<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Period ended September 12, 1998.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______ to ______.
Commission file number 0-600
ROADWAY EXPRESS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-0492670
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
1077 Gorge Boulevard Akron, OH 44310
- -------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 384-1717
--------------
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 .
--- ---
The number of shares of common stock ($.01 par value) outstanding as of October
10, 1998 was 19,346,515.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 12, 1998 December 31, 1997
----------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 49,536 $ 58,505
Accounts receivable, net 300,251 288,050
Other current assets 20,075 16,357
----------------------------------------------------------------------
Total current assets 369,862 362,912
Carrier operating property at cost 1,354,933 1,366,569
Allowance for depreciation 1,003,815 1,008,485
----------------------------------------------------------------------
Net carrier operating property 351,118 358,084
Goodwill, net 7,992 8,747
Deferred income taxes 15,322 14,243
----------------------------------------------------------------------
Total assets $ 744,294 $ 743,986
======================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 173,084 $ 165,536
Salaries and wages payable 109,499 103,609
Other current liabilities 48,597 53,657
----------------------------------------------------------------------
Total current liabilities 331,180 322,802
Long-term liabilities
Casualty claims payable 52,161 55,267
Future equipment repairs 15,903 19,773
Accrued pension and retiree medical 102,872 96,708
----------------------------------------------------------------------
Total long-term liabilities 170,936 171,748
Shareholders' equity
Common Stock - $.01 par value
Authorized - 100,000,000 shares
Issued - 20,556,714 shares 206 206
Other shareholders' equity 241,972 249,230
----------------------------------------------------------------------
Total shareholders' equity 242,178 249,436
----------------------------------------------------------------------
Total liabilities and equity $ 744,294 $ 743,986
======================================================================
<FN>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 3
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Twelve Weeks Ended
(Third Quarter)
September 12, 1998 September 13, 1997
----------------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Revenue $ 617,135 $ 642,195
Operating expenses:
Salaries, wages and benefits 401,927 406,420
Operating supplies and expenses 106,370 107,125
Purchased transportation 61,275 68,144
Operating taxes and licenses 17,812 18,081
Insurance and claims expense 12,132 13,340
Provision for depreciation 9,426 10,847
Net (gain) on disposal of operating property (122) (780)
----------------------------------------------------
Total operating expenses 608,820 623,177
----------------------------------------------------
Operating income 8,315 19,018
Other (expense), net (459) (209)
----------------------------------------------------
Income before income taxes 7,856 18,809
Provision for income taxes 3,528 8,403
----------------------------------------------------
Net income $ 4,328 $ 10,406
====================================================
Net income per share - basic $ 0.23 $ 0.51
Net income per share - diluted $ 0.22 $ 0.50
Average shares outstanding - basic 19,267 20,232
Average shares outstanding - diluted 19,473 20,548
Dividends declared per share $ 0.05 $ 0.05
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Thirty-six Weeks Ended
(Three Quarters)
September 12, 1998 September 13, 1997
----------------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Revenue $ 1,848,150 $ 1,842,244
Operating expenses:
Salaries, wages and benefits 1,200,158 1,176,128
Operating supplies and expenses 320,455 314,331
Purchased transportation 176,401 177,121
Operating taxes and licenses 55,263 54,474
Insurance and claims expense 40,515 44,202
Provision for depreciation 28,833 35,282
Net (gain) on disposal of operating property (1,692) (2,671)
----------------------------------------------------
Total operating expenses 1,819,933 1,798,867
----------------------------------------------------
Operating income 28,217 43,377
Other income (expense), net 421 (361)
----------------------------------------------------
Income before income taxes 28,638 43,016
Provision for income taxes 12,394 19,321
----------------------------------------------------
Net income $ 16,244 $ 23,695
====================================================
Net income per share - basic $ 0.82 $ 1.17
Net income per share - diluted $ 0.81 $ 1.15
Average shares outstanding - basic 19,832 20,228
Average shares outstanding - diluted 20,057 20,544
Dividends declared per share $ 0.15 $ 0.15
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Thirty-six Weeks Ended
(Three Quarters)
September 12, 1998 September 13, 1997
----------------------------------------------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 16,244 $ 23,695
Depreciation and amortization 29,588 35,220
Other operating adjustments (15,788) (20,437)
----------------------------------------------------
Net cash provided by operating activities 30,044 38,478
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of carrier operating property (29,455) (22,576)
Sales of carrier operating property 9,279 11,651
Business acquisition - (15,000)
----------------------------------------------------
Net cash used by investing activities (20,176) (25,925)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury shares (15,818) (81)
Dividends paid (3,019) (3,077)
----------------------------------------------------
Net cash used by financing activities (18,837) (3,158)
Net increase (decrease) in cash and cash equivalents (8,969) 9,395
Cash and cash equivalents at beginning of period 58,505 36,243
----------------------------------------------------
Cash and cash equivalents at end of period $ 49,536 $ 45,638
====================================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
Roadway Express, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note A--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the thirty-six weeks ending September 12,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the registrant's annual
report on Form 10-K for the year ended December 31, 1997.
Note B--Accounting Period
The registrant operates on 13 four-week accounting periods with 12 weeks in each
of the first three quarters and 16 weeks in the fourth quarter.
Note C--Provision for Income Taxes
Taxes provided exceed the U.S. statutory rate primarily due to non-deductible
operating costs, and foreign and state taxes.
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
(Third Quarter) (Three Quarters)
September 12, 1998 September 13, 1997 September 12, 1998 September 13, 1997
--------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Federal $ 3,316 $ 5,875 $ 11,884 $ 14,004
U.S. State 654 1,258 1,575 2,547
Foreign (442) 1,270 (1,065) 2,770
----------------------------------------------------------------------------------
Total $ 3,528 $ 8,403 $ 12,394 $ 19,321
==================================================================================
</TABLE>
5
<PAGE> 7
Note D--Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
(Third Quarter) (Three Quarters)
September 12, 1998 September 13,1997 September 12, 1998 September 13,1997
-----------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income $ 4,328 $10,406 $ 16,244 $ 23,695
=========================================================================================
Weighted-average shares for
basic earnings per share 19,267 20,232 19,832 20,228
Management incentive stock plans 206 316 225 316
-----------------------------------------------------------------------------------------
Weighted-average shares for
diluted earnings per share 19,473 20,548 20,057 20,544
=========================================================================================
Earnings per share - basic $ 0.23 $ 0.51 $ 0.82 $ 1.17
Earnings per share - diluted $ 0.22 $ 0.50 $ 0.81 $ 1.15
</TABLE>
Note E--Comprehensive Income
Comprehensive income differs from net income due to foreign currency translation
adjustments as shown below:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
(Third Quarter) (Three Quarters)
September 12, 1998 September 13,1997 September 12, 1998 September 13,1997
-----------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income $ 4,328 $ 10,406 $ 16,244 $ 23,695
Foreign currency translation
adjustments (71) 277 (638) 375
-----------------------------------------------------------------------------------------
Comprehensive income $ 4,257 $ 10,683 $ 15,606 $ 24,070
=========================================================================================
</TABLE>
Note F--Impact of Recently Issued Accounting Standards
The Company adopted the provisions of the AICPA Statement of Position 98-1 (SOP
98-1), Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, effective January 1, 1998. The adoption of SOP 98-1 increased net
income and diluted earnings per share through September 12, 1998, by $776,000
and $0.04, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company had net income of $4,328,000 or $0.22 per share (diluted), for the
third quarter ended September 12, 1998, compared to income of $10,406,000, or
$0.50 per share (diluted) in the same quarter last year. Revenues were
$617,135,000 in the current quarter, a 3.9% decline from third quarter 1997. The
third quarter of 1997 included an influx of small, higher-rated shipments due to
the UPS strike.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Total tonnage was down 3.3% in the current quarter compared to the prior year
quarter. Less-than-truckload (LTL) tons were down 4.3% and truckload tonnage was
up 1.5%. During the third quarter of 1998, shipments were down 13% versus the
prior year quarter. Net revenue per ton decreased 0.7%, primarily due to an 11%
increase in average shipment size when compared to the UPS strike-impacted third
quarter of 1997, and the elimination of the variable fuel surcharge which was in
place during 1997.
Operating expenses per ton were up 1.0% compared to third quarter 1997. Salaries
and wages per ton increased by 2.2% reflecting the terms of the Teamster
contract, as well as by a relative increase in the use of road drivers due to
the reduced use of railroads in certain linehaul operations. Linehaul
transportation wages were up 3.7% per ton, while the reduced use of railroads
led to a 7.1% decrease in purchased transportation expense per ton. The
percentage of linehaul miles utilizing rail was 27.1% in 1998 versus 29.8% in
1997. Dock wages decreased 2.6% per ton, partially the result of the increased
shipment size noted above. Operating supplies and expenses were up 2.6% per ton
due to additional purchased administrative and general services, and leased
revenue equipment.
Depreciation expense continues to decline as more revenue equipment becomes
fully depreciated and as we reduce the number of terminal facilities. The
Company's system count has been reduced to 399 terminals, compared to 409
terminals at the end of the third quarter 1997.
The tax expense for the first three quarters of 1998 and 1997 differs from the
Federal statutory rate due to the impact of state taxes, taxes on profitable
foreign operations, and non-deductible operating expenses as described in Note C
to the Condensed Consolidated Financial Statements.
At the end of the quarter, cash and marketable securities amounted to $49.5
million, a $9.0 million decrease from year-end 1997. Cash flow from operations
has been sufficient to meet working capital needs. During the quarter, the
Company completed a $20 million stock repurchase program approved by the Board
of Directors in June 1998. The Company progressed with the third operating lease
agreement to replace an additional 3,250 linehaul trailers during 1998 (11% of
the fleet). Under these agreements, 8,400 aging trailers have now replaced with
new leased units. The Company also took delivery of 400 new leased linehaul
tractors during the current quarter.
The Company is taking actions to improve operating margins, such as sales and
marketing initiatives, working with specific customers to improve the yield on
freight, and reacquiring freight diverted during contract negotiations earlier
this year. The Company does not intend to increase base freight rates this fall,
but has increased minimum charges on smaller shipments to reflect current market
conditions.
The Company remains on plan to complete the system modifications and
replacements required in order to process transactions in the year 2000. The
Company utilizes a third party to provide information systems operating support.
The Company's recent change to this provider was, in part, based on its ability
to provide seamless service through the year 2000. 80% of the Company's internal
systems will be compliant by January 1999, with the remaining 20% to be
completed by June 1999. Assurances of year 2000 compliance have been requested
from the Company's critical vendors in areas such as fuel, purchased
transportation, utilities, and financial services. In most cases, alternative
suppliers have been identified in the event of a failure. The greatest risk to
the Company is the total collapse of the internal systems, which would force the
return to a paper-based system. This would involve an unsustainable increase in
administrative burden and expenses. The Company believes this risk is remote due
to planned testing and problem resolution of all mission critical systems prior
to December 1999. Total costs to bring the internal systems into compliance are
estimated at $4,500,000 in capital expenditures and $5,500,000 in expense.
Through the third quarter of 1998 the actual expenditures have been $800,000 in
capital and $2,500,000 in expense. The year 2000 project will consume
approximately 7% of the Company's total information technology budget for 1998
and 1999.
The portions of narrative set forth in this discussion that are not historical
in nature are forward-looking statements. The Company's actual future
performance and operating and financial results may differ from those described
in the forward-
7
<PAGE> 9
looking statements as a result of a variety of factors that, besides those
mentioned, include the condition of the industry and the economy, labor
relations, inclement weather, and the success of the Company's operating plans.
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On October 7, 1998, the Board of Directors announced a cash dividend of $0.05
per share on the Company's common stock payable on December 1, 1998, to
shareholders of record on November 13, 1998.
The annual meeting of shareholders of Roadway Express, Inc. will be held on
Wednesday, March 24, 1999, at 9:00 a.m. Eastern Standard Time at the Sheraton
Suites Hotel, 1989 Front St., Cuyahoga Falls, Ohio. Formal notice and proxy
statement, with proxy, and the Annual Report to Shareholders will be mailed on
or about February 19, 1999, to each shareholder of record as of February 9,
1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No.
- -----------
10.22 Operating lease agreement between Roadway Express, Inc. and General
Electric Capital Corporation.
27 Financial Data Schedule.
List of the Current Reports on Form 8-K which were filed during the current
quarter--none.
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.
ROADWAY EXPRESS, INC.
Date: October 22, 1998 By: /s/ J. Dawson Cunningham
---------------- ---------------------------
J. Dawson Cunningham, Executive Vice
President, Chief Financial Officer, and
Treasurer
Date: October 22, 1998 By: /s/ John G. Coleman
---------------- ----------------------
John G. Coleman, Controller
8
<PAGE> 1
Exhibit 10.22
MASTER LEASE AGREEMENT
dated as of JULY 1, 1998 ("AGREEMENT")
THIS AGREEMENT, is between GENERAL ELECTRIC CAPITAL CORPORATION its successors
and assigns, if any ("LESSOR") and ROADWAY EXPRESS, INC. ("LESSEE"). Lessor has
an office at 1787 SENTRY PARKWAY/WEST 16 SENTRY PARK/WEST, SUITE 200, BLUE BELL,
PA 19422. Lessee is a corporation organized and existing under the laws of the
State of Delaware. Lessee's mailing address and chief place of business is 1077
GORGE BLVD., AKRON, OH 44310. This Agreement contains the general terms that
apply to the leasing of Equipment from Lessor to Lessee. Additional terms that
apply to the Equipment (term, rent, options, etc.) shall be contained on a
schedule ("SCHEDULE"). A form of the Schedule is attached.
1. LEASING
(a) Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor,
the equipment ("EQUIPMENT") described in any Schedule signed by both parties.
(b) Lessor shall purchase Equipment from the manufacturer or supplier
("SUPPLIER") and lease it to Lessee when Lessor receives (i) a Schedule for the
Equipment, (ii) evidence of insurance which complies with the requirements of
Section 9, and (iii) such other documents as Lessor may reasonably request. Each
of the documents required above must be in form and substance satisfactory to
Lessor. Lessor hereby appoints Lessee its agent for inspection and acceptance of
the Equipment from the Supplier. Once the Schedule is signed, the Lessee may not
cancel the Schedule.
2. TERM, RENT AND PAYMENT
(a) The rent payable for the Equipment and Lessee's right to use the Equipment
shall begin on the earlier of (i) the date when the Lessee signs the Schedule
and accepts the Equipment or (ii) when Lessee has accepted the Equipment under a
Certificate of Acceptance ("LEASE COMMENCEMENT DATE"). The term of this
Agreement shall be the period specified in the applicable Schedule. The word
"term" shall include all basic and any renewal terms.
(b) Lessee shall pay rent to Lessor at its address stated above, except as
otherwise directed by Lessor. Rent payments shall be in the amount set forth in,
and due as stated in the applicable Schedule. If any Advance Rent (as stated in
the Schedule) is payable, it shall be due when the Lessee signs the Schedule.
Advance Rent shall be applied to the first rent payment and the balance, if any,
to the final rent payment(s) under such Schedule. In no event shall any Advance
Rent or any other rent payments be refunded to Lessee. If rent is not paid
within ten (10) days of its due date, Lessee agrees to pay a late charge of five
cents ($.05) per dollar on, and in addition to, the amount of such rent but not
exceeding the lawful maximum, if any.
(c) Lessor shall not disturb Lessee's quiet enjoyment of the Equipment during
the term of the Agreement unless a default has occurred and is continuing under
this Agreement.
3. RENT ADJUSTMENT
(a) If, solely as a result of Congressional enactment of any law (including,
without limitation, any modification of, or amendment or addition to, the
Internal Revenue Code of 1986, as amended, ("CODE")), the maximum effective
corporate income tax rate (exclusive of any minimum tax rate) for calendar-year
taxpayers ("EFFECTIVE RATE") is higher than thirty-five percent (35%) for any
year during the lease term, then Lessor shall have the right to increase such
rent payments by requiring payment of a single additional sum. The additional
sum shall be equal to the product of (i) the Effective Rate (expressed as a
-1-
<PAGE> 2
decimal) for such year less .35 (or, in the event that any adjustment has been
made hereunder for any previous year, the Effective Rate (expressed as a
decimal) used in calculating the next previous adjustment) times (ii) the
adjusted Termination Value (defined below), divided by (iii) the difference
between the new Effective Tax Rate (expressed as a decimal) and one (1). The
adjusted Termination Value shall be the Termination Value (calculated as of the
first rent due in the year for which the adjustment is being made) minus the Tax
Benefits that would be allowable under Section 168 of the Code (as of the first
day of the year for which such adjustment is being made and all future years of
the lease term). The Termination Values and Tax Benefits are defined on the
Schedule. Lessee shall pay to Lessor the full amount of the additional rent
payment on the later of (i) receipt of notice or (ii) the first day of the year
for which such adjustment is being made.
(b) Lessee's obligations under this Section 3 shall survive any expiration or
termination of this Agreement.
4. TAXES. If permitted by law, Lessee shall report and pay promptly all taxes,
fees and assessments due, imposed, assessed or levied against any Equipment (or
purchase, ownership, delivery, leasing, possession, use or operation thereof),
this Agreement (or any rents or receipts hereunder), any Schedule, Lessor or
Lessee by any governmental entity or taxing authority during or related to the
term of this Agreement, including, without limitation, all license and
registration fees, and all sales, use, personal property, excise, gross
receipts, franchise, stamp or other taxes, imposts, duties and charges, together
with any penalties, fines or interest thereon (collectively "TAXES"). Lessee
shall have no liability for Taxes imposed by the United States of America or any
state or political subdivision thereof which are on or measured by the net
income of Lessor except as provided in Sections 3 and 14(c). Lessee shall
promptly reimburse Lessor (on an after tax basis) for any Taxes charged to or
assessed against Lessor. Lessee shall show Lessor as the owner of the Equipment
on all tax reports or returns, and send Lessor a copy of each report or return
and evidence of Lessee's payment of Taxes upon request.
5. REPORTS
(a) If any tax or other lien shall attach to any Equipment, Lessee will notify
Lessor in writing, within ten (10) days after Lessee becomes aware of the tax or
lien. The notice shall include the full particulars of the tax or lien and the
location of such Equipment on the date of the notice.
(b) Lessee will deliver to Lessor, Lessee's complete financial statements,
certified by a recognized firm of certified public accountants within ninety
(90) days of the close of each fiscal year of Lessee. Lessee will deliver to
Lessor copies of Lessee's quarterly financial report certified by the chief
financial officer of Lessee, within ninety (90) days of the close of each fiscal
quarter of Lessee. Lessee will deliver to Lessor all Forms 10-K and 10-Q, if
any, filed with the Securities and Exchange Commission within thirty (30) days
after the date on which they are filed.
(c) Lessor may inspect any Equipment during normal business hours after giving
Lessee reasonable prior notice.
(d) Lessee will keep the Equipment at the Equipment Location (specified in the
applicable Schedule) and will give Lessor prior written notice of any relocation
of Equipment. If Lessor asks, Lessee will promptly notify Lessor in writing of
the location of any Equipment.
(e) If any Equipment is lost or damaged (where the estimated repair costs would
exceed the greater of ten percent (10%) of the original Equipment cost or ten
thousand and 00/100 dollars ($10,000)), or is otherwise involved in an accident
causing personal injury or property damage, Lessee will promptly and fully
report the event to Lessor in writing.
(f) Lessee will furnish a certificate of an authorized officer of Lessee stating
that he has reviewed the activities of Lessee and that, to the best of his
knowledge, there exists no default or event which with notice or lapse of time
(or both) would become such a default within thirty (30) days after any request
by Lessor.
6. DELIVERY, USE AND OPERATION
(a) All Equipment shall be shipped directly from the Supplier to Lessee.
-2-
<PAGE> 3
(b) Lessee agrees that the Equipment will be used by Lessee solely in the
conduct of its business and in a manner complying with all applicable laws,
regulations and insurance policies and Lessee shall not discontinue use of the
Equipment.
(c) Lessee will not move any equipment from the location specified on the
Schedule, without the prior written consent of Lessor.
(d) Lessee will keep the Equipment free and clear of all liens and encumbrances
other than those which result from acts of Lessor.
7. MAINTENANCE
(a) Lessee will, at its sole expense, maintain each unit of Equipment in good
operating order and repair, normal wear and tear excepted. The Lessee shall also
maintain the Equipment in accordance with manufacturer's recommendations. Lessee
shall make all alterations or modifications required to comply with any
applicable law, rule or regulation during the term of this Agreement. If Lessor
requests, Lessee shall affix plates, tags or other identifying labels showing
ownership thereof by Lessor. The tags or labels shall be placed in a prominent
position on each unit of Equipment.
(b) Lessee will not attach or install anything on any Equipment that will impair
the originally intended function or use of such Equipment without the prior
consent of Lessor. All additions, parts, supplies, accessories, and equipment
("Additions") furnished or attached to any Equipment that are not readily
removable shall become the property of Lessor. All Additions shall be made only
in compliance with applicable law. Lessee will not attach or install any
Equipment to or in any other personal or real property without the prior written
consent of Lessor.
8. STIPULATED LOSS VALUE
If for any reason any unit of Equipment becomes worn out, lost, stolen,
destroyed, irreparably damaged or unusable ("CASUALTY OCCURRENCES") Lessee shall
promptly and fully notify Lessor in writing. Lessee shall pay Lessor the sum of
(x) the Stipulated Loss Value (see Schedule) of the affected unit determined as
of the rent payment date prior to the Casualty Occurrence; and (y) all rent and
other amounts which are then due under this Agreement on the Payment Date
(defined below) for the affected unit. The Payment Date shall be the next rent
payment date after the Casualty Occurrence. Upon Payment of all sums due
hereunder, the term of this lease as to such unit shall terminate.
9. INSURANCE
(a) Lessee shall bear the entire risk of any loss, theft, damage to, or
destruction of, any unit of Equipment from any cause whatsoever from the time
the Equipment is shipped to Lessee.
(b) Lessee agrees, at its own expense, to keep all Equipment insured for such
amounts and against such hazards as Lessor may reasonably require. All such
policies shall be with companies, and on terms, reasonably satisfactory to
Lessor. The insurance shall include coverage for damage to or loss of the
Equipment, liability for personal injuries, death or property damage. Lessor
shall be named as additional insured with a loss payable clause in favor of
Lessor, as its interest may appear, irrespective of any breach of warranty or
other act or omission of Lessee. The insurance shall provide for liability
coverage in an amount equal to at least ONE MILLION U.S. DOLLARS ($1,000,000.00)
total liability per occurrence, unless otherwise stated in any Schedule. The
casualty/property damage coverage shall be in an amount equal to the higher of
the Stipulated Loss Value or the full replacement cost of the Equipment. No
insurance shall be subject to any co-insurance clause. The insurance policies
may not be altered or canceled by the insurer until after thirty (30) days
written notice to Lessor. Lessee agrees to deliver to Lessor evidence of
insurance reasonably satisfactory to Lessor.
(c) Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make proof of
loss and claim for insurance, and to make adjustments with insurers and to
receive payment of and execute or endorse all documents, checks or drafts in
connection with insurance payments. Lessor shall not act as Lessee's
attorney-in-fact unless Lessee is in default. Lessee shall pay any reasonable
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<PAGE> 4
expenses of Lessor in adjusting or collecting insurance. Lessee will not make
adjustments with insurers except with respect to claims for damage to any unit
of Equipment where the repair costs are less than the lesser of ten percent
(10%) of the original Equipment cost or ten thousand and 00/100 dollars
($10,000). Lessor may, at its option, apply proceeds of insurance, in whole or
in part, to (i) repair or replace Equipment or any portion thereof, or (ii)
satisfy any obligation of Lessee to Lessor under this Agreement.
10. RETURN OF EQUIPMENT
(a) At the expiration or termination of this Agreement or any Schedule, Lessee
shall perform any testing and repairs required to place the units of Equipment
in the same condition and appearance as when received by Lessee (reasonable wear
and tear excepted) and in good working order for the original intended purpose
of the Equipment. If required the units of Equipment shall be deinstalled,
disassembled and crated by an authorized manufacturer's representative or such
other service person as is reasonably satisfactory to Lessor. Lessee shall
remove installed markings that are not necessary for the operation, maintenance
or repair of the Equipment. All Equipment will be cleaned, cosmetically
acceptable, and in such condition as to be immediately installed into use in a
similar environment for which the Equipment was originally intended to be used.
All waste material and fluid must be removed from the Equipment and disposed of
in accordance with then current waste disposal laws. Lessee shall return the
units of Equipment to a location within the continental United States as Lessor
shall direct. Lessee shall obtain and pay for a policy of transit insurance for
the redelivery period in an amount equal to the replacement value of the
Equipment. The transit insurance must name Lessor as the loss payee. The Lessee
shall pay for all costs to comply with this section (a).
(b) Until Lessee has fully complied with the requirements of Section 10(a)
above, Lessee's rent payment obligation and all other obligations under this
Agreement shall continue from month to month notwithstanding any expiration or
termination of the lease term. Lessor may terminate the Lessee's right to use
the Equipment upon ten (10) days notice to Lessee.
(c) Lessee shall provide to Lessor a detailed inventory of all components of the
Equipment including model and serial numbers. Lessee shall also provide an
up-to-date copy of all other documentation pertaining to the Equipment. All
service manuals, blue prints, process flow diagrams, operating manuals,
inventory and maintenance records shall be given to Lessor at least ninety (90)
days and not more than one hundred twenty (120) days prior to lease termination.
(d) Lessee shall make the Equipment available for on-site operational
inspections by potential purchasers at least one hundred twenty (120) days prior
to and continuing up to lease termination. Lessor shall provide Lessee with
reasonable notice prior to any inspection. Lessee shall provide personnel, power
and other requirements necessary to demonstrate electrical, hydraulic and
mechanical systems for each item of Equipment.
11. DEFAULT AND REMEDIES
(a) Lessor may in writing declare this Agreement in default if: (1) Lessee
breaches its obligation to pay rent or any other sum when due and fails to cure
the breach within ten (10) days; (2) Lessee breaches any of its insurance
obligations under Section 9; (3) Lessee breaches any of its other obligations
and fails to cure that breach within thirty (30) days after written notice from
Lessor; (4) any representation or warranty made by Lessee in connection with
this Agreement shall be false or misleading in any material respect; (5) Lessee
becomes insolvent or ceases to do business as a going concern; (6) any Equipment
is illegally used; or (7) a petition is filed by or against Lessee or any
Guarantor of Lessee's obligations to Lessor under any bankruptcy or insolvency
laws and in the event of an involuntary petition, the petition is not dismissed
within forty-five (45) days of the filing date. The default declaration shall
apply to all Schedules unless specifically excepted by Lessor.
(b) After a default, at the request of Lessor, Lessee shall comply with the
provisions of Section 10(a). Lessee hereby authorizes Lessor to peacefully enter
any premises where any Equipment may be and take possession of the Equipment.
Lessee shall immediately pay to Lessor without further demand as liquidated
damages for loss of a bargain and not as a penalty, the Stipulated Loss Value of
the Equipment (calculated as of the rent date next preceding the declaration of
default), and all rents and other sums then due under this Agreement and all
Schedules. Lessor may terminate this Agreement as to any or all of the
Equipment. A termination shall occur only upon written notice by Lessor to
Lessee and only as to the units of Equipment specified in any
-4-
<PAGE> 5
such notice. Lessor may, but shall not be required to, sell Equipment at private
or public sale, in bulk or in parcels, with or without notice, and without
having the Equipment present at the place of sale. Lessor may also, but shall
not be required to, lease, otherwise dispose of or keep idle all or part of the
Equipment. Lessor may use Lessee's premises for a reasonable period of time for
any or all of the purposes stated above without liability for rent, costs,
damages or otherwise. The proceeds of sale, lease or other disposition, if any,
shall be applied in the following order of priorities: (1) to pay all of
Lessor's costs, charges and expenses incurred in taking, removing, holding,
repairing and selling, leasing or otherwise disposing of Equipment; then, (2) to
the extent not previously paid by Lessee, to pay Lessor all sums due from Lessee
under this Agreement; then (3) to reimburse to Lessee any sums previously paid
by Lessee as liquidated damages; and (4) any surplus shall be retained by
Lessor. Lessee shall immediately pay any deficiency in (1) and (2) above .
(c) The foregoing remedies are cumulative, and any or all thereof may be
exercised instead of or in addition to each other or any remedies at law, in
equity, or under statute. Lessee waives notice of sale or other disposition (and
the time and place thereof), and the manner and place of any advertising. Lessee
shall pay Lessor's actual attorney's fees incurred in connection with the
enforcement, assertion, defense or preservation of Lessor's rights and remedies
under this Agreement, or if prohibited by law, such lesser sum as may be
permitted. Waiver of any default shall not be a waiver of any other or
subsequent default.
(d) Any default under the terms of this or any other agreement between Lessor
and Lessee may be declared by Lessor a default under this and any such other
agreement.
12. ASSIGNMENT: LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, ENCUMBER OR SUBLET ANY
EQUIPMENT OR THE INTEREST OF LESSEE IN THE EQUIPMENT WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR. Lessor may, without the consent of Lessee, assign this
Agreement, any Schedule or the right to enter into a Schedule. Lessee agrees
that if Lessee receives written notice of an assignment from Lessor, Lessee will
pay all rent and all other amounts payable under any assigned Schedule to such
assignee or as instructed by Lessor. Lessee also agrees to confirm in writing
receipt of the notice of assignment as may be reasonably requested by assignee.
Lessee hereby waives and agrees not to assert against any such assignee any
defense, set-off, recoupment claim or counterclaim which Lessee has or may at
any time have against Lessor for any reason whatsoever.
13. NET LEASE Lessee is unconditionally obligated to pay all rent and other
amounts due for the entire lease term no matter what happens, even if the
Equipment is damaged or destroyed, if it is defective or if Lessee no longer can
use it. Lessee is not entitled to reduce or set-off against rent or other
amounts due to Lessor or to anyone to whom Lessor assigns this Agreement or any
Schedule whether Lessee's claim arises out of this Agreement, any Schedule, any
statement by Lessor, Lessor's liability or any manufacturer's liability, strict
liability, negligence or otherwise.
14. INDEMNIFICATION
(a) Lessee hereby agrees to indemnify Lessor, its agents, employees, successors
and assigns (on an after tax basis) from and against any and all losses,
damages, penalties, injuries, claims, actions and suits, including legal
expenses, of whatsoever kind and nature arising out of or relating to the
Equipment or this Agreement, except to the extent the losses, damages,
penalties, injuries, claims, actions, suits or expenses result from Lessor's
gross negligence or willful misconduct ("Claims"). This indemnity shall include,
but is not limited to, Lessor's strict liability in tort and Claims, arising out
of (i) the selection, manufacture, purchase, acceptance or rejection of
Equipment, the ownership of Equipment during the term of this Agreement, and the
delivery, lease, possession, maintenance, uses, condition, return or operation
of Equipment (including, without limitation, latent and other defects, whether
or not discoverable by Lessor or Lessee and any claim for patent, trademark or
copyright infringement or environmental damage) or (ii) the condition of
Equipment sold or disposed of after use by Lessee, any sublessee or employees of
Lessee. Lessee shall, upon request, defend any actions based on, or arising out
of, any of the foregoing.
(b) Lessee hereby represents, warrants and covenants that (i) on the Lease
Commencement Date for any unit of Equipment, such unit will qualify for all of
the items of deduction and credit specified in Section C of the applicable
Schedule ("TAX BENEFITS")
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<PAGE> 6
in the hands of Lessor, and (ii) at no time during the term of this Agreement
will Lessee take or omit to take, nor will it permit any sublessee or assignee
to take or omit to take, any action (whether or not such act or omission is
otherwise permitted by Lessor or by this Agreement), which will result in the
disqualification of any Equipment for, or recapture of, all or any portion of
such Tax Benefits.
(c) If as a result of a breach of any representation, warranty or covenant of
the Lessee contained in this Agreement or any Schedule (1) tax counsel of Lessor
shall determine that Lessor is not entitled to claim on its Federal income tax
return all or any portion of the Tax Benefits with respect to any Equipment, or
(2) any Tax Benefit claimed on the Federal income tax return of Lessor is
disallowed or adjusted by the Internal Revenue Service, or (3) any Tax Benefit
is recalculated or recaptured (any determination, disallowance, adjustment,
recalculation or recapture being a "LOSS"), then Lessee shall pay to Lessor, as
an indemnity and as additional rent, an amount that shall, in the reasonable
opinion of Lessor, cause Lessor's after-tax economic yields and cash flows to
equal the Net Economic Return that would have been realized by Lessor if such
Loss had not occurred. Such amount shall be payable upon demand accompanied by a
statement describing in reasonable detail such Loss and the computation of such
amount. The economic yields and cash flows shall be computed on the same
assumptions, including tax rates as were used by Lessor in originally evaluating
the transaction ("NET ECONOMIC RETURN"). If an adjustment has been made under
Section 3 then the Effective Rate used in the next preceding adjustment shall be
substituted.
(d) All references to Lessor in this Section 14 include Lessor and the
consolidated taxpayer group of which Lessor is a member. All of Lessor's rights,
privileges and indemnities contained in this Section 14 shall survive the
expiration or other termination of this Agreement. The rights, privileges and
indemnities contained herein are expressly made for the benefit of, and shall be
enforceable by Lessor, its successors and assigns.
15. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT
ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS
NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE
EQUIPMENT LEASED UNDER THIS AGREEMENT OR ANY COMPONENT THEREOF, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS,
QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE,
USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE.
All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without
limiting the foregoing, Lessor shall have no responsibility or liability to
Lessee or any other person with respect to any of the following (1) any
liability, loss or damage caused or alleged to be caused directly or indirectly
by any Equipment, any inadequacy thereof, any deficiency or defect (latent or
otherwise) of the Equipment, or any other circumstance in connection with the
Equipment; (2) the use, operation or performance of any Equipment or any risks
relating to it; (3) any interruption of service, loss of business or anticipated
profits or consequential damages; or (4) the delivery, operation, servicing,
maintenance, repair, improvement or replacement of any Equipment. If, and so
long as, no default exists under this Lease, Lessee shall be, and hereby is,
authorized during the term of this Lease to assert and enforce whatever claims
and rights Lessor may have against any Supplier of the Equipment at Lessee's
sole cost and expense, in the name of and for the account of Lessor and/or
Lessee, as their interests may appear.
16. REPRESENTATIONS AND WARRANTIES OF LESSEE Lessee makes each of the following
representations and warranties to Lessor on the date hereof and on the date of
execution of each Schedule.
(a) Lessee has adequate power and capacity to enter into, and perform under,
this Agreement and all related documents (together, the "DOCUMENTS"). Lessee is
duly qualified to do business wherever necessary to carry on its present
business and operations, including the jurisdiction(s) where the Equipment is or
is to be located.
(b) The Documents have been duly authorized, executed and delivered by Lessee
and constitute valid, legal and binding agreements, enforceable in accordance
with their terms, except to the extent that the enforcement of remedies may be
limited under applicable bankruptcy and insolvency laws.
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<PAGE> 7
(c) No approval, consent or withholding of objections is required from any
governmental authority or entity with respect to the entry into or performance
by Lessee of the Documents except such as have already been obtained.
(d) The entry into and performance by Lessee of the Documents will not: (i)
violate any judgment, order, law or regulation applicable to Lessee or any
provision of Lessee's Certificate of Incorporation or bylaws; or (ii) result in
any breach of, constitute a default under or result in the creation of any lien,
charge, security interest or other encumbrance upon any Equipment pursuant to
any indenture, mortgage, deed of trust, bank loan or credit agreement or other
instrument (other than this Agreement) to which Lessee is a party.
(e) There are no suits or proceedings pending or threatened in court or before
any commission, board or other administrative agency against or affecting
Lessee, which if decided against Lessee will have a material adverse effect on
the ability of Lessee to fulfill its obligations under this Agreement.
(f) The Equipment accepted under any Certificate of Acceptance is and will
remain tangible personal property.
(g) Each financial statement delivered to Lessor has been prepared in accordance
with generally accepted accounting principles consistently applied. Since the
date of the most recent financial statement, there has been no material adverse
change.
(h) Lessee is and will be at all times validly existing and in good standing
under the laws of the State of its incorporation (specified in the first
sentence of this Agreement).
(i) The Equipment will at all times be used for commercial or business purposes.
17. EARLY TERMINATION
(a) On or after the First Termination Date (specified in the applicable
Schedule), Lessee may, so long as no default exists hereunder, terminate this
Agreement as to all (but not less than all) of the Equipment on such Schedule as
of a rent payment date ("TERMINATION DATE"). Lessee must give Lessor at least
ninety (90) days prior written notice of the termination.
(b) Lessee shall, and Lessor may, solicit cash bids for the Equipment on an AS
IS, WHERE IS BASIS without recourse to or warranty from Lessor, express or
implied ("AS IS BASIS"). Prior to the Termination Date, Lessee shall (i) certify
to Lessor any bids received by Lessee and (ii) pay to Lessor (A) the Termination
Value (calculated as of the rent due on the Termination Date) for the Equipment,
and (B) all rent and other sums due and unpaid as of the Termination Date.
(c) If all amounts due hereunder have been paid on the Termination Date, Lessor
shall (i) sell the Equipment on an AS IS BASIS for cash to the highest bidder
and (ii) refund the proceeds of such sale (net of any related expenses) to
Lessee up to the amount of the Termination Value. If such sale is not
consummated, no termination shall occur and Lessor shall refund the Termination
Value (less any expenses incurred by Lessor) to Lessee.
(d) Notwithstanding the foregoing, Lessor may elect by written notice, at any
time prior to the Termination Date, not to sell the Equipment. In that event, on
the Termination Date Lessee shall (i) return the Equipment (in accordance with
Section 10) and (ii) pay to Lessor all amounts required under Section 17(b) less
the amount of the highest bid certified by Lessee to Lessor.
18. PURCHASE OPTION
(a) Lessee may at lease expiration purchase all (but not less than all) of the
Equipment in any Schedule on an AS IS BASIS for cash equal to its then Fair
Market Value (plus all applicable sales taxes). Lessee must notify Lessor of its
intent to purchase the Equipment in writing at least one hundred eighty (180)
days in advance. If Lessee is in default or if the Lease has already been
terminated Lessee may not purchase the Equipment.
-7-
<PAGE> 8
(b) "Fair Market Value" shall mean the price that a willing buyer (who is
neither a lessee in possession nor a used equipment dealer) would pay for the
Equipment in an arm's-length transaction to a willing seller under no compulsion
to sell. In determining the Fair Market Value the Equipment shall be assumed to
be in the condition in which it is required to be maintained and returned under
this Agreement. If the Equipment is installed it shall be valued on an installed
basis. The costs of removal from current location shall not be a deduction from
the value of the Equipment. If Lessor and Lessee are unable to agree on the Fair
Market Value at least one hundred thirty-five (135) days before lease
expiration, Lessor shall appoint an independent appraiser (reasonably acceptable
to Lessee) to determine Fair Market Value. The independent appraiser's
determination shall be final, binding and conclusive. Lessee shall bear all
costs associated with any such appraisal.
(c) Lessee shall be deemed to have waived this option unless it provides Lessor
with written notice of its irrevocable election to exercise the same within
fifteen (15) days after Fair Market Value is told to Lessee.
19. MISCELLANEOUS
(a) LESSEE AND LESSOR UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE
RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE
RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS
TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
(b) The Equipment shall remain Lessor's property unless Lessee purchases the
Equipment from Lessor and until such time Lessee shall only have the right to
use the Equipment as a lessee. Any cancellation or termination by Lessor of this
Agreement, any Schedule, supplement or amendment hereto, or the lease of any
Equipment hereunder shall not release Lessee from any then outstanding
obligations to Lessor hereunder. All Equipment shall at all times remain
personal property of Lessor even though it may be attached to real property. The
Equipment shall not become part of any other property by reason of any
installation in, or attachment to, other real or personal property.
(c) Time is of the essence of this Agreement. Lessor's failure at any time to
require strict performance by Lessee of any of the provisions hereof shall not
waive or diminish Lessor's right at any other time to demand strict compliance
with this Agreement. Lessee agrees, upon Lessor's request, to execute any
instrument necessary or expedient for filing, recording or perfecting the
interest of Lessor. All notices required to be given hereunder shall be deemed
adequately given if sent by registered or certified mail to the addressee at its
address stated herein, or at such other place as such addressee may have
specified in writing. This Agreement and any Schedule and Annexes thereto
constitute the entire agreement of the parties with respect to the subject
matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF
ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED
BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.
(d) If Lessee does not comply with any provision of this Agreement, Lessor shall
have the right, but shall not be obligated, to effect such compliance, in whole
or in part. All reasonable amounts spent and obligations incurred or assumed by
Lessor in effecting such compliance shall constitute additional rent due to
Lessor. Lessee shall pay the additional rent within five days after the date
Lessor sends notice to Lessee requesting payment. Lessor's effecting such
compliance shall not be a waiver of Lessee's default.
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<PAGE> 9
(e) Any rent or other amount not paid to Lessor when due shall bear interest,
from the due date until paid, at the lesser of eighteen percent (18%) per annum
or the maximum rate allowed by law. Any provisions in this Agreement and any
Schedule that are in conflict with any statute, law or applicable rule shall be
deemed omitted, modified or altered to conform thereto.
(f) Adjustment to Capitalized Lessor's Cost. Lessee hereby irrevocably
authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by no more
than ten percent (10%) within each Schedule to account for equipment change
orders, equipment returns, invoicing errors, and similar matters. Lessee
acknowledges and agrees that the rent shall be adjusted as a result of the
change in the Capitalized Lessor's Cost. Lessor shall send Lessee a written
notice stating the final Capitalized Lessor's Cost, if it has changed.
(g) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL
LAWS OF THE STATE OF CONNECTICUT (WITHOUT REGARD TO THE CONFLICT OF LAWS
PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT.
(h) Any cancellation or termination by Lessor, pursuant to the provision of this
Agreement, any Schedule, supplement or amendment hereto, of the lease of any
Equipment hereunder, shall not release Lessee from any then outstanding
obligations to Lessor hereunder.
(i) To the extent that any Schedule would constitute chattel paper, as such term
is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction, no security interest therein may be created through the transfer
or possession of this Agreement in and of itself without the transfer or
possession of the original of a Schedule executed pursuant to this Agreement and
incorporating this Agreement by reference; and no security interest in this
Agreement and a Schedule may be created by the transfer or possession of any
counterpart of the Schedule other than the original thereof, which shall be
identified as the document marked "Original" and all other counterparts shall be
marked "Duplicate".
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION ROADWAY EXPRESS, INC.
By:_________________________________ By:____________________________
Name:_______________________________ Name:__________________________
Title:______________________________ Title:_________________________
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<PAGE> 10
CS/M
(OVER THE ROAD) TRACTOR SCHEDULE
SCHEDULE NO. 001
DATED THIS JULY 24, 1998
TO MASTER LEASE AGREEMENT
DATED AS OF JULY 1,1998
LESSOR & MAILING ADDRESS: LESSEE & MAILING ADDRESS:
GENERAL ELECTRIC CAPITAL CORPORATION ROADWAY EXPRESS, INC.
1787 SENTRY PARKWAY/WEST 1077 GORGE BLVD.
16 SENTRY PARK/WEST, SUITE 200 AKRON, OH 44310
BLUE BELL, PA 19422
Capitalized terms not defined herein shall have the meanings assigned to them in
the Master Lease Agreement identified above ("AGREEMENT"; the Agreement as it
relates to this Schedule, together with this Schedule being collectively
referred to as "LEASE").
A. EQUIPMENT: Subject to the terms and conditions of the Lease, Lessor agrees
to Lease to Lessee the Equipment described below (the "EQUIPMENT").
<TABLE>
<CAPTION>
NUMBER CAPITALIZED
OF UNITS LESSORS COST MANUFACTURER SERIAL NUMBER MODEL AND TYPE OF EQUIPMENT
-------- ------------ ------------ ------------- ---------------------------
<S> <C> <C> <C> <C>
</TABLE>
SEE ATTACHED ANNEX Z
Equipment immediately listed above is located at: 1077 Gorge Blvd., Akron,
SUMMIT County, OH 44310
B. FINANCIAL TERMS (FINANCIAL TERMS ARE DEFINED ON ANNEX Z ATTACHED HERETO AND
FORMING A PART HEREOF)
<TABLE>
<S> <C> <C>
1. Advance Rent (if any): COLUMN A OF ANNEX Z 5. Basic Term Commencement Date: COLUMN F OF ANNEX Z
2. Capitalized Lessor's Cost: COLUMN B OF ANNEX Z 6. Lessee Federal Tax ID No.: 34-0492670
3. Basic Term (No. of Months): 42 Months. 7. Last Delivery Date: JULY 24, 1998
4. Basic Term Lease Rate Factor: COLUMN D OF ANNEX Z 8. Daily Lease Rate Factor: COLUMN E OF ANNEX Z
</TABLE>
9. First Termination Date: THIRTY-SIX (36) months after the Basic Term
Commencement Date.
10. Interim Rent: For the period from and including the Lease Commencement
Date to but not including the Basic Term Commencement Date ("Interim
Period"), Lessee shall pay as rent ("Interim Rent") for each unit of
Equipment, the product of the Daily Lease Rate Factor times the
Capitalized Lessor's Cost of such unit times the number of days in the
Interim Period. Interim Rent shall be due on AUGUST 5, 1998.
11. Basic Term Rent. Commencing on AUGUST 5, 1998 and on the same day of each
month thereafter (each, a "Rent Payment Date") during the Basic Term,
Lessee shall pay as rent ("Basic Term Rent") the product of the Basic
Term Lease Rate Factor times the Capitalized Lessor's Cost of all
Equipment on this Schedule.
C. TAX BENEFITS Depreciation Deductions:
1. Depreciation method is the 200% declining balance method, switching to
straight line method for the 1st taxable year for which using the straight line
method with respect to the adjusted basis as of the beginning of such year will
yield a larger allowance.
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<PAGE> 11
2. Recovery Period: THREE (3) YEARS.
3. Basis: 100% of Capitalized Lessors Cost.
D. PROPERTY TAX
PROPERTY TAX NOT APPLICABLE ON EQUIPMENT LOCATED IN AKRON OH.
Lessor may notify Lessee (and Lessee agrees to follow such notification)
regarding any changes in property tax reporting and payment
responsibilities.
E. ARTICLE 2A NOTICE
IN ACCORDANCE WITH THE REQUIREMENTS OF ARTICLE 2A OF THE UNIFORM
COMMERCIAL CODE AS ADOPTED IN THE APPLICABLE STATE, LESSOR HEREBY MAKES
THE FOLLOWING DISCLOSURES TO LESSEE PRIOR TO EXECUTION OF THE LEASE, (A)
THE PERSON(S) SUPPLYING THE EQUIPMENT IS VOLVO TRUCKS NORTH AMERICA, INC.
(THE "SUPPLIER(S)"), (B) LESSEE IS ENTITLED TO THE PROMISES AND
WARRANTIES, INCLUDING THOSE OF ANY THIRD PARTY, PROVIDED TO THE LESSOR BY
SUPPLIER(S), WHICH IS SUPPLYING THE EQUIPMENT IN CONNECTION WITH OR AS
PART OF THE CONTRACT BY WHICH LESSOR ACQUIRED THE EQUIPMENT AND (C) WITH
RESPECT TO SUCH EQUIPMENT, LESSEE MAY COMMUNICATE WITH SUPPLIER(S) AND
RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF SUCH PROMISES AND
WARRANTIES, INCLUDING ANY DISCLAIMERS AND LIMITATIONS OF THEM OR OF
REMEDIES. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE HEREBY WAIVES
ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE IN ARTICLE 2A AND
ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY
LIMIT OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES UNDER THE DEFAULT AND
REMEDIES SECTION OF THE AGREEMENT.
F. STIPULATED LOSS AND TERMINATION VALUE TABLE*
<TABLE>
<CAPTION>
RENTAL TERMINATION STIPULATED LOSS RENTAL TERMINATION STIPULATED LOSS
NUMBER VALUE % VALUE % NUMBER VALUE % VALUE %
------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
1 103.587 100.000 22 74.285 71.964
2 102.342 99.431 23 72.746 70.455
3 101.079 98.197 24 71.198 68.937
4 99.805 96.952 25 69.640 67.408
5 98.513 95.690 26 68.072 65.870
6 97.203 94.410 27 66.496 64.324
7 95.883 93.120 28 64.909 62.766
8 94.552 91.818 29 63.314 61.200
9 93.204 90.500 30 61.709 59.625
10 91.839 89.164 31 60.094 58.040
11 90.456 87.811 32 58.468 56.443
12 89.056 86.440 33 56.835 54.839
13 87.646 85.059 34 55.195 53.229
14 86.217 83.661 35 53.549 51.613
15 84.772 82.245 36 51.897 49.990
16 83.316 80.818 37 50.233 48.356
17 81.842 79.374 38 48.563 46.715
18 80.351 77.912 39 46.886 45.068
19 78.849 76.440 40 45.198 43.409
20 77.336 74.957 41 43.503 41.744
21 75.815 73.465 42 41.802 40.073
</TABLE>
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<PAGE> 12
*The Stipulated Loss Value or Termination Value for any unit of Equipment
shall be the Capitalized Lessor's Cost of such unit multiplied by the
appropriate percentage derived from the above table. In the event that the
Lease is for any reason extended, then the last percentage figure shown
above shall control throughout any such extended term.
G. MODIFICATIONS AND ADDITIONS FOR THIS SCHEDULE ONLY
For purposes of this Schedule only, Section 8 of the Agreement is amended
as follows:
The phrase "prior to" located after the phrase "as of the rent payment
date" and before the phrase "the Casualty Occurrence" is deleted and the
phrase "succeeding" is substituted in its place.
EQUIPMENT SPECIFIC PROVISIONS
The first sentence of the REPORTS Section subsection (d) of the Lease
shall be deleted in its entirety and the following substituted in its
stead:
For purposes of this Schedule only, the Agreement is amended as follows:
1. Section V shall be amended by adding the following as subsection
(g) thereof:
(g) Lessee shall make available to Lessor, upon Lessor's request,
Lessee's computer mileage tracking reports.
2. Section VI(b) shall be amended to add the following sentence at the
end thereof:
Lessee will allow only qualified, properly-licensed personnel
selected, employed or controlled by Lessee to operate the
Equipment.
3. Section XI(a) shall be amended by adding the following at the end
thereof:
Without limiting the foregoing, upon return, each unit of Equipment
must be clean, in good appearance and in roadworthy condition and,
in order to comply with the requirements of clause (i) hereof,
shall meet all of the following conditions:
(a) Tires: All tires shall be of the same type (not necessarily the
same brand name), tread and design as on the Basic Term
Commencement Date, have an average remaining depth of 10/32 inches
with no tire less than DOT minimum requirements and shall not be
out of round. All front tires shall be original casings with no
cross lugs. Rear tires may be either casings or recapped casings.
(b) Mileage: Average annual mileage for all units shall not exceed
150,000 miles. Should mileage exceed this limit, Lessee agrees to
pay a mileage surcharge of Four Cents ($0.04) per mile, times the
number of units of Equipment redelivered for each excess mile. All
mileage determinations shall be based upon Lessee's computer
tracking reports.
(c) Mechanical Power Train: (i) Lessee shall repair to Lessor's
reasonable satisfaction any Unit of Equipment which has engine
knock, is smoking, is misfiring, has abnormal engine vibration, or
leakage, (ii) there shall be no cracked cylinder heads or engine
blocks, (iii) Excess blow-by, exhaust system leakage or oil
leakage, (iv) the transmission and rear axles shall be capable of
pulling loads to their full rated capacity, (v) there shall be no
transmission, drive axle or wheel hub oil leaks and (vi) there
shall be no slipping or grabbing clutch.
(d) General Condition: With respect to each unit, no glass shall be
broken, or cracked, no upholstery shall have any cut, or burn,
there shall be no physical damage as a result of an accident to
exterior or interior materials that exceeds $250, all decals,
numbers, customer identification, glue and adhesives shall have
been removed from Equipment. Cooling and lubrication systems shall
not be contaminated and there shall be no leaking between systems,
no battery shall have any dead cell, cracked case or be
inoperative, all brake lining shall have an average of 10/32 inches
remaining wear with no brake less than DOT minimum requirements and
no brake drum shall be cracked.
(e) Documents and Records: Upon return of a unit or units of
Equipment, each such unit shall meet applicable ICC requirements,
and, shall have passed applicable DOT inspections and shall have a
current DOT certificate, shall have proof of payment of any
applicable ad valorem tax, shall have all tax receipts including
Federal Highway Use Tax Form 2290 and Schedule I, and shall have a
copy of the vehicle maintenance records, and make such records
available upon Lessor's request.
(f) Inspections:
(i) Not more than 90 days prior to return of Equipment, during
regular working hours, Lessee must make the Equipment available to
Lessor or Lessors agent so walk-around appraisals can be conducted.
(ii) Determination for testing and appraisal with necessary
reconditioning to meet acceptable surrender conditions shall be
done by Lessor (or its agent) and Lessee jointly.
-12-
<PAGE> 13
(g) Redelivery: Units shall be redelivered to WINSTON-SALEM NC,
MEMPHIS TN, CINCINNATI OH, DALLAS TX, ADELANTO CA, ATLANTA GA,
CHICAGO IL, with not more than 60 unit(s) delivered to any one
location.
H. PAYMENT AUTHORIZATION
You are hereby irrevocably authorized and directed to deliver and apply
the proceeds due under this Schedule as follows:
<TABLE>
<CAPTION>
COMPANY NAME ADDRESS AMOUNT
------------ ------- ------
<S> <C> <C>
Volvo Trucks North America, Inc. 7900 National Service Road $3,418,979.00
Greensboro, NC 27402-6115
</TABLE>
This authorization and direction is given pursuant to the same authority
authorizing the above-mentioned financing.
I. MODIFICATIONS AND ADDITIONS FOR ALL SCHEDULES
For the purposes of this Schedule, and for every other Schedule executed
and delivered by Lessee pursuant to the Agreement, including those entered
into by Lessee and Lessor after this date, the Agreement is amended as
follows:
Section III of Master Lease Agreement has been deleted in its entirety.
Except as expressly modified hereby, all terms and provisions of the
Agreement shall remain in full force and effect. This Schedule is not binding or
effective with respect to the Agreement or Equipment until executed on behalf of
Lessor and Lessee by authorized representatives of Lessor and Lessee,
respectively.
-13-
<PAGE> 14
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION ROADWAY EXPRESS, INC.
By:_________________________________ By:___________________________________
Name:_______________________________ Name:_________________________________
Title:______________________________ Title:________________________________
ATTEST
By:___________________________________
Name: ________________________________
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROADWAY
EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER
ENDED SEPTEMBER 12, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-12-1998
<CASH> 49,536
<SECURITIES> 0
<RECEIVABLES> 300,251
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 369,862
<PP&E> 1,354,933
<DEPRECIATION> 1,003,815
<TOTAL-ASSETS> 744,294
<CURRENT-LIABILITIES> 331,180
<BONDS> 0
0
0
<COMMON> 206
<OTHER-SE> 241,972
<TOTAL-LIABILITY-AND-EQUITY> 744,294
<SALES> 0
<TOTAL-REVENUES> 1,848,150
<CGS> 0
<TOTAL-COSTS> 1,819,933
<OTHER-EXPENSES> (421)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 28,638
<INCOME-TAX> 12,394
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,244
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.81
</TABLE>
