<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(AS FILED VIA EDGAR ON NOVEMBER 15, 1999)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from __________ to _________________
Commission file number 0-14060
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INTRENET, INC.
--------------
(Exact name of registrant as specified in its charter)
INDIANA 35-1597565
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
400 TECHNECENTER DRIVE, SUITE 200, MILFORD, Ohio 45150
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 576-6666
--------------------
Not Applicable
---------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, without par value, 13,724,066 shares issued and
outstanding at November 1, 1999.
<PAGE> 2
INTRENET, INC.
--------------
FORM 10-Q
---------
SEPTEMBER 30, 1999
------------------
INDEX
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PAGE
<TABLE>
<CAPTION>
Part I - Financial Information:
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 ................. 3
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended ................. 4
September 30, 1999 and 1998
Condensed Consolidated Statement of Shareholders' Equity
Nine Months Ended September 30, 1999 ................. 5
Condensed Consolidated Statements of Cash Flows
Three Months and Nine Months Ended ................. 6
September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements ................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ................. 13
Part II - Other Information:
Item 1. Legal Proceedings ................. 14
Item 2. Changes in Securities ................. 14
Item 3. Defaults Upon Senior Securities ................. 14
Item 4. Submission of Matters to a Vote of Security Holders ................. 14
Item 5. Other Information ................ 15
Item 6. Exhibits and Reports on Form 8-K ................. 15
</TABLE>
2
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<TABLE>
<CAPTION>
INTRENET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(In Thousands of Dollars)
Assets 1999 1998
------ ---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 918 $ 271
Receivables, principally freight revenue less
allowance for doubtful accounts of $1,820 in 1999
and $1,537 in 1998 41,082 33,233
Prepaid expenses and other 5,809 5,402
------- -------
Total current assets 47,809 38,906
Property and equipment, at cost, less accumulated
depreciation 25,196 28,833
Reorganization value in excess of amounts allocated
to identifiable assets, net of accumulated amortization 4,652 4,967
Deferred income taxes, net 2,886 2,886
Other assets 573 2,208
------- -------
Total assets $81,116 $77,800
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current debt and capital lease obligations $ 3,863 $ 5,789
Accounts payable and cash overdrafts 11,480 9,439
Current accrued claim liabilities 7,429 7,878
Other accrued expenses 7,744 7,418
------- -------
Total current liabilities 30,516 30,524
------- -------
Long-term debt and capital lease obligations 25,590 20,105
Long-term accrued claim liabilities 2,800 2,800
------- -------
Total liabilities 58,906 53,429
------- -------
Shareholders' equity:
Common stock, without par value; 20,000,000
shares authorized; 13,724,066 and 13,662,066 shares
issued and outstanding, respectively 16,991 16,856
Retained earnings since January 1, 1991 5,219 7,515
------- -------
Total shareholders' equity 22,210 24,371
------- -------
Total liabilities and shareholders' equity $81,116 $77,800
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
INTRENET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
(In Thousands of Dollars, Except Per Share Data)
Three Months Nine Months
Ended Sept 30, Ended Sept 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $ 74,702 $ 69,794 $ 213,188 $ 196,820
Operating expenses:
Purchased transportation
and equipment rents 35,246 31,526 99,338 88,624
Salaries, wages, and benefits 18,281 16,952 53,386 47,183
Fuel and other operating expenses 13,876 12,759 38,588 35,919
Operating taxes and licenses 2,304 2,604 7,423 7,672
Insurance and claims 1,847 2,145 5,855 6,090
Depreciation 970 973 2,938 2,937
Other operating expenses 998 840 3,177 2,763
------------ ------------ ------------ ------------
73,522 67,799 210,705 191,188
------------ ------------ ------------ ------------
Operating income 1,180 1,995 2,483 5,632
Interest expense (607) (638) (1,848) (1,941)
Contigent liability special charge (293) -- (2,500) --
Other expense, net (105) (105) (315) (315)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 175 1,252 (2,180) 3,376
Provision for income taxes (24) (284) (116) (775)
------------ ------------ ------------ ------------
Net earnings (loss) $ 151 $ 968 $ (2,296) $ 2,601
============ ============ ============ ============
Earnings (loss) per common and common
equivalent share
Basic $ 0.01 $ 0.07 $ (0.17) $ 0.19
============ ============ ============ ============
Diluted $ 0.01 $ 0.07 $ (0.17) $ 0.19
============ ============ ============ ============
Weighted average shares outstanding during period 13,701,077 13,550,638 13,681,579 13,550,171
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
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<TABLE>
<CAPTION>
INTRENET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
(In Thousands of Dollars)
Retained Shareholders'
Common Stock Earnings Equity
------------------------- ---------- ----------
Shares Dollars
---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 13,662,066 $ 16,856 $ 7,515 $ 24,371
Exercise of stock options 62,000 135 -- 135
Net loss for 1999 -- -- (2,296) (2,296)
---------- ---------- ---------- ----------
Balance, September 30, 1999 13,724,066 $ 16,991 $ 5,219 $ 22,210
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
INTRENET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
(In Thousands of Dollars)
Three Months Nine Months
Ended Sept 30, Ended Sept 30,
----------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 151 $ 968 $(2,296) $ 2,601
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Deferred income taxes -- 284 -- 775
Depreciation and amortization 1,089 1,089 3,281 3,293
Provision for doubtful accounts 21 129 249 262
Contigent liability charge -- -- 2,118 --
Changes in assets and liabilities, net:
Receivables (2,441) (1,229) (8,098) (4,821)
Prepaid expenses 294 763 (407) (980)
Accounts payable and accrued expenses 1,608 (664) 1,435 217
------- ------- ------- -------
Net cash provided by (used in)
operating activities 722 1,340 (3,718) 1,347
------- ------- ------- -------
Cash flows from financing activities:
Net borrowings on line of
credit, net 274 (184) 6,187 2,645
Principal payments on long-term debt (769) (945) (2,627) (2,771)
Proceeds from exercise of stock options 110 -- 135 5
------- ------- ------- -------
Net cash provided by (used in)
financing activities (385) (1,129) 3,695 (121)
------- ------- ------- -------
Cash flows from investing activities:
Additions to property and equipment (215) (421) (1,271) (1,067)
Disposals of property and equipment 456 12 1,941 109
------- ------- ------- -------
Net cash provided by (used in)
investing activities 241 (409) 670 (958)
------- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents 578 (198) 647 268
Cash and cash equivalents:
Beginning of period 340 1,064 271 598
------- ------- ------- -------
End of period $ 918 $ 866 $ 918 $ 866
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE> 7
INTRENET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
(1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------
The accompanying unaudited consolidated financial statements include
the accounts of Intrenet, Inc. and all of its subsidiaries (collectively, the
Company). Operating subsidiaries at September 30, 1999 were Roadrunner Trucking,
Inc. (RRT), Eck Miller Transportation Corporation (EMT), Advanced Distribution
System, Inc. (ADS), and Roadrunner Distribution Services, Inc. (RDS). Also
included is the Company's broker and logistics manager, INET Logistics, Inc.
(INL). All significant intercompany transactions are eliminated in
consolidation. Through its subsidiaries, the Company provides general and
specialized truckload carrier, brokerage and logistics management services
throughout North America.
The consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). In management's opinion, these financial statements include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the results of operations for the interim periods
presented. Pursuant to SEC rules and regulations, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from these statements unless significant changes have taken place since
the end of the most recent fiscal year. For this reason, the accompanying
consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the year ended December
31, 1998, included in the Company's 1998 Annual Report on Form 10-K.
Earnings per common and common equivalent share have been computed on
the basis of the weighted average common shares outstanding during the periods.
The results for the three month and nine month periods ended September
30, 1999, are not necessarily indicative of the results to be expected for the
entire year.
(2) INCOME TAXES
- ----------------
Due to the year-to-date loss in 1999, the Company did not record
Federal tax expense for the year. The tax assets created in 1999 have been fully
reserved. Tax expense reflected in the Statement of Operations as of September
30, 1999, consist of a provision for state and local income taxes.
(3) CONTINGENT LIABILITIES
- --------------------------
On June 13, 1997, the Company received notice from the Central States
Southeast and Southwest Areas Pension Fund (the "Fund") of a claim pursuant to
the Employee Retirement Income Security Act of 1974, as amended by the
Multi-employer Pension Plan Amendments Act of 1980 ("MPPAA"). MPPAA provides
that, if an employer withdraws from participation in a multi-employer pension
plan, such as the Fund, the employer and members of the employer's "controlled
group" of businesses are jointly and severally liable for a portion of the
plan's under funding. The claim was based on the withdrawal of R-W Service
System, Inc. ("RW") from the Fund in 1992. RW was an indirect subsidiary of the
Company's predecessor, Circle Express, Inc., from March 1985 through April 1988,
when it and certain other subsidiaries were sold. The Fund claimed that RW's
withdrawal liability was approximately $3.7 million plus accrued interest in the
amount of approximately $1.7 million. The Company filed a formal request for
review of the claim and began making interim payments to the Fund as provided by
the MPPAA. Through September 30, 1999, the Company had made payments to the Fund
that total approximately $2.3 million. As previously reported, the Company
offered to pay the Fund $2.2 million and established a special charge of $2.2
million with respect to this claim in the second quarter of 1999. In September
1999, the Company finalized negotiations and settled the claim with the Fund for
a total of $2.5 million. Accordingly, the Company recorded an additional $0.3
million special charge for the third quarter of 1999. Under the terms of the
settlement, the Company will continue to make monthly payments of $88,500
through November 1999, with a final payment in December 1999, of approximately
$30,000.
The Company's subsidiary, RDS, was a defendant in an action brought on
March 20, 1997, in the 327th District Court, El Paso, Texas, by a former
employee. The plaintiff alleged that he was injured as a result of the
negligence and gross negligence of RDS and received discriminatory treatment in
violation of the Texas Health and Safety Code. On March 13, 1998, a default
judgment was entered against RDS in the approximate amount of $1.0 million,
representing damages for medical expenses, loss of wage earning capacity,
physical pain and mental anguish, physical
7
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impairment, disfigurement and punitive damages. RDS filed an appeal to the 8th
Circuit Court of Appeals in El Paso, Texas and on July 29, 1999, the 8th Circuit
Court of Appeals in El Paso issued a favorable ruling for RDS, reversing the
default judgment and remanding the case for trial. The case remains in an early
stage. Management believes that this action should not have a material adverse
effect on the Company's liquidity, results of operations or financial condition.
There are no other material pending legal proceedings to which the
Company or any of its subsidiaries is a party or of which any of their property
is the subject, other than routine litigation incidental to its business,
primarily involving claims for personal injury and property damage incurred in
the transportation of freight. The Company maintains insurance which covers
liability resulting from such transportation related claims in amounts customary
for the industry and which management believes to be adequate.
(4) TRANSACTIONS WITH AFFILIATED PARTIES
- ----------------------------------------
To date, in 1999, the Company has leased approximately 224 tractors
from an unaffiliated leasing company which had purchased the trucks from a
dealership affiliated with the Company's chief executive officer. The lessor
paid a selling commission to the dealership. The terms of the lease were the
result of negotiations between the Company and the lessor. The Company believes
the involvement of the selling dealership did not result in lease terms that are
less favorable to the Company than would otherwise be available to it. During
the last three years, the Company has leased an average of 225 tractors a year
that were purchased from the dealership. The Company also purchases maintenance
parts and services from the dealership from time to time. Total payments to the
dealership for these services have average approximately $500,000 per year for
the last three years.
In the third quarter of 1999, the Company accepted the placement of a
fleet automobile policy from an unaffiliated insurance company through an agency
that is affiliated with the Company's chief executive officer. The annual
premium is approximately $30,000 for a one year coverage beginning October 1,
1999. The Company believes the terms of the policy are not less favorable to the
Company than policies from unaffiliated agencies.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
INTRODUCTION
- ------------
The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto appearing
elsewhere in this report. Certain statements made in this report relating to
trends in the Company's business, as well as other statements including such
words as "believe", "expect", "anticipate", and other similar expressions
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve a
variety of risks and uncertainties, known and unknown, including but not limited
to: changes in general economic and market conditions; the availability and cost
of qualified drivers; the availability and price of diesel fuel; the impact and
cost of government regulations and taxes on the operation of the Company's
business, as well as other risks specifically described in this report.
The Company reported net income of $151,000 on revenues of $74.7
million in the three months and a net loss of $2,296,000 on revenues of $213.2
million in the nine months ended September 30, 1999. This compares with net
earnings of $968,000 on revenues of $69.8 million, and net earnings of
$2,601,000 on revenues of $196.8 million in the comparable periods of 1998,
respectively. The Company's revenue grew by 7.0 percent in the third quarter of
1999 and all of its operating subsidiaries reported revenue improvements for the
quarter and the full year. Diesel fuel prices have been increasing all year. The
national average price per gallon at the end of the third quarter was
approximately $1.22, nearly $0.25 higher than the beginning of the year. Revenue
miles increased for the quarter and year to date; however, increased fuel cost,
driver compensation increases and a shortage of drivers have adversely affected
profitability. The Company experienced a final settlement expense of $0.3
million this quarter in connection with a legal proceeding, for a year to date
charge of $2.5 million. Barring any unforeseen changes in the overall economy,
the Company expects that future operations will benefit from continuing cost
reduction programs in the areas of a better fuel purchase network, safety and
technological enhancements.
Revenue miles for the third quarter of 1999, increased to 46.7 million
miles from 43.6 million miles as a result of a greater average number of
tractors in the fleet. Revenue per revenue mile in the third quarter of 1999,
improved by 1.5 percent to $1.40 per mile, up from $1.38 last year.
In July 1999, RRT entered into an agency agreement in the Dallas,
Texas, area which added approximately 100 company drivers and 50 owner
operators. The cost related to the effect of positioning equipment for this new
business negatively impacted profitability in the third quarter 1999.
The Company's total operating fleet, including owner-operators, at the
end of the third quarter of 1999 was 2,564 tractors, up from 2,249 at the end of
the third quarter of 1998, an increase of approximately 14 percent. The number
of Company owned tractors, at the end of the third quarter in 1999, grew by 9
percent, while the owner operator tractors grew by 19%, as compared with 1998.
A discussion of the impact of the above and other factors on the
results of operations in the three months and nine months ended September 30,
1999, as compared to the comparable periods of 1998 follows.
<TABLE>
<CAPTION>
1999 COMPARED TO 1998
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Sept 30 % Nine Months Ended Sept 30 %
---------------------------------- --------------------------------
KEY OPERATING STATISTICS 1999 1998 Change 1999 1998 Change
- ------------------------ ---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues ($ millions) $74.7 $69.8 7.0% $213.2 $196.8 8.3%
Average Number of Tractors 2,543 2,268 12.1% 2,404 2,245 7.1%
Total Loads (000's) 98.0 92.0 6.5% 286.5 266.9 7.3%
Revenue Miles (millions) 46.7 43.6 7.1% 132.5 125.7 5.4%
Average Revenue per
Revenue Mile * $1.40 $1.38 1.5% $1.39 $1.37 1.5%
- ------------------------------------------------------------------------------------------------------------------------------
* Excluding brokerage revenue
</TABLE>
9
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OPERATING REVENUES
Operating revenues for the three months and nine months ended September
30, 1999, totaled $74.7 million and $213.2 million, respectively, as compared to
$69.8 million and $196.8 million for the same periods in 1998, reflecting better
freight availability and selection than the prior year. All of the Company's
operating subsidiaries continued to grow in 1999. Revenue increased by $4.9
million, or 7.0 percent, in the three months, and $16.4 million, or 8.3 percent,
in the nine months ended September 30, 1999, over the comparable 1998 periods.
The average number of Company owned tractors increased approximately 10.0
percent from 1,227 to 1,349 in the nine month period ended September 30, 1999,
from the comparable period in 1998, and the average owner-operator tractor count
increased 3.5 percent from 1,018 to 1,054. Approximately 49.5 percent of the
Company's revenue was generated by Company-operated equipment, and 37.0 percent
by owner-operator equipment in the nine months ended September 30, 1999, which
is comparable to the 1998 period. The remaining revenues were from freight
brokered to other carriers ("brokered freight").
The Company experienced a 1.5 percent improvement in the average
revenue per revenue mile for the nine months of 1999, as compared to 1998. This
improvement is attributable to the installation of load selection software, in
use for the entire quarter, and a tightening of capacity in the markets served
by the Company.
OPERATING EXPENSES
- ------------------
The following table sets forth the percentage relationship of operating
expenses to operating revenues for the three months and nine months ended
September 30.
<TABLE>
<CAPTION>
Three Months Ended Sept 30 Nine Months Ended Sept 30
------------------------------------- -------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues 100 % 100 % 100 % 100 %
Operating expenses:
Purchased transportation
and equipment rents 47.2 45.1 46.6 45.0
Salaries, wages and benefits 24.4 24.3 25.0 24.0
Fuel and other operating expenses 18.6 18.3 18.1 18.2
Operating taxes and licenses 3.1 3.7 3.5 3.9
Insurance and claims 2.5 3.1 2.7 3.1
Depreciation 1.3 1.4 1.4 1.5
Other operating expenses 1.3 1.2 1.5 1.4
--- --- --- ---
Total operating expenses 98.4% 97.1% 98.8% 97.1%
==== ==== ==== ====
</TABLE>
Purchased transportation and equipment rents increased as a percentage
of revenue due to the increased amount of brokered and owner operator freight.
Salaries, wages and benefits remained constant for the quarter despite the
increased cost related to equipment positioning for the RRT agency agreement.
Salaries and wages are higher year to date because of the increases in driver
pay at all of the trucking subsidiaries plus one time charges in the second
quarter relating to severance agreements with two former executives that totaled
approximately $550,000. The driver pay increases have been made in response to
the highly competitive marketplace for driver services. Fuel and other operating
expenses are attributable to Company-operated equipment and these expenses have
remained relatively unchanged compared to 1998 despite the rapid rise in fuel
prices. Fuel prices for the third quarter of 1999 were approximately 20 percent
higher than the same period of 1998 equating to nearly $1,000,000 additional
fuel cost in the third quarter of 1999, as compared to 1998. The effect of this
rise in fuel prices has been offset slightly by an average MPG gain in the
overall Company fleet, lower maintenance costs, reduced miscellaneous fleet cost
and lower commission agent fees. Operating taxes and licenses are down as a
percent of revenue due to the growth in owner-operator and brokerage revenues
not requiring licensing from the Company. Insurance costs as a percent of
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revenues are lower for the quarter and year to date due to reductions in fleet
insurable repairs and claim costs related to revenues. All other operating
expenses have remained relatively unchanged.
In summary, driver turnover and wages, fuel price increases, severance
expenses and a shortage of drivers have adversely affected the Company's
operating expenses for the third quarter and the first nine months of 1999.
INTEREST EXPENSE
- ----------------
Bank borrowings were higher in 1999, than 1998, while capitalized lease
debt was lower. The less expensive bank debt and the reduction in the borrowing
rate due to the amended bank agreements in 1999 caused interest expense to be
slightly less compared to 1998.
CONTINGENT LIABILITY SPECIAL CHARGE
- -----------------------------------
During the third quarter of 1999, the Company charged the income
statement $0.3 million representing the final portion of the Company's $2.5
million settlement of a claim asserted by the Central States Southeast
and Southwest Areas Pension Fund (the "Fund"). The Company made interim
payments to the Fund that total approximately $2.2 million through August 1999,
and recognized that expense at June 30, 1999, when it offered to settle the
claim for that amount. The Company and the Fund have now agreed on the terms of
a settlement. The remaining balance of the settlement will be paid monthly with
a final payment in December. The balance due is recorded in the Company's
Condensed Balance Sheet as a current liability. For further information, see
Part II - Item 1 of this report.
PROVISION FOR INCOME TAXES
- --------------------------
Due to the year-to-date loss in 1999, the Company did not record
Federal tax expense for the year. The tax assets created in 1999 have been fully
reserved. Tax expense reflected in the Statement of Operations as of September
30, 1999, consist of a provision for state and local income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $647,000 of cash in the nine months of 1999,
compared to $268,000 in 1998. As reflected in the accompanying Consolidated
Statements of Cash Flows, $3.7 million of cash was used in operating activities,
primarily by increased accounts receivable, offset by depreciation, other
noncash charges related to the pension fund and other working capital. The
largest working capital need was incurred in accounts receivable of $8.1
million. Net cash of $3.7 million was generated by financing activities,
primarily bank borrowings. Net cash of $670,000 was provided in financing
activities, primarily from the net disposal of property and equipment.
The Company's day-to-day financing is provided by borrowings under its
bank credit facility. The credit facility, as amended on May 7, 1999, consists
of a $2 million term loan and a $5 million capital expenditure loan, both with a
maturity date of December 31, 2000 and a $28 million revolving line of credit,
which expires January 1, 2001. The current interest rate margin on all credit
lines from the August 17, 1999, amendment, is 175 basis points over LIBOR.
Quarterly principal payments of $100,000 on the term loan are required. There is
currently nothing outstanding under the capital expenditure loan. The line of
credit includes provisions for the issuance of standby letters of credit which,
as issued, reduce available borrowings under the line of credit. Borrowings
under the line of credit are limited to amounts determined by a borrowing base
formula tied to the Company's eligible accounts receivable and inventories, as
defined in the credit facility. Borrowings under the revolving line of credit
totaled $15.2 million at September 30, 1999, and outstanding letters of credit
totaled $7.5 million at that date. The combination of these two bank credits
totaled $22.7 million at September 30, 1999.
The credit facility contains financial covenants that required the
Company to maintain certain net worth and other financial ratios. As a result of
the loss in 1999, the Company would not have been in compliance with all of the
financial covenants contained in the May 7, 1999, amended bank agreement. The
Company's bank agreement was amended again on August 17, 1999. The amended
agreement, which became effective June 30, 1999, amended the financial covenants
for June 1999, and future periods in a manner to accommodate the expenses
related to the contingent liability special charge and the severance
arrangements with former management. This amendment also limited the
availability to the Company's capital expenditure loan of $5,000,000 until the
Company has met a specified fixed charge ratio coverage for three consecutive
months.
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The Company was in compliance with all its debt covenants, as amended,
for the period ending September 30, 1999. The capital expenditure loan is not
available at this time.
On November 5, 1999, the Company was notified by the bank that the
recently conducted collateral audit as of June 30, 1999, indicated that the
Company may have incorrectly calculated the borrowing base upon which advances
have been made. As a result, the bank concluded that at June 30, the Company's
aggregate amount outstanding pursuant to Letters of Credit plus aggregate unpaid
balance of the Revolving Line was very close, or may have exceeded the borrowing
base. The bank is now reviewing the borrowing base as of September 30, 1999. The
bank and the Company believe that at September 30, 1999, the aggregate amount
outstanding pursuant to Letters of Credit plus aggregate unpaid principal
balance did not exceed the amount permitted by the borrowing base. Management
expects to meet with bank representatives in the near future to discuss this and
other issues relating to the bank credit facility.
On October 1, 1999, the Company elected to change its insurance
carriers for renewal of certain policies. The new insurance companies require
that $3.4 million of letters of credit be posted in securement of deductible
exposure, ratably over the 12 month period ending September, 2000. In addition,
the Company was recently notified by the former carrier of certain of its
insurance policies that the Company would need to provide additional collateral
in the form of approximately $2.8 million of letters of credit to secure the
Company's deductible obligations for outstanding claims. The Company has
disputed the calculations which form the basis of the request. The insurer has
agreed to defer any request for additional collateral pending a claims audit
scheduled to be completed by November 24, 1999. Final collateral will be
communicated within 10 days of the audit. If the audit cannot be completed, the
requirement will revert back to the additional $2.8 million due by December 10,
1999.
If the Company is not able to make additional borrowings under its
bank credit facility or if the Company would need to provide significant amounts
of additional collateral to its former insurer, the Company's ability to meet
its cash needs for operations and capital investments would be materially and
adversely affected. In such event, management believes that the Company would
have to obtain other sources of liquidity, including obtaining a credit facility
from another institution or an equity offering. There can be no assurance that
these alternative courses of action would succeed.
YEAR 2000
The Company has assessed, and continues to assess, the impact of the
Year 2000 Issue on its reporting systems and operations. The Year 2000 Issue
exists because many computer systems and applications currently use two-digit
date fields to designate a year. As the century date occurs, date sensitive
systems will recognize the year 2000 as 1900 or not at all. This inability to
recognize or properly treat the year 2000 may cause our systems to process
critical financial and operational information incorrectly or may cause the
system to discontinue functioning altogether. One of the more significant Year
2000 issues faced by the Company is from its fully integrated dispatch and
equipment control systems, which were not Year 2000 compliant. The Company
updated and worked with the vendors of any products it is using to install new
models and/or modify all of its applications and computer systems and, in
particular, its dispatch and equipment control system to insure that they will
be Year 2000 compliant. All programs have been tested and problems identified
have been resolved. The Company incurred cost of approximately $50,000 and
expects any future costs, if any, to be minimal. These costs have been charged
to operations as incurred. Management has not developed any contingency plan
regarding its dispatch and equipment control systems at this time, but will
develop one, if deemed necessary.
As part of the Company's comprehensive review, it is continuing to
verify the Year 2000 readiness of third parties (vendors and customers) with
whom the Company has material relationships. Based on efforts to date, the
Company believes that there will be no material adverse effect on the Company's
results of operations, liquidity, and financial condition in the event the
Company's material vendors and customers are not Year 2000 compliant. The
Company will continue to monitor its material vendors and customers and
formulate a contingency plan when the Company believes a material vendor or
customer will not be compliant.
The percentage of completion, the date on which the Company believes it
had completed with its Year 2000 compliance efforts, and the expenses related to
the Company's Year 2000 compliance efforts are based on management's best
estimates. Actual results could materially differ from those anticipated. There
can be no assurances that the systems or products of third parties on which the
Company relies will be timely converted or that a failure by a third party, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.
12
<PAGE> 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings are impacted by financial risk related to
volatility in interest rates related to variable debt instruments. These debt
instruments are non-trading in nature and are used to fund the Company's
day-to-day operations. Based upon the principal amounts outstanding at September
30, 1999, for those variable rate debt instruments, a market change of 100
basis-points in interest rates would correspond to an approximately $150,000
impact in interest expense for a one-year period. This sensitivity analysis does
not account for any change in the borrowings outstanding, which may be reduced
through payments or increased through additional borrowings, and does not
consider the Company's ability to fix the interest rate on one of the three
variable rate debt instruments. The Company has no material future earnings
impact or cash flow expense from changes in interest rates related to its
financing of operating equipment as all of the Company's equipment financing has
fixed rates.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 13, 1997, the Company received notice from the Central States
Southeast and Southwest Areas Pension Fund (the "Fund") of a claim pursuant to
the Employee Retirement Income Security Act of 1974, as amended by the
Multi-employer Pension Plan Amendments Act of 1980 ("MPPAA"). MPPAA provides
that, if an employer withdraws from participation in a multi-employer pension
plan, such as the Fund, the employer and members of the employer's "controlled
group" of businesses are jointly and severally liable for a portion of the
plan's under funding. The claim was based on the withdrawal of R-W Service
System, Inc. ("RW") from the Fund in 1992. RW was an indirect subsidiary of the
Company's predecessor, Circle Express, Inc., from March 1985 through April 1988,
when it and certain other subsidiaries were sold. The Fund claimed that RW's
withdrawal liability was approximately $3.7 million plus accrued interest in the
amount of approximately $1.7 million. The Company filed a formal request for
review of the claim and began making interim payments to the Fund as provided by
the MPPAA. Through September 30, 1999, the Company had made payments to the Fund
that total approximately $2.3 million. As previously reported, the Company
offered to pay the Fund $2.2 million and established a special charge of $2.2
million with respect to this claim in the second quarter of 1999. In September
1999, the Company finalized negotiations and settled the claim with the Fund for
a total of $2.5 million. Accordingly, the Company recorded an additional $0.3
million special charge for the third quarter of 1999. Under the terms of the
settlement, the Company will continue to make monthly payments of $88,500
through November 1999, with a final payment in December 1999, of approximately
$30,000.
The Company's subsidiary, RDS, was a defendant in an action brought on
March 20, 1997, in the 327th District Court, El Paso, Texas, by a former
employee. The plaintiff alleged that he was injured as a result of the
negligence and gross negligence of RDS and received discriminatory treatment in
violation of the Texas Health and Safety Code. On March 13, 1998, a default
judgment was entered against RDS in the approximate amount of $1.0 million,
representing damages for medical expenses, loss of wage earning capacity,
physical pain and mental anguish, physical impairment, disfigurement and
punitive damages. RDS filed an appeal to the 8th Circuit Court of Appeals in El
Paso, Texas and on July 29, 1999, the 8th Circuit Court of Appeals in El Paso
issued a favorable ruling for RDS, reversing the default judgment and remanding
the case for trial. The case remains in an early stage. Management believes that
this action should not have a material adverse effect on the Company's
liquidity, results of operations or financial condition.
There are no other material pending legal proceedings to which the
Company or any of its subsidiaries is a party or of which any of their property
is the subject, other than routine litigation incidental to its business,
primarily involving claims for personal injury and property damage incurred in
the transportation of freight. The Company maintains insurance which covers
liability resulting from such transportation related claims in amounts customary
for the industry and which management believes to be adequate.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
14
<PAGE> 15
ITEM 5. OTHER INFORMATION
On September 15, 1999, the Company hired John P. Chandler as Executive
Vice-president and Chief Operating Officer. Mr. Chandler was Chief Executive
Officer for Tow America/Reliable Recovery Services, Inc., since 1998. From 1984
to 1997 he was with Caliber System, Inc., and it's subsidiary RPS, the nation's
second largest ground carrier of small package freight.
On November 1, 1999, ADS appointed Robert J. Christie as President
replacing Leo D. Blumenauer. Mr. Christie was Chief Operating Officer with
Eastern Connection prior to joining the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 10.1 - Sixth Amendment to the Fourth
Amended and Restated Loan Agreement
dated as of August 17, 1999.
Exhibit 10.2 - Employment Agreement with John P. Chandler
Exhibit 10.3 - Option Agreement with Eric C. Jackson
Exhibit 10.4 - Option Agreement with John P. Chandler
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTRENET, INC.
---------------------
(Registrant)
/S/ Eric C. Jackson,
President and Chief
Executive Officer
November 15, 1999 /S/ Russell L. Deeg,
Vice-President, Finance and
Administration
(Principal Financial and
Accounting Officer)
16
<PAGE> 1
EXHIBIT 10.1
SIXTH AMENDMENT TO FOURTH AMENDED AND
RESTATED LOAN AGREEMENT
THIS SIXTH AMENDMENT (this "Amendment") to the Fourth Amended and Restated Loan
Agreement is entered into as of the 17th day of August, 1999, by and between The
Huntington National Bank (the "Bank") as lender, and Intrenet, Inc. (the
"Borrower"), and its wholly owned subsidiaries Advanced Distribution System,
Inc., Eck Miller Transportation Corporation, INET Logistics, Inc., Mid-Western
Transport, Inc., Roadrunner Enterprises, Inc., Roadrunner Trucking, Inc.,
Roadrunner Distribution Services, Inc. and Roadrunner International Services,
Inc. (collectively the "Subsidiaries") as borrowers. The Borrower and the
Subsidiaries are herein collectively referred to as the "Companies" and
separately as a "Company").
RECITALS:
A. On or about January 15, 1996, the Companies (with the exception of INET
Logistics, Inc.) and the Bank executed a certain Fourth Amended and Restated
Loan Agreement that was amended by a certain (i) First Amendment to Fourth
Amended and Restated Loan Agreement dated as of March 31, 1996, (ii) Second
Amendment to Fourth Amended and Restated Loan Agreement (pursuant to which INET
Logistics became obligated under the terms of the 1996 Loan Agreement) dated as
of March 7, 1997, (iii) Third Amendment to Fourth Amended and Restated Loan
Agreement dated as of March 31, 1998, (iv) Fourth Amendment to Fourth Amended
and Restated Loan Agreement dated as of February 4, 1999, and (v) Fifth
Amendment to Fourth Amended and Restated Loan Agreement dated as of May 7, 1999
(collectively, the "1996 Loan Agreement"), setting forth the terms of certain
extensions of credit to the Companies; and
B. In connection with the 1996 Loan Agreement and predecessor documents
thereto, the Companies executed and delivered to the Bank certain other loan
documents, promissory notes, amendments to open-end mortgages, assignment of
rents and security agreements, consents, assignments, security agreements,
agreements, instruments and financing statements in connection with the
indebtedness referred to in the 1996 Loan Agreement (all of the foregoing,
together with the 1996 Loan Agreement, are hereinafter collectively referred to
as the "1996 Loan Documents") (the 1996 Loan Documents together with the 1988
Loan Documents, the 1989 Loan Documents, the 1991 Loan Documents and the 1993
Loan Documents (as those terms are defined in the 1996 Loan Agreement) are
hereinafter collectively referred to as the "Loan Documents"); and
C. The Companies have requested that the Bank amend and modify certain terms
and covenants in the Loan Agreement to modify certain financial covenants and
the Bank is willing to do so upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
promises contained herein, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereto for
themselves and their successors and assigns do hereby agree, represent and
warrant as follows:
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<PAGE> 2
1. Definitions. All capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the 1996 Loan Agreement.
2. Section 1.2.1, "The Capex Loan," of the 1996 Loan Agreement is hereby
amended to recite in its entirety as follows:
1.2.1 The Capex Loan.
The Bank, subject to the terms and conditions hereof, will extend credit
and advance funds to the Companies in the form of time notes up to the aggregate
original principal sum outstanding at any time of $5,000,000.00 (the "Capex
Loan") to enable any of the Companies to purchase certain designated trucks,
tractors and trailers (the "Eligible Trucks and Trailers") in connection with
the acquisition by any Company, which has been approved prior thereto in writing
by the Bank; provided that, notwithstanding the foregoing, no extension of
credit under the Capex Loan shall be made unless and until (i) the Bank shall
have received the results of a collateral audit of the Companies conducted after
the execution of that certain Sixth Amendment to Fourth Amended and Restated
Loan and Security Agreement between the Companies and the Bank (the "Sixth
Amendment") and shall have determined in its sole good faith discretion that
such results are satisfactory, and (ii) the Bank shall have determined, based
upon the financial statements, certificates and reports furnished to the Bank by
the Companies pursuant to Section 11 below, and the Bank's acceptance of the
calculations contained therein, that the Companies have achieved a Fixed Charge
Coverage Ratio (calculated in accordance with the provisions of Section 10.26
below) of at least 1.00 to 1.00 for three consecutive monthly periods ending
after the date of execution of the Sixth Amendment. The term "Eligible Trucks
and Trailers" means that portion of any Company's equipment of trucks, tractors
and trailers that the Bank determines from time to time based upon credit
policies, market conditions, the Company's business and other matters is
eligible. For such purpose, no trucks, tractors or trailers shall be Eligible
Trucks or Trailers unless, at a minimum, (a) such item of equipment is owned
solely by the Company, (b) the Bank has a first and exclusive perfected security
interest with respect to such item of equipment, and (c) the Bank is lender loss
payee with respect to such equipment. Each draw under the Capex Loan shall be
evidenced by a promissory note or notes, which shall be in the form of Exhibit
B-1 attached to a certain Fourth Amendment to Fourth Amended and Restated Loan
Agreement, or by one or more notes subsequently executed in substitution
therefor, interest due on the principal sum thereof shall be due and payable
monthly and the principal sum thereof shall be due and payable not later than
six (6) months from the date of any such advance, provided, however, no note
shall have a maturity date which is later than the Capex Loan Maturity Date.
3. Section 10.12, "Book Net Worth," of the 1996 Loan Agreement is hereby
amended to recite in its entirety as follows:
10.12 Book Net Worth.
The Companies shall maintain at all times a Book Net Worth of not less
than:
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<PAGE> 3
(a) for the period beginning June 30, 1999, and continuing through and including
December 30, 1999, the sum of (i) $20,500,000.00, plus (ii) the net cash
proceeds resulting from the issuance by the Borrower on or after January 1,
1999, of any capital stock of any nature, whether voting or non-voting, common,
preferred or otherwise ("Capital Stock"), plus (iii) the difference (if greater
than zero) (hereinafter the "Extraordinary Charge Adjustment") between (A)
$3,000,000.00, and (B) the sum of (x) up to the sum of $2,500,000.00 in certain
reported "non-recurring" expenses charged against Net Income during the period
beginning on June 1, 1999 and ending on the earlier of the date of calculation
of Book Net Worth or December 31, 1999, which expenses relate to payments
actually made by the Companies, or any of them, to the Central States Southeast
and Southwest Areas Pension Fund, plus (y) up to the sum of $600,000.00 in
certain reported "non-recurring" expenses charged by the Companies against Net
Income during the period beginning on June 1, 1999 and ending on the earlier of
the date of calculation of Book Net Worth or December 31, 1999, which expenses
relate to severance payments made (or to be made) by the Companies, or any of
them, to John P. Delavan or Roger T. Burbage.
(b) for the period beginning December 31, 1999, and continuing through and
including June 29, 2000, the sum of (i) $22,000,000.00, plus (ii) the net cash
proceeds resulting from the issuance by the Borrower on or after January 1,
1999, of any Capital Stock, plus the Extraordinary Charge Adjustment; and
(c) for the period beginning June 30, 2000, and continuing at all times
thereafter, the sum of (i) $23,000,000.00, plus (ii) the net cash proceeds
resulting from the issuance by the Borrower on or after January 1, 1999, of any
Capital Stock, plus (iii) the Extraordinary Charge Adjustment.
4. The first two paragraphs of Section 10.26, "Fixed Charge Coverage
Ratio," of the 1996 Loan Agreement is hereby amended to recite as follows:
The Companies, on a consolidated basis, shall maintain at all times
specified below a ratio of (a) EBITDA plus Historical Operating Lease Payments
plus Non-Recurring Expenses to (b) Fixed Charges plus Prospective Operating
Lease Payments (the "Fixed Charge Coverage Ratio") of not less than (i) 0.90 to
1.00 for the period beginning June 1, 1999, and continuing, through and
including May 31, 2000, and (ii) 1.00 to 1.00 for the period beginning June 1,
2000, and continuing at all times thereafter. If the Companies or their auditors
make any adjustment in EBITDA, the Companies shall immediately (i) provide
notice of such adjustment to the Bank, (ii) reflect such adjustment in the
calculation of the Fixed Charge Coverage Ratio, and (iii) provide financial
statements to the Bank reflecting such adjustments for all periods to which the
adjustments relate.
In determining the numerator of the Fixed Charge Coverage Ratio, (i)
EBITDA, Historical Operating Lease Payments and Non-Recurring Expenses shall
each be determined as of the last day of each month for the twelve month period
ending on such date. In determining the denominator of the Fixed Charge Coverage
Ratio, (i) Consolidated Taxes, (ii) Consolidated Interest Expense, and (iii) Net
Investment in Fixed Assets (and each component thereof) shall each be determined
as of the last day of each month for the twelve month period ending on such
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<PAGE> 4
date; and (iv) Prospective CMLTD, and (v) Prospective Operating Lease Payments
shall each be determined by calculating the scheduled payments due and to become
due during the twelve month period beginning on such date.
In addition, the following definition of "Non-Recurring Expenses" is hereby
added to Section 10.26, "Fixed Charge Coverage Ratio":
"Non-Recurring Expenses" means, (a) for purposes of the calculation of the
Fixed Charge Coverage Ratio for any period ending after June 30, 2000, zero, and
(b) for purposes of the calculation of the Fixed Charge Coverage Ratio for any
period ending on or before June 30, 2000, on a consolidated basis for the
Companies, (i) up to the sum of $2,500,000.00 in certain reported
"non-recurring" expenses charged against Net Income during such period relating
to payments actually made by the Companies to the Central States Southeast and
Southwest Areas Pension Fund, plus (ii) up to the sum of $600,000.00 in certain
reported "non-recurring" expenses charged against Net Income during such period
relating to severance payments made (or to be made) by the Companies, or any of
them, to John P. Delavan or Roger T. Burbage.
The remainder of Section 10.26, "Fixed Charge Coverage Ratio," shall remain as
originally written.
5. Conditions of Effectiveness. This Amendment shall become effective as of
June 30, 1999, upon satisfaction of all of the following conditions precedent:
(a) The Bank shall have received two duly executed copies of this Amendment and
such other certificates, instruments, documents, agreements, and opinions of
counsel as may be required by the Bank, each of which shall be in form and
substance satisfactory to the Bank and its counsel;
(b) The Bank shall have received an amendment fee in the amount of $15,000.00;
and
(c) The representations contained in paragraph 6 below shall be true and
accurate.
6. Representations. Each of the Companies represents and warrants that after
giving effect to this Amendment (a) each and every one of the representations
and warranties made by or on behalf of each of the Companies in the 1996 Loan
Agreement or the Loan Documents is true and correct in all respects on and as of
the date hereof, except to the extent that any of such representations and
warranties related, by the expressed terms thereof, solely to a date prior
hereto; (b) each of the Companies has duly and properly performed, complied with
and observed each of its covenants, agreements and obligations contained in the
1996 Loan Agreement and the Loan Documents; and (c) no event has occurred or is
continuing, and no condition exists which would constitute an Event of Default.
7. Amendment to 1996 Loan Agreement. (a) Upon the effectiveness of this
Amendment, each reference in the 1996 Loan Agreement to "Fourth Amended and
Restated Loan
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<PAGE> 5
Agreement," "Loan and Security Agreement," "Loan Agreement," "Agreement," the
prefix "herein," "hereof," or words of similar import, and each reference in the
Loan Documents to the 1996 Loan Agreement, shall mean and be a reference to the
1996 Loan Agreement as amended hereby. (b) Except as modified herein, all of the
representations, warranties, terms, covenants and conditions of the 1996 Loan
Agreement, the Loan Documents and all other agreements executed in connection
therewith shall remain as written originally and in full force and effect in
accordance with their respective terms, and nothing herein shall affect, modify,
limit or impair any of the rights and powers which the Bank may have thereunder.
The amendment set forth herein shall be limited precisely as provided for
herein, and shall not be deemed to be a waiver of, amendment of, consent to or
modification of any of the Bank's rights under or of any other term or
provisions of the 1996 Loan Agreement, any Loan Document, or other agreement
executed in connection therewith, or of any term or provision of any other
instrument referred to therein or herein or of any transaction or future action
on the part of the Companies which would require the consent of the Bank,
including, without limitation, waivers of Events of Default which may exist
after giving effect hereto. Each of the Companies ratifies and confirms each
term, provision, condition and covenant set forth in the 1996 Loan Agreement and
the Loan Documents and acknowledges that the agreement set forth therein
continue to be legal, valid and binding agreements, and enforceable in
accordance with their respective terms.
8. Authority. Each of the Companies hereby represents and warrants to the Bank
that as to such Company (a) such Company has legal power and authority to
execute and deliver the within Amendment; (b) the officer executing the within
Amendment on behalf of such Company has been duly authorized to execute and
deliver the same and bind such Company with respect to the provisions provided
for herein; (c) the execution and delivery hereof by such Company and the
performance and observance by such Company of the provisions hereof do not
violate or conflict with the articles of incorporation, regulations or by-laws
of such Company or any law applicable to such Company or result in the breach of
any provision of or constitute a default under any agreement, instrument or
document binding upon or enforceable against such Company; and (d) this
Amendment constitutes a valid and legally binding obligation upon such Company
in every respect.
9. Counterparts; Facsimile Transmission. This Amendment may be executed in two
or more counterparts, each of which, when so executed and delivered, shall be an
original, but all of which together shall constitute one and the same document.
Separate counterparts may be executed with the same effect as if all parties had
executed the same counterparts. The facsimile or other electronically
transmitted copy of this Amendment shall be treated the same as an originally
executed copy hereof.
10. Governing Law. This Amendment shall be governed by and construed in
accordance with the law of the State of Ohio.
IN WITNESS WHEREOF, each of the Companies and the Bank have hereunto set their
hands as of the date first set forth above.
THE BORROWER:
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<PAGE> 6
INTRENET, INC.
By:
Its:
THE SUBSIDIARIES:
ADVANCED DISTRIBUTION SYSTEM, INC.
By:
Its:
ECK MILLER TRANSPORTATION
CORPORATION
By:
Its:
INET LOGISTICS, INC.
By:
Its:
MID-WESTERN TRANSPORT, INC.
By:
Its:
ROADRUNNER ENTERPRISES, INC.
By:
Its:
ROADRUNNER TRUCKING, INC.
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<PAGE> 7
By:
Its:
ROADRUNNER DISTRIBUTION
SERVICES, INC.
By:
Its:
ROADRUNNER INTERNATIONAL
SERVICES, INC.
By:
Its:
THE BANK:
THE HUNTINGTON NATIONAL BANK
By:
Its:
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of September 9,
1999, by and between Intrenet, Inc., an Indiana corporation ("Employer"), and
John P. Chandler ("Employee").
W I T N E S S E T H
-------------------
WHEREAS, Employer desires to employ Employee;
WHEREAS, Employee desires to be assured of certain compensation and
other benefits from Employer for his services over a defined term; and
WHEREAS, Employer desires to provide such assurances to Employee on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and undertakings herein contained, Employer and Employee, each
intending to be legally bound, covenant and agree as follows:
1. EMPLOYMENT. Upon the terms and subject to the conditions set forth
in this Agreement, Employer agrees to employ Employee and Employee agrees to
accept such employment.
2. DUTIES. Employee agrees to serve as Employer's Chief Operating
Officer and to perform such duties in that office as may reasonably be assigned
to him by Employer's Board of Directors (the "Board") or Chief Executive Officer
("CEO"). While so employed, Employee shall devote substantially all of his
business time and efforts to Employer's business and shall not engage in any
other business activities without the prior approval of the Board or the CEO.
Without limiting the foregoing, Employee agrees to be in the principal offices
of Employer or on Employer's business during normal working hours (8:00 a.m. to
5:00 p.m.) Monday through Friday. Employee shall hold such other offices and
titles as the Board determines.
3. TERM. The term of this Agreement shall commence as of the date
hereof and shall expire on September 9, 2000 (such term, including any extension
thereof shall herein be referred to as the "Term"). The Term shall be
automatically extended for additional periods of one year unless at least six
(6) months prior to the scheduled expiration date, Employer notifies Employee in
writing of its intention not to extend the Term. Any notice of intention not to
renew may be treated, at Employee's option, as a termination of employment under
section 8(c) of this Agreement.
-1-
<PAGE> 2
4. COMPENSATION.
(a) Employee shall receive a base salary of $200,000.00 per
annum ("Base Compensation") payable at regular intervals in accordance
with Employer's normal payroll practices now or hereafter in effect.
(b) In addition to Base Compensation, on the third Tuesday of
April of each year of the Term, Employee shall be eligible to receive a
bonus equal to one percent (1%) of Employer's net income before taxes
for the preceding year. The amount of the bonus for any partial year of
employment shall be pro rated based on the actual number of calendar
months of employment and the total of Employee's Base Compensation and
bonus in any year shall not exceed $500,000 (or such smaller amount if
pro rated for any partial year).
5. BENEFIT PLANS. Employee shall be included as a participant in all
present and future employee benefit, retirement and compensation plans generally
available to employees of Employer, consistent with his Base Compensation and
position with Employer, including, without limitation, any pension plan, 401(k)
Plan, Stock Option Plan, and hospitalization, major medical, disability and
group life insurance plans, upon the terms set forth in such plans, as amended
from time to time. Employer may amend or eliminate any such plan in its
discretion to the extent permitted by law, as long as the change does not apply
solely to Employee to the exclusion of all other participants in such plan.
6. EXPENSES; AUTOMOBILE; VACATIONS. So long as Employee is employed by
Employer pursuant to this Agreement, Employee shall receive reimbursement from
Employer for all reasonable business expenses incurred in the course of his
employment by Employer, upon submission to Employer of written vouchers and
statements for reimbursement in accordance with Employer's policies and
procedures. Employee shall be provided with an automobile for his use or paid a
reasonable allowance for an automobile. Employee shall participate in Employer's
vacation policies for senior executives and shall be entitled to three (3) weeks
of paid vacation per year during the first five (5) years of the Term and four
(5) weeks thereafter.
7. OPTIONS.
(a) Concurrently with the execution of this Agreement, the
Incentive Compensation Committee of the Board which administers the
Employer's 1993 Stock Option and Incentive Plan (the "Plan"), a copy of
which has been provided to Employee, has granted to Employee options to
purchase 100,000 shares of Employer's Common Stock at an initial
exercise price equal to the closing price per share of the Common Stock
as reported by Nasdaq for the trading date preceding the date of this
Agreement, exercisable commencing six (6) months and one day after the
date of grant through five (5) years from the date of grant.
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<PAGE> 3
(b) In addition, Employer agrees to grant Employee options to
purchase additional shares of the Company's Common Stock on the third
Tuesday of April, 2001 if the Company's operating ratio for the year
ended December 31, 2000 is less than or equal to 96.5. The number of
shares underlying the additional options to be granted if such
condition is met shall be not less than 50,000 or more than 100,000
with the number to be determined as follows:
OPERATING RATIO TOTAL NUMBER OF SHARES
EQUAL TO OR LESS THAN: UNDERLYING OPTIONS
---------------------- ------------------
96.5 50,000
95.5 65,000
94.5 75,000
93.5 85,000
92.5 100,000
The exercise price of any options under this subsection (b) shall be equal to
the closing price per share of the Common Stock as reported by Nasdaq for the
trading date preceding the date of the grant and shall be exercisable
immediately from the date of grant through five (5) years from the date of
grant.
8. TERMINATION. Subject to the respective continuing obligations of the
parties, Employee's employment may be terminated prior to the expiration of the
Term of this Agreement as follows:
(a) Employer, by action of its Board of Directors and upon
written notice to Employee, may terminate Employee's employment at any
time effective immediately for cause. For purposes of this subsection,
"cause" shall be defined as any (i) dishonest or fraudulent conduct in
connection with his employment, (ii) conviction of Employee by a
federal or state court for the commission of a felony, (iii)
insubordinate or intentional failure on the part of Employee to perform
the duties assigned to him under this Agreement or any other duties
assigned to him in writing by the CEO or the Board; or (iv) unlawful
taking or misappropriation of any material and substantial tangible or
intangible property (other than corporate opportunities) or
misappropriation of any corporate opportunity belonging to Employer or
any subsidiary or in which any of them has an interest.
(b) Employer, by action of its Board and upon thirty (30) days
written notice to Employee, may terminate Employee's employment without
cause.
(c) Employee, by written notice to Employer, may terminate his
employment at any time on thirty (30) days written notice to the Board.
-3-
<PAGE> 4
(d) Employee's employment shall terminate in the event of
Employee's death or disability. For purposes hereof, "disability" shall
be defined as Employee's inability by reason of illness or other
physical or mental incapacity to perform the duties required by his
employment for any consecutive one hundred twenty (120) day period,
provided that notice of any termination by Employer because of
Employee's "disability" shall have been given to Employee prior to the
full resumption by him of the performance of such duties.
9. COMPENSATION UPON TERMINATION OR DURING DISABILITY. In the event
of termination of Employee's employment pursuant to section 8 hereof,
compensation shall be paid to Employee as follows:
(a) In the event of termination pursuant to subsection 8a or
8c, Base Compensation shall continue to be paid to Employee, and
Employee shall continue to participate in the employee benefit,
retirement, and compensation plans and other perquisites as provided in
sections 5, 6 and 7 hereof, through the date of termination specified
in the notice of termination. Any benefits payable under insurance,
health, retirement and bonus plans as a result of Employee's
participation in such plans through such date shall be paid when due
under those plans.
(b) In the event of termination pursuant to subsection 8b,
Base Compensation shall continue to be paid to Employee and Employee
shall continue to participate in the employee benefit, retirement, and
compensation plans and other perquisites as provided in sections 5, 6
and 7 hereof, through the date of termination specified in the notice
of termination. Any benefits payable under insurance, health,
retirement and bonus plans as a result of Employee's participation in
such plans through such date shall be paid when due under those plans.
In addition, Employee shall be entitled to receive from Employer after
the date of termination as severance, a lump sum amount equal to the
Base Compensation then payable to Employee for twelve month period.
(c) In the event of termination pursuant to subsection 8d,
compensation provided for herein (including Base Compensation) shall
continue to be paid, and Employee shall continue to participate in the
employee benefit, retirement, and compensation plans and other
perquisites as provided in sections 5, 6 and 7 hereof, (i) in the event
of Employee's death, through the date of death, or (ii) in the event of
Employee's disability, through the date of proper notice of disability
as required by subsection 8d. Any benefits payable under insurance,
health, retirement and bonus plans as a result of Employer's
participation in such plans through such date shall be paid when due
under those plans.
Payments made under this Section 9 shall be in full satisfaction of Employer's
remaining obligations to Employee under this Agreement.
-4-
<PAGE> 5
10. NOTICE OF TERMINATION. Any termination of Employee's employment
with Employer as contemplated by section 8 hereof, except in the circumstances
of Employee's death, shall be communicated by a written "Notice of Termination"
by the terminating party to the other party hereto. Any Notice of Termination
pursuant to subsection 8a shall indicate the specific provisions of this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
11. RELOCATION AND RELATED EXPENSES. Employee acknowledges that
Employer is considering relocating its principal office. Employer shall
reimburse Employee for moving expenses incurred by Employee up to a maximum of
$50,000 to relocate his primary residence near Employer's principal office.
12. SUCCESSORS. Should Employee die after termination of his employment
with Employer while any amounts are payable to him hereunder, this Agreement
shall inure to the benefit of and be enforceable by Employee's executors,
administrators, heirs, distributees, devisees and legatees and all amounts
payable hereunder shall be paid in accordance with the terms of this Agreement
to Employee's devisee, legatee or other designee or, if there if no such
designee, to his estate.
13. NOTICE. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been given when delivered or sent by mail, express delivery or facsimile
transmission as follows:
If to Employee: 3819 North Shore Drive
Akron, Ohio 43303
If to Employer: Intrenet, Inc.
400 TechneCenter Drive
Milford, Ohio 45150
Attn: President and CEO
or to such address as either party hereto may have furnished to the other party
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
14. AMENDMENT AND WAIVER. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Employee and Employer. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of dissimilar provisions or conditions at the
same or any prior or subsequent time. No agreements or representation, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
-5-
<PAGE> 6
15. SEVERABILITY. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement which shall remain in full force and effect.
16. ASSIGNMENT. This Agreement is personal in nature and neither party
hereto shall, without consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in section 12.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
INTRENET, INC.
By: /S/ ERIC C. JACKSON
-------------------
Eric C. Jackson,
President and CEO
"Employer"
/S/ JOHN P. CHANDLER
--------------------
John P. Chandler
"Employee"
-7-
<PAGE> 1
EXHIBIT 10.3
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT ("Agreement"), dated as of August 3, 1999,
between Intrenet, Inc., an Indiana corporation (the "Company"), and Eric C.
Jackson (the "Participant").
W I T N E S S E T H:
--------------------
WHEREAS, the Participant has been granted options (the "Options") to
purchase shares of the Company's Common Stock, without par value (the "Common
Stock"), pursuant to the Company's 1993 Stock Option and Incentive Plan (the
"Plan"); and
WHEREAS, the parties hereto desire by this Agreement to document the
grant of the Options, but intend that, except to the extent set forth herein,
all of the terms and conditions of the Options shall be as contained in the
Plan.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Plan, the parties hereto
hereby agree as follows:
1. THE OPTIONS. Subject to the terms and conditions set forth herein
and in the Plan, the Company's Incentive Compensation Committee has granted the
Participant Options to purchase 100,000 shares of the Common Stock (the
"Shares") at an exercise price of $2.8125 per Share (the last reported sale
price of the Common Stock on August 2, 1999) exercisable immediately for a
period of five (5) years from the date of this Agreement.
2. EXERCISE. The Options may be exercised by the Participant only at
the times and in the manner set forth herein and in the Plan.
3. NONQUALIFIED STOCK OPTIONS. It is understood that the Options are
not intended to qualify under Section 422 of the Internal Revenue Code of 1986,
as amended.
4. SECTION 83(b) ELECTION. In the event that the Participant makes an
election under Section 83(b) of the Code with respect to the Options or the
Shares issuable upon the exercise thereof, the Participant shall notify the
Company of such election within five business days thereafter.
5. REPRESENTATIONS AND WARRANTIES OF PARTICIPANT. The Participant
represents and warrants to the Company that:
-1-
<PAGE> 2
(a) he has received and carefully reviewed a copy of
the Plan; and
(b) he understands that neither the Options nor any
of the rights and interests under the Plan or hereunder may be assigned,
encumbered or otherwise transferred (collectively, "Transferred") except,
in the event of his death, by will or the laws and descent and
distribution.
6. PLAN CONTROLLING. The parties agree that, except to the extent set
forth herein, all of the terms and conditions of the Options are contained in
the Plan and there are no other agreements, written or oral, with respect
thereto. Neither this Agreement nor the existence of the Options shall be
construed as giving Participant any right to be retained in the employ of the
Company or any of its affiliates.
7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first hereinabove written.
INTRENET, INC.
By /S/ EDWIN H. MORGENS
--------------------
Edwin H. Morgens,
Chairman of the Board
/S/ ERIC C. JACKSON
-------------------
Eric C. Jackson, Participant
-2-
<PAGE> 1
EXHIBIT 10.4
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT ("Agreement"), dated as of September 9, 1999,
between Intrenet, Inc., an Indiana corporation (the "Company"), and John P.
Chandler (the "Participant").
W I T N E S S E T H:
--------------------
WHEREAS, the Participant has been granted options (the "Options") to
purchase shares of the Company's Common Stock, without par value (the "Common
Stock"), pursuant to the Company's 1993 Stock Option and Incentive Plan (the
"Plan"); and
WHEREAS, the parties hereto desire by this Agreement to document the
grant of the Options, but intend that, except to the extent set forth herein,
all of the terms and conditions of the Options shall be as contained in the
Plan.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Plan, the parties hereto
hereby agree as follows:
1. THE OPTIONS. Subject to the terms and conditions set forth herein
and in the Plan, the Company's Incentive Compensation Committee has granted the
Participant Options to purchase 100,000 shares of the Common Stock (the
"Shares") at an exercise price of $2.84375 per Share (the last reported sale
price of the Common Stock on September 8, 1999) exercisable beginning on March
10, 2000 and for a period of five (5) years from the date of this Agreement.
2. EXERCISE. The Options may be exercised by the Participant only at
the times and in the manner set forth herein and in the Plan.
3. NONQUALIFIED STOCK OPTIONS. It is understood that the Options are
not intended to qualify under Section 422 of the Internal Revenue Code of 1986,
as amended.
4. SECTION 83(b) ELECTION. In the event that the Participant makes an
election under Section 83(b) of the Code with respect to the Options or the
Shares issuable upon the exercise thereof, the Participant shall notify the
Company of such election within five business days thereafter.
5. REPRESENTATIONS AND WARRANTIES OF PARTICIPANT. The Participant
represents and warrants to the Company that:
-1-
<PAGE> 2
(a) he has received and carefully reviewed a copy of
the Plan; and
(b) he understands that neither the Options nor any
of the rights and interests under the Plan or hereunder may be
assigned, encumbered or otherwise transferred (collectively,
"Transferred") except, in the event of his death, by will or the laws
and descent and distribution.
6. PLAN CONTROLLING. The parties agree that, except to the extent
set forth herein, all of the terms and conditions of the Options are contained
in the Plan and there are no other agreements, written or oral, with respect
thereto. Neither this Agreement nor the existence of the Options shall be
construed as giving Participant any right to be retained in the employ of the
Company or any of its affiliates.
7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first hereinabove written.
INTRENET, INC.
By /S/ ERIC C. JACKSON
-------------------
Eric C. Jackson, President and CEO
/S/ JOHN P. CHANDLER
--------------------
John P. Chandler, Participant
-2-
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<ARTICLE> 5
<CIK> 0000778161
<NAME> INTRENET, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 918
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<RECEIVABLES> 42,902
<ALLOWANCES> 1,820
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<CURRENT-ASSETS> 47,809
<PP&E> 25,196
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<TOTAL-ASSETS> 81,116
<CURRENT-LIABILITIES> 30,516
<BONDS> 25,590
0
0
<COMMON> 16,991
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<TOTAL-LIABILITY-AND-EQUITY> 81,116
<SALES> 0
<TOTAL-REVENUES> 213,188
<CGS> 0
<TOTAL-COSTS> 210,705
<OTHER-EXPENSES> 2,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,848
<INCOME-PRETAX> (2,180)
<INCOME-TAX> 116
<INCOME-CONTINUING> (2,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,296)
<EPS-BASIC> (0.17)
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</TABLE>
