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UNITED STATES
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, 1999.
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 Identification No)
incorporation or organization)
1077 Gorge Boulevard Akron, OH 44310
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 384-1717
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
----------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations 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 the voting stock held by non-affiliates of the
registrant as of February 26, 2000 Common Stock, $.01 Par Value -- $
186,681,234.
The number of shares outstanding of the issuer's classes of common stock as of
February 26, 2000 Common Stock, $.01 Par Value -- 19,366,077 shares
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Annual Report to Shareholders for the year ended
December 31, 1999, are incorporated by reference into Parts I and II. Certain
portions of the definitive proxy statement relating to the registrant's Annual
Meeting of Shareholders held on March 22, 2000, are incorporated by reference
into Part III.
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PART I
ITEM 1. -- BUSINESS
(a) General development of the business. Roadway Express, Inc. and its
subsidiaries (the "Company" or "Roadway"), a Delaware corporation founded in
1930, provides less-than-truckload ("LTL") freight services on major
city-to-city routes ("lanes") in North America, and on international lanes to
and from North America. On January 2, 1996, Roadway was spun-off from Roadway
Services, Inc. (the "former parent"), which was a holding company formed by
Roadway in 1982. The Company's headquarters are at 1077 Gorge Boulevard, Akron,
Ohio, 44310.
(b) Segment information. The operation of the company is conducted in one
industry segment, the interstate transportation of LTL freight.
(c) Description of the business. Roadway provides transportation of general
commodity freight by motor vehicle, in North America and elsewhere. General
commodity freight includes apparel, appliances, automotive parts, chemicals,
food, furniture, glass, machinery, metal and metal products, non-bulk petroleum
products, rubber, textiles, wood, and miscellaneous manufactured products.
Roadway offers LTL service within Canada and Mexico through its subsidiaries,
and also offers service to and from 66 additional countries worldwide through
offshore agents. The Company serves over one-half million customers in North
America.
Roadway is affected directly by the state of the overall economy, but no single
segment of the economy (e.g., general retail merchandise, automotive, chemical)
accounts for more than 10% of the Company's revenues. Seasonal fluctuations
affect tonnage, revenues and operating results. Normally, the fall of each year
is the Company's busiest shipping period; the months of December and January of
each year are the slowest. Shipment levels, operating costs, and operating
results can also be adversely affected by inclement weather. During 1999, no
single customer accounted for more than 4% of the Company's total revenues, and
the ten largest customers accounted for approximately 16% of the Company's total
revenue.
The LTL business is extremely competitive, resulting in narrow margins.
Roadway's primary competitors in the national LTL market are Yellow Freight
System, Consolidated Freightways Corp., and ABF Freight System. The Company also
competes for LTL freight with other national and international LTL carriers as
well as regional LTL motor carriers, truckload carriers, small package carriers,
private carriage, freight forwarders, railroads and airlines. Based on reported
revenue for 1999, Roadway is one of the largest LTL motor carriers in the United
States. Competition for freight is based primarily upon price and service
(transit time). To maintain and improve market share, the Company offers and
negotiates various discounts. The Company works directly with customers on an
account-by-account basis to find ways to improve efficiencies and contain costs
to improve both customer and carrier profitability.
Deregulation of most of the trucking industry, begun in 1980 and largely
completed by Congress in 1995, has given rise to intense competition. New
entrants, some of which have grown rapidly in regional markets, include some
non-union carriers that may have lower labor costs than the Company.
At year-end 1999, the Company had over 28,000 employees. Approximately 74% of
the Company's employees are represented by various labor unions, primarily the
International Brotherhood of Teamsters (the "Teamsters"). The current National
Master Freight Agreement with the Teamsters expires on March 31, 2003. The
Company believes that its current relations with the Teamsters are satisfactory.
The U.S. Department of Transportation ("DOT"), which retains limited oversight
authority over motor carriers, currently regulates Roadway's operations in
interstate commerce. Federal legislation preempts regulation by the states of
price, routes, and service in intrastate freight transportation. The Company,
like other interstate motor carriers, is subject to certain safety requirements
governing interstate operations prescribed by the DOT. The Company has earned a
"satisfactory" rating (the highest of three grading categories) from the DOT. In
addition, vehicle weight and dimensions remain subject to both Federal and state
regulation. More restrictive limitations on vehicle weight and size, or on
trailer length or configuration, could adversely affect the operating results of
the Company.
At December 31, 1999, the Company owned a total of 8,876 tractors and 24,006
trailers. The Company also operated 1,037 tractors and 10,637 trailers under
long-term leases. The average age of the intercity fleet was eight years for
tractors and seven years for trailers. There is sufficient capacity to meet
normal requirements. Short-term leased equipment is used to meet peak demands.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, positions, and ages of the persons who
serve as Executive Officers of the Company.
<TABLE>
<CAPTION>
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NAME PRESENT POSITIONS AND RECENT BUSINESS EXPERIENCE
- ----------------------------------------------- ----------------------------------------------------------------------
<S> <C>
John D. Bronneck Vice President-Operations since March 1998. Prior to this he served as
Vice President-Northeastern Division from January 1993 to
March 1998. Age 52.
J. Dawson Cunningham Executive Vice President, Chief Financial Officer and Treasurer
since March 1998. Prior to this he served as Vice President-Finance
and Administration, and Treasurer from August 1990 to March 1998.
Age 53.
Louis J. Esposito Vice President-Sales since September 1995. Prior to this he served as
Vice President-Midwest Division from December 1990 through September
1995. Age 57.
John M. Glenn Vice President-General Counsel and Secretary since January 1996.
Previous to employment with the Company he was Vice President and
General Counsel of Roadway Services, Inc. since 1987. Age 68.
James D. Staley President and Chief Operating Officer since March 1998. Prior to
this he served as Vice President-Operations since 1993. Age 50.
Michael W. Wickham Chairman and Chief Executive Officer since March 1998. Prior to this
he served as President and Chief Executive Officer from January 1996 to
March 1998, and as President from July 1990 through December 1995.
Age 53.
- ----------------------------------------------- ----------------------------------------------------------------------
</TABLE>
No family relationships exist between any of the executive officers named above
or between any executive officer and any director of the Company.
ITEM 2. -- PROPERTIES
At December 31, 1999, the Company operated 388 terminal facilities, of which 261
were Company owned and 127 were leased, generally for terms of three years or
less. The number of loading spaces, a measure of freight handling capacity,
totaled 14,191, of which 11,947 were at Company owned facilities and 2,244 were
at leased facilities. Thirty of the owned facilities are major
consolidation/distribution centers that are in strategic locations throughout
the continental United States. These 30 facilities contain 5,457 loading spaces,
ranging in size from 71 to 426 loading spaces, and average 88,000 square feet,
ranging from 31,000 to 220,000 square feet. All significant leased and owned
facilities were being utilized at year-end 1999, and are adequate to meet
current needs.
The Company owns its main headquarters offices of approximately 259,000 square
feet, situated on 39.7 acres of which 14.7 are owned, and 25 leased under a
long-term contract expiring in 2009, but renewable to 2084. Approximately
148,000 square feet of office space for certain headquarters department
functions are leased at other locations.
ITEM 3. -- LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the ordinary course of
its business. In the opinion of the management of the Company, the outcome of
these matters will not have a material adverse effect on the Company's financial
condition or results of operations.
The Company's former parent is currently under examination by the Internal
Revenue Service for tax years 1994 and 1995, years prior to the spin-off of the
Company. The IRS has proposed substantial adjustments for these tax years
2
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for multiemployer pension plan deductions. The IRS is challenging the timing,
not the validity of these deductions. The Company is unable to predict the
ultimate outcome of this matter, however, its former parent intends to
vigorously contest these proposed adjustments.
Under a tax sharing agreement entered into by the Company and its former parent
at the time of the spin-off, the Company is obligated to reimburse the former
parent for any additional taxes and interest which relate to the Company's
business prior to the spin-off. The amount and timing of such payments, if any,
is dependent on the ultimate resolution of the former parent's disputes with the
IRS and the determination of the nature and extent of the obligations under the
tax sharing agreement. The Company has established certain reserves with respect
to these proposed adjustments. There can be no assurance, however, that the
amount or timing of any liability of the Company to the former parent will not
have a material adverse effect on the Company's results of operations and
financial position.
ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information under the caption "Common stock" in the table headed "Selected
Quarterly Financial Data" on page 29 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1999, filed with this Form 10-K as
page 25 of Exhibit 13, is incorporated herein by reference.
ITEM 6. -- SELECTED FINANCIAL DATA
The information in the table headed "Historical Data" for the years 1999, 1998,
1997, 1996, and 1995 on pages 30 and 31 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1999, filed with this Form 10-K as
page 26 of Exhibit 13, is incorporated herein by reference.
ITEM 7. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 14 through 17 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1999, filed with this Form 10-K as
pages 1 through 5 of Exhibit 13, is incorporated herein by reference.
While most of the foregoing information is historical, some of the comments made
are forward-looking statements. The Company's actual performance may differ from
that forecast as a result of variable factors such as the state of the national
economy, capacity and rate levels in the motor freight industry, and success of
the Company's operating plans.
ITEM 7A. -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold any market risk sensitive instruments for trading
purposes. The Company's primary market risks include fluctuations in interest
rates, currency exchange rates, and fuel prices.
The disclosure regarding interest rate fluctuations is included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
Page 17 of the registrants Annual Report to Shareholders for the year ended
December 31, 1999, filed with this Form 10-K as page 5 of Exhibit 13, and is
incorporated herein by reference.
Roadway may incur economic losses due to adverse changes in foreign currency
exchange rates, primarily with fluctuations in the Canadian dollar and Mexican
peso. A 10% adverse change in foreign currency exchange rates would have less
than $2 million impact on future cash flows of the Company.
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Increasing fuel prices are mitigated with a variable rate fuel surcharge,
assessed by Roadway when the national average price of diesel fuel exceeds $1.10
per gallon. This surcharge was reinstated on July 6, 1999 at the rate of 0.5% of
revenue, and increased to 1.5% of revenue by the end of 1999. With the dramatic
increase in fuel prices in 2000, the surcharge has increased to 4.0% on LTL
shipments and 6.0% on truckload shipments as of February 26, 2000.
ITEM 8. -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, notes to consolidated financial
statements, and report of independent auditors on pages 18 through 28 of the
registrant's Annual Report to Shareholders for the year ended December 31, 1999,
filed with this Form 10-K as pages 6 through 24 of Exhibit 13, are incorporated
herein by reference.
The summary of quarterly results of operations on page 29 of the registrant's
Annual Report to Shareholders for the year ended December 31, 1999, filed with
this Form 10-K as page 25 of Exhibit 13, is incorporated herein by reference.
See list of financial statements under Item 14 (a) 1.
ITEM 9. -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required concerning the directors is set forth under the caption
"Election of Directors" on page 2 of the definitive proxy statement (the
"Proxy") relating to the registrant's Annual Meeting of Shareholders held on
March 22, 2000, and is incorporated herein by reference.
The information required concerning the executive officers is set forth under
the caption "Executive Officers of the Registrant" in Item 1 of this document,
and is incorporated herein by reference.
ITEM 11. -- EXECUTIVE COMPENSATION.
The information required concerning director compensation is set forth under the
caption "Director Compensation" on page 3 of the Proxy, and is incorporated
herein by reference.
The information required concerning executive compensation is set forth under
the caption "Compensation of Executive Officers" on pages 6 through 9 of the
Proxy, and is incorporated herein by reference.
ITEM 12. -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required concerning security ownership of certain beneficial
owners and management is set forth under the caption "Beneficial Ownership of
Common Stock" on pages 4 and 5 of the Proxy, and is incorporated herein by
reference.
ITEM 13. -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
4
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PART IV
ITEM 14. -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. List of financial statements contained in Roadway's Annual Report to
Shareholders for the year ended December 31, 1999, and filed as Exhibit
13 to this Form 10-K:
<TABLE>
<CAPTION>
Annual
Report Exhibit 13
page(s) page(s)
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<S> <C> <C>
Consolidated balance sheets at December 31, 1999 and 1998 18 6
Statements of consolidated income
for the years ended December 31, 1999, 1998, and 1997 19 7
Statements of consolidated shareholders' equity
for the years ended December 31, 1999, 1998, and 1997 20 8
Statements of consolidated cash flows
for the years ended December 31, 1999, 1998, and 1997 21 9
Notes to consolidated financial statements 22-28 10-23
Report of independent auditors dated January 21, 2000 28 24
Selected quarterly financial data for 1999 and 1998 29 25
</TABLE>
(a) 2. The following financial statement schedule is included on page 9 of this
Form 10-K:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because of the absence of the conditions under
which they are required or because information called for is shown in the
financial statements and notes thereto in the 1999 Annual Report to
Shareholders.
(a) 3. Exhibit Index
Exhibit No.
- -----------
3.1 Second Restated Certificate of Incorporation of Roadway Express,
Inc. Adopted by Board of Directors' Resolution dated December 15,
1995 by unanimous written consent of the directors, and adopted by
written consent of the sole shareholder on December 22, 1995.
(filed as Exhibit 3.1 to the registrant's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated herein
by reference).
3.2 Restated Amended By-laws of Roadway Express, Inc. Adopted by Board
of Directors' Resolution dated December 15, 1995 by unanimous
written consent of the directors and adopted by written consent of
the sole shareholder on December 22, 1995. (filed as Exhibit 3.2
to the registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference).
10.2 Tax Matters Agreement between Roadway Services, Inc. and Roadway
Express, Inc. (filed as Exhibit 10.2 to the Registrant's General
Form for Registration of Securities on Form 10 dated November 28,
1995, and incorporated herein by reference).
10.5 Intellectual Property Agreement between Roadway Services, Inc. and
Roadway Express, Inc. (filed as Exhibit 10.5 to the Registrant's
General Form for Registration of Securities on Form 10/A-1 dated
December 11, 1995, and incorporated herein by reference).
10.8 Alternative Dispute Resolution Agreement between Roadway Services,
Inc. and Roadway Express, Inc. (filed as Exhibit 10.8 to the
Registrant's General Form for Registration of Securities on Form
10 dated November 28, 1995, and incorporated herein by reference).
10.9 Director and Officer Indemnification Agreements (filed as Exhibit
10.9 to the Registrant's General Form for Registration of
Securities on Form 10/A-1 dated December 11, 1995, and
incorporated herein by reference).
10.10 * Roadway Express, Inc. Management Incentive Stock Plan (filed as
Exhibit 10.10 to the Registrant's General Form for Registration of
Securities on Form 10 dated November 28, 1995, and incorporated
herein by reference).
5
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ITEM 14. -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) 3. Exhibit Index (continued)
Exhibit No.
- -----------
10.11 * Roadway Express, Inc. Stock Credit Plan (filed as Exhibit 10.11
to the Registrant's General Form for Registration of Securities on
Form 10 dated November 28, 1995, and incorporated herein by
reference).
10.12 * Roadway Express, Inc. Excess Plan (filed as Exhibit 10.12 to the
Registrant's General Form for Registration of Securities on Form
10 dated November 28, 1995, and incorporated herein by reference).
10.13 * Roadway Express, Inc. 401(a)(17) Benefit Plan (filed as Exhibit
10.13 to the Registrant's General Form for Registration of
Securities on Form 10 dated November 28, 1995, and incorporated
herein by reference).
10.14 * Roadway Express, Inc. Administrative Document for Excess Plan
and 401(a)(17) Benefit Plan (filed as Exhibit 10.14 to the
Registrant's General Form for Registration of Securities on Form
10 dated November 28, 1995, and incorporated herein by reference).
10.15 Roadway Express, Inc. 401(k) Stock Savings Plan (filed as Exhibit
4.3 to the Registrant's Registration Statement on Form S-8 dated
December 19, 1995 and incorporated herein by reference).
10.16 * Summary Description of Officers' Incentive Compensation Plan
(filed as Exhibit 10.16 to the registrant's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated herein
by reference).
10.18 Operating lease agreement by and between Roadway Express, Inc. and
ABN AMRO North America, Inc. (filed as Exhibit 10.18 to the
registrant's Quarterly Report on Form 10-Q for the period ended
June 15, 1996, and incorporated herein by reference).
10.21 Schedule of documents not filed which are substantially identical
in all material respects to previously filed documents (filed as
exhibit 10.21 to the registrant's Quarterly Report on Form 10-Q
for the period ended June 20, 1998, and incorporated herein by
reference).
10.22 Operating lease agreement between Roadway Express, Inc. and
General Electric Capital Corporation (filed as exhibit 10.22 to
the registrant's Quarterly Report on Form 10-Q for the period
ended September 12, 1998, and incorporated herein by reference).
10.23* Roadway Express, Inc. Equity Ownership Plan (filed as Exhibit A to
the Registrant's definitive Proxy Statement dated February 20,
1998, and incorporated herein by reference).
10.24* Roadway Express, Inc. Non-employee Directors' Equity and Deferred
Compensation Plan (filed as Exhibit B to the Registrant's
definitive Proxy Statement dated February 20, 1998, and
incorporated herein by reference).
10.25* Roadway Express, Inc. Non-employee Directors' Stock Option Plan
(filed as Exhibit C to the Registrant's definitive Proxy Statement
dated February 20, 1998, and incorporated herein by reference).
10.26 Data Processing and Information Technology Agreement between
Roadway Express, Inc. and Affiliated Computer Services, Inc.
(filed as exhibit 10.26 to the registrant's Annual Report on Form
10-K for the period ended December 31, 1998, and incorporated
herein by reference).
6
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ITEM 14. -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) 3. Exhibit Index (continued)
Exhibit No.
- -----------
10.27 Operating lease agreement between Roadway Express, Inc. and ICX
Corporation (filed as exhibit 10.27 to the registrant's Quarterly
Report on Form 10-Q for the period ended June 19, 1999, and
incorporated herein by reference).
10.28 $25,000,000 Amended and Restated Credit Agreement by and between
Roadway Express, Inc. and The First National Bank of Chicago.
13 Annual Report to Shareholders for the year ended December 31,
1999. Only those portions expressly referenced herein are
incorporated into this Form 10-K. Other portions are not required
and, therefore, are not filed as part of this Form 10-K.
21 List of Subsidiaries.
23 Consent of Independent Auditors.
27 Financial Data Schedule for the year ended December 31, 1999.
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* Designates a compensation plan for Directors or Executive Officers.
(b) Reports on Form 8-K filed in the Fourth Quarter of 1999-- none.
7
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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 March 21, 2000 By /s/ Michael W. Wickham
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Michael W. Wickham, Chairman of the Board
and Chief Executive Officer
Date March 21, 2000 By /s/ J. Dawson Cunningham
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J. Dawson Cunningham, Executive Vice President,
Chief Financial Officer, and Treasurer
Date March 21, 2000 By /s/ John G. Coleman
-------------- -------------------------------------------------
John G. Coleman, Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date March 21, 2000 By /s/ Frank P. Doyle
-------------- -------------------------------------------------
Frank P. Doyle, Director
Date March 21, 2000 By /s/ John F. Fiedler
-------------- -------------------------------------------------
John F. Fiedler, Director
Date March 21, 2000 By /s/ Dale F. Frey
-------------- -------------------------------------------------
Dale F. Frey, Director
Date March 21, 2000 By /s/ Phillip J. Meek
-------------- -------------------------------------------------
Phillip J. Meek, Director
Date March 21, 2000 By /s/ Carl W. Schafer
-------------- -------------------------------------------------
Carl W. Schafer, Director
Date March 21, 2000 By /s/ Sarah Roush Werner
-------------- -------------------------------------------------
Sarah Roush Werner, Director
8
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SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------- --------------- ------------------------------- ---------------- -----------------
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------- --------------- ------------------------------- ---------------- -----------------
Additions
- ----------------------------------- --------------- ---------------- -------------- ---------------- -----------------
Charged to
Balance at Charged to Other
Beginning of Cost and Accounts - Deductions Balance at End
Description Period Expenses Describe -Describe of Period
- ----------------------------------- --------------- ---------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
1999
Allowance for
uncollectible accounts $ 6,331 $ 15,746 - $ 13,849 (1) $ 8,228
Valuation allowance on
deferred tax assets 700 - - - 700
-------- --------- --------- --------
Total $ 7,031 $ 15,746 - $ 13,849 $ 8,928
======== ======== ======== ========
1998
Allowance for
uncollectible accounts $ 4,823 $ 17,557 - $ 16,049 (1) $ 6,331
Valuation allowance on
deferred tax assets 700 - - - 700
-------- --------- --------- --------
Total $ 5,523 $ 17,557 - $ 16,049 $ 7,031
======== ======== ======== ========
1997
Allowance for
uncollectible accounts $ 2,802 $ 13,783 - $ 11,762 (1) $ 4,823
Valuation allowance on
deferred tax assets 5,300 1,500 - 6,100 (2) 700
-------- --------- ---------- --------
Total $ 8,102 $ 15,283 - $ 17,862 $ 5,523
======== ======== ======== ========
- ----------------------------------- --------------- ---------------- -------------- ---------------- -----------------
</TABLE>
(1) Uncollectible amounts written off, net of recoveries.
(2) Valuation allowance decreased due to utilization of foreign tax credits.
9
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EXHIBIT 10.28
AMENDED AND RESTATED CREDIT AGREEMENT
BY AND BETWEEN
ROADWAY EXPRESS, INC.
and
THE FIRST NATIONAL BANK OF CHICAGO
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
DEFINED TERMS.....................................................................................................1
LOANS.............................................................................................................8
2.1 Revolving Credit Loans..................................................................................8
2.1.1 Terms, Note, Borrowings, Repayments and Fee..........................................................8
2.2 Interest Rate Options...................................................................................9
2.2.1 Rate Periods.........................................................................................9
2.2.2 Amounts.............................................................................................10
2.2.3 Interest After Default..............................................................................10
2.2.4 Selection, Conversion or Renewal of Rate Options....................................................10
2.2.5 Renewal.............................................................................................10
2.2.6 Additional Compensation in Certain Circumstances....................................................10
2.2.7 Loan Accounts.......................................................................................12
2.2.8 Notices.............................................................................................12
2.2.9 Money Market Rate, LIBOR Rate Unascertainable;
Impracticability....................................................................................12
2.3 Payments...............................................................................................14
3. INTENTIONALLY LEFT BLANK...................................................................................14
4. INTENTIONALLY LEFT BLANK...................................................................................14
5. INTENTIONALLY LEFT BLANK...................................................................................14
6. INTENTIONALLY LEFT BLANK...................................................................................14
7. INTENTIONALLY LEFT BLANK...................................................................................14
8. INTENTIONALLY LEFT BLANK...................................................................................14
9. INTENTIONALLY LEFT BLANK...................................................................................14
10. LIMITATION OF LIABILITY OF THE BANK; INDEMNIFICATION BY BORROWER...........................................15
11. AFFIRMATIVE COVENANTS......................................................................................15
12. NEGATIVE COVENANTS.........................................................................................19
13. FINANCIAL COVENANTS OF BORROWERS...........................................................................21
14. REPRESENTATIONS AND WARRANTIES.............................................................................21
15. CONDITIONS OF LOANS........................................................................................26
16. DEFAULT....................................................................................................27
17. REMEDIES...................................................................................................29
18. EXPENSES...................................................................................................30
19. WAIVERS....................................................................................................30
20. JURISDICTION...............................................................................................31
21. NON-BUSINESS DAYS..........................................................................................31
22. SUCCESSORS AND ASSIGNS;....................................................................................32
23. GOVERNING LAW..............................................................................................32
24. INTENTIONALLY LEFT BLANK...................................................................................32
25. NOTICE.....................................................................................................32
26. INTEGRATION................................................................................................32
27. AMENDMENT OR WAIVER........................................................................................33
28. SEVERABILITY...............................................................................................33
29. HEADINGS...................................................................................................33
30. COUNTERPARTS...............................................................................................33
</TABLE>
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EXHIBITS
EXHIBIT A - REVOLVING CREDIT NOTE
SCHEDULES
SCHEDULE 8(b) - Location of Offices
SCHEDULE 2.3 (b) - Interest Payment Dates
SCHEDULE 12(b) - Existing Indebtedness
SCHEDULE 14(j) - Pension Matters
SCHEDULE 14(n) - List of Distribution Agreements
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AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement ("AGREEMENT") is made as of
July 30, 1999 by and between ROADWAY EXPRESS, INC., a Delaware corporation (the
"BORROWER") and THE FIRST NATIONAL BANK OF CHICAGO (THE "BANK").
WITNESSETH:
WHEREAS, the Borrower and Bank One, NA ("Bank One") executed and
delivered a Credit Agreement dated as of January 2, 1996 pursuant to which,
inter alia, Bank One agreed to make various loans to the Borrower upon the terms
and conditions set forth therein (the "Original Agreement"); and
WHEREAS, the Borrower and Bank One executed and delivered a First
Amendment to Credit Agreement dated July 15, 1996 (the "First Amendment"), a
Second Amendment to Credit Agreement dated January 7, 1997 (the "Second
Amendment") and an Extension Agreement dated as of July 30, 1998 (the "Extension
Agreement") pursuant to which certain amendments were made to the Original
Agreement (the Original Agreement as amended by the First Amendment, the Second
Amendment and the Extension Agreement is herein referred to as the "Existing
Agreement"); and
WHEREAS, pursuant to an Assignment Agreement dated July 29, 1999
between Bank One and The First National Bank of Chicago ("First Chicago"), Bank
One assigned all of its right, title and interest in and to the Existing
Agreement and the Revolving Credit Note to First Chicago and First Chicago
assumed all of Bank One's rights and obligations as the "Bank" under the
existing Credit Agreement and the Revolving Credit Note; and
WHEREAS, First Chicago and the Borrower desire to amend and restate the
Existing Credit Agreement to, among other things, reflect that First Chicago is
the "Bank" thereunder and extend the "Termination Date" thereunder to July 31,
2000; and
NOW, THEREFORE, in consideration of the premises and covenants
contained herein and intending to be legally bound hereby, the parties hereto
hereby amend and the restate the Existing Agreement in its entirety as follows:
<PAGE> 5
1. DEFINED TERMS.
(a) As used herein, the following terms shall have the following
meanings, unless the context otherwise requires:
"ADVANCE(S)" shall mean one or more distributions of borrowed funds
made by the Bank to the Borrower including, when the context requires, LIBOR
Advances, delivered to and made pursuant to Section 2 hereof and upon compliance
therewith and upon the requests of the Borrower under this Agreement.
"AGREEMENT" shall mean this Amended and Restated Credit Agreement and
all exhibits, schedules, documents and instruments attached hereto or executed
in connection therewith, as any or all of the foregoing may be amended, modified
or supplemented from time to time.
"ALTERNATE BASE RATE" shall mean for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Corporate Base Rate in effect on such day, and (b) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "CORPORATE BASE
RATE" shall mean the rate of interest per annum publicly announced from time to
time by the Bank as its corporate base rate in effect at its principal office in
Chicago, Illinois (the Corporate Base Rate not being intended to be the lowest
rate of interest charged by the Bank in connection with extensions of credit to
debtors). "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for the day of such transactions received by the Bank from
three federal funds brokers of recognized standing selected by it. Any change in
the Alternate Base Rate due to a change in the Corporate Base Rate, or the
Federal Funds Effective Rate shall be effective as of the opening of business on
the effective day of such change in the Corporate Base Rate, or the Federal
Funds Effective Rate, respectively.
"BORROWING DATE" means a date on which a Revolving Credit Loan is made
hereunder.
"BUSINESS DAY" shall mean (i) with respect to any borrowing, payment or
rate selection of LIBOR Loans, a day (other than a Saturday or Sunday) on which
banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
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<PAGE> 6
"CAPITAL LEASE" shall mean all leases which have been or should be
capitalized on the books of the Borrower or any Subsidiary in accordance with
GAAP.
"CASH FLOW COVERAGE RATIO" of the Borrower shall mean, on a
consolidated basis, the ratio of (i) earnings before interest, depreciation and
amortization ("EBIDA") less internally funded Net Capital Expenditures to (ii)
cash payments for debt service and dividends
"CLOSING" shall mean the closing of the transactions provided for in
this Agreement on the Closing Date.
"CLOSING DATE" shall mean July 30, 1999 or such other date upon which
the parties may agree.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute and the rules and regulations promulgated thereunder.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, at any time, and
determined in conformity with GAAP, on a consolidated basis, the stockholders'
equity of the Borrower and each of its Subsidiaries, less all intangible assets
of the Borrower and each of its Subsidiaries including, but not limited to,
organization costs, securities issuance costs, unamortized debt discount and
expense, goodwill, excess of purchase costs over net assets acquired, patents,
trademarks, copyrights, trade secrets, knowhow, licenses, research and
development expenses and any amount reflected as treasury stock.
"DEFAULT" of the Borrower shall mean a default by the Borrower under
the terms of Section 16 of this Agreement.
"DEFINED BENEFIT PLAN" shall mean any single-employer plan as defined
in Section 4001(a)(15) of ERISA and any other employee pension benefit plan as
defined in Section 3(2) of ERISA that is subject to Part 3 of Title I of ERISA
sponsored or maintained by a Plan Employer.
"DISTRIBUTION AGREEMENTS" shall mean, collectively, the Distribution
Agreement by and between the Borrower and Roadway Services, Inc. dated as of
December 29, 1995, and each and every document or agreement executed in
connection therewith or related thereto.
"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, and any successor statute.
"GAAP" shall mean generally accepted accounting principles in the
United States of America, as such accounting principles are generally accepted
by the accounting profession on the date of this Agreement, unless such
principles are inconsistent with the express
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<PAGE> 7
requirements of this Agreement, applied on a consistent basis and applied to
both classification of items and amounts, which shall include but not be limited
to, the official interpretations thereof by the Financial Accounting Standards
Board, its predecessors and successors.
"INDEBTEDNESS" shall mean all obligations for the payment of money and
liabilities of the Borrower to the Bank, of every kind and nature, due or to
become due, direct or contingent, arising under this Agreement and the Loan
Documents, including, without limitation, (a) all Loans made hereunder by the
Bank to or at the request of the Borrower, including all interest and other
charges thereon, (b) all covenants, agreements, liabilities or other obligations
of the Borrower hereunder and under the Loan Documents, and (c) all costs,
expenses, liabilities and obligations, including reasonable attorneys' fees and
expenses, incurred by the Bank in enforcing any or all of the rights of the Bank
against the Borrower under this Agreement and the Loan Documents, in collecting
any or all of the Indebtedness, or in taking any other action permitted under
this Agreement and the Loan Documents with respect to the Borrower.
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreement dated
as of the date hereof between Morgan and the Bank.
"LAW" shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"LIABILITY CLAIMS SETTLEMENT PROGRAM" shall mean a program undertaken
by the Borrower to promptly adjust and settle worker's compensation claims and
personal injury and property damage claims of third parties, which are
outstanding as of January 1, 1996.
"LIBOR INTEREST PERIOD" means with respect to any LIBOR Advance, the
period commencing on the date the Loans are made, and ending, as the Borrower
may select, pursuant to Section 2 hereof, one month, two months or three months
thereafter; PROVIDED that the foregoing provisions are subject to the following:
(a) No interest period may extend beyond the Termination
Date; and
(b) If an interest period would end on a day that is not
a Business Day, such interest period shall be extended to the
next Business Day unless such Business Day would fall in the
next calendar month, in which event such interest period shall
end on the immediately preceding Business Day.
"LIBOR INTEREST RATE" means with respect to a LIBOR Loan for the
relevant LIBOR Interest Period, the rate at which the Bank offers to place
deposits in U.S. dollars with first-class banks in the London interbank market
at approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such LIBOR Interest Period, in the approximate amount
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<PAGE> 8
of the Bank's portion of the relevant LIBOR Loan and having a maturity
approximately equal to such LIBOR Interest Period.
"LIBOR LINE RATE" means with respect to a LIBOR Loan for the relevant
LIBOR Interest Period, the sum of (i) the quotient of (a) the LIBOR Base Rate
applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(ii) .25% per annum. The LIBOR Rate shall be rounded to the next higher multiple
of 1/16 of 1% if the rate is not such a multiple.
"LIBOR PORTION" means any Revolving Credit Loan when and to the extent
that the interest rate therefor is determined by reference to the LIBOR Interest
Rate, which Advance shall be for not less than Five Hundred Thousand Dollars
($500,000.00) for the LIBOR Interest Period selected by the Borrower.
"LIBOR LOAN" means any Revolving Credit Loan that bears interest at a
LIBOR Interest Rate.
"LOAN DOCUMENTS" mean this Agreement, the Revolving Credit Note and any
other documents or agreements at any time executed in connection therewith.
"LOAN OR LOANS" shall mean, as the context may require, any one or more
of the Revolving Credit Loans.
"MANAGEMENT'S STOCK INCENTIVE PLAN" shall mean the Roadway Express Inc.
Management Incentive Stock Plan, effective January 1, 1996, as amended or
otherwise modified from time to time in such respects as are not adverse to the
Bank in its sole discretion.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the business, operations, property or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this Agreement, the Revolving Credit Note or any other
document or agreement executed in connection herewith or relating hereto or the
rights or remedies of the Bank hereunder or thereunder.
"MONEY MARKET INTEREST PERIOD" means with respect to any Money Market
Advance, the period commencing on the date the Loans are made, and ending, as
the Borrower may select, pursuant to Section 2 hereof on a date no later than
twenty-nine (29) days thereafter or otherwise as determined by the Bank;
PROVIDED that the foregoing provisions are subject to the following:
(a) No interest period may extend beyond the
Termination Date; and
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<PAGE> 9
(b) If an interest period would end on a day
that is not a Business Day, such interest period
shall be extended to the next Business Day unless
such Business Day would fall in the next calendar
month, in which event such interest period shall end
on the immediately preceding Business Day.
"MONEY MARKET INTEREST RATE" shall be such rate as determined by the
Bank from time to time in its sole discretion.
"MONEY MARKET LOAN" means any Revolving Credit Loan that bears interest
at a Money Market Interest Rate.
"MONEY MARKET PORTION" means any of the Loans when and to the extent
that the interest rate therefor is determined by reference to the Money Market
Interest Rate, which Advance shall be for not less than Five Hundred Thousand
Dollars ($500,000.00) for the Money Market Interest Period selected by the
Borrower.
"MORGAN" shall mean Morgan Guaranty Trust Company of New York, and its
successors and assigns.
"MORGAN CREDIT AGREEMENT" shall mean the Credit Agreement dated as of
July 15, 1996, between the Borrower and Morgan, and all exhibits, schedules,
documents and instruments attached thereto or executed in connection therewith
as any or all of the foregoing may be amended, modified or supplemented from
time to time, and any replacements or substitutions therefor.
"MULTIEMPLOYER PLAN" shall mean any multiemployer plan as defined in
Section 4001(a) (3) of ERISA.
"NET CAPITAL EXPENDITUREs" shall mean for any year or portion thereof
and as determined on a consolidated basis, (i) all expenditures during such year
or portion thereof for any fixed assets or improvements, or for replacement or
substitutions therefor or additions thereto, that have a useful life of more
than one (1) year plus (ii) the purchase price of assets acquired in connection
with any Capital Lease entered into during such year or portion thereof, less
(iii) cash from sales of carrier operating property.
"OFFICE" when used in connection with the Bank shall mean its
designated office located at One First National Plaza, Chicago, Illinois 60670
or such other office or offices as the Bank may designate from time to time.
"OFFICIAL BODY" shall mean any government or political subdivision or
any agency, authority, bureau, central bank, commission, department or
instrumentality of either or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
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<PAGE> 10
"OPTION" shall mean one of the interest rate options described in
Section 2.2 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under Title IV of ERISA or any successor to the PBGC.
"PERSON" shall mean a person as defined under Section 3(9) of ERISA.
"PLAN EMPLOYER" shall mean the Borrower and any and all corporations,
trades and/or businesses, the employees of which together with employees of the
Borrower are required by a relevant provision of Section 414 of the Code or
Section 4001(b) of ERISA to be treated as if they were employed by a single
employer. Each corporation or unincorporated trade or business that is or was at
any time a member of the Plan Employer shall be a Plan Employer, but only during
the period it is or was such a member.
"PLAN OR PLANS" shall mean any employee pension benefit plan as defined
in Section 3(2) of ERISA that is subject to Title IV of ERISA pursuant to
Section 4021 of ERISA or to Part 3 of Title I of ERISA and is or was
established, sponsored, maintained or contributed to at any time or from time to
time by or for a Plan Employer for its employees, including a single-employer
plan as defined in Section 4001(a)(15) of ERISA and a multiemployer plan defined
in Section 4001(a)(3) of ERISA.
"PROHIBITED TRANSACTION" shall mean a transaction which is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Sections 407 or 408 of ERISA.
"RATE SEGMENT" of the Money Market Portion or LIBOR Portion at any time
shall be the entire principal amount of such Portion to which at such time there
is applicable a particular Rate Period beginning on a particular day and ending
on another particular day. (By definition, each Portion is at all times composed
of an integral number of discrete Rate Segments, each corresponding to a
particular Rate Period, and the sum of the principal amounts of all Rate
Segments of a particular portion at any time equals the principal amount of such
Portion at such time.)
"RELATED DOCUMENTS" shall have the meaning set forth in Section 15(a)
hereof.
"RESERVE REQUIREMENT" means, with respect to a LIBOR Interest Period,
the maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D of the Board of
Governors of the Federal Reserve System on Eurocurrency liabilities.
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<PAGE> 11
"RESPONSIBLE OFFICER" of the Borrower shall mean the president and the
chief financial officer of the Borrower.
"REPORTABLE EVENT" shall mean any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, except for any such event as to
which the provision for 30 days' notice to the PBGC is waived under applicable
regulations.
"REVOLVING CREDIT COMMITMENT" shall mean, at any time, the Bank's
revolving credit commitment hereunder as set forth in Section 2.1(a) hereof.
"REVOLVING CREDIT LOAN" or "LOANS" shall mean the Revolving Credit Loan
or Loans made by the Bank to Borrower from time to time pursuant to Section 2.1
hereof.
"REVOLVING CREDIT NOTE" shall have the meaning ascribed to that term in
Section 2.l.l(a).
"SUBSIDIARY" shall mean any corporation a majority of the voting stock
of which at the time outstanding is owned by Borrower directly or indirectly
through Subsidiaries.
"TERMINATION DATE" shall be July 31, 2000, unless such date is extended
by the Bank in its sole discretion at the request of the Borrower.
"TERMINATION EVENT" shall mean (i) a Reportable Event, (ii) a distress
termination of a Defined Benefit Plan, or the treatment of a Defined Benefit
Plan amendment as a distress termination of such Plan under Section 4041 of
ERISA, or the filing of a notice of intent to terminate a Defined Benefit Plan
as a distress termination under Section 4041 of ERISA, or (iii) the institution
of proceedings to terminate a single employer Plan by the PBGC under Section
4042 of ERISA.
"WELFARE BENEFIT PLAN" means a plan providing health, welfare or other
benefits as defined in Section 3(1) of ERISA sponsored by a Plan Employer.
(b) Each accounting term not specifically defined in this Agreement shall
have the meaning given to it under GAAP. All terms not otherwise defined herein
which are defined in Article 9 of the Uniform Commercial Code (the "UCC") shall
have the meanings herein as therein defined.
(c) The words hereof, herein and hereunder and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, unless the context requires otherwise.
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<PAGE> 12
2. LOANS.
-----
2.1 REVOLVING CREDIT LOANS.
----------------------
(a) Subject to the terms and conditions hereof, and relying upon the
representations and warranties of the Borrower herein set forth, the Bank agrees
(such agreement being called the "REVOLVING CREDIT COMMITMENT") to, and shall be
obligated to, make loans to Borrower on any Business Day, at any time or from
time to time prior to the Termination Date, in an aggregate principal amount not
exceeding at any one time outstanding Twenty-Five Million Dollars
($25,000,000.00).
2.1.1 TERMS, NOTE, BORROWINGS, REPAYMENTS AND FEE.
-------------------------------------------
(a) REVOLVING CREDIT NOTE. On the Closing Date, Borrower shall execute
a promissory note (the "REVOLVING CREDIT NOTE") substantially in the form of
EXHIBIT A to this Agreement. Although the Revolving Credit Note shall be in the
aggregate principal amount of Twenty-Five Million Dollars ($25,000,000.00), the
Revolving Credit Note shall be enforceable only to the extent of (i) the
outstanding actual amount of the Revolving Credit Loans and (ii) the accrued
unpaid interest on such Revolving Credit Loans from the time such Revolving
Credit Loans are made.
(b) MAKING OF REVOLVING CREDIT LOANS. Borrower shall provide to the
Bank, at its Office, irrevocable notice not later than 11:00 a.m. (Chicago time)
on the Borrowing Date of any Money Market Loan and three Business Days before
the Borrowing Date for each LIBOR Loan specifying (i) the date (which shall be a
Business Day) on which the Revolving Credit Loan is to be made; (ii) the
principal amount of the Revolving Credit Loan which shall be the sum of the
principal amounts selected pursuant to Subsection (c) of this Section 2.1.1; and
(iii) the interest rate Option or Options selected in accordance with the
provision of Section 2.2 and the principal amount of Portions selected in
accordance with Section 2.2 hereof and, in the case of a Money Market Portion or
LIBOR Portion, the Money Market Interest Period, or LIBOR Interest Period as the
case may be.
Each notice of Borrowing shall be irrevocable, given by a Responsible
Officer, Art Zullo, Mary Kavanshansky or Greg Greenfelder and shall be sent to
the Bank by telephone (which shall be effective when telephoned) and may be
confirmed by Borrower, at the Bank's request, by first class mail, by hand
delivery, or first class express mail (which shall be effective when received),
in all cases with charges prepaid. On the Borrowing Date, the Bank shall make
the proceeds of the Revolving Credit Loan available at its office, no later than
3:00 p.m., Chicago time, in immediately available funds, and upon fulfillment of
all applicable conditions set forth herein, Bank shall pay or deliver the
proceeds of the borrowing to or upon the order of Borrower.
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<PAGE> 13
(c) REVOLVING NATURE OF LOANS. Until the Termination Date, and subject
to the limitations herein set forth, Borrower may borrow and reborrow and repay
funds under the Revolving Credit Note; PROVIDED, HOWEVER, that at no time shall
the aggregate unpaid principal balance outstanding under the Revolving Credit
Note exceed Twenty-Five Million Dollars ($25,000,000.00). Each borrowing shall
be in a minimum amount of Five Hundred Thousand Dollars ($500,000.00) and each
repayment shall be made to the Bank.
(d) USE OF PROCEEDS. The proceeds of the Revolving Credit Loans shall
be used by Borrower (i) for working capital and general corporate purposes, (ii)
to fund the Management's Stock Incentive Plan, and (iii) to fund the Liability
Claims Settlement Program.
(e) FACILITY FEE. Borrower agrees to pay the Bank on a monthly basis,
in arrears, a facility fee in the aggregate amount of Two Thousand Eighty-Three
and 33/100 Dollars ($2,083.33), commencing on the date hereof and on the first
day of each calendar month thereafter during the term of this Agreement. Any
change in the Revolving Credit Commitment shall automatically change the amount
of the monthly facility fee payable by Borrower hereunder.
2.2 INTEREST RATE OPTIONS. The unpaid principal amount of the Loans
shall bear interest for each day until due on one or more bases selected by the
Borrower from among the interest rate Options set forth below. The Borrower
understands and agrees that subject to the provisions hereof, the Borrower may
select any number of Options to apply simultaneously to different parts of the
unpaid principal amount of the Loans made to the Borrower and may select any
number of Rate Segments to apply simultaneously to different parts of the Money
Market Portion or the LIBOR Portion.
(a) AVAILABLE INTEREST RATE OPTIONS
-------------------------------
(i) LIBOR OPTION: With respect to the Revolving Credit
Loan for each Rate Segment of the LIBOR Portion, a rate per
annum (computed on the basis of a year of 360 days and actual
days elapsed) for each day equal to the LIBOR Line Rate.
(ii) MONEY MARKET OPTION: With respect to the Revolving
Credit Loans for each Rate Segment of the Money Market
Portion, a rate per annum (computed on the basis of a year of
360 days and actual days elapsed) for each day equal to the
Money Market Interest Rate for such Rate Segment for such day.
2.2.1 RATE PERIODS. At any time when the Borrower selects, converts to
or renews the LIBOR Option or the Money Market Option, then Borrower shall fix a
period (the "RATE PERIOD") (which, in the case of the LIBOR Option, shall be a
one, two or three month period, and in the case of Money Market Options, shall
be twenty-nine (29) days or less), which shall be acceptable to the Bank in the
Bank's sole discretion, during which the LIBOR Option or the
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<PAGE> 14
Money Market Option shall apply to the corresponding Rate Segment. In no event,
however, shall the Borrower select a Rate Period that extends beyond the
maturity date of the Loan with respect to which the interest rate Option is
being selected. The Bank's right to payment of principal and interest under the
Loans and the Revolving Credit Note shall in no way be affected by the fact that
one or more Rate Periods may be in effect.
2.2.2 AMOUNTS. Every selection of, conversion to or renewal of the
LIBOR Option or the Money Market Option shall be in a principal amount of Five
Hundred Thousand Dollars ($500,000.00) or an integral multiple thereof, which
amount shall be selected by the Borrower and acceptable to the Bank in the
Bank's sole discretion.
2.2.3 INTEREST AFTER DEFAULT. After the occurrence of a Default, the
Money Market Portion and the LIBOR Portion shall bear interest for each day
until paid (before and after judgment) until the end of the applicable
then-current Rate Period at a rate per annum equal to three hundred (300) basis
points above the then current rate of the Money Market Option or LIBOR Option,
as the case may be, on Revolving Credit Loans.
2.2.4 SELECTION, CONVERSION OR RENEWAL OF RATE OPTIONS. Subject to
the other provisions of Section 2.1.1., the Borrower may select any interest
rate Option to apply to the Loans. Subject to the other provisions of this
Section 2, the Borrower may convert any part of the unpaid principal amount of
the Loans from any interest rate Option to any other interest rate Option and
may renew the Money Market Option or LIBOR Option as to any Rate Segment at the
expiration of any Rate Period with respect to conversion from or renewals of the
Money Market Option or LIBOR Option, as the case may be, as to the Rate Segment
corresponding to such expiring Rate Period. Whenever the Borrower desires to
convert or renew the Money Market Option or LIBOR Option, the Borrower shall
give the Bank notice thereof (which shall be irrevocable) not later than 11:00
a.m. (Chicago time) on the effective conversion or renewal date for each Money
Market Loan and three Business Days before the effective conversion or renewal
date for each LIBOR Loan, specifying the effective date, amount and type of the
proposed new rate Option, and applicable interest period. If such notice has
been duly given, on and after the effective date specified in such notice,
interest shall be calculated upon the unpaid principal amount of the Loan or
Loans in question taking into account such conversion or renewal. Each notice
shall be irrevocable, given by a Responsible Officer, Art Zullo, Mary
Kavanshansky or Greg Greenfelder and shall be sent to the Bank by telephone
(which shall be effective when telephoned) and may be confirmed by Borrower, at
the Bank's request, by first class mail, by hand delivery, or first class
express mail (which shall be effective when received), in all cases with charges
prepaid.
2.2.5 RENEWAL. If any Rate Period expires, any part of the Rate
Segment corresponding to such Rate Period which has not been converted or
renewed in accordance with Section 2.2.4 hereof automatically shall be converted
to a Money Market Advance.
2.2.6 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
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<PAGE> 15
(a) COMPENSATION FOR TAXES, RESERVES AND EXPENSES ON OUTSTANDING LOANS.
If any Law or guideline or interpretation or application thereof by any Official
Body charged with the interpretation or administration thereof or compliance
with any request or directive of any Official Body (whether or not having the
force of law):
(i) subjects the Bank to
any tax or changes the basis of taxation
with respect to this Agreement, the
Revolving Credit Note, the Loans or payments
by the Borrower of principal, interest,
facility fees or other amounts due from the
Borrower hereunder or under the Revolving
Credit Note (except for taxes on the overall
net income of the Bank, imposed by the
jurisdiction in which the principal office
of the of the Bank is located);
(ii) imposes, modifies or
deems applicable any reserve, special
deposit or similar requirement against
credits or commitments to extend credit by,
or assets (funded or contingent) of,
deposits with or for the account of, or
other acquisition of funds by, the Bank; or
(iii) imposes, modifies or
deems applicable any capital adequacy or
similar requirement (A) against assets
(funded or contingent) of, deposits with or
for the account of, other acquisitions of
funds by, the Bank, or (B) otherwise
applicable to the obligations of the Bank;
or
(iv) imposes upon the Bank
any other condition or expense with respect
to this Agreement, the Revolving Credit Note
or its making, maintenance or funding of any
part of the Loans or any security therefor,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon the
Bank with respect to this Agreement, the Revolving Credit Note or the making,
maintenance or funding of any part of the Loans by an amount which the Bank
deems to be material, the Bank shall from time to time notify the Borrower of
the amount determined in good faith (using any averaging and attribution
methods) by the Bank (which determination shall be conclusive) to be necessary
to compensate the Bank for such increase in cost, reduction in income or
additional expense. Such amount shall be due and payable by the Borrower to the
Bank ten (10) Business Days after such notice is given.
(b) INDEMNITY. The Borrower shall indemnify the Bank against any loss
or expense (including loss of margin) which the Bank has sustained or incurred
as a consequence of any payment, prepayment or conversion of any part of any
Rate Segment of the Money Market Portion or LIBOR Portion on a day other than
the last day of the corresponding Rate Period or
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<PAGE> 16
(whether or not any such payment is made before or after Default or pursuant to
demand or acceleration by the Bank of the Loans following occurrence of a
Default, and whether or not any such payment, prepayment or conversion is
consented to by the Bank, unless the Bank shall have expressly waved such
indemnity in writing).
If the Bank sustains any such loss or expense, the Bank shall from time
to time notify the Borrower of the amount determined in good faith by the Bank
(which determination shall be conclusive) to be necessary to indemnify the Bank
for such loss or expense. Together with such notice, the Bank shall furnish the
Borrower a certificate as to the amount due setting forth in reasonable detail
the reason for and the method of calculating such loss or expense, such
certificate to be conclusive absent manifest error. Such amount shall be due and
payable by the Borrower, on demand.
2.2.7 LOAN ACCOUNTS. Disbursements made, interest due, interest paid,
repayments on the Loans and all other charges billed to or paid by the Borrower
shall be recorded in one or more accounts on the Bank's books designated the
Revolving Credit Loan Account, which account may be by computer listing or other
electronic means and not necessarily by written document (the "LOAN ACCOUNT").
From time to time, upon the Borrower's request, the Bank shall furnish that
Borrower with a copy of that Borrower's Loan Account. The Borrower agrees that
the Loan Account shall be sufficient evidence of the Borrower's obligations to
the Bank incurred hereunder and that none other is necessary. All billing
statements and statements of account rendered by the Bank to the Borrower shall
be derived from the Borrower's Loan Accounts and shall be presumed to be correct
and accurate and, absent manifest error, shall constitute an account so stated
binding on the Borrower unless, within sixty (60) days of the receipt of a
statement to which the Borrower objects, the Borrower shall deliver to the Bank
its written objection, specifying the errors alleged to be contained in said
statement.
2.2.8 NOTICES. Any written notices by the Borrower shall not be deemed
records of the Bank within the meaning of Section 2.2.7 hereof whether or not
received by the Bank. The Bank may conclusively rely without inquiry on any
notice (including telephone notice) purporting to be from a Responsible Officer,
Art Zullo, Mary Kavanshansky or Greg Greenfelder of the Borrower.
2.2.9 MONEY MARKET RATE, LIBOR RATE UNASCERTAINABLE; IMPRACTICABILITY.
If:
(a) On any date on which a Money Market Interest Rate or LIBOR
Line Rate would otherwise be set, the Bank shall have in good faith
determined (which determination shall be conclusive) that:
(i) adequate and reasonable means do not
exist for ascertaining such Money Market
Interest Rate or LIBOR Line Rate,
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<PAGE> 17
(ii) a contingency has occurred which
materially and adversely affects the
interbank eurodollar market, or
(iii) the effective cost to the Bank of
funding a proposed Money Market Interest
Rate or LIBOR Line Rate Segment of Loans
shall exceed the Money Market Interest Rate
or LIBOR Line Rate applicable to such
Segment, or
(b) At any time the Bank shall have determined in good faith
(which determination shall be conclusive) that the making, maintenance
or funding of a particular Money Market Interest Rate Loan or LIBOR
Line Rate Loan has been made impracticable or unlawful by compliance by
the Bank in good faith with any Law, regulation, order, guideline or
interpretation or administration thereof by any Official Body charged
with the interpretation or administration thereof or with any request
or directive of any such Official Body (whether or not having the force
of law);
then, and in any such event, the Bank shall notify the Borrower of such
determination. Upon such date as shall be specified in such notice (which shall
not be earlier than the date such notice is given) the obligation of the Bank to
allow the Borrower to select the Money Market Option or LIBOR Option for any
Rate Segment of any Loans, in any amount in case of a determination under Clause
(a) above, or in excess (in case of a determination under Clause (b) above) of
the amount of such Loans (if any) which is not determined to be impracticable or
unlawful, shall be suspended until the Bank shall have notified the Borrower of
its determination in good faith (which determination shall be conclusive,) that
the circumstances giving rise to such previous determination no longer exist.
If the Bank notifies the Borrower of a determination under subsection
(b) of this Section 2.2.9, then the Money Market Interest Rate Loan or Loans or
LIBOR Line Rate Loan or Loans, if any, in excess of the amount (if any) not
determined to be impracticable or unlawful shall be due and payable on the date
specified in such notice. Absent contrary notice from the Borrower to the Bank
by 11:00 a.m., Chicago time, on such date, the Borrower shall be deemed to have
given the Bank proper notice to the effect that the Borrower requests that the
Bank make Loans at such time at the Alternate Base Rate in principal amounts
equal to the principal amounts becoming due and payable pursuant to the
preceding sentence.
If at any time the Bank makes a determination under subsection (a) or
(b) of this Section 2.2.9, the Borrower has previously notified the Bank that it
wishes to select the Money Market Interest Rate Option or LIBOR Line Rate Option
for a Segment of new Loans, including Loans being converted or renewed at the
Money Market Rate Option or LIBOR Rate Option, but such Loans have not yet been
made, such notification shall be deemed to request the making of a Segment of
the Loans at the Alternate Base Rate instead of the Money Market Rate Option or
the LIBOR Rate Option, unless the Borrower promptly elects to cancel the notice
to make a Segment of new Loans by giving notice of cancellation to the Bank.
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2.3 PAYMENTS.
(a) PRINCIPAL PAYMENT DATES. Principal of the Revolving Credit Loans shall
be due and payable on the Termination Date. Notwithstanding the foregoing,
after the occurrence of a Default, the principal amount of the Loans shall
be payable immediately upon demand made by the Bank at any time under
Section 17 (a) or automatically under Section 17 (b) as the case may be.
The Bank may debit the Borrower's operating accounts at the Bank for
amounts of interest and other fees due hereunder and, in such case, shall
send Borrower a copy of the applicable debit memorandum.
(b) INTEREST PAYMENT DATES. Interest on each Rate Segment of the Money
Market Interest Rate Portion shall be due monthly on the dates set forth on
Schedule 2.3 (b) and interest on each Rate Segment of each LIBOR Line Rate
Portion shall be due and payable on the last day of the corresponding Rate
Period. After maturity of any part of the Loans (by acceleration or
otherwise), interest, including all default interest, on such part of the
Loans shall be due and payable on demand.
(c) PLACE, TIME AND AMOUNTS. All payments to be made in respect of
principal, interest, facility fees, or other charges or amounts due from
the Borrower hereunder shall be payable at the Bank's Office at 11:00,
Chicago time, on the day when due without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, and an action
therefor shall immediately accrue. Such payments shall be made to the Bank
in United States dollars in immediately available funds, without setoff,
counterclaim or other deduction of any nature.
3. INTENTIONALLY LEFT BLANK.
4. INTENTIONALLY LEFT BLANK.
5. INTENTIONALLY LEFT BLANK.
6. INTENTIONALLY LEFT BLANK.
7. INTENTIONALLY LEFT BLANK.
8. INTENTIONALLY LEFT BLANK.
9. INTENTIONALLY LEFT BLANK.
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10. LIMITATION OF LIABILITY OF THE BANK; INDEMNIFICATION BY BORROWER.
(a) INTENTIONALLY LEFT BLANK.
(b) INDEMNIFICATION GENERALLY. The Borrower shall indemnify the Bank
against any loss or expense (including loss of margin and reasonable attorneys'
fees) which the Bank has sustained or incurred as a consequence of this
Agreement or any Loan Document or the transactions contemplated thereby, or any
Default by the Borrower in the performance or observance of any covenant or
condition contained in this Agreement, the Revolving Credit Note or any Loan
Document, including, without limitation, any failure of the Borrower to pay when
due (by demand, acceleration or otherwise) any principal, interest or any other
amount due hereunder or under the Revolving Credit Note or any Loan Document.
If the Bank sustains or incurs any such loss or expense it shall from
time to time notify the Borrower of the amount determined in good faith by the
Bank (the calculation of which shall be conclusive absent manifest error) to be
necessary to indemnify the Bank for such loss or expense. Such amount shall be
due and payable by the Borrower to the Bank thirty (30) Business Days after such
notice is given. Such notice shall be given to the Borrower within a reasonable
time following the Bank's determination of the amount owed.
11. AFFIRMATIVE COVENANTS.
(a) BOOKS AND RECORDS. The Borrower will maintain proper books and
records and accounts in accordance with sound accounting practice in which full,
true and correct entries shall be made of all its property and assets and its
dealings with business affairs.
(b) REPORTING REQUIREMENTS.
(1) FINANCIAL REPORTS. The Borrower will deliver to the Bank: (i) no later
than one hundred twenty (120) calendar days after the close of each fiscal
year, the annual audited consolidated balance sheet and statements of
profit and loss of Borrower and its consolidated Subsidiaries for the year
ending on the preceding December 31, together with a statement of cash
flow, all such consolidated financial statements to be certified without
material qualification by Ernst & Young, LLP, or another independent
certified public accountant acceptable to the Bank; (ii) within sixty (60)
calendar days after the end of each fiscal quarter, the consolidated
balance sheet and statements of profit and loss, comparative earnings for
the period commencing at the end of the previous fiscal year and ending
with the current fiscal quarter of Borrower and its consolidated
Subsidiaries certified, subject to ordinary and usual year-end adjustments,
by a Responsible Officer of Borrower; and (iii) upon request of the Bank, a
detailed schedules of accounts receivable and accounts payable aging
analysis of Borrower. All statements shall be prepared in accordance with
GAAP. Further, the Borrower shall at any time and from time to time submit
to the Bank such other or additional information relating to its affairs as
the Bank shall reasonably request.
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<PAGE> 20
(2) COMPLIANCE CERTIFICATE. Within 120 days after the end of each fiscal
year of Borrower and within forty-five (45) days after the end of each
fiscal quarter, the Borrower shall also deliver to the Bank a certificate
dated as of the end of such fiscal year or fiscal quarter, as the case may
be, signed on behalf of the Borrower by a Responsible Officer stating that
as of the date thereof, no Default has occurred and is continuing or
exists, or if a Default has occurred and is continuing or exists,
specifying in detail the nature and period thereof and any action taken or
contemplated to be taken by the Borrower.
(3) ERISA NOTIFICATIONS. The Borrower shall furnish to the Bank notice (A)
of a Plan Employer's adoption of any new Defined Benefit Plan; (B) of a
Plan Employer's (i) termination of any Defined Benefit Plan for purposes of
Title IV of ERISA or (ii) withdrawal from or termination of any Defined
Benefit Plan as provided under Section 4063 or 4064 of ERISA, which in
either case would have Material Adverse Effect on the Borrower; (C) of a
Plan Employer's intention to withdraw from or cease making contributions to
any Plan that is a Multiemployer Plan, the result of which would have a
Material Adverse Effect on the Borrower; (D) of Plan Employer's intention
to seek a waiver of the minimum funding rules under Section 412 of the Code
or Part 3 of Title I of ERISA; and (E) of a Plan Employer's adoption of a
Plan amendment which results in the imposition of a lien on the Borrower
under Section 401 (a) (29) of the Code. Promptly after the occurrence or
filing or any of the events or documents described below, as the case may
be, the Borrower shall (i) furnish to the Bank (A) notice of a Plan
Employer's failure to make a required payment under Section 412 of the Code
on or before the due date for such payment, if applicable, (B) copies of
IRS Form 5310 relating to a Defined Benefit Plan termination or transfer of
Defined Benefit Plan assets or liabilities, which could reasonably be
expected to have a Material Adverse Effect on the Borrower, (C) any 30-day
notice to the PBGC of a Reportable Event, which could reasonably be
expected to have a Material Adverse Effect on the Borrower, (D) upon the
Bank's request, any IRS Form 5500, including all Schedules, for any Plan
which, on the date on which such IRS Form 5500 is filed, has unfunded
vested liabilities in excess of 15% of Plan assets, (E) any writing from
the PBGC to the effect that it may or will take action to terminate any
Plan under Title IV of ERISA or from any Multiemployer Plan that it may and
will take action to assert withdrawal liability against the Plan Employer,
(F) any notice filed with the PBGC pursuant to Section 4041 of ERISA which
could reasonably be expected to have a Material Adverse Effect on the
Borrower and (G) any notice from the Secretary of the Treasury to the
effect that a Plan has lost its qualified status under Section 401 of the
Code or has been terminated within the meaning of Section 411(d)(3) of the
Code or the related trust of such Plan lost its tax exempt status under
Section 501 of the Code if such action is likely to cause the Plan Employer
to incur liability in an amount in excess of 10% of Consolidated Tangible
Net Worth and (ii) furnish to the Bank within thirty (30) days of the
filing or receipt of each such document other than IRS Form 5500, a
certificate of a Responsible Officer of the Borrower certifying as to what
further action has been taken by the Plan Employer in connection therewith
and whether the matter referred to in such document is likely to cause the
Plan Employer to incur liability to
16
<PAGE> 21
the PBGC or Multiemployer Plan in an amount in excess of 10% of
Consolidated Tangible Net Worth.
(4) NOTICE OF PROCEEDINGS. Promptly upon becoming aware thereof, the
Borrower shall furnish written notice to the Bank of the commencement,
existence or material threat of any suit or proceedings by or before any
Official Body against or affecting the Borrower which has, or could
reasonably be expected to have, a Material Adverse Effect including,
without limitation, any such suit or proceeding arising under any federal,
state or local law regulating (i) the discharge of materials into or the
protection of the environment, (ii) the management, handling or disposal of
hazardous waste or toxic substances or (iii) the public health.
(c) PAYMENT OF TAXES; GOVERNMENTAL CHARGES. The Borrower will pay or
cause to be paid all taxes, assessments and other governmental charges to which
the Borrower or its property is or shall be subject before such charges become
delinquent; PROVIDED, HOWEVER, no such tax, assessment or charge need be paid
for so long as its validity or amount shall be contested in good faith by
appropriate proceedings duly prosecuted and the Borrower shall have set up on
its books such reserves with respect thereto as shall be dictated by sound
accounting practices.
In the event the Borrower fails to pay or cause to be paid all taxes,
assessments and charges as hereinabove provided, the Bank is hereby authorized
at its election upon five (5) Business Days' prior notice to the Borrower to pay
all or any part thereof and the Borrower agrees to repay all sums so paid on
demand with interest at the rate provided for in this Agreement.
(d) COMPLIANCE WITH LAWS. The Borrower shall comply with all applicable
Laws (including, but not limited to, ERISA, the Code and any applicable tax law,
product safety law, occupational safety or health law, environmental protection
or pollution control law, hazardous waste or toxic substance management,
handling or disposal law) in all material respects (including, but not limited
to, compliance in respect of products that it manufactures, processes or sells
or services it performs, conduct of its business or use, maintenance or
operation of real and personal properties owned or possessed by it); PROVIDED
that Borrower shall not be deemed to be in violation of this Subsection 11(d) as
a result of any failures to comply which would not result in fines, penalties,
injunctive relief or other civil or criminal liabilities which, in the
aggregate, do not, and could not reasonably be expected to, have a Material
Adverse Effect.
(e) INSURANCE. The Borrower will maintain at all times adequate
insurance to the reasonable satisfaction of the Bank with insurers acceptable to
the Bank against such risks of loss as are customarily insured against and in
amounts customarily carried by persons owning, leasing or operating similar
properties, including fire, theft and extended coverage insurance in an amount
at least equal to the total full insurable value of the Borrower's properties
and assets, provided that the amount of such insurance shall at all times be
sufficient to prevent the Borrower from becoming a co-insurer under the terms of
any insurance policy. The Borrower
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<PAGE> 22
will also keep itself adequately insured at all times against liability on
account of injury to persons or property and comply with the insurance
provisions of all applicable workers' compensation laws and will effect all such
insurance under valid and enforceable policies issued by insurers of recognized
responsibility. Prior to the making of any Loans and thereafter within ninety
(90) days after the close of each fiscal year, the Borrower will deliver to the
Bank a schedule indicating all insurance then in force.
In the event the Borrower fails to secure and keep in force and effect
insurance as hereinabove provided, the Bank is authorized at its election upon
five (5) Business Day's prior notice to the Borrower to pay the cost of
insurance and the Borrower agrees to repay all sums so paid on demand with
interest at the rate provided for in this Agreement. The Bank is irrevocably
appointed attorney-in-fact of the Borrower to endorse any draft or check which
may be payable to the Borrower in order to collect the proceeds of such
insurance.
(f) MAINTENANCE OF PROPERTIES. The Borrower will maintain, or cause to
be maintained, its properties and assets used or useful in its business in good
condition, repair and working order (normal wear and tear excepted).
In the event the Borrower fails to maintain its property and assets in
good condition, repair and working order (normal wear and tear excepted), or
fails to preserve and protect the Bank's security interests as hereinabove
provided, the Bank is authorized at its election upon five (5) Business Day's
prior notice to the Borrower to pay the cost of maintaining that Borrower's
property and assets or the costs of discharging any lien thereon and that
Borrower agrees to repay all sums so paid on demand with interest at the rate
provided for in this Agreement. Until repayment, all such sums shall be secured
by the security interests provided for herein and in the Loan Documents.
(g) PRESERVATION OF CORPORATE EXISTENCE. The Borrower will preserve its
corporate existence and be qualified to do business in all jurisdictions where
its ownership or use of property or the nature of its business requires such
qualification.
(h) CONDUCT OF BUSINESS. The Borrower will conduct its business, or
cause its business to be conducted in a manner not materially inconsistent with
the prior conduct of its business or otherwise consistent with good business
practices customary in the trucking industry.
(i) NOTICE OF POTENTIAL DEFAULT; MATERIAL ADVERSE CHANGE. The Borrower
will promptly notify the Bank of (i) the happening of any event which
constitutes a Default by the Borrower or which with the passage of time or the
giving of notice or both would become a Default by the Borrower; or (ii) any
other materially adverse change in the Borrower's business, operation or
financial condition.
(j) BILLING OFFICES. Borrower shall maintain its chief executive
offices at 1077 Gorge Boulevard, Akron, Ohio 44310 and its remaining offices
from which accounts are billed
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to customers as listed on SCHEDULE 8(b), subject to the right of the Borrower to
change any such office, provided that Borrower provide Bank with written notice
at least fifteen (15) Business Days prior thereto.
(k) REGULATIONS U AND X. Borrower shall not use the proceeds of any
Loans hereunder directly or indirectly to purchase or carry any margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System) or to extend credit to others for the purpose of purchasing or
carrying, directly or indirectly, any such margin stock in contravention of
Regulations U and X nor will it acquire any such margin stock without first
notifying the Bank and completing, executing and delivering such Form U-1s or
other forms then required by the Board of Governors of the Federal Reserve
System, to the Bank's satisfaction.
(l) ERISA COVENANTS. The Borrower and any Plan Employer shall (i) (A)
satisfy the minimum funding standards of Section 412 of the Code and Part 3 of
Title I of ERISA with respect to any Defined Benefit Plan and (B) comply in all
material respects with the provisions of ERISA and the Code which are applicable
to any Defined Benefit Plan and (ii) not (A) terminate any Plan that is a
Defined Benefit Plan which would result in any liability to any Plan Employer or
to the PBGC under Title IV of ERISA in an amount greater than 5% of Consolidated
Tangible Net Worth or greater than 10% of Consolidated Tangible Net Worth with
respect to any group of such Plans terminated in any calendar year, (B) engage
in any Prohibited Transaction which has, or could reasonably be expected to
have, a Material Adverse Effect, (C) withdraw (complete or partial) from any
Plan that is a Multiemployer Plan which would result in the incurring of
withdrawal liability in an amount greater than 10% of Consolidated Tangible Net
Worth, (D) lose the qualified status of any Plan under Section 401 of the Code
or the exempt status of any related trust under Section 501 of the Code or
permit the related trust to incur a liability for any material tax under
Sections 513 and 514 of the Code, (E) cause any transaction described in
Sections 4069 or 4212 (c) of ERISA to take place, (F) fail to comply with the
health care continuation provisions of Sections 601-608 of ERISA if such failure
would cause the Borrower to incur excise taxes in excess of 10% of Consolidated
Tangible Net Worth, and (G) contract away the right to amend, modify or
terminate any Welfare Benefit Plan.
12. NEGATIVE COVENANTS.
So long as the Borrower may borrow hereunder and until payment in full
of the Borrower's Indebtedness, Borrower covenants as follows:
(a) SALES OF RECEIVABLES; SALE/LEASEBACKS. The Borrower will not sell,
discount or otherwise dispose of notes, accounts receivable or other obligations
owing to the Borrower, with or without recourse, except for the purpose of
collection in the ordinary course of business; or sell any asset pursuant to an
arrangement to thereafter lease such asset from the purchaser thereof, except
that the foregoing restriction shall not apply to a sale and leaseback
transaction involving the refurbishment of trailers.
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<PAGE> 24
(b) INDEBTEDNESS. The Borrower will not create, incur, assume or suffer
to exist any indebtedness for loans or deferred purchase price of property,
except (i) accounts payable incurred in the ordinary and usual course of its
business, (ii) existing indebtedness set forth on SCHEDULE 12(b) (including
indebtedness owing under the Morgan Credit Agreement) and refinancings of any
such indebtedness not involving an increase in the principal amounts thereof, or
(iii) indebtedness for incidental business expenses relating to rolling stock;
PROVIDED, HOWEVER, that in the event the Borrower determines that it is in its
best interest to seek additional loans from another lender prior to the full
repayment of all Indebtedness to the Bank hereunder, the Borrower shall request
the Bank's consent prior to incurring any such additional indebtedness in
writing, and the Bank may condition its consent to such additional indebtedness
in its sole discretion, upon the fulfillment of each of the following
conditions:
(1) The Bank, any new lender or lenders and any existing lender or
lenders have entered into an intercreditor agreement or participation
agreement satisfactory to the Bank in its sole discretion; and
(2) Such other conditions as the Bank may reasonably request.
(c) MERGER; SALE OF ASSETS. The Borrower will not enter into any merger
or consolidation or sell, transfer or lease any of its properties or assets
except that (i) the Borrower may enter into a liquidation, merger or
consolidation with any of the consolidated Subsidiaries; PROVIDED, HOWEVER, that
in each case no event shall occur or be continuing which constitutes a Default
and (ii) the Borrower may sell properties and assets so long as all sales are
made in the ordinary course of business. The tax-free exchange of a terminal
owned by the Borrower for the Services Development Corporation ("SDC") terminal
located in Charlotte, North Carolina, as contemplated by the Like-Kind Exchange
Agreement referred to in the Distribution Agreement, shall for purposes of the
preceding sentence be deemed made in the ordinary course of business.
(d) LIENS. Subject to the Intercreditor Agreement, the Borrower will
not create, incur, assume or suffer to exist any lien, charge or other
encumbrance on or security interest in ("LIENS") any of its properties or assets
in which the Bank now or hereafter may have a security interest, whether such
properties or assets are now owned or existing or hereafter acquired or arising,
except (i) liens for taxes, assessments or other governmental charges or levies
which at the particular time are not due, or remain payable without penalty or
interest or are being contested in good faith by appropriate proceedings
diligently conducted, provided adequate reserve or other appropriate provisions,
if any, as shall be required by GAAP shall have been made therefor; (ii)
mechanic's, carrier's, worker's, employee's, repairmen's, warehousemen's,
vendor's or other similar liens arising in the ordinary course of business in
respect of obligations not yet due, or which are being contested in good faith
by the appropriate proceedings diligently conducted which operate to stay any
foreclosure, distraint or execution on the property or deposits or pledges to
obtain the release of any such lien; (iii) deposits, liens or pledges to secure
workers compensation, unemployment insurance, old age benefits, social security
or other
20
<PAGE> 25
statutory obligations, or in connection with, or to secure the performance of,
bids, tenders, contracts (other than for the repayment of borrowed money), or
leases, or other pledges or deposits for purposes of like nature in the ordinary
course of business; (iv) liens arising out of judgments or awards so long as an
appeal or proceeding for review is being prosecuted in good faith and execution
is stayed; (v) Liens permitted by Section 12(b) of this Agreement; (vi) Liens
securing indebtedness created and permitted under the Master Lease Intended as
Security dated as of March 15, 1996, between the Borrower and ABN Amro, in an
amount not in excess of $25,000,000.00 in the aggregate; and (vii) Liens
securing indebtedness created and permitted under substantially similar lease
agreements with similar terms to the lease agreement described in clause (vi)
above in an amount not to exceed $75,000,000.00 in the aggregate from the date
hereof through the Termination Date; PROVIDED, THAT, the Borrower will not
create, incur, assume, or suffer to exist such Liens securing indebtedness in
excess of $25,000,000.00 during any fiscal year of the Borrower.
13. FINANCIAL COVENANTS OF BORROWERS.
(a) CASH FLOW COVERAGE RATIO. Borrower shall maintain a Cash Flow
Coverage Ratio at all times during the term of this Agreement of no less than
1.75 to 1.00. This covenant will be measured on a quarterly basis based upon a
rolling four (4) fiscal quarter calculation commencing March 23, 1996.
(b) CONSOLIDATED TANGIBLE NET WORTH. Borrower shall maintain a
Consolidated Tangible Net Worth of no less than One Hundred Seventy-Five Million
Dollars $175,000,000.00. This covenant shall be measured each fiscal quarter
commencing March 23, 1996.
14. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants that, as at the date hereof:
(a) ORGANIZATION AND QUALIFICATION. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Borrower is duly qualified or licensed and in good standing as a
foreign corporation authorized to do business in each other jurisdiction, if
any, where, because of the nature of its activities or properties, such
qualification or licensing is required, except for such jurisdictions where the
failure to be so qualified or licensed will not have a Material Adverse Effect,
nor prevent the enforcement of contracts entered into by Borrower, and Borrower
has all requisite corporate power to own its property and to carry on its
business as now or proposed to be conducted and carried on.
(b) AUTHORITY AND AUTHORIZATION. The Borrower has the corporate power
and authority to execute, deliver and carry out this Agreement, the Revolving
Credit Note and the Loan Documents executed by it, and its execution and
delivery, and the making of borrowings
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hereunder have been duly authorized by all necessary corporate action on the
part of the Borrower.
(c) EXECUTION AND BINDING EFFECT. This Agreement, the Revolving Credit
Note and the Loan Documents have been duly and validly executed and delivered by
the Borrower and constitute valid and legally binding agreements of the Borrower
enforceable in accordance with their terms, except as limited by bankruptcy,
insolvency or other Laws of general application relating to or affecting the
enforcement of creditors' rights.
(d) LITIGATION; COMPLIANCE WITH LAWS; TITLE TO PROPERTIES. No
litigation, investigation or proceeding of or before any arbitrator or Official
Body is pending or, to the knowledge of the Borrower, threatened by or against
the Borrower or any of its Subsidiaries or against any of its or their
respective properties or revenues (a) with respect to the Agreement or any Loan
Document or any of the transactions contemplated hereby or thereby or (b) which
could reasonably be expected to have a Material Adverse Effect.
(e) ADVERSE AGREEMENTS; ABSENCE OF CONFLICTS. Borrower is not a party
to any contract or agreement or subject to any charter or other corporate or
legal restriction of any kind, which, in the opinion of the Borrower, materially
and adversely affects its business, properties or assets, or the condition,
financial or otherwise, of the Borrower; and neither the execution and delivery
of this Agreement, the Revolving Credit Note or the Loan Documents executed by
the Borrower nor compliance with the terms, conditions and provisions thereof
will conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, the Certificate of Incorporation or By-Laws
of the Borrower or of any law or of any regulation, order, writ, injunction or
decree of any court or governmental agency, or of any indenture or other
agreement or instrument to which the Borrower is a party or by which Borrower is
bound or to which the Borrower is subject, or will result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the property or assets of the Borrower pursuant to the terms of any such
indenture or agreement or instrument, except as contemplated by the provisions
of this Agreement and the Intercreditor Agreement.
(f) INDEBTEDNESS; LIENS. The Borrower has no indebtedness for borrowed
money other than its existing indebtedness described in Section 12(b) and there
are no Liens on any of the properties or assets of the Borrower, except of the
type described in subparagraphs (i) through (vii) of Section 12(d).
(g) ACCURATE AND COMPLETE DISCLOSURE. All statements, reports,
certifications, schedules, assignments, invoices, books, accounts, records and
other documents or information required by this Agreement either to be
maintained by the Borrower or to be prepared by the Borrower and delivered to
the Bank, or both, are and will be true and accurate in all material respects.
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<PAGE> 27
(h) FINANCIAL STATEMENTS. The Borrower has heretofore furnished to the
Bank a consolidated balance sheet and consolidated related statements of income
and retained earnings of Borrower and its consolidated Subsidiaries and
statement of cash flow of Borrower and its consolidated Subsidiaries for the
fiscal year ended December 31, 1998, as audited and certified without
qualification by Ernst & Young LLP, certified public accountants. The Borrower
has also furnished to the Bank unaudited consolidated balance sheets and related
statements of income and retained earnings and statement of cash flow of
Borrower and its consolidated Subsidiaries for the three periods ended March 27,
1999. Since the date of such audited financial statements, there has been no
material adverse change in the assets, liabilities, the results of operations or
the financial condition of the Borrower. The Borrower has no contingent
liabilities which could have a Material Adverse Effect which are not referred to
in the financial statements and notes thereto delivered pursuant to this
Section.
(i) NO DEFAULT; COMPLIANCE WITH INSTRUMENTS. No event has occurred and
is continuing and no condition exists which constitutes a Default by the
Borrower. The Borrower is not in violation of any term of any charter instrument
or by-law. The Borrower is not in violation in any material respect of any
agreement or instrument to which it is a party or by which any of its properties
(now owned or hereafter acquired) may be subject or bound, which has had, or
could reasonably be expected to have, a Material Adverse Effect.
(j) ERISA COMPLIANCE. The Borrower and any Plan Employer maintain only
the Plans described on SCHEDULE 14 (j) hereto. Except as otherwise provided on
SCHEDULE 14 (J), (i) each Plan that is a Defined Benefit Plan has been funded in
accordance with its terms and with the minimum funding standards of Section 412
of the Code and Part 3 of Title I of ERISA; (ii) each Plan that is a Defined
Benefit Plan has been maintained in accordance with its terms and with all
provisions of ERISA and the Code applicable thereto in all material respects;
(iii) Borrower has no liability under Title IV of ERISA to the PBGC for any
Plan; (iv) to Borrower's knowledge, there have been no Prohibited Transactions
which would subject Borrower to any liability or tax which may be imposed by
Section 4975 of the Code and which would have a Material Adverse Effect on the
Borrower; (v) to the knowledge of Borrower, there have been no transactions
described in Section 4069 (a) of ERISA that may subject Borrower or any Plan
Employer to liability which would have a Material Adverse Effect on the
Borrower; (vi) the Borrower and any Plan Employer have made contributions to
each Plan that is a Multiemployer Plan in accordance with the terms of such
plans and applicable collective bargaining agreements; (vii) to the knowledge of
any Responsible Officer, each Plan that is a Multiemployer Plan has been
maintained in accordance with its terms and with all provisions of ERISA and the
Code applicable thereto in all material respects; (viii) Borrower has no
liability under Section 4201 of ERISA for any Plan; (ix) to Borrower's
knowledge, there have been no transactions described in Section 4212(c) of ERISA
that may subject Borrower or any Plan Employer to liability which would have a
Material Adverse Effect on the Borrower; and (x) Borrower and any Plan Employer
do not maintain any Welfare Benefit Plan, fund or arrangement, whether under
contract, verbal commitment or gratuitously which provides for health benefits
or life insurance benefits for retirees of Borrower or Plan Employer and their
respective beneficiaries.
23
<PAGE> 28
(k) TAXES. All tax returns required to be filed by Borrower and its
Subsidiaries have been properly prepared, executed and filed. All taxes,
assessments, fees and other governmental charges upon the Borrower and its
Subsidiaries, or upon any of their respective properties, incomes, sales or
franchises which are due and payable have been paid. The reserves and provisions
for taxes on the books of the Borrower and its Subsidiaries are adequate for all
open years and for the current fiscal period. The Borrower knows of no proposed
additional assessment or basis for any material assessment for additional taxes
against it or any of its Subsidiaries (whether or not reserved against).
(l) REGULATIONS U AND X. The Borrower will not make any borrowing
hereunder for the purpose of purchasing or carrying any margin stock, as such
term is used in Regulations U and X of the Board of Governors of the Federal
Reserve System, as amended from time to time, and is not engaged in the business
of extending credit to others for such purpose.
(m) INVESTMENT COMPANY ACT; OTHER REGULATIONS. The Borrower is not an
"investment company", or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or State statute or
regulation which limits its ability to incur Indebtedness.
(n) DISTRIBUTION AGREEMENTS. Borrower has furnished to the Bank true
and correct copies of the Distribution Agreements as listed on SCHEDULE 14(n)
hereto, together with all exhibits and attachments thereto. The Distribution
Agreements are the valid and subsisting agreements of Borrower and are in full
force and effect, except to the extent that the obligations required thereunder
have been performed by the parties thereto. The Distribution Agreements were
validly executed by Borrower and constitute valid agreements, enforceable
against Borrower in accordance with their terms. To the best of Borrower's
knowledge relying on the representations and warranties of the other parties
thereto, upon execution of the Distribution Agreements, there will exist no
default, nor any circumstance which, after notice or lapse of time or both would
constitute a default, nor any claim of default, on the part of any party to the
Distribution Agreements, and there will exist no lien, set-off, claim or other
impairment of the validity or enforceability of the Distribution Agreements. The
Distribution Agreements and the other agreements referred to therein constitute
the entire agreement between and among Borrower and the other parties thereto
with respect to the transactions that are subject matter of the Distribution
Agreements, and there are no other agreements with respect to such matters.
(o) INCORPORATION OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Borrower in each and every of the
Distribution Agreements is incorporated herein by reference in their entirety
and each is true and accurate in all material respects.
(p) ENVIRONMENTAL MATTERS.
24
<PAGE> 29
To the best knowledge of the Borrower, and except in
such respects as will not involve a Material Adverse Effect,
i) ( None of the real property owned or leased by Borrower (the
"REAL PROPERTY") contains or has previously contained any hazardous or
toxic waste or substances, other than such materials as have been
controlled, stored and disposed of in compliance with all applicable
federal and state laws and regulations;
ii) ( The Real Property is in compliance with all applicable
federal, state and local environmental standards and requirements
affecting such Real Property, and there are no environmental conditions
which could interfere with the continued use of the Real Property;
iii) ( The Borrower has not received any notices of violations or
advisory action by regulatory agencies regarding environmental control
matters or permit compliance, except violations that the Borrower
believes will not have a Material Adverse Effect and is taking steps to
remedy within time periods permitted by the appropriate regulatory
agency;
iv) ( Hazardous waste has not been transferred by the Borrower
from any of the Real Property to any other location which is not in
compliance with all applicable environmental laws, regulations or
permit requirements; and
v) ( With respect to the Real Property, there are no proceedings,
governmental administrative actions or judicial proceedings pending or,
to the best knowledge of the Borrower, contemplated under any federal,
state or local law regulating the discharge of hazardous or toxic
materials or substances into the environment, to which the Borrower is
named as a party.
(q) CONSENTS, PERMITS ETC. Each consent, approval or authorization
of, or filing, registration or qualification with, any governmental agency,
company or other person required to be obtained or effected by Borrower in
connection with this Agreement and the transactions contemplated hereby and with
the execution of each of the Distribution Agreements and the consummation of
transactions contemplated thereby (including, but not limited to, all filings in
connection with any potential ERISA withdrawal liability of Borrower in
connection with the Distribution transaction), has been duly obtained or
effected and is in full force and effect on the date hereof. All permits,
consents, licenses, bonds and any approvals, authorizations, filings or
registrations required by any law, statute, rule, regulation or by any
governmental agency for the transportation and the related business activities
of Borrower, as now conducted and as contemplated to be conducted, have been
duly obtained by Borrower and are in full force and effect on the date hereof.
25
<PAGE> 30
(r) TITLE TO PROPERTY. The Borrower has good record and marketable
title in fee simple to, or a valid leasehold interest in, all its real property,
and good title to, or a valid leasehold interest in, all of its other property,
except to the extent that the failure to have such title or interest, in any
instance or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Borrower.
15. CONDITIONS OF LOANS.
(a) EFFECTIVENESS OF AGREEMENT. This Agreement (which is an
amendment and restatement of the Existing Agreement) shall become effective on
the Closing Date, PROVIDED, that on or prior to the Closing Date, the Bank shall
have been furnished with each of the following in form and substance
satisfactory to Bank:
(i) a certified copy of the resolutions of the Board of Directors of
the Borrower authorizing the execution and delivery of, and performance under,
this Agreement, the Revolving Credit Note, and the statements, schedules,
reports, certifications and all other documents related to, or required by, any
of the foregoing ("RELATED DOCUMENTS");
(ii) evidence of the authority of each person who has signed, or will
sign, on behalf of the Borrower, this Agreement, the Revolving Credit Note, and
the Related Documents, and who will otherwise act as the representative of the
Borrower in the operation of this Agreement;
(iii) the authenticated specimen signature of each person referred to
in subparagraph (ii) of this Section 15(a);
(iv) the executed Revolving Credit Note. Upon the effectiveness of the
Agreement, such Revolving Credit Note shall constitute the "Revolving Credit
Note" under and as defined in this Agreement and the other Loan Documents for
all purposes thereof and the Bank shall thereupon mark "canceled" both the
original Revolving Credit Note dated January 2, 1996 executed by the Borrower in
favor of Bank One, Akron NA pursuant to the Existing Agreement, as well as the
two Allonges thereto, and return each of the same to the Borrower. The Borrower
hereby authorizes the Bank to record on the schedule attached to the Revolving
Credit Note delivered pursuant to this clause (iv) any and all Loans outstanding
under the Agreement on the Closing Date; (v) certified copies of the articles of
incorporation and by-laws as well as a good standing certificate as of a recent
date for the Borrower;
(vi) opinion of Borrower's legal counsel relating to this loan
transaction acceptable to the Bank and its counsel;
26
<PAGE> 31
(vii) evidence that the Morgan Credit Agreement and the Intercreditor
Agreement shall have each been terminated and the obligations evidenced by the
Morgan Credit Agreement have been repaid in full;
(viii) In addition to the foregoing requirements, all legal
details and proceedings in connection with the transactions contemplated by this
Agreement shall be satisfactory to the Bank and its counsel and the Bank shall
have received all such counterpart originals or certified or other copies of
such documents and proceedings in connection with such transactions, in form and
substance satisfactory to the Bank and its counsel, as the Bank may from time to
time reasonably request.
(b) ALL LOANS .The Bank's obligations to make all Loans,
including the initial Loan, are subject to the satisfaction of the further
conditions listed below:
i) ( The representations and warranties of Borrower contained in
Section 14 of this Agreement (including, but not limited to,
those incorporated by reference pursuant to Section 14(o)
hereof) shall be true as of the time of making each Revolving
Credit Loan, with the same effect as though such
representations and warranties had been made on and as of such
date; and
ii) ( On each such date no Default and no condition, event, act or
omission which, with the giving of notice or the lapse of
time, or both would constitute a Default shall have occurred
and be continuing or shall exist.
16. DEFAULT.
The following events or conditions shall constitute defaults
("DEFAULTS"), by the Borrower under the Agreement, the Revolving Credit Note and
the Loan Documents:
(a) Borrower shall fail to make any payment on account of
principal or interest in respect of any Indebtedness of the Borrower when due;
(b) Any representation or warranty herein made or incorporated
herein by reference by the Borrower or made by the Borrower in any statement,
certificate, report or schedule furnished by the Borrower shall fail to be as
stated or prove to be in any material respect false or misleading;
27
<PAGE> 32
(c) Borrower shall default in the performance of any other
covenant, condition or and provision of this Agreement or the Loan Documents to
which it is a party, and the default shall continue for thirty (30) days after
the Bank has notified Borrower of the default;
(d) Any obligation or obligations (other than the Indebtedness) of
the Borrower for the payment of indebtedness in an aggregate amount in excess of
Ten Million Dollars ($10,000,000.00) are not paid within thirty (30) days when
due or becoming or being declared to be due and payable prior to the expressed
maturity thereof, or there shall have occurred and be continuing beyond any
applicable grace period therefor an event which, with the giving of notice or
lapse of time, or both, would cause any such obligation to become, or allow any
such obligation to be declared to be, due and payable, unless such obligation is
being contested by the Borrower in good faith by appropriate proceedings
diligently conducted and adequate reserves or other appropriate provisions
therefor, if any, are maintained by the Borrower as shall be required by GAAP;
(e) One or more judgments against the Borrower or attachments
against its property, which in the aggregate exceeds Ten Million Dollars
($10,000,000.00), or the operation or result of which would be to interfere
materially and adversely with the conduct of the business of the Borrower, taken
as a whole, shall not have been paid, stayed on appeal, discharged, bonded, or
dismissed within thirty (30) days after the entry of such judgment or
attachment;
(f) (i) A Termination Event with respect to a Defined Benefit Plan
shall occur, (ii) any Person shall engage in any Prohibited Transaction
involving any Plan or Welfare Benefit Plan, (iii) an accumulated funding
deficiency, whether or not waived, shall exist with respect to any Plan, (iv)
Borrower shall be in Default (as defined in Section 4219(c)(5) of ERISA) with
respect to payments due to a Multiemployer Plan resulting from that Borrower's
complete or partial withdrawal (as described in section 4203 or 4205 of ERISA)
from such plan, or (v) any other event or condition shall occur or exist with
respect to a Plan, except that no such event or condition specified in any of
the foregoing clauses shall constitute a Default if it, together with all other
events or conditions at the time existing, would not subject the Borrower to any
tax, penalty, debt or liability which, alone or in the aggregate, would have a
Material Adverse Effect on the Borrower.
(g) The Borrower shall become insolvent or shall be unable to pay
its debts as they mature, or the Borrower shall voluntarily suspend transaction
of usual business, or shall file a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization or to effect a plan or other
arrangement with creditors, or shall file an answer admitting the jurisdiction
of the court and the material allegations of any involuntary petition pursuant
to any Act of Congress relating to bankruptcy, or shall be the subject of any
order for relief, or shall make an assignment for the benefit of creditors or
make an assignment to an agent (authorized to liquidate any substantial amounts
of the assets of the Borrower), or shall apply for or consent to or suffer the
appointment of a receiver or trustee for itself or a substantial part of its
property; or
28
<PAGE> 33
(h) An order for relief shall be entered pursuant to any Act of
Congress relating to bankruptcy with respect to an involuntary petition seeking
reorganization of, or an order shall be entered appointing any receiver or
trustee for, the Borrower or a substantial part of its property, or a writ or
warrant of attachment or any similar process shall be issued against a
substantial part of the property of the Borrower, or an order shall be entered
at either the state court level enjoining or preventing the Borrower from
conducting all or any material part of its business as it is usually conducted,
or garnishment proceedings shall be instituted by attachment, levy or otherwise,
against any deposit balance maintained, or any property deposited, with the Bank
by the Borrower, and the same shall not be dismissed or released within sixty
(60) days following the filing of such order.
17. REMEDIES.
(a) If a Default specified under paragraphs (a) through (f) or (i)
of this Section 17 shall occur and be continuing or shall exist, the Bank shall
be under no further obligation to make Loans to the Borrower hereunder; and the
Bank may by written notice to the Borrower declare the unpaid balance of all
Loans to the Borrower then outstanding and interest accrued thereon, and all
other liabilities of the Borrower hereunder to be forthwith due and payable, and
the same shall thereupon become and be immediately due and payable, without
presentment, demand or protest of any kind, all of which are hereby expressly
waived.
(b) If a Default specified under paragraphs (g) or (h) of Section
16 shall occur, the Bank shall be under no further obligation to make Loans
hereunder; and the unpaid balance of all Loans then outstanding and interest
accrued thereon and all other Indebtedness of the Borrower shall be immediately
due and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby expressly waived.
(c) In case a Default shall occur and be continuing or shall
exist, the Bank shall have the right, in addition to all other rights and
remedies available to it, without notice to the Borrower, to set-off against and
to appropriate and apply to the unpaid balance of the Indebtedness of the
Borrower, the Revolving Credit Note executed by the Borrower and all other
obligations of the Borrower hereunder any debt owing to, and any other funds
held in any manner for the account of, the Borrower by such holder, including,
without limitation, all funds in all deposit accounts (whether general or
special, time or demand, provisionally credited or finally credited, or
otherwise) now or hereafter maintained by the Borrower for its own account with
such holder, and the Bank is hereby granted a security interest in and lien on
all such debts (including all such deposit accounts) for such purpose. Such
right shall exist whether or not any such holder or the Bank shall have made any
demand under this Agreement or the Revolving Credit Note and whether or not the
Revolving Credit Note and such other obligations are matured or unmatured. The
Borrower hereby confirms each such holder's and the Bank's right of banker's
lien and set-off and nothing in this Agreement shall be deemed any waiver or
prohibition of any such holders or of the Bank's right of banker's lien and
set-off.
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<PAGE> 34
(d) The Bank may exercise all rights and the Bank will have all
the remedies available under this Agreement and under the law, the right to
court costs, reasonable attorneys' fees, and legal expertise.
(e) INTENTIONALLY LEFT BLANK.
(f) All rights and remedies given the Bank hereunder and by law
shall be cumulative and not alternative and are not exclusive of any other
remedies that may be available to the Bank, whether at law, in equity or
otherwise.
(g) Following the occurrence of any condition or event that but
for the passage of time or the opportunity to cure by the Borrower would become
a Default, the Bank shall have no obligation to make any further Revolving
Credit Loans unless and until such Default shall have been cured.
(h) Upon the occurrence of a Default, the Bank may grant
extensions to, or adjust claims of, or make compromises or settlements with,
debtors, guarantors or any other parties or any securities, guaranties or
insurance, without notice to or the consent of the Borrower, without affecting
the Borrower's liability under this Agreement, the Loan Documents or the Related
Documents.
i) (The Bank shall apply the proceeds of any sale or liquidation
of the Borrower's assets and any proceeds received by the Bank
from insurance in such order as the Bank shall determine in
its sole discretion. If such Proceeds are insufficient to pay
the amounts required by Law, the Borrower shall be liable for
any deficiency.
(j) INTENTIONALLY LEFT BLANK.
18. EXPENSES. All reasonable expenses, including, but not limited to attorney's
fees incurred by the Bank after the Closing in taking action in administering
this Agreement, the Loan Documents, the Related Documents and all additional
agreements contemplated in or by this Agreement and in all efforts made to
enforce payment, as well as all reasonable attorney's fees and legal expenses
incurred in connection therewith, whether through judicial proceedings or
otherwise, or in defending or prosecuting any actions or proceedings arising out
of or relating to this Agreement, shall be invoiced to, and paid by, the
Borrower; PROVIDED, HOWEVER, that the Borrower will not pay for costs and
expenses arising solely from the gross negligence or willful misconduct of the
Bank. All statements, reports, certificates, opinions and other documents or
information furnished by Borrower to the Bank shall be supplied without cost to
the Bank.
19. WAIVERS.
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<PAGE> 35
(a) To the extent not prohibited by Law, the Borrower waives all
notices to which it may otherwise be entitled and waives all valuation and
exemption laws. EACH OF THE PARTIES HEREBY ACKNOWLEDGES THAT, IN ORDER TO
EXPEDITE THE RESOLUTION OF ANY DISPUTES WHICH MAY ARISE UNDER THIS AGREEMENT OR
UNDER ANY AGREEMENT CONTEMPLATED UNDER THIS AGREEMENT AND IN LIGHT OF THE
COMPLEXITY OF THE TRANSACTIONS CONTEMPLATED UNDER THIS AGREEMENT, THE PARTIES
HERETO WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND
OR NATURE IN ANY COURT TO WHICH THEY MAY BOTH BE PARTIES, WHETHER ARISING OUT
OF, UNDER, OR BY REASON OF THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY ASSIGNMENT,
ACCOUNT OR OTHER TRANSACTION UNDER THIS AGREEMENT OR BY REASON OF ANY OTHER
CAUSE OR DISPUTE WHATSOEVER BETWEEN THEM OF ANY KIND OR NATURE, AND ACKNOWLEDGE
THAT SUCH WAIVER HAS BEEN SPECIFICALLY NEGOTIATED AS A PART OF THIS AGREEMENT.
(b) The Bank's delay or failure to enforce any right, power or
remedy hereunder will not operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy by the Bank preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
(c) The Borrower hereby waives notice, demand, presentment,
protest and notice thereof with respect to any and all instruments, notice of
acceptance hereof, notice of loans or advances made, credit extended, collateral
received or delivered, or any other action taken in reliance hereon, and all
other demands and notices of any description, except such as are expressly
provided for herein.
20. JURISDICTION. The Bank and the Borrower hereby agree that the Common Pleas
Court of Summit County, Ohio and the United States District Court for the
Northern District of Ohio shall have exclusive jurisdiction to hear and
determine any claims or disputes between the Bank and the Borrower pertaining
directly or indirectly to this Agreement, the Loan Documents or to any matter
arising therefrom. The Bank and the Borrower hereby expressly submit and consent
in advance to such jurisdiction and venue in any action or proceeding commenced
by, or any action against, either of them, in either of such Courts, hereby
waiving personal service of the summons and complaint, or other process or
papers issued therein, and agreeing that service of such summons and complaint,
or other process or papers may be made by prepaid registered or certified mail,
return receipt requested addressed to the relevant party at the address to which
notices are to be sent pursuant to Section 25 of this Agreement.
21. NON-BUSINESS DAYS. Whenever any payment hereunder shall become due and
payable on a day which is not a Business Day, such payment may be made on the
next succeeding Business Day, provided such day is prior to the Termination
Date, and such extension of time shall in such case be included in computing
interest in connection with such payment.
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<PAGE> 36
22. SUCCESSORS AND ASSIGNS; PARTICIPATION. This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower may not assign or transfer its
respective rights or delegate any of its respective duties or obligations
hereunder. The Bank may at any time sell, assign, transfer, negotiate, grant
participations in, or otherwise dispose of all or any portion of the Loans made
hereunder and the Bank shall promptly advise the Borrower thereof.
23. GOVERNING LAW. This Agreement shall be deemed to be a contract made under
the Laws of the State of Ohio, exclusive of rules on choice of laws, and shall
be governed by the construed in accordance with the Laws of said jurisdiction
including any rules pursuant to which the UCC as adopted in any other state
would apply.
24. INTENTIONALLY LEFT BLANK.
25. NOTICE. All notices, requests, demands, directions and other communications
(collectively notices) given to or made upon any party hereto under the
provisions of this Agreement or any other Loan Document shall be in writing
(including telexed, telecopied or telegraphic communication) unless otherwise
expressly permitted hereunder and shall be delivered or sent bye first-class or
first-class express mail, or by telex or telecopier with confirmation in writing
mailed first class, in all cases with postage or charges prepaid, to the
applicable party addressed as follows:
IF TO BORROWER: Roadway Express, Inc.
1077 Gorge Boulevard
Akron, Ohio 44310
Attention: Arthur Zullo
IF TO BANK: The First National Bank of Chicago
One First National Plaza
Chicago, IL 60670
Attention: Greg Sjullie
Mail Suite IL1 - 0374
or in accordance with any subsequent written direction from any party to the
others. All such notices and other communications shall, except as otherwise
expressly herein provided, be effective upon delivery, if delivered by hand;
upon receipt, if by mail, telecopier or telex; or when delivered to the
telegraph company, charges prepaid, if by telegraph.
26. INTEGRATION. This is the entire agreement relating to this financing
transaction and its supersedes all prior understandings and agreements, whether
written or oral, between the parties hereto and thereto relating to the
transactions provided for herein and therein.
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<PAGE> 37
27. AMENDMENT OR WAIVER No amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Borrower therefrom will be valid
unless stated in one or more writings executed by the Bank and the Borrower to
be bound thereby.
28. SEVERABILITY. If any part or provision of this Agreement is found or
declared to be invalid or in contravention of any governing law or regulation,
such part or provision shall be severable without affecting the validity of any
other part or provision of this Agreement.
29. HEADINGS. Section and paragraph headings used in this Agreement are intended
for convenience only and shall not affect the meaning or construction of this
Agreement.
30. COUNTERPARTS. This Agreement may be executed in any number of counterparts
and by different parties hereto on separate counterparts, each of which, when so
executed and delivered by all parties, shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
[signatures on the following page]
33
<PAGE> 38
WITNESS the due execution hereof as of the day and year first above
written intending to be legally bound hereby.
ATTEST: ROADWAY EXPRESS, INC.
By: By:
--------------------------- ---------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------- -------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
34
<PAGE> 39
SCHEDULE 2.3 (b)
INTEREST PAYMENT DUE DATES
August 14, 1999
September 11, 1999
October 9, 1999
November 6, 1999
December 4, 1999
December 31, 1999
January 29, 2000
February 26, 2000
March 25, 2000
April 22, 2000
May 20, 2000
June 17, 2000
July 15, 2000
35
<PAGE> 40
SCHEDULE 8(b)
LOCATION OF OFFICES
1077 Gorge Boulevard
Akron, Ohio 44310
36
<PAGE> 41
SCHEDULE 12(b)
EXISTING INDEBTEDNESS
1. $55,200,000.00 owing to ABN AMRO pursuant to the Master Leases Intended
as Security dated as of March 15, 1996, March 3, 1997 and April 1,
1998.
<PAGE> 42
SCHEDULE 14(n)
LIST OF DISTRIBUTION AGREEMENTS
1. Distribution Agreement dated as of December 29, 1995, between
Roadway Services, Inc.("RSI") and the Borrower.
2. The ADR Agreement referred to in the Distribution Agreement.
3. The Data Processing Agreement referred to in the Distribution
Agreement.
4. The Employee Matters Agreement referred to in the Distribution
Agreement.
5. The Intellectual Property Agreement referred to in the
Distribution Agreement.
6. The Like-Kind Exchange Agreement referred to in the
Distribution Agreement.
7. The Long-Term Leases referred to in the Distribution
Agreement.
8. The Services and Support Agreement referred to in the
Distribution Agreement.
9. The Short-Term Leases referred to in the Distribution
Agreement.
10. The Tax Matters Agreement referred to in the Distribution
Agreement.
<PAGE> 1
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1999 COMPARED TO 1998
- ---------------------
The Company had net income of $45.8 million or $2.39 per share (diluted) for the
year ended December 31, 1999, compared to income of $26.0 million, or $1.31 per
share (diluted) in 1998. Revenue increased 6.0% to $2.8 billion in 1999. Tonnage
increased 3.0% in 1999 from the prior year, with less-than-truckload ("LTL")
tonnage up 3.2%, and truckload tonnage up 2.0%.
The Company continues to take action to improve operating margins, such as
sales, marketing and pricing initiatives, working with specific customers to
improve yield on freight, changing the freight mix, and cost controls.
Underlying freight rates improved due to the general rate increases effective on
January 1, 1999 and September 12, 1999, and contractual rate modifications
during the year. Overall revenue per ton increased 2.9%. LTL revenue per ton
increased 3.0%, and truckload revenue per ton increased 0.1%. The improvement in
revenue per ton is less than the change in the underlying freight rates, because
the average shipment size increased 2.4% to 1,132 pounds and the average length
of haul decreased by 0.6% to 1,304 miles. The increase in shipment size
partially reflects actions the Company took relative to pricing levels on
certain smaller shipments, which has resulted in a shift to larger, heavier
shipments. A variable rate fuel surcharge, which is assessed by the Company when
the national average price of diesel fuel exceeds $1.10 per gallon, was
reinstated on July 6, 1999, and resulted in an effective rate increase of 0.4%.
The Company's core business offering, national LTL service, represented 65% of
revenue in 1999. Regional service offerings were 16% of revenue (up 10% over
1998), truckload was 7%, and specialized products (such as international North
America, Time Critical, Precision Delivery, and Guaranteed Day Delivery
services) represented 12% of revenue. The Company's specialized product
offerings grew 16%, principally due to a 31% increase in revenue from the
domestic portion of these specialized products.
Plans to improve freight mix include focused growth on local customer accounts,
two-day regional markets, North American international business, and specialized
services. The decline in length of haul reflects the growth of regional service
offerings.
Cost control efforts include operational changes to reduce transportation costs
and maintain high service standards with technological enhancements that allow
improved load planning and
1
<PAGE> 2
scheduling, more effective use of road and rail capacity, and equipment
enhancements such as deck trailers that allow greater cubic utilization. Other
cost reduction initiatives include continued emphasis on safety improvement,
particularly with the Challenge 2000 program, cargo claims reductions, and
aggressive administrative cost controls tied to process improvements and goal
awareness. Challenge 2000 is a comprehensive effort to mobilize the Company's
workforce to reduce injuries and increase safety.
Operating expenses increased 4.8%, but operating expenses per ton increased only
1.8%. Salaries, wages, and benefits were 63.8% of revenue in 1999, down from
65.0% in 1998. Cost increases in key direct labor areas were generally less than
the corresponding growth in revenue. Linehaul driver wages increased 2.4%.
Pickup and delivery wages were up 3.1%. Dock wages increased only 1.5%,
reflecting improved productivity driven by the changing freight mix. Indirect
wage and benefit costs increased 16% over 1998. This increase resulted primarily
from profit sharing and performance-based compensation related to results of
operations, which was 2.1% of total salaries, wages, and benefits for the year
compared to 1.0% in 1998. Another component, amounting to a $6.0 million
increase, was the impact of plan amendments to the Company's defined benefit
pension plan late in 1998.
Operating supplies and expenses per ton for 1999 were down slightly compared to
1998 levels. Fuel costs increased $4.7 million, as the Company's average fuel
prices increased 28.4% during the year. The dramatic rise in fuel prices in the
second half of the year resulted in the reinstatement of the fuel surcharge
discussed above. Long-term tractor and trailer leases and short-term equipment
rentals increased by $16.0 million, or 61% over 1998, in order to meet increased
demand, especially in the fourth quarter. Maintenance costs declined $7.2
million, related primarily to linehaul operations, and reflect the disposal of
older, more costly equipment, and the acquisition of new and refurbished
equipment. Terminal related operating supply and service costs rose only 0.8% as
the mix of freight shifted. Operating supplies and expenses for administrative
and other functions decreased $4.1 million, primarily due to reduced cost for
purchased information systems services, which more than offset the 6.0% cost
increase in other areas.
Purchased transportation expense increased $29.1 million during 1999, driven by
a $26.6 million increase in rail costs, reflecting the increased use of
railroads in certain linehaul operations during the year. For 1999, the Company
increased the use of railroads in linehaul operations to 28.9% of total miles.
This is up from 26.6% in 1998, principally due to tonnage increases in the
second half of 1999.
Operating taxes and licenses increased $1.5 million or 2.0% in 1999. This modest
increase is consistent with the actual increase in road miles driven with
Company-owned equipment.
The Company experienced an increase of $8.8 million in insurance and claims
expense, principally due to costs associated with public liability claims
related to increased business levels
2
<PAGE> 3
and severity of claim losses, despite record highway safety performances.
Highway safety performance in 1999 exceeded the 1998 record-breaking results.
Expenses for incurred cargo claims remained flat despite the increase in tonnage
and revenue, reflecting continuation of improved freight handling techniques and
the network refinements, which have reduced freight handling and the resultant
cargo claims.
Depreciation expense increased primarily due to additional capital expenditures
for data processing equipment and software. These increases were partially
offset by reduced depreciation expense for revenue equipment that became fully
depreciated. The Company's system count has been reduced to 388 terminals, down
slightly from 396 at the end of 1998. The Company's small loss on the sale of
assets in 1999 compared to a $2.2 million gain in 1998 reflects reduced real
estate transactions.
The operating income of $77.2 million or 2.7% of revenue compares to an
operating income of $44.1 million or 1.7% of revenue in 1998.
The Company's tax rate in 1999 differs from the federal statutory rate due to
non-deductible operating expenses, state income taxes, and the impact of foreign
operations. The effective tax rate was 42.6% in 1999, compared to 42.7% in 1998.
1998 COMPARED TO 1997
- ---------------------
The Company had net income of $26.0 million or $1.31 per share (diluted), for
the year ended December 31, 1998, compared to income of $36.9 million, or $1.80
per share (diluted) in 1997. Revenues were $2.7 billion in 1998, a 0.6% decline
from 1997.
Tonnage was down 1.7% from the prior year, with LTL tonnage down 2.3%, while
truckload tonnage increased 0.8%. Overall revenue per ton increased 1.1% in
1998. LTL revenue per ton increased 1.9%, and truckload revenue per ton
decreased 3.6%.
Formal negotiations with the Teamsters began in late December 1997, well in
advance of the March 31, 1998 expiration of the contract. The Motor Freight
Carriers Association, whose members include the four largest LTL trucking
companies in the United States, represented the Company. A tentative contract
was settled on February 9, 1998, seven weeks before the existing contract
expired, in an attempt to avoid a diversion of freight to non-union carriers by
customers who were wary of a repeat of the 1994 strike. The new contract
provided the Company five years of labor stability and known, moderate wage and
benefit increases. Despite successful negotiation of a new five-year contract,
some diversion of freight did occur during 1998, which had an unexpected and
damaging effect on freight mix and revenue yield.
3
<PAGE> 4
Salaries, wages, and benefits were 65.0% of revenue in 1998, up from 63.6% in
1997. The largest increases were in transportation and terminal operations. At
the terminal level, increased costs per ton for clerical wages, pickup and
delivery wages, and union health, welfare, and pension benefits were partially
offset by an increase in dock productivity. The net effect was an increase in
terminal costs per ton of 2.9%. In the transportation area, linehaul wages and
benefits increased by 2.4% per ton, reflecting the reduction of the use of
railroads in certain linehaul operations during the year. For 1998, the Company
decreased the use of railroads in linehaul operations to 26.6% of total miles.
This was down from 28.0% in 1997, principally due to lower business levels in
1998. In addition, benefits, primarily group insurance for certain
administrative employees, increased $6.2 million, or 16.8%.
Operating supplies and expenses per ton for 1998 were up slightly over 1997
levels. Higher long-term tractor and trailer lease rentals and linehaul repair
expenses were offset by a $14.6 million reduction in fuel costs.
Purchased transportation expense declined $7.9 million during 1998 compared to
1997. This reflects a $12.2 million decrease in rail costs, discussed above,
offset by increases in contracted pickup and delivery services.
Depreciation expense continued to decline as more revenue equipment became fully
depreciated, operating leases were utilized for refurbished trailers and
replacement tractors, and from the reduction in the number of terminal
facilities. The Company's system count was 396 terminals at the end of 1998,
down from 424 at the beginning of 1997. The sale of unused facilities resulted
in a $2.2 million gain in 1998, down from $6.0 million in 1997.
The Company's improved freight handling techniques and the network refinements
reduced freight handling and the resultant cargo claims. This improvement,
coupled with the record highway safety performance, resulted in a $7.0 million
decline in insurance and claims expense for 1998.
The operating income of $44.1 million or 1.7% of revenue compares to an
operating income of $61.3 million or 2.3% of revenue in 1997.
The Company's tax rate in 1998 differs from the federal statutory rate due to
non-deductible operating expenses, state income taxes, and the impact of foreign
operations. The effective tax rate was 42.7% in 1998, compared to 39.2% in 1997.
This increase was due to the non-availability of foreign tax credit carry
forwards and the greater impact of non-deductible expenses on the reduced
operating income.
LIQUIDITY AND CAPITAL RESOURCES
4
<PAGE> 5
The Company had cash and equivalents of $80.8 million at December 31, 1999,
compared to $60.2 million at year-end 1998. The Company has a $38 million line
of credit available, and remains debt free. Capital expenditures are financed
primarily through internally generated funds. Future expenditures are expected
to be financed in a similar manner, except for a planned replacement in 2000 of
an additional 10% of the Company's linehaul trailers and 14% of the Company's
linehaul tractors through operating lease arrangements. During 1999, 11% of the
Company's linehaul tractors were replaced under operating leases. In addition to
the leases mentioned above, capital expenditures of $100 million are planned for
2000, up from $76 million in 1999. Most of the capital expenditures are
designated for revenue equipment, facilities and information systems. Management
believes that cash flows from operations and financing sources will be
sufficient to support its working capital needs, projected capital expenditures,
dividends to shareholders, and funds for other routine corporate needs during
2000, as was the case in 1999.
The impact of inflation on operating expenses has been moderate in recent years.
OTHER MATTERS
The Company's computer systems are successfully operating in the year 2000. The
systems necessary for moving freight and communicating with our customers are
performing as planned. Total expenditures during 1999, 1998, and 1997 to bring
the systems into compliance were $11.8 million, comprised of $4.7 million in
capital expenditures and $7.1 million in expense. The year 2000 project consumed
approximately 8% of the Company's total information technology budget for 1999
and 6% in 1998. Minimal additional expenditures are anticipated in 2000. All
expenditures were financed with operating cash flow.
Under the terms of the Teamster contract, which extends through March 31, 2003,
wage and benefit increases approximating 3.2% will be effective April 1, 2000.
The Company receives notices from the EPA from time to time identifying it as a
potentially responsible party ("PRP") under the Comprehensive Environmental
Response Compensation and Liability Act for various Superfund sites. The Company
believes that its obligation with regard to these sites is de minimis.
The Company's earnings are affected by changes in interest rates related to its
trailer leases. During 1998, the Company entered into interest rate swap
agreements with major commercial banks to fix the interest rate of its trailer
leases from previous variable interest rates. The value of the leases upon which
the payments are based was not changed. The agreements, which expire from 2002
to 2004, fix the Company's interest costs at rates varying from 6.07% to 7.12%
on leases valued at $39.7 million. An interest rate variation of 1% would have
no material impact on the Company.
5
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
Roadway Express, Inc. and Subsidiaries
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------------------------------
(in thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 80,797 $ 60,232
Accounts receivable, net 299,599 280,170
Prepaid expenses and supplies 17,940 18,978
----------- -----------
Total current assets 398,336 359,380
Carrier operating property, at cost 1,356,533 1,341,496
Less allowance for depreciation 976,205 984,380
----------- -----------
Net carrier operating property 380,328 357,116
Goodwill, net 15,360 8,382
Deferred income taxes 37,384 23,955
----------- -----------
Total assets $ 831,408 $ 748,833
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 190,499 $ 177,641
Salaries and wages 120,695 103,723
Freight and casualty claims payable 52,165 47,249
----------- -----------
Total current liabilities 363,359 328,613
Long-term liabilities:
Casualty claims payable 49,077 51,812
Accrued pension and postretirement health care 118,212 104,091
Future equipment repairs 9,805 14,708
----------- -----------
Total long-term liabilities 177,094 170,611
Shareholders' equity:
Preferred stock
Authorized--20,000,000 shares
Issued--none - -
Common stock--$.01 par value
Authorized--100,000,000 shares
Issued--20,556,714 shares 206 206
Additional paid-in capital 41,586 42,057
Earnings reinvested in the business 282,490 240,592
Accumulated other comprehensive loss (5,591) (6,041)
Unearned portion of restricted stock awards (7,509) (6,862)
Treasury shares (1,166,579 shares in 1999 and
1,166,215 shares in 1998) (20,227) (20,343)
----------- -----------
Total shareholders' equity 290,955 249,609
----------- -----------
Total liabilities and shareholders' equity $ 831,408 $ 748,833
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE> 7
STATEMENTS OF CONSOLIDATED INCOME
Roadway Express, Inc. and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
---------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenue $ 2,813,214 $ 2,654,094 $ 2,670,944
Operating expenses:
Salaries, wages and benefits 1,793,594 1,724,970 1,699,692
Operating supplies and expenses 468,452 456,884 462,895
Purchased transportation 289,544 260,445 268,344
Operating taxes and licenses 76,113 74,604 74,777
Insurance and claims 62,700 53,948 60,920
Provision for depreciation 45,492 41,422 49,010
Net loss (gain) on sale of carrier operating property
103 (2,239) (5,955)
---------------------------------------------------
Total operating expenses 2,735,998 2,610,034 2,609,683
---------------------------------------------------
Operating income 77,216 44,060 61,261
Other income (expense):
Interest expense (716) (937) (2,076)
Other, net 3,245 2,290 1,471
---------------------------------------------------
2,529 1,353 (605)
---------------------------------------------------
Income before income taxes 79,745 45,413 60,656
Provision for income taxes 33,972 19,379 23,751
---------------------------------------------------
Net income $ 45,773 $ 26,034 $ 36,905
===================================================
Earnings per share--basic $ 2.43 $ 1.33 $ 1.83
===================================================
Earnings per share--diluted $ 2.39 $ 1.31 $ 1.80
===================================================
Dividends declared per share $ 0.20 $ 0.20 $ 0.20
===================================================
</TABLE>
See accompanying notes.
7
<PAGE> 8
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Roadway Express, Inc. and Subsidiaries
<TABLE>
<CAPTION>
EARNINGS ACCUMULATED UNEARNED
ADDITIONAL INVESTED OTHER PORTION OF
COMMON PAID-IN IN THE COMPREHENSIVE RESTRICTED TREASURY
TOTAL STOCK CAPITAL BUSINESS INCOME (LOSS) STOCK AWARDS STOCK
-----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Balance at January 1, 1997 $ 224,596 $ 206 $ 43,100 $ 185,758 $ (4,283) $ (185)
Net income 36,905 36,905
Foreign currency translation
adjustments 7 7
-------------
Total comprehensive income 36,912
Dividends declared (4,111) (4,111)
Treasury stock activity - net (4,411) (4,411)
Restricted stock award (3,550) 423 $ (3,973)
activity
-----------------------------------------------------------------------------------------------
Balance at December 31, 1997 249,436 206 43,523 218,552 (4,276) (3,973) (4,596)
YEAR ENDED DECEMBER 31, 1998
Net income 26,034 26,034
Foreign currency translation
adjustments (1,765) (1,765)
-------------
Total comprehensive income 24,269
Dividends declared (3,994) (3,994)
Treasury stock activity - net (15,747) (15,747)
Restricted stock award (4,355) (1,466) (2,889)
activity
-----------------------------------------------------------------------------------------------
Balance at December 31, 1998 249,609 206 42,057 240,592 (6,041) (6,862) (20,343)
YEAR ENDED DECEMBER 31, 1999
Net income 45,773 45,773
Foreign currency translation
adjustments 450 450
-------------
Total comprehensive income 46,223
Dividends declared (3,875) (3,875)
Treasury stock activity - net 116 116
Restricted stock award (1,118) (471) (647)
activity
-----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $ 290,955 $ 206 $ 41,586 $ 282,490 $ (5,591) $ (7,509) $ (20,227)
===============================================================================================
</TABLE>
See accompanying notes.
8
<PAGE> 9
STATEMENTS OF CONSOLIDATED CASH FLOWS
Roadway Express, Inc. and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
---------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 45,773 $ 26,034 $ 36,905
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 45,635 42,440 49,558
Loss (gain) on sale of carrier operating property 103 (2,239) (5,955)
Changes in assets and liabilities:
Accounts receivable (19,429) 7,880 (14,760)
Other assets (13,509) (16,687) (480)
Accounts payable and accrued items 34,785 3,690 12,987
Long-term liabilities 6,483 (1,137) (15,364)
---------------------------------------------
Net cash provided by operating activities 99,841 59,981 62,891
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of carrier operating property (76,063) (52,481) (36,902)
Sales of carrier operating property 7,256 14,266 20,135
Business acquisitions (6,924) - (15,000)
---------------------------------------------
Net cash used in investing activities (75,731) (38,215) (31,767)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (3,872) (3,986) (4,103)
Treasury stock activity - net 116 (15,747) (4,411)
---------------------------------------------
Net cash used in financing activities (3,756) (19,733) (8,514)
Effect of exchange rate changes on cash 211 (306) (348)
---------------------------------------------
Net increase in cash and cash equivalents 20,565 1,727 22,262
Cash and cash equivalents at beginning of year 60,232 58,505 36,243
---------------------------------------------
Cash and cash equivalents at end of year $ 80,797 $ 60,232 $ 58,505
=============================================
</TABLE>
See accompanying notes.
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roadway Express, Inc. and Subsidiaries
December 31, 1999
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Roadway Express, Inc. (the "Company") provides long haul, less-than-truck load
("LTL") freight services in North America and offers services to an additional
66 countries worldwide in a single business segment. Approximately 74% of the
Company's employees are represented by various labor unions, primarily the
International Brotherhood of Teamsters ("IBT"). The current agreement with the
IBT expires on March 31, 2003.
2. ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include the
accounts and operations of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Cash Equivalents--The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Depreciation--Depreciation of carrier operating property is computed by the
straight-line method based on the useful lives of the assets. The useful life of
structures ranges from 15 to 33 years, and equipment from 3 to 10 years.
Financial Instruments--The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and short-term borrowings approximate their fair
value due to the short-term nature of these instruments. The only derivative
financial instruments the Company uses are interest rate swaps on certain
trailer leases as part of its overall risk management policy. The Company does
not use derivative financial instruments for trading purposes (See note 10).
Goodwill--Goodwill represents costs in excess of net assets of acquired
businesses, which are amortized using the straight-line method primarily over a
period of 20 years. The Company evaluates the realizability of goodwill based on
the undiscounted cash flows of the businesses acquired over the remaining
amortization period. Should the review indicate that goodwill is not
recoverable, the Company's carrying value of goodwill would be reduced by the
estimated shortfall of the cash flows. No reduction of goodwill for impairment
has been necessary to date.
10
<PAGE> 11
2. ACCOUNTING POLICIES (CONTINUED)
Casualty Claims Payable--These accruals represent management's estimates of
claims for property damage and public liability and workers' compensation.
Expenses resulting from workers' compensation claims are included in salaries,
wages, and benefits in the accompanying statements of consolidated income.
Revenue Recognition--The Company recognizes revenue as earned on the date of
freight delivery to consignee. Related expenses are recognized as incurred.
Future Equipment Repairs--This accrual represents the estimated costs of
anticipated major future repairs on inter-city tractors purchased prior to
January 1, 1996.
Stock-Based Compensation--The Company accounts for stock-based compensation in
accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees.
Foreign Currency Translation--Income statement items are translated at average
currency exchange rates. Transaction gains and losses are included in
determining net income. All balance sheet accounts of foreign operations are
translated at the current exchange rate as of the end of the period. The
resulting translation adjustment is recorded as a separate component of
shareholders' equity.
Use of Estimates in the Financial Statements--The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
revenues and expenses during the period, the reported amount of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from these estimates.
Impairment of Long-lived Assets--In the event that facts and circumstances
indicate that the carrying value of intangibles and long-lived assets or other
assets may be impaired, an evaluation of recoverability would be performed. If
an evaluation were required, the estimated future undiscounted cash flow
associated with the asset would be compared to the asset's carrying amount to
determine if a write-down is required.
Concentration of Credit Risks--The Company sells services and extends credit
based on an evaluation of the customer's financial condition, without requiring
collateral. Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.
11
<PAGE> 12
2. ACCOUNTING POLICIES (CONTINUED)
Impact of Recently Issued Accounting Standard--Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, is required to be adopted in the year 2001. SFAS No. 133 will
require, among other things, the Company to recognize all derivatives on the
balance sheet at fair value. If adopted, SFAS No. 133 would not have a material
effect on earnings or financial position of the Company.
3. ACQUISITION OF REIMER EXPRESS LINES LTD.
On April 30, 1997, the Company acquired all of the outstanding shares of Reimer
Express Lines Ltd., a privately held Canadian common carrier for $15,000,000.
The purchase agreement also contained provisions for additional payments of up
to $10,000,000, subject to Reimer achieving defined performance criteria over a
five-year period. As of December 31, 1999, approximately $7,000,000 of
additional purchase price has been paid, which was recorded as additional
goodwill. Reimer provides truckload and LTL service throughout Canada, and
international service to and from Canada.
The acquisition was paid in cash and recorded under the purchase method of
accounting. The results of Reimer's operations subsequent to the date of
acquisition are included in the Company's consolidated financial statements.
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income $ 45,773 $ 26,034 $ 36,905
===================================================
Weighted-average shares for
basic earnings per share 18,811 19,617 20,210
Incentive stock plans 308 198 316
---------------------------------------------------
Weighted-average shares for
diluted earnings per share 19,119 19,815 20,526
===================================================
Basic earnings per share $ 2.43 $ 1.33 $ 1.83
===================================================
Diluted earnings per share $ 2.39 $ 1.31 $ 1.80
===================================================
</TABLE>
12
<PAGE> 13
5. CARRIER OPERATING PROPERTY
Carrier operating properties consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
(in thousands)
<S> <C> <C>
Land $ 74,120 $ 74,785
Structures 385,918 377,408
Revenue equipment 684,708 703,211
Other operating property 211,787 186,092
----------------- -----------------
Carrier operating property, at cost 1,356,533 1,341,496
Less allowance for depreciation 976,205 984,380
----------------- -----------------
Net carrier operating property $ 380,328 $ 357,116
================= =================
</TABLE>
6. ACCOUNTS PAYABLE
Items classified as accounts payable consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
(in thousands)
<S> <C> <C>
Trade and other payables $ 68,232 $ 76,782
Drafts outstanding 36,817 31,403
Income taxes payable 24,272 14,744
Taxes, other than income 31,795 26,423
Multi-employer health, welfare,
and pension plans 29,383 28,289
----------------- -----------------
$ 190,499 $ 177,641
================= =================
</TABLE>
13
<PAGE> 14
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current taxes:
Federal $ 40,489 $ 20,355 $ 21,523
State 5,775 3,045 3,852
Foreign 1,137 (1,318) 1,436
-------------------------------------------------
47,401 22,082 26,811
Deferred taxes:
Federal (10,874) (2,024) (2,794)
State (1,411) (360) (417)
Foreign (1,144) (319) 151
-------------------------------------------------
(13,429) (2,703) (3,060)
-------------------------------------------------
Provision for income taxes $ 33,972 $ 19,379 $ 23,751
=================================================
</TABLE>
In addition to the 1999 provision for income taxes of $33,972,000, deferred
income tax benefits of $197,000 were allocated directly to shareholders' equity.
Income tax payments amounted to $35,344,000 in 1999, $16,645,000 in 1998, and
$26,435,000 in 1997.
Income before income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Domestic $ 83,572 $ 49,875 $ 56,400
Foreign (3,827) (4,462) 4,256
------------------------------------------------
$ 79,745 $ 45,413 $ 60,656
================================================
</TABLE>
14
<PAGE> 15
7. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred taxes are as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Freight and casualty claims $ 36,946 $ 36,171
Retirement benefit liabilities 46,103 40,595
Other 35,098 28,568
----------------- -----------------
Total deferred tax assets 118,147 105,334
Deferred tax liabilities:
Depreciation 48,536 50,538
Multi-employer pension plans 32,227 30,841
----------------- -----------------
Total deferred tax liabilities 80,763 81,379
----------------- -----------------
Net deferred tax assets $ 37,384 $ 23,955
================= =================
</TABLE>
At December 31, 1999, the Company had approximately $7,611,000 of foreign
operating loss carry forwards, which have expiration dates ranging from 2005 to
2009. For financial reporting purposes, a valuation allowance of $700,000 has
been recognized to offset a deferred tax asset relating to foreign tax credit
carry forwards, which expire in 2001.
15
<PAGE> 16
7. INCOME TAXES (CONTINUED)
The effective tax rate differs from the federal statutory rate as set forth in
the following reconciliation:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 3.6 3.8 3.7
Non-deductible operating costs 2.5 4.9 4.0
Impact of foreign operations 1.2 (0.9) (3.1)
Other, net 0.3 (0.1) (0.4)
---------------------------------------
Effective tax rate 42.6% 42.7% 39.2%
=======================================
</TABLE>
8. EMPLOYEE BENEFIT PLANS
MULTI-EMPLOYER PLANS
The Company charged to operations $155,241,000 in 1999, $149,608,000 in 1998,
and $144,702,000 in 1997 for contributions to multi-employer pension plans for
employees subject to labor contracts. The Company also charged to operations
$150,731,000 in 1999, $153,166,000 in 1998, and $148,951,000 in 1997 for
contributions to multi-employer plans that provide health and welfare benefits
to employees and certain retirees who are or were subject to labor contracts.
These amounts were determined in accordance with provisions of industry labor
contracts. Under provisions of the Multi-employer Pension Plan Act of 1980,
total or partial withdrawal from a plan would result in an obligation to fund a
portion of the plan's unfunded vested liability. Management has no intention of
changing operations so as to subject the Company to any material obligation.
16
<PAGE> 17
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
RETIREMENT PLANS
The following tables set forth the change in benefit obligation, change in plan
assets, funded status and amounts recognized in the consolidated balance sheets
of the defined benefit pension and postretirement health care benefit plans as
of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
PENSION BENEFITS HEALTH CARE BENEFITS
----------------------------- ------------------------------
1999 1998 1999 1998
----------------------------- ------------------------------
(in thousands)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of
year $ 243,435 $ 192,386 $ 32,461 $ 24,372
Service cost 15,588 12,287 1,739 1,365
Interest cost 18,483 14,712 2,377 2,206
Actuarial losses (gains) 5,930 26,571 (1,029) 6,508
Benefits paid (24,588) (2,521) (2,042) (1,990)
----------------------------- ------------------------------
Benefit obligation at end of year $ 258,848 $ 243,435 $ 33,506 $ 32,461
============================= ==============================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year $ 251,439 $ 217,676 $ - $ -
Actual return on plan assets 115,699 36,284 - -
Benefits paid (24,588) (2,521) - -
----------------------------- ------------------------------
Fair value of plan assets at end of year $ 342,550 $ 251,439 $ - $ -
============================= ==============================
FUNDED STATUS
Plan assets (in excess) less than projected
benefit obligation $ (83,702) $ (8,004) $ 33,506 $ 32,461
Unamortized:
Net actuarial gain 200,522 91,935 12,052 11,512
Net asset at transition 12,558 13,953 - -
Prior service (cost) benefit (58,549) (39,760) 1,825 1,994
----------------------------- ------------------------------
Accrued benefit cost $ 70,829 $ 58,124 $ 47,383 $ 45,967
============================= ==============================
</TABLE>
Plan assets are primarily invested in listed stocks, bonds, and cash
equivalents.
17
<PAGE> 18
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
RETIREMENT PLANS (CONTINUED)
The following table summarizes the assumptions used by the consulting actuary,
and the related benefit cost information:
<TABLE>
<CAPTION>
PENSION BENEFITS HEALTH CARE BENEFITS
--------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
--------------------------------------- ----------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED-AVERAGE
ASSUMPTIONS
Discount rate 7.50% 7.00% 7.50% 7.50% 7.00% 7.50%
Future compensation
assumptions 3.25% 3.25% 3.25% - - -
Expected long-term return
on plan assets 8.50% 8.00% 8.00% - - -
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $15,588 $12,287 $ 9,615 $ 1,739 $1,365 $1,128
Interest cost 18,483 14,712 13,430 2,377 2,206 1,748
Expected return on plan (20,944) (17,406) (14,808) - - -
assets
Amortization of:
Prior service cost 5,225 3,636 3,698 (169) (169) (169)
(benefit)
Net asset gain at (1,395) (1,395) (1,395) - - -
transition
Net actuarial gain (4,238) (5,115) (4,888) (489) (709) (880)
--------------------------------------- ----------------------------------------
Net periodic benefit cost $12,719 $ 6,719 $ 5,652 $ 3,458 $2,693 $1,827
======================================= ========================================
</TABLE>
For measurement purposes, the Company assumed a weighted-average annual rate of
increase in the per capita cost of health care benefits (health care cost trend
rate) of 7.9% for 2000 declining gradually to 5.0% in 2006 and thereafter.
The assumed health care cost trend rate has a significant effect on the amounts
reported. For example, a one percentage point increase in the assumed health
care cost trend rate would increase the accumulated post retirement benefit
obligation by $4,267,000 and the service and interest costs components by
$629,000 as of December 31, 1999. Conversely, a one percentage point decrease in
the assumed health care cost trend rate would decrease the accumulated post
retirement benefit obligation by $3,661,000 and the service and interest costs
components by $528,000.
The Company charged to operations $9,134,000 in 1999, $8,034,000 in 1998, and
$7,290,000 in 1997 relating to its defined contribution 401(k) plan. This plan
covers employees not subject to labor contracts. Annual contributions are
related to the level of voluntary employee participation.
18
<PAGE> 19
9. STOCK PLANS
MANAGEMENT INCENTIVE STOCK PLAN
The Company's Management Incentive Stock Plan (the "Stock Plan") authorizes the
granting of up to an aggregate of 1,200,000 shares of common stock at the
discretion of the Board of Directors to officers and certain key employees of
the Company. An award of incentive stock involves the immediate transfer to a
participant of a specific number of shares of the Company's common stock in
consideration of the performance of future services. The participant is
immediately entitled to voting, dividend, and certain other ownership rights in
the shares. The Board approved grants of 656,000 shares, of which 181,000 were
awarded in 1999, and 159,000 were awarded in 1998. These grants are recorded as
the unearned portion of restricted stock awards. The grants, originally recorded
at market price, are amortized to compensation expense over the period for which
the stock is restricted. Compensation expense relating to the Stock Plan
amounted to $ 1,820,000 in 1999, $1,222,000 in 1998, and $728,000 in 1997.
EQUITY OWNERSHIP PLAN AND NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
Under the Equity Ownership Plan, which was implemented in 1998, the Board is
authorized to award officers and key employees with various types of stock-based
compensation, including stock options. Stock options vest over a period of four
years from the date of grant, are exercisable at the rate of 25% each year, and
expire at the end of ten years. The number of shares of common stock that may be
issued or transferred under the plan may not exceed 1,300,000. During 1999, the
Board approved grants of 704,250 stock options under this plan.
Under the Nonemployee Directors' Stock Option Plan, directors can elect to
invest all or a portion of their retainers in stock options. These stock options
vest 1 year from the date of grant and expire at the end of ten years. The
number of options issued under this plan may not exceed 100,000. During 1999 and
1998, 10,329 and 6,599 options were issued under this plan.
19
<PAGE> 20
9. STOCK PLANS (CONTINUED)
The following tables summarize all stock option activity:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
WEIGHTED Weighted
NUMBER OF AVERAGE Number of Average
STOCK OPTIONS EXERCISE Stock Exercise Price
PRICE Options
-------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Outstanding January 1 6,599 $ 24.56 - -
Exercised - - - -
Granted 714,579 20.41 6,599 $ 24.56
Forfeited or expired - - - -
-------------- -------------- ------------ ---------------
Outstanding December 31 721,178 $ 20.45 6,599 $ 24.56
============== ============== ============ ===============
Exercisable at year-end 6,599 $ 24.56 - -
Weighted-average fair value of
options granted during the year
$ 8.86 $ 12.03
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following table shows the
weighted-average valuation assumptions used in 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------- -- ----------------
<S> <C> <C>
Expected life 5.0 YEARS 8.0 years
Risk-free interest rate 5.9% 5.7%
Volatility 44.7% 38.2%
Dividend yield 1.0% 0.8%
</TABLE>
20
<PAGE> 21
9. STOCK PLANS (CONTINUED)
The following table summarizes information about stock options outstanding as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- --------------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- ----------------------- ---------------- --------------------- ------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$ 10 - 15 10,329 0.0 years $ 14.44 - -
20 - 25 710,849 3.8 20.54 6,599 $ 24.56
---------------- --------------------- ------------- ----------------- --------------
721,178 3.8 years $ 20.45 6,599 $ 24.56
================ ===================== ============= ================= ==============
</TABLE>
As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has elected to follow APB No. 25, Accounting for Stock Issued to
Employees and related Interpretations, in accounting for stock-based awards to
employees. Under APB No. 25, compensation expense is not recognized in the
Company's financial statements because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant.
Under SFAS No. 123, compensation cost is measured at the grant date based on the
value of the award and is recognized over the vesting period. Had compensation
cost been determined under SFAS No. 123, based on the Black-Scholes value at the
grant date, the Company's pro forma net income and earnings per share would have
been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------- --------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income - as reported $ 45,773 $ 26,034 $ 36,905
Net income - pro forma 45,590 26,000 36,905
Net income per share
Basic:
As reported $ 2.43 $ 1.33 $ 1.83
Pro forma 2.42 1.33 1.83
Diluted:
As reported $ 2.39 $ 1.31 $ 1.80
Pro forma 2.38 1.31 1.80
</TABLE>
21
<PAGE> 22
9. STOCK PLANS (CONTINUED)
OTHER STOCK PLANS
Under the Company's Employees' Stock Purchase Plan, all full-time eligible
employees may purchase shares of the Company's common stock up to 10% of their
respective compensation through payroll deductions. The purchase price under the
plan is 85% of the fair market value of the Company's common stock. Under this
plan, employees purchased 215,000 shares in 1999, 240,000 shares in 1998, and
172,000 shares in 1997.
The Company's Union Stock Plan provides stock awards to employees subject to
labor contracts who meet the eligibility and performance requirements of
providing a safe, reliably staffed, and injury-free work environment. The
Company allocated 50,000 shares in 1999, 10,000 shares in 1998, and 20,000
shares in 1997 for grant under this plan.
10. LEASES
The Company leases certain terminals and revenue equipment under noncancellable
operating leases requiring minimum future rentals aggregating $133,419,000
payable as follows: 2000--$35,445,000; 2001--$33,897,000; 2002--$22,683,000,
2003--$11,711,000; 2004--$6,842,000; and thereafter $22,841,000. Rental expense
for operating leases was $34,687,000, $23,557,000 and $14,997,000 for 1999,
1998, and 1997, respectively.
Interest rate swaps were entered with major commercial banks to modify interest
characteristics of certain revenue equipment leases. The fair value of the
Company's interest rate swap agreements is estimated using present value
discounting techniques. These values represent the amounts the Company would
receive or pay to terminate the agreements taking into consideration current
interest rates.
11. CREDIT FACILITIES
At December 31, 1999, the Company had $38,000,000 available through unsecured
credit facilities with certain banks. Borrowings under the agreements generally
bear interest at LIBOR plus .25%, and include covenants that require the Company
to maintain certain financial ratios, including a minimum level of consolidated
net worth. Under these facilities, interest expense, which approximates interest
paid, amounted to $716,000 in 1999, $937,000 in 1998, and $451,000 in 1997.
22
<PAGE> 23
12. CONTINGENCIES
Various legal proceedings arising from the normal conduct of business are
pending but, in the opinion of management, the ultimate disposition of these
matters will have no material effect on the financial condition or operations of
the Company.
The Company has received notices from the Environmental Protection Agency
("EPA") that it has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response Compensation and Liability Act
(Superfund) at certain hazardous waste sites. Such designations are made
regardless of the Company's limited involvement at each site. The claims for
remediation have been asserted against numerous other entities which are
believed to be financially solvent and are expected to fulfill their
proportionate share. The Company accrues for losses associated with
environmental remediation obligations when such losses are probable and
reasonably estimable. Based on its investigations, the Company believes that its
obligation with regard to these sites is de minimis, although there can be no
assurances in this regard.
The Company's former parent is currently under examination by the Internal
Revenue Service for tax years 1994 and 1995, years prior to the spin-off of the
Company. The IRS has proposed substantial adjustments for these tax years for
multi-employer pension plan deductions. The IRS is challenging the timing, not
the validity of these deductions. The Company is unable to predict the ultimate
outcome of this matter; however, its former parent intends to vigorously contest
these proposed adjustments.
Under a tax sharing agreement entered into by the Company and its former parent
at the time of the spin-off, the Company is obligated to reimburse the former
parent for any additional taxes and interest that relate to the Company's
business prior to the spin-off. The amount and timing of such payments, if any,
is dependent on the ultimate resolution of the former parent's disputes with the
IRS and the determination of the nature and extent of the obligations under the
tax sharing agreement. The Company has established certain reserves with respect
to these proposed adjustments. There can be no assurance, however, that the
amount or timing of any liability of the Company to the former parent will not
have a material adverse effect on the Company's results of operations and
financial position.
23
<PAGE> 24
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Roadway Express, Inc.
We have audited the accompanying consolidated balance sheets of Roadway Express,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
statements of consolidated income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Roadway Express,
Inc. and subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Akron, Ohio
January 21, 2000
24
<PAGE> 25
SELECTED QUARTERLY FINANCIAL DATA
Roadway Express, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
1999 1998 1999 1998 1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $605,278 $621,663 $621,122 $609,352 $652,218 $617,135 $934,596 $805,944
Operating income $ 13,472 $ 10,824 $ 12,781 $ 9,078 $ 16,219 $ 8,315 $ 34,744 $ 15,843
Net income $ 7,939 $ 6,609 $ 7,624 $ 5,307 $ 9,645 $ 4,328 $ 20,565 $ 9,790
Net income per
share:
-basic $ 0.42 $ 0.33 $ 0.41 $ 0.26 $ 0.51 $ 0.23 $ 1.09 $ 0.51
-diluted $ 0.42 $ 0.32 $ 0.40 $ 0.27 $ 0.50 $ 0.22 $ 1.07 $ 0.50
Common stock
-High $ 18 5/8 $ 26 $ 20 7/16 $ 26 3/4 $ 23 $ 18 7/8 $ 23 3/8 $ 16 3/16
-Low $ 13 1/2 $ 20 $ 15 5/8 $ 15 1/4 $ 17 5/8 $ 10 5/8 $ 16 5/8 $ 9 5/8
Dividends
declared per
share $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05
Average shares
outstanding
-basic 18,800 20,108 18,803 20,110 18,815 19,267 18,823 19,120
-diluted 18,985 20,337 19,072 20,352 19,122 19,473 19,142 19,297
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company uses 13 four-week accounting periods with 12 weeks in each of the
first three quarters and 16 weeks in the fourth quarter . There are
approximately 26,000 holders of record of common stock.
The Company's common stock trades on the NASDAQ Stock Market under the symbol
ROAD. The NASDAQ Stock Market is a highly regulated electronic securities market
comprised of competing Market Makers whose trading is supported by a
communications network linking them to quotation dissemination, trade reporting,
and order execution systems
25
<PAGE> 26
HISTORICAL DATA
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-----------------------------------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenue $ 2,813,214 $ 2,654,094 $2,670,944 $ 2,372,718 $ 2,288,844
Operating Expenses
Salaries, wages and benefits 1,793,594 1,724,970 1,699,692 1,544,926 1,545,000
Operating supplies and expenses 468,452 456,884 462,895 409,900 395,170
Purchased transportation 289,544 260,445 268,344 193,640 158,494
Operating taxes and licenses 76,113 74,604 74,777 75,041 74,720
Insurance and claims 62,700 53,948 60,920 50,856 54,826
Provision for depreciation 45,492 41,422 49,010 62,681 71,669
Net (gain) loss on sale of
carrier operating property 103 (2,239) (5,955) (8,256) (267)
-----------------------------------------------------------------------
Total operating expenses 2,735,998 2,610,034 2,609,683 2,328,788 2,299,612
-----------------------------------------------------------------------
Operating income (loss) 77,216 44,060 61,261 43,930 (10,768)
Other income (expense) - net 2,529 1,353 (605) (1,460) (3,107)
-----------------------------------------------------------------------
Income (loss) before income taxes 79,745 45,413 60,656 42,470 (13,875)
Provision (benefit) for income taxes 33,972 19,379 23,751 20,582 (1,206)
-----------------------------------------------------------------------
Net income (loss) $ 45,773 $ 26,034 $ 36,905 $ 21,888 $ (12,669)
=======================================================================
Earnings (loss) per share - basic(1) $ 2.43 $ 1.33 $ 1.83 $ 1.08 $ (0.62)
Earnings (loss) per share - diluted $ 2.39 $ 1.31 $ 1.80 $ 1.07 $ (0.62)
Cash dividends declared per share (2) $ 0.20 $ 0.20 $ 0.20 $ 0.15 n/a
Average number of shares outstanding
-basic 18,811 19,617 20,210 20,338 20,557
-diluted 19,119 19,815 20,526 20,533 20,557
Total shareholders' equity $ 290,955 $ 249,609 $ 249,436 $ 224,596 $ 205,642
Total assets $ 831,408 $ 748,833 $ 743,986 $ 709,624 $ 713,607
Tons of freight - less-than-truckload 6,779 6,566 6,717 6,238 6,053
- truckload 1,665 1,632 1,620 1,403 1,444
-----------------------------------------------------------------------
Total 8,444 8,198 8,337 7,641 7,497
Intercity miles 755,855 718,238 724,683 650,602 642,224
Ton miles 11,011,683 10,752,532 10,923,998 9,873,927 9,647,661
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Notes: (1) Earnings per share for the year 1995 were retroactively computed
based on the number of shares outstanding following the spin-off from
the former parent.
(2) Dividends declared for year 1995 were paid to former parent and are
not applicable.
26
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
1. Roadway Express International, Inc., a Delaware corporation
2. Roadway S.A. de C.V., a Mexican corporation
3. Roadway Express, B.V., a Netherlands corporation
4. Roadway Express (Canada), Inc., an Alberta corporation
5. Rexsis, Inc., an Ohio corporation
6. Transcontinental Lease S.A. de C.V., a Mexican corporation
7. Reimer Express Lines (REL) Ltd., a Canadian corporation
1
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors
Roadway Express, Inc.
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Roadway Express, Inc. of our report dated January 21, 2000, included in the
1999 Annual Report to Shareholders of Roadway Express, Inc.
Our audits also included the financial statement schedule of Roadway Express,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Akron, Ohio
March 21, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROADWAY
EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1999 (AUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 80,797
<SECURITIES> 0
<RECEIVABLES> 299,599
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 398,336
<PP&E> 1,356,533
<DEPRECIATION> 976,205
<TOTAL-ASSETS> 831,408
<CURRENT-LIABILITIES> 363,359
<BONDS> 0
0
0
<COMMON> 206
<OTHER-SE> 290,749
<TOTAL-LIABILITY-AND-EQUITY> 831,408
<SALES> 0
<TOTAL-REVENUES> 2,813,214
<CGS> 0
<TOTAL-COSTS> 2,735,998
<OTHER-EXPENSES> (2,529)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 79,745
<INCOME-TAX> 33,972
<INCOME-CONTINUING> 45,773
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,773
<EPS-BASIC> 2.43
<EPS-DILUTED> 2.39
</TABLE>
