<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-25352
AMPACE CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 36-3988574
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
130 MABRY HOOD ROAD, SUITE 220
KNOXVILLE, TENNESSEE 37922
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES,
INCLUDING ZIP CODE)
Issuer's Telephone Number, Including Area Code: (423) 691-5799
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.0001 PER SHARE
(TITLE OF CLASS)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was
<PAGE> 2
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $30,446,000.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days. (See definition of affiliate in Rule 12b-2 of the
Exchange Act.)
As of March 7, 1997, shares of the registrant's common stock, par
value $0.0001 per share ("Common Stock") were sold at $1.38 per share,
and the aggregate market value of the Common Stock of he registrant held
by non-affiliates was approximately $3,042,900.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of March 7, 1997,
3,075,000 shares of the issuer's Common Stock were outstanding.
Documents incorporated by reference:
Portions of the registrant's Proxy Statement for its 1997 Annual Meeting
are incorporated by reference into Part III of the Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
2
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Ampace Corporation was formed by senior level executives that represent
over 60 years of experience with large and medium sized trucking companies.
During its first two years, Ampace has begun the process of building a national
non-union, full-truckload transportation services company by acquiring and
integrating multiple carriers that fit a defined operating format developed by
Management. The Company targets carriers with strong customer relationships and
positive cash flow where Management believes that growth and profitability can
be enhanced. By integrating individual small and mid-size carriers within a
larger economic group, Management believes that Ampace will preserve the
positive driver, customer and cultural aspects of small and mid-size companies
while providing the technology, purchasing economics, capital and management
power of a large company.
In 1995, Ampace acquired the stock of MDX simultaneous with the closing of
an initial public offering. See "Item 12. Certain Relationships and
Transactions." MDX is a non-union, dry-van, full-truckload carrier operating
in the Midwest, Mid-Atlantic, Southeast and Southwest United States. MDX fits
the Company's defined operating format as a strategic acquisition. MDX, based
in Monroe, Louisiana was founded in 1977 as a medium length of haul carrier
that focused on shippers needing service closely integrated with their
manufacturing operations. The Company is presently a "core carrier" for Dow
Chemical, Riverwood International, Georgia Pacific Corporation and a division
of General Motors Corporation. "Core carrier" relationships involve alliances
between volume shippers and their distribution partners.
INDUSTRY OVERVIEW
According to a report entitled "Growth Vehicles" issued by Alex. Brown
& Sons Incorporated on February 21, 1997, the North American truckload industry
is estimated to be $100 billion in potential size. The truck transportation
service industry is highly fragmented. The three largest companies have a
combined market share of only 4-5%. Most of the market, however, is served by
small and mid-sized carriers. Management believes that these smaller carriers
start out focused on a small network of major customers and driver domiciles.
In attempting to grow, these carriers lose their focus and end up with a nearly
random network of routes where lower prices, driver turnover and operational
inefficiencies negatively impact performance.
Following the implementation of the Motor Carrier Act of 1980 and the
resulting lowering of regulatory entry barriers, there was a proliferation of
carriers in the trucking industry. In the 1990s, many large shippers have
moved toward fewer carrier relationships in order to secure a broader range of
services including predictable on-time delivery of goods necessary for
"just-in-time" inventory management. This has resulted in a trend toward
consolidation of carriers into larger-sized, better capitalized and
technologically more advanced carriers.
1
<PAGE> 4
The for-hire truckload industry suffers from a shortage of people willing
to drive a truck given the lifestyle and compensation. Management believes
that this shortage is forcing carriers and shippers to reevaluate how they will
attract and retain people willing to drive. Several large carriers have
recently implemented material increases in their driver pay rates. Management
believes that the mid-size and smaller carriers will eventually be required to
follow suit creating a requirement to either increase shipper rates or sustain
lower profit margins. These changes should continue the pressure for
additional industry consolidation.
COMPANY STRATEGY
The Company's business strategy consists of the following major elements:
Strategic acquisition of carriers. Ampace targets potential acquisition
candidates based upon on size, geographic location, profitability, freight lane
focus and the opportunity for improvements in performance. Ampace identifies
candidates through industry data, referrals, industry M&A specialist, and
investment bankers. Each potential acquisition is reviewed to identify key
shipper relationships, driver domiciles, equipment configuration and condition
and operating costs. After potential acquisitions are reviewed, Management
models historic financial and operating data to determine a value and
strategic fit.
Assembly of a well-structured freight network. The Ampace strategy
recognizes that market forces create major volumes of freight from producing
areas to consuming areas within the United States. Management believes that
most small and mid-size carriers attempting to grow operate in a sub-optimal
combination of lanes and random destinations. The Company is building a
freight network connecting producing and consuming areas or nodes ("Nodes").
These Nodes are generally located within a 150 mile radius of large
metropolitan areas and are connected by high density freight corridors or power
lanes ("Power Lanes"). A structured freight network of Nodes and connecting
Power Lanes will provide equipment utilization efficiencies, frequent driver
home-time and optimal pricing of services.
The freight moving primarily over power lanes is generated by basic
materials manufactures; large retail and/or distribution organizations; the
food processing industry; and large component assembly concerns. Current
customers generating power lane freight are Dow Chemical, Georgia Pacific
Corporation, Klaussner Furniture Industries, Riverwood International,
International Paper, the Dalton, Georgia Carpet Industry; and Delphi division
of General Motors.
The freight moving primarily within the "node" metropolitan areas is
generated by industries such as beverage container producers, packaging
manufactures, retail distribution and intermodal operations. Ampace is serving
this group of shippers with stand-alone short-haul and local operations called
operating centers under Ampace Dedicated Services, Inc. ("Ampace Dedicated
Services"). Management believes this short length of haul offers the Company
favorable economic opportunities, including the ability to base drivers close
to a terminal and return the drivers home nightly.
2
<PAGE> 5
Current Ampace customers generating short haul freight within key
metropolitan "nodes" include Johnson Controls, Chep Pallet Corporation, Georgia
Pacific Corporation, International Paper, Florida Made Doors, Coca-Cola and
Gaylord Container.
Motivation of road teams and customer teams. Ampace emphasizes the
motivation of road teams (i.e. drivers and driver support personnel) and
customer teams (i.e. customer support personnel) to enhance the Company's
profitability and growth. Ampace uses engineered service/price offerings to
quality customers to support specific driver needs including home-time,
adequate earnings and predictable work schedules. Management believes that
empowered road teams will provide shippers with better service. Ampace works
to develop highly motivated customer service teams to assist drivers, provide
better service to customers, and manage costs.
Implementation of program for operational improvement. With each acquired
carrier, Ampace institutes a three-stage program to improve performance. The
initial stage is focused on sales, operations and equipment. The second stage
is focused on the motivation of the road teams and the customer teams along
with network structuring, pricing, driver retention, finance and key operating
factor management. The third stage is focused on purchasing economies,
operating efficiencies and the sharing of administrative and accounting systems
resulting from economic consolidation of the business units.
Each of Ampace's acquisitions to date fit the strategy described above and are
in different stages of performance improvement.
DISTRIBUTION NETWORK
Ampace's freight network has three elements: (i) long-haul, (ii)
short-haul and local, and (iii) dedicated.
Long-haul Network
Ampace's long-haul network consists primarily of MDX's freight lanes which
are the Southwestern states of Texas and Louisiana on the one hand and the
Midwest and Southeast on the other. MDX is based in Monroe, Louisiana with
offices, maintenance facilities and primary driver domicile. As the Ampace's
operating centers grow and as Ampace makes additional acquisitions, long-haul
freight lane coverage will expand.
Short-haul and Local Network
Ampace's short-haul and local network is served by ADS within about a 200
mile radius of operating centers. Each operating center is a full service
truckload operation with domiciled drivers, maintenance capability and on-site
operations and customer service personnel. Each Ampace Dedicated Services
operating center is supported with accounting and administrative personnel in
the Knoxville, Tennessee headquarters.
3
<PAGE> 6
The following are the current operating centers that are part of ADS:
Orlando, Florida
Dalton, Georgia
Asheboro, North Carolina
Atlanta, Georgia
Cleveland, Ohio
Dedicated Network
Ampace provides dedicated and near-dedicated service to shippers who need
service that mirrors what they would receive with their own fleet of trucks.
Ampace provides this type service to shippers including Georgia Pacific
Corporation, Klaussner Furniture Industries and Florida Made Doors. Ampace
focuses on this type of customer need in its business development efforts and
expects to significantly expand its dedicated revenue base.
CUSTOMERS AND MARKETING
Ampace operating units transport a variety of products for major shippers
including Dow Chemical, General Motors and Riverwood, Georgia Pacific,
Klaussner Furniture Industries and others.. These products include: metal,
chemicals, plastics, heavy paper, auto parts, retail merchandise, carpet,
building materials, and furniture. Additionally, MDX and Ampace Dedicated
Service provide dedicated and near-dedicated contract carriage services to a
number of significant shippers.
Management is committed to expand market presence in key nodes by
active business development activities. Growth opportunities exist to expand
upon the business relationships of its core shippers and to develop core
carrier relationships with some of its other potentially large shippers. During
1996, Ampace began the development of its key market nodes strategy (i.e.
operating centers) with the acquisition of the Florida-based division of SMX
Transport, Inc. ("SMX"), an intrastate carrier and Amanday Express, Inc. in
Asheboro, North Carolina. Presently, the Company has opened additional
operating centers in Atlanta, Cleveland and Dalton, Georgia. A base group of
customers are a part of each carrier acquisition. Ampace management must work
to transition existing customer relationships and to utilize over forty years
of combined experience in truckload sales of the senior management team to
increase this customer base. Additionally, Ampace develops the synergistic
opportunities that exist between each operating company's core customer base.
As of December 31, 1996, approximately 27% of the Company's total revenues
were generated from its two largest customers. Most of the Company's carriage
contracts with customers are cancelable on 30-days notice by the customers
including those of the largest five customers. The loss of one or more large
customers would have a material adverse effect on the Company's operating
results.
4
<PAGE> 7
COMPETITION
The for-hire truckload transportation industry is extremely competitive
and fragmented with large numbers of motor carriers competing for freight and
drivers. No carrier has been able to dominate a particular segment of the
industry. A number of competitors of the Company have greater financial
resources, more equipment and transport much larger volumes than the Company.
The Company competes with most of the industry's major carriers including
Burlington Motor Carriers, Schneider National, Inc., JB Hunt Transport, Inc. as
well as several of the regional companies. Management believes that intermodal
competition is generally not a major factor in the lanes where the Company has
a significant presence.
Although the Motor Carrier Act of 1980 and the resulting deregulation of
the industry has caused downward pressure on rates and increased the number of
competitors, Management feels that the Company competes primarily on the basis
of service provided. The Company feels its Power Lane, with associated cost
efficiencies, and Node (i.e. operating centers) strategies along with its
dedication to road and customer teams will differentiate the Company from its
competitors over the long term. Management does believe that maintaining a low
cost position with aggressive pricing will be a factor in its ability to
attract new business in the highly competitive market of the middle nineties.
The Federal Aviation Administration Authorization Act of 1994 (the "1994
FAA Act"), effective January 1, 1995, preempts certain state and local laws
regulating the prices, routes or services of motor carriers. The Act has
served to open several intrastate markets to Ampace operating units. The
expansion of dedicated operations in Louisiana for Georgia Pacific Corporation
is a notable example.
EQUIPMENT AND MAINTENANCE
As of December 31, 1996, the Company's fleet consisted of 256 tractors and
631 trailers. The average age of the tractor fleet is approximately 2.5 years
and includes equipment ranging generally from 1991 to 1997 model years. All of
the Company-owned trailers are 1992 model year or newer.
The Company generally follows a replacement cycle of four years with
respect to tractors and seven years with respect to trailers with the actual
replacement dependent on used equipment values and the specific unit's
maintenance cost history. The Company took delivery of 48 new tractors for
replacement purposes in 1996. All 1993 and newer model year tractors have
been purchased with air ride suspensions for driver comfort. All late-model
tractors have been specified to include the latest technology for fuel
efficiency, safety and driver amenities including electronic engines,
aerodynamic cabs and double sleeper bunks.
The Company has historically utilized full-service equipment leases. These
leases provide for equipment maintenance at leased facilities with contracted
personnel. The Company will complete in the near future its conversion to
Company-operated equipment, and it will staff its own maintenance shops in
Monroe, Louisiana, Dalton, Georgia, Orlando, Florida and Asheboro, North
Carolina. Management believes this conversion should result in additional cost
savings.
5
<PAGE> 8
OPERATIONS
The Company now uses computerized operating systems in all of its
locations. A communications system is being designed to include voice mail,
data and location information.
The Company performs "just-in-time" service for several of its largest
shippers including General Motors. It maintains an electronic data interchange
("EDI") capability with several key accounts for improved response to service
needs. TIC, Inc., a privately contracted fuel network, provides the Company
with readily available fuel at competitive prices throughout its operating
territory.
DRIVERS
Management believes that the driver standards of the Company exceed those
set by the Department of Transportation ("DOT"). Most new drivers receive two
days of initial training and orientation after having passed a first interview,
background check and a second interview or meeting with the Safety Director.
Turnover of driver personnel at the Company since 1990 has averaged
between 30% and 80% annually which Management believes is better than the
industry average. The Company's relatively low turnover is evidence of its
success with driver retention. Drivers are generally home on a weekly basis.
Most driving personnel are provided with laundered company uniforms at no
charge. Base pay, multiple incentives, and benefits are intended to keep the
Company driver compensation in the top 20% of drivers in the local area. To
enhance resale value and promote driver goodwill, tractors are equipped with
the latest amenities including custom interiors and double bunks. Double bunk
units also support driver training, a family passenger program which allows
family members to accompany certain drivers on trips, and a small number of
driving teams used for the transit of time sensitive shipments.
OFFICE AND SHOP PERSONNEL
As of December 31, 1996, the Company employed 335 persons, of which 250
are drivers, 61 are operations and administrative personnel and 24 are
mechanics. The Company has maintained a non-union work place since inception.
Management believes that the relationship with its employees is good.
SAFETY AND INSURANCE
The Company currently retains insurance coverage up to $10 million for
automobile liability, $10 million for general liability and $500,000 for each
cargo claim less a $2,500 deductible. Workers' compensation claims are
self-insured to $100,000 per claim with insurance coverage in excess of that
amount. The Company implemented a new benefit program for all employees
effective January 1, 1997. The program is designed to save the Company
considerable expense while providing very competitive coverage for the
Company's employees.
6
<PAGE> 9
The Company drivers must pass a safety screening test before joining the
Company. The Company's policy is that each driver applicant may have no more
than a total of three accidents or moving violations combined during the
previous two years, must be at least 21 years of age, and have at least one
year of over-the-road driving experience. In addition, driver applicants must
pass a road test, a complete physical and a drug screening. Upon acceptance,
most new drivers undergo two days of initial training and orientation focused
on safe performance of the job.
REGULATION
The Company is subject to regulation by various state regulatory agencies
in connection with operating rights and other matters. The Company must also
comply with safety regulations prescribed by the DOT including those regarding
drug and alcohol testing and driver hours of service. The Company's operations
are subject to various federal, state and local environmental laws and
regulations promulgated by the EPA and state agencies. These regulations
govern the management of hazardous wastes, the discharge of pollutants and the
disposal of specified substances. The Company believes that its operations are
in material compliance with current laws and regulations.
ITEM 2. DESCRIPTION OF PROPERTY.
Knoxville, Tennessee
During 1995, the Company moved its principal executive offices from
Chicago, Illinois to 130 Mabry Hood Road, Suite 220, Knoxville, Tennessee. The
Company occupies space pursuant to a lease which provides for rent of $1,700
per month and will expire in December 1997.
Monroe, Louisiana
The operations of the Company's MDX subsidiary are located on 6.4 acres in
Monroe, Louisiana, owned by the Company. The facilities are located in three
buildings: the first building consists of 6,300 square feet of office space and
an 8,000 square foot tractor shop; the second building consists of a 8,000
square foot trailer shop; and the third building consists of a 2,000 square
foot tire facility. The Company owns an additional 15 acres located within
five miles of their operation which is available for expansion.
Dalton, Georgia
The Company leases a terminal property that is used for consolidating
small carpet shipments into truckloads. The facility is located on two acres
with one acre paved and one acre graveled. The terminal facility is a brick
and metal building of 6,000 square feet with 18 dock doors and 2,000 square
feet of office space. This facility is located within the city limits of
Dalton. The Company leases this space pursuant to leases which provided for
rent of $1,600 per month through May 8, 1995, and provides for $2,300 per month
through May 8, 1998. The
7
<PAGE> 10
Company is currently in the process of looking for additional facilities in
the Dalton area to accommodate its expected growth during 1997.
Asheboro, North Carolina
The Company owns its terminal facility in Asheboro consisting of a metal
maintenance building with 10,000 square feet, a tractor and trailer yard of
about 4 acres, a metal storage building of about 2,000 square feet and a metal
office building with 3,000 square feet and one acre of parking.
Orlando, Florida
The Company leases a terminal facility in Ocoee, Florida consisting of
about 1,000 square feet of office, 1,500 square feet of shop and a 2.5 acre
tractor and trailer parking yard. The lease has a 90 day cancellation clause
and provides for rent of $2,600 per month.
ITEM 3. LEGAL PROCEEDINGS.
The Company has been from time to time a party to litigation incidental to
its business, primarily involving claims for personal injury and property
damage incurred in the transportation of freight. The Company has received
notice of a claim from a former employee for damages related to his employment
with the Company during 1996. The Company maintains insurance that it believes
is adequate to cover its liability risks. See "Item 1. Description of
Business -- Safety and Insurance."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRINCIPAL MARKET OR MARKETS
Since February 17, 1995, the Ampace Common Stock has been listed and
traded on the Nasdaq National Market under the symbol PACE.
The following table sets forth the high and low closing prices of Ampace
Common Stock for the quarterly periods during 1996, as reported by the Nasdaq
National Market and reflects a 43% stock dividend in 1995 as reflected in Note
6 to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Fiscal 1995 High Low
- ----------------------------- ------ -----
<S> <C> <C>
February 17, - March 31, 1995 5 1/2 4 57/64
April 1 - June 30, 1995 5 1/4 4 35/64
July 1 - September 30, 1995 5 9/32 3 15/16
October 1 - December 31, 1995 5 3
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
Fiscal 1996 High Low
- -----------
<S> <C> <C>
January 1 -- March 31, 1996 $3 1/2 2 1/2
April 1 - June 30, 1996 4 5/8 1 7/8
July 1 - September 30, 1996 3 9/16 1 11/16
October 1 - December 31, 1996 1 13/16 7/8
</TABLE>
APPROXIMATE NUMBER OF HOLDERS OF AMPACE COMMON STOCK
The number of record holders of Ampace Common Stock at March 7, 1997 was
41 persons based upon stock transfer records. Based upon information provided
by Ampace's transfer agent and received from the principal market makers for
Ampace Common Stock, Ampace believes there are approximately 1,000 beneficial
owners of Ampace Common Stock.
DIVIDENDS
Except for a 43% dividend paid to Stockholders of record on September 21,
1995, Ampace has not paid any dividends or distributions since its inception.
Ampace currently anticipates that all of its earnings will be retained for
development of Ampace's business, and does not anticipate paying any cash
dividends in the foreseeable future. Future cash dividends, if any, will be at
the discretion of the Ampace Board and will depend upon, among other things,
Ampace's future operations and earnings, capital requirements and surplus,
general financial condition, contractual restrictions and such other factors as
the Ampace Board may deem relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The following discussion analyzes the Company's financial condition and
results of operations for the period ended December 31, 1995 with the period
ended December 31, 1996. Ampace's 1995 operations include the ten months
financial results of MDX subsequent to its February 1995 acquisition by Ampace
and twelve months of Ampace expenses. The Company's 1996 operations include
nine months financial results of Amanday subsequent to its March 1996
acquisition by Ampace, four months activity of Ampace Dedicated Services, Inc.,
which was started with the acquisition of the Florida-based division of SMX,
and twelve months of MDX and Ampace activities.
Ampace's revenues during 1995 were derived almost entirely from MDX's
carrier operations. Revenue on an annualized basis increased approximately 43
per cent from 1995 to 1996. This growth resulted both from increased business
with existing customers, the expansion of its customer base and the revenue
associated with the 1996 acquisitions. At December 31, 1995, the Company
operated a fleet comprised of 236 tractors and 525 trailers. At December 31
1996 the Company operated 256 company and 44 owner operator tractors and 631
trailers.
9
<PAGE> 12
During 1996 the Company's operating results were impacted significantly by
the temporary lose of key customer business during the third and early fourth
quarters, and the unrecovered cost of high fuel prices during most of the year.
The transition of the Company's two acquisitions during 1996 were without
major incident and were positive contributors during the year. Two general
managers, a corporate accounting manager and several support personnel were
hired to support the acquired companies. Additionally, standardized accounting
and operational electronic software were purchased and installed for the new
companies.
Subsequent to December 31, 1996, in its efforts to reduce costs and
improve operational effectiveness, the Company merged the two 1996 acquired
companies along with an MDX division in Dalton, Georgia, into Ampace Dedicated
Services, Inc. The administrative support is provided by personnel in
Knoxville, Tennessee.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of expense
items to operating revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996
---- ----
<S> <C> <C>
Operating Revenues 100.0% 100.0%
Operating Expenses:
Salaries, wages and employee benefits 40.4% 37.5%
Purchased Transportation 4.5%
Fuel 19.0% 18.0%
Depreciation 13.3% 12.7%
Rent 7.8% 6.6%
Operating supplies and expenses 7.9% 8.3%
Insurance and claims 3.5% 7.2%
Operating taxes and licenses 1.2% 1.9%
General and administrative expenses 4.4% 3.9%
Communication and utilities 1.5% 1.6%
----- -----
Total operating costs 99.0% 102.2%
----- -----
Operating income 1.0% (2.2%)
----- -----
Other income (deductions):
Interest income .5% .1%
Interest expense (net) (3.7%) (2.9%)
Other net 0.1% .2%
----- -----
(3.1%) (2.6%)
----- -----
Income before income taxes (2.1%) (4.8%)
Income taxes (1.0%) (1.9%)
----- -----
Net income (loss) (1.1%) (2.9%)
</TABLE>
10
<PAGE> 13
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Operating revenues for the twelve months ended December 31, 1995 were
$21.2 million as compared to $30.4 million for the twelve months ended December
31, 1996, or a 43% increase. This increase resulted primarily from a full
twelve months of MDX operation during 1996 and the acquisitions of Amanday and
the Florida-based division of SMX during 1996. Ampace's operating ratio for
1995 was 99.0% compared to 102.2% for 1996. The increase was primarily due to
the loss of key customer freight during the third and early fourth quarters and
unrecovered high fuel prices during most of 1996.
Salaries, wages and employee benefits expenses decreased 2.9% of revenue
from 40.4% for the year ended December 31, 1995 to 37.5% for the same period
during 1996. This reduction was due primarily to the addition of Amanday and
Ampace Dedicated revenue hauled by owner operators and the corresponding
operating leverage of existing salaries, wages and employee benefits.
Purchased transportation increased as a percentage of operating
revenues from zero for 1995 to 4.5% for 1996. This increase resulted from the
acquisitions of Amanday and the Florida-based division of SMX. Both companies
derive a portion of their revenue from the use of owner operators.
Fuel expense decreased to 18.0% of operating revenues for 1996 from 19.0%
for 1995. The decrease, despite significantly higher fuel prices, was due to
a higher percentage of the Company's revenue being generated by owner
operators. Owner operators are responsible for purchasing of their own fuel.
Depreciation as a percentage of operating revenues decreased slightly to
12.7% for 1996 from 13.3% for 1995. This change resulted primarily from the
addition of owner operator revenue during 1996 and the use of some older
revenue equipment purchased during the Amanday acquisition.
Rent expense as a percentage of operating revenues decreased from 7.8% for
1995 to 6.6% for 1996. This decrease was the result of reducing the number of
rental trailers per tractor.
Operating supplies and expenses increased as a percentage of operating revenues
to 8.3% for 1996 from 7.9% for 1995. This increase was principally the result
of the conversion from leased maintenance services and the addition of another
maintenance facility at Amanday.
Insurance and claims increased as a percentage of operating revenues from
3.5% for 1995 to 7.2% for 1996. The increase was due principally to higher
self-insured employee insurance claims at MDX. Operating taxes and licenses
increased from 1.2% of revenue for 1995 to 1.9% for 1996 as a result of one time
rebates received during 1995 in accordance with certain full service equipment
lease provisions.
General and administrative expense decreased as a percentage of operating
revenues to 3.9% for 1996 from 4.4% for 1995. The reduction resulted from a
combination of additional operating leverage of certain fixed costs associated
with an increase in the Company's revenue base during 1996, and a reduction in
professional fees associated with acquisition activities.
11
<PAGE> 14
Communication and utilities remained basically unchanged at 1.6% of operating
revenues for 1996 compared to 1.5% for 1995.
Net interest expense and other income decreased from 3.1% of operating
revenues for 1995 to 2.6% for 1996. The reduction resulted primarily from a
combination of less interest income from the reduction of excess cash used in
the Company's 1996 acquisitions, an increase in other income associated with
certain leasing activities of Amanday and the leveraging effect of the revenue
associated with the Company's owner operators. Income taxes have been provided
at the statutory federal and state rates, adjusted for certain permanent
differences for income tax purposes, primarily resulting from nondeductibility
of goodwill amortization.
As a result of the preceding changes, Ampace's net loss, as a percentage
of operating revenues, increased to (2.9)% for 1996 from (1.1%) for 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Operating revenues for the twelve months ended December 31, 1994 were
$21.6 million as compared to $21.2 million for the ten months ended December
31, 1995. Annualized revenues for 1995 were $24.8 million or 15% higher than
1994. This increase resulted primarily from a corresponding increase in the
number of tractors operated by MDX. Ampace's operating ratio for 1995 was
99.0% compared to the predecessor's 89.0% for 1994. The increase was primarily
due to the additional Ampace expenses of nearly $700,000, amortization of
acquisition related expenses and the weak freight market of 1995.
Salaries, wages and employee benefits expenses increased 4.6% of revenue
from 35.8% for the year ended December 31, 1994 to 40.4% for the same period
during 1995. This increase was due primarily to a full year impact of a 1994
increase in driver pay taken to enhance recruiting and retention allowing the
conversion from owner-operators to company drivers, and the additional expenses
of Ampace executives.
Purchased transportation decreased as a percentage of operating revenues
to zero from less than .1% for 1994. This decrease resulted from the completed
conversion to company-owned from owner-operator equipment at MDX. Fuel
expense increased to 19.0% of operating revenues for 1995 from 18.6% for 1994.
The increase was primarily due to higher fuel prices during 1995.
Depreciation as a percentage of operating revenues increased to 13.3% for
1995 from 11.4% for 1994. This change resulted primarily from a increase in
the number of trailers relative to the number of tractors in service and lower
equipment utilization during 1995 as result of less freight demand. Rent
expense as a percentage of operating revenues declines from 8.1% for 1994 to
7.8% for 1995. This decrease was the result of more company owned equipment
during 1995.
Operating supplies and expenses increased as a percentage of operating
revenues to 7.9% for 1995 from 5.2% for 1994. This increase was principally
the result of additional Ampace expenses and conversion from leased maintenance
services. Insurance and claims decreased as a
12
<PAGE> 15
percentage of operating revenues to 3.5% for 1995 from 4.7% for 1994. The
reduction was due principally to an improvement in MDX's claim experience during
1995.
Operating taxes and licenses declined from 1.9% of revenue for 1994 to
1.2% for 1995 as a result of rebates received during 1995 in accordance with
certain full service equipment lease provisions. General and administrative
expense increased as a percentage of operating revenues to 4.4% for 1995 from
2.5% for 1994 primarily as a result of the additional expenses of Ampace
corporate activities. Communication and utilities increased to 1.5% of
operating revenues for 1995 from .8% for 1994. The increase resulted primarily
from additional Ampace expenses and implementation of new communication
technology on the company's tractors.
Net interest expense declined from 5.6% of operating revenues for 1994 to
3.2% for 1995. The reduction resulted primarily from additional interest
income associated with the cash received from Ampace's sale of common stock
during 1995 and continued amortization of equipment related debt. Income taxes
have been provided at the statutory federal and state rates, adjusted for
certain permanent differences for income tax purposes, primarily resulting from
the non-deductible portion of reimbursements to drivers for meals and other
expenses.
As a result of the preceding changes, Ampace's net income, as a percentage
of operating revenues, decreased to (1.1)% for 1995 from 3.4% during 1994 for
the Predecessor.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been funds provided by
operations, equipment leases, term borrowings to finance equipment purchases
cash resulting from the sale of Ampace common stock and a working capital line
of credit supported by the Company's accounts receivable. Net cash provided
by operating activities totaled approximately $3.2 million and $.5 million for
the years ended December 31, 1996 and 1995, respectively. At December 31, 1996,
the Company had deficit working capital of $2.0 million compared to positive
working capital of $.5 million at December 31, 1995.
The working capital deficit is largely a result of the inclusion of
approximately $1.3 million of guaranteed residual values of equipment subject
to leases terminating in 1997 without giving effect to the anticipated
realization of such values at the time of lease termination.
Capital expenditures for the purchase of net assets totaled $3.8 million
and, $3.1 million for the years ended December 31, 1996 and 1995, respectively.
Capital expenditures were financed through equipment borrowings, capital lease
obligations, proceeds from the sale or trade-in of revenue equipment, seller
notes and cash from the Company's 1995 sale of common stock. The primary
assets acquired were revenue equipment for MDX and the net assets associated
with the acquisitions of Amanday and the Florida-based division of SMX.
At December 31, 1995, Ampace entered into revolving credit arrangement
with a bank which expires December 31, 1997. Borrowings under the agreement
are limited to the lesser of $3.0 million or a borrowing base of eligible
receivables. At December 31, 1996 and 1995, there were $.3 million and no
borrowings outstanding under this arrangement, respectively. The arrangement
requires Ampace to maintain certain financial ratios. At December 31, 1996,
the Company was not in compliance with certain financial ratios measuring
tangible net worth and debt service coverage. On March 22, 1997, the bank
waived the violations of these covenants through March 31, 1997 and the Company
is now in compliance. The Company and the bank are renegotiating revisions to
the covenants. Based upon the proposed revisions to the covenants and the
Company's proposed operating plan for 1997, management believes the Company will
be in compliance with the amended financial ratios of the credit facility
agreement during 1997.
13
<PAGE> 16
Management believes that with cash flow from operating activities, equity
in revenue equipment, equipment based financing and available borrowings under
its line of credit it will have sufficient working capital to meet the
Company's operating needs through the end of at least 1997. The Company will
continue to have significant capital requirements over the long term, which may
require it to incur debt, including seller financing, or seek additional equity
capital, particularly to finance acquisitions. The availability of this
capital will depend upon prevailing market conditions, the market price of the
shares and other factors over which the Company has no control, as well as the
Company's financial condition and results of operations.
SEASONALITY
The dry-van, full-truckload industry is subject to the effects of
seasonality as it relates to specific commodities. For example, retail
department store merchandise volumes are affected by the holidays and beverage
container volumes are increased during the summer months. While the Company
has a certain amount of seasonal freight, the majority of its freight is not
seasonal as represented by heavy paper, auto parts, chemicals and plastics.
During the winter months, operating expenses may increase because of delays,
decreased fuel efficiency, increased maintenance and accident costs. The
Company believes that the effects of seasonality are not significant and will
further decline by diversification of its customer base.
INFLATION
The effect of inflation on the Company has not been significant during the
last two years. However, an extended period of inflation could be expected to
have an impact on the Company's earnings by causing interest rates, fuel and
other operating costs to increase. Freight rates would have to be increased on
a timely basis to compensate for the increase in expenses caused by an increase
in interest rates. Unless freight rates could be increased, operating results
would be adversely affected.
ITEM 7 FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-18 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
14
<PAGE> 17
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY TERM EXPIRES
<S> <C> <C> <C>
Bruce W. Jones(1) 49 Chairman of the Board and 1998
Chief Financial Officer,
Secretary, Treasurer,
Director
Jay N. Taylor(2) 48 President and Chief Executive 1998
Officer, Director
David C. Freeman 50 Executive Vice President, 1998
Chief Operating Officer,
Director
Douglas M. Harper(1)(2) 49 Director 1999
David A. Lyman(1)(2) 49 Director 1999
</TABLE>
(1) Member of Audit Committee
(2) Member of Compensation Committee
Bruce W. Jones has served as Chairman of the Board of Directors and Chief
Financial Officer of the Company since August 1995. Prior to that he was Chief
Executive Officer from November 1994. From 1986 to 1991 he was Executive Vice
President and Chief Financial Officer of J. B. Hunt Transport, Inc., the
largest publicly-traded truckload carrier. From 1976 to 1985, he was Corporate
Controller of Schneider National, Inc., the largest privately held truckload
carrier. Mr. Jones is a Certified Public Accountant. From 1991 to 1993, he was
the President and Chief Operating Officer of Family Vision Center, Inc., a
privately-held optical retail and manufacturing company with 170 retail
locations in Wal-Mart, Sam's Club and Sears.
Jay N. Taylor has served as President and Chief Executive Officer of the
Company since August 1995. Prior to that he was the Company's Chief Operating
Officer from November 1994. From 1988 to 1989, Mr. Taylor served as Senior
Vice President of Country Wide Transport, a publicly-traded truckload carrier.
From 1987 to 1988 he was Senior Vice President, Operations and Marketing of
Tri-State Motor Transit, a publicly-traded specialized carrier. Prior to that
time, he served as a member of the executive management team at Schneider
National, Inc., where he led business development and planning for eight years,
Mr. Taylor started his career with Union Pacific Railroad as a financial
analyst. From 1990 to 1995 he was a Principal in the Beta Group, Inc., an
analytical and crisis management company specializing in the transportation
services industry.
David C. Freeman served as Executive Vice President, Operations and
Director of the Company November 1994 to August 1995. Since that time he has
served as Executive Vice President and Chief Operating Officer. From 1983 to
1989, Mr. Freeman was Group Vice President of Leaseway Transportation
("Leaseway") and led the start-up of a non-union, less than truckload operation
for Leaseway. From 1971 to 1982, he was President of Midwestern
15
<PAGE> 18
Distribution, Inc. a large publicly-traded trucking company, which was acquired
by Leaseway in 1982. From 1990 to 1995, he was a Principal in the Beta Group,
Inc.
David A. Lyman, has served as a Director of the Company since September
1995. Since late 1996 Mr. Lyman has been the Chief Operating Officer of
Peabody's Coffee, Inc. Prior to that he has served as a director of The
Synectics Group, a financial and management consulting organization providing
strategic funding solutions to growth companies. From August 1992 to August
1993, Mr. Lyman was Vice President of Operations of Family Vision Center. From
May 1991 to August 1992, he was a principal of the Beta Group. From March 1989
to May 1991, Mr. Lyman served as Vice President of Human Resources and
Administration of Capitol-EMI Music, Inc., a music company with record labels,
a manufacturing plant and a sales and distribution organization. From
September 1985 to September 1989, he was President of Organizational
Perspectives Inc., a consulting practice focusing on organizational performance
in turnaround and growth firms. Prior to that, Mr. Lyman served as Vice
President of Human Resources at Godfathers Pizza and prior to that, he served
in various positions at PepsiCo Inc.
Douglas M. Harper has been the Regional Manager for the Packaging Division
of Georgia-Pacific Corporation since 1992 and is responsible for the
manufacturing, distribution, sales and administrative operations of all
corrugated container facilities in the Eastern Region. Mr. Harper has held a
variety of positions within Georgia-Pacific Corporation since 1984. Prior to
that, Mr. Harper has also served as Vice President, Sales for The Grow Group as
well as having held a number of positions for the former Peterson/Puritan, Inc.
He has a BA from the University of Illinois and a MS from Eastern Illinois
University.
The Board of Directors of the Company currently consists of five members,
two of whom are not officers or employees of the Company. The officers of the
Company are elected at each annual meeting of the Board of Directors and serve
at the discretion of the Board of Directors.
The Board of Directors has appointed an Audit Committee, which recommends
the independent auditors to audit the consolidated financial statements of the
Company, reviews the scope and results of the audit engagement and monitors the
financial policies and control procedures of the Company. Bruce W. Jones,
Douglas M. Harper and David A. Lyman are members of the Audit Committee. The
Board of Directors has also appointed a Compensation Committee, consisting of
Jay N. Taylor, Douglas M. Harper and David A. Lyman, which is responsible for
establishing compensation programs for the executive officers of the Company.
There is no standing nominating committee.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement for its Annual Meeting held on May 15,
1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement for its Annual Meeting held on May 15,
1997.
16
<PAGE> 19
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement for its Annual Meeting held on May 15,
1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
1. Financial Statements:
Page
----
Independent Auditors' Report .......................................... F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995........... F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995 ...........................................F-3
Consolidated Statement of Stockholders' Equity for the Years
Ended December 31, 1996 and 1995......................................F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995............................................F-5
Notes to Consolidated Financial Statements..............................F-7
17
<PAGE> 20
INDEX TO EXHIBITS
Exhibit
Number DESCRIPTION PAGE
2.1 Stock Purchase Agreement by and among Ampace Corporation, (1)
James K. Adams and Merchants Dutch Express, Inc. dated
December 2, 1994 as amended on January 20, 1995 and
February 10, 1995
3.1 Certificate of Incorporation of Ampace Corporation, (1)
as amended
3.2 By-Laws of Ampace Corporation (1)
3.3 Amendment No. 1 to By-Laws of Ampace Corporation (1)
3.4 Amendment No. 2 to By-Laws of Ampace Corporation (2)
4.1 Specimen Common Stock Certificate (1)
10.2 Employment and Stock Option Agreement between Ampace (1)
Corporation and Bruce W. Jones
10.2(a) Amendment No. 1 to Employment and Stock Option (2)
Agreement dated February 16, 1995 between Ampace
Corporation and Bruce W. Jones dated August 29, 1995
10.3 Employment and Stock Option Agreement between Ampace (1)
Corporation and Jay N. Taylor dated February 16, 1995
10.3(a) Amendment No. 1 to Employment and Stock Option Agreement (2)
dated February 16, 1995 between Ampace Corporation and
Jay N. Taylor dated August 29, 1995
10.4 Employment and Stock Option Agreement between Ampace (1)
Corporation and David C. Freeman dated February 16, 1995
10.4(a) Amendment No. 1 to Employment and Stock Option Agreement (2)
dated February 16, 1995 between Ampace Corporation and
David C. Freeman dated February 16, 1995
10.5 Key Employee Incentive Stock Option Plan as adopted on (1)
February 23, 1995
10.5(a) Non-Employee Directors and Advisors Plan as adopted on (1)
February 23, 1995
10.6 License Agreement between Merchants Dutch Express, Inc. (1)
and Rand McNally-TDM, Inc.
10.7 Merchants Dutch Express, Inc. Salary Savings Plan and (1)
Trust
10.8 Master Note and Promissory Note made by Merchants Dutch (1)
Express, Inc. to Central Bank regarding Line of Credit
10.9 Commercial Leases and Deposit Receipts between Merchants (2)
Dutch Express, Inc. and Tri-State Oil, Inc. for the
property located at 210 N. Easterling Street, Dalton,
18
<PAGE> 21
Exhibit
Number DESCRIPTION PAGE
Georgia for the periods beginning May 9, 1994
to May 8, 1995 and May 9, 1995 to May 8, 1998
10.10 Volvo Truck Lease Plan between Merchants Dutch (1)
Express, Inc. and VT Finance, Inc.
10.12 Collateral Mortgage and Security Agreement and (1)
Promissory Note in the amount of $192,505 made
payable to Central Bank by Merchants Dutch Express,
Inc.
10.13 HighwayMaster Mobile Communications Equipment Lease (2)
No. 39876 by and between Merchants Dutch Express,
Inc. and LeasePartners
10.14 Retail Installment Contract (Equipment) by and (1)
between Merchants Dutch Express, Inc. and MBC
Financial Corp.
10.15 Equipment Lease by and between Merchants Dutch (1)
Express, Inc. and 1st Union Commercial
10.16 Lease Agreement by and between Merchants Dutch (2)
Express, Inc. and U.S. Bancorp Leasing & Financial
10.17 Master Equipment Lease Agreement No. 03550 by and (1)
between Merchants Dutch Express, Inc. and Fleet
Credit Corporation
10.18 Equipment Lease Agreement by and between Merchants (1)
Dutch Express, Inc. and Paccar Financial Corp.
10.19 Equipment Lease Agreement by and between Merchants (1)
Dutch Express, Inc. and AJF Warehouse Distributors,
Inc. d/b/a Xtra Lease
10.20 Master Lease Agreement by and between Merchants (1)
Dutch Express, Inc. and General Electric Capital
Corporation
10.21 Vehicle Lease Agreement by and between Merchants (1)
Dutch Express, Inc. and Transport International
Pool, Inc.
10.22 Vehicle Lease Agreement by and between Merchants (1)
Dutch Express, Inc. and Empire Truck Rental
10.23 Vehicle Lease Agreement by and between Merchants (1)
Dutch Express, Inc. and ProLeasing, a division of
Kenworth of Jackson, Inc.
10.24 Security Agreement Retail Installment Contract by (1)
and between Merchants Dutch Express, Inc. and
Jackson White GMC
10.25 Security Agreement and Promissory Note in the (1)
amount of $219,600 made payable to PACCAR
Financial Corp.
10.26 Security Agreement Retail Installment Contract by (1)
and between Merchants Dutch Express, Inc. and
Arrow Truck Sales, Inc.
10.27 Uniform Packaged Motor Carrier Contract by and (2)
between Merchants Dutch Express, Inc. and the Dow
19
<PAGE> 22
Exhibit
Number DESCRIPTION PAGE
Chemical Company
10.28 Master Agreement for Motor Transportation (2)
Services by and between Merchants Dutch Express,
Inc. and General Motors Corporation
10.29 International Paper Company Motor Carrier (2)
Truckload Van Transportation Contract by and
between Merchants Dutch Express, Inc. and
International Paper Company
10.31 Lease Agreement between Richard and Judy Johnson (5)
and Ampace Corporation
10.32 Settlement Agreement and General Release dated (4)
August 31, 1995 between Steven R. Green and
Ampace Corporation
10.33 Settlement Agreement and General Release dated (4)
August 31, 1995 between Stephen G. Fleischer and
Ampace Corporation
10.34 Revolving Credit Agreement between Ampace (5)
Corporation and LaSalle National Bank dated
December 31, 1995
10.35 $3 million Promissory Note by Ampace Corporation (5)
in favor of LaSalle National Bank dated December
31, 1995
10.36 Agreement by and among Ampace Corporation,
Ampace Acquisition, Amanday Express, Inc., and
Carl A. Cheshire and Elizabeth B. Cheshire dated
February 29, 1996
27.1 Financial Data Schedule
(1) Incorporated by reference to the Company's Form SB-2 Registration
Statement No. 33-87656C as filed with the SEC on December 22, 1994.
(2) Incorporated by reference to the Company's Amendment No. 1 to Form SB-2
Registration Statement No. 33-87656C as filed with the SEC on January 26,
1995.
(3) Incorporated by reference to the Company's Amendment No. 2 to Form SB-2
Registration Statement No. 33-87656C as filed with the SEC on February 14,
1995.
(4) Incorporated by reference to the Company's Current Report, Form 8-K as
filed with the SEC on September 27, 1995.
(5) Incorporated by reference to the Company's Annual Report, Form 10-KSB as
filed with the SEC on March 30, 1996.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed by the Company during
the fourth quarter 1996.
20
<PAGE> 23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMPACE CORPORATION
Date: March 28, 1997 By: s/ Jay N. Taylor
-----------------------------
JAY N. TAYLOR, Chief Executive Officer,
President and Director
(Signature and Title)
In accordance with the Exchange Act, 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 28, 1997 By: s/ Bruce W. Jones
-----------------------------
BRUCE W. JONES, Chairman of the Board
Chief Financial Officer, Secretary, Treasurer
and Director
(Signature and Title)
Date: March 28, 1997 By: s/ David C. Freeman
--------------------------------
DAVID C. FREEMAN, Chief Operating Officer,
Executive Vice President and Director
(Signature and Title)
Date: March 28, 1997 By: s/ Douglas M. Harper
--------------------------------
DOUGLAS M. HARPER
(Signature and Title)
Date: March 28, 1997 By: s/ David A. Lyman
---------------------------------
DAVID A. LYMAN, Director
(Signature and Title)
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ampace Corporation:
We have audited the accompanying consolidated balance sheets of Ampace
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ampace Corporation
and subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for the years then ended.
KPMG Peat Marwick LLP
February 14, 1997, except as to the second paragraph
of note 3(a) which is as of March 22, 1997
Little Rock, Arkansas
F-1
<PAGE> 25
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 534,629 1,395,640
Accounts receivable, less allowance for doubtful accounts of $52,256
at December 31, 1996 and $50,000 at December 31, 1995 (note 3) 3,308,102 3,226,986
Income taxes receivable 356,591 293,242
Prepaid expenses 483,988 651,351
Other current assets (note 5) 232,415 80,466
----------- -----------
Total current assets 4,915,725 5,647,685
----------- -----------
Property and equipment, at cost (notes 2, 3 and 4):
Revenue and service equipment 16,497,290 13,607,126
Land 310,930 236,330
Buildings and improvements 519,994 200,992
Furniture and office equipment 334,717 100,189
----------- -----------
Total property and equipment 17,662,931 14,144,637
Less accumulated depreciation and amortization 5,143,275 2,721,737
----------- -----------
Net property and equipment 12,519,656 11,422,900
----------- -----------
Goodwill, net of accumulated amortization of $185,875 at
December 31, 1996 and $65,764 at December 31, 1995 (note 2) 1,764,552 1,117,981
Noncompetition agreements, net of accumulated amortization
of $48,181 at December 31, 1996 (note 2) 348,029 -
Other assets 147,088 212,616
------------ -----------
$ 19,695,050 18,401,182
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current installments of long-term debt (notes 2 and 3) 936,185 318,264
Current installments of obligations under capital leases (note 4) 4,064,094 3,699,399
Notes payable (note 3) 300,000 -
Trade accounts payable 764,747 476,221
Accrued expenses and other current liabilities 880,935 673,558
------------ -----------
Total current liabilities 6,945,961 5,167,442
Long-term debt, excluding current installments (notes 2 and 3) 3,386,331 217,203
Obligations under capital leases, excluding current installments (note 4) 3,001,183 6,300,478
Deferred income taxes (note 5) - 378,154
------------ -----------
Total liabilities 13,333,475 12,063,277
------------ -----------
Stockholders' equity (notes 6 and 7):
Common stock, $.0001 par value. Authorized 10,000,000 shares,
issued and outstanding 3,075,000 and 2,800,000 shares at
December 31, 1996 and 1995, respectively 308 280
Additional paid-in capital 7,475,874 6,575,902
Accumulated deficit (1,114,607) (238,277)
------------ -----------
Total stockholders' equity 6,361,575 6,337,905
Commitments and contingencies (notes 2, 3, 4 and 7)
------------ -----------
$ 19,695,050 18,401,182
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 26
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Operating revenues (note 2) $ 30,446,000 21,241,626
------------ ----------
Operating expenses:
Salaries, wages and employee benefits 11,409,442 8,584,447
Purchased transportation 1,361,864 -
Fuel 5,494,280 4,041,113
Depreciation and amortization (note 4) 3,866,406 2,828,822
Rent (note 4) 2,030,035 1,647,655
Operating supplies and expenses 2,522,242 1,686,007
Insurance and claims 2,203,279 742,155
Operating taxes and licenses 573,254 253,932
General and administrative expenses 1,184,987 923,075
Communication and utilities 486,939 318,477
------------ ------------
Total operating expenses 31,132,728 21,025,683
------------ ------------
Operating (loss) income (686,728) 215,943
------------ ------------
Other income (deductions):
Interest income 47,664 109,788
Interest expense (891,991) (789,924)
Other, net 63,794 19,060
------------ ------------
(780,533) (661,076)
------------ ------------
Loss before income taxes (1,467,261) (445,133)
Income taxes (note 5) (590,931) (207,245)
------------ ------------
Net loss (notes 2 and 6) $ (876,330) (237,888)
============ ============
Weighted average common shares outstanding 3,025,410 2,588,767
============ ============
Loss per share (notes 2 and 6) $ (.29) (.09)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 27
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Note 6)
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Additional Total
Common stock Treasury stock paid-in Accumulated stockholders'
Shares Amount Shares Amount capital deficit equity
------ ------ ------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 1,450,000 $ 145 - - 59,855 (389) 59,611
Sale of 1,350,000 shares of
common stock 1,350,000 135 - - 7,659,986 - 7,660,121
Purchase of 580,000 shares
of common stock - - 580,000 (1,143,939) - - (1,143,939)
Contribution of 261,450 shares
of common stock - - 261,450 - - - -
43% stock dividend on
common stock - - (841,450) 1,143,939 (1,143,939) - -
Net loss - - - - - (237,888) (237,888)
----------- ----- ---------- ----------- ----------- ----------- ----------
Balance at December 31, 1995 2,800,000 280 - - 6,575,902 (238,277) 6,337,905
Issuance of 275,000 shares
in connection with
acquisition (note 2) 275,000 28 - - 899,972 - 900,000
Net loss - - - - - (876,330) (876,330)
------------ ---- --------- ----------- ----------- ----------- ----------
Balance at December 31, 1996 3,075,000 $ 308 - - 7,475,874 (1,114,607) 6,361,575
============ ===== ========= =========== =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 28
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
Operating activities:
Net loss $ (876,330) (237,888)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,866,407 2,828,822
Deferred income taxes (604,031) (295,957)
Gain on disposal of property and equipment (27,580) -
Changes in operating assets and liabilities:
Accounts receivable 279,376 (718,271)
Income taxes receivable (51,876) (293,242)
Due from employees - (66,950)
Prepaid expenses 241,689 (447,915)
Other assets 134,449 (68,786)
Trade accounts payable 123,548 (273,251)
Accrued expenses and other current liabilities 78,438 215,526
Income taxes payable - (132,786)
----------- -----------
Net cash provided by operating activities 3,164,090 509,302
----------- -----------
Investing activities:
Proceeds from sale of property and equipment 461,510 -
Purchases of property and equipment (3,650,894) (71,006)
Proceeds from sales-type leases 237,666 -
Acquisition of net assets of subsidiaries, net of
cash acquired (note 2) (875,913) (3,030,838)
----------- -----------
Net cash used by investing activities (3,827,631) (3,101,844)
----------- -----------
Financing activities:
Proceeds from sale of common stock, net of offering costs - 7,850,363
Purchase of treasury stock - (1,143,939)
Repayment of notes payable - (200,000)
Proceeds from revolving credit agreement 300,000 -
Repayment of note payable to shareholder (38,244) -
Proceeds from long-term debt 3,380,285 -
Principal payments on long-term debt (633,508) (322,613)
Principal payments on capital lease obligations (3,206,003) (2,264,575)
----------- -----------
Net cash provided (used) by
financing activities (197,470) 3,919,236
----------- -----------
Net (decrease) increase in cash and cash equivalents (861,011) 1,326,694
Cash and cash equivalents at beginning of period 1,395,640 68,946
----------- -----------
Cash and cash equivalents at end of period $ 534,629 1,395,640
=========== ===========
</TABLE>
(Continued)
F-5
<PAGE> 29
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Supplementary disclosure of cash flow information:
Interest paid $ 888,932 774,816
Income taxes paid 71,194 514,740
Satisfaction of capital lease obligation through return
of equipment 931,529 224,239
Note payable issued in connection with acquisition
of subsidiary (note 2) 100,000 -
Common stock issued in connection with acquisition
of subsidiary (note 2) 900,000 -
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 30
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Ampace Corporation, together with its wholly-owned subsidiaries
("Company"), is an irregular route, common and contract motor carrier
specializing in dry van full truckload transportation services.
Significant accounting policies are as follows:
(a) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Ampace
Corporation and its wholly-owned subsidiaries, Merchants Dutch
Express, Inc. ("MDX"), Amanday Express, Inc. ("Amanday") and Ampace
Dedicated Services, Inc. ("Dedicated"). All significant
intercompany transactions have been eliminated in consolidation.
(c) Revenue Recognition
Revenue is recognized when the goods are delivered to the customer.
Costs and related expenses are recorded as incurred.
(d) Property and Equipment
Property and equipment are stated at cost. Equipment under capital
leases is stated at the lower of the present value of minimum lease
payments at the beginning of the lease term or fair value at the
inception of the lease. Depreciation on property and equipment is
calculated on the straight-line method over each assets estimated
useful life, 2 - 10 years for revenue and service equipment, 10 - 34
years for buildings and improvements, and 3 - 10 years for furniture
and equipment. Amortization of equipment under capital leases is
provided on the straight-line method over the shorter of the lease
term or estimated useful lives of the assets.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(Continued)
F-7
<PAGE> 31
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(f) Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less when acquired to be cash equivalents.
(g) Goodwill
Goodwill, which represents the excess of purchase price over the
estimated fair value of assets and liabilities acquired, is
amortized on a straight-line basis over a period of 15 years. The
Company continually reevaluates the propriety of the carrying
amount of goodwill as well as the related amortization period to
determine whether current events and circumstances warrant
adjustments to the carrying values and/or revised estimates of
useful lives. This evaluation is based on the Company's projection
of the undiscounted operating income before depreciation,
amortization and interest over the remaining lives of the
amortization periods of related goodwill. The projections are based
on the historical trend line of actual results since the
commencement of operations and adjusted for expected changes in
operating results. To the extent such projections indicate that the
undiscounted operating income (as defined above) is not expected to
be adequate to recover the carrying amount of goodwill, such
carrying amounts are written down by charges to expense in amounts
equal to the excess of the carrying amount of goodwill over the
projected discounted operating cash flows using a discount rate
reflecting the Company's cost of funds. At this time, the Company
believes that no significant impairment of goodwill has occurred
and that no reduction of the estimated useful lives is warranted.
(h) Noncompetition Agreements
Noncompetition agreements entered into with the previous owners of the
subsidiaries and acquired businesses are being amortized over their
contractual lives (3 to 5 years) using the straight-line method
(note 2).
(i) Earnings Per Share
Earnings per share have been computed based on its weighted average
number of shares outstanding. Shares issuable under employee stock
options and the underwriter's warrant are excluded from the weighted
average number of shares as their dilutive effect is less than 3%.
(j) Credit Risk
Two customers accounted for approximately 27% and 24%, in the
aggregate, of the Company's consolidated revenues for the years
ended December 31, 1996 and 1995, respectively.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade
receivables. Other than the above mentioned major customers,
concentrations of credit risk with respect to trade receivables are
limited due to the number of customers and range of industries which
they represent. The Company does not require collateral or security
from its customers. The amount of loss should customers fail to pay
the receivables is limited to the notional amount of such
receivables.
(Continued)
F-8
<PAGE> 32
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(k) Stock Option Plans
During 1995, the Financial Accounting Standards Board issued
Statements on Financial Accounting Standards ("SFAS") No. 123,
"ACCOUNTING FOR STOCK BASED COMPENSATION." SFAS No. 123 establishes
financial accounting and reporting standards for stock-based
employee compensation plans and requires that compensation expense
be recognized over the vesting period in an amount equal to the fair
value of the award on the date of grant. SFAS No. 123 allows an
election, and the Company has elected, to continue to apply the
provisions of Accounting Principles Board Opinion No. 25 "ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES" and provide pro forma net income and
disclosure information as if the provisions of SFAS No. 123 had been
adopted.
(l) Impairment of Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF," on January 1, 1996. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Adoption of SFAS No. 121 did
not have a material impact on the Company's consolidated financial
position, results of operations, or liquidity.
(m) Prior Year Reclassifications
Certain 1995 amounts have been reclassified to conform to 1996
presentation. These prior year reclassifications had no impact on
1995 consolidated net loss.
(2) Acquisitions
Concurrent with the closing of the offering in 1995 (note 6), the Company
purchased all of the capital stock of MDX for $3,500,000 in cash.
Effective March 31, 1996, the Company purchased all of the capital
stock of Amanday for a total purchase price of $2,048,261,
consisting of cash of $1,048,261, a note payable of $100,000 and
275,000 shares of the Company's common stock. Under the terms of
the Amanday purchase agreement, the Company is obligated to issue an
additional 25,000 shares of common stock to the previous owner of
Amanday on March 31, 1998 in the event the average price of the
Company's common stock does not exceed $5.00 per share. At March
31, 1996, the Company's common stock had a fair value of $3.00 per
share. The value of the contingently issuable shares were included
in the purchase price, and the excess of the fair value of both the
shares issued and contingently issuable over the par value of the
shares issued was credited to additional paid-in capital. Should
the contingently issuable shares be issued, the par value of such
shares will be charged to additional paid-in capital.
(Continued)
F-9
<PAGE> 33
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The acquisition of MDX and Amanday have been accounted for under the
purchase method of accounting for business combinations. The results of
operations of each Company have been consolidated into the Company's
results of operations from the acquisition dates forward. The
allocations of the purchase price to assets and liabilities acquired in
connection with these acquisitions are as follows:
<TABLE>
<CAPTION>
MDX Amanday
------------- -----------
<S> <C> <C>
Assets acquired:
Cash $ 469,162 247,348
Accounts receivable, net 2,508,715 360,492
Prepaid expenses 203,013 -
Net property and equipment 14,339,191 2,599,217
Investments in sales-type leases - 266,088
Goodwill 1,183,745 601,901
Noncompetition agreements - 321,210
Other assets 143,830 85,799
------------ ----------
18,847,656 4,482,055
------------ ----------
Liabilities acquired:
Trade accounts payable 749,472 164,978
Accrued expenses 458,032 53,939
Income taxes payable 132,786 -
Deferred income taxes 660,595 223,896
Long-term debt 858,080 788,049
Obligations under capital leases 12,488,691 1,202,932
------------ ----------
15,347,656 2,433,794
------------ ----------
Net assets acquired 3,500,000 2,048,261
Less:
Cash acquired (469,162) (247,348)
Company common stock issued - (900,000)
Note payable issued - (100,000)
------------ ----------
$ 3,030,838 800,913
============ ==========
</TABLE>
During 1996, the Company determined that the original allocation of the
purchase price for MDX as shown above was incorrect. Accordingly, the
original allocation to property and equipment was reduced and the
allocation to goodwill was increased by $89,781.
(Continued)
F-10
<PAGE> 34
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of operating and cash flow information of MDX for the period
from January 1, 1995 to February 24, 1995 and Amanday for the period
from January 1, 1996 to March 31, 1996 is as follows:
<TABLE>
<CAPTION>
MDX Amanday
----------- ------------
<S> <C> <C>
Operations information:
Operating revenues $ 3,596,847 1,658,332
Operating expenses 3,963,797 1,655,246
Interest expense 228,047 42,251
Net loss (366,936) (18,990)
=========== =========
Cash flow information:
Provided by operating activities 280,163 252,168
Provided (used) by investing activities (26,594) 39,491
Used by financing activities (393,517) (159,022)
========== =========
</TABLE>
Assuming the initial capitalization of the Company, the completion of the
offering of 1,350,000 shares of common stock at $7.00 per share and the
acquisitions of MDX and Amanday, accounted for under the purchase method
of accounting, had occurred on January 1, 1995, pro forma unaudited
results of operations for the Company for the years ended December 31,
1996 and 1995 would have been as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Operating revenues $ 32,104,300 32,627,500
============ ==========
Net loss $ (858,200) (164,100)
============ ==========
Loss per share $ (.28) (.05)
============ ==========
</TABLE>
The Company also acquired certain intangible assets from SMX Transport, Inc.
("SMX") during 1996. The total cost of these assets was $75,000 and has
been allocated to goodwill.
In connection with the acquisition of Amanday and the intangible assets of
SMX, the Company entered into noncompete agreements with the previous
owners. The agreement with the previous owner of Amanday includes
certain noncompetition covenants during the five-year period subsequent
to the acquisition of Amanday for which the Company will pay $77,400
annually during the noncompete period. The present value of the
Company's annual noncompetition payments to the previous owner of
Amanday is included in current and noncurrent installments of long-term
debt in the December 31, 1996 consolidated balance sheet (note 3). The
agreements with the previous owners of SMX include certain covenants not
to compete for a period of three years following the date of
acquisition. In accordance with the terms of the agreements, the
Company may be obligated to make an additional payment to the previous
owners of SMX, not to exceed $75,000, in the event that revenues from
the acquired intangible assets exceed certain agreed upon amounts.
(Continued)
F-11
<PAGE> 35
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Debt
(a) Notes Payable
Effective December 31, 1995, the Company entered into a revolving credit
agreement with a bank which expires December 31, 1997. Borrowings
under the agreement are limited to the lesser of $3,000,000 or a
borrowing base of eligible receivables. Interest on outstanding
borrowings is due monthly and is equal to, at the CompanyOs option,
either the prime rate or the London Interbank Offered Rate,
established by the bank, plus 200 or 225 basis points depending on
certain financial ratios of the Company. The revolving credit
agreement requires the Company to maintain certain financial ratios.
(ADDITIONAL DISCUSSION PENDING CONVENANT WAIVERS.) Under the
agreement the Company will pay the bank a fee equal to 1/4% of the
unused portion of the available borrowings on a quarterly basis. At
December 31, 1996, the Company had aggregate amounts of borrowings
under the revolving credit agreement of $300,000 (none at December
31, 1995).
At December 31, 1996, the Company was not in compliance with certain
financial ratios measuring tangible net worth and debt service coverage. On
March 22, 1997, the bank waived the violations of these covenants through March
31, 1997 and the Company is now in compliance. The Company and the bank are
renegotiating revisions to the covenants. Based upon the proposed revisions to
the covenants and the Company's proposed operating plan for 1997, management
believes the Company will be in compliance with the amended financial ratios of
the credit facility agreement during 1997.
(b) Long-Term Debt
Long-term debt consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Note payable in monthly installments of $2,340 including
interest at 1% over prime (9.25% at December 31, 1996) with
the balance due September 1999 $ 165,019 172,793
Note payable in monthly installments of $22,250 including
interest at 9.42% with balance due June 1999, secured by
certain revenue and service equipment 534,452 -
Various equipment notes payable in monthly installments of
$68,976 including interest at 8.05% to 8.52% through
October 2001, secured by certain revenue and service
equipment 3,235,445 -
Payable to previous owner for noncompetition agreement in
annual installments of $77,400 including imputed interest
of 8.25% (note 2) 243,810 -
Acquisition note payable to previous owner, interest
payable quarterly at 8%, balance due March 2000 (note 2) 100,000 -
</TABLE>
(Continued)
F-12
<PAGE> 36
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Various equipment notes payable in monthly
installments including interest at .25% over prime
(subject to minimum and maximum rates) through June
1997 $ 43,790 225,196
Other equipment notes - 137,478
----------- -------
4,322,516 535,467
Less current maturities 936,185 318,264
----------- -------
$ 3,386,331 217,203
=========== =======
</TABLE>
Aggregate annual maturities of long-term debt as of December 31, 1996 are
as follows: 1997, $936,185; 1998, $960,214; 1999, $938,708; 2000,
$896,206; and 2001, $591,203.
(4) Leases
The Company is obligated under various capital and operating leases for
certain revenue and service equipment that expire at various dates
during the next four years. At December 31, 1996 and 1995, the gross
amount of property and equipment and related accumulated amortization
recorded under capital leases were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenue and service equipment $ 11,290,604 12,223,131
Less accumulated amortization 4,408,895 2,409,434
------------ -----------
$ 6,881,709 9,813,697
============ ===========
</TABLE>
Amortization of assets held under capital leases is included with depreciation
expense.
Future minimum payments under capital and operating leases as of
December 31, 1996 are:
<TABLE>
<CAPTION>
Capital Operating
leases leases
---------- ----------
<S> <C> <C>
1997 $ 4,457,474 389,160
1998 2,569,255 336,183
1999 598,950 303,600
2000 - 227,700
----------- ----------
Total minimum lease payments 7,625,679 $1,256,643
==========
Less amount representing interest 560,402
-----------
Present value of net minimum capital
lease payments 7,065,277
Less current installments of obligations
under capital leases 4,064,094
-----------
Obligations under capital leases,
excluding current installments $ 3,001,183
===========
</TABLE>
(Continued)
F-13
<PAGE> 37
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Income Taxes
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current:
Federal $ 34,336 70,645
State (21,236) 18,067
-------- ---------
Total current 13,100 88,712
-------- ---------
Deferred:
Federal (534,988) (257,239)
State (69,043) (38,718)
--------- ---------
Total deferred (604,031) (295,957)
---------- ----------
$(590,931) (207,245)
========== ==========
</TABLE>
Income tax benefit differs from the amounts computed by applying the U.S.
Federal income tax rate of 34 percent to loss before income taxes as a
result of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Computed "expected" tax benefit $(498,868) (151,345)
State income taxes, net of Federal benefit (59,584) (13,630)
Nondeductible goodwill amortization 40,271 -
Other, net (72,750) (42,270)
--------- --------
$(590,931) (207,245)
========= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Compensated absences $ 51,064 84,879
Capitalized leases 72,139 73,132
Net operating loss carryforwards 667,486 -
Other 40,390 27,496
-------- --------
Total gross deferred tax assets 831,079 185,507
-------- --------
</TABLE>
(Continued)
F-14
<PAGE> 38
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property and equipment $ 716,168 451,286
Unbilled revenue 71,730 86,076
Other 27,684 12,783
--------- --------
Total deferred tax liabilities 815,582 550,145
--------- --------
Net deferred tax assets $ 15,497 (364,638)
(liabilities) ========= ========
</TABLE>
There was no valuation allowance for deferred tax assets as of January 1,
1995. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the scheduled
reversals of deferred tax liabilities and tax planning strategies over
the periods which the deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize the
benefits of these deductible differences.
Deferred tax assets of $15,497 and $13,516, respectively, are included in
other current assets in the accompanying consolidated balance sheets at
December 31, 1996 and 1995.
(6) Capital Stock
On February 16, 1995 the Company completed an initial public offering for
the sale of 1,200,000 shares of common stock at a price of $7.00 per
share. The net proceeds from the offering, received by the Company on
February 24, 1995, were $6,708,528 (net of underwriting discounts of
$756,000 and expenses of $935,472). On March 15, 1995, the underwriters
exercised an option to purchase an additional 150,000 shares of common
stock under the same terms as the offering to cover over-allotments.
The net proceeds from this sale, received by the Company on March 15,
1995, were $951,593 (net of underwriting discounts of $94,500 and
expenses of $3,907).
On August 24, 1995 the Board of Directors of the Company approved the
reacquisition of 580,000 shares of common stock from two of the
Company's original stockholders/officers for $1,143,939 including
$40,439 in transaction costs. Concurrent with this reacquisition the
two stockholders/officers resigned from their positions with the
Company. In connection with this transaction, the Board of Directors
also required the remaining three original stockholders/officers to
contribute in aggregate at no cost 261,450 shares of common stock to
stock to the Company. On October 14, 1995, the 841,450 treasury shares
were reissued, in the form of a 43% stock dividend, to shareholders of
record as of September 21, 1995. The net effect of these transactions
was to redistribute the 580,000 shares acquired to the Company's outside
shareholders. The accompanying consolidated financial statements give
effect to the transactions as if all had occurred simultaneously and the
$1,143,939 cost of the redistributed shares has been charged to
additional paid-in capital.
(Continued)
F-15
<PAGE> 39
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company entered into five-year employment agreements with its five
executive officers, each of whom owned 20% of the Company's common stock
prior to the offering. As part of their employment agreements, each of
the executive officers has been granted an option to purchase 75,000
shares of the Company's common stock. The options of two of the
officers were terminated upon their resignations from the Company. The
remaining outstanding options and option exercise prices were
subsequently adjusted on a pro rata basis for the effects of the
previously mentioned stock dividend. The options are exercisable in
equal annual installments of 21,450 shares beginning February 16, 1995
at an initial price of 125% of the initial offering price, as adjusted
for the stock dividend, for the first installment. Future installment
prices increase $.50 per share at each installment exercise date. The
options expire seven years after the options are granted. At both
December 31, 1996 and 1995, 321,750 of these options were outstanding.
During 1995, the Company adopted a stock option plan for the benefit of
non-employee directors of the Company. Under this plan, 60,000 shares
of stock will be reserved for issuance upon exercise of such options.
Each eligible director and advisor to the board of directors in office
at February 16, 1995 and at adjournment of each annual meeting held
subsequent to the offering will automatically be granted options to
purchase 5,000 shares of the Company's common stock at a price equal to
125% of the closing price of the common stock on the date of grant. The
maximum term of options granted under the plan will be ten years. At
both December 31, 1996 and 1995, 10,000 of these options were
outstanding.
During 1995, the Company adopted an incentive stock option plan for certain
key employees, other than the three executives referred to in the
preceding paragraphs. Under the incentive plan, the Company is
authorized to grant options to purchase up to 150,000 shares of common
stock at the fair market value of the stock on the date the option is
granted. Options are exercisable beginning three years after grant date
and expire ten years after grant date. Options for 33,000 shares and
10,000 shares are outstanding at December 31, 1996 and 1995,
respectively.
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $2.12 and $0.23, respectively, on the date of grant
using the Black Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Risk-free interest rate 4.5% 4.5%
Expected life 10 years 7 - 10 years
Expected volatility 0.76 0.76
Expected dividend yield - -
</TABLE>
(Continued)
F-16
<PAGE> 40
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company applies Accounting Principles Board Opinion No. 25 in accounting
for its stock option plans and, accordingly, no compensation cost has
been recognized for its stock options in the consolidated financial
statements. Had the Company determined compensation costs based on the
fair value at the grant date for its stock options under Statement of
Financial Accounting Standards No. 123, the Company's net loss would
have increased to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net loss:
As reported $ (876,330) (237,888)
========== ========
Pro forma $ (922,310) (309,313)
========== ========
Pro forma, per share $ (.30) (.12)
========== ========
</TABLE>
Stock option activity during the periods is as follows:
<TABLE>
<CAPTION>
Number Weighted-average
of shares exercise price
--------- ----------------
<S> <C> <C>
Balance at December 31, 1994 - $ -
Granted 400,000 9.55
Forfeited (155,000) (9.72)
Effect of stock dividend 96,750 (5.56)
--------
Balance at December 31, 1995 341,750 5.58
Granted 33,000 3.32
Forfeited (10,000) (8.75)
--------
Balance at December 31, 1996 364,750 5.29
======== ========
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.34 - $6.13 and
5.67 years, respectively.
At December 31, 1996 and 1995, the number of options exercisable was
135,700 and 74,350, respectively, and the weighted-average exercise
price of those options was $5.34 and $5.50, respectively.
(Continued)
F-17
<PAGE> 41
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Commitments
The Company sold to the underwriter for $120, warrants to purchase 120,000
shares of the Company's common stock. The warrants are exercisable at
any time after the first anniversary of the closing of the offering,
expire five years from the closing of the offering, and provide the
right to purchase one share of the Company's stock for each warrant held
at a price per share equal to 145% of the offering price. The Company
has also agreed to register the shares subject to the warrants at any
time so requested by the warrant holders during the exercise period.
The underwriter was paid at closing a consulting fee of $72,000 and the
Company will be required to utilize the services of the underwriter for
a period of three years in connection with future corporate financing or
merger transactions.
One of the Company's subsidiaries has a 401(k) plan, which covers
substantially all full-time employees. Employees are permitted to
contribute up to 19% of their compensation to the plan. The Company may
make either matching and/or discretionary contributions to the plan each
year as determined by the Board of Directors of the Company.
Contributions made by the Company to the plan have not been significant.
Subsequent to December 31, 1996, the Company has elected to terminate
the 401(k) plan and distribute the plan's net assets in accordance with
the terms of the plan document.
(8) Fair Value of Financial Instruments
Cash and cash equivalents, Accounts Receivable, Income Taxes Receivable,
Notes Payable and Trade Accounts Payable
The carrying amount approximates fair value because of the short maturity
of these instruments.
Long-Term Debt
The fair value of long-term debt is presented as the present value of
future cash flows discounted at rates currently offered to the Company
for similar debt instruments of comparable maturities by the Company's
bankers.
Obligations Under Capital Leases
The fair value of obligations under capital leases is estimated by
discounting the future minimum payments under capital leases at rates
currently offered to the Company by similar leases with comparable
terms.
The estimated fair values of the Company's financial instruments at
December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Carrying Estimated
amount fair value
--------- ----------
<S> <C> <C>
Cash and cash equivalents $ 534,629 534,629
Accounts receivable 3,308,102 3,308,102
Income taxes receivable 356,591 356,591
Trade accounts payable 764,747 764,747
Notes payable 300,000 300,000
Long-term debt 4,322,516 4,333,544
Obligations under capital leases 7,065,277 7,028,804
========== =========
</TABLE>
F-18
<PAGE> 1
EXHIBIT 10.36
AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of the 29th day of February,
1996, by and among AMPACE CORPORATION, a Delaware corporation ("Ampace"),
AMPACE ACQUISITION, INC., a Delaware corporation ("NewCo"), AMANDAY EXPRESS,
INC., a North Carolina Corporation ("Company"), and CARL A. CHESHIRE and
ELIZABETH B. CHESHIRE (hereinafter referred to collectively as "Stockholder"),
the owners of all the outstanding capital stock of Company.
RECITALS
WHEREAS, the Stockholder is the direct owner of 306 shares of Common
Stock, no par value (the "Company Stock"), of the Company, being all of the
issued and outstanding shares of Company capital stock; and
WHEREAS, the Company desires to merge with NewCo and have NewCo as the
surviving corporation; and
WHEREAS, the Stockholder desires to exchange the Company Stock for Common
Stock, no par value, of Ampace ("Ampace Stock") and the receipt of cash and
notes; and
WHEREAS, the respective Boards of Directors of the NewCo, Ampace, Company
and Stockholder have approved the merger of the Company and NewCo and the
transfer of Ampace Stock to the Stockholder and the distribution of cash and
notes upon the terms and subject to the conditions set forth in this Agreement;
and
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. MERGER AND TRANSFER OF AMPACE STOCK
1.1 GENERAL. Upon the terms and subject to the conditions of this
Agreement and upon the Effective Time, the Company will merge into NewCo in
accordance with the provisions of the Delaware General Corporation Act ("DGCL")
and with the effect provided in Section 252 of DGCL. The separate corporate
existence of the Company shall thereupon cease and NewCo shall be the Surviving
Corporation. Attached as Exhibit 1.1 is a copy of the Plan of Merger between
the Company and NewCo. Immediately following the Plan of Merger, NewCo will
change its name to Amanday Express, Inc.
1.2 DELIVERY OF THE COMPANY STOCK. At the Closing (as defined in Section
2 hereof), upon the terms and subject to the conditions of this Agreement and
the Plan of Merger, Stockholder shall deliver to NewCo, as the surviving
corporation, certificates representing the
<PAGE> 2
Company Stock, duly endorsed for transfer to NewCo pursuant to the Plan of
Merger free and clear of all liens, encumbrances or adverse claims of any kind
against the Company Stock.
1.3 STOCK Exchange. In exchange for and in full consideration for
transfer of the Company Stock, and upon the terms and subject to the conditions
of this Agreement and the Plan of Merger, NewCo as the surviving corporation
shall do the following:
(a) transfer to Stockholder 250,000 issued, but unregistered, shares
of common stock in Ampace; and
(b) pay $1,000,000 to Stockholder in immediately available funds;
and
(c) deliver to Stockholder a promissory note secured by real estate
owned by Seller in the amount of $175,000 providing for payment of
interest only at eight (8%) percent for five years with a balloon payment
of any unpaid principal and interest on the fifth anniversary date of the
closing; and
1.4 EXCHANGE PRICE ADJUSTMENT. The Stockholder and NewCo agree to an
adjustment in the exchange price in the following events:
(a) in the event that the book value of the Company as of the
Effective Time shall be materially less than One Million Four Hundred
Thousand Seven Hundred Sixty Eight Dollars ($1,405,768) [the book value
of the Company on November 30, 1995] there will be an adjustment in the
exchange price to reduce the exchange price on a dollar for dollar basis
for the material difference in the book value of the Company and $
1,405,768. The exchange price reduction will reduce the principal
balance of the promissory note provided in 1.3(c) above. The book value
as of the Effective Time will be determined by KPMG Peat Marwick ("KPMG")
to verify and substantiate the computation. The book value determination
will be made in accordance with generally accepted accounting principles,
consistently applied with past practices to the extent such practices are
consistent with generally accepted accounting principles. For purposes
of this paragraph "material" shall mean five thousand dollars ($5,000) or
more.
(b) In the event that the Ampace Stock issued to Stockholder
pursuant to paragraph 1.3(a) above has a value at the end of two years of
less than $5.00 per share, Ampace will issue to Stockholder an additional
25,000 shares of Ampace Stock. The value of the stock shall be
determined by taking the average selling price over the previous twenty
(20) business days preceding the second anniversary date of the closing.
2. CLOSING AND EFFECTIVE TIME.
The consummation of the merger and stock exchange and the other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Bernstein, Stair & McAdams, Suite 600, 530 S. Gay Street,
Knoxville, Tennessee 37902 or such other time and place as shall be mutually
agreed. The date on which the Closing occurs is referred to as the
2
<PAGE> 3
"Closing Date." The Effective Time for the merger will be the close of
business on March 31, 1996.
3. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER.
Stockholder hereby makes the following representations and warranties to,
and covenants with, NewCo. When a representation or warranty is made "to the
best of Stockholder's knowledge," Stockholder shall, after a reasonably
diligent investigation, have reasonable ground to believe, and shall believe,
that the representation and warranty as stated is true. As of the Closing
Date, Stockholder will be deemed to have made such representations and
warranties at and as of such time.
3.1 DUE ORGANIZATION. Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of North Carolina,
and is duly authorized and qualified to do business in all states and
jurisdictions in which the character or location of the properties owned or
leased by it or the nature of the business conducted by it makes such authority
and qualification necessary. Copies of the Articles of Incorporation
(certified by the Secretary of State of the State of North Carolina) and Bylaws
(certified by the Secretary of the Company), each as amended, of the Company
have previously been delivered to NewCo. The stock records and minute books of
Company, as heretofore made available to NewCo, are correct and complete. The
Company has no subsidiaries.
3.2 AUTHORIZATION. Company has corporate power and authority to enter
into this Agreement and the other documents and instruments to be delivered
pursuant to this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery by Company of this Agreement and the
consummation of the purchase and sale of the Company Stock and the other
transactions contemplated by this Agreement by Company have been duly and
validly authorized by all necessary corporate action on the part of Company.
This Agreement has been duly and validly executed and delivered by Company and
Stockholder and, to the best of Stockholder's knowledge, constitutes the valid
and binding obligation of each of them, subject as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency and similar laws
from time to time in effect.
3.3 NO CONFLICTS; APPROVALS. Neither the execution, delivery and
performance of this Agreement by Company and the Stockholder nor the
consummation of the transaction contemplated hereby will; (a) conflict with or
result in a breach of any provision of the Articles of Incorporation or Bylaws
of Company; (b) result in any conflict with, breach of, or default (or give
rise to any right to termination, cancellation or acceleration or loss of any
right or benefit) under or require any consent or approval which has not been
obtained with respect to any of the terms, conditions or provisions of any
material contract or agreement to which either Stockholder or Company is a
party or by which any of their respective assets may be bound; or (c) violate
any order, law, rule or regulation applicable to either Stockholder or Company
or by which any of their respective properties or assets may be bound. No
action, consent or approval by, or filing by Company with, any Federal, state,
municipal, foreign or other court or governmental body or agency, or any other
regulatory body, is required in connection with the execution, delivery or
3
<PAGE> 4
performance by Stockholder or Company of this Agreement or the consummation by
Company of the transactions contemplated hereby, except for any obtained prior
to the Closing Date.
3.4 CAPITAL STOCK OF COMPANY. The authorized capital stock of Company
consists of 1000 shares of common stock, of which 306 shares are issued and
outstanding. All of the issued and outstanding shares of the Company Stock
have been duly authorized and are validly issued, fully paid and nonassessable,
and are owned beneficially and of record by the Stockholder as set forth on
Schedule 3.4. Stockholder has, and as of the Closing Date will have, good
title to such shares of Company Stock, free and clear of all liens, claims,
security interests and encumbrances of every kind. Upon conveyance and
delivery of the Company Stock to NewCo and payment therefor by NewCo as herein
provided, NewCo shall be the owner of such Company Stock free and clear of
liens, claims, restrictions or encumbrances of any kind. Such shares of
Company Stock were offered, issued, sold and delivered by Company in compliance
with all applicable state and federal laws governing the offer and sale of
securities. Further, to the best of Stockholder's knowledge, none of such
shares of Company Stock were issued in violation of the preemptive rights of
any past or present stockholder.
3.5 TRANSACTIONS IN CAPITAL STOCK. Except as provided on Schedule 3.5,
Company has not acquired, directly or indirectly, any shares of its capital
stock in the previous two years. No option, warrant, call, conversion right or
commitment of any kind exists that obligates Company to issue any of its
respective authorized but unissued capital stock. In addition, Company does
not have any obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its capital stock or any interests therein or to pay
and dividend or make any distribution in respect thereof. The voting stock
structure of Company or the ownership of shares by Stockholder has not been
altered or changed in contemplation of the transactions contemplated hereby.
None of the shares of Company Stock were issued pursuant to awards, grants or
bonuses.
3.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 3.6 is a listing of
all names of all predecessor companies of Company, including the names of any
entities from whom Company previously acquired significant assets. Except as
disclosed in Schedule 3.6, Company has never been a subsidiary or division of
another corporation nor been a part of any acquisition which was later
rescinded. Neither Company nor Stockholder has ever owned any capital stock of
NewCo nor has there been any sale or spin-off of significant assets of Company
other than in the ordinary course of business.
3.7 FINANCIAL STATEMENTS. Attached as Schedule 3.7 are copies of the
unaudited Balance Sheets of Company as of November 30, 1995 and Statements of
Income, Cash Flows and Stockholder Equity for the eleven month period ended
November 30, 1995, (the "Financial Statements"). Such Financial Statements
present fairly the financial condition of Company in all material respects as
of the dates of such statements and the results of operations of Company for
the periods then ended. The Financial Statements are not prepared in
accordance with generally accepted accounting practices in that the Financial
Statements are unaudited, without notes, do not capitalize leases in accordance
with generally accepted accounting principles and are generally prepared on the
accrual basis without reserves and prepaid items and other timing
4
<PAGE> 5
adjustments, which overtime are recognized in the Financial Statements. NewCo
acknowledges that it has had an opportunity to examine the Financial Statements
and review the methods of preparation. Buyer has been provided with all
information requested as to the methodology used by the Company in the
preparation of the Financial Statements. At NewCo's request, the President or
Chief Financial Officer of Company will execute any documentation reasonably
required by NewCo's independent public accountants or any stock exchange or
automated trading system on which the capital stock of NewCo is traded with
respect to the accounting issues. Stockholder and Company specifically
represent that the book value of Company Stock as disclosed to NewCo was
determined based upon the Company's Financial Statements.
3.8 LIABILITIES AND OBLIGATIONS. Schedule 3.8 sets forth, as of November
30, 1995 (the "Balance Sheet Date") all liabilities and obligations of Company
not reflected on the Financial Statements and any material liabilities or
obligations incurred thereafter which are not in the ordinary course of
business. For each such liability or obligation for which the amount is not
fixed or is contested, Schedule 3.8 sets forth the following information:
(a) a summary description of the liability or obligation together
with the following:
(i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought;
and
(iii) name of claimant and all other parties to any claim,
suit or proceeding.
(b) the name of each court or agency, if any, before which a claim,
suit or proceeding is pending; and
(c) the date such claim, suit or proceeding was instituted.
The Company has good and marketable title to those assets reflected in the
Financial Statements and to all of its other assets and properties except as
set forth in Schedule 3.8. Upon the Closing, NewCo will own such assets free
and clear of any liens, claims, security interest or encumbrances of any kind
except as described in this Schedule 3.8.
3.9 ACCOUNTS AND NOTES RECEIVABLE. Schedule 3.9 sets forth, as of
November 30, l995, the accounts and notes receivable of Company, including
receivables from and advances to employees and Stockholder, along with an aging
of all accounts and notes receivable showing amounts due in 30-day aging
categories. Except to the extent reflected on Schedule 3.9, to the best of
Stockholder's knowledge, all accounts and notes receivable of Company arose
from the sale of products and services in the ordinary course of business, are
legal, valid and binding claims of Company, and each is collectible in the
ordinary course of business, subject to reserves in the amounts shown in
Company's financial records net of reserves as reflected on Company's
5
<PAGE> 6
Financial Statements. Said accounts and notes receivables are not subject to
valid defenses, set-offs or counterclaims.
3.10 PERMITS. Schedule 3.10 sets forth, an accurate list and summary
description of all permits, titles (including motor vehicles titles and current
registrations), fuel permits, licenses, franchises and certificates (the
"Permits") held by Company. All of such Permits are adequate for the operation
of the business of Company as it is presently being conducted including without
limitation: (i) that all drivers of or for Company meet all Department of
Transportation ("DOT") qualifications and such drivers possess proper
certification, licenses and endorsements; (ii) that the DOT certification
contains a satisfactory carrier rating; and (iii) that all drivers of and for
Company are in substantial compliance with all applicable rules and regulations
with the Federal Highway Safety Standards. Neither execution and delivery by
Company of this Agreement, nor the consummation of the sale transactions
contemplated hereby, will cause a default under or alter or impair any rights
under such Permits.
3.11 REAL AND PERSONAL PROPERTY. Schedule 3.11 sets forth a substantially
complete description of all real property and all vehicles including tractors
and trailers ("Vehicles") owned or leased by Company, and all personal property
constituting fixed assets, including true and correct copies of leases for
equipment and properties on which are situated buildings, warehouses,
workshops, garages and other structures used in the operation of the business
of Company, and including an indication as to which assets were formerly owned
by business or personal affiliates of Company. Except as shown on Schedule
3.11, all of the vehicles, machinery and equipment of Company are in good
working order and condition subject to ordinary wear, tear and normal usual
breakage. All such leases set forth on Schedule 3.11 are in full force and
effect and constitute valid and binding agreements of the parties (and their
successors) thereto. All assets used by Company in the operation of its
business are either owned by Company or leased under an agreement listed on
Schedule 3.11. Included in Schedule 3.11 is a list and description of all real
property and vehicles currently owned by Company.
3.12 MATERIAL CONTRACTS AND COMMITMENTS. Schedule 3.12 sets forth an
accurate list of all material contracts, commitments and similar agreements or
arrangements, whether written or oral (the "Contracts"), to which Company is a
party or by "Contracts"), to which Company is a party or by which any of them
or any of its properties may be bound (including, but not limited to, municipal
contracts, joint venture or partnership agreements, lease agreements identified
in Schedule 3.11, contracts with any labor organizations, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) which are not (i) terminable by
either party upon not more than thirty (30) days notice without penalty or more
than $5000 or (ii) do not involve monthly payments of more than two hundred
fifty dollars ($250) per month and extend for more than thirty six (36) months.
Stockholder has delivered true copies of such Contracts to NewCo. Except to
the extent set forth on Schedule 3.12, Company has complied with all material
commitments and obligations pertaining to the Contracts, respectively, and is
not in material default under any such Contract and no notice of default has
been received. To the best of Stockholder's knowledge, each of the Contracts
is a valid and binding obligation of Company and is in full force and effect
and will continue in such force and effect following the sale transaction
contemplated by this Agreement.
6
<PAGE> 7
No waiver, indulgence or postponement of any obligations thereunder has been
granted by any party to the Contracts. No consent or approval is required by
any person or entity pursuant to the terms of any Contract or otherwise in
order to permit the execution, delivery and performance by Stockholder of this
Agreement and the transactions contemplated hereby.
To the best of Stockholder's knowledge and except as disclosed in Schedule
3.12, (a) no supplier providing products, components, materials or services to
Company intends to cease selling such products, components, materials or
services to Company, or to limit or reduce such sales to Company or materially
alter the terms or conditions of any such sales, and (b) no customer of Company
which individually represented or accounted for at least $100,000 of Company's
total sales for the year ended December 31, 1995, or any of the other customers
of Company that taken together in aggregate represent a material portion of
Company's business, intends or intend to terminate, limit, reduce or change its
or their business relations with Company. Seller will arrange a meeting
between NewCo and Klaussner Furniture as an introduction to NewCo and for NewCo
to ascertain to its satisfaction that Klaussner Furniture will continue to do
business with Company after the Closing Date. Said determination will be
considered a part of NewCo's due diligence. NewCo acknowledges that there is
usual and normal turnover in the customer base of trucking companies and there
is no guarantee that customers of the Company will continue to do business with
the Company.
3.13 LABOR UNIONS. Except as set forth in Schedule 3.13, Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union. Except as set
forth on Schedule 3.13, no employees of Company are represented by any labor
union or covered by any collective bargaining agreement nor, to the best of
Stockholder's knowledge, is any organizational campaign to establish such
representation in progress. There is no pending or threatened labor dispute
involving Company and any group of their respective employees nor has Company
experienced any labor interruptions over the past three years.
3.14 TITLE TO REAL PROPERTY. Seller shall furnish a title opinion,
updated to within 30 days of the Closing Date, on the real property identified
in Schedule 3.11. The title report identified in Schedule 3.14 fairly presents
the state of title to the real property described thereon.
3.15 INSURANCE. Schedule 3.15 sets forth an accurate list of all
insurance policies carried by Company, all insurance loss runs or workers
compensation claims received for the past policy year and will apply its best
efforts to obtain the loss runs for the previous four years prior to Closing.
Copies of all policies currently in effect have been delivered to NewCo and
are, to the best of Stockholder's knowledge, true and correct. The insurance
carried by Company with respect to its properties, assets and businesses is in
amounts sufficient for the reasonably prudent protection of the businesses
conducted. Except as set forth on Schedule 3.15, such insurance policies are
currently in full force and effect. The insurance coverage of Company has
never been canceled and Company has not ever been denied coverage. All
premiums due on the insurance policies identified on Schedule 3.15 have been
fully and timely paid.
7
<PAGE> 8
3.16 COMPENSATION. Schedule 3.16 sets forth an accurate schedule showing
all officers, directors and key employees of Company and the current rate of
compensation (and the portions thereof attributable to salary, bonus and other
compensation, respectively), the date of last increase in compensation and the
expected date of current increase in compensation, if any. All such
compensation, including, but not limited to, wages, bonuses, commissions,
overtime, sick leave, severance pay and vacation benefits incurred or accrued
for all employees prior to the date of this Agreement have been fully paid, are
reflected on the Financial Statements, or are set forth in Schedule 3.16.
Company and Stockholder have previously provided to NewCo copies of all
employee handbooks, manuals or notices used or issued by it at any time
relating to terms or conditions of employment or compensation of employees.
3.17 EMPLOYEE BENEFIT PLANS. Schedule 3.17 sets forth an accurate
schedule listing all employee benefit or welfare plans maintained by Company,
to which Company contributes, with respect which Company acts as administrator,
trustee or fiduciary or with respect to which Company has any liability,
(whether written or oral) including any plan that was frozen, terminated or
merged into another plan. Said Schedule 3.17 shall include without limitation
any pension, profit-sharing, bonus, stock option, incentive, deferred
compensation, hospitalization, medical, insurance or other plan or arrangement,
and any employment agreement containing "golden parachute" provisions, and a
description of such plans and arrangements, together with copies of such plans,
amendments, agreements and any trusts related thereto, and classifications of
employees covered thereby. All employee benefit plans listed on Schedule 3.17
are, in compliance and have from their inception been operated in accordance
with all applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") and the regulations issued thereunder, as well as
with all other applicable federal, state and local statutes, ordinances and
regulations and with the terms of the plan.
All reports, notices and information required to be given to any
individual or entity or any governmental agency or authority in connection with
an employee benefit or welfare plan have been given in a complete and timely
fashion. No event has occurred with respect to an employee benefit or welfare
plan that would cause the imposition of any tax or penalty against the plan (or
its related trust) or Company.
3.18 QUALIFIED PLANS. All plans listed on Schedule 3.18 that are intended
to qualify (the "Qualified Plans") under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code") have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters
are included as part of Schedule 3.18. Except as disclosed on Schedule 3.18,
all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits and tax returns) have been timely filed
or distributed, and true copies thereof have been delivered to NewCo. The
Stockholder, any such plan listed in Schedule 3.18, and the Company have not
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No such plan listed in Schedule 3.18 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and, Company has not incurred any liability
for excise tax or penalty due to the Internal
8
<PAGE> 9
Revenue Service nor any liability to the Pension Benefit Guaranty Corporation.
Stockholder further represents that:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval
by the Internal Revenue Service;
(b) no such plan listed in Schedule 3.18 subject to the provisions
of Title IV of ERISA has been terminated;
(c) except for the transactions contemplated hereby, there have been
no "reportable events" (as that phrase is defined in Section 4043 of
ERISA) with respect to any such plan listed in Schedule 3.18; and
(d) except for the transactions contemplated hereby, the Company has
not incurred liability under Section 4062 of ERISA.
3.19 CONFORMITY WITH LAW. Company is not in material default under any
law or regulation or under any order of any court or federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them; and except to the extent
set forth in Schedule 3.8 (excluding claims or suits which are covered by
insurance), there are no claims, actions, suits or proceedings pending or
threatened against or affecting Company, at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
including without limitation any under charge claims in excess of $25,000 and,
no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and
conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing that might
materially and adversely affect the business, operations, affairs, prospects,
properties, assets, profits or condition (financial or otherwise) of Company,
taken as a whole.
3.20 TAXES. Company has timely filed all requisite federal and other tax
returns for all fiscal periods ended on or before the Balance Sheet Date; and
except as set forth on Schedule 3.20, there are no examinations in progress or
claims against them for federal and other taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim, whether pending or threatened, for taxes has
been received. There have been no audits by federal or state authorities
except as set forth on Schedule 3.20 and all years are open under the
applicable statute of limitations for the respective years. To the best of
Stockholders' knowledge, there are no tax liabilities, contingent or otherwise,
which are not reflected as liabilities on the balance sheets included in the
Financial Statements except as set
9
<PAGE> 10
forth on Schedule 3.20. No circumstances exist as of the date hereof, nor will
any circumstances exist at the Closing Date, which, with the passage of time,
audit or otherwise may result in the imposition of additional tax liabilities
on Company except as set forth on Schedule 3.20. Company has not consented to
an extension of or waived any applicable statute of limitations with respect to
tax liabilities, nor has Company granted any presently outstanding power of
attorney with respect thereto. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income tax
returns and franchise tax returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 3.20.
Company has paid all withholding taxes, social security and medicare taxes
and unemployment taxes in accordance with applicable law and all required
deposits have been timely made.
3.21 INTELLECTUAL PROPERTY. All patents, patent applications, copyrights,
trademarks, trade names, service marks and other intellectual property
("Intellectual Property") owned or controlled by Company or any subsidiary and
which have been used in their respective businesses are listed on Schedule
3.21. Except as set forth in Schedule 3.21, Company has and owns, directly or
indirectly, all rights, title and interest to such Intellectual Property and
there are no claims or proceedings pending or threatened against Company
asserting the use of any of the Intellectual Property infringes the rights of
any other person. Company owns or has adequate licenses or other rights to use
all material patents, patent applications, inventions, know-how, technical
information and other Intellectual Property used in the conduct of their
respective businesses.
3.22 GOVERNMENTAL CONTRACTS. Except as set forth on Schedule 3.22,
Company is not a party to any governmental contract subject to price
redetermination or renegotiation.
3.23 ABSENCE OF CHANGES. Except as set forth in on Schedule 3.23, since
the Balance Sheet Date, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Company;
(c) any change in the authorized capital stock of Company or in its
securities outstanding or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Company;
(e) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by Company to any of its
respective officers,
10
<PAGE> 11
directors, Stockholder, employees, consultant or agents except in the
normal course of business consistent with past practices;
(f) any work interruptions or any event or condition of any
character, materially adversely affecting the business or future
prospects of Company other than normal interruptions from weather or
similar acts of normal business operation which occur from time to time:
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including,
without limitation, Stockholder or any affiliate thereof;
(h) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to Company, including
without limitation any indebtedness or obligation of Stockholder or any
affiliate thereof;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(j) any purchase or acquisition, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets other than in the
normal course of business consistent with past practices: or
(k) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which Company or any
Subsidiary is a party.
3.24 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Schedule 3.24 sets forth an
accurate schedule as of the date of the Agreement, of (i) the name of each
financial institution in which Company has accounts or safe deposit boxes; (ii)
the names in which the accounts or boxes are held; (iii) the type of account;
and (iv) the name of each person authorized to draw thereon or have access
thereto. Schedule 3.24 also sets forth, the name of each person, corporation,
firm or other entity holding a general or special power of attorney from
Company and a description of the terms of such power.
3.25 BROKERS AND FINDERS. Except as to the brokers set forth on Schedule
3.25, which the Stockholder agrees to pay, neither of the Stockholder, Company
or any of their officers, directors or employees has employed any broker, agent
or finder or incurred any liability for any brokerage fees, commissions or
finders' fees in cash for the purchase and sale of Company Stock and other
transactions contemplated by the Agreement or otherwise in connection with the
sale of the Company Stock. Except as set forth on Schedule 3.25, Stockholder,
Company or any of its officers, directors, or employees on behalf of any of
them have not incurred any liabilities for any financial advisory fees,
brokerage fees, commissions or finders' fees that remain unpaid in connection
with any transaction or proposed transaction.
11
<PAGE> 12
3.26 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 3.26, the
Company has not disposed of, or contracted for the disposal of, hazardous
wastes, hazardous substances, infectious or medical waste, as those terms are
defined by the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), or any comparable state laws, rules or
regulations. Except as disclosed on Schedule 3.26, there has been no storage
or treatment of solid wastes or hazardous wastes (as defined in RCRA) by
Company or any predecessor in interest at any site or other facility owned or
operated by Company in violation of any applicable law, rule, regulation,
order, judgment or permit or that would require any remedial action under any
applicable law. Except as disclosed on Schedule 3.26, (a) Company has not
received any notice of any violation with respect to asbestos or other toxic,
hazardous, or dangerous materials at any of its sites, and (b) there has been
no spill, discharge, leak, emission, injection, escape, dumping or release of
any kind of toxic, dangerous, or hazardous substances at any location or into
the environment by Company or any of its officers, directors, employees or
agents. Except as disclosed on Schedule 3.26, no employee of Company has, in
the course and scope of his employment, been exposed in violation of any law or
regulation to hazardous, infectious or toxic wastes or substances. In
addition, except as disclosed on Schedule 3.26, neither Company nor Stockholder
has knowledge of any assertion by any governmental agency or other regulatory
authority of any enforcement action. Schedule 3.26 sets forth a complete list,
of all disposal sites utilized in the past five years by Company or any of its
predecessors. Schedule 3.26 contains a complete list of all correspondence,
notices, orders, permits, clearances or compliance letters issued by or to any
federal, state or local governmental body or agency relating in any way to any
violation of environmental laws or any cleanup, removal or other remedial
action.
3.27 OCCUPATIONAL SAFETY AND HEALTH. Except as set forth in Schedule
3.27, Company has not received any notice, citation, claim, assessment or
proposed assessment as to or alleging any violation of any federal, state or
local occupational safety and health laws and no violation which is material
presently exists. Company is not a party to any pending dispute with respect
to its compliance with any federal, state or local occupational safety and
health laws.
3.28 EMPLOYEE MATTERS. Company is not and has not engaged in any unfair
labor practice within the meaning of Section 8 of the National Labor Relations
Act, as amended, and there is no proceeding or investigation pending or
threatened against it with respect thereto. There are no, and during the last
five years, have not been any, formal, informal or internal charges or
complaints of, or any proceedings or lawsuits pending or threatened involving,
discrimination or harassment (including, but not limited to, discrimination or
harassment based upon gender, age, marital status, race, religion, color,
creed, national origin, sexual preference, handicap or veteran status), nor is
there any investigation pending or threatened before the Equal Employment
Opportunity Commission or any other federal, state or local agency or authority
with respect to alleged or actual discrimination or harassment, by Company or
any of its employees.
12
<PAGE> 13
Company is in compliance in all material respects with the Family and
Medical Leave Act and the Americans With Disabilities Act, as amended.
3.29 COMPLIANCE WITH ZONING AND OTHER REGULATIONS; ASSESSMENTS. Except as
set forth in Schedule 3.29, none of the personal property or real property and
structures and improvements located thereon or therein, owned or leased by
Company in connection with its business is in violation of any law or any
zoning, environmental or other ordinance, code, rule, regulation, of any
governmental body or other authority having jurisdiction thereof, including
provisions related to permissible nonconforming uses, if any. No notice from
any governmental body or other party has been served upon Company, or upon any
property owned or leased in connection with its business, claiming any
violation of such law, ordinance, code, rule or regulation or requiring or
calling attention to the need for any work, repair, construction, alteration or
installation on or in connection with such property and to the best of
Stockholder's knowledge, no such violation exists. Company has received no
notice of any special tax assessments affecting any property owned or leased in
connection with its business and no such assessments are pending or
contemplated.
3.30 PENDING LITIGATION. Except as set forth in Schedule 3.30 (other than
claims or suits which are covered by insurance), there is no claim, action,
suit, litigation or proceeding of any nature (including, without limitation,
any governmental, administrative or other investigation) pending or, to the
best of Stockholder's knowledge, threatened against or affecting Company or its
business in any court or before any federal, state, county or municipal
department, commission, board, bureau, agency or other government instrument,
nor is there any governmental administrative or other investigation or
proceeding underway involving the properties or business of Company. Neither
Company nor Stockholder have any knowledge of a basis for any claim, action,
suit, litigation or proceeding against, by or affecting Company except as set
forth in Schedule 3.30.
3.31 UNDERGROUND STORAGE TANKS. Except as set forth on Schedule 3.31,
Company has not ever owned or leased any real estate having any underground
storage tanks containing petroleum products or wastes or other hazardous
substances regulated by RCRA, CERCLA or other applicable federal, state or
local laws, rules and regulations and requirements.
3.32 RELATIONS WITH GOVERNMENT. Except as set forth on Schedule 3.32,
neither Stockholder nor Company has made, offered or agreed to offer anything
of value to any governmental official, political party or candidate for
government office nor, to the best of Stockholder's knowledge, has it otherwise
taken any action that would cause Company to be in violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any law of similar effect, except
for political contributions permitted under the laws of North Carolina.
3.33 DISCLOSURE. This Agreement and the schedules hereto and all other
documents and information furnished to NewCo and its representatives pursuant
hereto do not and will not include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading.
13
<PAGE> 14
4. REPRESENTATIONS OF NEWCO
NewCo and Ampace, jointly and severally, make the following
representations and warranties to, and covenants with, Stockholder. When a
representation or warranty is made "to the best of NewCo's or Ampace's
knowledge," NewCo and/or Ampace shall, after a reasonably diligent
investigation, have reasonable ground to believe, and shall believe, that the
representation and warranty as stated is true. References to Ampace shall
include all subsidiaries or other businesses under its control as the context
shall require. As of the Closing Date, NewCo and Ampace shall be deemed to
have made such representations and warranties at and as of such time.
4.1 DUE ORGANIZATION. Ampace is duly organized, validly existing and in
good standing under the laws of Delaware, and is duly authorized, qualified and
licensed under all applicable laws, regulations, ordinances and orders of
public authorities to carry on its business in the places and in the manner as
now conducted except where the failure to be so authorized, qualified or
licensed would not have a material adverse affect on its business. Copies of
the Certificate of Incorporation of Ampace (certified by the Delaware Secretary
of State) and the Bylaws of Ampace (certified by the clerk or secretary of the
corporation) are attached hereto as Schedule 4.1. The stock records and minute
books of Ampace, as heretofore made available to the Stockholder, are correct
and complete. NewCo is duly organized, validly existing and in good standing
under the laws of Delaware, and is duly authorized, qualified and licensed
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as now
conducted except where the failure to be so authorized, qualified or licensed
would not have a material adverse affect on its business. Copies of the
Certificate of Incorporation of NewCo (certified by the Delaware Secretary of
State) and the Bylaws of NewCo (certified by the clerk or secretary of the
corporation) are attached hereto as Schedule 4.1. The stock records and minute
books of NewCo, as heretofore made available to the Stockholder, are correct
and complete.
4.2 AUTHORIZATION. Ampace has the corporate power and authority to
execute and deliver this Agreement and the other documents and instruments to
be delivered pursuant to this Agreement and to consummate the sale and the
other transactions contemplated hereby. The execution and delivery by Ampace
of this Agreement, the consummation of the sale and other transactions
contemplated hereby by Ampace have been duly and validly authorized by all
necessary corporate action on the part of Ampace. This Agreement has been duly
and validly executed and delivered by Ampace and constitutes the valid and
binding obligations of it enforceable in accordance with its terms, subject as
to the enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency and similar laws from time to time in effect.
4.3 NO CONFLICTS; APPROVALS. Neither the execution, delivery and
performance of this Agreement, the consummation of the sale and other
transactions contemplated hereby by Ampace and NewCo will (a) conflict with or
result in a breach of any provision of the charter or bylaws of either Ampace
and NewCo, (b) result in any conflict with, breach of, or default (or give rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit) under or require any consent or approval which has not been
obtained with respect to any of the
14
<PAGE> 15
terms, conditions or provisions of any indenture, contract, agreement or
instrument to which Ampace and NewCo is a party or by which any of its
properties may be bound or (c) violate any order, law, rule or regulation
applicable to Ampace and NewCo or by which any of its properties is bound. No
action, consent or approval by, or filing by Ampace and NewCo with, any
Federal, state, municipal, foreign or other court or governmental body or
agency, or any other regulatory body, is required in connection with the
execution and delivery by Ampace and NewCo of this Agreement or the
consummation by Ampace and NewCo of the purchase of the Company Stock and the
other transactions contemplated hereby, other than such as shall have been
obtained prior to the Closing.
4.4 CAPITAL STOCK. The authorized stock of Ampace consists of 10,000,000
shares of common stock, of which 2,800,000 shares are issued and outstanding.
All of the issued and outstanding shares of Ampace stock have been duly
authorized and are validly issued, fully paid and non-assessable. Schedule 4.3
sets forth all options, warrants, causes, or rights or any other agreement or
commitment, either formal or informal or firm or contingent, obligating Ampace
to issue, deliver, sell, or cause to be issued, delivered or sold any
additional shares of capital stock or other securities of the Ampace or
obligating it to grant, extend or enter into such agreement or commitment.
4.5 FINANCIAL STATEMENTS. Attached as Schedule 4.4 are copies of the
audited balance sheets and statements of income, cash flows of Arnpace as of
December 31, 1994 and interim balance sheets and statements of income, cash
flows for the quarters [year ending] ending on or before December 31, 1995,
(the "Financial Statements"). Such Financial Statements present fairly the
financial condition of Ampace as of the dates of each statement, and the result
of operations of Ampace for the periods then ended. Such statements have been
prepared in accordance with the books and records of Ampace which are complete
and accurate in all material respects and which have been maintained in
accordance with good business practices and have been prepared in accordance
with generally accepted accounting principles, subject in the case of interim
financial statements to normal reoccurring year end adjustments.
4.6 CONFORMITY WITH THE LAW. Ampace is not in material default under any
law or regulation or under any order of any court of Federal, State, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, having jurisdiction over it; except and to the extent set
forth in Schedule 4.5 (other than claims or suits which are covered by
insurance) there are no claims, actions, suits or proceedings pending or
threatened against or affecting the Ampace, at law or at equity, or before or
by any Federal, State, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of it
including without limitation any under charge claims in excess of $25,000.00
and, no notice of any claim, action, suit or proceeding whether pending or
threatened has been received. Ampace has conducted and is conducting its
business in accordance with the requirements, standards, criteria and
conditions set forth in applicable Federal, State and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing that might
materially and adversely affect the business, operations, affairs, prospects,
properties, assets, profits or conditions (financial or otherwise) of the
Company, when taken as a whole.
15
<PAGE> 16
4.7 MATERIAL CONTRACTS AND Commitments. Except as set forth in Schedule
4.6, Ampace is not in violation of, breach of or default under any material
contract (including, but not limited to any note, lease, security instrument,
mortgage, agreement, contract or commitment) to which Ampace is a party or by
which any of its material properties or assets is bound, the violation of,
breach of, or default under would have a material adverse affect.
4.8 EXCHANGED STOCK. The stock which Ampace will issue to the Stockholder
pursuant to this Agreement is or will be as of the closing duly and validly
issued, fully paid and nonassessable. The stock is not issued under the
Securities Act of 1933, but has been duly registered under the Securities
Exchange Act of 1934. Ampace has made all filings in a timely basis with
respect to the Securities and Exchange Commission and has delivered to the
Stockholder copies of all quarterly and annual filings made by Arnpace with the
Securities Exchange Commission.
4.9 EMPLOYEE BENEFIT PLANS. Ampace with respect to the employee benefit
plans, as defined by ERISA, have been operated in material compliance with
ERISA and are not subject to any liability for excise tax or penalty due under
the Internal Revenue Code or liability through the Pension Benefit Guaranty
Corporation. Ampace does not nor has not maintained an employee benefit plan
that is subject to minimum funding through the minimum funding requirements of
ERISA.
4.10 MATERIAL INTERESTS OF Certain PERSONS. No officer or director of
Ampace, or any "associate" (as such term is defined in Rule 14a-1 under the
1934 Act) of any such officer or director, has any material interest in any
significant contract or lease of any property (real or personal), tangible or
intangible, used in or pertaining to the business of Arnpace or its
subsidiaries. Significant contract as herein defined shall mean any contract
that involved more than $25,000.00 in payments over a period of less than
twenty-four (24) months.
4.11 LITIGATION. Except as set forth in Schedule 4.10 (other than claims
or suits which are covered by insurance), there is no claim, action, suit,
litigation or proceeding of any nature (including, without limitation any
governmental, administrative or other investigation) pending or threatened
against or affecting Ampace or its business in any court or before any Federal,
State, county or municipal department, commission, board, bureau, agency or
other governmental instrumentality nor is there any governmental,
administrative or other investigation or proceeding under way involving the
properties or business of Ampace. Ampace has no knowledge of a basis for any
claim, action, suit, litigation or proceeding against, by or affecting Ampace.
4.12 OMISSION. This Agreement and the schedules hereto and all documents
and other information furnished to the Stockholder and their representatives by
Ampace pursuant hereto do not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading.
16
<PAGE> 17
4.13 BROKERS AND FINDERS. Arnpace and NewCo or its officers, directors or
employees have not employed as broker, agent or finder have incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the sale and other transactions contemplated by the Agreement. Neither
Ampace and NewCo nor any of its officers, directors or employees on behalf of
any of them have incurred any liabilities for any financial advisor fees,
brokerage fees, commissions or finders' fees that remain unpaid in connection
with any transaction or proposed transaction described herein.
5. COVENANTS PRIOR TO CLOSING.
5.1 ACCESS AND COOPERATION. Between the date of this Agreement and the
Closing Date, Company will each afford to the officers and authorized
representatives of the NewCo access to all of its sites, properties, books,
records, officers and key employees and will furnish each other with such
additional financial and operating data and other information as to its
business and properties as the other may from time to time reasonably request.
Each of the Company and NewCo will cooperate with the other, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by any governmental agency. NewCo and Company will cause
all information obtained in connection with the negotiation and performance of
this Agreement to be treated as confidential in accordance with the provisions
of Section 12 hereof.
5.2 CONDUCT OF THE BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing Date, Company will:
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform all of its material obligations under agreements
relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) use its best efforts to maintain and preserve its business
organization intact, retain its respective present employees and maintain
its relationships with suppliers, customers and others with which it has
business relations;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders and similar requirements;
(g) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments; and
17
<PAGE> 18
(h) maintain present salaries and commission levels for all
officers, directors, employees and agents, except in the normal course of
business consistent with past practices.
5.3 PROHIBITED ACTIVITIES. Between the date of this Agreement and the
Closing Date, the Company will not, without the prior written consent of NewCo:
(a) make any change in its Articles of Incorporation or Bylaws;
(b) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind;
(c) declare or pay any dividend;
(d) except as set forth in Schedule 5.3(d), enter into any contract
or commitment or incur or agree to incur any liability or make any
capital expenditures in excess of $10,000;
(e) increase the compensation payable or to become payable to any
officer, director, stockholder, employee or agent, or make any bonus or
management fee payment to any such person;
(f) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any material assets or properties whether now
owned or hereafter acquired, except as set forth in Schedule 5.3(f);
(g) except as provided by Schedule 5.3(g), sell, assign, lease or
otherwise transfer or dispose of any property or equipment;
(h) negotiate for the acquisition of any business or the start-up of
any new business;
(i) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(j) waive any of its material rights or claims;
(k) knowingly breach or permit a breach, amend or terminate any
material Contract or Permit; or
(l) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
18
<PAGE> 19
5.4 NO SHOP. None of Stockholder, Company, or any agent, officer,
director or any representative of any of the foregoing will, during the period
commencing on the date of this Agreement and ending with the earlier to occur
of the Closing or the termination of this Agreement in accordance with its
terms, directly or indirectly (a) solicit or initiate the submission of
proposals or offers from any person for, (b) participate in any discussions
pertaining to or (c) furnish any information to any person other than NewCo
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
5.5 MAINTENANCE OF PERSONAL PROPERTY AND REAL ESTATE. Stockholder shall
cause Company to maintain Company's real and personal property in its present
condition, ordinary wear and tear excepted, and Stockholder shall cause Company
to perform all ordinary and regular maintenance and repairs with respect
thereto.
5.6 NOTIFICATION OF MATERIAL ADVERSE EVENTS. Stockholder shall promptly
notify NewCo in writing of any event following the date hereof of which
Stockholder is or becomes aware that will or is likely to have a material
adverse effect on Company's business, financial condition, prospects of its
business, the Company Stock or on the performance by Stockholder of this
Agreement. NewCo and Ampace acknowledge the disclosure of the potential
termination of the RJR Tobacco Company freight business.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER.
The obligations of Stockholder hereunder are subject to the fulfillment,
prior to the sale transaction contemplated herein, of each of the following
conditions, any of which may be waived by Stockholder. Upon consummation of
the purchase and sale of Company Stock and related transactions contemplated
herein, all conditions not satisfied are deemed to be waived.
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
representations and warranties of NewCo and Ampace contained in Section 4 shall
be accurate as of the Closing Date as though such representations and
warranties had been made as of that time, except for such changes permitted or
contemplated by this Agreement. All of the terms, covenants and conditions of
this Agreement to be complied with and performed by NewCo and Ampace on or
before the Closing Date shall have been duly complied with and performed. A
certificate to the foregoing effect dated the Closing Date and signed by the
Chief Executive Officer and Chief Financial Officer of NewCo and Ampace shall
have been delivered to Stockholder.
6.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted to restrain or prohibit
the sale transactions contemplated by this Agreement and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which the management of Company deems it inadvisable to proceed with
the transactions hereunder.
19
<PAGE> 20
6.3 EMPLOYMENT AGREEMENT. NewCo shall have executed and delivered an
Employment Agreement for Carl Cheshire substantially in the form of Exhibit 6.3
attached hereto. The performance of the contract by NewCo will be guaranteed
by Ampace.
6.4 GOOD STANDING CERTIFICATES. NewCo and Ampace shall have delivered to
Stockholder certificates, dated as of a date no longer than ten days prior to
the Closing Date, duly issued by the appropriate governmental authority in
NewCo's and Ampace's state of incorporation and in each state in which NewCo
and Ampace is authorized to do business, showing that NewCo and Ampace is
authorized to do business and that all state franchise and/or income tax
returns and taxes for Arnpace for all periods prior to the Closing have been
filed and paid.
6.5 PROCEEDINGS SATISFACTORY. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters will be reasonably satisfactory in form and
substance to counsel to Stockholder.
6.6 NO MATERIAL ADVERSE CHANGE. No material adverse change in the results
of operations, financial condition or business of Ampace taken as a whole shall
have occurred and Ampace shall not have suffered any material loss or damage to
any of its properties or assets since its most recent filings with the
Securities and Exchange Commission, which change, loss or damage materially
affects or impairs the ability of Ampace to conduct its respective businesses.
6.7 TAX OPINION. The Stockholder shall have received from KPMG, Certified
Public Accountants, a tax opinion that the exchange of stock in the Company
will be a tax-free exchange as provided in the Internal Revenue Code of 1986,
as amended, with respect to the shares exchanged for Ampace's shares pursuant
to this Agreement.
6.8 OPINION OF COUNSEL. The Stockholder shall have received an opinion of
counsel of Ampace dated as of the closing date in the form and substance
satisfactory to the counsel of the Stockholder.
6.9 REDUCTION IN QUOTED STOCK PRICE. The stock price of Ampace shall
average at least Three Dollars ($3.00) per share for the twenty business days
immediately preceding the Closing Date.
7. CONDITIONS TO OBLIGATIONS OF NEWCO.
The obligations of NewCo hereunder are subject to the fulfillment, prior
to the purchase and sale transaction contemplated herein, of each of the
following conditions, any of which may be waived by NewCo. Upon consummation
of the purchase and sale of Company Stock and related transactions contemplated
herein, all conditions not satisfied are deemed to be waived.
7.1 REPRESENTATIONS AND WARRANTIES. Stockholder and Company shall each
have delivered to NewCo a certificate dated the Closing Date and signed
respectively by Stockholder and the Chief Executive Officer and Chief Financial
Officer of Company to the effect that the
20
<PAGE> 21
respective representations and warranties of Stockholder and Company set forth
in this Agreement shall be accurate as of the Closing Date as though such
representations and warranties had been made as of that time, except for such
changes permitted or contemplated by this Agreement, and that all of the terms,
covenants and conditions of this Agreement to be complied with and performed by
Stockholder and Company on or before the Closing Date shall have been duly
complied with and performed. If, at the Closing, either Stockholder or Company
informs NewCo that they cannot confirm any representation or warranty as of the
Closing Date, and provides in reasonable detail a statement setting forth the
relevant facts, and NewCo waives this closing condition, the facts disclosed to
NewCo shall not be the basis for any action by NewCo for indemnification for
breach of such representation or warranty under Article 9 of the Agreement.
7.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the sale transactions contemplated by this Agreement and
no governmental agency or body shall have taken any other action or made any
request of NewCo as a result of which the management of NewCo deems it
inadvisable to proceed with the transactions hereunder.
7.3 DUE DILIGENCE REVIEW. Prior to the Closing Date, NewCo shall have had
sufficient time to review the unaudited balance sheet and financial statements
of Company as of December 31, 1995, and the unaudited statements of income,
cash flow and Stockholder' equity of Company for the periods then ended, and
such review shall be satisfactory to NewCo. Further, NewCo shall have had
sufficient time to study the business operations of Company and to determine
whether the representations and warranties made herein and the schedules
attached hereto are accurate, and such review shall be satisfactory to NewCo.
7.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the results
of operations, financial condition or business of Company taken as a whole
shall have occurred, and Company shall not have suffered any material loss or
damages to any of its properties or assets since the Balance Sheet Date, which
change, loss or damage materially affects or impairs the ability of Company to
conduct its respective businesses.
7.5 REGULATORY REVIEW. NewCo, through its authorized representatives,
shall have completed to its reasonable satisfaction a review of the regulatory
practices and procedures of Company including, but not limited to, compliance
with federal, state and local laws and regulations governing the operations of
Company with respect to environmental, occupational safety and health and
federal and state medical reimbursement matters
7.6 STOCKHOLDER RELEASES. The Stockholder shall have delivered to NewCo
an instrument, in form and substance satisfactory to counsel for NewCo, dated
the Closing Date, releasing Company from any and all claims of Stockholder
against Company.
7.7 EMPLOYMENT AGREEMENT. Carl Cheshire shall have executed an Employment
Agreement substantially in form of Exhibit 6.3 attached hereto.
21
<PAGE> 22
7.8 CANCELLATION OR AMENDMENT OF LEASES. All existing lease agreements
between Company and any of its Stockholder, officers, affiliates, or parties
related thereto shall either have been canceled or the rental payments and
other terms thereunder shall have been set at a level no less than fair market
value.
7.9 OPINION OF COUNSEL. The NewCo and Ampace shall have received an
opinion of counsel of Stockholder dated as of the closing date in the form and
substance satisfactory to the counsel of the NewCo and Ampace.
7.10 CONSENTS AND APPROVALS. All necessary consents of, and filings with,
any governmental authority or agency relating to the consummation of the
Purchase and Sale of Company Stock and the transactions contemplated hereby
shall have been obtained and made and no action or proceeding shall have been
instituted or threatened to restrain or prohibit the consummation of the
Purchase and Sale of Company Stock or the other transactions contemplated by
this Agreement and no governmental agency or body shall have taken any other
action or made any request of NewCo as a result of which NewCo deems it
inadvisable to proceed with the transactions hereunder.
7.11 ADDITIONAL LIABILITIES AND OBLIGATIONS. Stockholder shall have
delivered to NewCo a schedule, dated the Closing Date, setting forth all
material liabilities and obligations of Company and its Subsidiaries known to
Stockholder and arising since the date of Schedule 3.8.
7.12 ADDITIONAL CONTRACTS. Stockholder shall have delivered to NewCo a
schedule, dated the Closing Date, showing all material Contracts, together with
copies thereof, entered into by Company or any Subsidiary known to Stockholder
and arising since the date of Schedule 3.12.
7.13 GOOD STANDING CERTIFICATES. Stockholder shall have delivered to
NewCo certificates, dated as of a date no longer than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in
Company's state of incorporation and in each state in which Company is
authorized to do business, showing that Company is in good standing and
authorized to do business and that all state franchise and/or income tax
returns and taxes for Company for all periods prior to the Closing have been
filed and paid.
7.14 PROCEEDINGS SATISFACTORY. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters will be reasonably satisfactory in form and
substance to counsel to NewCo.
7.15 REPRESENTATION REGARDING ACQUISITION OF STOCK BY STOCKHOLDER.
Stockholder represents and warrants that the Ampace stock being conveyed to him
pursuant to Section 1 (b) of this Agreement is being acquired for investment
purposes only. Stockholder agrees to provide documentation to confirm this
representation in a form reasonably satisfactory to NewCo's counsel upon
request.
22
<PAGE> 23
7.16 APPROVAL BY AMPACE BOARD. This Agreement in its final executed form
shall be subject to the approval of the Board of Directors of Ampace, which
approval will be given as soon as reasonably possible.
7.17 COVENANTS. Relatives of the Stockholder will have executed covenants
of noncompetition for periods of two (2) years not to solicit or compete with
current accounts of the Company.
8. POST CLOSING COVENANTS.
8.1 RELEASE FROM GUARANTEES; REPAYMENT OF INDEBTEDNESS. NewCo and Ampace
shall use its best efforts to have Stockholder released from any and all
guarantees on any indebtedness, including real and personal property leases,
equipment leases, mortgages, and purchase agreements, that he personally
guaranteed for the benefit of Company, including without limitation obligations
related to letters of credit as of the Closing Date. Company and Stockholder
agree to authorize any party holding a guaranty to discuss and negotiate it's
release with NewCo and agrees to cooperate with NewCo in any reasonable manner
to obtain said releases. NewCo and Ampace will indemnify, defend, protect and
hold harmless Stockholder at all times from and after the Closing Date from and
against any personal guarantees which have been provided for the benefit of the
Company.
8.2 STOCKHOLDER OBLIGATIONS TO COMPANY. Stockholder owes $222,087.81 to
Company as of the date of this Agreement. Stockholder has also requested that
the vehicles listed in Schedule 8.2 be transferred to him at the Closing.
Those vehicles have a value of $39,040.0~ Stockholder shall pay Company for the
value of the vehicles (less any debt assumed) and the debt owed to the Company
by paying annual payments until the debt is paid in full. Stockholder will
execute a promissory note in the form attached as Exhibit 8.2. No interest
will be charged on the note. The due date of the annual payment shall coincide
with the due date of the payments due from Company/NewCo pursuant to Section 11
of this Agreement. During the term of the note, NewCo/Company will reduce the
payment under Section 11.7 by the annual amount owed.
8.3 PIGGY-BACK RIGHTS. In the event Ampace registers additional stock
within three (3) years from the date of this Agreement, Stockholder will be
granted "piggy-back registration rights" as to the shares, including any
additional shares received by reason of a stock dividend, capital
reorganization or corporate reorganization, received under this Agreement. The
Ampace will pay all of the expenses in connection with the registration,
including without limitation, the costs of preparation, printing and filing the
registration statement in compliance with the Act, the fees and expenses of
counsel and accountants for the Ampace and Stockholders for registering the
offering shares. The Ampace will indemnify and hold harmless each Stockholder
hereof against all claims, losses, damages, liabilities and expenses resulting
from any untrue statement or allegedly untrue statement of a material fact
furnished to any underwriter or purchaser of the registered shares, expressly
for use in connection with such registration or qualification and used in
accordance with such writing and from any omission therefrom or alleged
omission therefrom
23
<PAGE> 24
of a material fact needed to be furnished or necessary to make the
statements therein (in light of the circumstances under which they were made)
not misleading.
9. INDEMNIFICATION.
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties in this Agreement and in the documents and instruments delivered
pursuant to this Agreement will survive until the date that is twenty four
months after the Closing Date, except (a) with respect to claims as to which
notice has been given within said period, in which case the indemnification
period shall be extended until the final resolution of such claim; (b) with
respect to any federal, state or local taxes, as to which the indemnification
obligation will survive until the expiration of the applicable statute of
limitations for such taxes; and (c) environmental claims, as to which there
shall be no expiration date except as provided by applicable laws limiting such
actions. The liabilities of the parties under their respective representations
and warranties will expire as of the expiration of the applicable survival
period (the "Expiration Date"); provided, however, that such expiration will
not extend to any representation or warranty the breach of which shall have
been asserted in writing before such Expiration Date. The covenants and
agreements in this Agreement and in the other instruments and documents
delivered pursuant to this Agreement will survive the Closing and continue in
full force and effect without limitation.
9.2 INDEMNIFICATION BY STOCKHOLDER. Stockholder covenants and agrees that
he will indemnify, defend, protect and hold harmless NewCo any of its officers,
directors, employees, shareholders and agents and Company at all times from and
after the date of this Agreement from and against all claims, damages, actions,
suits, proceedings, demands, assessments, adjustments, costs and expenses
(collectively, "Damages") incurred by NewCo or Ampace as a result of or
incident to any breach of the representations and warranties or covenants set
forth herein or on the schedules or certificates delivered in connection
herewith and any misrepresentations or nonfulfillment of any agreement on the
part of Stockholder or Company under this Agreement.
9.3 INDEMNIFICATION BY NEWCO. AND AMPACE. NewCo and Arnpace covenant and
agree that each will, jointly and severally, indemnify, defend, protect and
hold harmless Stockholder at all times from and after the date of this
Agreement from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (collectively, "Damages")
incurred by Stockholder as a result of or incident to any breach of the
representations and warranties or covenants set forth herein or on the
schedules or certificates delivered in connection herewith and any
misrepresentations or nonfulfillment of any agreement on the part of
Stockholder or Company under this Agreement.
9.4 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person") or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any
party obligated to provide indemnification pursuant to Section 9.2 or 9.3
hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party
written
24
<PAGE> 25
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof The Indemnifying Party shall have right to
defend and settle, at its own expense and by its own counsel, any such matter
so long as the Indemnifying Party pursues the same in good faith and
diligently. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's Possession or control.
Notwithstanding the foregoing, the Indemnified Party shall have the right to
participate in any matter through counsel of its own choosing provided that the
Indemnifying Party's counsel shall always be lead counsel and shall determine
all litigation and settlement steps, strategy and the like. The Indemnifying
Party will not accept a settlement of any such Third Person claim without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party
may undertake such defense through counsel of its choice, at the cost and
expense of the Indemnifying Party, and the Indemnified Party may settle such
matter, and the Indemnifying party shall reimburse the Indemnified Party for
the amount paid in such settlement and any other liabilities or expenses
incurred by the Indemnified Party in connection therewith.
9.5 GRANT OF SECURITY INTEREST. Stockholder hereby grants to NewCo a
security interest in the annual payments due Stockholder pursuant to Section 11
of this Agreement and in the note payments provided for in paragraph 1.3(c) for
the purpose of securing all undertakings and obligations of Stockholder under
this Agreement. Stockholder agrees to execute financing statements, security
agreements and other documents requested by NewCo to allow NewCo to perfect a
security interest in those payments. NewCo and Ampace will have the right of
set off against the note payments provided for in paragraph 1.3(c), subject to
the provisions of Section 9.6.
9.6 DISPUTE BY STOCKHOLDER OF SET OFF OR OTHER ACTIONS BY A SECURED PARTY.
In the event that Stockholder disputes NewCo's or Ampaces's entitlement to
funds which are set off or withheld pursuant to security documents, Stockholder
may take the following action. If Stockholder believes that the alleged claim
described in the notice to Stockholder is not a valid claim, Stockholder may,
request nonbinding mediation, take either a defensive action in a Court of
competent jurisdiction or an offensive action seeking a declaration that the
liability is not due in a Court of competent jurisdiction. If Stockholder
takes either of these actions, then the NewCo shall be required to deposit any
funds in dispute in the Court of competent jurisdiction. NewCo shall not be
required to do so, however, until an Order is entered recognizing the security
interest and set off rights of the NewCo and providing for a continuation of
the security interest in the funds on deposit with the Court. The Court shall
provide for a disbursement of those funds in accordance with this Agreement and
in accordance with a final, unappealable order determining the validity of the
alleged claim. The Court shall recognize the right of NewCo to
25
<PAGE> 26
be indemnified and held harmless for attorney fees and expenses, as well as any
rights with respect to payment of the claim.
If the set off or other action is taken because of a loss or damage which
is incurred due to a non-fulfillment or breach of the Agreement by Stockholder
or Company or misrepresentation by Stockholder or Company, and if Stockholder
disputes NewCo's right to set off or otherwise take action against its
security, Stockholder may file an action in a Court of competent jurisdiction
seeking to have the Court determine NewCo's entitlement to said funds. The
funds shall, thereafter, be deposited in accordance with the procedure outlined
above.
9.7 INDEMNIFICATION LIMITATION. Notwithstanding anything to the contrary,
the indemnification of the Stockholder to Ampace or NewCo shall be limited to
items which exceed $5,000.00 on a per item basis of indemnifiable items and in
no event shall the total amount of indemnification under this Agreement for
warranties, covenants or other adjustments exceed One Hundred Fifty Thousand
Dollars ($150,000) which amount must be set off against the promissory note
given to Stockholder in Section 1.3(c). NewCo and Ampace acknowledge and agree
that the limitation contained herein is full and complete and that in no event
will there indemnifiable amount exceed One Hundred Fifty Thousand Dollars ($
150,000).
10. TERMINATION OF AGREEMENT.
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) [there is no subparagraph (a)];
(b) by mutual consent of the board of directors of Company and
NewCo;
(c) by NewCo (acting through its board of directors) at any time
prior to the Closing Date if the results of its due diligence
investigation of Company is not satisfactory to NewCo;
(d) by NewCo at any time prior to the Closing Date if there has
occurred a material adverse change in the results of operations,
financial condition or business of Company, since November 30, 1995;
(e) by Stockholder or Company (acting through its board of
directors), on the one hand, or by NewCo (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
March 31, 1996, unless the failure of such transactions to be consummated
is due to the willful failure of the party seeking to terminate this
Agreement to perform each of its obligations under this Agreement to the
extent required to be performed by it prior to or on the Closing Date: or
26
<PAGE> 27
(f) by Stockholder or Company or by NewCo in the event of a breach
or default in any material respect by the other party of any provision
under this Agreement and, in the case of a breach or default that is
capable of being cured, continuation of such breach or default for a
period of 30 days after written notice thereof shall have been given to
the breaching party.
10.2 LIABILITIES IN EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based
on or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this
Agreement; provided, however, that if the termination results from the
inability of a party to confirm a representation or warranty at the Closing,
which representation or warranty was true at the time of execution of this
Agreement, then such party shall be relieved of all liabilities and obligations
arising therefrom unless the inability to confirm such representation or
warranty results from a breach of such party's obligations under this
Agreement. The obligations of the parties under Article 12 and Section 13.5
shall survive the termination of this Agreement.
11. NONCOMPETITION.
11.1 PROHIBITED ACTIVITIES. Stockholder agrees that for a period of five
(5) years following the termination of his employment under his Employment
Agreement in the form attached hereto as Exhibit 6.3, he will not:
(a) establish, enter into, be employed by or for, advise, consult
with or become an owner in or a part of, any company, partnership,
corporation or other business entity or venture, or in any way engage in
business entity or venture, or in any way engage in business for himself
or for others, that competes in the business of providing transportation
services with Company, NewCo or any of their respective subsidiaries,
within 100 miles of any location in which Company, NewCo or any of their
respective subsidiaries conducts business (for purposes of Article 11,
the geographic region is the "Territory");
(b) solicit any person who, to the best of Stockholder's knowledge,
is at that time employed by NewCo in the Territory in a managerial
capacity for the purpose or with the intent of enticing such employee
away from or out of the employ of NewCo;
(c) call upon or solicit any person or entity which, is or, within
five years prior to that time, has been a customer of Company for the
purpose of soliciting or selling transportation services;
(d) call upon or solicit any person or entity which, to the best of
Stockholder's knowledge, is or, within five year prior to that time, has
been a customer of NewCo for the purpose of soliciting or selling
transportation services;
27
<PAGE> 28
(e) call upon any prospective acquisition candidate, on his own
behalf or on behalf of any competitor, which candidate was either called
upon by him or for which he made an acquisition analysis for himself or
NewCo or Company;
(f) disclose Company's customers, whether in existence or proposed,
to any person, firm, partnership, corporation or business for any reason
or purpose whatsoever; or
(g) the term "any location in which Company, NewCo or any of their
respective subsidiaries conduct business" is to be interpreted broadly
and, includes, but is not limited to, any place where Company has an
office or truck terminal and any place to which the Company, NewCo or any
of their respective subsidiaries have delivered or picked up cargo.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit either Stockholder acquiring as an investment not more than five
percent (5%) of the capital stock of a competing business, whose stock is
traded on a national securities exchange or in the over-thecounter market.
11.2 DAMAGES. Because of the difficulty of measuring economic losses to
NewCo and Company as a result of the breach of the foregoing covenant, and
because of the immediate and irreparable damage that would be caused to NewCo
and Company for which they would have no other adequate remedy, Stockholder
agrees that, in the event of a breach by him of the covenants set forth in
Section 11.1 hereof, the covenants may be enforced by NewCo or Company by
injunctions and restraining orders.
11.3 REASONABLE RESTRAINT. It is agreed by the parties that the
foregoing covenants in this Article 11 impose a reasonable restraint on
Stockholder in light of the activities and business of Company on the date of
the execution of this Agreement and the future plans of Company.
11.4 SEVERABILITY: REFORMATION. The covenants in this Article 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and the Agreement shall thereby be reformed.
11.5 INDEPENDENT COVENANTS. All of the covenants in this Article 11
shall be construed as agreements independent of any other provision of this
Agreement, and the existence of any claim or cause of action of Stockholder
against Company or NewCo, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by NewCo or Company of such
covenants. It is specifically agreed that the period of five (5) years stated
above shall be computed by excluding from such computation any time during
which Stockholder is in violation of any provision of this Article 11 as
determined by a final and nonappealable decree of a court of competent
jurisdiction.
28
<PAGE> 29
11.6 MATERIALITY. Stockholder hereby agrees that the covenants in this
Article 11 are a material and substantial part of this transaction.
11.7 PAYMENT TO STOCKHOLDER. Stockholder shall receive consideration for
the agreement contained in this Article 11 of $77,400.00 per year to be paid
annually commencing on the Closing Date and continuing until the fourth
anniversary date of the closing.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
12.1 STOCKHOLDER. Stockholder recognizes and acknowledges that he had in
the past, currently has, and in the future may possibly have, access to (i)
certain confidential information of Company, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the respective businesses and (ii) certain confidential
information about NewCo and the companies it intends to acquire in connection
with the Purchase and Sale of Company Stock and related transactions
contemplated hereby. Stockholder agrees that he will not use such confidential
information for his own benefit (except in connection with the Employment
Agreement) or disclose it to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, unless such information
becomes known to the public generally through no fault of Stockholder or unless
Stockholder is required by law to disclose such information, he shall notify
NewCo as promptly as possible and allow NewCo the opportunity to oppose such a
request. In the event of a breach or threatened breach by Stockholder of the
provisions of this Section, NewCo and Company shall be entitled to an
injunction restraining Stockholder from using or disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting NewCo and Company from pursuing any other available remedy for such
breach or threatened breach including the recovery of damages.
12.2 NEWCO. NewCo recognizes and acknowledges that it and its directors,
officers, agents, accountants and advisors have in the past, currently have,
and prior to the Closing Date, will have access to certain confidential
information of Company, such as lists of customers, operational policies,
pricing and cost policies that are valuable, special and unique assets of the
businesses of Company. This confidential information has been provided to
NewCo and its representatives for the purpose of evaluating the transactions
contemplated by this Agreement. NewCo agrees that prior to the Closing and
following any termination it will not use such confidential information other
than for the purposes for which it has been provided and will not disclose such
confidential information to any person, firm, corporation, association, or
other entity for any purpose or reason whatsoever, unless such information
becomes known to the public generally through no fault of NewCo or unless NewCo
is required by law to disclose such information. If NewCo is requested to
provide such information, it shall notify the Stockholder and Company as
promptly as possible and allow the Stockholder and Company the opportunity to
oppose such request. In the event of a breach or threatened breach by NewCo of
the provisions of this Section, Stockholder and Company shall be entitled to an
injunction restraining NewCo from disclosing, in whole or in part, such
confidential information. Nothing contained
29
<PAGE> 30
herein shall be construed as prohibiting Stockholder and Company from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages.
12.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, NewCo, Company and the Stockholder agree that, in the event of
a breach by any of them of the foregoing covenant, the covenant may be enforced
against them by injunctions and restraining orders.
13. GENERAL.
13.1 COOPERATION. Stockholder and NewCo shall each deliver or cause to be
delivered to the other on the Closing Date, and at such other times and places
as shall be reasonably agreed to, such additional instruments as the other may
reasonably request for the purpose of consummating the transaction contemplated
by this Agreement. Stockholder will cooperate and use his best efforts to have
the present officers, directors and employees of Company cooperate with NewCo
on and after the Closing Date in furnishing information, evidence, testimony
and other assistance in connection with any actions, proceedings, arrangements
or disputes of any nature with respect to matters pertaining to all periods
prior to the Closing Date.
13.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, their successors and
permitted assigns, and the heirs, devisees and legal representatives of
Stockholder.
13.3 ENTIRE AGREEMENT. This Agreement (including the schedules and
annexes attached hereto) and the documents and instruments delivered pursuant
hereto constitute the entire agreement and understanding between Stockholder,
Company and NewCo and supersede any prior agreement and understanding relating
to the subject matter of this Agreement. This Agreement may be modified or
amended only by a written instrument executed by Stockholder, Company, and
NewCo acting through their respective officers, duly authorized by their
respective Boards of Directors.
13.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
13.5 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, NewCo will pay the fees, expenses and disbursements of NewCo
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments hereto.
Stockholder will pay the fees, expenses and disbursements of Stockholder and
Company and their agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments hereto
and all other costs and expenses incurred in the performance and compliance
with all conditions to be performed by Stockholder and Company under this
Agreement.
30
<PAGE> 31
13.6 NOTICES. All notices or communications required or permitted
hereunder shall be in writing and may be given (i) by depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, (ii) by a reputable
overnight courier service, (iii) by facsimile (immediately confirmed by
telephone) of such party. Notices shall be deemed to been given (a) if sent by
United States mail, on the fourth day following mailing, (b) if sent by
overnight courier, on the day following delivery by the sending party to the
courier service and (c) if sent by facsimile, on the day the facsimile is
confirmed as having been received. Notices shall be addressed as follows:
(a) If to NewCo:
Ampace Corporation
130 Mabry Hood Road, Suite 220
Knoxville, Tennessee 37922
Telephone: 423/691-5799
Telecopy: 423/691-8085
with a copy to:
Bernstein, Stair & McAdams
Suite 600
530 South Gay Street
Knoxville, Tennessee 37902
Telephone: 423/546-8030
Telecopy: 423/522-8879
(B) If to Company:
Amanday Express, Inc.
5625 U.S. Highway 220 S.
Asheboro, North Carolina 27203
Telephone: 910/873-7911
Telecopy: 910/873-8251
and to Stockholder:
Mr. Carl Cheshire
481 Walnut Drive
Asheboro, North Carolina 27203
Telephone: 910/629-8088
31
<PAGE> 32
with a copy to:
Howard L. Williams, Esq.
Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P.
2000 Renaissance Plaza
230 North Elm Street
P.O. Box 26000
Greensboro, North Carolina 27420-6000
Telephone: 910/373-8850
Telecopy: 910/378-1001
13.7 GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of Tennessee, without
regard to its conflict of laws principles. Any and all suits, legal actions or
proceedings may be brought in the United States District Court for the Eastern
District of Tennessee or the Middle District of North Carolina or in any court
of appropriate jurisdiction and each party submits to and accepts to the
jurisdiction of such courts for the purpose of any such suit, legal action or
proceeding.
13.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the
Closing or in writing delivered pursuant to the provisions of this Agreement
shall survive the consummation of the transactions contemplated hereby and any
examination on behalf of the parties, except to the extent limited hereby.
13.9 EXHIBITS AND SCHEDULES. The parties acknowledge that certain
exhibits and schedules to this Agreement have not been attached as of the date
hereof Stockholder and Company agree to provide such exhibits and schedules
relating to representations, warranties, covenants or other agreements made by
Stockholder and Company to NewCo not later than ten (10) days prior to the
Closing Date, such exhibits and schedules will be deemed part of this
Agreement. In the event such exhibits and schedules are not provided by such
date or such exhibits and schedules have not been approved by NewCo which
approval will not be unreasonably withheld, NewCo shall have the right to
terminate this Agreement without further liability or obligation. Any schedule
or disclosure which is make a part of this Agreement shall apply to the whole
Agreement whether or not it is so designated or cross-referenced.
13.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of or in any similar breach or default occurring later; nor shall any waiver of
any single breach or default be deemed a waiver of any other breach of default
occurring before or after that waiver.
13.11 TIME. Time is of the essence of the Agreement.
32
<PAGE> 33
13.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of the Agreement shall not in any way be affected or impaired
thereby.
13.13 ATTORNEY'S FEES. Should it become necessary for any party to bring
an action or cross-action against any other party to resolve any claim or
controversy arising under this Agreement, the prevailing party shall be
entitled to recover from the other party its reasonable attorneys' fees and
expenses, including fees and expenses incurred in connection with enforcing any
decision of a court, in addition to the costs of any such action. For purposes
of this section, the "prevailing party" shall be determined by the court,
taking into consideration all aspects of the litigation the court may deem
appropriate, including but not limited to matters of liability and extent of
damages both as claimed before trial and proven during trial; the court may
determine that different parties prevailed on different aspects of the
litigation and allocate the responsibility to pay fees and costs reasonably as
a result thereof.
33
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"AMPACE"
AMPACE CORPORATION
ATTEST:
BY:
- ----------------------------- ---------------------------------
Title: Chief Executive Officer
"NEWCO"
AMPACE ACQUISITION, INC.
ATTEST:
BY:
- ----------------------------- --------------------------------
Title: Chief Executive Officer
"COMPANY"
AMANDAY EXPRESS, INC.
ATTEST:
BY:
- ----------------------------- ---------------------------------
, PRESIDENT
------------------
"STOCKHOLDER"
BY:
---------------------------------
CARL A. CHESHIRE
BY:
---------------------------------
ELIZABETH B. CHESHIRE
34
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 534,629
<SECURITIES> 0
<RECEIVABLES> 3,308,102
<ALLOWANCES> 52,256
<INVENTORY> 0
<CURRENT-ASSETS> 4,915,725
<PP&E> 17,662,931
<DEPRECIATION> 5,143,275
<TOTAL-ASSETS> 19,695,050
<CURRENT-LIABILITIES> 6,945,961
<BONDS> 0
0
0
<COMMON> 7,476,182
<OTHER-SE> (1,114,607)
<TOTAL-LIABILITY-AND-EQUITY> 19,695,050
<SALES> 30,446,000
<TOTAL-REVENUES> 30,446,000
<CGS> 31,132,728
<TOTAL-COSTS> 31,132,728
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (780,533)
<INCOME-PRETAX> (1,467,261)
<INCOME-TAX> (590,931)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (876,330)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
