SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
COMMISSION FILE NUMBER: 0-24908
TRANSPORT CORPORATION OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1386925
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1769 YANKEE DOODLE ROAD
EAGAN, MINNESOTA 55121
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 686-2500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
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 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. |_|
The aggregate market value of shares held by non-affiliates of the Registrant as
of March 24, 1998 (based on the closing sale price of the Common Stock on that
date) was $88,500,313.
As of March 24, 1998, the Company had outstanding 6,679,504 shares of Common
Stock, $.01 par value.
Documents Incorporated by Reference: Part III, Items 10, 11, and 12 incorporate
by reference portions of Transport Corporation of America, Inc.'s Proxy
Statement for the 1998 Annual Meeting of Shareholders.
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Transport Corporation of America, Inc. (the "Company" or "Transport
America") and its wholly owned subsidiary, Transport International Express, Inc.
("T.I.E."), provides a wide range of truckload carriage and logistics services
in various lengths of haul in the United States and parts of Canada. The Company
has designed its business to provide high quality, customized logistics services
that allow it to be a preferred partner or core carrier to major shippers. The
Company serves as an integral part of the distribution system of many of its
major customers, including 3M Company, Federal Express, Ford Motor Company,
General Mills, Hon Company, and Sears, Roebuck & Co. The Company's customers
require time-definite pick-up and delivery to support just-in-time inventory
management; specialized equipment, such as temperature controlled trailers,
special trailer design to support decking, multi-stop loading and unloading and
electronic data interchange services to automate the exchange of order and load
data. To support these complex customer requirements and deliver logistics
services cost effectively, Transport America has developed a sophisticated
information management system which it believes makes it a technological leader
in the industry.
The Company's operating strategy is to provide high quality,
customized logistics services that allow it to be a preferred partner or core
carrier to major shippers. The Company carries out this strategy by assigning to
each customer an experienced marketing representative to tailor its logistics
services; providing a wide range of transportation services, including
line-haul, multi-stop capability, regional and local operations, van trailers
with and without refrigeration or temperature control, time-definite pick-up and
delivery, satellite monitored transit; and information technology services. As
part of its mission to serve the logistics needs of its mostly Fortune 500
customers, and in an effort to address the needs of its drivers, Transport
America has implemented a regional operations strategy. With an advanced
information system, modern fleet of equipment, experienced management team and a
strong customer base, Transport America believes it is well-positioned to
achieve sustained profitability and growth in the future.
T.I.E. provides airport-to-airport less-than-truckload services in 30
cities throughout the United States. T.I.E., which commenced operations in the
third quarter of 1997, provides express services to air freight forwarders and
airlines.
<PAGE>
CUSTOMER FOCUS AND SERVICES
The Company has designed its business to be a core carrier or
preferred partner to major shippers by providing high quality, tailored
logistics service. The Company serves as an integral part of the distribution
system of many of its major customers, including Ford Motor Company, General
Mills, DuPont, The Hon Company, and Sears, Roebuck & Co. Some of the Company's
other major customers are Federal Express, 3M Company, PPG Industries, Clorox
Company, and S.C. Johnson & Sons. The principal categories of freight hauled by
the Company are department store merchandise, grocery, industrial, consumer,
paper products, as well as a wide variety of other goods associated with
T.I.E.'s services to freight expediters.
The Company's largest 25, 10 and 5 customers accounted for
approximately 80%, 62% and 43%, respectively, of 1997 operating revenues. During
1997, Sears, Roebuck & Co. accounted for approximately 14% of the Company's
operating revenues.
MARKETING. The Company's marketing personnel seek to strengthen
Transport America's position with existing customers and establish it with
prospective customers by taking advantage of the trend among shippers toward
private fleet conversions, outsourcing of transportation requirements, and
utilization of core carriers. At December 31, 1997, the Company employed a
marketing force of eleven persons located throughout its primary business areas.
Senior management is also actively involved in marketing, logistics planning,
and customer relations, especially with large national customers.
SERVICE CENTERS. The Company utilizes strategically located service
centers to provide an added level of customer service and support. These
facilities are located in close proximity to major customer locations, thereby
enabling the Company to provide a large amount of equipment, local cartage
service, and local customer service representatives to work directly with
customers on a day-to-day basis. The Company believes these service centers
provide a competitive advantage by allowing it to work more directly and
frequently with customers and provide equipment more rapidly.
TIME-DEFINITE SERVICE. In each of its markets, the Company seeks to
provide 100% on-time pickup and delivery, expedited time-in-transit, logistical
planning to coordinate and deliver freight within time-definite parameters, and
advanced information capabilities that provide value to customers. Time-definite
transportation requires pick-ups and deliveries to be performed within narrowly
defined time frames. Time-definite services are particularly important to the
Company's customers who operate just-in-time manufacturing, distribution, and
retail inventory systems.
<PAGE>
HUMAN RESOURCES
Transport America's human resources are an important element of its
customer focused business strategy. Employee drivers, independent contractors,
and non-driver employees regularly interact with customers and are ultimately
responsible for customer satisfaction.
In order for the Company to grow and continue to be positioned as a
quality carrier of choice for existing and new customers, changes to the
driver's work environment are necessary. The Company continues to emphasize
competitive pay packages, quality at-home time, and "driver friendly" freight as
principal means to attract and retain its driver workforce.
INDEPENDENT CONTRACTORS. The Company believes that a fleet of both
employee drivers and independent contractors is essential if the Company is to
continue its growth. In 1992, the Company decided to aggressively expand its
independent contractor fleet, which has increased from 14% of its total fleet at
December 31, 1991 to 33% at December 31, 1997. The decision to focus fleet
expansion on independent contractors was based on such factors as reduced
capital requirements, since independent contractors provide their own tractors;
the lower turnover rate that the Company has experienced with independent
contractors; and the strong emphasis on safety by independent contractors. As a
result of greater industry competition for independent contractors during 1997,
growth of the Company's independent contractor fleet slowed. Competition for
independent contractors is expected to continue for the foreseeable future.
The Company enters into operating agreements with its independent
contractors, pursuant to which its independent contractors agree to furnish a
tractor and driver to transport, load and unload goods on behalf of the Company.
These agreements typically have terms for less than one year and provide for the
payment to independent contractors of fixed compensation for total loaded and
empty miles. Independent contractors must pay all of their operating expenses
and must meet DOT regulatory requirements, as well as safety and other standards
established by the Company. The Company has implemented a bonus program to
encourage safe driving and good customer service habits.
DRIVER WORK ENVIRONMENT. The Company believes that the type of
freight it typically handles is a significant factor in retention of employee
drivers and independent contractors. Consequently, the Company focuses much of
its marketing efforts on customers with freight that is "driver-friendly" in
that it requires minimal loading or unloading by drivers and customer employees.
The Company utilizes late-model, reliable equipment including
standard features such as double sleeper bunks, extra large cabins, air-ride
suspensions, and anti-lock brakes. The Company also provides satellite
communications technology which enables drivers to receive load-related
information, directions, pay information, and family emergency information. The
Company's service centers are strategically located to provide services for the
driver, such as showers, laundry facilities, break-rooms, fuel, tractor and
trailer maintenance, and in-person assistance from service center personnel.
<PAGE>
COMPENSATION AND BENEFITS. The Company's compensation and benefits
package has been structured to compensate drivers on the basis of miles driven,
with base compensation increases commensurate with length of service. Employee
driver benefits include paid holiday and vacation days, health insurance, and a
Company funded 401(k) retirement plan. Performance bonuses are paid based upon
safety, customer service and fuel consumption. The Company believes its
compensation and benefits package for employee drivers and independent
contractors ranks among the highest in the truckload industry.
RECRUITING AND TRAINING. The Company's employee drivers are hired
and independent contractors are approved in accordance with specific Company
guidelines relating to safety records, prior work history, personal evaluation,
accident and driving record verification, drug and alcohol screening, and a
physical exam. The Company's initial orientation and training seminar includes a
review of all Company policies and operating requirements, written and road
driving tests, defensive driving and safety skills, DOT compliance requirements,
and the employee driver's and independent contractor's role in providing safe
and efficient value-added service to customers.
In addition to the initial training seminar, on-going training on
subjects such as safety, compliance, equipment operation, customer expectations,
and Company policies is conducted at the Company's service centers and
periodically at outside training facilities under contract with the Company. The
Company also conducts driver meetings, publishes a newsletter, and conducts
specific professional development training, including training to become an
over-the-road driver instructor.
During 1997 the Company revised its training program to provide
enhanced training opportunities to student drivers who had limited over-the-road
driving experience, but who possessed a commercial driver's license. This
finishing school provides hands-on experience and classroom training
opportunities intended to establish a sound basis for a successful driving
career as well as familiarity with Company equipment and practices.
DRIVER AND INDEPENDENT CONTRACTOR SUPERVISION. The Company assigns
each employee driver and independent contractor to a specific fleet manager. The
role of the fleet manager is to be the primary support resource for the employee
driver or independent contractor. The fleet manager also communicates the work
assignments using satellite technology, schedules time off, arranges required
safety inspections, reviews performance, provides day-to-day training, and is
accountable for the retention and productivity of the assigned employee drivers
and independent contractors.
NON-DRIVER EMPLOYEES. Mechanics, service center personnel, corporate
staff, and marketing employees are as important to the success of the Company in
meeting or exceeding customer expectations as are employee drivers and
independent contractors. Employee task groups are used to analyze specific
problems, recommend a course of corrective action, and assist in the
implementation of required changes.
<PAGE>
As of December 31, 1997, the Company employed 856 employee drivers,
72 mechanics, 323 persons in operations, marketing and administration, and had
agreements with 448 independent contractors. The Company's employees are not
represented by any collective bargaining units, and the Company considers
relations with its employees and independent contractors to be good.
TECHNOLOGY
The Company has developed a fully integrated, client/server computer
information system. This system, which the Company anticipates will be fully
Year 2000 compliant by the end of 1998, integrates operations with the principal
back-office functions of safety, maintenance, driver and independent contractor
settlement, fuel, billing, and accounting. The system also includes
satellite-based communications with the fleet. This system provides information
directly to and from the Company, its customers, and drivers to assist in
managing a complex information environment. The Company believes that utilizing
advanced technology is the best way to manage a complex, customer-driven
logistics process in a cost effective manner.
OPERATIONS AND COMMUNICATIONS. The Company utilizes information
systems and satellite-based communications to process orders, dispatch loads,
and monitor loads in transit. Load planners match customer orders daily with
driver availability. Once the most appropriate decision respecting a load is
made, based on computer monitored load factors, the load information is sent
directly to the driver through the satellite network. The satellite system
simplifies locating of equipment and permits timely and efficient communication
of critical operating data such as shipment orders, loading instructions,
routing, fuel, taxes paid and mileage operated, payroll, safety, traffic, and
maintenance information.
ELECTRONIC DATA INTERCHANGE ("EDI"). The Company's system enables
full electronic data interchange of load tendering, shipment status, freight
billing, and payment. This system provides significant operating advantages to
the Company and its customers, including real-time information flow, reduction
or elimination of paperwork, error-free transcription, and reductions in
clerical personnel. EDI allows the Company to exchange data with its customers
in a variety of formats, depending on the individual customer's capabilities,
which significantly enhances quality control, customer service, and efficiency.
A majority of the Company's revenues are currently processed through EDI. The
Company is currently working with its trading partners to make its EDI
transactions Year 2000 compliant.
REVENUE EQUIPMENT
The Company operates a modern fleet of tractors and trailers.
Tractors are typically replaced every 36 to 54 months, based on factors such as
age and condition, current interest rates, the market for used equipment, and
improvements in technology and fuel efficiency. The average age of the
Company-operated tractors at December 31, 1997 was approximately 24 months.
<PAGE>
The Company has available a variety of trailers to meet customer
requirements. At December 31, 1997, these included 3,448 dry vans, most of which
are logistic capable, many of which are equipped with heaters, and 275
refrigerated vans. The trailer-to-tractor ratio of 2.8 allows the Company to
provide its high-volume customers with extra trailers to accommodate loading and
unloading at their convenience. Depending on market conditions, the Company
generally replaces trailers after four to six years of service. The average age
of trailers at December 31, 1997 was approximately 25 months.
The following table shows the model years of the Company's tractors
and trailers as of December 31, 1997.
MODEL YEAR TRACTORS TRAILERS
---------- -----------
1998................................ 255 680
1997................................ 163 570
1996................................ 138 1,000
1995................................ 223 774
1994................................ 104 698
1993 and prior...................... 8 1
---------- -----------
Total Company....................... 891 3,723
Total independent contractor........ 448 --
---------- -----------
Total available............... 1,339 3,723
========== ===========
COMPETITION
The truckload transportation business is extremely competitive and
fragmented. The Company competes primarily with other truckload carriers,
particularly those in the high service end of the truckload market. The Company
also competes with alternative forms of transportation, such as rail,
intermodal, and air freight, particularly in the longer haul segments of its
business. Competition in the truckload industry has created pressure on the
industry's pricing structure. Generally, competition for the freight transported
by the Company is based more on service, equipment availability, trailer type,
and efficiency than freight rates. There are a number of competitors that have
substantially greater financial resources, operate more equipment, and transport
more freight than the Company. T.I.E. generally competes with local and regional
privately held express services companies, also a highly fragmented segment of
the transportation industry.
<PAGE>
RECENT DEVELOPMENTS
In February 1998, the Company entered into a non-binding letter of
intent to acquire North Star Transport Inc., a private truckload carrier based
in Eagan, Minnesota. Pending results of financial review, the Company will pay
the purchase price with a combination of cash and stock expected to range from
$30 million to $40 million. The Company and North Star are currently negotiating
the terms and conditions of the proposed transaction and no purchase agreement
has been signed.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are:
Name Age Position
- ---- --- --------
James B. Aronson 59 Chairman of the Board of Directors and Chief
Executive Officer
Robert J. Meyers 44 President, Chief Operating Officer, Chief Financial
Officer, Chief Information Officer, and Director.
Executive officers of the Company are appointed by the Board of
Directors and serve at the Board's discretion. There are no family relationships
among the executive officers.
JAMES B. ARONSON has been Chairman of the Board since May 1997,
Chief Executive Officer and a Director of the Company since August 1984, and
served as President from August 1984 to June 1994 and from June 1996 to May
1997. Prior to joining the Company, he served in several management positions
with Overland Express, Inc. from June 1969 to May 1984, most recently as
President and Chief Operating Officer.
ROBERT J. MEYERS has been a Director of the Company since July 1997,
President and Chief Operating Officer since May 1997, Chief Financial Officer
since January 1993 and Chief Information Officer since January 1992. Prior to
joining the Company, Mr. Meyers was founder and President of MicroMation, Inc.,
a Minneapolis/Saint Paul software development firm from February 1982 to January
1992. During this same period, he founded and served as a certified public
accountant with Meyers and Meyers, LTD. Prior to that time, he served in several
senior accounting, finance and information systems positions with Haskins and
Sells, Dayton-Hudson Corporation and Tennant Company.
<PAGE>
ITEM 2. PROPERTIES
The following chart provides information concerning the Company's
service centers and other facilities:
<TABLE>
<CAPTION>
OWNED OR SQUARE
SERVICE CENTERS AND OTHER FACILITIES LEASED ACREAGE FOOTAGE
--------------------------------------- ---------------- ---------------- -------------
<S> <C> <C> <C>
Clarksville, Indiana Owned 14.7 18,126
Eagan, Minnesota Owned 17.4 46,500
Hudson, Wisconsin Owned 6.8 4,896
Janesville, Wisconsin Owned 13.6 36,700
North Jackson, Ohio Owned 8.1 11,230
North Liberty, Iowa Owned 13.0 15,150
Kansas City, Missouri Owned 10.0 14,862
Columbus, Ohio Owned 17.0 43,000
Garland, Texas Owned 9.2 32,000
Bishopville, South Carolina Leased 3.5 1,500
Atlanta, Georgia Leased * *
Eagan, Minnesota Leased ** 11,358
</TABLE>
- -----
* This facility is shared with another company.
** Office facility.
The Company's current rental payments for its leased
facilities range from $900 to $9,700 per month. The terms of the Company's
leases for the Bishopville and Atlanta locations are month-to-month and do not
include automatic renewal options. However, the Company does not anticipate any
difficulties renewing or continuing these leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is routinely a party to litigation incidental to its
business, primarily involving claims for workers' compensation or for personal
injury and property damage incurred in the transportation of freight. The
Company maintains insurance which covers liability amounts in excess of retained
liabilities from personal injury and property damage claims. The Company
currently carries a total of $30 million liability insurance coverage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Report.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
PRICE RANGE OF COMMON STOCK. The Company's Common Stock is traded in
the Nasdaq National Market under the symbol TCAM. The following table sets forth
the high and low closing prices for the Company's common stock, as reported by
Nasdaq, for the periods indicated:
Period High Low
------ ---- ---
1997:
1st Quarter $ 13 1/2 $ 10 1/4
2nd Quarter 14 13
3rd Quarter 15 1/2 13 1/8
4th Quarter 17 1/4 15 7/16
1996:
1st Quarter 14 1/8 8 7/8
2nd Quarter 13 1/4 12
3rd Quarter 12 5/8 10 3/4
4th Quarter 12 1/2 9 1/8
SHAREHOLDERS. As of March 24, 1998, the Company had 115 shareholders of
record, including Depository Trust Company which held of record 4,970,586
shares.
DIVIDENDS. The Company has never paid any dividends on its Common
Stock and does not intend to pay cash dividends for the foreseeable future. Any
future decision as to the payment of dividends will be at the discretion of the
Company's Board of Directors and will depend upon the Company's results of
operations, financial position, cash requirements, certain corporate law
restrictions, restrictions under loan agreements and such other factors as the
Board of Directors deems relevant.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share and operating data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues ................... $ 186,392 $ 164,666 $ 144,254 $ 127,425 $ 104,497
Operating expenses:
Salaries, wages and benefits ...... 53,166 45,515 41,479 37,107 33,401
Fuel, maintenance and other expense 25,028 23,877 21,191 20,917 20,403
Purchased transportation .......... 55,614 46,761 37,258 29,754 18,680
Revenue equipment leases .......... 4,893 6,490 7,090 8,423 9,050
Depreciation and amortization ..... 15,494 13,966 10,273 6,535 5,118
Insurance, claims and damage ...... 5,620 4,686 5,727 5,526 5,006
Taxes and licenses ................ 3,248 2,952 2,873 3,064 2,681
Communications .................... 2,072 1,974 1,978 1,881 1,594
Other general and administrative
expense ........................ 6,410 5,324 5,389 5,096 4,243
Gain on sale of equipment ......... (1,336) (275) (1,755) (642) (1,233)
--------- --------- --------- --------- ---------
Total operating expenses ........... 170,209 151,270 131,503 117,661 98,943
Operating income ..................... 16,183 13,396 12,751 9,764 5,554
Interest expense, net ................ 3,242 2,734 2,038 2,031 1,530
--------- --------- --------- --------- ---------
Earnings before income taxes ......... 12,941 10,662 10,713 7,733 4,024
Provision for income taxes ........... 5,189 4,368 4,607 3,524 1,678
--------- --------- --------- --------- ---------
Net earnings ......................... $ 7,752 $ 6,294 $ 6,106 $ 4,209 $ 2,346
========= ========= ========= ========= =========
Net earnings per common share:
Basic ............................. $ 1.18 $ .98 $ .96 $ .86 $ .51
========= ========= ========= ========= =========
Diluted ........................... $ 1.15 $ .94 $ .91 $ .78 $ .47
========= ========= ========= ========= =========
Average common shares outstanding ... 6,568 6,442 6,361 4,883 4,625
========= ========= ========= ========= =========
Average common and common equivalent
shares outstanding ................. 6,734 6,718 6,709 5,382 5,028
========= ========= ========= ========= =========
OPERATING DATA:
Pre-tax margin (1) .................. 6.9% 6.5% 7.4 6.1% 3.9%
Tractors (at end of period):
Company ........................... 891 775 779 677 666
Independent contractor ............ 448 445 401 303 216
--------- --------- --------- --------- ---------
Total ........................ 1,339 1,220 1,180 980 882
Trailers (at end of period) .......... 3,723 3,236 2,913 2,378 2,074
Average revenues per tractor
per week .......................... $ 2,912 $ 2,736 $ 2,739 $ 2,718 $ 2,568
Average revenues per mile (2) ........ $ 1.291 $ 1.283 $ 1.275 $ 1.284 $ 1.239
Average empty mile percentage ........ 11.0% 11.2% 11.4% 9.9% 11.2%
Average length of haul, miles ........ 629 644 674 661 667
Average annual revenues
per non-driver employee ........... $ 544,300 $ 526,700 $ 477,300 $ 456,100 $ 403,000
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets ......................... $ 147,793 $ 108,671 $ 99,457 $ 76,757 $ 49,963
Long term debt, less current
maturities (3) .................. $ 44,618 $ 21,838 $ 24,436 $ 17,456 $ 19,207
Stockholders' equity ................. $ 50,808 $ 43,083 $ 36,307 $ 30,189 $ 11,181
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA, (CONTINUED)
(1) The Company has in the past acquired a significant amount of its
revenue equipment under operating leases rather than through debt financing or
capitalized leases. As a result, the Company believes that its pre-tax margin
(earnings before income taxes as a percentage of operating revenues) is a more
appropriate measure of its operating efficiency than its operating ratio
(operating expenses, excluding net interest expense, as a percentage of
operating revenues).
(2) Net of fuel surcharges.
(3) Long-term debt excludes $8,634,000 for the total of obligations
under revenue equipment operating leases for regular lease payments plus the
residual cost of acquiring the leased equipment at the end of the lease term.
The combined total of long-term indebtedness (excluding current maturities),
lease obligations, and residual acquisition costs at December 31, 1997 was
$53,432,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The Company has included various statements in this
Management's Discussion and Analysis and Results Of Operations, the Annual
Report, and elsewhere in this Form 10-K which may be considered as
forward-looking statements of expected future results of operations or events.
Such statements, based upon management's interpretation of currently available
information, are subject to risks and uncertainties that could cause future
financial results or events to differ materially from those which are presented.
Such risks and factors which are outside of the Company's control include
general economic conditions, competition in the transportation industry,
governmental regulation, the Company's ability to recruit, train and retain
qualified drivers, fuel prices and adverse weather conditions.
OVERVIEW
Transport America began substantial operations in 1984 when Mr.
Aronson joined the Company as President and Chief Executive Officer. From 1984
to 1997, the Company increased consolidated revenues from $2.4 million to $186.4
million, including T.I.E., which commenced operations in the third quarter of
1997.
<PAGE>
Potential liability associated with accident, cargo loss, workers'
compensation and equipment damage in the truckload industry is large and
difficult to predict. The Company reserves in its financial statements the
estimated value of all known claims, damage and losses. These estimates are
determined by Company management with the assistance of claims administrators at
the insurance carrier or by third party claims administrators. The Company's own
claims administrators estimate the cost of damage to the Company-owned
equipment. Estimates are based on case facts and past experience and are
adjusted monthly as necessary. Estimates are subject to change due to discovery
of new facts or injuries, actual settlements or jury awards which may vary from
initial estimates.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of
expense items to operating revenues for the periods indicated.
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- -------- ------
Operating revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Salaries, wages and benefits.................. 28.6 27.7 28.8
Fuel, maintenance and other expenses.......... 13.4 14.6 14.7
Purchased transportation...................... 29.8 28.4 25.8
Revenue equipment leases...................... 2.6 3.9 4.9
Depreciation and amortization................. 8.3 8.5 7.1
Insurance, claims and damage.................. 3.0 2.8 4.0
Taxes and licenses............................ 1.7 1.8 2.0
Communications................................ 1.1 1.2 1.4
Other general and administrative expenses..... 3.5 3.2 3.7
Gain on sale of equipment..................... (0.7) (0.2) (1.2)
Interest expense, net ........................ 1.8 1.6 1.4
----- ----- -----
Total operating expenses......................... 93.1 93.5 92.6
Earnings before income taxes..................... 6.9 6.5 7.4
Provision for income taxes....................... 2.7 2.7 3.2
----- ----- -----
Net earnings..................................... 4.2% 3.8% 4.2%
===== ===== =====
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Operating revenues increased 13.2% to $186.4 million for the year
ended December 31, 1997 from $164.7 million for the year ended December 31,
1996. Existing customers continued as the primary source of revenue growth.
Revenues per mile, excluding fuel surcharges, were $1.29 per mile for 1997,
compared to $1.28 per mile for 1996. Equipment utilization, as measured by
average revenues per tractor per week was $2,912 during 1997, compared to $2,736
during 1996, a 6.4% improvement in 1997, compared to 1996.
The pre-tax margin (earnings before income taxes as a percentage of
operating revenues) increased to 6.9% for 1997 from 6.5% for 1996. Excluding
gain on sale of equipment, pre-tax margin was 6.2% and 6.3% for 1997 and 1996,
respectively. As measured by average annual revenues per non-driver employee,
efficiency improved 3.3% to $544,300 for 1997 from $526,700 for 1996. Salaries,
wages and benefits increased as a percentage of operating revenues to 28.6% for
1997 from 27.7% for 1996. Independent contractor miles increased 11.8% due to an
increase in the average number of contractors in 1997, when compared to 1996.
Correspondingly, purchased transportation increased as a percentage of operating
revenues to 29.8% for 1997 from 28.4% in 1996. Fuel, maintenance and other
expense decreased as a percentage of operating revenues to 13.4% for 1997 from
14.6% for 1996 as a result of the increase in independent contractor miles as a
percentage of total miles, and lower fuel costs in 1997 when compared to 1996.
As a result of an increase in independent contractors and the expanded use of
debt-financed equipment, revenue equipment leases decreased as a percentage of
operating revenues to 2.6% for 1997 from 3.9% for 1996. Depreciation and
amortization decreased to 8.3% for 1997 from 8.5% for 1996 due to the timing of
equipment purchases and the change of estimated salvage values and useful lives
of the Company's revenue equipment and software which reduced depreciation
expense by approximately $750,000 in 1997. Somewhat poorer accident and claims
experience in 1997, partially offset by favorable premium rates for policies
renewed in 1997, resulted in an increase of insurance, claims and damage expense
as a percentage of operating revenues to 3.0% in 1997 from 2.8% in 1996. Net
interest expense increased as a percentage of operating revenues to 1.8% for
1997 from 1.6% for 1996 primarily as a result of increased debt-financed
equipment purchases in 1997, when compared to 1996.
Gain on the disposition of equipment was $1.3 million in 1997,
compared to a gain of $0.3 million in 1996, as a result of the larger number of
equipment dispositions in 1997 when compared to 1996, and a favorable market for
used equipment in 1997.
The provision for income taxes as a percentage of operating revenues
was 2.7% for both 1997 and 1996. The effective tax rate for 1997 was 40.1%,
compared to the tax rate for 1996 of 41.0%. The lower effective rate in 1997 was
due primarily to a continued decline in Company per diem payments, which are not
fully deductible for income tax purposes, when compared to 1996. The Company
pays certain of its drivers a per diem allowance while on the road to cover
meals and other expenses.
<PAGE>
As a consequence of the items discussed above, net earnings
increased to $7.8 million, or 4.2% of operating revenues, for the year ended
December 31, 1997 from $6.3 million, or 3.8% of operating revenues, for the year
ended December 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Operating revenues increased 14.1% to $164.7 million for the year
ended December 31, 1996 from $144.3 million for the year ended December 31,
1995. Increases in freight volumes from existing customers continued as the
primary source of revenue growth. Revenues per mile, excluding fuel surcharges
were $1.28 per mile for both 1996 and 1995, a reflection of continued soft
demand and industry overcapacity which limited opportunities for rate increases.
Equipment utilization, as measured by average revenues per tractor per week was
$2,736 during 1996, compared to $2,739 during 1995.
The pre-tax margin (earnings before income taxes as a percentage of
operating revenues) declined to 6.5% for 1996 from 7.4% for 1995. Excluding gain
on sale of equipment, pre-tax margin was 6.3% and 6.2% for 1996 and 1995,
respectively. As measured by average annual revenues per non-driver employee,
efficiency improved 10.3% to $526,700 for 1996 from $477,300 for 1995. Salaries,
wages and benefits decreased as a percentage of operating revenues to 27.7% for
1996 from 28.8% for 1995. Independent contractor miles increased 24% due to an
increase in the number of contractors to 445 at December 31, 1996 from 401 at
December 31, 1995. Correspondingly, purchased transportation increased as a
percentage of operating revenues to 28.4% for 1996 from 25.8% in 1995. Fuel,
maintenance and other expense decreased as a percentage of operating revenues to
14.6% for 1996 from 14.7% for 1995 as a result of the increase in independent
contractor miles as a percentage of total miles, and partially offset by higher
fuel costs in 1996 when compared to 1995. Average miles per gallon for
Company-owned tractors rose to 6.4 for 1996 from 6.3 for 1995 due to use of more
fuel efficient engines. Revenue equipment leases decreased as a percentage of
operating revenues to 3.9% for 1996 from 4.9% for 1995 principally as a result
of an increase in independent contractors and the expanded use of debt-financed
equipment. Depreciation and amortization increased to 8.5% for 1996 from 7.1%
for 1995 due to purchases of new revenue equipment and replacement of leased
equipment with debt-financed equipment. Improved accident and claims experience
in 1996 as well as favorable premium rates for policies renewed in 1996 resulted
in a decline of insurance, claims and damage expense as a percentage of
operating revenues to 2.8% in 1996 from 4.0% in 1995. Net interest expense
increased as a percentage of operating revenues to 1.6% for 1996 from 1.4% for
1995 primarily as a result of increased debt-financed equipment purchases in
1996, when compared to 1995.
Gain on the disposition of equipment was $0.3 million in 1996,
compared to a gain of $1.8 million in 1995, as a result of the fewer number of
equipment dispositions in 1996 when compared to 1995.
The provision for income taxes declined as a percentage of operating
revenues to 2.7% for 1996 from 3.2% for 1995. The effective tax rate for 1996
was 41.0%, compared to the tax
<PAGE>
rate for 1995 of 43.0%. The lower effective rate in 1996 was due primarily to a
continued decline in Company per diem payments, which are not fully deductible
for income tax purposes, when compared to 1995. The Company pays certain of its
drivers a per diem allowance while on the road to cover meals and other
expenses.
As a consequence of the items discussed above, net earnings
increased to $6.3 million, or 3.8% of operating revenues, for the year ended
December 31, 1996 from $6.1 million, or 4.2% of operating revenues, for the year
ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $16.8 million, $25.6
million, and $13.5 million for the years ended 1997, 1996, and 1995,
respectively. The working capital deficit was $2.2 million at December 31, 1997,
compared to the $5.8 million deficit at December 31, 1996. Historically, the
Company has operated effectively with current liabilities in excess of current
assets through a combination of operating profits, collections on accounts
receivable and other cash management strategies. Management expects to continue
to do so while meeting its obligations. Accrued liabilities include normal
provisions for accident and workers' compensation claims associated with the
Company's self-insured retention insurance program, less claim payments actually
made. The Company believes that its reserves and liquidity are adequate for
expected future claim payments.
Investing activities consumed $47.4 million in 1997, primarily for
the purchase of new revenue equipment, including 324 tractors and 1,050
trailers, less proceeds from the disposition of 208 used tractors and 564 used
trailers, as well as the purchase and construction of new service center
facilities and other equipment. These expenditures were financed through a
combination of cash provided by operating activities, long-term debt financing,
and proceeds from equipment dispositions. As of December 31, 1997 the Company
had purchase commitments totaling $9.0 million for the purchase of revenue
equipment, for which financing has been arranged. The balance of the revenue
equipment purchase commitment is expected to be financed by cash flows from
operating activities and proceeds from the disposition of used equipment.
Net cash provided by financing activities in 1997 was $25.6 million.
The primary source of financing was the issuance of $44.5 million of long-term
debt associated with the purchase of revenue equipment. Payments under the
Company's term loan agreements were $17.9 million. The Company repurchased and
retired 75,700 outstanding shares of common stock during 1997 with an aggregate
purchase price of approximately $1.0 million. The Company also received $0.4
million of proceeds from the exercise of options and warrants for the purchase
of common stock during 1997.
The Company has a $15 million credit facility with a bank,
consisting of a $10 million line of credit secured primarily by its accounts
receivable, and an additional $5 million line of credit secured by revenue
equipment not otherwise pledged. The credit facility, which expires in May 1999,
is used to meet short-term operating cash requirements, as well as letter of
credit
<PAGE>
requirements associated with the Company's self-insured retention arrangements.
At December 31, 1997, there were letters of credit outstanding totaling
$2,830,000 under this program.
On February 10, 1998 the Company announced a letter of intent to
acquire privately held North Star Transport, Inc., a truckload carrier based in
Eagan, Minnesota. The transaction, if completed as expected, will involve a
payment of cash and an exchange of shares with a total value expected to range
from $32 million to $37 million. Debt will be incurred to fund the cash portion
of the transaction. The number of shares will be less than 20 percent of the
Company's outstanding shares at the time of the transaction. North Star has a
fleet of approximately 625 owner-operated vehicles and currently generates
annual revenues of approximately $75 million. The transaction is expected to be
completed in the second quarter of 1998.
YEAR 2000
The Company has undertaken a project to replace and upgrade those
systems which are not currently Year 2000 compliant. As part of a larger upgrade
project which commenced during 1997 for key operating systems, the Company has
is addressing the Year 2000 compliance problem. This project is expected to be
completed and the systems fully operational during 1998, with total costs
associated with Year 2000 compliance estimated to be $300,000, of which $125,000
was incurred and expensed during 1997.
NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 129, SFAS No. 130 and
SFAS No. 131. SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE,
consolidates existing disclosure requirements and had no impact on the Company's
financial statements. SFAS No. 130, REPORTING COMPREHENSIVE INCOME, establishes
standards for reporting and displaying the components of comprehensive income
and will be adopted by the Company in 1998. The statements requires additional
disclosures, but has no impact on consolidated net earnings. SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, establishes
standards for determining operating segments and reporting operating segment
information,. SFAS No. 131 is required to be adopted beginning with the
Company's 1998 year-end annual report. The Company has not yet evaluated the
effects of the pronouncement to determine what change, if any, to its current
reporting format will be required.
SEASONALITY
As is typical in the truckload industry, the Company's operations
fluctuate seasonally according to customer shipping patterns which tend to peak
in the summer and fall, then increase again after the holiday and winter
seasons. Operating expenses also tend to be higher during the cold weather
months, primarily due to poorer fuel economy and increased maintenance costs.
<PAGE>
INFLATION
Many of the Company's operating expenses are sensitive to the
effects of inflation, which could result in higher operating costs. The effects
of inflation on the Company's business have not been significant during the last
three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements described in Item 14(a)1 of this report are
incorporated herein. See "Quarterly Financial Data" appearing on page F-20 of
the audited consolidated financial statements which are incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the Company's executive officers,
reference is made to the information set forth under the caption "Executive
Officers of the Registrant" located in Item 1 on page 8 of this Form 10-K. For
information concerning the Company's directors and compliance by the Company's
directors, executive officers and significant shareholders with the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934, as
amended, reference is made to the information set forth under the captions
"Election of Directors" and "Beneficial Ownership of Common Stock,"
respectively, in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 21, 1998 to be filed pursuant to Regulation 14A,
which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption
"Executive Compensation and Other Information" in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on May 21, 1998 to be filed
pursuant to Regulation 14A, which information is incorporated herein by
reference, except to the extent stated therein.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to the information set forth under the caption
"Beneficial Ownership of Common Stock" in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on May 21, 1998 to be filed pursuant
to Regulation 14A, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this Form 10-K
1. Consolidated Financial Statements
Form 10-K
Page Reference
--------------
Index to Consolidated Financial Statements ............. F-1
Independent Auditors' Report ........................... F-2
Consolidated Balance Sheets ............................ F-3
Consolidated Statements of Earnings .................... F-5
Consolidated Statements of Stockholders' Equity ........ F-6
Consolidated Statements of Cash Flows .................. F-7
Notes to Consolidated Financial Statements ............. F-8
2. Consolidated Financial Statement Schedules
Included in Part IV of this report:
Independent Auditors' Report on Schedule ............ S-1
Schedule VIII - Valuation and Qualifying Accounts ... S-2
<PAGE>
3. Exhibits
Exhibit
Number Description Page
- ------ ----------- ----
3.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form
S-1 (File No. 33-84140) as declared effective by the
Commission on November 3, 1994 (the "1994 S-1")).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the 1994
S-1).
4.1 Rights Agreement by and between the Company and Norwest Bank
Minnesota, N.A., dated February 25, 1997 (incorporated by
reference to Exhibit 1 to the Company's Registration Statement
on Form 8-A, as amended, filed with the SEC on February 27,
1997).
10.2 1986 Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.2 to the Company's Form 10-K for the year ended
December 31, 1996).
10.3 401(k) Retirement Plan (incorporated by reference to Exhibit
10.3 to the 1994 S-1).
10.4 Credit Agreement dated as of May 15, 1997 between Firstar Bank
of Minnesota, N.A. and the Company.
10.5 Form of warrants granted to officers, directors and
consultants (incorporated by reference to Exhibit 10.5 to the
1994 S-1).
10.6 Form of Vehicle Lease and Independent Contractor Agreement
(incorporated by reference to Exhibit 10.11 to the Company's
Form 10-K for the year ended December 31, 1996).
10.12 Employee Stock Purchase Plan (incorporated by reference to
Form S-8 which was filed on January 31, 1996 (File No.
333-934)).
10.13 1995 Stock Plan, as amended (incorporated by reference to
Exhibit 10.13 to the Company's Form 10-K for the year ended
December 31, 1996).
11.1 Statement re: Computation of Earnings per Share ...................
23.1 Independent Auditors' Consent .....................................
27.1 Financial Data Schedule, Fiscal year end 1997 .....................
27.2 Financial Data Schedule, Quarters 1, 2, and 3 of 1997 .............
27.3 Financial Data Schedule, Fiscal year end 1996 and and Quarters
1, 2, and 3 of 1996 ...............................................
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1997.
<PAGE>
(c) Exhibits
Reference is made to Item 14(a)3.
(d) Schedules
Reference is made to Item 14(a)2.
<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.
TRANSPORT CORPORATION OF AMERICA, INC.
("Registrant")
Dated: March 24, 1998 By /s/ James B. Aronson
James B. Aronson
--------------------------------------
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature and Title Date
- ------------------- ----
/s/ James B. Aronson March 24 , 1998
- -----------------------------------------
James B. Aronson
Chairman of the Board and
Chief Executive Officer
/s/ Robert J. Meyers March 24 , 1998
- -----------------------------------------
Robert J. Meyers
President,
Chief Operating Officer and
Chief Financial Officer
/s/ Dennis M. Mathisen March 24 , 1998
- -----------------------------------------
Dennis M. Mathisen, Director
/s/ Anton J. Christianson March 24 , 1998
- -----------------------------------------
Anton J. Christianson, Director
/s/ Michael J. Paxton March 24 , 1998
- -----------------------------------------
Michael J. Paxton, Director
/s/ Kenneth J. Roering March 24 , 1998
- -----------------------------------------
Kenneth J. Roering, Director
<PAGE>
Independent Auditors' Report on Schedule
The Board of Directors and Stockholders
Transport Corporation of America, Inc.
Under date of January 29, 1998, except as to note 12 which is as of February 10,
1998, we reported on the consolidated balance sheets of Transport Corporation of
America, Inc. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements, and our report thereon, are included in the
annual report on Form 10-K for the year 1997. In connection with our audits of
the aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1998
S-1
<PAGE>
SCHEDULE VIII
TRANSPORT CORPORATION OF AMERICA, INC.
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
----------------------
Additions
Balance at charged to Charge to Balance
beginning cost and other at end
Description of year expense accounts Deductions of year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful accounts
(deducted from accounts receivable) $ 313,000 115,000 104,000 $ 324,000
===========================================================================================================================
Year ended December 31, 1996
Allowance for doubtful accounts
(deducted from accounts receivable) $ 304,000 60,000 51,000 (1) $ 313,000
===========================================================================================================================
Year ended December 31, 1995
Allowance for doubtful accounts
(deducted from accounts receivable) $ 238,000 60,000 (6,000) $ 304,000
===========================================================================================================================
(1) Accounts deemed to be uncollectible $60,000
Recoveries of amount previously deemed to
be uncollectible (9,000)
-------------
$51,000
-------------
</TABLE>
S-2
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report..............................................F-2
Consolidated Balance Sheets...............................................F-3
Consolidated Statements of Earnings.......................................F-5
Consolidated Statements of Stockholders' Equity...........................F-6
Consolidated Statements of Cash Flows.....................................F-7
Notes to Consolidated Financial Statements................................F-8
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
Independent Auditors' Report
The Board of Directors and Stockholders
Transport Corporation of America, Inc.:
We have audited the consolidated balance sheets of Transport Corporation of
America, Inc. and subsidiary (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Transport
Corporation of America, Inc. and subsidiary as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1998, except as to note 12
which is as of February 10, 1998
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
-----------------------------------
Assets 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,382,867 $ 6,340,991
Trade receivables, less allowance for doubtful accounts
of $324,000 in 1997 and $313,000 in 1996 (note 3) 17,481,836 12,617,377
Other receivables (note 2) 4,756,733 656,753
Operating supplies - inventory 989,412 810,180
Deferred income tax benefit (notes 1 and 8) 3,945,000 2,113,000
Prepaid expenses and tires 1,920,925 2,102,271
- ---------------------------------------------------------------------------------------------------------
Total current assets 30,476,773 24,640,572
Revenue equipment, net of accumulated depreciation
of $29,871,000 in 1997 and $25,121,000 in 1996
(note 3 and 5) 97,014,283 69,570,105
Property and other equipment (note 5):
Land, buildings, and improvements 17,120,465 11,042,479
Other equipment 7,082,199 5,183,786
Less accumulated depreciation (6,177,182) (4,879,203)
- ---------------------------------------------------------------------------------------------------------
Net property and other equipment 18,025,482 11,347,062
Other assets, net 2,275,994 3,113,171
- ---------------------------------------------------------------------------------------------------------
Total assets $ 147,792,532 $ 108,670,910
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
December 31
--------------------------------
Liabilities and Stockholders' Equity 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt (note 3 and 5) $ 19,076,851 $ 15,258,593
Accounts payable 3,557,416 2,607,861
Checks issued in excess of cash balances 0 350,950
Due to independent contractors 518,314 1,385,364
Accrued expenses (note 4) 9,562,304 10,837,326
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 32,714,885 30,440,094
Long term debt, less current maturities (note 5) 44,617,734 21,837,713
Deferred income taxes (note 8) 19,652,000 13,310,000
Commitments (notes 7 and 10 )
Stockholders' equity (note 6):
Common stock, $.01 par value; 15,000,000 shares authorized; 6,590,634 and
6,496,039 shares issued and outstanding
as of December 31, 1997 and 1996, respectively 65,906 64,960
Additional paid-in capital 23,823,835 23,851,516
Retained earnings 26,918,172 19,166,627
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 50,807,913 43,083,103
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 147,792,532 $ 108,670,910
====================================================================================================================
</TABLE>
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 186,392,409 $ 164,666,098 $ 144,254,491
Operating expenses:
Salaries, wages and benefits 53,165,856 45,515,262 41,479,035
Fuel, maintenance and other expenses 25,027,811 23,877,402 21,190,845
Purchased transportation 55,614,225 46,760,672 37,257,678
Revenue equipment leases 4,893,657 6,489,621 7,090,426
Depreciation and amortization 15,494,080 13,966,419 10,273,111
Insurance, claims and damage 5,619,787 4,686,243 5,726,945
Taxes and licenses 3,248,655 2,952,332 2,873,096
Communications 2,071,706 1,974,625 1,977,816
Other general and administrative expenses 6,409,733 5,323,586 5,388,994
Gain on sale of equipment (1,336,338) (275,582) (1,754,810)
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses 170,209,172 151,270,580 131,503,136
- ----------------------------------------------------------------------------------------------------------------
Operating income 16,183,237 13,395,518 12,751,355
Interest expense 3,307,046 2,823,839 2,232,702
Interest income (64,854) (90,220) (194,454)
- ----------------------------------------------------------------------------------------------------------------
Interest expense, net 3,242,192 2,733,619 2,038,248
- ----------------------------------------------------------------------------------------------------------------
Earnings before income taxes 12,941,045 10,661,899 10,713,107
Provision for income taxes (note 8) 5,189,500 4,368,000 4,607,000
- ----------------------------------------------------------------------------------------------------------------
Net earnings (note 6) $ 7,751,545 $ 6,293,899 $ 6,106,107
- ----------------------------------------------------------------------------------------------------------------
Earnings per common share
Basic $ 1.18 $ 0.98 $ 0.96
Diluted $ 1.15 $ 0.94 $ 0.91
- ----------------------------------------------------------------------------------------------------------------
Average common shares outstanding 6,568,444 6,441,723 6,360,992
Average common and common equivalent
shares outstanding for diluted earnings
per share 6,734,352 6,718,351 6,709,222
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements Of Stockholders' Equity
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Common Additional Total
-------------------------- paid-in Retained stockholders'
Shares Amount capital earnings equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 6,329,607 $ 63,296 $ 23,359,352 $ 6,766,621 $ 30,189,269
Common stock options
and warrants 91,012 910 11,117 0 12,027
Net earnings 0 0 0 6,106,107 6,106,107
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 6,420,619 64,206 23,370,469 12,872,728 36,307,403
Common stock options,
warrants, and stock
purchase plan 75,420 754 481,047 0 481,801
Net earnings 0 0 0 6,293,899 6,293,899
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 6,496,039 64,960 23,851,516 19,166,627 43,083,103
Common stock options,
warrants, and stock
purchase plan 170,295 1,703 357,748 0 359,451
Tax benefits related to
employee stock warrant
transactions 0 0 571,000 0 571,000
Repurchase and retirement
of common stock (75,700) (757) (956,429) 0 (957,186)
Net earnings 0 0 0 7,751,545 7,751,545
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 6,590,634 $ 65,906 $ 23,823,835 $ 26,918,172 $ 50,807,913
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net earnings $ 7,751,545 $ 6,293,899 $ 6,106,107
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 15,494,080 13,966,419 10,273,111
Gain on sale of equipment (1,336,338) (275,582) (1,754,810)
Deferred income taxes 4,510,000 3,241,000 2,850,000
Tax benefits related to employee stock warrant transactions 571,000 0 0
Changes in operating assets and liabilities:
Trade receivables (4,864,459) 423,131 (1,907,653)
Other receivables (4,099,980) 2,665,342 (2,604,193)
Operating supplies (179,232) 153,310 (400,011)
Prepaid expenses and tires 181,346 (210,601) (215,925)
Accounts payable 949,555 (389,394) 128,889
Due to independent contractors (867,050) 405,289 308,950
Accrued expenses (1,275,022) (707,602) 699,618
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 16,835,445 25,565,211 13,484,083
- ----------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Payments for purchases of revenue equipment (51,002,674) (21,132,518) (41,216,303)
Payments for purchases of property and other equipment (8,048,184) (3,303,334) (1,937,911)
(Increase) decrease in other assets (195,680) 82,812 221,500
Proceeds from sales of equipment 11,803,375 4,168,115 9,806,998
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (47,443,163) (20,184,925) (33,125,716)
- ----------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of common stock,
and exercise of options and warrants 359,451 481,801 12,027
Payments for repurchase and retirement of common stock (957,186) 0 0
Proceeds from issuance of long-term debt 44,538,697 15,591,819 17,897,080
Principal payments on long-term debt (17,940,418) (12,246,110) (7,470,911)
Proceeds from issuance of notes payable to bank 38,060,000 21,888,000 11,720,000
Principal payments on notes payable to bank (38,060,000) (24,118,000) (9,490,000)
Change in net checks issued in excess of cash balances (350,950) (801,978) (233,432)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 25,649,594 795,532 12,434,764
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (4,958,124) 6,175,818 (7,206,869)
Cash and cash equivalents, beginning of year 6,340,991 165,173 7,372,042
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,382,867 $ 6,340,991 $ 165,173
==================================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 3,424,736 $ 2,806,400 $ 2,115,034
Income taxes, net 1,313,063 1,136,516 2,354,588
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996, and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS
NATURE OF BUSINESS
Transport Corporation of America, Inc. (the Company) is a
truckload motor carrier engaged in the transportation of a
variety of general commodities for customers principally in
the United States and portions of Canada, pursuant to
nationwide operation authority. Customer freight is
transported by Company equipment and by independent
contractors. Payments to Company drivers and independent
contractors are primarily based upon miles driven. Transport
International Express, Inc., the Company's wholly-owned
subsidiary which commenced operations in the third quarter of
1997, provides airport-to-airport less-than-truckload express
service to air freight forwarders and airlines throughout the
United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all accounts of the
Company and its wholly owned subsidiary, Transport
International Express, Inc. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995
financial statements in order to conform to the 1997
presentation.
REVENUE RECOGNITION
Operating revenues are recognized when the freight to be
transported has been loaded. Amounts payable to independent
contractors for purchased transportation, to Company drivers
for wages and any other direct expenses are accrued when the
related revenue is recognized. If the Company had used the
method whereby revenues and related direct costs are
recognized when the shipment is completed, there would not
have been a material effect on the Company's financial
position, results of operations, or liquidity on either an
annual or quarterly basis.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
REVENUE EQUIPMENT, PROPERTY, AND OTHER EQUIPMENT
Revenue equipment, property, and other equipment are recorded at
cost. Depreciation, including amortization of capitalized
leases, is computed using the straight-line basis over the
estimated useful lives of the assets or the lease periods,
whichever is shorter. The estimated useful lives and salvage
values are as follows:
Years Salvage value
- -----------------------------------------------------------------------------
Tractors 5 25-30%
Trailers 5 47.5-50%
Buildings 30 0
Other equipment, including computers and furniture 3-7 0
During 1997, the Company changed the estimated salvage value,
estimated life of certain of its' revenue equipment and the
estimated life of its' computer software. These changes were
made to better reflect the estimated salvage values and useful
lives of such assets. The changes resulted in a net decrease
in depreciation and other operating expenses of approximately
$750,000, an increase in net income of approximately $450,000,
and an increase in both basic and diluted earnings per share
of $0.07.
TIRES
Tires placed on new equipment after December 31, 1996 are
capitalized as part of revenue equipment and amortized over
their estimated life. Tires placed on new equipment prior to
December 31, 1996 are included in other assets (net) and are
capitalized and recorded as prepaid tires and amortized over
their estimated life.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of, on January 1, 1996. This Statement requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption
of this Statement had no impact on the Company's financial
position or results of operations.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
OPERATING SUPPLIES
Operating supplies representing repair parts, fuel, and
replacement tires for revenue equipment are recorded at cost.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
ESTIMATED LIABILITY FOR INSURANCE CLAIMS
The Company has automobile liability, workers' compensation and
health insurance coverage under both deductible and
retrospective rating policies. The Company estimates and
accrues a liability for its share of ultimate settlements
using all available information, including the services of a
third party insurance risk claims administrator, to establish
reserve levels for each occurrence based on the facts and
circumstances of the occurrence coupled with the Company's
history of such claims. The Company accrues for workers'
compensation and automobile liability claims when reported.
The recorded expense depends upon actual loss experience and
changes in estimates of settlement amounts for open claims
which have not been fully resolved. The Company provides for
adverse loss development in the period when new information so
dictates. However, final settlement of these claims could
differ materially from the amounts the Company has accrued at
year-end. The Company accrues for health insurance claims
reported, as well as for claims incurred but not reported,
based upon the Company's past experience.
STOCK-BASED EMPLOYEE COMPENSATION
The Company follows the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for
its stock-based employee compensation plans. The Company has
adopted the disclosure-only requirements of Statement of
Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
amounts presented on the financial statements for the existing
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
NET EARNINGS PER SHARE: BASIC AND DILUTED
Basic net earnings per common share is computed by dividing net
earnings by the weighted average number of common shares
outstanding during the year.
Diluted net earnings per share is computed by dividing net
earnings by the weighted average number of shares outstanding
assuming exercise of dilutive stock options and warrants,
which are considered to be common stock equivalents. Common
stock equivalents are included under the treasury stock method
using the average market price of the Company's stock during
each period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial assets and
liabilities, because of their short-term nature, approximates
fair value. The fair value of the Company's borrowing, if
recalculated based on current interest rates, would not
significantly differ from the recorded amounts.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company
considers all highly liquid investments with initial
maturities of three months or less to be cash equivalents.
(2) OTHER RECEIVABLES
Other Receivables at December 31, 1997 includes a receivable of
approximately $3.7 million related to the sale of certain
revenue equipment.
(3) LINE OF CREDIT
The Company has a $15 million credit facility with a bank,
consisting of a $10 million line of credit secured primarily
by the Company's accounts receivable, and an additional $5
million line of credit secured by revenue equipment not
otherwise pledged. The credit facility, which expires in May
1999, is used to meet short-term operating cash requirements
as well as letter of credit requirements associated with the
Company's self-insured retention arrangements. At December 31,
1997, there were letters of credit outstanding totaling
$2,830,000 under this program.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
The following is a summary of data relating to this short-term financing:
Years ended
December 31
-----------------------------
1997 1996
- -------------------------------------------------------------------------------
Outstanding balance at year end $ 0 $ 0
Average amount outstanding 801,000 360,000
Maximum amount outstanding 3,640,000 3,920,000
Weighted average interest rate during the year 8.5% 8.3%
Commitment fee on unused balances 0.21% 0.25%
(4) ACCRUED EXPENSES
Accrued expenses are as follows:
December 31
---------------------------
1997 1996
- -----------------------------------------------------------------------------
Salaries and wages $ 1,767,996 $ 2,767,973
Insurance, claims, and damage 5,587,533 5,701,584
Independent contractor escrows 954,061 811,778
Taxes, other than income 430,670 452,425
Current income tax 0 620,699
Interest 149,150 266,840
Other 672,894 216,027
- -----------------------------------------------------------------------------
$ 9,562,304 $10,837,326
=============================================================================
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
----------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to banks and other financial institutions with maturities through
October 2001, secured by certain revenue equipment:
Interest rates ranging from 6.8% to 7.7% $59,329,853 $31,601,192
Interest rate floating on a reference rate which was
7.7% at December 31, 1997 3,249,616 4,063,911
Obligations under capital leases payable with maturities through December 1999:
Interest rates ranging from 4.4% to 12.0%, secured by
certain revenue equipment and other equipment 920,192 1,204,989
Mortgage notes payable with maturities through October 2002, secured by real
estate:
Interest rates of 9.0% 194,924 226,214
- ----------------------------------------------------------------------------------------------------------------
Total long-term debt 63,694,585 37,096,306
Less current maturities of long-term debt 19,076,851 15,258,593
- ----------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities $44,617,734 $21,837,713
================================================================================================================
</TABLE>
The aggregate annual maturities of long-term debt at December 31,
1997 are as follows:
Year ending
December 31 Amount
------------------------------------------------------------
1998 $ 19,076,851
1999 20,330,297
2000 15,026,268
2001 9,219,892
2002 41,277
------------------------------------------------------------
$ 63,694,585
============================================================
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
6) STOCKHOLDERS' EQUITY
STOCKHOLDER RIGHTS PLAN AND PREFERRED STOCK DISTRIBUTION
In February 1997, the Company adopted a stockholder rights plan
and declared a dividend of one Preferred Stock Purchase Right
(Right) for each outstanding share of the Company's common
stock. The plan and dividend become operative in certain
events involving the acquisition of 15% or more of the
Company's voting stock by any person or group in a transaction
not approved by the Board of Directors.
Each Right entitles the holder to purchase two-hundredths of a
share of Series A Junior Participating Preferred Stock for $60
upon the occurrence of certain specified events. Additionally,
the Rights entitle the holder, upon the occurrence of certain
specified events, to purchase common stock having a value of
twice the exercise price of the Right; upon the occurrence of
certain other specified events, to purchase from an entity
acquiring at least 15% of the voting securities or voting
power of the Company, common stock of the acquiring entity
having twice the exercise price of the Right. The Rights may
be redeemed by the Company at a price of $0.001 per Right. The
Rights expire on February 25, 2007, and are not presently
exercisable.
WARRANTS
At December 31, 1997 and 1996, the Company had outstanding
warrants for the purchase of 37,500 and 184,125 shares of the
Company's common stock, respectively, at prices ranging from
$1.40 to $5.20 per share. All of the warrants are currently
exercisable and have expiration dates through 1999. During
1996, warrants for the purchase of 3,750 shares were exercised
in a cashless transaction resulting in the issue of 3,253
shares. No warrants were granted during 1997 or 1996.
Warrant transactions are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Warrants outstanding at beginning of year 184,125 187,875
Warrants exercised 146,625 3,750
- -----------------------------------------------------------------------------------------------------
Warrants outstanding at end of year 37,500 184,125
=====================================================================================================
Weighted average price of warrants outstanding at end of year $ 3.68 $ 1.99
=====================================================================================================
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In 1996, the stockholders approved, and the Company implemented,
an Employee Stock Purchase Plan ("the Plan"). The purpose of
the Plan is to encourage employees to purchase shares of
Common Stock in the Company thereby providing a greater
community of interest between the Company and its employees.
There are 100,000 shares of the Company's Common Stock
reserved for issuance under the Plan, which terminates on
December 31, 2000.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
The Plan permits employees to purchase shares of Common Stock of
the Company at a price equal to the lesser of 85% of the
market value of the Common Stock at the commencement or
termination dates of each phase. Each year, during the term of
the plan, there are two six-month phases commencing on January
1 and July 1, respectively, except for the initial phase of
1996, which commenced on March 1, 1996. Employees who have
been employed for one year and who are regularly scheduled to
work more than 20 hours per week and who are less than 5%
owners are eligible to participate in the program via payroll
deductions. Purchases are limited to 10% of a participant's
base pay during the respective phase.
During 1997 and 1996, employees purchased 5,280 and 2,287 shares
respectively, at average prices of $9.13 and $9.98 per share,
respectively.
STOCK OPTION PLANS
The Company has adopted two stock option plans which allow for the
grant of options to officers and other key employees to
purchase common shares at an exercise price not less than 100%
of fair market value on the dates of grant. Officers and other
key employees of the Company who are responsible for, or
contribute to, the management, growth and/or profitability of
the business of the Company, as well as selected consultants
under contract to the Company and non-employee directors are
eligible to be granted awards. These option plans allow for
the grant of up to 725,000 shares. Options generally vest in
cumulative annual increments over periods from one to four
years and expire five years from date of issuance. At December
31, 1997 and 1996, the exercise prices of outstanding options
ranged from $1.40 to $13.44 for both periods with a weighted
average contractual life of approximately two and three years,
respectively.
Option transactions are summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
----------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 252,437 301,780 $ 7.25 $ 6.72
Granted 6,000 37,277 13.00 11.83
Canceled 0 (16,740) 0 10.66
Exercised (18,390) (69,880) 4.48 6.57
- -------------------------------------------------------------------------------------------------------------------------------
Options outstanding at end of year 240,047 252,437 $ 7.61 $ 7.25
================================================================================================================================
Options exercisable at end of year 221,596 177,590 $ 7.28 $ 6.13
================================================================================================================================
</TABLE>
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. Accordingly, no
compensation cost has been recognized with respect to the
Company's stock option plans or the Employee Stock Purchase
Plan. Had compensation cost been determined on the basis of
fair value pursuant to the provisions of SFAS No. 123, net
earnings and net earnings per share would have been reduced to
the pro forma amounts indicated below:
1997 1996
- -------------------------------------------------------------------------
Net earnings:
As reported $ 7,751,545 $ 6,293,899
=========== ===========
Pro forma $ 7,679,721 $ 6,233,809
=========== ===========
Net basic earnings per share:
As reported $ 1.18 $ 0.98
=========== ===========
Pro forma $ 1.17 $ 0.97
=========== ===========
Net diluted earnings per share:
As reported $ 1.15 $ 0.94
=========== ===========
Pro forma $ 1.14 $ 0.93
=========== ===========
The above pro forma amounts may not be representative of the
effects on reported net earnings for future years. The fair
value of each option grant is estimated on the date of grant
using the Black-Scholes options-pricing model with the
following weighted-average assumptions used for grants in 1997
and 1996:
1997 1996
-----------------------------------------------
Dividend yield 0.0% 0.0%
Expected volatility 37.0% 40.0%
Risk-free interest rate 6.21% 6.21%
Expected lives 5 years 5 years
===============================================
(7) EMPLOYEE BENEFIT PLANS
The Company has a savings retirement plan ("the Plan") for
eligible employees under Section 401(k) of the Internal
Revenue Code. The Plan allows employees to defer up to 16% of
their compensation on a pretax basis. The Company may, at its
discretion, match a portion of the employee deferrals. During
1997, 1996, and 1995 the Company contributed amounts equal to
one-fourth of the employee deferrals, up to 1% of each
participant's compensation. For participants who are employed
as truck drivers with pay based on actual miles driven, the
Company may also elect to contribute 1/2(cent) and 1(cent) per
paid mile driven for drivers with over one and two years of
service, respectively. The Company contributed $525,000 in
1997, $323,000 in 1996, and $480,000 in 1995, to the Plan on
behalf of all employees.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
(8) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the year ended December 31, 1997:
Federal $ (21,000) $ 4,147,500 $ 4,126,500
State 150,000 913,000 1,063,000
- ---------------------------------------------------------------------------------------------------------------------
$ 129,000 $ 5,060,500 $ 5,189,500
=====================================================================================================================
For the year ended December 31, 1996:
Federal $ 896,000 $ 2,603,000 $ 3,499,000
State 239,000 630,000 869,000
- ---------------------------------------------------------------------------------------------------------------------
$ 1,135,000 $ 3,233,000 $ 4,368,000
=====================================================================================================================
For the year ended December 31, 1995:
Federal $ 1,385,000 $ 2,327,000 $ 3,712,000
State 380,000 515,000 895,000
- ---------------------------------------------------------------------------------------------------------------------
$ 1,765,000 $ 2,842,000 $ 4,607,000
=====================================================================================================================
</TABLE>
The income tax expense differs from the "expected" tax expense
as follows for the years ended December 31, 1997, 1996,
and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected federal tax expense at statutory rates $ 4,529,000 $ 3,625,000 $ 3,643,000
Increases in taxes resulting from:
State income taxes, net of federal benefit 691,000 546,000 591,000
Expenses not deductible for tax purposes 216,000 250,000 373,000
Other (246,500) (53,000) 0
- ---------------------------------------------------------------------------------------------------------------------
Actual tax expense $ 5,189,500 $ 4,368,000 $ 4,607,000
=====================================================================================================================
</TABLE>
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 1997 and 1996 are presented
below:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Vacation accrual $ 328,000 $ 226,000
Allowance for doubtful accounts 125,000 121,000
Net operating loss carryforward 1,688,000 0
Insurance, claims, and damage accruals 2,051,000 2,088,000
Alternative minimum tax credit carryforward 2,137,000 2,117,000
- -------------------------------------------------------------------------------------------
Total deferred tax assets 6,329,000 4,552,000
- -------------------------------------------------------------------------------------------
Deferred tax liabilities:
Equipment, principally due to differences in
depreciation and lease 22,036,000 15,749,000
- --------------------------------------------------------------------------------------------
Net deferred tax liability $ 15,707,000 $ 11,197,000
- --------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the Company has net operating loss
carryforwards for federal income tax purposes of $4,371,700
which are available to offset future federal taxable income,
if any, through 2012. The Company also has alternative minimum
tax credit carryforwards of approximately $2,137,000 which are
available to reduce future federal regular income taxes, if
any, over an indefinite period.
The Company has reviewed the need for a valuation allowance
relating to the deferred tax assets and has ascertained that
no allowance is needed.
(9) MAJOR CUSTOMERS
Sales to the Company's five largest customers represented 43%,
43%, and 39%, of total revenues for 1997, 1996, and 1995,
respectively. One customer accounted for approximately 14% of
sales in 1997, 16% in 1996, and 13% in 1995.
(10) COMMITMENTS
REVENUE EQUIPMENT LEASES
The Company has entered into operating leases for certain revenue
equipment. The aggregate cost of this leased equipment at the
beginning of the leases was approximately $20,302,000 at
December 31, 1997.
Approximately $5,820,000 of the equipment is under noncancelable
operating leases of 36 to 60 months, with the equipment
reverting to the lessor at the end of lease term.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
Approximately $14,481,000 of the equipment is under TRAC (terminal
rental adjustment clause) operating leases, over periods
generally ranging from 48 to 72 months. Several of these
leases allow the Company to terminate the lease anytime after
a minimum lease term, ranging from 12 to 36 months. In
exchange, the Company guarantees the lessor a predetermined
decreasing resale value. The guaranteed resale value of
equipment under TRAC leases, assuming termination at the end
of the noncancelable minimum lease term, is approximately
$9,325,000 through 1998 which will be reduced by the sales
proceeds of the equipment. However, the Company typically
continues the lease through to the full term of the lease
agreement. The full term guaranteed termination values vary
from 20% to 40% of the original cost for tractors, van
trailers, and temperature-controlled trailers. Typically the
lessor assumes a portion of the residual risk for the
condition of the equipment upon termination of the contract.
Rental expense under these operating leases was approximately
$4,751,000 in 1997, $6,438,000 in 1996, and $7,089,000 in
1995.
Aggregate future minimum lease payments as of December 31, 1997
for the noncancelable portion of revenue equipment under
operating leases are as follows:
Years ending December 31:
1998 $ 1,016,532
1999 804,826
2000 469,482
-----------------------------------------------------------
$ 2,290,840
===========================================================
OTHER LEASES
The Company leases one facility with future minimum lease payments
of $301,019 which expire in 2000. The total facility and computer
equipment operating lease expense was $155,785 in 1997, $138,300
in 1996, and $151,758 in 1995.
CAPITAL ADDITIONS
The Company has committed to purchase approximately $9,000,000 of
revenue equipment to be delivered during 1998.
GUARANTEE OF INDEBTEDNESS
In 1997, the Company established a program whereby experienced
Company drivers can purchase their own truck. As part of the
program, the driver agrees to make certain commitments to the
Company and to purchase a vehicle meeting certain
specifications established by the Company. In exchange, the
company facilitates the financing of the vehicle by
guaranteeing the loans made to drivers participating in the
program.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
To accommodate the financing for this program, the Company has
entered into a loan servicing and guaranty agreement with a
bank. Under the terms of the agreement, the Company guarantees
the individual driver loans and has the right to repossess the
vehicle in the event a driver defaults on the loan. As of
December 31, 1997, thirteen such loans with an outstanding
balance of approximately $782,000 had been guaranteed. No
loans were in default.
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
(11) Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1997, 1996, 1995
<TABLE>
<CAPTION>
1997:
Quarter First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues $43,475,225 $46,368,579 $47,099,930 $49,448,675
Operating Income 2,287,060 4,199,204 4,790,148 4,906,825
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 987,888 $ 2,074,079 $ 2,389,498 $ 2,300,080
Net earnings
per common share:
Basic $ 0.15 $ 0.32 $ 0.36 $ 0.35
Diluted $ 0.15 $ 0.31 $ 0.36 $ 0.34
=========================================================================================================
1996:
Quarter First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
Operating Revenues $38,794,178 $41,225,259 $42,463,861 $42,182,800
Operating Income 1,796,632 3,778,868 4,332,477 3,487,541
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 645,179 $ 1,796,739 $ 2,119,071 $ 1,732,910
Net earnings per
common share:
Basic $ 0.10 $ 0.28 $ 0.33 $ 0.27
Diluted $ 0.10 $ 0.27 $ 0.32 $ 0.26
=========================================================================================================
1995:
Quarter First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
Operating Revenues $34,350,614 $34,972,128 $36,730,124 $38,201,625
Operating Income 2,282,580 3,701,119 3,766,426 3,001,230
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 1,046,356 $ 1,857,056 $ 1,859,731 $ 1,342,964
Net earnings per
common share:
Basic $ 0.17 $ 0.29 $ 0.29 $ 0.21
Diluted $ 0.16 $ 0.28 $ 0.28 $ 0.20
=========================================================================================================
</TABLE>
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
(12) SUBSEQUENT EVENT
On February 10, 1998 the Company announced a letter of intent to
acquire privately held North Star Transport, Inc., a truckload
carrier based in Eagan, Minnesota. The transaction, if
completed as expected, will be completed with a combination of
cash and an exchange of shares with a total value expected to
range from $32 million to $37 million. The number of shares
will be less than 20 percent of the Company's outstanding
shares at the time of the transaction. North Star has a fleet
of approximately 625 owner-operated vehicles and currently
generates annual revenues of approximately $75 million. The
transaction is expected to be completed in the second quarter
of 1998.
EXHIBIT 10.4
CREDIT AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I. DEFINITIONS...........................................................................................................1
ARTICLE II. LETTERS OF CREDIT......................................................................................................9
2.1 ISSUANCE OF LETTERS OF CREDIT..................................................................9
2.2 LETTER OF CREDIT FEE..........................................................................10
2.3 SPECIAL ACCOUNT. ............................................................................10
ARTICLE III. REVOLVING LOAN.....................................................................................................11
3.1 NATURE OF LOAN COMMITMENT/MAXIMUM OF ADVANCES.................................................11
3.2 TYPES OF ADVANCES; CERTAIN LIMITATIONS........................................................11
3.3 PURPOSE FOR ADVANCES..........................................................................11
3.4 COMPUTATION OF INTEREST.......................................................................11
3.5 MATURITY. ...................................................................................11
3.6 RECORDKEEPING. ..............................................................................11
3.7 NON-USE FEES..................................................................................12
3.8 ACTIVATION OF CONTINGENT COMMITMENT. .........................................................12
ARTICLE IV. DISBURSEMENT OF REVOLVING CREDIT COMMITMENT ADVANCES.................................................................12
4.1 REQUESTS FOR ADVANCES.........................................................................12
4.2 CONVERTING FLOATING RATE ADVANCES TO LIBOR RATE ADVANCES; PROCEDURES..........................12
4.3 PROCEDURES AT END OF INTEREST PERIOD..........................................................12
(a) AUTOMATIC CONVERSION..................................................12
(b) EXTENSION.............................................................13
(c) PAYMENT...............................................................13
ARTICLE V. PAYMENTS AND PREPAYMENTS OF ADVANCES..................................................................................13
5.1 PRINCIPAL PAYMENTS UNDER REVOLVING CREDIT COMMITMENT..........................................13
(a) PAYMENT OF LIBOR RATE ADVANCES; FINAL PAYMENT.........................13
(b) OPTIONAL PREPAYMENT...................................................13
(c) MANDATORY PREPAYMENT; APPLICATION.....................................13
(d) APPLICATION OF PAYMENTS AND PREPAYMENTS...............................13
(e) INDEMNITY PAYMENT.....................................................14
(f) INTEREST..............................................................14
5.2 INTEREST PAYMENTS UNDER REVOLVING CREDIT COMMITMENT...........................................14
5.3 PAYMENT METHOD AND RELATED MATTERS............................................................14
(a) PAYMENTS BY BORROWER. ................................................14
(b) AUTHORIZATION OF PAYMENTS/ADVANCES....................................14
5.4 NO SETOFF OR DEDUCTION........................................................................14
5.5 PAYMENT ON NON-BUSINESS DAY...................................................................14
5.6 ILLEGALITY AND IMPOSSIBILITY..................................................................14
(a) REPAYMENT.............................................................14
(b) CONVERSION OF LIBOR RATE ADVANCES TO FLOATING RATE ADVANCES...........15
5.7 LIBOR RATE INDEMNITY..........................................................................15
<PAGE>
ARTICLE VI. WARRANTIES AND COVENANTS..............................................................................................15
6.1 ACCURACY OF INFORMATION.......................................................................15
6.2 ORGANIZATION AND AUTHORITY; LITIGATION. .....................................................15
6.3 CORPORATE EXISTENCE; BUSINESS ACTIVITIES; ASSETS..............................................16
6.4 USE OF PROCEEDS; MARGIN STOCK; SPECULATION....................................................16
6.5 ENVIRONMENTAL MATTERS.........................................................................16
6.6 ENVIRONMENTAL PERMITS.........................................................................17
6.7 COMPLIANCE WITH LAWS..........................................................................17
6.8 PENSION PLANS.................................................................................17
6.9 RESTRICTION ON INDEBTEDNESS...................................................................17
6.10 RESTRICTION ON LIENS..........................................................................17
6.11 RESTRICTION ON CONTINGENT LIABILITIES.........................................................18
6.12 RESTRICTED PAYMENTS...........................................................................18
6.13 CHANGE IN CONTROL.............................................................................18
6.14 INTENTIONALLY OMITTED.........................................................................18
6.15 NOTICE OF MATERIAL EVENTS/SEC REPORTS.........................................................18
6.16 INSURANCE.....................................................................................18
6.17 TAXES AND OTHER LIABILITIES...................................................................18
6.18 FINANCIAL STATEMENTS AND REPORTING............................................................18
6.19 INSPECTION OF PROPERTIES AND RECORDS; FISCAL YEAR; ACCOUNTING METHODS.........................19
6.20 FINANCIAL STATUS..............................................................................20
6.21 CAPITAL ADEQUACY..............................................................................20
6.22 REAFFIRMATION WITH ADVANCES...................................................................20
6.23 ACQUISITIONS, LOAN, INVESTMENTS...............................................................20
6.24 CHANGE NAME OR OFFICE.........................................................................21
6.25 CHANGE IN NATURE OF BUSINESS..................................................................21
6.26 NEGATIVE PLEDGES..............................................................................21
6.27 BANK ACCOUNTS.................................................................................21
ARTICLE VII. COLLATERAL AND GUARANTIES............................................................................................21
7.1 COLLATERAL....................................................................................21
7.2 CREDIT BALANCES; SETOFF.......................................................................21
ARTICLE VIII. DEFAULTS............................................................................................................22
8.1 EVENTS OF DEFAULT. ...........................................................................22
(a) NONPAYMENT............................................................22
(b) NONPERFORMANCE........................................................22
(c) MISREPRESENTATION.....................................................22
(d) DEFAULT ON OTHER OBLIGATIONS..........................................22
(e) JUDGMENTS.............................................................22
(f) INABILITY TO PERFORM; BANKRUPTCY/INSOLVENCY...........................22
(g) GARNISHMENTS/LEVIES...................................................22
8.2 TERMINATION OF LOANS; ADDITIONAL BANK RIGHTS..................................................22
8.3 ACCELERATION OF OBLIGATIONS...................................................................23
8.4 OTHER REMEDIES................................................................................23
ARTICLE IX. CONDITIONS PRECEDENT TO CLOSING AND BORROWING.........................................................................23
9.1 CONDITIONS TO BORROWING.......................................................................23
<PAGE>
ARTICLE X. MISCELLANEOUS..........................................................................................................23
10.1 EXPENSES AND ATTORNEYS' FEES..................................................................23
10.2 DELAY; CUMULATIVE REMEDIES....................................................................24
10.3 RELATIONSHIP TO OTHER DOCUMENTS...............................................................24
10.4 PARTICIPATIONS; GUARANTORS....................................................................24
10.5 SUCCESSORS....................................................................................24
10.6 INDEMNIFICATION...............................................................................24
10.7 NOTICE OF CLAIMS AGAINST BANK; LIMITATION OF CERTAIN DAMAGES..................................25
10.8 NOTICES.......................................................................................25
10.9 PAYMENTS......................................................................................25
10.10 APPLICABLE LAW AND JURISDICTION; INTERPRETATION; JOINT LIABILITY..............................25
10.11 COPIES; ENTIRE AGREEMENT; MODIFICATION........................................................25
10.12 WAIVER OF JURY TRIAL..........................................................................26
</TABLE>
<PAGE>
CREDIT AGREEMENT
This Credit Agreement (the "AGREEMENT") is made and entered into by and
between Transport Corporation of America, Inc., a Minnesota corporation having
its principal place of business in Eagan, Minnesota (the "BORROWER") and the
undersigned bank (the "BANK") as of the date set forth on the last page of this
Agreement.
ARTICLE I. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings (such meanings to be applicable to both the singular and
plural forms of the terms defined):
"ACCOUNT" and "ACCOUNT DEBTOR" shall have the meanings assigned to such
terms under the Uniform Commercial Code in the state where the Bank's main
office is located.
"ACTIVATED CONTINGENT COMMITMENT" shall mean the portion of the Contingent
Commitment that has been activated by the Borrower pursuant to Section 3.8.
"ADJUSTED LIBOR RATE" shall mean, for any Interest Period and the
applicable LIBOR Rate Advance, the per annum rate of interest equal to the sum
of (a) one hundred eighty-five basis points (1.85%), plus (b) the per annum rate
(rounded up, if necessary, to the nearest one-sixteenth of one percent (1/16%))
determined by dividing (i) the LIBOR Rate for such LIBOR Rate Advance and
related Interest Period, by (ii) an amount equal to one minus the stated maximum
rate (expressed as a decimal) of all reserve requirements (including any basic,
marginal, emergency, supplemental, special or other reserves) that is specified
from time to time during an Interest Period by the Board of Governors of the
Federal Reserve System (or any successor agency) for funding "Eurocurrency
Liabilities" pursuant to Regulation D of such Board or any other then applicable
successor regulation, without benefit of credit or prorations, exemptions or
offsets which might otherwise be available to the Bank from time to time under
Regulation D.
"ADVANCES" shall mean loans made by the Bank to the Borrower under this
Agreement, including amounts previously repaid to the Bank and thereafter
re-loaned to the Borrower, including, without limitation, the conversion of an
Advance by the Bank from a Prime Rate Advance or a Federal Funds Rate Advance to
a LIBOR Rate Advance (or vice versa), and the extension of a LIBOR Rate Advance
for an additional Interest Period.
"AFFILIATE" shall include, with respect to any party, any Person which
directly or indirectly controls, is controlled by, or is under common control
with, such party, whether through the ownership of voting securities, by
contract or otherwise, including, without limitation, any Subsidiary, and, in
addition, in the case of the Borrower, each officer, director, shareholder,
joint venturer or partner of Borrower.
"BASE COMMITMENT AMOUNT" shall mean $10,000,000.
<PAGE>
"BORROWING BASE" shall mean an amount equal to the sum of (a) eighty
percent (80%) of all Eligible Accounts, plus (b) seventy-five percent (75%) of
the net book value of Eligible Equipment, each as determined as of the last day
of the most recent calendar month and at such other times as may be required by
the Bank.
"BORROWING BASE CERTIFICATE" shall mean the certificate in the form of
Exhibit A described in Section 6.18 hereof.
"BUSINESS DAY" shall mean any day on which the Bank is open for the
transaction of business of the kind contemplated by this Agreement.
"CAPITAL EXPENDITURES" shall have the meaning ascribed to it by GAAP.
"CAPITAL LEASE" shall mean a lease of (or other agreement conveying the
right to use) real or personal property with respect to which at lease a portion
of the rent or other amounts thereon constitute Capitalized Lease Obligations.
"CAPITALIZED LEASE OBLIGATIONS" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real or personal property which
obligations are required to be classified and accounted for as capital lease on
the balance sheet of such Person under GAAP.
"CHATTEL PAPER" shall have the meaning ascribed to such term in Article 9
of the Commercial Code.
"CHANGE IN CONTROL" shall mean the occurrence of any of the following (i) a
majority of the Borrower's directors as of the Closing Date shall cease to be
directors; or (ii) a material change in the Borrower's senior management as of
the Closing Date, as reasonably determined by the Bank.
"CLOSING DATE" shall mean the Business Day on which the conditions
precedent to the obligation of the Bank to make the initial Revolving Loan or to
issue the initial Letter of Credit, as set forth in Article IX, have been
satisfied.
"COLLATERAL" shall have the meaning set forth in the Security Agreement.
"COMMERCIAL CODE" shall mean the Uniform Commercial Code as enacted in the
State of Minnesota, as amended from time to time.
"CONTINGENT COMMITMENT AMOUNT" shall mean the $5,000,000 lending commitment
under this Agreement in excess of the $10,000,000 Base Commitment Amount.
"CURRENT ASSETS" shall mean the aggregate amount of assets of the Borrower
which in accordance with GAAP may be properly classified as current assets,
after deducting adequate reserves where proper, but in no event including any
real estate.
"CURRENT LIABILITIES" shall mean the amount of all liabilities which under
GAAP would appear as current liabilities on the balance sheet of the Borrower,
including all indebtedness payable on demand or maturing (whether
<PAGE>
by reason of specified maturity, fixed prepayment, sinking funds or accruals of
any kind, or otherwise, within 12 months or less from the date of the relevant
statement and including customer advances and progress billings on contracts.
"DEFAULT" shall mean any event which, with the giving of notice or passage
of time, or both, would constitute an Event of Default.
"ELIGIBLE ACCOUNTS" shall mean an Account owing to the Borrower which meets
the following requirements at the time it comes into existence and continues to
meet the same until it is collected in full:
(i) it is not outstanding at any time more than sixty (60) days past
its invoice date;
(ii) it is not an Account owing by an Affiliate or a Subsidiary of the
Borrower;
(iii) it is not subject to any prior assignment, claim, lien or
security interest whatsoever, other than the perfected security
interest of the Bank;
(iv) it is a valid, legally enforceable obligation of an Account
Debtor;
(v) it is not subject to setoff, counterclaim, credit allowance or
adjustment by the Account Debtor thereunder, or to any claim by
such Account Debtor denying liability thereunder in whole or in
part, and such Account Debtor has not refused to accept and has
not returned or offered to return any of the goods that are the
subject matter of such Account;
(vi) it arose in the ordinary course of the Borrower's business and no
notice of the bankruptcy, insolvency or any event or circumstance
which could have a material adverse effect on the financial
condition of the Account Debtor thereunder has been received by
the Borrower;
(vii) it is not an Account that arises from a sale to a governmental
entity or to an Account Debtor outside the United States, unless
the sale is on terms acceptable to the Bank in its sole
discretion.
An Account which is at any time an Eligible Account, but which subsequently
fails to meet any of the foregoing requirements, shall forthwith cease to
be an Eligible Account.
"ELIGIBLE EQUIPMENT" shall mean all certificated tractors and trailers
owned by the Borrower as equipment and used for transport in the ordinary course
of the Borrower's business and listed on Schedule B to the Security Agreement or
any schedule of pledged equipment delivered by the Borrower to the Bank pursuant
to Section 6.18(h) of the Credit Agreement, provided such trucks and trailers:
(a) are subject to a perfected, first priority security
interest in favor of the Bank in accordance with all
applicable state titling statutes and are free and clear
of all other Liens;
(b) are in good condition free from any defects that would
negatively affect the market value thereof in a material
way;
<PAGE>
(c) are not, as reasonably determined by the Bank,
unusable in the ordinary course of Borrower's
business; and
(d) are insured against loss or damage in accordance with
the provisions of the Security Agreement.
"ENVIRONMENTAL LAWS" shall have the meaning assigned to such term in
Section 6.5 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may from time to time be amended, and the rules and regulations
promulgated thereunder by any governmental agency or authority, as from time to
time in effect.
"ERISA AFFILIATE" shall mean any corporation, trade or business that is,
along with the Borrower, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in Sections 414(b) and
414(c), respectively, of the Internal Revenue Code of 1986, as amended.
"EURODOLLAR BUSINESS DAY" shall mean a Business Day upon which commercial
banks in London, England are open for domestic and international business.
"EVENT OF DEFAULT" shall mean any one or more of the Events of Default set
forth in Section 8.1 hereof.
"FEDERAL FUNDS RATE" means the floating per annum rate of interest then
most recently reported in Federal Reserve Statistical Release H.15 as the
"Federal Funds Effective Rate."
"FEDERAL FUNDS RATE FLOATING ADVANCE" shall mean any Advance which bears
interest at or by reference to the Federal Funds Rate.
"FIXED CHARGE" shall mean, for each fiscal quarter-end, the sum of (i)
Interest Expense for the four fiscal quarters ending on such date, plus (ii)
rental payments on Operating Leases for the four fiscal quarters ending on such
date, plus (iii) 20% of Interest-bearing Indebtedness as of such date, all as
determined in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" shall mean, on each fiscal quarter-end, the
relationship, expressed as a numerical ratio, between:
(a) Operating Cash Flow for the four fiscal quarters ending on
such date and
(b) Fixed Charge for such date.
"FLOATING RATE ADVANCE(S)" shall mean Federal Funds Floating Rate Advances
and Prime Rate Floating Rate Advances, or either, as the context may require.
"FUNDING DATE" shall mean any Business Day designated by the Borrower as a
day on which an Advance is to be made, or any Eurodollar Business Day on which a
LIBOR Rate Advance is made, or an Interest Period for a LIBOR Rate Advance is to
be extended, in each case in accordance with this Agreement.
<PAGE>
"GAAP" shall mean generally accepted accounting principles (as in effect
from time to time) consistently applied and maintained throughout the period
indicated and consistent with the audited financial statements delivered to the
Bank. Whenever any accounting term is used herein which is not otherwise
defined, it shall be interpreted in accordance with GAAP.
"GENERAL INTANGIBLES" shall mean all General Intangibles (as defined in the
Commercial Code) of the Borrower, whether now owned or hereafter acquired,
including (without limitation) all present and future domestic and foreign
patents, patent applications, trademarks, trademark applications, copyrights,
trade names, trade secrets, patent and trademark licenses (whether Borrower is
licensor or licensee), shop drawings, engineering drawings, blueprints,
specifications, parts lists, manuals, operating instructions, customer and
supplier lists, licenses, permits, franchises, the right to use the Borrower's
corporate name and the goodwill of Borrower's business.
"GOVERNMENTAL AUTHORITY" shall mean the government of the United States or
any foreign government or any state, province, municipality or other political
subdivision thereof or therein or any court, agency, instrumentality, regulatory
authority or commission of any of the foregoing, including any taxing authority.
"GOVERNMENTAL REGULATIONS" shall mean any and all laws, statutes,
ordinances, rules, regulations, judgments, writs, injunctions, decrees, orders,
awards and standards, or any similar requirement, of any Governmental Authority.
"GUARANTOR(S)" shall mean TCA of Ohio, Inc., a Minnesota corporation, and
any other Person who enters into a Guaranty of any of the Obligations.
"GUARANTY(IES)" shall mean that certain Guaranty by Subsidiary Corporation
dated as of the date hereof from TCA of Ohio, Inc., a Minnesota corporation, and
any other agreement whereby a Person guarantees the payment or performance of
any of the Obligations.
"HAZARDOUS SUBSTANCES" shall have the meaning assigned to such term in
Section 6.5 hereof.
"INDEBTEDNESS" shall mean, at the time of any determination, (a) all
obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations upon which
interest charges are customarily paid or accrued, (d) all obligations under
conditional sale or other title retention agreements relating to property
purchased by the Borrower, (e) all obligations issued or assumed as a deferred
purchase price of property or services, (f) all Capitalized Lease Obligations,
(g) all obligations, actual or conditional, as an account party in respect of
letters of credit (including the Letters of Credit), (h) all obligations of the
type described in clauses (a) through (g) above of any partnership or joint
venture as to which the Borrower is or may become personally liable, and (i) all
contingent obligations of the Borrower relating to obligations of the type
described in clauses (a) through (g) above.
"INDEBTEDNESS TO OPERATING CASH FLOW RATIO" shall mean, on any date of
determination, the relationship, expressed as a numerical ratio, between:
<PAGE>
(i) the sum of (a) the aggregate outstanding amount of Indebtedness
of the Borrower on such date, plus (b) five times the amount of
rental payments on Operating Leases made by the Borrower during
the four consecutive fiscal quarters ending on such date; and
(ii) the aggregate of Operating Cash Flow for the four consecutive
fiscal quarters ending on such date.
"INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS" shall mean any firm of
independent certified public accountants which are acceptable to the Bank
including the firm currently retained by the Borrower.
"INTEREST PERIOD" shall mean, with respect to each LIBOR Rate Advance, the
period commencing on the Funding Date of such LIBOR Rate Advance and ending on a
date 30, 60 or 90 days thereafter as selected by the Borrower in a related
notice pursuant to Section 5.1 hereof, subject in all cases to the following:
(a) if the Interest Period would otherwise end on a day which
is not a Eurodollar Business Day, that Interest Period
shall be extended to the next succeeding Eurodollar
Business Day, unless the result of such extension would be
to extend such Interest Period into another calendar
month, in which event such Interest Period shall end on
the immediately preceding Eurodollar Business Day;
(b) an interest rate option request selecting a particular
Interest Period once received by the Bank and accepted by
the Borrower whether orally or in writing is irrevocable
and binding on the Borrower;
(c) no Interest Period shall extend beyond the maturity
date of the Revolving Note; and
(d) each Interest Period may vary in regard to the length of
the period, in accordance with the customs and practices
of the international inter-bank markets.
"L/C AMOUNT" means the sum of the aggregate face amount of any undrawn
issued and outstanding Letters of Credit.
"L/C APPLICATION" means an application and agreement for Letters of Credit
in the Bank's or Firstar Milwaukee's, as the case may be, then-current standard
form.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" shall have the meaning specified
in Section 2.1 hereof.
"LIBOR RATE" shall mean, for any LIBOR Rate Advance and the related
Interest Period, the per annum rate of interest equal to the offered rate for
deposits in Dollars for the applicable Interest Period commencing on the first
day of such Interest Period (a "Reset Date") which appears on U.S. Telerate
Screen page 3750 (British Bankers' Association LIBOR setting) at approximately
11:00 a.m., London Time, on the day that is two Business Days preceding such
Reset Date, except as provided below. If two or more such offered rates appear
on the Telerate Screen on the applicable date, the rate will be the arithmetic
mean of such rates. If the source referred to in the first sentence of this
definition is not reasonably available to the Bank, the LIBOR Rate for a
particular LIBOR Rate Advance and the related Interest Period shall be the per
annum rate of interest at which deposits in U.S. Dollars for such Interest
<PAGE>
Period and in an aggregate amount comparable to the principal amount of such
LIBOR Rate Advance are offered to the Bank by other prime banks in the London
interbank market, at approximately 11:00 a.m., London time, on the day that is
two Business Days preceding the applicable Reset Date, as determined by the
Bank.
"LIBOR RATE ADVANCE" shall mean any Advance which bears interest at or by
reference to the Adjusted LIBOR Rate.
"LOAN DOCUMENT(S)" shall mean individually or collectively, as the case may
be, this Agreement, the Revolving Note, the Security Agreement, each L/C
Application, and any and all other documents held, executed, delivered or
referred to herein, as originally executed and as amended, revised and
supplemented from time to time.
"MINIMUM TANGIBLE NET WORTH AMOUNT" shall mean, on any date of
determination occurring (i) before December 31, 1997, $40,000,000 and (ii) on or
after December 31 of any fiscal year ending on or after December 31, 1997,
$40,000,000 plus 100% of the net income of all fiscal years after December 31,
1996.
"OBLIGATION OF REIMBURSEMENT" shall collectively mean, as of any date in
question, all amounts drawn under any Letters of Credit, plus any and all
charges and expenses that the Bank or Firstar Milwaukee, as the case may be, may
pay or incur relative to such draw, plus interest on all such amounts, charges
and expenses as set forth in the applicable L/C Application.
"OBLIGATIONS" shall mean all present and future sums loaned or advanced by
the Bank to or for the benefit of the Borrower and all other obligations now or
hereafter chargeable to the Borrower hereunder, under any L/C Application and
all other obligations and liabilities of any and every kind of the Borrower to
the Bank, each whether due or to become due, direct or indirect, absolute or
contingent, joint or several, howsoever created, arising or evidenced, now
existing or hereafter at any time created, arising or incurred including,
without limitation, amounts owed under the Revolving Note.
"OPERATING CASH FLOW" shall mean, for any period of determination, the net
income of the Borrower before deductions for income taxes, interest expense,
depreciation, amortization and rental payments under Operating Leases, all as
determined in accordance with GAAP.
"OPERATING LEASES" shall mean all leases of real or personal property to
which the Borrower is a party as lessee other than Capital Leases.
"PARTICIPANT" shall have the meaning assigned to such term in Section 10.4
hereof.
"PERSON" shall mean any natural person, corporation, firm, partnership,
association, government, governmental agency or any other entity, whether acting
in an individual, fiduciary or other capacity.
"PLAN" shall mean each employee benefit plan or other class of benefits
covered by Title I or IV of ERISA, in either case whether now in existence or
hereafter instituted, of Borrower.
<PAGE>
"PRIME RATE" shall at any time mean the rate publicly announced by the Bank
as its prime rate. Borrower acknowledges that the Bank Rate may not be the
lowest rate made available by the Bank to its customers and that the Bank may
lend to its customers at rates that are at, above or below the Bank Rate.
"PRIME RATE FLOATING ADVANCE" shall mean any Advance which bears interest
at or by reference to the Bank Rate.
"REMEDIAL ACTION" shall have the meaning assigned to such term in Section
6.5 hereof.
"RESTRICTED PAYMENTS" shall mean all dividends or other distributions of
any nature (cash, securities other common stock of the Borrower, assets or
otherwise), and all payments on any class of equity securities (including
warrants, options or rights therefor) issued by the Borrower, whether such
securities are authorized or outstanding on the Closing Date or at any time
thereafter, and any redemption or purchase of, or distribution in respect of,
any of the foregoing, whether directly or indirectly, provided, however, that
payments made pursuant to the Borrower's stock repurchase plans shall not be
included within the definition of Restricted Payments.
"REVENUE EQUIPMENT" shall mean tractors and trailers of all types
(including dry vans and refrigeration trailers) used by the Borrower for the
transportation of goods for its customers in the ordinary course of its
business.
"REVOLVING CREDIT COMMITMENT" shall have the meaning provided in
Section 3.1.
"REVOLVING NOTE" shall mean the Revolving Credit Note of even date herewith
made payable by the Borrower to the order of the Bank in the original principal
amount of $15,000,000.
"SECURITY AGREEMENT" shall mean the Business Security Agreement of even
date herewith executed by the Borrower, as debtor, in favor of the Bank, as
secured party.
"SECURITY INTEREST" shall mean any lien, pledge, mortgage, encumbrance,
charge or security interest of any kind whatsoever (including, without
limitation, the lien or retained security title of a conditional vendor) whether
arising under a security instrument or as a matter of law, judicial process or
otherwise or the agreement by Borrower to grant any lien, security interest or
pledge, mortgage or encumber any asset.
"SPECIAL ACCOUNT" shall mean a deposit account belonging to the Bank into
which the Borrower may be required to make deposits pursuant to Section 2.3.
"STOCK PLEDGE AGREEMENT" shall mean the Stock Pledge Agreement of even date
herewith executed by the Borrower, as pledgor, in favor of the Bank, as pledgee.
"SUBSIDIARY" or "SUBSIDIARIES" shall mean, with respect to any Person, a
corporation of which such Person and/or its other Subsidiaries own, directly or
indirectly, such number of outstanding shares of capital stock as have more than
50% of the ordinary voting power for the election of directors.
<PAGE>
"TANGIBLE NET WORTH" shall mean the total of all assets properly appearing
on the balance sheet of the Borrower in accordance with GAAP, less the sum of
the following:
(a) the book amount of all such assets which would be treated
as intangibles under GAAP, including, without limitation,
all such items as good will, trademarks, trademark rights,
trade names, trade-name rights, brands, copyrights,
patents, patent rights, licenses, deferred charges and
unamortized debt discount and expense;
(b) any write-up in the book value of any such assets
resulting from a revaluation thereof subsequent to
December 31, 1996;
(c) all reserves, including reserves for depreciation,
obsolescence, depletion, insurance, and inventory
valuation, but excluding contingency reserves not
allocated for any particular purpose and not deducted from
assets;
(d) the amount, if any, at which any shares of stock of the
Borrower appear on the asset side of such balance sheet;
(e) all liabilities of the Borrower shown on such balance
sheet; and
(f) all investments in foreign Affiliates and nonconsolidated
domestic Affiliates.
"TERMINATION DATE" shall mean the earlier of May 31, 1999 or the date on
which an Event of Default has occurred and the Bank determines to extinguish its
commitment hereunder.
"THIRD PARTY SECURITY AGREEMENT" shall mean the Third Party Business
Security Agreement of even date herewith executed by the Guarantor, as debtor,
in favor of the Bank, as secured party.
"TOTAL COMMITMENT AMOUNT" shall mean $15,000,000.
"TOTAL LIABILITIES" of any Person shall mean those items which, in
accordance with GAAP, would appear as Liabilities on a balance sheet.
"TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO" shall mean, on any date of
determination, the relationship, expressed as a numerical ratio, between:
(i) the aggregate outstanding amount of Total Liabilities of the
Borrower on such date; and
(ii) Tangible Net Worth.
ARTICLE II. LETTERS OF CREDIT
<PAGE>
2.1 ISSUANCE OF LETTERS OF CREDIT.
(a) The Bank agrees, on the terms and subject to the conditions
herein set forth, to issue or cause Firstar Bank Milwaukee, National
Association ("Firstar Milwaukee") to issue one or more standby or
documentary letters of credit for the account of the Borrower (each a
"Letter of Credit" and collectively, "Letters of Credit") from time to time
during the period from the date hereof until the Termination Date, or the
earlier date of termination of the Revolving Credit Commitment or this
Agreement pursuant to Article VIII hereof, in an aggregate amount at any
time outstanding not to exceed the lesser of (i) Five Million Dollars
($5,000,000.00) or (ii) Borrowing Base less the sum of (aa) all outstanding
and unpaid Advances hereunder, (bb) the L/C Amount, and (cc) the Obligation
of Reimbursement. Each Letter of Credit, if any, shall be issued pursuant
to a separate L/C Application entered into between the Borrower and the
Bank or Firstar Milwaukee, as the case may be, completed in a manner
satisfactory to the Bank or Firstar Milwaukee, as the case may be. All
outstanding and unpaid draws under any Letter of Credit shall accrue
interest at the Prime Rate. In the event that any amounts are drawn under
any Letter of Credit, the Borrower agrees that the Bank is authorized, but
is not obligated, to make Advances evidenced by the Revolving Note to
satisfy Borrower's Obligation of Reimbursement relating to such Letter of
Credit, whether the Letter of Credit is issued by the Bank or by Firstar
Milwaukee. The terms and conditions set forth in each such L/C Application
shall supplement the terms and conditions hereof, but in the event of
inconsistency between the terms of any such L/C Application and the terms
hereof, the terms hereof shall control. In the connection with the issuance
of each Letter of Credit and in addition to the fee set forth in Section
2.2 below, the Borrower agrees to pay the Bank and/or Firstar Milwaukee, as
the case may be, on demand, such administrative and issuance fees as are
customarily charged by the Bank or Firstar Milwaukee in the ordinary course
of business in connection with issuing Letters of Credit, the honoring of
drafts thereunder or in connection with processing any amendments thereto,
transfers thereof, or any other activity with respect to said Letters of
Credit. If at any time the sum of the face amounts of all issued and
outstanding Letters of Credit would exceed the Borrowing Base less the sum
of (i) all outstanding and unpaid Advances under Section 3.1, including
Advances by the Bank to satisfy any of Borrower's Obligation of
Reimbursement, and (ii) the amount of the Obligation of Reimbursement for
which the Bank has not made an Advance, the Borrower agrees to immediately
deposit with the Bank the amount of such excess to be held by the Bank as
additional collateral security for the obligations of the Borrower under
the applicable L/C Application and which may be applied to such Obligations
or any other Obligations upon the occurrence of any Event of Default.
(b) No Letter of Credit shall be issued with an expiry date later
than the earlier of one year or May 31, 1999.
(c) Each letter of Credit may only be used for working capital
and other general business purposes.
2.2 LETTER OF CREDIT FEE. Upon the issuance, and any renewal, of any Letter
of Credit, the Borrower shall pay to the Bank a fee in the amount of one percent
(1%) of the face amount thereof.
2.3 SPECIAL ACCOUNT. If (i) this Agreement is terminated pursuant to
Article VIII, or if (ii) the Termination Date occurs, while any Letter of Credit
is outstanding, the Borrower shall thereupon either (a) pay the Bank in
immediately available funds for deposit in the Special Account an amount equal
to the maximum aggregate amount available to be drawn under all such Letters of
Credit then outstanding, assuming compliance with all conditions for drawing
thereunder, or (b) provide to the Bank an irrevocable standby letter of credit
issued for the benefit and in the name
<PAGE>
of the Bank in an amount equal to that required to be deposited into the Special
Account in clause (a) above and which shall be issued by a financial institution
and contain such terms and conditions as are acceptable to the Bank in its sole
and absolute discretion. Amounts in the Special Account, if applicable, may be
invested as Bank shall determine, including in certificates of deposit issued by
Bank. Any interest and earnings on such amounts shall be credited to the Special
Account. The Borrower shall not be responsible for any losses from the
investment or use of funds in the Special Account. Amounts on deposit in the
Special Account may be applied by the Bank at any time or from time to time to
the Borrower's Obligation of Reimbursement or any other Obligations, in the
Bank's sole discretion, and shall not be subject to withdrawal by the Borrower
so long as the Bank maintains a security interest therein. The Bank agrees to
transfer any balance in the Special Account to the Borrower at such time as the
Bank is required to release its security interest in the Special Account under
applicable law.
ARTICLE III. REVOLVING LOAN
3.1 NATURE OF LOAN COMMITMENT/MAXIMUM OF ADVANCES. Subject to the terms and
conditions of this Agreement, the Bank shall make Advances to the Borrower from
time to time from the date hereof to the Termination Date in an aggregate
principal amount not to exceed at any time the lesser of (i) Fifteen Million
Dollars ($15,000,000) less the sum of (a) the L/C Amount and (b) the Obligation
of Reimbursement or (ii) the Borrowing Base less the sum of (a) the L/C Amount
and (b) the Obligation of Reimbursment (the "Revolving Credit Commitment"). All
Advances pursuant to the Revolving Credit Commitment, including Advances made by
the Bank pursuant to Section 2.1 for Borrower's Obligation of Reimbursement,
shall be evidenced by the Revolving Note; provided that the Borrower shall be
obligated to pay only the amount that is actually disbursed hereunder, together
with accrued interest on the outstanding balance at the rates provided in
Section 3.4 hereof. The Borrower may borrow, prepay and reborrow within such
limit pursuant to this Agreement and the Revolving Note.
3.2 TYPES OF ADVANCES; CERTAIN LIMITATIONS. Each Advance by the Bank under
the Revolving Credit Commitment may be either a LIBOR Rate Advance, a Prime Rate
Floating Advance, or a Federal Funds Rate Floating Advance. LIBOR Rate Advances
and Floating Rate Advances may be outstanding at the same time; provided,
however, that no more than eight (8) LIBOR Rate Advances may be outstanding at
any one time. The principal amount of each LIBOR Rate Advance shall be not less
than $100,000 or an integral multiple thereof.
3.3 PURPOSE FOR ADVANCES. Except with the prior written consent of the
Bank, all Advances under Article IV shall be used exclusively for the Borrower's
working capital and other general business purposes.
3.4 COMPUTATION OF INTEREST. The Advances under the Revolving Credit
Commitment shall bear interest on the unpaid principal amount thereof as
follows:
(a) For LIBOR Rate Advances, at a fluctuating rate per annum
equal to the Adjusted LIBOR Rate, and
(b) For Floating Rate Advances, at a fluctuating rate per annum
equal to the Prime Rate Floating Rate or the Federal Funds Rate Floating
Rate plus one hundred eighty-five basis points (1.85%), as the case may be.
<PAGE>
All interest payable on Advances shall be computed on the basis of actual
days elapsed and a year of 360 days.
3.5 MATURITY. The Revolving Note shall be expressed to mature on the
earlier of: (i) May 31, 1999 or (ii) upon the occurrence of an Event of Default.
All amounts outstanding under the Revolving Note shall be immediately due and
payable at maturity (whether by acceleration or otherwise).
3.6 RECORDKEEPING. Bank shall record in its records, the date and amount of
each Advance made thereon by Bank, and each repayment thereof. The aggregate
unpaid principal amount so recorded shall be presumptive evidence of the
principal amount of the Advances owing and unpaid by the Borrower thereon. The
failure to so record any such amount or any error in so recording any such
amount shall not, however, limit or otherwise affect the Obligations of the
Borrower hereunder or under the Revolving Note to repay the principal amount of
the Advances together with all interest accrued thereon.
3.7 NON-USE FEES. The Borrower agrees to pay the Bank, not later than ten
(10) days after receipt of a statement therefor, a fee equal to (a) one-quarter
percent (1/4 %) per annum times the average daily unused portion of Base
Commitment Amount plus the Activated Contingent Amount; plus (b) one-eighth (1/8
%) per annum times the remaining Contingent Commitment amount, if any, payable
quarterly in arrears commencing July 1, 1997, and as of the maturity date of the
Revolving Note.
3.8 ACTIVATION OF CONTINGENT COMMITMENT. The Borrower shall have the right,
upon at least five Business Days' notice to the Bank, to activate in whole or in
part the unused portion of the Contingent Commitment Amount, provided that each
activation shall be in the amount of $1,000,000 or an integral multiple thereof.
Once activated, that portion of the Contingent Commitment Amount shall remain
activated for purposes of calculation until the Termination Date.
ARTICLE IV. DISBURSEMENT OF REVOLVING CREDIT COMMITMENT ADVANCES
4.1 REQUESTS FOR ADVANCES. The Borrower shall give notice to the Bank of
each proposed Advance under the Revolving Credit Commitment, in the case of an
Advance that is to bear interest initially at a Floating Rate, not later than
12:00 p.m., Minneapolis time, on the proposed Funding Date or, in the case of an
Advance that is to bear interest initially at an Adjusted LIBOR Rate, at least
three Eurodollar Business Days prior to the proposed Funding Date of such
Advance. Each such request shall be effective upon receipt by the Bank, shall be
in writing or by telephone to be promptly confirmed in writing (in either case,
to be in the form of Exhibit C), shall specify whether the Advance is to bear
interest initially at a Floating Rate or an Adjusted LIBOR Rate, shall specify
the Funding Date and amount of the requested Advance(s) for each type of
Advance, and, in the case of each LIBOR Rate Advance, the Interest Period
therefor.
4.2 CONVERTING FLOATING RATE ADVANCES TO LIBOR RATE ADVANCES; PROCEDURES.
Subject to the terms and conditions of this Agreement, the Borrower may convert
all or any part of any outstanding Floating Rate Advances into LIBOR Rate
Advances by giving notice to the Bank of such conversion not later than 12:00
p.m., Minneapolis time, on a Business Day which is at least three Eurodollar
Business Days prior to the date of the requested conversion. Each such notice
shall be effective upon receipt by the Bank, shall be in writing or by telephone
to be promptly
<PAGE>
confirmed in writing (in either case, to be in the form of Exhibit C), shall
specify the date and amount of such conversion, the total amount of Advances to
be so converted and the Interest Period therefor. Each conversion of Advances
shall be on a Business Day, and the aggregate amount of each such conversion
shall be subject to the applicable limitations specified in Section 4.2 and
elsewhere herein.
4.3 PROCEDURES AT END OF INTEREST PERIOD.
(a) AUTOMATIC CONVERSION. Unless the Borrower requests a new
LIBOR Rate Advance in accordance with Section 4.3(b) or makes a payment of
principal and interest in accordance with Section 4.3(c), each LIBOR Rate
Advance (or portion thereof not so extended or paid) shall automatically,
and without request by the Borrower, be converted to a Prime Rate Floating
Advance on the last day of the applicable Interest Period for such LIBOR
Rate Advance.
(b) EXTENSION. Subject to the terms and conditions of this
Agreement, the Borrower may cause all or any part of any outstanding LIBOR
Rate Advance to continue to bear interest at an Adjusted LIBOR Rate at the
end of the then-applicable Interest Period, by notifying the Bank not later
than 12:00 p.m., Minneapolis time, on a Business Date which is at least
three Eurodollar Business Days prior to the first day of the new Interest
Period. Each such notice shall be effective upon receipt by the Bank, shall
be in writing or by telephone to be promptly confirmed in writing (in
either case to be in the form of Exhibit C), and shall specify the first
day of the applicable Interest Period, the amount of the new LIBOR Rate
Advance and the Interest Period therefor. Each new Interest Period shall
begin on a Business Day and the aggregate amount of the Advances bearing
the new Adjusted LIBOR Rate shall be subject to the applicable limitations
specified in Section 3.2 and elsewhere herein.
(c) PAYMENT. If the Borrower so elects, it may repay all or a
portion of the principal of any LIBOR Rate Advance on the last day of the
Interest Period in accordance with the terms of Section 4.3; provided that
(i) such payment shall be accompanied by interest on the entire principal
balance of the LIBOR Rate Advance in accordance with Section 5.2, (ii)
payment of any portion of a LIBOR Rate Advance shall be in a minimum amount
of $100,000 or an integral multiple thereof, and (iii) the Borrower may not
make any payment of principal in respect of the portion, if any, of a LIBOR
Rate Advance as to which a request for a new LIBOR Rate Advance has been
made in accordance with Section 4.3(b).
ARTICLE V. PAYMENTS AND PREPAYMENTS OF ADVANCES
5.1 PRINCIPAL PAYMENTS UNDER REVOLVING CREDIT COMMITMENT.
(a) PAYMENT OF LIBOR RATE ADVANCES; FINAL PAYMENT. The Borrower
may, at its option, make payments of principal on the LIBOR Rate Advances
on the last day of each Interest Period in accordance with Section 4.3(c).
Unless earlier payment is required under this Agreement, the Borrower shall
pay to the Bank, the outstanding principal amount of the Advances on the
Termination Date.
(b) OPTIONAL PREPAYMENT. The Borrower may at any time and from
time to time prepay all or a portion of the Floating Rate Advances without
premium or penalty. Except as otherwise required by this Agreement,
<PAGE>
LIBOR Rate Advances may only be prepaid in whole, and not in part, and
shall, in any case, be accompanied by the indemnity payment determined in
accordance with Section 5.7.
(c) MANDATORY PREPAYMENT; APPLICATION. If at any time the
aggregate outstanding principal amount of the Revolving Note shall exceed
(i) the Base Commitment Amount plus the Activated Contingent Amount less
the sum of (a) the L/C Amount and (b) the Obligation of Reimbursement, or
(ii) the Borrowing Base less the sum of (a) the L/C Amount and (b) the
Obligation of Reimbursement , then the Borrower shall immediately pay to
the Bank an amount not less than the amount of any such excess under clause
(i) or (ii), in each case for application to the outstanding principal
amount of the Revolving Note.
(d) APPLICATION OF PAYMENTS AND PREPAYMENTS. Unless the Borrower
shall direct the Bank in writing to apply any payments or prepayments of
principal in a different manner, all such payments and prepayments on the
Revolving Note shall be applied first to collection costs and other amounts
due under the Loan Documents (excluding payments of principal and
interest), second against interest and principal of all Floating Rate
Advances, and lastly to interest and principal of all LIBOR Rate Advances.
(e) INDEMNITY PAYMENT. Any prepayment, whether optional or
mandatory, or whether required by acceleration or otherwise, of all or part
of a LIBOR Rate Advance prior to the expiration of the applicable Interest
Period shall be accompanied by the indemnity payment determined in
accordance with Section 5.7.
(f) INTEREST. The Borrower shall also pay to the Bank, together
with any payments or prepayments of principal, all accrued interest to the
date of payment on any Advances so paid or prepaid.
5.2 INTEREST PAYMENTS UNDER REVOLVING CREDIT COMMITMENT. The Borrower shall
pay interest to the Bank on the unpaid principal amount of each Advance of the
Revolving Credit Commitment, for the period commencing on the date such Advance
is made until such Advance is paid in full, on the first Business Day of each
calendar month and at maturity (whether at stated maturity, by acceleration or
otherwise), at the Adjusted LIBOR Rate or the Floating Rate, as applicable to
such Advance.
5.3 PAYMENT METHOD AND RELATED MATTERS.
(a) PAYMENTS BY BORROWER. All payments to be made by the Borrower
hereunder will be made in U.S. Dollars and in immediately available funds
to the Bank not later than 12:00 p.m. Minneapolis time on the date on which
such payment shall become due. Payments received after 12:00 p.m.
Minneapolis time shall be deemed to be payments made prior to 12:00 p.m.
Minneapolis time on the next succeeding Business Day.
(b) AUTHORIZATION OF PAYMENTS/ADVANCES. If the Borrower shall not
otherwise have made payment of any of the Obligations as provided in this
Agreement, the Bank is expressly authorized to charge any such Obligations,
when due, to the Borrower's demand deposit account maintained with the Bank
or, if any such account shall not contain sufficient funds, to any other
account maintained by the Borrower with the Bank or any of its affiliates,
or in lieu thereof, the Bank may extend an additional Advance to the
Borrower under the Revolving Credit Commitment without further direction or
action by the Borrower.
<PAGE>
5.4 NO SETOFF OR DEDUCTION. Except for actual payments made, Borrower
waives all rights of setoff, counterclaim or other deduction to any claim by the
Bank for payment of the Obligations.
5.5 PAYMENT ON NON-BUSINESS DAY. Except as otherwise provided in this
Agreement, whenever any installment of principal of, or interest on, any Advance
or any other Obligation becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next succeeding Business Day
and, in the case of any installment of principal, interest shall be payable
thereon at the rate per annum determined in accordance with this Agreement
during such extension.
5.6 ILLEGALITY AND IMPOSSIBILITY.
(a) REPAYMENT. In the event that any Governmental Regulation now
or hereafter in effect and whether or not presently applicable to the Bank,
or any interpretation or administration thereof by any Governmental
Authority charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such Authority
(whether or not having the force of law), including exchange controls,
shall make it unlawful or impossible for the Bank to maintain any LIBOR
Rate Advance at the Adjusted LIBOR Rate under this Agreement, the Borrower
shall upon receipt of notice thereof from the Bank, repay in full to the
Bank the then outstanding principal amount of such LIBOR Rate Advance,
together with all accrued interest thereon to the date of payment and all
amounts due to the Bank under Section 5.7, (i) on the last day of the then
current Interest Period applicable to the LIBOR Rate Advances if the Bank
may lawfully continue to maintain the LIBOR Rate Advances to such day, or
(ii) immediately if the Bank may not continue to maintain the LIBOR Rate
Advances to such day.
(b) CONVERSION OF LIBOR RATE ADVANCES TO FLOATING RATE ADVANCES.
Notwithstanding Section 5.6(a), if such Section would otherwise be
applicable but the Bank could lawfully maintain the LIBOR Rate Advances at
the Prime Rate or the Federal Funds Rate plus 1.85% per annum then, during
such period as the Bank cannot maintain the LIBOR Rate Advances at the
Adjusted LIBOR Rate, the LIBOR Rate Advances shall bear interest at a per
annum rate equal to the Prime Rate or the Federal Funds Rate plus 1.85% per
annum in effect from time to time. If the Bank determines that all events
or conditions making it unlawful or impossible for the Bank to maintain the
LIBOR Rate Advances at the Adjusted LIBOR Rate cease to exist, then
Advances may again bear interest at the Adjusted LIBOR Rate, subject to the
other terms and conditions of this Agreement.
5.7 LIBOR RATE INDEMNITY. If the Borrower fails to make any payment of
principal or interest in respect of any LIBOR Rate Advance when due or makes any
payment or prepayment of the principal of any LIBOR Rate Advance, for any
reason, on any date other than the last day of the Interest Period applicable
thereto, or if the Borrower fails to borrow any LIBOR Rate Advance after
requesting the same in accordance with this Agreement, or if any LIBOR Rate
Advance shall be converted in accordance with Section 5.6(b), the Borrower shall
reimburse the Bank on demand for any resulting loss or expense incurred by the
Bank, including any loss incurred in obtaining, liquidating or employing
deposits from third parties. A statement as to the amount of such loss or
expense, prepared in good faith and in reasonable detail and submitted by the
Bank to the Borrower, shall be conclusive and binding for all purposes absent
manifest error in computation.
<PAGE>
ARTICLE VI. WARRANTIES AND COVENANTS
During the term of this Agreement, and while any part of the credit granted
the Borrower is available or any obligations under any of the Loan Documents are
unpaid or outstanding, the Borrower warrants and agrees as follows:
6.1 ACCURACY OF INFORMATION. All information, certificates or statements
given to the Bank pursuant to this Agreement and the other Loan Documents will
be true and complete when given.
6.2 ORGANIZATION AND AUTHORITY; LITIGATION. The Borrower is a validly
existing corporation in good standing under the laws of its state of
organization, and has all requisite power and authority, corporate or otherwise,
and possesses all licenses necessary, to conduct its business and own its
properties. The Borrower has no Subsidiaries except TCA of Ohio, Inc., a
Minnesota corporation, which is a wholly owned subsidiary of the Borrower. The
Borrower shall immediately notify the Bank of any new Subsidiaries, including
without limitation Transport International Express, Inc., and shall cause such
Subsidiaries promptly to execute and deliver to the Bank such guaranties,
security agreements, UCC financing statements and other security documents
required by the Bank. The execution, delivery and performance of this Agreement
and the other Loan Documents (i) are within the Borrower's power; (ii) have been
duly authorized by proper corporate action; (iii) do not require the approval of
any governmental agency; and (iv) will not violate any law, agreement or
restriction by which the Borrower is bound. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their terms. There is no
litigation or administrative proceeding threatened or pending against the
Borrower which would, if adversely determined, have a material adverse effect on
the Borrower's financial condition or its property.
6.3 CORPORATE EXISTENCE; BUSINESS ACTIVITIES; ASSETS. The Borrower will (i)
preserve its corporate or partnership (as applicable) existence, rights and
franchises; (ii) carry on its business activities in substantially the manner
such activities are conducted as of the date of this Agreement; (iii) not
liquidate, dissolve, merge or consolidate with or into another entity; (iv) not
sell, lease, transfer or otherwise dispose of any or all of its assets
constituting Collateral in violation of the Security Agreement and (v) not sell,
lease, transfer or otherwise dispose of all or substantially all of the assets
of the Borrower.
6.4 USE OF PROCEEDS; MARGIN STOCK; SPECULATION. Advances by the Bank
hereunder shall be used exclusively by the Borrower for working capital and
other regular and valid purposes. The Borrower will not use any of the loan
proceeds to purchase or carry "margin" stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System). No part of any of the
proceeds shall be used for speculative investment purposes, including, without
limitation, speculating or hedging in the commodities and/or futures market.
6.5 ENVIRONMENTAL MATTERS. Except as disclosed in Schedule 6.5 attached to
this Agreement, to the Borrower's knowledge there exists no uncorrected
violation by the Borrower (which if uncorrected could have a material adverse
effect on the Borrower and for purposes hereof, a violation shall be deemed to
be material if it shall impose a liability on the Borrower in excess of
$100,000) of any federal, state or local laws (including statutes, regulations,
ordinances or other governmental restrictions and requirements) relating to the
discharge of air pollutants, water pollutants or process waste water or
otherwise relating to the environment or Hazardous Substances, whether currently
existing or enacted in the future (collectively "ENVIRONMENTAL LAWS"). The term
"HAZARDOUS SUBSTANCES" will mean any
<PAGE>
hazardous or toxic wastes, chemicals or other substances, the generation,
possession or existence of which is prohibited or governed by any Environmental
Laws. The Borrower is not subject to any judgment, decree, order or citation, or
a party to (or threatened with) any litigation or administrative proceeding,
which asserts that the Borrower (i) has violated any Environmental Laws; (ii) is
required to clean up, remove or take remedial or other action with respect to
any Hazardous Substances (collectively "REMEDIAL ACTION"); or (iii) is required
to pay all or a portion of the cost of any Remedial Action, as a potentially
responsible party. To the Borrower's knowledge, there are not now, nor have
there ever been during the periods that the Borrower owned or occupied such real
estate, any Hazardous Substances (or tanks or other facilities for the storage
of Hazardous Substances) stored, deposited, recycled or disposed of on, under or
at any real estate owned or occupied by the Borrower which if present on the
property or in soils or ground water, could require Remedial Action except for
Hazardous Substances used in the ordinary course of the Borrower's business in
accordance with applicable Environmental Laws. To the Borrower's knowledge,
there are no proposed or pending changes in Environmental Laws which would
adversely affect the Borrower or its business, and there are no conditions
existing currently or likely to exist while the Loan Documents are in effect
which would subject the Borrower to Remedial Action or other liability. The
Borrower currently complies with and will continue to timely comply with all
applicable Environmental Laws; and will provide the Bank, immediately upon
receipt, copies of any correspondence, notice, complaint, order or other
document from any source asserting or alleging any circumstance or condition
which requires or may require a financial contribution by the Borrower or
Remedial Action or other response by or on the part of the Borrower under
Environmental Laws, or which seeks damages or civil, criminal or punitive
penalties from the Borrower for an alleged violation of Environmental Laws.
6.6 ENVIRONMENTAL PERMITS. The Borrower has all permits, licenses and
approvals required under Environmental Laws, all of which are listed in Schedule
6.6/Environmental Required Permits attached hereto (if no Schedule 6.6 is
attached, the Borrower warrants that no permits are necessary).
6.7 COMPLIANCE WITH LAWS. The Borrower has complied in all material
respects with all laws applicable to its business and its properties, and has
all permits, licenses and approvals required by such laws, copies of which have
been provided to the Bank.
6.8 PENSION PLANS. Each Plan as to which the Borrower or any ERISA
Affiliate may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event has
occurred with respect to any Plan sponsored by the Borrower or any ERISA
Affiliate which will have the effect of creating a liability of the Borrower or
any ERISA Affiliate which will be material to the Borrower and its Subsidiaries
on a consolidated basis; (ii) neither the Borrower nor any ERISA Affiliate has
withdrawn from or terminated any Plan or initiated steps to do so, except in
accordance with applicable requirements of law and regulations and in a manner
which will not create a liability of the Borrower or any ERISA Affiliate which
would be material to the Borrower and its Subsidiaries on a consolidated basis;
(iii) during the twelve consecutive months prior to any date on which this
representation may be made or remade, no contribution failure has occurred with
respect to any Plan sufficient to give rise to the lien under Section 302(f)(1)
of ERISA, (iv) the assets of each Plan exceed the accrued liability of all
accrued benefits payable under each Plan, and (v) no Plan has been amended so as
to require the Borrower or any ERISA Affiliate to provide security as under 26
U.S.C. ss. 401(a)(28). The Borrower has no continued liability with respect to
any post-retirement benefits under a Plan other than liability for continuance
coverage described in Part 6 of Title I of ERISA.
<PAGE>
6.9 RESTRICTION ON INDEBTEDNESS. The Borrower will not create, incur,
assume or have outstanding any Indebtedness for borrowed money (including
Capitalized Leases) except:
(a) The Obligations;
(b) Indebtedness existing as of 3/31/97 and disclosed on Schedule
6.9 of the Agreement or subsequent Indebtedness otherwise disclosed on
Schedule 6.9;
(c) Indebtedness (otherwise in compliance with this Agreement)
incurred to finance the acquisition of Revenue Equipment in the ordinary
course of business;
(d) Current liabilities, other than for borrowed money, incurred
in the ordinary course of business.
6.10 RESTRICTION ON LIENS. The Borrower will not create, incur, assume or
permit to exist any mortgage, pledge, encumbrance or other lien or levy upon or
security interest in any Collateral (as that term is defined in the Security
Agreement) or on any real property now owned or hereafter acquired, except (i)
taxes and assessments which are either not delinquent or which are being
contested in good faith with adequate reserves provided; (ii) liens in favor of
the Bank; (iii) other liens disclosed in writing to the Bank prior to the date
hereof; (iv) purchase money liens to secure indebtedness permitted by Section
6.9(c); (v) deposits or pledges to secure payment of workers' compensation,
unemployment insurance, old age pensions or other social security obligations,
in the ordinary course of business of the Borrower; (vi) liens of carriers,
warehousemen, mechanics and materialmen, and other like Liens in the ordinary
course of business of the Borrower, for sums not yet due or which are being
contested in good faith with adequate reserves provided; or (vii) Liens incurred
or deposits or pledges made or given in connection with, or to secure payment
of, indemnity, performance or other similar bonds.
6.11 RESTRICTION ON CONTINGENT LIABILITIES. The Borrower will not guarantee
or become a surety or otherwise contingently liable for any obligations of
others, except pursuant to the deposit and collection of checks and similar
matters in the ordinary course of business. This Section 6.11 shall not prohibit
the Borrower from incurring remarketing obligations for tractors and trailers
owned by its employees and independent contracts and assisting in the collection
of accounts payable by those persons to third party lenders.
6.12 RESTRICTED PAYMENTS. The Borrower shall not make any Restricted
Payments.
6.13 CHANGE IN CONTROL. The Borrower shall not permit a Change in Control.
6.14 INTENTIONALLY OMITTED.
6.15 NOTICE OF MATERIAL EVENTS/SEC REPORTS. The Borrower agrees to (i)
immediately notify the Bank of the loss of any key customer or any key
personnel, (ii) deliver to the Bank all press releases immediately upon their
publication, and (iii) within fifteen (15) days after filing the same with the
Securities and Exchange Commission ("SEC"), deliver to the Bank copies of the
10Q quarterly reports, 10K annual reports and such other reports and
information, (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribed) which the Borrower is required to file with
the SEC pursuant to applicable securities laws.
<PAGE>
6.16 INSURANCE. The Borrower will maintain insurance to such extent,
covering such risks and with such insurers as is usual and customary for
businesses operating similar properties, and as is satisfactory to the Bank,
including insurance for fire and other risks insured against by extended
coverage, public liability insurance and workers' compensation insurance; and
designate the Bank as "Additional Insured" (if applicable) and "Lender's Loss
Payee" on such policies and take such other action as the Bank may reasonably
request to ensure that the Bank will receive (subject to no other interests) the
insurance proceeds on the Bank's collateral. Without limitation of the
foregoing, the Borrower agrees to maintain insurance coverages of all of the
types described above in coverage amounts and scope that are as protective or
more protective in all material respects that the policies in force on the
Closing Date, which policies are accurately summarized on Schedule 6.16 hereto.
6.17 TAXES AND OTHER LIABILITIES. The Borrower will pay and discharge, when
due, all of its taxes, assessments and other liabilities, except when the
payment thereof is being contested in good faith by appropriate procedures which
will avoid foreclosure of liens securing such items, and with adequate reserves
provided therefor.
6.18 FINANCIAL STATEMENTS AND REPORTING. The financial statements and other
information previously provided to the Bank or provided to the Bank in the
future are or will be complete and accurate and prepared in accordance with
generally accepted accounting principles. There has been no material adverse
change in the Borrower's financial condition since such information was provided
to the Bank. The Borrower will (i) maintain accounting records in accordance
with generally recognized and accepted principles of accounting consistently
applied throughout the accounting periods involved; (ii) provide the Bank with
such information concerning its business affairs and financial condition
(including insurance coverage) as the Bank may reasonably request; and (iii)
without request, provide the Bank with the following:
(a) annual audited financial statements of the Borrower prepared
and certified without qualification by an accounting firm acceptable to the
Bank within ninety (90) days after the end of each fiscal year;
(b) monthly management-prepared financial statements of the
Borrower within thirty (30) days after the end of each calendar month;
(c) an accounts receivable aging within thirty (30) days after
the end of each calendar month;
(d) within thirty (30) days after the end of each month and at
such other times as the Bank may request, completed Borrowing Base
Certificate in the form of Exhibit A, certified as correct by the
Borrower's chief financial officer;
(e) within thirty (30) days after the end of each fiscal quarter,
provide the Bank with a completed Covenant Compliance Certificate in the
form of Exhibit B, certified as correct by the Borrower's chief financial
officer;
(f) within thirty (30) days after the end of each fiscal quarter,
a complete schedule of all trucks and trailers in which the Borrower has
granted the Bank a security interest as of the end of such fiscal quarter,
setting forth the net depreciated book value of each such truck or trailer,
certified as correct by the Borrower's chief financial officer;
<PAGE>
(g) when requested by the Bank from time to time and at least
annually, a schedule of any additional trucks and trailers in which the
Borrower has granted the Bank a security interest pursuant to the Security
Agreement since the previous such report, and a schedule of all trucks and
trailers released from the Bank's security interest since the previous such
report, setting forth the net depreciated book value of each such truck or
trailer, certified as correct by the Borrower's chief financial officer,
accompanied by such documents as the Bank may be required to file to note
its security interest on the title for each such truck or trailer (except
to the extent such security interest has already been so noted,) duly
executed by the Borrower;
(h) immediately upon any officer of the Borrower becoming aware
of any Default or Event of Default, a notice describing the nature thereof
and what action the Borrowers propose to take with respect thereto; and
(i) from time to time, such other information regarding the
business, operation and financial condition of the Borrower as the Bank may
reasonably request.
6.19 INSPECTION OF PROPERTIES AND RECORDS; FISCAL YEAR; ACCOUNTING METHODS.
The Borrower will permit representatives of the Bank to visit and inspect any of
the properties and examine any of the books and records of the Borrower at any
reasonable time and as often as the Bank may reasonably desire. The Bank shall
be entitled to charge the Borrower a reasonable fee for any audits performed by
agents of the Bank. The Borrower will not change its fiscal year except with the
prior written consent of the Bank, which will not be unreasonably withheld. The
Borrower will not make any change in its method of depreciating trucks and
trailers.
6.20 FINANCIAL STATUS. The Borrower will maintain at all times:
(i) a Fixed Charge Coverage Ratio of not less than 1.20 to
1.00.
(ii) a Total Liabilities to Tangible Worth Ratio of not more
than 2.50 to 1.00.
(iii) an Indebtedness to Operating Cash Flow Ratio of not more
than 4.00 to 1.00.
(iv) Tangible Net Worth of at least the Minimum Tangible Net
Worth.
6.21 CAPITAL ADEQUACY.
(a) In the event the Bank shall have determined that the adoption
of any generally applicable law, rule or regulation regarding capital
adequacy, or any generally applicable change therein or in the
interpretation or application thereof or compliance by the Bank with any
requests or directive regarding capital adequacy (whether or not having the
force of law) from any central bank or Governmental Authority, does or
shall have the effect of reducing the rate of return on the Bank's capital
as a consequence of its obligations hereunder to a level below that which
the Bank could have achieved but for such adoption, change or compliance
(taking into consideration the Bank's policies with respect to capital
adequacy) by an amount deemed by the Bank, in its sole reasonable
discretion, to be material, then from time to time, after submission by the
Bank to Borrower of a written demand therefor, the Borrower shall pay to
the Bank such additional amount or amounts as will compensate the Bank for
such reduction.
<PAGE>
(b) A certificate of the Bank claiming entitlement to payment as
set forth above shall be conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence giving right to
such payment, the additional amount or amounts to be paid to the Bank, and
the method by which such amounts were determined. In determining such
amounts, the Bank may use any reasonable averaging and attribution method.
(c) In no contingency or event whatsoever shall the aggregate of
all amounts payable by Borrower to the Bank pursuant to this Section 6.21
exceed the highest rate of interest permissible under any law which a court
of competent jurisdiction shall, in a final determination, deem to be
applicable hereto. To the full extent permitted under applicable law,
Borrower and the Bank shall characterize any payments made pursuant to this
Section as an expense, fee or premium rather than as interest.
(d) The benefits of this Section shall run in favor of any
Participant.
6.22 REAFFIRMATION WITH ADVANCES. Each representation and warranty set
forth in this Article VI shall be deemed to be restated and reaffirmed by the
Borrower to the Bank on and as of the date of each Advance under this Agreement,
except that (i) any reference to the financial statements referred to in Section
6.18 shall be deemed to refer to the financial statements then most recently
delivered to the Bank pursuant to said Section.
6.23 ACQUISITIONS, LOAN, INVESTMENTS. The Borrower shall not (i) enter into
any new business or purchase or otherwise acquire any business enterprise or any
substantial assets of any Person the cost of which, when aggregated with all
other such transactions during any calendar or fiscal year of the Borrower would
be material with respect to Borrower's financial condition; (ii) make any loans
to any Person ( other than loans or advances to directors or officers provided
the aggregate amount outstanding at any one time does not exceed $250,000); or
(iii) purchase any shares of stock of, or similar interest in, or make any
capital contribution to or investment in, any Person. Borrower may make advances
to truck owner/operators and employees for operating expenses in the ordinary
course of business and in accordance with the past practices of the Borrower.
6.24 CHANGE NAME OR OFFICE. The Borrower shall not change its name (nor use
any other name), the location of its chief executive office or the place where
it keeps its books and records, without ten (10) days' prior written notice to
the Bank.
6.25 CHANGE IN NATURE OF BUSINESS. The Borrower shall not make any material
change in the nature of the Borrower's business, taken as a whole, as carried on
as of the date hereof, without the prior written consent of the Bank.
6.26 NEGATIVE PLEDGES. The Borrower will not enter any agreement, bond,
note or other instrument with or for the benefit of any Person that would
prohibit the Borrower from granting, or otherwise limit the ability of the
Borrower to grant, to the Bank any Lien on any assets or properties of the
Borrower.
6.27 BANK ACCOUNTS. Maintain Borrower's primary business accounts at the
Bank.
<PAGE>
ARTICLE VII. COLLATERAL AND GUARANTIES
7.1 COLLATERAL. This Agreement and the Note are secured by any and all
security interests, pledges, mortgages or liens now or hereafter in existence
granted to the Bank to secure indebtedness of the Borrower to the Bank,
including without limitation as described in the following documents:
(a) The Security Agreement;
(b) The Stock Pledge Agreement;
(c) The Guaranty; and
(d) The Third Party Security Agreement
The information in this Article VII is for information only and the
omission of any reference to an agreement shall not affect the validity or
enforceability thereof. The rights and remedies of the Bank outlined in this
Agreement and the documents identified above are intended to be cumulative.
7.2 CREDIT BALANCES; SETOFF. As additional security for the payment of the
Obligations, the Borrower hereby grants the Bank a security interest in, a lien
on and an express contractual right to set off against all depository account
balances, cash and any other property of the Borrower now or hereafter in the
possession of the Bank. The Bank may, at any time upon the occurrence of a
Default hereunder (notwithstanding any notice requirements or grace/cure periods
under this or other agreements between the Borrower and the Bank) set off
against Obligations WHETHER OR NOT THE OBLIGATIONS (INCLUDING FUTURE
INSTALLMENTS) ARE THEN DUE OR HAVE BEEN ACCELERATED, ALL WITHOUT ANY ADVANCE OR
CONTEMPORANEOUS NOTICE OR DEMAND OF ANY KIND TO THE BORROWER, SUCH NOTICE AND
DEMAND BEING EXPRESSLY WAIVED.
ARTICLE VIII. DEFAULTS
8.1 EVENTS OF DEFAULT. NOTWITHSTANDING ANY CURE PERIODS DESCRIBED BELOW,
THE BORROWER WILL IMMEDIATELY NOTIFY THE BANK IN WRITING WHEN THE BORROWER
OBTAINS KNOWLEDGE OF THE OCCURRENCE OF ANY EVENT OF DEFAULT SPECIFIED BELOW. It
shall be an Event of Default if:
(a) NONPAYMENT. The Borrower shall fail when due any interest
and/or principal due on the Notes or any L/C Application, or any fees,
charges, costs, expenses or other amounts under the Loan Documents.
(b) NONPERFORMANCE. The Borrower shall fail to perform or observe
any agreement, term, provision, condition, or covenant (other than a
default occurring under (a), (c), (d), (e), (f) or (g), of this Section
8.1) required to be performed or observed by the Borrower hereunder or
under any other Loan Document or other agreement with or in favor of the
Bank.
(c) MISREPRESENTATION. Any financial information, statement,
certificate, representation or warranty given to the Bank by the Borrower
(or any of their representatives) in connection with entering into this
Agreement or the other Loan Documents and/or any borrowing thereunder, or
required to be furnished under the
<PAGE>
terms thereof, shall prove untrue or misleading in any material respect (as
determined by the Bank in the exercise of its reasonable judgment) as of
the time when given.
(d) DEFAULT ON OTHER OBLIGATIONS. The Borrower shall be in
default under the terms of any loan agreement, promissory note, lease,
conditional sale contract or other agreement, document or instrument
evidencing, governing or securing any indebtedness owing by the Borrower to
the Bank or any indebtedness in excess of $250,000 owing by the Borrower to
any third party, and the period of grace, if any, to cure said default
shall have passed.
(e) JUDGMENTS. Any judgment shall be obtained against the
Borrower, which, together with all other outstanding unsatisfied judgments
against the Borrower, shall exceed the sum of $250,000 and shall remain
unvacated, unbonded or unstayed for a period of thirty (30) days following
the date of entry thereof.
(f) INABILITY TO PERFORM; BANKRUPTCY/INSOLVENCY. (i) the Borrower
shall cease to exist; or (ii) any bankruptcy, insolvency or receivership
proceedings, or an assignment for the benefit of creditors shall, be
commenced under any federal or state law by or against the Borrower (and as
to the filing of any involuntary bankruptcy petition against the Borrower,
the same has not been discharged within sixty (60) days after the date of
filing); or (iii) the Borrower is unable or admits in writing its inability
to pay its debts as they mature.
(g) GARNISHMENTS/LEVIES. Any property of the Borrower shall be
garnished, levied upon or attached in any proceeding and such garnishment
or attachment shall remain undischarged for a period of ten (10) days
during which execution has not been effectively stayed.
8.2 TERMINATION OF LOANS; ADDITIONAL BANK RIGHTS. Upon the occurrence of
any of the events identified in Section 8.1, the Bank may at any time
(notwithstanding any notice requirements or grace/cure periods under this or
other agreements between the Borrower and the Bank) (i) immediately terminate
its obligation, if any, to make additional Advances to the Borrower or to issue
any Letter of Credit; (ii) set off; and/or (iii) take such other steps to
protect or preserve the Bank's interest in any collateral, including without
limitation, notifying account debtors to make payments directly to the Bank,
advancing funds to protect any collateral and insuring collateral at the
Borrower's expense; all without demand or notice of any kind, all of which are
hereby waived.
8.3 ACCELERATION OF OBLIGATIONS. Upon the occurrence of an Event of Default
(excluding Section 8.1(f)) and the passage of any applicable cure period, the
Bank may at any time thereafter, by written notice to the Borrower, declare the
unpaid principal balance of any Obligations, together with the interest accrued
thereon and other amounts accrued hereunder and under the other Loan Documents,
to be immediately due and payable; and the unpaid balance shall thereupon be due
and payable, all without presentation, demand, protest or further notice of any
kind, all of which are hereby waived, and notwithstanding anything to the
contrary contained herein or in any of the other Loan Documents. Upon the
occurrence of any event under Section 8.1(f), then the unpaid principal balance
of any Obligations, together with all interest accrued thereon and other amounts
accrued hereunder and under the other Loan Documents, shall thereupon be
immediately due and payable, all without presentation, demand, protest or notice
of any kind, all of which are hereby waived, and notwithstanding anything to the
contrary contained herein or in any of the other Loan Documents. NOTHING
CONTAINED IN SECTION 8.1, SECTION 8.2 OR THIS SECTION WILL LIMIT THE BANK'S
RIGHT TO SET OFF AS PROVIDED IN THIS AGREEMENT OR UNDER APPLICABLE LAW.
<PAGE>
8.4 OTHER REMEDIES. Nothing in this Article VIII is intended to restrict
the Bank's rights under any of the Loan Documents or at law, and the Bank may
exercise all such rights and remedies as and when they are available.
ARTICLE IX. CONDITIONS PRECEDENT TO CLOSING AND BORROWING
9.1 CONDITIONS TO BORROWING. The Bank shall not be obligated to make (or
continue to make) Advances or to issue any Letter of Credit hereunder unless (i)
the Bank has received executed copies of the Notes and Loan Documents, each in
form and content satisfactory to the Bank; (ii) the Bank has received
confirmation satisfactory to it that the Bank has a properly perfected security
interest, with the proper priority; (iii) the Bank has received certified copies
of the Borrower's Articles of Incorporation and By-Laws, certification of
corporate or partnership status satisfactory to the Bank and all other relevant
documents; (iv) the Bank has received a certified copy of a resolution or
authorization in form and content satisfactory to the Bank authorizing the loan
and all acts contemplated by this Agreement and all related documents, and
confirmation of proper authorization of all guaranties and other acts of third
parties contemplated hereunder, (v) the Bank has been provided with an Opinion
of the Borrower's counsel in form and content satisfactory to the Bank
confirming the matters outlined in Section 6.2 and such other matters as the
Bank requests; (vi) no Default or Event of Default exists under this Agreement
or under any other Loan Documents, or under any other agreements by and between
the Borrower and the Bank; and (vii) all proceedings taken in connection with
the transactions contemplated by this Agreement (including any required
environmental assessments), and all instruments, authorizations and other
documents applicable thereto, shall be satisfactory to the Bank and its counsel.
ARTICLE X. MISCELLANEOUS
10.1 EXPENSES AND ATTORNEYS' FEES. In addition to any other fees payable by
the Borrower under this Agreement and/or any other Loan Documents, the Borrower
will reimburse the Bank for all attorneys' fees and all other costs, fees and
out-of-pocket disbursements (including fees and disbursements of both inside
counsel and outside counsel) incurred by the Bank in connection with the
preparation, execution, delivery, administration, defense and enforcement of
this Agreement or any of the other Loan Documents (defined below), including
fees and costs related to any waivers or amendments with respect thereto
(examples of costs and fees include but are not limited to fees and costs for:
filing, perfecting or confirming the priority of the Bank's lien, title searches
or insurance, appraisals, environmental audits and other reviews relating to the
Borrower, any collateral or the loans, if requested by the Bank).
Notwithstanding the foregoing, the maximum expenses and fees that the Borrower
shall be required to reimburse to the Bank for the initial collateral audit
shall not exceed One Thousand Five Hundred Dollars ($1,500.00). The Borrower
will also reimburse the Bank for all costs of collection before and after
judgment, and the costs of preservation and/or liquidation of any collateral
(including fees and disbursements of both inside and outside counsel).
10.2 DELAY; CUMULATIVE REMEDIES. No delay on the part of the Bank in
exercising any right, power or privilege hereunder or under any of the other
Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude other or
further exercise thereof or the exercise
<PAGE>
of any other right, power or privilege. The rights and remedies herein specified
are cumulative and are not exclusive of any rights or remedies which the Bank
would otherwise have.
10.3 RELATIONSHIP TO OTHER DOCUMENTS. The warranties, covenants and other
obligations of the Borrower (and the rights and remedies of the Bank) that are
outlined in this Agreement and the other Loan Documents are intended to
supplement each other. In the event of any inconsistencies in any of the terms
in the Loan Documents, all terms shall be cumulative so as to give the Bank the
most favorable rights set forth in the conflicting documents, except that if
there is a direct conflict between any preprinted terms and specifically
negotiated terms (whether included in an addendum or otherwise), the
specifically negotiated terms will control.
10.4 PARTICIPATIONS; GUARANTORS. The Bank may, at its option, sell all or
any interests in the Notes and other Loan Documents to other financial
institutions (the "PARTICIPANT"), and in connection with such sales (and
thereafter) disclose any financial information the Bank may have concerning the
Borrower to any such Participant or potential Participant. From time to time,
the Bank may, in its discretion and without obligation to the Borrower, any
guarantor or any other third party, disclose information about the Borrower and
this loan to any guarantor, surety or other accommodation party. This provision
does not obligate the Bank to supply any information or release the Borrower
from its obligation to provide such information, and the Borrower agrees to keep
all Guarantors advised of its financial condition and other matters which may be
relevant to the Guarantors' obligations to the Bank.
10.5 SUCCESSORS. The rights, options, powers and remedies granted in this
Agreement shall extend to the Bank and to its successors and assigns, shall be
binding upon the Borrower and its successors and assigns and shall be applicable
hereto and to all renewals and/or extensions hereof.
10.6 INDEMNIFICATION. Except for harm arising from the Bank's willful
misconduct or gross negligence, the Borrower hereby indemnifies and agrees to
defend and hold the Bank harmless from any and all losses, costs, damages,
claims and expenses of any kind suffered by or asserted against the Bank
relating to claims by third parties arising out of the financing provided under
the Loan Documents or related to any collateral (including, without limitation,
the Borrower's failure to perform its obligations relating to Environmental
Matters described in Section 6.5 above). This indemnification and hold harmless
provision will survive the termination of the Loan Documents and the
satisfaction of the Obligations due the Bank.
10.7 NOTICE OF CLAIMS AGAINST BANK; LIMITATION OF CERTAIN DAMAGES. In order
to allow the Bank to mitigate any damages to the Borrower from the Bank's
alleged breach of its duties under the Loan Documents or any other duty, if any,
to the Borrower, the Borrower agrees to give the Bank immediate written notice
of any claim or defense it has against the Bank, whether in tort or contract,
relating to any action or inaction by the Bank under the Loan Documents, or the
transactions related thereto, or of any defense to payment of the Obligations
for any reason. The requirement of providing timely notice to the Bank
represents the parties' agreed-to standard of performance regarding claims
against the Bank. Notwithstanding any claim that the Borrower may have against
the Bank, and regardless of any notice the Borrower may have given the Bank, THE
BANK WILL NOT BE LIABLE TO THE BORROWER FOR CONSEQUENTIAL AND/OR SPECIAL DAMAGES
ARISING THEREFROM, EXCEPT THOSE DAMAGES ARISING FROM THE BANK'S WILLFUL
MISCONDUCT.
10.8 NOTICES. Although any notice required to be given hereunder or under
any of the other Loan Documents might be accomplished by other means, notice
will always be deemed given when placed in the United States Mail,
<PAGE>
with postage prepaid, or sent by overnight delivery service, or sent by telex or
facsimile, in each case to the address et forth below or as amended.
10.9 PAYMENTS. Payments due under the Notes and other Loan Documents shall
be made in lawful money of the United States, and the Bank is authorized to
charge payments due under the Loan Documents against any account of the
Borrower.
10.10 APPLICABLE LAW AND JURISDICTION; INTERPRETATION; JOINT LIABILITY.
This Agreement and all other Loan Documents shall be governed by and interpreted
in accordance with the laws of the state where the Bank's main office is
located, except to the extent superseded by Federal law. Invalidity of any
provision of this Agreement shall not affect the validity of any other
provision. THE BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT SITUATED IN HENNEPIN COUNTY, MINNESOTA AND WAIVES ANY
OBJECTION BASED ON FORUM NON CONVENIENS, WITH REGARD TO ANY ACTIONS, CLAIMS,
DISPUTES OR PROCEEDINGS RELATING TO THIS AGREEMENT, THE NOTES, THE COLLATERAL,
ANY OTHER LOAN DOCUMENT, OR ANY TRANSACTIONS ARISING THEREFROM, OR ENFORCEMENT
AND/OR INTERPRETATION OF ANY OF THE FOREGOING. Nothing herein shall affect the
Bank's rights to serve process in any manner permitted by law, or limit the
Bank's right to bring proceedings against the Borrower in the competent courts
of any other jurisdiction or jurisdictions. This Agreement, the other Loan
Documents and any amendments hereto (regardless of when executed) will be deemed
effective and accepted only at the Bank's offices, and only upon the Bank's
receipt of the executed originals thereof. If there is more than one Borrower,
the liability of the Borrowers will be joint and several, and the reference to
"Borrower" will be deemed to refer to all Borrowers.
10.11 COPIES; ENTIRE AGREEMENT; MODIFICATION. The Borrower hereby
acknowledges the receipt of a copy of this Agreement and all other Loan
Documents. The provisions of the Loan Documents shall not be altered, amended or
waived without the express written consent of the Bank (and the Borrower, when
appropriate).
IMPORTANT. READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
THIS NOTICE SHALL ALSO BE EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS
NOW IN EFFECT BETWEEN YOU AND THIS LENDER. A MODIFICATION OF ANY OTHER CREDIT
AGREEMENTS NOW IN EFFECT BETWEEN YOU AND THIS LENDER, WHICH OCCURS AFTER RECEIPT
BY YOU OF THIS NOTICE, MAY BE MADE ONLY BY ANOTHER WRITTEN INSTRUMENT. ORAL OR
IMPLIED MODIFICATIONS TO SUCH CREDIT AGREEMENTS ARE NOT ENFORCEABLE AND SHOULD
NOT BE RELIED UPON.
10.12 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY JOINTLY AND
SEVERALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING RELATING TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS
THEREUNDER, ANY COLLATERAL SECURING THE OBLIGATIONS OR ANY TRANSACTION
ARISING THEREFROM OR CONNECTED THERETO. THE BORROWER AND THE BANK EACH
<PAGE>
REPRESENTS TO THE OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY GIVEN.
IN WITNESS WHEREOF, the undersigned have executed this CREDIT AGREEMENT as
of May 15, 1997.
TRANSPORT CORPORATION OF AMERICA, INC.
Borrower Name (Organization)
a Minnesota corporation
By: /s/
Name and Title:
FIRSTAR BANK OF MINNESOTA,
NATIONAL ASSOCIATION
By: /s/
Name and Title:
T.I.D. 41-1386925
Borrower Address: 1769 Yankee Doodle Road
Eagan, MN 55121
EXHIBIT 11.1
TRANSPORT CORPORATION OF AMERICA, INC.
Computation of Earnings per Common Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31
---------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 2,300,080 $ 1,732,910 $ 1,342,964
- -----------------------------------------------------------------------------------------------
Average number of common
shares outstanding 6,589,431 6,496,039 6,420,205
Dilutive effect of outstanding stock
options and warrants 155,225 239,145 293,510
- -----------------------------------------------------------------------------------------------
Average number of common and common
equivalent shares outstanding 6,744,656 6,735,184 6,713,715
- -----------------------------------------------------------------------------------------------
Basic earnings per share $ 0.35 $ 0.27 $ 0.21
Diluted earnings per share $ 0.34 $ 0.26 $ 0.20
YEARS ENDED DECEMBER 31
----------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------
Net earnings $ 7,751,545 $ 6,293,899 $ 6,106,107
- ------------------------------------------------------------------------------------------------
Average number of common
shares outstanding 6,568,444 6,441,723 6,360,992
Dilutive effect of outstanding stock
options and warrants 165,908 276,628 348,230
- ------------------------------------------------------------------------------------------------
Average number of common and common
equivalent shares outstanding 6,734,352 6,718,351 6,709,222
- ------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.18 $ 0.98 $ 0.96
Diluted earnings per share $ 1.15 $ 0.94 $ 0.91
</TABLE>
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors
Transport Corporation of America, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-90896, 333-934 and 33-96576) on Form S-8 of Transport Corporation of America,
Inc. and subsidiary of our reports dated January 29, 1998, except as to note 12
which is as of February 10, 1998, relating to the consolidated balance sheets of
Transport Corporation of America, Inc. as of December 31, 1997 and 1996 and the
related consolidated statements of earnings, changes in stockholders' equity and
cash flows and the related financial statement schedule for each of the years in
the three-year period ended December 31, 1997, which reports appear in the
December 31, 1997 annual report on Form 10-K of Transport Corporation of
America, Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,382,867
<SECURITIES> 0
<RECEIVABLES> 17,805,836
<ALLOWANCES> 324,000
<INVENTORY> 989,412
<CURRENT-ASSETS> 30,476,773
<PP&E> 151,087,947
<DEPRECIATION> 36,048,182
<TOTAL-ASSETS> 147,792,532
<CURRENT-LIABILITIES> 32,714,885
<BONDS> 44,617,734
0
0
<COMMON> 65,906
<OTHER-SE> 50,742,007
<TOTAL-LIABILITY-AND-EQUITY> 147,792,532
<SALES> 0
<TOTAL-REVENUES> 186,392,409
<CGS> 0
<TOTAL-COSTS> 170,209,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,307,046
<INCOME-PRETAX> 12,941,045
<INCOME-TAX> 5,189,500
<INCOME-CONTINUING> 7,751,545
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<EXTRAORDINARY> 0
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