
creditor.
Asset Ownership. Borrower has good and marketable title to all of the
properties and assets reflected on the balance sheets and financial
statements supplied Bank by Borrower, and all such properties and assets
are free and clear of mortgages, security deeds, pledges, liens, charges,
and all other encumbrances, except as otherwise disclosed to Bank by
Borrower in writing ("Permitted Liens") and listed on the Schedule of
Permitted Liens attached hereto as Exhibit B. To Borrower's knowledge, no
default has occurred under any Permitted Liens and no claims or interests
adverse to Borrower's present rights in its properties and assets have
arisen.
Discharge of Liens and Taxes. Borrower has duly filed, paid and/or
discharged all taxes or other claims which may become a lien on any of
its property or assets, except to the extent that such items are being
appropriately contested in good faith and an adequate reserve for the
payment thereof is being maintained.
Sufficiency of Capital. Borrower is not, and after consummation of this
Agreement and after giving effect to all indebtedness incurred and liens
created by Borrower in connection with the Loan, will not be, insolvent
within the meaning of 11 U.S.C. Section 101(32).
Compliance with Laws. Borrower is in compliance in all material respects
with all federal, state and local laws, rules and regulations applicable
to its properties, operations, business, and finances, including, without
limitation, any federal or state laws relating to liquor (including 18
U.S.C. Section 3617, et seq.) or narcotics (including 21 U.S.C. Section
801, et seq.) and/or any commercial crimes; all applicable federal, state
and local laws and regulations intended to protect the environment; and
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), if applicable.
Organization and Authority. Each corporate or limited liability company
Borrower and any guarantor, as applicable, is duly created, validly
existing and in good standing under the laws of the state of its
organization, and has all powers, governmental licenses, authorizations,
consents and approvals required to operate its business as now conducted.
Each corporate or limited liability company Borrower and any guarantor,
if any, is duly qualified, licensed and in good standing in each
jurisdiction where qualification or licensing is required by the nature
of its business or the character and location of its property, business
or customers, and in which the failure to so qualify or be licensed, as
the case may be, in the aggregate, could have a material adverse effect
on the business, financial position, results of operations, properties or
prospects of Borrower or any such guarantor.
No Litigation. There are no pending or threatened suits, claims or
demands against Borrower or any guarantor the potential aggregate
liability to Borrower for which in the reasonable estimation of Borrower,
exceeds $2,000,000.00.
Page 2<PAGE>
<PAGE>
Regulation U. None of the proceeds of the Loan made pursuant to this
Agreement shall be used directly or indirectly for the purpose of
purchasing or carrying any margin stock in violation of any of the
provisions of Regulation U of the Board of Governors of the Federal
Reserve System ("Regulation U"), or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or
carry margin stock or for any other purchase which might render the Loan
a "Purpose Credit" within the meaning of Regulation U.
ERISA. Each employee pension benefit plan, as defined in ERISA,
maintained by Borrower meets, as of the date hereof, the minimum funding
standards of ERISA and all applicable regulations thereto and
requirements thereof, and of the Internal Revenue Code of 1954, as
amended. No "Prohibited Transaction" or "Reportable Event" (as both
terms are defined by ERISA) has occurred with respect to any such plan.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this
Agreement and until final payment in full of the Obligations, unless Bank
shall otherwise consent in writing, Borrower will:
Business Continuity. Conduct its business in substantially the same
manner as such business is now and has previously been conducted.
Maintain Properties. Maintain, preserve and keep its property in good
repair, working order and condition, making all needed replacements,
additions and improvements thereto, to the extent allowed by this
Agreement.
Access to Books & Records. Allow Bank, or its agents, during normal
business hours, access to the books, records and such other documents of
Borrower as Bank shall reasonably require, and allow Bank to make copies
thereof at Bank's expense.
Insurance. Maintain adequate insurance coverage with respect to its
properties and business against loss or damage of the kinds and in the
amounts customarily insured against by companies of established
reputation engaged in the same or similar businesses including, without
limitation, commercial general liability insurance, workers compensation
insurance, and business interruption insurance; and provide such proof
of insurance coverage as the Bank may from time to time reasonably
request.
Notice of Default and Other Notices. (a) Notice of Default. Furnish to
Bank immediately upon becoming aware of the existence of any condition or
event which constitutes a Default (as defined in the Loan Documents) or
any event which, upon the giving of notice or lapse of time or both, may
become a Default, written notice specifying the nature and period of
existence thereof and the action which Borrower is taking or proposes to
take with respect thereto. (b) Other Notices. Promptly notify Bank in
writing of (i) any material adverse change in its financial condition or
its business; (ii) any default under any material agreement, contract or
other instrument to which it is a party or by which any of its properties
are bound, or any acceleration of the maturity of any indebtedness owing
by Borrower; (iii) any material adverse claim against or affecting
Borrower or any part of its properties; (iv) the commencement of, and any
material determination in, any litigation with any third party or any
proceeding before any governmental agency or unit affecting Borrower; and
(v) at least 30 days prior thereto, any change in Borrower's name or
address as shown above, and/or any change in Borrower's corporate
structure.
Compliance with Other Agreements. Comply with all terms and conditions
contained in this Agreement and any other Loan Documents as defined in
the Note, including but not limited to the ISDA Master Swap Agreement
between Borrower and Bank effective December 10, 1997.
Page 3<PAGE>
<PAGE>
Payment of Debts. Pay and discharge when due or reasonably promptly
thereafter, and before subject to penalty or further charge, and
otherwise satisfy before maturity or delinquency, all obligations, debts,
taxes, and liabilities of whatever nature or amount, except those which
Borrower in good faith disputes.
Reports and Proxies. Deliver to Bank, promptly, a copy of all financial
statements, reports, notices, and proxy statements, sent by Borrower to
stockholders all 10-K's and 10-Q's, and such reports required to be filed
by Borrower with any governmental agencies or authorities as the Bank may
from time to time reasonably request.
Other Financial Information. Deliver promptly such other information
regarding the operation, business affairs, and financial condition of
Borrower which Bank may reasonably request.
Non-Default Certificate From Borrower. Deliver to Bank, with the
Financial Statements required herein, a certificate signed by Borrower,
if Borrower is an individual, or by a principal financial officer of
Borrower warranting that no "Default" as specified in the Loan Documents
nor any event which, upon the giving of notice or lapse of time or both,
would constitute such a Default, has occurred.
Estoppel Certificate. Furnish, within 15 days after request by Bank, a
written statement duly acknowledged of the amount due under the Loan and
whether offsets or defenses exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement
and until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing, Borrower and Subsidiaries will not:
Default on Other Contracts or Obligations. Default (and failure to cure
within any applicable cure period) on any material contract with or
obligation when due to a third party or default in the performance of any
obligation to a third party incurred for money borrowed in an amount in
excess of $2,000,000.00, in each case, the effect of which default is to
permit acceleration or termination of a contract, the acceleration or
termination of which would be materially adverse to Borrower.
Material Capital Structure or Business Alteration. (i) suffer a
material alteration in the kind or type of Borrower's business or that of
Borrower's Subsidiaries, if any; (ii) sell all or substantially all of
the business or assets of Borrower, or any of Borrower's Subsidiaries,
or; (iii) sell a material portion (25% or more in aggregate) of such
business or assets if such a sale is outside the ordinary course of
business of Borrower, or any of Borrower's Subsidiaries.
Judgment Entered. Permit the entry of any monetary judgment or the
assessment against, the filing of any tax lien against, or the issuance
of any writ of garnishment or attachment against any property of or debts
due Borrower in an amount in excess of $2,000,000.00 and that is not
discharged or execution is not stayed within Thirty (30) days of entry.
Government Intervention. Permit the assertion or making of any seizure,
vesting or intervention by or under authority of any government by which
the management of Borrower or any guarantor is displaced of its authority
in the conduct of its respective business or such business is curtailed
or materially impaired.
Prepayment of Other Debt. Retire any long-term debt entered into prior
to the date of this Agreement at a date in advance of its legal
obligation to do so.
Page 4<PAGE>
<PAGE>
Change in Fiscal Year. Borrower or guarantor shall not change its fiscal
year without the consent of Bank.
Guarantees. Guarantee or otherwise become responsible for obligations of
any unaffiliated person or entity in an aggregate amount in excess of
$2,000,000.00 per fiscal year, other than the endorsement of checks and
drafts for collection in the ordinary course of business.
Encumbrances. Create, assume, or permit to exist any mortgage, security
deed, deed of trust, pledge, lien, charge or other encumbrance on any of
its assets, whether now owned or hereafter acquired, other than: (i)
security interests required by the Loan Documents; (ii) liens for taxes
contested in good faith; (iii) liens accruing by law for employee
benefits; (iv) ordinary course liens such as carriers', warehousemen,
mechanics' and lessors liens, not to exceed $2,000,000.00 in aggregate at
any time; (v) capital leases not exceeding $7,000,000.00 in the aggregate
at any time, or (vi) Permitted Liens.
Mergers. Enter into any merger or consolidation unless Borrower is the
surviving entity in such merger or consolidation.
FINANCIAL COVENANTS. Borrower agrees to the following provisions from
the date hereof until final payment in full of the Obligations, unless
Bank shall otherwise consent in writing, and all financial covenants
shall be calculated quarterly on a consolidated trailing twelve month
basis, using the consolidated financial information for Borrower, its
Subsidiaries, and its holding or parent company, as applicable:
FUNDS FROM OPERATIONS TO FUNDED DEBT RATIO. Borrower shall at all
times maintain a ratio of Funds from Operations to Funded Debt as
determined in accordance with generally accepted accounting
principles in effect on the date hereof of not less than 40%.
"Funds from Operations" is defined as net after tax income of
Borrower and its Subsidiaries before extraordinary non-recurring
gains or losses plus depreciation and amortization minus dividends
for the four fiscal quarters of Borrower most recently ended for
which financial statements are due to be provided to Bank pursuant
hereto. "Funded Debt" is defined as all indebtedness of Borrower
and its Subsidiaries for borrowed money, including, but not limited
to, obligations evidenced by notes, debentures, bonds, capital
leases, and other similar instruments and shall be determined
according to same financial statements used to determine funds from
operations.
FUNDED DEBT TO CAPITALIZATION. Borrower shall at all times
maintain a Funded Debt to Capitalization Ratio as determined in
accordance with generally accepted accounting principles in effect
on the date hereof, of not more than 45%. "Capitalization" is
defined as the sum of Funded Debt plus Consolidated Stockholder's
Equity, determined by reference to the balance sheet from the
period most recently ended for which financial statements are due
to be provided to Bank pursuant hereto.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank,
within 90 days after the close of each fiscal year, audited
financial statements reflecting its operations during such fiscal
year, including, without limitation, a balance sheet, profit and
loss statement and statement of cash flows, all on a consolidated
basis and in reasonable detail, prepared in conformity with
generally accepted accounting principles, as from time to time in
effect. Supporting schedules to such statements will be supplied
upon reasonable request of Bank. All such statements shall be
examined by an independent certified public accountant acceptable
to Bank. The opinion of such independent certified public
accountant shall not be acceptable to Bank if qualified due to any
limitations in scope imposed by Borrower or its
Page 5<PAGE>
<PAGE>
Subsidiaries, if any. Any other material qualification of the
opinion by the accountant shall render the acceptability of the
financial statements subject to Bank's approval.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank
quarterly financial statements, including, without limitation, a
balance sheet, quarterly compliance certificate in form attached
hereto as Exhibit C, profit and loss statement and statement of
cash flows, as soon as available and in any event within 30 days
after the close of each such period; all in reasonable detail and
prepared in conformity with generally accepted accounting
principles, as from time to time in effect. Supporting schedules
to such statements will be supplied upon reasonable request of
Bank. Such statements shall be certified as to their correctness
by a principal financial officer of Borrower and in each case, if
audited statements are required, subject to audit and year-end
adjustments.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank
such information as Bank may reasonably request from time to time,
including without limitation, financial statements and information
pertaining to Borrower's or any subsidiary's financial condition.
Such information shall be true, complete, and accurate.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any
advances pursuant to this Agreement are subject to the following
conditions precedent:
Additional Documents. Receipt by Bank of such additional supporting
documents as Bank or its counsel may reasonably request.
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first
written above, have caused this Agreement to be executed under seal.
Kenan Transport Company
Taxpayer Identification Number: 56-0516485
CORPORATE By: /s/ Lee P. Shaffer
-----------------------------------
SEAL President & Chief Executive Officer
Attest:
/s/ William L. Boone
---------------------
Secretary
First Union National Bank
CORPORATE By: /s/ William D. Alfano
---------------------------------
SEAL President
Page 6<PAGE>
<PAGE>
EXHIBIT A
UNCONDITIONAL GUARANTY
Kenan Transport Company
143 West Franklin Street
Chapel Hill, North Carolina 27514-3910
(Individually and collectively "Borrower")
________________________
________________________
______________, North Carolina _________
(Individually and collectively "Guarantor")
First Union National Bank
301 South Tryon Street
Charlotte, North Carolina 28202
(Hereinafter referred to as "Bank")
To induce Bank to make, extend or renew loans, advances, credit, or other
financial accommodations to or for the benefit of Borrower, and in
consideration of loans, advances, credit, or other financial
accommodations made, extended or renewed to or for the benefit of
Borrower, Guarantor hereby absolutely, irrevocably and unconditionally
guarantees to Bank and its successors, and assigns the timely payment and
performance of all liabilities and obligations of Borrower to Bank under
that certain Promissory Note dated February 13, 1998 and the Loan
Documents as defined therein, and all extensions, modifications and
renewals thereof, including without limitation all principal, interest,
charges, and costs and expenses incurred thereunder (including attorneys'
fees and other costs of collection incurred, regardless of whether suit
is commenced) (collectively, the "Guaranteed Obligations").
Guarantor further covenants and agrees:
GUARANTOR'S LIABILITY. This Guaranty is a continuing and unconditional
guaranty of payment and performance and not of collection. The parties
to this Guaranty are jointly and severally obligated hereunder. This
Guaranty does not impose any obligation on Bank to extend or continue to
extend credit or otherwise deal with Borrower at any subsequent time.
This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of the Guaranteed Obligations is
rescinded, avoided or for any other reason must be returned by Bank, and
the returned payment shall remain payable as part of the Guaranteed
Obligations, all as though such payment had not been made. Except to the
extent the provisions of this Guaranty give the Bank additional rights,
this Guaranty shall not be deemed to supersede or replace any other
guaranties given to Bank by Guarantor; and the obligations guaranteed
hereby shall be in addition to any other obligations guaranteed by
Guarantor pursuant to any other agreement of guaranty given to Bank and
other guaranties of the Guaranteed Obligations.
TERMINATION OF GUARANTY. Guarantor may terminate this Guaranty by
written notice, delivered personally to or received by certified or
registered United States Mail or by overnight courier by an authorized
officer of the Bank at the address for notices provided herein. Such
termination shall be effective with respect to Guaranteed Obligations
arising more than 15 days after the date such written notice is received
by said Bank officer. Guarantor may not terminate this Guaranty as to
Page 1<PAGE>
<PAGE>
Guaranteed Obligations (including any subsequent extensions,
modifications or compromises of the Guaranteed Obligations) then
existing, or to Guaranteed Obligations arising subsequent to receipt by
Bank of said notice if such Guaranteed Obligations are a result of Bank's
obligation to make advances pursuant to a commitment entered into prior
to expiration of the 15 day notice period, or are a result of advances
which are necessary for Bank to protect its collateral or otherwise
preserve its interests. Termination of this Guaranty by any single
Guarantor will not affect the existing and continuing obligations of any
other guarantor hereunder.
APPLICATION OF PAYMENTS, BANK LIEN AND SET-OFF. Monies received from any
source by Bank for application toward payment of the Guaranteed
Obligations may be applied to such Guaranteed Obligations in any manner
or order deemed appropriate by Bank. Except as prohibited by law,
Guarantor grants Bank a security interest in all of Guarantor's accounts
maintained with Bank and any of its affiliates (collectively, the
"Accounts"). If a Default occurs, Bank is authorized to exercise its
right of set-off or to foreclose its lien against any obligation of Bank
to Guarantor including, without limitation, all Accounts or any other
debt of any maturity, without notice.
CONSENT TO MODIFICATIONS. Guarantor consents and agrees that Bank may
from time to time, in its sole discretion, without affecting, impairing,
lessening or releasing the obligations of the Guarantor hereunder: (a)
extend or modify the time, manner, place or terms of payment or
performance and/or otherwise change or modify the credit terms of the
Guaranteed Obligations; (b) increase, renew, or enter into a novation of
the Guaranteed Obligations; (c) waive or consent to the departure from
terms of the Guaranteed Obligations; (d) permit any change in the
business or other dealings and relations of Borrower or any other
guarantor with Bank; (e) proceed against, exchange, release, realize
upon, or otherwise deal with in any manner any collateral that is or may
be held by Bank in connection with the Guaranteed Obligations or any
liabilities or obligations of Guarantor; and (f) proceed against, settle,
release, or compromise with Borrower, any insurance carrier, or any other
person or entity liable as to any part of the Guaranteed Obligations,
and/or subordinate the payment of any part of the Guaranteed Obligations
to the payment of any other obligations, which may at any time be due or
owing to Bank; all in such manner and upon such terms as Bank may deem
appropriate, and without notice to or further consent from Guarantor. No
invalidity, irregularity, discharge or unenforceability of, or action or
omission by Bank relating to any part of, the Guaranteed Obligations or
any security therefor shall affect or impair this Guaranty.
WAIVERS AND ACKNOWLEDGMENTS. Guarantor waives and releases the following
rights, demands, and defenses Guarantor may have with respect to Bank and
collection of the Guaranteed Obligations: (a) promptness and diligence in
collection of any of the Guaranteed Obligations from Borrower or any
other person liable thereon, and in foreclosure of any security interest
and sale of any property serving as collateral for the Guaranteed
Obligations; (b) any law or statute that requires that Bank make demand
upon, assert claims against, or collect from Borrower or other persons or
entities, foreclose any security interest, sell collateral, exhaust any
remedies, or take any other action against Borrower or other persons or
entities prior to making demand upon, collecting from or taking action
against Guarantor with respect to the Guaranteed Obligations, including
any such rights Guarantor might otherwise have had under Va. Code
Subsection 49-25 and 49-26, et seq., N.C.G.S. Subsection 26-7, et seq.,
Tenn. Code Ann. Section 47-12-101, O.C.G.A. Section 10-7-24 (and any
successor statute) and any other applicable law; (c) any law or statute
that requires that Borrower or any other person be joined in, notified of
or made part of any action against Guarantor; (d) that Bank preserve,
insure or perfect any security interest in collateral or sell or dispose
of collateral in a particular manner or at a particular time; (e) notice
of extensions, modifications, renewals, or novations of the Guaranteed
Obligations, of any new transactions or other relationships between Bank,
Borrower and/or any guarantor, and of changes in the financial condition
of, ownership of, or business structure of Borrower or any other
guarantor; (f) presentment, protest, notice of dishonor, notice of
default, demand for payment, notice of intention to accelerate maturity,
notice of acceleration of maturity, notice of sale, and all other notices
of any kind whatsoever; (g) the right to assert against Bank any defense
(legal or equitable), set-off, counterclaim,
Page 2<PAGE>
<PAGE>
or claim that Guarantor may have at any time against Borrower or any other
party liable to Bank; (h) all defenses relating to invalidity,
insufficiency, unenforceability, enforcement, release or impairment of
Bank's lien on any collateral, of the Loan Documents, or of any other
guaranties held by Bank; (i) any claim or defense that acceleration of
maturity of the Guaranteed Obligations is stayed against Guarantor because
of the stay of assertion or of acceleration of claims against any other
person or entity for any reason including the bankruptcy or insolvency of
that person or entity; and (j) the benefit of any exemption claimed by
Guarantor. Guarantor acknowledges and represents that it has relied upon
its own due diligence in making its own independent appraisal of Borrower,
Borrower's business affairs and financial condition, and any collateral;
Guarantor will continue to be responsible for making its own independent
appraisal of such matters; and Guarantor has not relied upon and will not
hereafter rely upon Bank for information regarding Borrower or any
collateral.
FINANCIAL CONDITION. Guarantor warrants, represents and covenants to
Bank that on and after the date hereof: (a) the fair saleable value of
Guarantor's assets exceeds its liabilities, Guarantor is meeting its
current liabilities as they mature, and Guarantor is and shall remain
solvent; (b) all financial statements of Guarantor furnished to Bank are
correct and accurately reflect the financial condition of Guarantor as of
the respective dates thereof; (c) since the date of such financial
statements, there has not occurred a material adverse change in the
financial condition of Guarantor; (d) there are not now pending any court
or administrative proceedings or undischarged judgments against
Guarantor, no federal or state tax liens have been filed or threatened
against Guarantor, and Guarantor is not in default or claimed default
under any agreement; and (e) at such reasonable times as Bank requests,
Guarantor will furnish Bank with such other financial information as Bank
may reasonably request; provided however that if Guarantor is a wholly-
owned subsidiary of Borrower the submission of consolidated financial
statements by Borrower as required by the Loan Agreement shall be
adequate financial information.
INTEREST. Regardless of any other provision of this Guaranty or other
Loan Documents, if for any reason the effective interest on any of the
Guaranteed Obligations should exceed the maximum lawful interest, the
effective interest shall be deemed reduced to and shall be such maximum
lawful interest, and any sums of interest which have been collected in
excess of such maximum lawful interest shall be applied as a credit
against the unpaid principal balance of the Guaranteed Obligations.
DEFAULT. If any of the following events occur, a default ("Default")
under this Guaranty shall exist: (a) Failure of timely payment or
performance of the Guaranteed Obligations or a default under any Loan
Document; (b) A breach of any agreement or representation contained or
referred to in the Guaranty, or any of the Loan Documents, or contained
in any other contract or agreement of Guarantor with Bank or its
affiliates, whether now existing or hereafter arising; (c) The death of,
appointment of a guardian for, dissolution of, termination of existence
of, loss of good standing status by, appointment of a receiver for,
assignment for the benefit of creditors of, or the commencement of any
insolvency or bankruptcy proceeding by or against, Guarantor or any
general partner of or the holder(s) of the majority ownership interests
of Guarantor; and/or (d) The entry of any monetary judgment or the
assessment against, the filing of any tax lien against, or the issuance
of any writ of garnishment or attachment against any property of or debts
due Guarantor in an amount which may have a materially adverse impact on
the financial condition of Guarantor.
If a Default occurs, the Guaranteed Obligations shall be due immediately
and payable without notice. Guarantor shall pay interest on the
Guaranteed Obligations from such Default at the highest rate of interest
charged on any of the Guaranteed Obligations.
ATTORNEY'S FEES AND OTHER COSTS OF COLLECTION. Guarantor shall pay all
of Bank's reasonable expenses incurred to enforce or collect any of the
Guaranteed Obligations, including, without limitation, reasonable
arbitration, paralegals', attorneys' and experts' fees and expenses,
Page 3<PAGE>
<PAGE>
whether incurred without the commencement of a suit, in any suit,
arbitration, or administrative proceeding, or in any appellate or
bankruptcy proceeding.
SUBORDINATION OF OTHER DEBTS. Guarantor agrees: (a) to subordinate the
obligations now or hereafter owed by Borrower to Guarantor ("Subordinated
Debt") to any and all obligations of Borrower to Bank now or hereafter
existing while this Guaranty is in effect, provided however that
Guarantor may receive regularly scheduled principal and interest payments
on the Subordinated Debt so long as (i) all sums due and payable by
Borrower to Bank have been paid in full on or prior to such date, and
(ii) no event or condition which constitutes or which with notice or the
lapse or time would constitute an event of default with respect to the
Guaranteed Obligations, shall be continuing on or as of the payment date;
(b) Guarantor will place a legend indicating such subordination on every
note, ledger page or other document evidencing any part of the
Subordinated Debt; and (c) except as permitted by this paragraph,
Guarantor will not request or accept payment of or any security for any
part of the Subordinated Debt, and any proceeds of the Subordinated Debt
paid to Guarantor, through error or otherwise, shall immediately be
forwarded to Bank by Guarantor, properly endorsed to the order of Bank,
to apply to the Guaranteed Obligations.
MISCELLANEOUS. (a) Assignment. This Guaranty and other Loan Documents
shall inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns. Bank's
interests in and rights under this Guaranty and other Loan Documents are
freely assignable, in whole or in part, by Bank. Any assignment shall
not release Guarantor from the Guaranteed Obligations. (b) Applicable
Law; Conflict Between Documents. This Guaranty and other Loan Documents
shall be governed by and construed under the laws of the state named in
Bank's address shown above without regard to that state's conflict of
laws principles. If the terms of this Guaranty should conflict with the
terms of any commitment letter that survives closing, the terms of this
Guaranty shall control. (c) Jurisdiction. Guarantor irrevocably agrees to
non-exclusive personal jurisdiction in the state named in Bank's address
shown above. (d) Severability. If any provision of this Guaranty or of
the other Loan Documents shall be prohibited or invalid under applicable
law, such provision shall be ineffective but only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty or other document.
(e) Notices. Any notices to Guarantor shall be sufficiently given, if in
writing and mailed or delivered to the Guarantor's address shown above or
such other address as provided hereunder, and to Bank, if in writing and
mailed or delivered to Bank's office address shown above or such other
address as Bank may specify in writing from time to time. In the event
that Guarantor changes Guarantor's address at any time prior to the date
the Guaranteed Obligations are paid in full, Guarantor agrees to promptly
give written notice of said change of address by registered or certified
mail, return receipt requested, all charges prepaid. (f) Plural;
Captions. All references in the Loan Documents to borrower, guarantor,
person, document or other nouns of reference mean both the singular and
plural form, as the case may be, and the term "person" shall mean any
individual, person or entity. The captions contained in the Loan
Documents are inserted for convenience only and shall not affect the
meaning or interpretation of the Loan Documents. (g) Binding Contract.
Guarantor by execution of and Bank by acceptance of this Guaranty agree
that each party is bound to all terms and provisions of this Guaranty
and, in the case of amendments or modifications, by Guarantor. (h)
Amendments, Waivers and Remedies. No waivers, amendments or
modifications of this Guaranty and other Loan Documents shall be valid
unless in writing and signed by an officer of Bank. No waiver by Bank of
any Default shall operate as a waiver of any other Default or the same
Default on a future occasion. Neither the failure nor any delay on the
part of Bank in exercising any right, power, or privilege granted
pursuant to this Guaranty and other Loan Documents shall operate as a
waiver thereof, nor shall a single or partial exercise thereof preclude
any other or further exercise or the exercise of any other right, power
or privilege. All remedies available to Bank with respect to this
Guaranty and other Loan Documents and remedies available at law or in
equity shall be cumulative and may be pursued concurrently or
successively. (i) Partnerships. If Guarantor is a partnership, the
obligations, liabilities and agreements on the part of Guarantor shall
remain in full force and
Page 4<PAGE>
<PAGE>
effect and fully applicable notwithstanding any changes in the individuals
comprising the partnership. The term "Guarantor" includes any altered or
successive partnerships, and predecessor partnership(s) and the partners
shall not be released from any obligations or liabilities hereunder. (j)
Loan Documents. The term "Loan Documents" refers to all documents
executed in connection with the Guaranteed Obligations and may include,
without limitation, commitment letters that survive closing, loan
agreements, other guaranty agreements, security agreements, instruments,
financing statements, mortgages, deeds of trust, deeds to secure debt,
letters of credit and any amendments or supplements (excluding swap
agreements as defined in 11 U.S. Code Section 101).
FINANCIAL AND OTHER INFORMATION. Annual Financial Statements. Guarantor
shall deliver to Bank, within 90 days after the close of each fiscal
year, financial statements reflecting its operations during such fiscal
year, including, without limitation, a balance sheet, profit and loss
statement and statement of cash flows, all on a consolidated basis and in
reasonable detail, prepared in conformity with generally accepted
accounting principles, as from time to time in effect. Supporting
schedules to such statements will be supplied upon reasonable request of
Bank. Such statements shall be certified as to their correctness by a
principal financial officer of Guarantor. Additional Information.
Guarantor shall deliver to Bank such information as Bank may reasonably
request from time to time, including without limitation, financial
statements and information pertaining to Guarantor's financial condition.
Such information shall be true, complete, and accurate.
Arbitration. Upon demand of any party hereto, whether made before or
after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to this Guaranty
and other Loan Documents ("Disputes") between or among parties to this
Guaranty shall be resolved by binding arbitration as provided herein.
Institution of a judicial proceeding by a party does not waive the right
of that party to demand arbitration hereunder. Disputes may include,
without limitation, tort claims, counterclaims, disputes as to whether a
matter is subject to arbitration, claims brought as class actions, claims
arising from Loan Documents executed in the future, or claims arising out
of or connected with the transaction reflected by this Guaranty.
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and Title 9 of the U.S.
Code. All arbitration hearings shall be conducted in the city in which
the office of Bank first stated above is located. The expedited
procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000.00. All applicable statutes
of limitation shall apply to any Dispute. A judgment upon the award may
be entered in any court having jurisdiction. The panel from which all
arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired
judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted or if such person is not
available to serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not apply
to disputes under or related to swap agreements.
Preservation and Limitation of Remedies. Notwithstanding the preceding
binding arbitration provisions, Bank and Guarantor agree to preserve,
without diminution, certain remedies that any party hereto may employ or
exercise freely, independently or in connection with an arbitration
proceeding or after an arbitration action is brought. Bank and Guarantor
shall have the right to proceed in any court of proper jurisdiction or by
self-help to exercise or prosecute the following remedies, as applicable:
(i) all rights to foreclose against any real or personal property or other
security by exercising a power of sale granted under Loan Documents or
under applicable law or by judicial foreclosure and sale, including a
proceeding to confirm the sale; (ii) all rights of self-help including
peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional
or ancillary remedies including injunctive relief, sequestration,
garnishment, attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding; and (iv) when applicable, a judgment
by
Page 5<PAGE>
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confession of judgment. Preservation of these remedies does not limit
the power of an arbitrator to grant similar remedies that may be
requested by a party in a Dispute.
Guarantor and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any
right or claim to punitive or exemplary damages they have now or which
may arise in the future in connection with any Dispute whether the
Dispute is resolved by arbitration or judicially.
IN WITNESS WHEREOF, Guarantor, on the day and year first written above,
has caused this Unconditional Guaranty to be executed under seal.
56-0516485
------------------------------
Taxpayer Identification Number
CORPORATE By: /s/ Lee P. Shaffer
-----------------------------------
SEAL President & Chief Executive Officer
ATTEST:
/s/ William L. Boone
- ---------------------------
Secretary
Page 6<PAGE>
EXHIBIT B
KENAN TRANSPORT COMPANY
SCHEDULE OF PERMITTED LIENS
As a result of asset purchase of Transport South, Inc. on December 1,
1997, the December 31, 1997 financial statements to be submitted to First
Union National Bank will include $3,070,260 in capital lease obligations.
<PAGE>
EXHIBIT C
BORROWERS' COMPLIANCE CERTIFICATE
The undersigned officer of Kenan Transport Co. ("KTC") hereby
certifies, pursuant to Section 5.01(d) of the Loan Agreement (the "Loan
Agreement") dated as of February 13, 1998, among KTC and First Union
National Bank (the "Bank"), that:
1. I have reviewed the terms of the Loan Agreement and have made,
or caused to be made under my supervision, a review of the activities and
condition of KTC and its Subsidiaries during the accounting period set
forth below and that as of the date of this Certificate to the best of the
undersigned's knowledge after diligent inquiry the undersigned (on behalf
of the Borrowers and not in his individual capacity) certifies: (a) the
representations and warranties contained in the Loan Agreement and as set
forth in the other Loan Documents are in all material respects true and
correct (except (i) such representations and warranties which relate
specifically to an earlier date or which refer to financial statements
that are not the most recent financial statements of KTC and its
Subsidiaries furnished to the Bank pursuant to the Loan Agreement, and
(ii) those representations which are no longer true due to an action or
event specifically permitted by the provisions of the Loan Documents); (b)
no Default or Event of Default has occurred and is continuing that has not
been waived by the Bank in writing (or if a Default or Event of Default
has occurred, attached is a description in reasonable detail as to the
proposed action to be taken by the Borrowers with respect thereto); and
(c) no change has occurred in the operations or condition, financial or
otherwise, of the Borrowers since the Closing Date which could have a
Material Adverse Effect.
2. (a) Quarterly Statements. The accompanying financial
statements of KTC and its Subsidiaries as of December 31, 1997
for the quarterly accounting period ending December 31, 1997
present fairly, in accordance with GAAP, the financial
position of KTC and its Subsidiaries as of the end of such
period, and the results of operations for such period then
ended, and for the elapsed portion of the fiscal year ended
with the last day of such period, in each case prepared in
accordance with GAAP (except for the absence of footnotes and
normal year-end adjustments under GAAP).
(b) Annual Statements. The accompanying audited financial
statements of KTC and its Subsidiaries as of December 31, 1997
for the annual accounting period ending December 31, 1997
present fairly, in accordance with GAAP, the financial
position of KTC and its Subsidiaries as of the end of such
period, and the results of operations for such period then
ended, on the basis presented.
3. To the best of the undersigned's knowledge after diligent
inquiry, the undersigned (on behalf of the Borrowers and not in his
individual capacity) certifies that the Borrowers have observed, performed
and fulfilled in all material respects each and every obligation and
covenant contained in the Loan Agreement. Attached hereto as Schedule I
are calculations performed by me or under my
Page 1<PAGE>
<PAGE>
supervision demonstrating for the accounting period set forth above the
Borrowers' compliance with each of the following Sections of the Loan
Agreement:
(a) Financial Covenants - Funds from Operations to Funded
Debt Ratio
(b) Financial Covenants - Funded Debt to Capitalization
Capitalized terms used herein and not otherwise defined are used as
defined in the Loan Agreement.
IN WITNESS WHEREOF, I have signed this Certificate as of February
13, 1998.
By: /s/ William L. Boone
------------------------
Name: William L. Boone
------------------------
Title: Vice President - Finance
------------------------
Page 2
EXHIBIT 10.I
PROMISSORY NOTE
$20,000,000.00 February 13, 1998
Kenan Transport Company
143 West Franklin Street
Chapel Hill, North Carolina 27516-3910
(Hereinafter referred to as the "Borrower")
First Union National Bank
301 South Tryon Street
Charlotte, North Carolina 28202
(Hereinafter referred to as the "Bank")
Borrower promises to pay to the order of Bank, in lawful money of the
United States of America, at its office indicated above or wherever else
Bank may specify, on March 31, 2003 or upon any accelerated maturity of
the Obligations hereunder, the sum of Twenty Million Dollars
($20,000,000.00) or such sum as may be advanced and outstanding from time
to time with interest on the unpaid principal balance at the rate and on
the terms provided in this Promissory Note (including all renewals,
extensions or modifications hereof, this "Note").
AVAILABILITY REDUCTION.
The total credit available to Borrower pursuant to this Note "Maximum
Loan Availability" shall decline $500,000 each quarter in accordance
with the Availability Reduction Schedule attached hereto as Exhibit A and
incorporated by reference. The Availability Reduction Schedule, is based
on a five-year level principal amortization of Ten Million Dollars
($10,000,000.00).
INTEREST RATE DEFINITIONS.
Prime Rate. The rate of Bank's Prime Rate minus 1.0% as that rate may
change from time to time with changes to occur on the date Bank's Prime
Rate changes ("Prime-Based Rate"). "Bank's Prime Rate" shall be that
rate announced by Bank from time to time as its prime rate and is one of
several interest rate bases used by Bank. Bank lends at rates both above
and below Bank's Prime Rate, and Borrower acknowledges that Bank's Prime
Rate is not represented or intended to be the lowest or most favorable
rate of interest offered by Bank.
LIBOR Market Index. Libor Market Index as that rate may change from
day-to-day in accordance with changes in the Libor Market Rate Index,
plus a margin based upon the ratio of Borrower's funds from operations to
funded debt ("LIBOR Market Index-Based Rate"), tested on a trailing four
quarter basis as shown below, and adjusted five days after receipt by
Bank of Borrower's quarterly financial statements.
Funds from Operations to Funded Debt Applicable Margin
Less than 0.60 0.625%
Greater than or equal to 0.60 but
less than 1.05 0.500%
Greater than or equal to 1.05 0.375%
Page 1<PAGE>
<PAGE>
"LIBOR Market Index", for any day, is the rate (rounded to the next
higher 1/100 of 1%) for 1 month U.S. dollar deposits as reported on
Telerate page 3750 as of 11:00 a.m., London time, on such day, or if such
day is not a London business day, then the immediately preceding London
business day (or if not so reported, then as determined by Bank from
another recognized source or interbank quotation).
"Funded Debt" is defined as all indebtedness of Borrower and its
subsidiaries for borrowed money, including but not limited to obligations
evidenced by notes, debentures, bonds, capital leases and other similar
instruments.
"Funds From Operations" is defined as net after tax income of Borrower
and its subsidiaries plus depreciation and amortization minus dividends.
All terms not specifically defined herein shall be interpreted according
to generally accepted accounting principles.
INTEREST RATE SELECTION AND ADJUSTMENT.
Interest Rate Options. Subject to the provisions hereof, at the election
of Borrower, the unpaid principal balance of an Advance (defined herein)
under this Note shall bear interest from the date such Advance is made
available to the Borrower at the LIBOR Market Index-Based Rate or
Prime-Based Rate selected by Borrower in accordance herewith (each, an
"Interest Rate"). Borrower shall select the Interest Rate pursuant to
the subparagraph entitled "Notice and Manner of Borrowing and Rate
Conversion" below. There shall be no more than one Interest Rate for an
Advance in effect at any time.
When the Prime-Based Rate is selected for an Advance, it shall be
adjusted daily as applicable to reflect Bank's Prime Rate and the
Prime-Based Rate shall continue to apply until another Interest Rate
option for an Advance is selected pursuant to the subparagraph entitled
"Notice and Manner of Borrowing and Rate Conversion." When the LIBOR
Market Index-Based Rate is selected for an Advance, it shall be
adjusted daily as applicable to reflect LIBOR Market Index and the LIBOR
Market Index-Based Rate shall continue to apply until another Interest
Rate option for an Advance is selected pursuant to the subparagraph
entitled "Notice and Manner of Borrowing and Rate Conversion." Until the
Borrower selects an initial Interest Rate as provided herein, the Advance
shall bear interest at the Prime-Based Rate.
The initial Applicable Margin, for purposes of determining the LIBOR
Market Index shall be calculated according to the ratio of Borrowers
Funds from Operations to Funded Debt reflected in Borrower's Initial
Compliance Certificate based upon financial information from Borrower's
most recently ended quarter.
Default Rate. In addition to all other rights contained in this Note, if
a Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Interest Rate plus 3%
("Default Rate"), except if the Note is governed by the laws of the State
of North Carolina and the original principal amount is under or equal to
$300,000.00, the Default Rate shall be the Prime-Based Rate. The Default
Rate shall also apply from acceleration until the Obligations or any
judgment thereon is paid in full.
Notice and Manner of Borrowing and Rate Conversion. Borrower shall give
Bank irrevocable telephonic notice (confirmed in writing) of each
proposed Advance or rate conversion not later than 11:00 a.m. local time
at the office of Bank first shown above (a) on the same business day as
each proposed Advance or rate conversion to a Prime-Based Rate or LIBOR
Market Index-Based Rate. Each
Page 2<PAGE>
<PAGE>
such notice shall specify (i) the date of such Advance or rate
conversion, which shall be a business day, (ii) the amount of each
Advance or the amount to be converted, and (iii) the Interest Rate
selected by Borrower. Notices received after 11:00 a.m. local time at the
office of Bank first shown above shall be deemed received on the next
business day.
INTEREST AND FEE(S) COMPUTATION. (Actual/360). Interest and fees, if
any, shall be computed on the basis of a 360-day year for the actual
number of days in the applicable period ("Actual/360 Computation"). The
Actual/360 Computation determines the annual effective yield by taking
the stated (nominal) rate for a year's period and then dividing said rate
by 360 to determine the daily periodic rate to be applied for each day in
the applicable period. Application of the Actual/360 Computation
produces an annualized effective rate exceeding that of the nominal rate.
REPAYMENT TERMS. This Note shall be due and payable in consecutive
quarterly payments of accrued interest only commencing on March 31, 1998,
and on each quarterly anniversary thereafter until fully paid. If at any
time the outstanding principal balance on the Note exceeds the Maximum
Loan Availability, whether as a result of an availability reduction or
otherwise, the amount of such excess will be paid immediately to the
Bank. In any event, all principal and accrued interest shall be due and
payable on March 31, 2003.
PREPAYMENT. This Note and the Obligations may be prepaid in part or in
full at any time and from time to time without premium or penalty,
provided however any prepayment in whole or in part will not affect the
Borrower's obligation to continue making payments in connection with any
swap agreement (as defined in 11 U.S.C. 101), which will remain in full
force and effect notwithstanding that prepayment.
AVAILABILITY FEE. Borrower shall pay to Bank quarterly an availability
fee equal to .10% per annum on the average daily unused available
principal under the Note for the preceding calendar quarter or portion
thereof.
FACILITY FEE. Borrower shall pay a facility fee of .10% of the initial
principal loan amount at closing.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for
application toward payment of the Obligations shall be applied to accrued
interest and then to principal. If a Default occurs, monies may be
applied to the Obligations in any manner or order deemed appropriate by
Bank.
If any payment received by Bank under this Note or other Loan Documents
is rescinded, avoided or for any reason returned by Bank because of any
adverse claim or threatened action, the returned payment shall remain
payable as an obligation of all persons liable under this Note or other
Loan Documents as though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this
Note and other Loan Documents refers to all documents executed in
connection with the loan evidenced by this Note, and may include, without
limitation, a commitment letter that survives closing, a loan agreement,
this Note, guaranty agreements, security agreements, security
instruments, financing statements, mortgage instruments, letters of
credit and any renewals or modifications, whenever any of the foregoing
are executed, but does not include swap agreements (as defined in 11
U.S.C. Section 101).
The term "Obligations" used in this Note refers to any and all
indebtedness and other obligations under this Note, all other obligations
and covenants under any other Loan Document(s), and all obligations under
any swap agreements as defined in 11 U.S.C. Section 101 between Borrower
and Bank whenever executed.
Page 3<PAGE>
<PAGE>
LATE CHARGE. If any payments are not timely made, Borrower shall also
pay to Bank a late charge equal to 4% of each payment past due for 15 or
more days.
Acceptance by Bank of any late payment without an accompanying late
charge shall not be deemed a waiver of Bank's right to collect such late
charge or to collect a late charge for any subsequent late payment
received.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of
Bank's reasonable expenses incurred to enforce or collect any of the
Obligations, including, without limitation, reasonable arbitration,
paralegals', attorneys' and experts' fees and expenses, whether incurred
without the commencement of a suit, in any trial, arbitration, or
administrative proceeding, or in any appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan
Documents, if for any reason the effective interest should exceed the
maximum lawful interest, the effective interest shall be deemed reduced
to, and shall be, such maximum lawful interest, and (i) the amount which
would be excessive interest shall be deemed applied to the reduction of
the principal balance of this Note and not to the payment of interest,
and (ii) if the loan evidenced by this Note has been or is thereby paid
in full, the excess shall be returned to the party paying same,
such application to the principal balance of this Note or the refunding
of excess to be a complete settlement and acquittance thereof.
DEFAULT. If any of the following occurs, a default ("Default") under
this Note shall exist:
Nonpayment; Nonperformance. The failure to make any payment of principal
or interest within five days of due date, or of performance of the
Obligations or Default under this Note or any other Loan Documents, which
is not cured within fifteen days of notice thereof, provided however that
the Bank shall not be required to give notice in the event of a violation
by Borrower of the Negative Covenants or the Financial Covenants in the
Loan Agreement and Borrower shall not be entitled to a cure period with
respect to such violations, nor shall the Bank be required to give the
Borrower the opportunity to cure any inaccuracy in a representation that
is required by the Loan Documents to have been true when stated.
False Warranty. A warranty or representation made in the Loan Documents
or furnished Bank in connection with the loan evidenced by this Note
proves to have been materially false when made, or if of a continuing
nature, becomes materially false. Projections regarding future
performance of the Borrower provided by Borrower to Bank in connection
with the loan evidenced by this Note are not deemed to be representations
the ultimate inaccuracy of which can be deemed grounds for default by
Bank.
Cross Default. At Bank's option, any default in payment or performance
of any obligation under any other loans, contracts or agreements of
Borrower or any Subsidiary of Borrower, with Bank or its affiliates.
"Subsidiary" shall mean any corporation of which more than 80% of the
issued and outstanding voting stock is owned directly or indirectly by
Borrower.
Cessation; Bankruptcy. The death of, appointment of guardian for,
dissolution of, termination of existence of, loss of good standing status
by, appointment of a receiver for, assignment for the benefit of
creditors of, or commencement of any bankruptcy or insolvency proceeding
by or against the Borrower or its Subsidiaries, if any, or any general
partner of or the holder(s) of the majority ownership interests of
Borrower, or any party to the Loan Documents.
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions:
Page 4<PAGE>
<PAGE>
Bank Lien. Foreclose its lien against Borrower's accounts without
notice.
Acceleration Upon Default. Accelerate the maturity of this Note and all
other Obligations, and all of the Obligations shall be immediately due
and payable.
Cumulative. Exercise any rights and remedies as provided under the Note
and other Loan Documents, or as provided by law or equity.
LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and,
pursuant to the terms hereof, may prepay and Bank may advance and
readvance under this Note respectively from time to time until the
maturity hereof (each an "Advance" and together the "Advances"), so long
as the total indebtedness outstanding at any one time does not exceed the
principal amount stated on the face of this Note minus the applicable
Availability Reduction. Bank's obligation to make Advances under
this Note shall terminate if Borrower is in Default or a representation
in any of the Loan Documents is false or has become false. As of the
date of each proposed Advance, Borrower shall be deemed to represent that
each representation made in the Loan Documents is true as of such date.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this
Note and other Loan Documents shall be valid unless in writing and signed
by an officer of Bank and, in the case of amendments or modifications,
the other parties hereto. No waiver by Bank of any Default shall operate
as a waiver of any other Default or the same Default on a future
occasion. Neither the failure nor any delay on the part of Bank in
exercising any right, power, or remedy under this Note and other
Loan Documents shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
Each Borrower or any person liable under this Note waives presentment,
protest, notice of dishonor, demand for payment, notice of intention to
accelerate maturity, notice of acceleration of maturity, notice of sale
and all other notices of any kind. Further, each agrees that Bank may
extend, modify or renew this Note or make a novation of the loan
evidenced by this Note for any period and grant any releases, compromises
or indulgences with respect to any collateral securing this Note, or with
respect to any other Borrower or any other person liable under this
Note or other Loan Documents, all without notice to or consent of each
Borrower or each person who may be liable under this Note or other Loan
Documents and without affecting the liability of Borrower or any person
who may be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS.
Assignment. This Note and other Loan Documents shall inure to the
benefit of and be binding upon the parties and their respective heirs,
legal representatives, successors and assigns. Bank's interests in and
rights under this Note and other Loan Documents are freely assignable, in
whole or in part, by Bank. In addition, nothing in this Note or any of
the Loan Documents shall prohibit Bank from pledging or assigning this
Note or any of the Loan Documents or any interest therein to any Federal
Reserve Bank. Borrower shall not assign its rights and interest
hereunder without the prior written consent of Bank, and any attempt by
Borrower to assign without Bank's prior written consent is null and void.
Any assignment shall not release Borrower from the Obligations.
Applicable Law; Conflict Between Documents. This Note and other Loan
Documents shall be governed by and construed under the laws of the state
named in Bank's address shown above without regard to that state's
conflict of laws principles. If the terms of this Note should conflict
with the terms of the loan agreement or any commitment letter that
survives closing, the terms of this Note shall control.
Page 5<PAGE>
<PAGE>
Borrower's Accounts. Except as prohibited by law, Borrower grants Bank a
security interest in all of Borrower's accounts with Bank and any of its
affiliates.
Jurisdiction. Borrower irrevocably agrees to non-exclusive personal
jurisdiction in the state named in Bank's address shown above.
Severability. If any provision of this Note or of the other Loan
Documents shall be prohibited or invalid under applicable law, such
provision shall be ineffective but only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or
the remaining provisions of this Note or other such document.
Notices. Any notices to Borrower shall be sufficiently given, if in
writing and mailed or delivered to the Borrower's address shown above or
such other address as provided hereunder, and to Bank, if in writing and
mailed or delivered to Bank's office address shown above or such other
address as Bank may specify in writing from time to time. In the event
that Borrower changes Borrower's address at any time prior to the date
the Obligations are paid in full, Borrower agrees to promptly give
written notice of said change of address by registered or certified mail,
return receipt requested, or overnight courier, all charges prepaid.
Plural; Captions. All references in the Loan Documents to Borrower,
guarantor, person, document or other nouns of reference mean both the
singular and plural form, as the case may be, and the term "person" shall
mean any individual, person or entity. The captions contained in the
Loan Documents are inserted for convenience only and shall not affect the
meaning or interpretation of the Loan Documents.
Binding Contract. Borrower by execution of and Bank by acceptance of
this Note agree that each party is bound to all terms and provisions of
this Note.
Advances. Bank in its sole discretion may make other Advances under this
Note pursuant hereto.
Posting of Payments. All payments received during normal banking hours
after 2:00 p.m. local time at the office of Bank first shown above shall
be deemed received at the opening of the next banking day.
Fees and Taxes. Borrower shall promptly pay all documentary, intangible
recordation and/or similar taxes on this transaction whether assessed at
closing or arising from time to time.
Arbitration. Upon demand of any party hereto, whether made before or
after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to this Note and
other Loan Documents ("Disputes") between or among parties to this Note
shall be resolved by binding arbitration as provided herein. Institution
of a judicial proceeding by a party does not waive the right of that
party to demand arbitration hereunder. Disputes may include, without
limitation, tort claims, counterclaims, disputes as to whether a matter
is subject to arbitration, claims brought as class actions, claims
arising from Loan Documents executed in the future, or claims arising out
of or connected with the transaction reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and Title 9 of the U.S.
Code. All arbitration hearings shall be conducted in the city in which
the office of Bank first stated above is located. The expedited
procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000.00. All applicable statutes
of limitation shall apply to any Dispute. A judgment upon the award may
be entered in any court having jurisdiction. The panel from which all
arbitrators are selected shall be comprised of licensed attorneys. The
single
Page 6<PAGE>
<PAGE>
arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state
where the hearing will be conducted or if such person is not available to
serve, the single arbitrator may be a licensed attorney. Notwithstanding
the foregoing, this arbitration provision does not apply to disputes
under or related to swap agreements.
Preservation and Limitation of Remedies. Notwithstanding the preceding
binding arbitration provisions, Bank and Borrower agree to preserve,
without diminution, certain remedies that any party hereto may employ or
exercise freely, independently or in connection with an arbitration
proceeding or after an arbitration action is brought. Bank and Borrower
shall have the right to proceed in any court of proper jurisdiction or by
self-help to exercise or prosecute the following remedies, as applicable:
(i) all rights to foreclose against any real or personal property or
other security by exercising a power of sale granted under Loan Documents
or under applicable law or by judicial foreclosure and sale, including a
proceeding to confirm the sale; (ii) all rights of self-help including
peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional
or ancillary remedies including injunctive relief, sequestration,
garnishment, attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding; and (iv) when applicable, a judgment
by confession of judgment. Preservation of these remedies does not limit
the power of an arbitrator to grant similar remedies that may be
requested by a party in a Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any
right or claim to punitive or exemplary damages they have now or which
may arise in the future in connection with any Dispute whether the
Dispute is resolved by arbitration or judicially.
IN WITNESS WHEREOF, Borrower, on the day and year first above
written, has caused this Note to be executed under seal.
Kenan Transport Company
Taxpayer Identification Number: 56-0516485
CORPORATE By: /s/ Lee Shaffer
----------------------------
SEAL President & CEO
ATTEST: /s/ William L. Boone
-----------------------------
Secretary
Page 7
<PAGE>
EXHIBIT A
AVAILABILITY REDUCTION SCHEDULE
Date Availability
------------------ -----------------
Closing - 6-30-98 $20,000,000
07/1/98 - 09/30/98 $19,500,000
10/1/98 - 12/31/98 $19,000,000
01/1/99 - 03/31/99 $18,500,000
04/1/99 - 06/30/99 $18,000,000
07/1/99 - 09/30/99 $17,500,000
10/1/99 - 12/31/99 $17,000,000
01/1/00 - 03/31/00 $16,500,000
04/1/00 - 06/30/00 $16,000,000
07/1/00 - 09/30/00 $15,500,000
10/1/00 - 12/31/00 $15,000,000
01/1/01 - 03/31/01 $14,500,000
04/1/01 - 06/30/01 $14,000,000
07/1/01 - 09/30/01 $13,500,000
10/1/01 - 12/31/01 $13,000,000
01/1/02 - 03/31/02 $12,500,000
04/1/02 - 06/30/02 $12,000,000
07/1/02 - 09/30/02 $11,500,000
10/1/02 - 12/31/02 $11,000,000
01/1/03 - 03/31/03 $10,500,000
Page 8 <PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kenan Transport Company:
As Independent Public Accountants, we hereby consent to the
incorporation of our report, dated February 19, 1998, included
in this Form 10-K, into the Company's previously filed Registration
Statement No. 33-2494 on Form S-8, dated January 23, 1986.
Arthur Andersen LLP
Raleigh, North Carolina,
March 30, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000745379
<NAME> KENAN TRANSPORT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,422
<SECURITIES> 0
<RECEIVABLES> 8,020
<ALLOWANCES> 0
<INVENTORY> 521
<CURRENT-ASSETS> 16,067
<PP&E> 85,161
<DEPRECIATION> 32,922
<TOTAL-ASSETS> 77,115
<CURRENT-LIABILITIES> 14,314
<BONDS> 0
0
0
<COMMON> 3,096
<OTHER-SE> 49,368
<TOTAL-LIABILITY-AND-EQUITY> 77,115
<SALES> 0
<TOTAL-REVENUES> 73,308
<CGS> 0
<TOTAL-COSTS> 66,846
<OTHER-EXPENSES> (174)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 6,596
<INCOME-TAX> 2,506
<INCOME-CONTINUING> 4,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,090
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
</TABLE>
