<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, 1997
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)
201 PERIMETER PARK ROAD
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 required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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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. [X]
State issuer's revenues for its most recent fiscal year: $34,856,505.
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 13, 1998, shares of the registrant's common stock,
par value $0.0001 per share ("Common Stock") were sold at $1.91 per share, and
the aggregate market value of the Common Stock of the registrant held by
non-affiliates was approximately $4,183,985.
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 13, 1998,
3,062,713 shares of the issuer's Common Stock were outstanding.
Documents incorporated by reference:
Portions of the registrant's Proxy Statement for its 1998 Annual
Meeting are incorporated by reference into Part III of the Form 10-KSB. Certain
exhibits to the registrant's Form SB-2 Registration Statement Number 33-87656C,
the registrant's quarterly report on Form 10-QSB for the quarterly period ended
September 30, 1997, the registrant's Form S-8 Registration Statement Number
333-41515 and the registrant's Form S-8 Registration Statement Number 333-41521
are incorporated by reference in Part III to this Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
This Report contains forward-looking statements that address, among
other things, the Company's expansion strategy, service offerings and
acquisition candidates. The statements can be found under "Item 1 - Business"
and "Item 7 - Management's Discussion and Analysis of Financial Conditions and
Results of Operations" as well as in the Report generally. Actual events or
results may differ materially from those discussed in forward-looking statements
as a result of various factors, including the availability and timing of
acquisitions, availability of drivers, fuel prices and the addition of new
customers.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Ampace Corporation (the "Company" or "Ampace") was formed by senior
level executives with over 60 years of experience with large and medium sized
trucking companies. During its first three years, Ampace began 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 Merchants Dutch Express ("MDX")
simultaneous with the closing of an initial public offering. MDX is a non-union,
dry-van, full-truckload carrier operating in the Midwest, Mid-Atlantic,
Southeast and Southwest United States. 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.
In December, 1997, Ampace changed the name of MDX to Ampace
Freightlines, Inc. and merged its Tennessee subsidiary, Ampace Dedicated
Services, Inc. ("ADS") into MDX. This merger eliminated the separate names of
MDX and ADS, and combined Ampace's operations under one name and one subsidiary,
Ampace Freightlines, Inc.
COMPANY STRATEGY
The Company's business strategy consists of the following major
elements:
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Strategic acquisition of carriers. Ampace targets potential acquisition
candidates based upon size, geographic location, profitability, freight lane
focus and the opportunity for improvements in performance. Ampace identifies
candidates through industry data, referrals, industry M&A specialists, and
investment bankers. Each potential acquisition is reviewed to identify key
shipper relationships, driver domiciles, equipment configuration and condition
and operating costs. As 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 manufacturers; large retail and/or distribution organizations; the
food processing industry; and large component assembly firms. Current customers
generating power lane freight are Dow Chemical, Georgia Pacific Corporation,
Klaussner Furniture Industries, Riverwood International, Berkline Furniture,
International Paper, carpet manufacturers in the Dalton, Georgia area 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
manufacturers, retail distribution and intermodal operations. Ampace is serving
this group of shippers with stand-alone short-haul and local operations called
operating centers. 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.
Current Ampace customers generating short-haul freight within key
metropolitan nodes include Hunt-Wesson, K-Mart, Chep Pallet Corporation, Georgia
Pacific Corporation, International Paper, Florida Made Doors, Anheuser Busch,
Value City Distribution, 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
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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)
FreightPlex, and (iii) dedicated/niche.
Long-haul Network
Ampace's long-haul network consists primarily of freight lanes located
in the Southwestern states of Texas and Louisiana and extend to the Midwest and
Southeast. Ampace provides service to major shippers like Dow Chemical,
Riverwood International and Georgia Pacific. This network is based in Monroe,
Louisiana with offices, maintenance facilities and primary driver domicile.
Portions of the Ampace operating centers in Asheboro, North Carolina and
Morristown, Tennessee consist of long-haul network freight currently.
FreightPlex
Ampace's FreightPlex is served by various operating centers within
about a 200 mile radius of key customers. Each operating center is a full
service truckload operation with domiciled drivers, maintenance capability and
on-site operations and customer service personnel. Each operating center is
supported with accounting and administrative personnel in the Knoxville,
Tennessee headquarters.
The following are the current operating centers that are a part of the
FreightPlex operations:
Orlando, Florida
Atlanta, Georgia
Columbus, Ohio
Dedicated and Niche Markets
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
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service to shippers including Georgia Pacific Corporation, OMC, Berkline
Furniture, Anheuser Busch, Value City Distribution, K-Mart, 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. The following operating centers have a significant
portion of their business in the niche and dedicated markets: Monroe, Asheboro,
Calhoun, Georgia, Columbus and Morristown.
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, several operating centers
provide dedicated and near-dedicated contract carriage services to a number of
significant shippers such as Georgia Pacific, K-Mart, Value City and Berkline.
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 and Dalton, Georgia.
During 1997, the Company acquired two more companies that expanded the
operating center in the Dalton, Georgia area and established a new operating
location in Columbus, Ohio. 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 attempts to develop the synergistic opportunities that
exist between each operating division's core customer base.
As of December 31, 1997, approximately 39% of the Company's total
revenues were generated from its ten 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.
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
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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 nineties.
EQUIPMENT AND MAINTENANCE
As of December 31, 1997, the Company's fleet consisted of 281 tractors
and 847 trailers. The average age of the tractor fleet is approximately 2.75
years and includes equipment ranging generally from 1992 to 1997 model years.
All of the Company-owned trailers are 1992 model year or newer.
The Company generally follows a replacement cycle of five 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. 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-owned equipment, and it will staff its own maintenance
shops in Monroe, Louisiana, Calhoun, Georgia, Orlando, Florida and Asheboro,
North Carolina. Management believes this conversion should result in additional
cost savings.
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.
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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 each operating location 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 or more
frequent 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, linehaul 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.
EMPLOYEES
As of December 31, 1997, the Company employed 379 persons, of which 285
are drivers, 64 are operations and administrative personnel and 30 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 with a $50,000 deductible, $10 million for general
liability and $850,000 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 health 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.
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 23 years of age, and have at least two
years 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.
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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
The Company's principal executive offices are located at 201 Perimeter
Park Road, Knoxville, Tennessee. The Company occupies space pursuant to a lease
which provides for rent of approximately $7,000 per month and will expire in
June 2000.
Monroe, Louisiana
The operations of the Company's Louisiana operations 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.
Calhoun, Georgia
The Company leases a terminal property that is used for consolidating
small carpet shipments into truckloads. The facility is located on five paved
acres. The terminal facility is a brick and metal building of 15,000 square feet
with 30 dock doors and 2,200 square feet of office space. This facility is
located just outside the city limits of Calhoun, Georgia. The Company leases
this space pursuant to a lease which provides for rent of $3,750 per month
through May of 1999. The Company also leases an equipment maintenance facility
consisting of two acres of graveled parking and a two bay shop. The lease
provides for rent of $3,000 per month and expires in April, 1999.
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.
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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.
Columbus, Ohio
The Company leases a terminal facility in Columbus, Ohio consisting of
about 1,000 square feet of office and one paved acre of parking. The facility is
located inside the city limits on the south side of Columbus, Ohio. The lease
expires December, 1999 and provides for rent of $2,200 per month. The Company
also leases an office trailer of about 700 square feet on the property of
Anheuser Busch where it operates a dedicated trailer switching business.
Morristown, Tennessee
The Company leases a terminal facility in Morristown, Tennessee
consisting of approximately 23 acres of graveled parking space, 5,000 square
feet of office and 25,000 square feet shop area including 10 maintenance bays.
The lease provides for payment of $6,750 per month the first year with an option
to renew for one year at a rate of $2,250 per month. The Company also holds an
option to purchase the property and an adjoining warehouse facility.
Atlanta, Georgia
The Company leases a terminal consisting of about 300 square feet of
office and ten trailer parking slots for $350 per month. The lease is cancelable
on 30 days notice.
ITEM 3. LEGAL PROCEEDINGS.
The Company is the defendant in a claim filed with the United States
Equal Employment Opportunity Commission ("EEOC") by a former employee of the
Company alleging race and disability discrimination. Although no formal judgment
has been made, the EEOC has recommended an award against the Company in the
amount of $133,000, including both compensatory and punitive damages. The
Company denies that it has discriminated against the former employee and intends
to vigorously defend this claim in an administrative hearing with the EEOC.
The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injury and property damage
incurred in the transportation of freight. The Company believes adverse results
in one or all of these cases would not have a material adverse effect on its
financial position or its results of operation. 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.
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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 Stock Market under the symbol PACE. In February,
1998, NASDAQ raised the financial requirements for continued listing on the
NASDAQ National Stock Market. As a result, the Company does not meet the market
capitalization test required for continued listing on the National Stock Market.
In addition, NASDAQ increased the financial requirements to be listed on the
NASDAQ Small Cap Market, which the Company also does not satisfy due to its
stock price. NASDAQ has permitted the Company's Common Stock to continue to be
quoted through the National Stock Market until May, 1998, at which time the
Company must either satisfy the enhanced financial requirements or seek listing
on the Small Cap Market. The Company has not yet decided whether to seek a
waiver of the National Market Qualifications, seek listing on the NASDAQ Small
Cap Market or apply for trading on the Over-the-Counter Bulletin Board Service.
The following table sets forth the high and low bid prices of Ampace
Common Stock for the quarterly periods during 1996 and 1997, as reported by the
NASDAQ National Stock Market.
<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 11 1/16
October 1 - December 31, 1996.......................................... 11 3/16 7/8
Fiscal 1997 High Low
- ----------- ---- ---
January 1 -- March 31, 1997............................................ $2 1/8 1
April 1 - June 30, 1997................................................ 1 5/8 7/8
July 1 - September 30, 1997............................................ 2 1/16 7/8
October 1 - December 31, 1997.......................................... 1 7/16 1
</TABLE>
APPROXIMATE NUMBER OF HOLDERS OF AMPACE COMMON STOCK
The number of record holders of Ampace Common Stock at March 13, 1998
was 54 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 400
beneficial owners of Ampace Common Stock.
DIVIDENDS
Except for a stock 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, if any, will
be retained for development of Ampace's business,
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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, 1996 with the period
ended December 31, 1997. Ampace'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. The Company's 1997 operations include eight months financial
results of Bar-J Enterprises, Inc. subsequent to its May 1997 acquisition, seven
months activity of Walker Trucking, subsequent to its June 1997 acquisition, and
twelve months of Ampace and its other subsidiaries' activities.
Revenue on an annualized basis increased approximately fourteen percent
(14%) from 1996 to 1997. This growth resulted both from increased business with
existing customers, the expansion of the Company's customer base and the revenue
associated with the 1997 acquisitions. At December 31, 1996 the Company operated
256 company and 44 owner operator tractors and 631 trailers. At December 31,
1997 the Company operated 281 company and 78 owner operator tractors and 847
trailers.
During 1997 the Company's operating results were impacted
significantly by the time spent on its two acquisitions. The Company also
centralized it accounting activities, merged two of its existing operations into
Ampace Dedicated Services, and effected a major restructuring effort at MDX
during the second half of 1997.
Effective with the close of business on December 31, 1997 the Company
merged all of its operating and executive activities into one legal entity named
Ampace Freightlines, Inc. Additionally, the Company acquired the assets and
assumed certain capital lease and other obligations of Roy Widener Motor Lines,
Inc. and Morristown Transportation System, Inc. on January 29, 1998. See note 9
of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of expense
items to operating revenues for the periods indicated:
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1997
------ ------
<S> <C> <C>
Operating Revenues.......................................................... 100.0% 100.0%
Operating Expenses:
Salaries, wages and employee benefits................................... 37.5% 37.2%
Purchased Transportation................................................ 4.5% 10.0%
Fuel ................................................................. 18.0% 15.3%
Depreciation and amortization........................................... 12.6% 9.3%
Rent.................................................................... 6.7% 7.8%
Operating supplies and expenses......................................... 8.3% 8.1%
Insurance and claims.................................................... 7.2% 5.7%
Operating taxes and licenses............................................ 1.9% 2.2%
General and administrative expenses..................................... 3.9% 4.8%
Communication and utilities............................................. 1.6% 1.8%
------ ------
Total operating costs....................................................... 102.2% 102.2%
------ ------
Operating loss.............................................................. (2.2%) (2.2%)
------ ------
Other income (deductions):
Interest income............................................................. 0.2% 0.2%
Interest expense (net)...................................................... (2.9%) (2.7%)
Other net................................................................... 0.1% 0.4%
------ ------
(2.6%) (2.1%)
------ ------
Loss before income taxes.................................................... (4.8%) (4.3%)
Income tax benefit.......................................................... (1.9%) (0.7%)
------ ------
Net loss.................................................................... (2.9%) (3.6%)
====== ======
</TABLE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Operating revenues for the twelve months ended December 31, 1996 were
$30.4 million as compared to $34.9 million for the twelve months ended December
31, 1997, or a 14% increase. This increase resulted primarily from the
acquisitions made during 1996 and 1997, offset partially by the restructuring of
MDX revenue at lower levels during the last six months of 1997. Ampace's
operating ratio for 1996 was 102.2% for both 1997 and 1996.
Salaries, wages and employee benefits expenses decreased .3% of revenue
from 37.5% for the year ended December 31, 1996 to 37.2% for the same period
during 1997. 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 4.5% for 1996 to 10.0% for 1997. This increase resulted from the
acquisitions of companies during 1996
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and 1997 that derive a portion of their revenue from the use of owner operators.
Fuel expense decreased to 15.3% of operating revenues for 1997 from
18.0% for 1996. The decrease was due to a higher percentage of the Company's
revenue being generated by owner operators and lower fuel prices during most of
1997. Owner operators are responsible for purchasing of their own fuel.
Depreciation and amortization as a percentage of operating revenues
decreased to 9.3% for 1997 from 12.6% for 1996. This change resulted primarily
from the addition of owner operator revenue during 1997, the use of some older
revenue equipment purchased during the various acquisitions and the recognition
of more gains on the disposition of revenue equipment during 1997.
Rent expense as a percentage of operating revenues increased from 6.7%
for 1996 to 7.8% for 1997. This increase was the result of increasing the number
of rental trailers to support the additional revenue associated with the several
acquisitions completed during 1996 and 1997. Operating supplies and expenses
decreased as a percentage of operating revenues to 8.1% for 1997 from 8.3% for
1996. This increase was principally the result of the use of more owner
operators.
Insurance and claims decreased as a percentage of operating revenues
from 7.2% for 1996 to 5.7% for 1997. The decrease was due principally to lower
claims experience during 1997. Operating taxes and licenses increased from 1.9%
of revenue for 1996 to 2.2% for 1997 as a result of lower trailer utilization
during 1997.
General and administrative expense increased as a percentage of
operating revenues to 4.8% for 1997 from 3.9% for 1996. The increase resulted
from the increase of centralized infrastructure at the Company's headquarters as
a result of consolidating most administrative functions during 1997, which
resulted in a temporary duplication of certain costs that would not be expected
in 1998. Communication and utilities increased slightly to 1.8% of operating
revenues for 1997 from 1.6% for 1996 as a result of fully implementing the
remote communication network for all operating centers during 1997.
Net interest expense and other income decreased from 2.6% of operating
revenues for 1996 to 2.1% for 1997. The reduction resulted primarily the
leveraging effect of the revenue associated with the Company's owner operators
and the use of more rented trailers. 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 and the establishment of a valuation allowance for deferred tax
assets.
As a result of the preceding changes, Ampace's net loss, as a
percentage of operating revenues, increased to 3.6% for 1997 from 2.9% for
1996.
12
<PAGE> 14
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 acquisition 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 and amortization as a percentage of operating revenues
decreased slightly to 12.6% 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 6.7% 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
13
<PAGE> 15
base during 1996, and a reduction in professional fees associated with
acquisition activities. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been funds provided by
operations, equipment rentals and 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 $2.1 million and $3.2
million for the years ended December 31, 1997 and 1996, respectively. At
December 31, 1997, the Company had deficit working capital of $1.1 million
compared to deficit working capital of $1.7 million at December 31, 1996. The
working capital deficit is largely a result of the inclusion of approximately
$0.9 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, excluding capital lease additions, for the
purchase of net assets totaled $.5 million and $3.7 million for the years ended
December 31, 1997 and 1996, 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 line
of credit. The primary assets acquired in 1997 were tractors for ADS and revenue
equipment associated with the acquisitions of Bar-J and Walker.
At December 31, 1995, Ampace entered into a revolving credit
arrangement with a bank which expired December 31, 1997. This agreement was
amended September 2, 1997 changing principally the loan covenants and extending
the maturity date to January 1, 1999. Borrowings under the agreement are limited
to the lesser of $3.0 million or a borrowing base of eligible receivables minus
a minimum excess collateral availability of $500,000. At December 31, 1997 and
1996, there were $2.1 million and $.3 million borrowings outstanding under this
arrangement, respectively. The arrangement requires Ampace to maintain certain
financial ratios. At December 31, 1997, the Company was not in compliance with
one of its financial ratio measuring net worth. On March 30, 1998, the bank and
the Company amended its agreement by lowering the minimum net worth covenant as
well as other covenants whereby the Company is now in compliance. Such revised
covenants are applicable on a quarterly basis. Should the Company fail to meet
the revised covenants, the bank could accelerate the due date of the loan.
14
<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 1998. However, the
Company's revolving credit becomes due on January 1,1999 and will require
refinancing by the Company. Although management has not obtained any commitments
to refinance its revolving credit agreement, the Company believes it will be
able to obtain such refinancing through its existing lender or through other
potential lenders. 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 and continued operating losses. 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. 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 three 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 any increase in expenses. Unless freight rates
could be increased, operating results would be adversely affected.
YEAR 2000 COMPLIANCE
In 1997, the Company assessed its computer systems and began converting
such systems to be Year 2000 compliant. This conversion is expected to be
completed by the end of 1998. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. Management does not anticipate the costs of becoming Year 2000
compliant will have a material impact on the Company's financial position,
results of operations or liquidity. The Company does not currently have
any information concerning the year 2000 compliance status of its suppliers and
customers.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-21
hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
15
<PAGE> 17
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
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 50 Chairman of the Board and Chief 1998
Financial Officer, Secretary,
Treasurer, Director
Jay N. Taylor 49 President and Chief Executive Officer, 1998
Director
David C. Freeman 51 Executive Vice President, Chief 1998
Operating Officer, Director
Douglas M. Harper(1)(2) 51 Director 1999
David A. Lyman(1)(2) 50 Director 1999
Michael C. Crabtree(1)(2) 48 Director 2000
</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 1996. Prior to that, he was
Chief Executive Officer and has served as a director since November 1994. From
1986 to 1991 he was Executive Vice President and Chief Financial Officer of J.B.
Hunt Transport Services, Inc., a publicly-traded truckload carrier. From 1976 to
1985, he was Corporate Controller of Schneider National, Inc., a 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 1996. Prior to that, he was the Company's Chief
Operating Officer and has served as a director since November 1994. From 1988 to
1989, Mr. Taylor served as Senior Vice President
16
<PAGE> 18
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 1996 he
was a Principal in the Beta Group, Inc., an analytical and crisis management
company specializing in the transportation services industry.
David C. Freeman has served as Executive Vice President, Operations and
Director of the Company from November 1994 to August 1996. 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 Distribution,
Inc. a publicly-traded trucking company, which was acquired by Leaseway in 1982.
From 1990 to 1996, he was a Principal in the Beta Group, Inc.
David A. Lyman has served as a Director of the Company since September
1996. Since late 1997, Mr. Lyman has provided management and financial
consulting services on an independent basis. From late 1996 until late 1997 Mr.
Lyman served as the Chief Operating Officer of Peabody's Coffee, Inc., a chain
of coffee kiosks servicing retail and educational institutions. 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.
Michael C. Crabtree, has served as Chairman of U.S. Internet, Inc. and
Chairman of United States Internet since July, 1996. Prior thereto, Mr. Crabtree
served as VP Marketing & Sales and CO-founded CTI, Inc. in 1983. CTI purchased
the ECAT positron emission tomography (PET) medical diagnostic imaging product
from EG&G ORTEC and continued as the leading commercial supplier of PET
equipment. During Mr. Crabtree's tenure, CTI grew rapidly and in 1987 began an
exclusive relationship with Siemens Medical Systems which
17
<PAGE> 19
culminated in a $30 million investment and worldwide distribution of CTI's PET
products. Prior to CTI, Mr. Crabtree was a principal engineer at EG&G ORTEC
developing the world's first commercial PET Scanner. Prior to EG&G ORTEC Mr.
Crabtree was a key R&D engineer with DuPont Textile Fibers and NASA's Kennedy
Space Center. Mr. Crabtree received BS and MS degrees in Electrical Engineering
from University of Tennessee.
The Board of Directors of the Company currently consists of six
members, three 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 results, policies and control procedures of the
Company. Michael C. Crabtree, 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 Michael C. Crabtree, 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 set forth under the captions "Compensation" and
"Employment and Stock Option Agreements" contained in the Company's 1998 Proxy
Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Beneficial Ownership of
Common Stock" contained in the Company's 1998 Proxy Statement is incorporated
herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Certain Relationships and
Related Transactions" contained in the Company's 1998 Proxy Statement is
incorporated herein by reference.
18
<PAGE> 20
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
3.1 Certificate of Incorporation of Ampace Corporation, as amended (1)
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 (1)
3.5 Amendment to Bylaws (2)
4.1 Specimen Common Stock Certificate (1)
10.1 Employment and Stock Option Agreement between Ampace Corporation (1)(3)
and Bruce W. Jones
10.1(a) Amendment No. 1 to Employment and Stock Option Agreement between (1)(3)
Ampace Corporation and Bruce W. Jones dated August 29, 1996
10.1(b) Amendment No. 2 to Employment and Stock Option Agreement between (2)(3)
Ampace Corporation and Bruce W. Jones dated October 22, 1997
10.2 Employment and Stock Option Agreement between Ampace Corporation (1)(3)
and Jay N. Taylor dated February 16, 1996
10.2(a) Amendment No. 1 to Employment and Stock Option Agreement between (1)(3)
Ampace Corporation and Jay N. Taylor dated August 29, 1996
10.2(b) Amendment No. 2 to Employment and Stock Option Agreement between (2)(3)
Ampace Corporation and Jay N. Taylor dated October 22, 1997
10.3 Employment and Stock Option Agreement between Ampace Corporation (1)(3)
and David C. Freeman dated February 16, 1996
10.3(a) Amendment No. 1 to Employment and Stock Option Agreement between (1)(3)
Ampace Corporation and David C. Freeman dated February 16, 1996
10.3(b) Amendment No. 2 to Employment and Stock Option Agreement between (2)(3)
Ampace Corporation and David C. Freeman dated October 22, 1997
10.4 Key Employee Incentive Stock Option Plan as adopted on February (1)(3)(4)
23, 1996, as amended
10.4(a) Non-Employee Directors and Advisors Plan as adopted on February (1)(3)(5)
23, 1996, as amended
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
<S> <C> <C>
10.5 Volvo Truck Lease Plan between Merchants Dutch Express, Inc. and (1)
VT Finance, Inc.
10.6 Lease Agreement by and between Merchants Dutch Express, Inc. and (2)
U.S. Bancorp Leasing & Financial
10.7 Security Agreement Retail Installment Contract by and between (1)
Merchants Dutch Express, Inc. and Jackson White GMC
10.8 Revolving Credit Agreement between Ampace Corporation and LaSalle (7)
National Bank dated December 31, 1996
10.9 $3 million Promissory Note by Ampace Corporation in favor of (7)
LaSalle National Bank dated December 31, 1996
10.10 Agreement dated February 29, 1996 among Ampace Corporation, Ampace (7)
Acquisition, Inc., Amanday Express, Inc., Carl A. Cheshire and
Elizabeth B. Cheshire
10.11 Agreement of Purchase and Sale by and Among Ampace Freight Lines, (6)
Inc. and Roy Widener Motor Lines, Inc. and Morristown
Transportation System, Inc. dated January 9, 1998.
10.12 Grant of Stock Option to Bruce W. James dated August 21, 1997 (2)(3)
10.13 Grant of Stock Option to Jay N. Taylor dated August 21, 1997. (2)(3)
10.14 Grant of Stock Option to David C. Freeman dated August 21, 1997. (2)(3)
10.15 Grant of Stock Option to Bruce W. Jones dated December 10, 1997. (3)
10.16 Grant of Stock Option to Jay N. Taylor dated December 10, 1997. (3)
10.17 Grant of Stock Option to David C. Freeman dated December 10, 1997. (3)
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule
</TABLE>
20
<PAGE> 22
(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 Quarterly Report on Form
10-QSB for the quarterly period ended September 30, 1997.
(3) Management contract or compensatory plan or arrangement.
(4) Incorporated by reference to the Company's Registration Statement No.
333-41515 on Form S-8 as filed with the SEC on December 3, 1997.
(5) Incorporated by reference to the Company's Registration Statement No.
333-41521 on Form S-8 as filed with the SEC on December 3, 1997.
(6) Incorporated by reference to the Company's Current Report on Form 8-K
as filed with the SEC on February 13, 1998.
(7) 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 of 1997.
21
<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 30, 1998 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 30, 1998 By: s/ Bruce W. Jones
----------------------------------------------
BRUCE W. JONES, Chairman of the Board
Chief Financial Officer, Secretary, Treasurer
and Director
(Signature and Title)
Date: March 30, 1998 By: s/ David C. Freeman
----------------------------------------------
DAVID C. FREEMAN, Chief Operating Officer,
Executive Vice President and Director
(Signature and Title)
Date: March 30, 1998 By: s/ Douglas M. Harper
----------------------------------------------
DOUGLAS M. HARPER, Director
(Signature and Title)
Date: March 30, 1998 By: s/ David A. Lyman
----------------------------------------------
DAVID A. LYMAN, Director
(Signature and Title)
Date: March 30, 1998 By: s/ Michael C. Crabtree
----------------------------------------------
MICHAEL C. CRABTREE, Director
(Signature and Title)
<PAGE> 24
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE> 25
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, 1997 and 1996, 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, 1997 and 1996 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Little Rock, Arkansas
March 12, 1998, except as to
note 3 which is as of
March 30, 1998
<PAGE> 26
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 539,165 534,629
Trade accounts receivable, less allowance for doubtful accounts
of $154,057 in 1997 and $52,256 in 1996 (note 3) 4,084,210 3,308,102
Refundable income taxes 409,909 356,591
Prepaid expenses 310,846 483,988
Other current assets (note 5) 345,383 232,415
------------ ------------
Total current assets 5,689,513 4,915,725
------------ ------------
Property and equipment, at cost (notes 2, 3, 4 and 9):
Revenue and service equipment 16,599,410 16,497,290
Land 228,430 310,930
Buildings and improvements 561,840 519,994
Furniture and office equipment 561,670 334,717
------------ ------------
Total property and equipment 17,951,350 17,662,931
Less accumulated depreciation and amortization 7,805,091 5,143,275
------------ ------------
Net property and equipment 10,146,259 12,519,656
------------ ------------
Goodwill, net of accumulated amortization of $316,686 in 1997 and
$185,875 in 1996 (note 2) 1,829,627 1,764,552
Noncompetition agreements, net of accumulated amortization of
$162,090 in 1997 and $48,181 in 1996 (note 2) 345,120 348,029
Other assets 120,927 147,088
------------ ------------
$ 18,131,446 19,695,050
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (notes 2 and 3) 1,457,696 936,185
Current installments of obligations under capital leases (notes 2 and 4) 2,776,124 4,064,094
Trade accounts payable 663,734 764,747
Accrued salaries and benefits 692,871 353,522
Insurance reserves 471,234 166,927
Other accrued expenses 730,787 360,486
------------ ------------
Total current liabilities 6,792,446 6,645,961
Long-term debt, excluding current installments (notes 2 and 3) 5,133,313 3,686,331
Obligations under capital leases, excluding current installments
(notes 2 and 4) 1,143,805 3,001,183
------------ ------------
Total liabilities 13,069,564 13,333,475
------------ ------------
Stockholders' equity (notes 2, 3 and 6):
Common stock, $.0001 par value. Authorized 10,000,000 shares,
issued 3,075,000 shares 308 308
Additional paid-in capital 7,475,874 7,475,874
Accumulated deficit (2,371,147) (1,114,607)
Less treasury stock at cost, 37,287 shares (note 6) (43,153) --
------------ ------------
Total stockholders' equity 5,061,882 6,361,575
Commitments and contingencies (notes 2, 3, 4, 8 and 9)
------------ ------------
$ 18,131,446 19,695,050
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 27
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Operating revenues (note 2) $ 34,856,505 30,446,000
------------ -----------
Operating expenses:
Salaries, wages and employee benefits 12,972,981 11,409,442
Purchased transportation 3,477,828 1,361,864
Fuel 5,348,636 5,494,280
Depreciation and amortization (note 4) 3,231,606 3,838,826
Rent (note 4) 2,703,299 2,030,035
Operating supplies and expenses 2,824,471 2,522,242
Insurance and claims 1,996,207 2,203,279
Operating taxes and licenses 773,157 573,254
General and administrative expenses 1,669,901 1,184,987
Communication and utilities 627,643 486,939
------------ -----------
Total operating expenses 35,625,729 31,105,148
------------ -----------
Operating loss (769,224) (659,148)
------------ -----------
Other income (deductions):
Interest income 58,586 47,664
Interest expense (914,274) (891,991)
Other, net 131,924 36,214
------------ -----------
(723,764) (808,113)
------------ -----------
Loss before income taxes (1,492,988) (1,467,261)
Income taxes (note 5) (236,448) (590,931)
------------ -----------
Net loss (notes 2 and 6) $ (1,256,540) (876,330)
============ ===========
Loss per share - basic and diluted (notes 2 and 6) $ (.41) (.29)
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 28
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Note 6)
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional Total
Common paid-in Accumulated Treasury stockholders'
stock capital deficit stock equity
----- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $280 6,575,902 (238,277) -- 6,337,905
Issuance of 275,000 shares
in connection with
acquisition (note 2) 28 899,972 -- -- 900,000
Net loss -- -- (876,330) -- (876,330)
---- --------- ---------- ------- ----------
Balance at December 31, 1996 308 7,475,874 (1,114,607) -- 6,361,575
Net loss -- -- (1,256,540) -- (1,256,540)
Purchase of treasury stock -- -- -- (43,153) (43,153)
---- --------- ---------- ------- ----------
Balance at December 31, 1997 $308 7,475,874 (2,371,147) (43,153) 5,061,882
==== ========= ========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 29
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Operating activities:
Net loss $(1,256,540) (876,330)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,231,606 3,838,827
Provision for deferred income taxes 15,497 (604,031)
Changes in operating assets and liabilities:
Trade accounts receivable (776,108) 279,376
Refundable income taxes (53,318) (51,876)
Prepaid expenses and other assets 93,432 376,138
Trade accounts payable (101,013) 123,548
Accrued expenses 977,957 78,438
----------- ----------
Net cash provided by operating activities
2,131,513 3,164,090
----------- ----------
Investing activities:
Proceeds from sale of property and equipment 1,360,675 461,510
Purchases of property and equipment (542,142) (3,650,894)
Proceeds from sales-type leases -- 237,666
Acquisition of net assets of subsidiaries, net of
cash acquired (note 2) (767,341) (875,913)
Noncompetition payment (note 2) (75,000) --
----------- ----------
Net cash used by investing activities
(23,808) (3,827,631)
----------- ----------
Financing activities:
Purchase of treasury stock (43,153) --
Net borrowings under revolving credit agreement 1,806,656 300,000
Repayment of note payable to former owner (70,821) (38,244)
Proceeds from long-term debt 1,700,602 3,380,285
Principal payments on long-term debt (1,467,944) (633,508)
Principal payments on capital lease obligations (4,028,509) (3,206,003)
----------- ----------
Net cash used by financing activities
(2,103,169) (197,470)
----------- ----------
Net increase (decrease) in cash and cash equivalents 4,536 (861,011)
Cash and cash equivalents at beginning of period 534,629 1,395,640
----------- ----------
Cash and cash equivalents at end of period $ 539,165 534,629
=========== ==========
</TABLE>
(Continued)
F-6
<PAGE> 30
AMPACE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
Supplementary disclosure of cash flow information:
Interest paid $ 878,508 888,932
Income taxes (refunded) paid (198,627) 71,194
Satisfaction of capital lease obligation through return
of equipment 67,339 931,529
Equipment acquired under capital lease 427,500 --
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-7
<PAGE> 31
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(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 truckload transportation services. Significant
accounting policies are as follows:
(a) Basis of Presentation
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.
During the fourth quarter of 1997, management revised several of its
estimates and assumptions, including the valuation allowance for
deferred tax assets, the allowances for doubtful accounts and certain
insurance accruals and reserves. The net impact of these changes in
estimates and assumptions increased the net loss for the fourth
quarter and for the year ended December 31, 1997, by approximately
$500,000.
(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"). Effective January 31, 1997,
Amanday was merged into Dedicated. Also, effective at the close of
business on December 31, 1997, MDX and Dedicated were merged into a
newly-formed wholly-owned subsidiary Ampace Freightlines, Inc. All
significant intercompany transactions and balances 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 asset's 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. Gains on dispositions
of revenue and other equipment, which are included in depreciation
and amortization expense, were $153,042 and $27,580 for the years
ended December 31, 1997 and 1996, respectively.
(Continued)
F-8
<PAGE> 32
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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.
(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 fair value
of net assets acquired, is amortized on a straight-line basis over
the expected periods to be benefited, generally 17 years. The Company
assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment,
if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average
cost of funds. The assessment of the recoverability of goodwill will
be impacted if estimated future operating cash flows are not
achieved.
(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
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, EARNINGS PER SHARE, on a retroactive
basis, which require entities to report both basic loss per share and
diluted loss per share for 1997 and all prior years. Since the
assumed exercise of common stock options would be anti-dilutive,
there is no difference between basic and dilutive loss per share. A
reconciliation of the numerator and denominator of both basic and
diluted loss per share is shown below:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
----------- ----------
<S> <C> <C>
Loss per share:
Numerator (net loss) $(1,256,540) (876,330)
=========== ==========
Denominator (weighted average
shares outstanding) 3,090,972 3,025,410
=========== ==========
Loss per share $ (.41) (.29)
=========== ==========
</TABLE>
(Continued)
F-9
<PAGE> 33
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Included in the following table are options and warrants to purchase
shares of common stock that were outstanding during 1997 and 1996 but
were not included in the computation of diluted earnings per share
because the options and warrants were anti-dilutive.
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Number of shares under options
and warrants 850,250 484,750
Range of exercise price $1.00 - 10.15 $1.34 - 10.15
</TABLE>
(j) Credit Risk
Two customers accounted for approximately 25% and 27%, in the
aggregate, of the Company's consolidated revenues for the years ended
December 31, 1997 and 1996, 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.
(k) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense is recorded on
the date of grant only if the current market price of the underlying
stock exceeds the exercise price. On January 1, 1996, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants as if
the fair-value-based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures required by of
SFAS No. 123.
(l) Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
(Continued)
F-10
<PAGE> 34
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(m) Year 2000
In 1997, the Company assessed its computer systems and began converting
such systems to be Year 2000 compliant. This conversion is expected
to be completed by the end of 1998. The Year 2000 problem is the
result of computer programs being written using two digits rather
than four to define the applicable year. Management does not
anticipate the costs of becoming Year 2000 compliant will have a
material impact on the Company's financial position, results of
operations or liquidity.
(n) Prior Year Reclassifications
Certain 1996 amounts have been reclassified to conform to 1997
presentation. These prior year reclassifications had no impact on
1996 consolidated net loss.
(2) Acquisitions
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 was 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.
Effective April 17, 1997, the Company purchased certain revenue and service
equipment and various other assets, permits and licenses of Bar J
Enterprises, Inc. ("Bar J"). Under the terms of the purchase agreement,
the Company paid $910,967 consisting of cash of $558,967, a noncompete
obligation of $36,000 and assumption of a capital lease obligation of
$316,000. The Company is also obligated to pay additional consideration,
as defined by the purchase agreement, not to exceed $200,000, for a
period of 36 months subsequent to the closing date of the acquisition.
At December 31, 1997, the Company has paid $40,544 related to such
additional consideration and this amount has been included in the
$910,967 acquisition price.
Effective June 5, 1997, the Company purchased for $415,374, consisting of
cash of $208,374 and assumption of a capital lease of $207,000, certain
revenue and service equipment and various other assets of Walker
Trucking Co. ("Walker"). Concurrent with the Walker acquisition, the
Company also entered into a sales agent agreement with the previous
owner of Walker whereby the Company will pay certain agreed-upon
commissions for services provided by the previous owner of Walker.
(Continued)
F-11
<PAGE> 35
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The acquisitions of Bar J, Walker and Amanday have been accounted for under
the purchase method of accounting for business combinations. The results
of operations of each of these acquisitions 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>
Bar J Walker Amanday
--------- ---------- ----------
<S> <C> <C> <C>
Assets acquired:
Cash $ -- -- 247,348
Accounts receivable, net -- -- 360,492
Other current assets -- 22,594 --
Net property and equipment 709,030 362,830 2,599,217
Investments in sales-type leases -- -- 266,088
Goodwill 165,937 29,950 601,901
Noncompetition agreements 36,000 -- 321,210
Other assets -- -- 85,799
--------- ---------- ----------
910,967 415,374 4,482,055
--------- ---------- ----------
Liabilities acquired:
Trade accounts payable -- -- 164,978
Accrued expenses -- -- 53,939
Deferred income taxes -- -- 223,896
Long-term debt -- -- 788,049
Obligations under capital leases 316,000 207,000 1,202,932
--------- ---------- ----------
316,000 207,000 2,433,794
--------- ---------- ----------
Net assets acquired 594,967 208,374 2,048,261
Less:
Cash acquired -- -- (247,348)
Common stock issued -- -- (900,000)
Noncompete obligation (36,000) -- --
Note payable issued (note 3) -- -- (100,000)
--------- ---------- ----------
$ 558,967 208,374 800,913
========= ========== ==========
</TABLE>
Assuming the acquisition of Amanday had occurred on January 1, 1996, pro
forma unaudited results of operations for the Company for the year ended
December 31, 1996 would have been as follows:
<TABLE>
<S> <C>
Operating revenues $ 32,104,300
============
Net loss $ (858,200)
============
Loss per share - basic and diluted $ (.28)
============
</TABLE>
(Continued)
F-12
<PAGE> 36
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The pro forma effects in 1996 and 1997 related to the acquisitions of Bar J
and Walker have not been presented because the effects of such were not
significant.
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 acquisitions of Amanday, Bar J and certain
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 consolidated balance sheets (note 3). The
agreement with the previous owner of Bar J includes certain
noncompetition covenants for a period of three years following the date
of acquisition and are payable in the amount of $1,000 per month during
the three year noncompete period. The remaining noncompetition payments
to the previous owner of Bar J are included in other accrued expenses in
the consolidated balance sheet. 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 was 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. This additional payment was made in 1997 and has been included
in noncompetition agreements on the consolidated balance sheet.
(3) Debt
Long-term debt consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Revolving credit agreement $2,106,656 300,000
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 2,622,630 3,235,445
Note payable in monthly installments of $43,228 including interest
at 8.83% with balance due October 1999, secured by certain
revenue and service equipment 875,071 --
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 304,497 534,452
</TABLE>
(Continued)
F-13
<PAGE> 37
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Various equipment notes payable in monthly installments of $5,249
including interest at 7.98% to 8.70% through December 2002,
secured by certain revenue and service equipment $ 256,863 --
Payable to previous owner for noncompetition agreement in
annual installments of $77,400 including imputed
interest at 8.25% (note 2) 172,989 243,810
Note payable in monthly installments of $2,340 including interest
at 1% over prime (9.5% at December 31, 1997) with the balance
due September 1999 152,303 165,019
Acquisition note payable to previous owner, interest payable
quarterly at 8%, balance due March 2000
(note 2) 100,000 100,000
Various equipment notes payable in monthly installments including
interest at .25% over prime (subject to minimum and maximum
rates) through June 1997 -- 43,790
---------- ---------
6,591,009 4,622,516
Less current installments 1,457,696 936,185
---------- ---------
$5,133,313 3,686,331
========== =========
</TABLE>
Effective December 31, 1995, the Company entered into a revolving credit
agreement, as amended, with a bank which expires January 1, 1999.
Borrowings under the agreement are limited to the lesser of
$3,000,000 or a borrowing base of eligible receivables (approximately
$3,040,000 at December 31, 1997) and amounted to $2,106,656 and
$300,000, respectively, at December 31, 1997 and 1996. Interest on
outstanding borrowings is due monthly and is equal to, at the
Company's option, either the prime rate or the London Interbank
Offered Rate ("LIBOR"), established by the bank, plus 200 or 225
basis points depending on certain financial ratios of the Company.
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.
(Continued)
F-14
<PAGE> 38
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997, the rates in effect for the borrowings under the
revolving credit agreement were as follows:
<TABLE>
<CAPTION>
Rate Balance
---- -------
<S> <C> <C>
Prime rate loan 8.50% $ 906,656
LIBOR rate loans 7.75% - 7.85% 1,200,000
============ ---------
$2,106,656
==========
</TABLE>
Aggregate annual maturities of long-term debt as of December 31, 1997
are as follows: 1998, $1,457,696; 1999, $3,512,501; 2000, $847,836;
2001, $715,347, and 2002, $57,629.
The revolving credit agreement contains certain covenants requiring the
Company to maintain certain financial ratios including net worth and
debt service coverage. At December 31, 1997, the Company was not in
compliance with the covenant establishing minimum net worth. On March
30, 1998, the bank and the Company amended its agreement by lowering
the minimum net worth covenant as well as other covenants whereby the
Company is now in compliance. Such revised covenants are applicable
on a quarterly basis. Should the Company fail to meet the revised
covenants, the bank could accelerate the due date of the loan.
During 1997, the Company incurred pre-tax losses of approximately
$1,493,000 and at December 31, 1997, the Company had a working
capital deficiency of approximately $1,103,000. Additionally, the
Company's revolving credit agreement becomes due on January 1, 1999,
and will require refinancing by the Company. Although management has
not obtained any commitments to refinance its revolving credit
agreement, the Company believes that it will be able to obtain such
refinancing through its existing lender or through other potential
lenders. Also, management believes that equity in revenue equipment
will allow the Company to satisfy a significant portion of its
capital lease obligations that are becoming due in 1998.
Additionally, management believes that the consolidation of its
administrative operations will enable the Company to lower its
operating costs thereby achieving more operating cash flows.
(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, 1997 and 1996, the gross
amount of property and equipment and related accumulated amortization
recorded under capital leases were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenue and service equipment $9,713,911 11,290,604
Less accumulated amortization 5,115,474 4,408,895
---------- ----------
$4,598,437 6,881,709
========== ==========
</TABLE>
(Continued)
F-15
<PAGE> 39
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amortization of assets held under capital leases is included with
depreciation expense. Future minimum payments under capital and
operating leases as of December 31, 1997, including guaranteed residual
values of $942,556 and $880,531, respectively, of capital leases
expiring in 1998 and 1999, are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------ ------
<S> <C> <C>
1998 $ 2,983,227 737,594
1999 1,118,666 615,240
2000 -- 371,254
2001 -- 25,317
----------- -----------
Total minimum lease payments 4,101,893 $ 1,749,405
===========
Less amount representing interest 181,964
-----------
Present value of net minimum capital lease
payments 3,919,929
Less current installments of obligations under
capital leases 2,776,124
-----------
Obligations under capital leases, excluding
current installments $ 1,143,805
===========
</TABLE>
(5) Income Taxes
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current:
Federal $ (178,117) 34,336
State (73,828) (21,236)
----------- -----------
Total current (251,945) 13,100
----------- -----------
Deferred:
Federal 11,806 (534,988)
State 3,691 (69,043)
----------- -----------
Total deferred 15,497 (604,031)
----------- -----------
$ (236,448) (590,931)
=========== ===========
</TABLE>
(Continued)
F-16
<PAGE> 40
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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>
1997 1996
----------- --------
<S> <C> <C>
Computed "expected" tax benefit $ (507,616) (498,868)
State income taxes, net of Federal benefit (46,290) (59,584)
Nondeductible goodwill amortization 40,905 40,271
Effect of graduated rates on tax refunds 96,010 --
Change in beginning of year valuation
allowance 87,551 --
Other, net 92,992 (72,750)
----------- --------
$ (236,448) (590,931)
=========== ========
</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, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
----------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 60,514 20,513
Compensated absences and workers
compensation reserves 104,312 57,726
Capitalized leases -- 72,139
Net operating loss carryforwards 1,256,423 668,138
Other 45,309 12,563
Valuation allowance (87,551) --
----------- --------
Total deferred tax assets 1,379,007 831,079
----------- --------
Deferred tax liabilities:
Property and equipment 1,036,847 716,168
Capitalized leases 266,518 --
Unbilled revenue 50,412 71,730
Other 25,230 27,684
----------- --------
Total deferred tax liabilities 1,379,007 815,582
----------- --------
Net deferred tax assets $ -- 15,497
=========== ========
</TABLE>
There was no valuation allowance for deferred tax assets as of December 31,
1995 and 1996. 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 levels of historical taxable losses and uncertainty regarding
the generation of taxable income in future years, management has
established a valuation allowance equal to net deferred tax assets at
December 31, 1997.
(Continued)
F-17
<PAGE> 41
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $3,200,000 of which $800,000 expires in 2011 and
$2,400,000 expires in 2012.
Deferred tax assets of $15,497 are included in other current assets in the
accompanying consolidated balance sheets at December 31, 1996.
(6) Capital Stock
During 1997, the Company repurchased 37,287 shares of its issued and
outstanding common stock at an average price of $1.15 per share. The
Company intends to continue to acquire additional shares from time to
time at prevailing market prices, dependent upon availability of cash
flow and existing market conditions.
In 1995, the Company entered into five-year employment agreements with its
three executive officers. As part of their employment agreements, each
of the executive officers has been granted an option to purchase 107,250
shares of the Company's common stock. The options were exercisable in
five equal annual installments of 21,450 shares beginning February 16,
1995 at an initial price of $5.00 per share for the first installment
with future installment prices increasing $.50 per share at each
installment exercise date. On October 22, 1997 these agreements were
amended to adjust the option exercise price for all installments to
$1.41 per share. The options expire seven years from the date granted.
At both December 31, 1997 and 1996, 321,750 of these options were
outstanding.
The Company has a stock option plan for the benefit of non-employee
directors of the Company. Under this plan, as amended, 150,000 shares of
stock will be reserved for issuance upon exercise of such options. Each
eligible director, at adjournment of each annual shareholders' meeting,
will automatically be granted options to purchase 5,000 shares of the
Company's common stock at a price equal to 100% 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 December 31, 1997 and 1996,
60,000 and 10,000, respectively, of these options were outstanding.
Also, the Company has adopted an incentive stock option plan for certain
key employees. 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 as stated within each option agreement, as
determined by the compensation committee of the Company's board of
directors (generally, three years), and expire ten years after grant
date. Options for 48,500 shares and 33,000 shares under this plan are
outstanding at December 31, 1997 and 1996, respectively.
During December 1997, the Company adopted a stock option plan whereby each
of its three key executive officers was granted an option to purchase
100,000 shares of the Company's common stock at the fair market value of
the stock on the date the option was granted. Under this plan, 300,000
shares of the Company's stock will be reserved for issuance upon
exercise of these options. Options are exercisable in equal quarterly
installments of 12,500 shares beginning January 1, 1998 and expire 10
years after grant date. Options for 300,000 shares are outstanding at
December 31, 1997.
(Continued)
F-18
<PAGE> 42
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997 there were 90,000 and 101,500 additional shares
available for grant under the directors and employee option plans,
respectively.
The per share weighted-average fair value of stock options granted during
1997 and 1996 was $.68 and $2.12, respectively, on the date of grant
using the Black Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996
----------- --------
<S> <C> <C>
Risk-free interest rate 4.5% 4.5%
Expected life 10 years 10 years
Expected volatility 0.50 0.76
Expected dividend yield -- --
</TABLE>
The Company applies APB 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 SFAS No. 123, the Company's net loss would
have increased to the following pro forma amounts:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
----------- --------
Net loss:
As reported $(1,256,540) (876,330)
=========== ========
Pro forma $(1,337,746) (922,310)
=========== ========
Pro forma, per share - basic and
diluted $ (.43) (.30)
=========== ========
</TABLE>
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number Weighted-average
of shares exercise price
--------- --------------
<S> <C> <C>
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
Repricing of options -- (3.68)
Granted 542,500 1.02
Expired (156,000) (1.12)
Forfeited (21,000) (2.59)
--------
Balance at December 31, 1997 730,250 1.25
======== ========
</TABLE>
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.00 - $3.28 and
7.26 years, respectively.
(Continued)
F-19
<PAGE> 43
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997 and 1996, the number of options exercisable was
253,050 and 135,700, respectively, and the weighted-average exercise
price of those options was $1.40 and $5.34, respectively.
The Company sold to its underwriter for $120, warrants to purchase 120,000
shares of the Company's common stock. The warrants became exercisable in
February 1996, expire February 2000, and provide the right to purchase
one share of the Company's stock for each warrant held at a price of
$10.15 per share. 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.
(7) Fair Value of Financial Instruments
Cash and cash equivalents, Accounts Receivable, Income Taxes Receivable,
Revolving Credit Agreement and Trade Accounts Payable
The carrying amount approximates fair value because of the short maturity
of these instruments.
Other Long-Term Debt
The fair value of other 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.
The estimated fair values of the Company's financial instruments at
December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $539,165 539,165 534,629 534,629
Accounts receivable 4,084,210 4,084,210 3,308,102 3,308,102
Income taxes receivable 409,909 409,909 356,591 356,591
Trade accounts payable 663,734 663,734 764,747 764,747
Revolving credit agreement 2,106,656 2,106,656 300,000 300,000
Other long-term debt 4,484,353 4,402,600 4,322,516 4,333,544
========= ========= ========= =========
</TABLE>
(8) Contingencies
The Company is the defendant in a claim filed with the United States Equal
Employment Opportunity Commission ("EEOC") by a former employee of the
Company alleging race and disability discrimination. Although no formal
judgment has been made, the EEOC has recommended an award against the
Company in the amount of $133,000, including both compensatory and
punitive damages. The Company denies that it has discriminated against
the former employee and intends to vigorously defend this claim in an
administrative hearing with the EEOC. Accordingly, no accrual has been
established by the Company at December 31, 1997 related to this claim,
as in the opinion of management, such contingency is neither probably
nor reasonably estimable.
(Continued)
F-20
<PAGE> 44
AMPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company is also involved in certain other claims and pending litigation
arising from the normal conduct of business. Based on the present
knowledge of the facts and, in certain cases, opinions of outside
counsel, management believes the resolution of these claims and pending
litigation will not have a material adverse effect on the financial
condition, results of operations or liquidity of the Company.
(9) Subsequent Event
On January 29, 1998, the Company acquired certain revenue and service
equipment and various other assets, licenses and permits from Roy
Widener Motor Lines, Inc. and Morristown Transportation System, Inc.
(collectively, "the Sellers") for $5,137,781, consisting of cash of
$85,622, assumption of capital leases and other obligations of
$4,890,159 and issuance of a note payable of $162,000 to a third party
creditor. Additionally, concurrent with this acquisition, the Company
entered into certain noncompetition agreements with the sellers for a
period of three years subsequent to the date of acquisition whereby the
Company paid $200,000 at closing to the Sellers consisting of a note
payable to a third party creditor. The Company is also liable for an
additional $475,000 during the term of the noncompetition agreements
based upon gross receipts from previous customers of the Sellers. The
purchase price was allocated to the assets acquired as follows:
<TABLE>
<S> <C>
Revenue and service equipment $4,992,443
Permits, licenses and other assets 145,338
Noncompete agreements 200,000
----------
$5,337,781
==========
</TABLE>
This acquisition has been accounted for as a purchase with the operating
results included in the consolidated statement of operations from the
date of acquisition. Assuming the acquisition of the Sellers had
occurred on January 1, 1997, pro forma unaudited results of operations
for the Company for the year ended December 31, 1997 would have been as
follows:
<TABLE>
<S> <C>
Operating revenues $47,100,000
===========
Net loss $(1,160,000)
===========
Loss per share - basic and diluted $ (.38)
===========
</TABLE>
F-21
<PAGE> 1
Exhibit 10.4
AMPACE CORPORATION
KEY EMPLOYEE INCENTIVE STOCK OPTION PLAN
1. Purpose.
The purpose of the Plan is to promote the growth and general prosperity
of AMPACE CORPORATION (hereinafter called the "Company") by permitting the
Company, by grant of Options to purchase shares of its Common Stock, to attract
and retain the best available personnel for positions of substantial
responsibility and to provide certain key employees with an additional incentive
to contribute to the success of the Company and its subsidiaries.
2. Administration.
The Plan shall be administered by the Compensation Committee, members
of which are appointed by the Board of Directors of the Company (hereinafter
called the "Board") in accordance with Section 4.4 of the By-Laws of the Company
(the "Committee"). Subject to the provisions of the Plan, the Committee shall
have sole authority, in its absolute discretion, to determine which of the
eligible employees of the Company shall receive Options, the time when Options
shall be granted, the effective date of the grant of such Options, the terms of
such Options ( which may differ from one another), and the number of shares to
be optioned and shall have authority to do everything necessary or appropriate
to administer the Plan including, without limitation, interpreting the Plan. All
decisions, determinations and interpretations of the Committee shall be final
and binding on all optionees.
3. Eligibility.
Options may be granted only to key employees of the Company and not to
Directors or any of the following officers: Chairman of the Board, President,
Chief Executive Officer, Chief Operating Officer, Executive Vice President of
Operations, Vice President of Corporate Development, Chief Financial Officer,
Treasurer and Secretary. The Committee shall select employee grantees. No member
of the Committee is eligible to receive Options. In any calendar year, the
aggregate fair market value of the shares of Common Stock (as determined at the
time the Option is granted) for which the Option is exercisable for the first
time by any employee shall not exceed the sum of One Hundred Thousand and no/100
($100,000) Dollars. The total number of shares of Common Stock subject to this
Plan shall not exceed one hundred fifty thousand (150,000) shares.
4. Option Price.
The purchase price of shares of Common Stock issuable upon exercise of
each Option granted pursuant to the Plan shall be not less than one hundred
(100%) percent of the fair market value of the shares on the date the Option is
granted. Options granted under the Plan may be exercised not earlier than three
(3) years after the date of the granting of such Options. No
<PAGE> 2
Option granted under the Plan may be exercised more than ten (10) years after
the date on which it is granted. Options may not be granted to any employee who
at the time such an Option is granted owns more than ten (10%) percent of the
total combined voting power of all classes of stock of the Company unless (i)
the purchase price of such shares of Common Stock issuable upon exercise of each
Option is not less than one hundred and ten (110%) percent of the fair market
value of such shares on the date such Option is granted, and (ii) such Option is
not exercisable after the expiration of five (5) years from the date such Option
is granted.
5. Exercise of Option.
The Option is nontransferable other than at death and is exercisable
during the lifetime of the employee to whom the Option is granted only by such
employee. In the event of termination of employment of a Plan Participant
holding an Option for any reason other than retirement, death or disability, the
term of the Option shall expire on a date not later than thirty (30) days after
such termination. In the event of termination due to retirement, death or
disability of a Plan Participant holding an Option, the Option shall be
exercisable during the following period, but only to the extent that the Option
was outstanding and exercisable on any such date of retirement, death or
disability: (i) the one (1) year period from the date of termination in the case
of disability (within the meaning of Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended), (ii) the six (6) month period following the date of
issuance of letters testamentary or letters of administration to the executor or
administrator of a deceased employee, in the case of the employee's death during
his employment by the Company but not later than one (1) year after the
employee's death, and (iii) the three (3) month period following the date of
such termination in the case of retirement on or after attainment of age
sixty-five (65), or in the case of disability other than as described in (i)
above. In no event, however, shall any such period extend beyond the Option
Term. Notwithstanding any other provisions set forth herein, if the employee
shall (i) commit any act of malfeasance or wrongdoing affecting the Company or
any subsidiary of the Company, (ii) breach any covenant not to compete, or
employment contract, with the Company or any subsidiary of the Company, or (iii)
engage in conduct that would warrant the employee's discharge for cause
(excluding general dissatisfaction with the performance of the employee's
duties, but including any act of disloyalty or any conduct clearly tending to
bring discredit upon the Company or any subsidiary of the Company), any
unexercised portion of the Option shall immediately terminate and be void.
6. Manner of Exercise.
An Option shall be exercised when written notice of such exercise has
been given to the Company at its principal business office by the person
entitled to exercise the Option and full payment for the shares with respect to
which the Option is exercised has been received by the Company. Until the
issuance of the stock certificates, no right to vote or receive dividends or
other rights as a Stockholder shall exist with respect to optioned shares
notwithstanding the exercise of the Option. No adjustment will be made for a
dividend or other rights for which the record date is prior to the date the
stock certificate is issued except as provided in Section 8. An
-2-
<PAGE> 3
Option may be exercised in accordance with this Section 6 as to all or any
portion of the shares subject to the Option from time to time, but shall not be
exercisable with respect to fractions of a share.
7. Amendment or Termination of the Plan.
The Board may amend the Plan from time to time in such respects as the
Board may deem advisable, provided that (i) except in the case of adjustments
made pursuant to Section 8, the Board may not, without further approval of all
stockholders of the Company entitled to vote thereon, increase the maximum
number of shares for which Options may be granted under the Plan, and (ii) in no
event shall any amendment to the Plan adversely affect the rights of any
employee with respect to (A) any Option then in effect or (B) any shares of
Common Stock previously purchased pursuant to the exercise of an Option.
8. Adjustments Upon Changes In Capitalization.
If all or any portion of an Option is exercised subsequent to any stock
dividend, split-up, recapitalization, combination or exchange of shares, merger,
consolidation, acquisition of property or stock, separation, reorganization, or
liquidation, as a result of which shares of any class shall be issued in respect
of outstanding shares of Common Stock or shares of Common Stock shall be changed
into the same or a different number of shares of the same or another class or
classes, the person or persons so exercising such an Option shall receive, for
the aggregate price payable upon such exercise of the Option, the aggregate
number and class of shares which, if shares of Common Stock (as authorized at
the date of the granting of such Option ) had been purchased at the date of
granting of the Option for the same aggregate price (on the basis of the price
per share provided in the Option ) and had not been disposed of, such person or
persons would be holding at the time of such exercise, as a result of such
purchase and any such stock dividend, split-up, recapitalization, combination or
exchange of shares, merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation; provided, however, that no fractional
share shall be issued upon any such exercise, and the aggregate price paid shall
be appropriately reduced on account of any fractional share not issued. In the
event of any such change in the outstanding Common Stock of the Company, the
aggregate number and class of shares remaining available under the Plan shall be
at that number and class which a person, to whom an Option has been granted for
all of the available shares under the Plan on the date preceding such change,
would be entitled to receive as provided in the first sentence of this Section
8.
9. Vesting of Options Upon a Change in Control.
The vesting of options will be accelerated upon a "Change in Control"
of the Company. A Change in Control is deemed to have occurred if (a) a person
(as such term is used in Section 13(d) of the Exchange Act) becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, in one or more transactions, of shares of
-3-
<PAGE> 4
Common Stock of the Company representing 50 percent or more of the total number
of votes that may be case by all stockholders of the Company voting as a single
class, without the approval or consent of the Company's Board of Directors, (b)
there is a consolidation or merger of the Company in which the Company is not
the surviving corporation, or (c) a plan or proposal for the liquidation or
dissolution of the Company is adopted.
10. Reservation of Shares of Common Stock.
The Company, during the term of this Plan, will at all times reserve
and keep available, such number of shares of its Common Stock as shall be
sufficient to satisfy the requirements of the Plan.
11. Investment Intent.
The Plan Participant agrees that all shares purchased by the Plan
Participant under the option are acquired for investment and not for
distribution, and that each notice of exercise of the option shall be
accompanied by a written representation, signed by the Plan Participant, to that
effect.
12. Definitions.
As used herein, the following definitions shall apply:
(a) COMMON STOCK shall mean Common Stock, $.0001 par value,
of the Company.
(b) OPTION shall mean a stock option granted pursuant to
the Plan
(c) PLAN shall mean this Key Employee Incentive Stock
Option Plan of the Company.
(d) PLAN PARTICIPANT shall mean an Employee who is granted
an option to purchase Common Stock pursuant to the Plan.
(e) STOCKHOLDER(S) shall mean holder(s) of outstanding
shares of the Company's Common Stock which were purchased pursuant to the Plan.
-4-
<PAGE> 5
AMENDMENT NO. 1 TO AMPACE CORPORATION
KEY EMPLOYEE INCENTIVE STOCK OPTION PLAN
The Ampace Corporation Key Employee Incentive Stock Option Plan is
hereby amended as follows:
13. Section 2 of the Plan is hereby amended by adding the
following at the end of said section:
Any Options granted to a key employee who is subject to the
provisions of Section 16(b) of the Securities and Exchange Act
of 1934 shall be approved by the Board.
14. Section 3 of the Plan is amended by deleting the first
sentence in its entirety and inserting the following in lieu thereof:
Options may be granted only to key employees of the Company,
including key employees who are also directors and/or officers
of the Company.
15. Section 4 of the Plan is amended by deleting the second
sentence of said section and inserting the following in lieu thereof:
Each option agreement shall state the period or periods of time within
which the Option may be exercised, in whole or in part, as determined
by the Committee and subject to such terms and conditions as are
prescribed for such purpose by the Committee. The Committee, in its
discretion, may provide in the option agreement circumstances under
which the option shall become immediately exercisable, in whole or in
part, and, notwithstanding the foregoing, may accelerate the
exercisability of any Option, in whole or in part, at any time.
16. Section 7 of the Plan is amended by deleting subsection
(i) in its entirety and inserting the following in lieu thereof:
(i) except in the case of adjustments made pursuant to Section 8, the
Board may not, without further approval of a majority of the
Stockholders of the Company entitled to vote thereon, increase the
maximum number of shares for which Options may be granted under the
Plan, and
17. Section 12(e) of the Plan is amended by deleting the phrase
"which were purchased pursuant to the Plan" from said section.
18. Except as otherwise amended herein, all other terms,
conditions and provisions of the Plan shall continue to be in full force
and effect.
-5-
<PAGE> 6
19. This Amendment has been approved by the Board of Directors of
the Company as of August 21, 1997.
-6-
<PAGE> 1
Exhibit 10.15
GRANT OF STOCK OPTION
Date of Grant: As of December 10, 1997
THIS GRANT, dated as of the date of grant first stated above (the "Date
of Grant"), is delivered by Ampace Corporation, a Delaware corporation (the
"Company") to Bruce W. Jones, (the "Grantee"), who is a director of the Company.
WHEREAS, the Board of Directors of the Company (the "Board") on
December 10, 1997 approved the grant of this option; and
WHEREAS, the Board desires to grant the stock options documented
herein.
NOW, THEREFORE, the parties hereto intending to be legally bound
hereby, agree as follows:
1. GRANT OF OPTION.
Subject to the terms and conditions hereinafter set forth, the Company
hereby grants to the Grantee, as of the Date of Grant, an option to purchase up
to 100,000 shares of Stock at a price of $1.00 per share, which is equal to the
closing price of the Common Stock on the Date of Grant. Such option is
hereinafter referred to as the "Option" and the shares of stock purchasable upon
exercise of the Option are hereinafter sometimes referred to as the "Option
Shares." The Option shall vest at a rate of 12,500 Option Shares per calendar
quarter, commencing January 1, 1998. Notwithstanding the foregoing, if any event
(a "Change of Control") described in Section 5(d) of the Employment and Stock
Option Agreement dated February 25, 1995 between the Grantee and the Company
(the "Agreement") shall occur, (i) the Company shall provide the Grantee written
notice of such Change of Control and (ii) the Option shall automatically
accelerate and become fully exercisable. In addition, upon a Change of Control
described in Section 5(d)(v)(i) of the Agreement, the portion of the Option that
is not exercised shall be assumed by, or replaced with comparable options by,
the surviving corporation. Any replacement options shall entitle the Grantee to
receive the same amount and type of securities as the Grantee would have
received as a result of the Change of Control had the Grantee exercised the
Option immediately prior to the Change of Control.
2. TERMINATION OF OPTION.
(a) Except as otherwise provided herein, the Option and all rights
hereunder with respect thereto, to the extent such rights shall not have been
exercised, shall terminate and become null and void after the expiration of ten
(10) years from the Date of Grant (the "Option Term").
<PAGE> 2
(b) In the event of the disability or death of the Grantee, or if the
Grantee no longer serves as a director of the Company, the Option may be
exercised during the following period, but only to the extent that the Option
was outstanding on any such date of disability or death or cessation of service:
(i) the one-year period following the date of disability (within the meaning of
Section 22(e)(3) of the Code); (ii) the six-month period following the date of
issuance of letters testamentary or letters of administration to the executor or
administrator of a deceased Grantee, but not later than one year after the
Grantee's death; and (iii) the one-year period following the date on which
service as director of the Company ceases. In no event, however, shall any such
period extend beyond the Option Term.
(c) In the event of the death of the Grantee, the Option may be
exercised by the Grantee's legal representative(s), but only to the extent that
the Option would otherwise have been exercisable by the Grantee.
(d) Notwithstanding any other provisions set forth herein, if the
Grantee shall commit any act of malfeasance or wrongdoing affecting the Company
or any subsidiary of the Company, any unexercised portion of the Option shall
immediately terminate and be void.
3. EXERCISE OF OPTION.
(a) The Grantee may exercise the Option at any time after vesting, with
respect to all or any part of the number of Option Shares by giving the
Secretary of the Company written notice of intent to exercise. The notice of
exercise shall specify the number of Option Shares as to which the Option is to
be exercised and the date of exercise thereof, which date shall be at least five
days after the giving of such notice unless an earlier time shall have been
mutually agreed upon.
(b) Full payment (in U.S. Dollars) by the Grantee of the option price
for the Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written consent
of the Board, in whole or in part through the surrender of previously acquired
shares of Stock at their fair market value on the exercise date.
On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to the
Grantee, a certificate or certificates for the Option Shares then being
purchased (out of theretofore unissued Stock or reacquired Stock, as the Company
may elect) upon full payment for such Option Shares. The obligation of the
Company to deliver Stock shall, however, be subject to the condition that if at
any time the Committee shall determine in its discretion that the listing,
registration or qualification of the Option or the Option Shares upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the Option or the issuance or purchase of
Stock thereunder, the Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
2
<PAGE> 3
(c) If the Grantee fails to pay for any of the Option Shares specified
in such notice or fails to accept delivery thereof, the Grantee's right to
purchase such Options Shares may be terminated by the Company. The date
specified in the Grantee's notice as the date of exercise shall be deemed the
date of exercise of the Option, provided that payment in full for the Option
Shares to be purchased upon such exercise shall have been received by such date.
4. ADJUSTMENT OF AND CHANGES IN STOCK OF THE COMPANY.
In the event of a reorganization, recapitalization, change of shares,
stock split, spin-off, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of capital stock of the Company, the
Board shall make such adjustment as it deems appropriate in the number and kind
of shares of Stock subject to the Option or in the option price as provided
under the Plan; provided, however, that no such adjustment shall give the
Grantee any additional benefits under the Option.
5. NO RIGHTS OF STOCKHOLDERS.
Neither the Grantee nor any personal representatives shall be, or shall
have any of the rights and privileges of, a stockholder of the Company with
respect to any shares of Stock purchasable or issuable upon the exercise of the
Option, in whole or in part, prior to the date of exercise of the Option.
6. NON-TRANSFERABILITY OF OPTION.
During the Grantee's lifetime, the Option hereunder shall be
exercisable only by the Grantee or any guardian or legal representative of the
Grantee, and the Option shall not be transferable except, in case of the death
of the Grantee, by will or the laws of descent and distribution, nor shall the
Option be subject to attachment, execution or other similar process. In the
event of (a) any attempt by the Grantee to alienate, assign, pledge, hypothecate
or otherwise dispose of the Option, except as provided for herein, or (b) the
levy of any attachment, execution or similar process upon the rights or interest
hereby conferred, the Company may terminate the Option by notice to the Grantee
and it shall thereupon become null and void.
7. AMENDMENT OF AN OPTION.
The Option may be amended by the Board at any time (i) if the Board
determines, in its sole discretion, that amendment is necessary or advisable in
the light of any addition to or change in the Code or in the regulations issued
thereunder, or any federal or state securities law or other law or regulation,
which change occurs after the Date of Grant and by its terms applies to the
Option; or (ii) other than in the circumstances described in clause (i), with
the consent of the Grantee.
3
<PAGE> 4
8. NOTICE.
Any notice to the Company provided for in this statement shall be
addressed to it in care of its Secretary at its executive offices at 201
Perimeter Park, Suite A, Knoxville, Tennessee 37922, and any notice to the
Grantee shall be addressed to the Grantee at the current address shown on the
records of the Company. Any notice shall be deemed to be duly given if and when
properly addressed and posted by registered or certified mail, postage prepaid.
9. GOVERNING LAW.
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by and determined in accordance with
the law of the State of Tennessee, except to the extent preempted by federal
law, which shall to the extent govern.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to execute and attest this grant of Option, and to apply the corporate seal
hereto, and the Grantee has placed his signature hereon, effective as of the
Date of Grant.
AMPACE CORPORATION
By: s/Jay N. Taylor
-----------------------------------
JAY N. TAYLOR, PRESIDENT
ACCEPTED AND AGREED TO:
s/Bruce W. Jones
-----------------------------------
BRUCE W. JONES
4
<PAGE> 1
EXHIBIT 10.16
GRANT OF STOCK OPTION
Date of Grant: As of December 10, 1997
THIS GRANT, dated as of the date of grant first stated above (the "Date
of Grant"), is delivered by Ampace Corporation, a Delaware corporation (the
"Company") to Jay N. Taylor, (the "Grantee"), who is a director of the Company.
WHEREAS, the Board of Directors of the Company (the "Board") on
December 10, 1997 approved the grant of this option; and
WHEREAS, the Board desires to grant the stock options documented
herein.
NOW, THEREFORE, the parties hereto intending to be legally bound
hereby, agree as follows:
1. GRANT OF OPTION.
Subject to the terms and conditions hereinafter set forth, the Company
hereby grants to the Grantee, as of the Date of Grant, an option to purchase up
to 100,000 shares of Stock at a price of $1.00 per share, which is equal to the
closing price of the Common Stock on the Date of Grant. Such option is
hereinafter referred to as the "Option" and the shares of stock purchasable upon
exercise of the Option are hereinafter sometimes referred to as the "Option
Shares." The Option shall vest at a rate of 12,500 Option Shares per calendar
quarter, commencing January 1, 1998. Notwithstanding the foregoing, if any event
(a "Change of Control") described in Section 5(d) of the Employment and Stock
Option Agreement dated February 25, 1995 between the Grantee and the Company
(the "Agreement") shall occur, (i) the Company shall provide the Grantee written
notice of such Change of Control and (ii) the Option shall automatically
accelerate and become fully exercisable. In addition, upon a Change of Control
described in Section 5(d)(v)(i) of the Agreement, the portion of the Option that
is not exercised shall be assumed by, or replaced with comparable options by,
the surviving corporation. Any replacement options shall entitle the Grantee to
receive the same amount and type of securities as the Grantee would have
received as a result of the Change of Control had the Grantee exercised the
Option immediately prior to the Change of Control.
2. TERMINATION OF OPTION.
(a) Except as otherwise provided herein, the Option and all rights
hereunder with respect thereto, to the extent such rights shall not have been
exercised, shall terminate and become null and void after the expiration of ten
(10) years from the Date of Grant (the "Option Term").
(b) In the event of the disability or death of the Grantee, or if the
Grantee no longer serves as a director of the Company, the Option may be
exercised during the following period, but
<PAGE> 2
only to the extent that the Option was outstanding on any such date of
disability or death or cessation of service: (i) the one-year period following
the date of disability (within the meaning of Section 22(e)(3) of the Code);
(ii) the six-month period following the date of issuance of letters testamentary
or letters of administration to the executor or administrator of a deceased
Grantee, but not later than one year after the Grantee's death; and (iii) the
one-year period following the date on which service as director of the Company
ceases. In no event, however, shall any such period extend beyond the Option
Term.
(c) In the event of the death of the Grantee, the Option may be
exercised by the Grantee's legal representative(s), but only to the extent that
the Option would otherwise have been exercisable by the Grantee.
(d) Notwithstanding any other provisions set forth herein, if the
Grantee shall commit any act of malfeasance or wrongdoing affecting the Company
or any subsidiary of the Company, any unexercised portion of the Option shall
immediately terminate and be void.
3. EXERCISE OF OPTION.
(a) The Grantee may exercise the Option at any time after vesting, with
respect to all or any part of the number of Option Shares by giving the
Secretary of the Company written notice of intent to exercise. The notice of
exercise shall specify the number of Option Shares as to which the Option is to
be exercised and the date of exercise thereof, which date shall be at least five
days after the giving of such notice unless an earlier time shall have been
mutually agreed upon.
(b) Full payment (in U.S. Dollars) by the Grantee of the option price
for the Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written consent
of the Board, in whole or in part through the surrender of previously acquired
shares of Stock at their fair market value on the exercise date.
On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to the
Grantee, a certificate or certificates for the Option Shares then being
purchased (out of theretofore unissued Stock or reacquired Stock, as the Company
may elect) upon full payment for such Option Shares. The obligation of the
Company to deliver Stock shall, however, be subject to the condition that if at
any time the Committee shall determine in its discretion that the listing,
registration or qualification of the Option or the Option Shares upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the Option or the issuance or purchase of
Stock thereunder, the Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
(c) If the Grantee fails to pay for any of the Option Shares specified
in such notice or fails to accept delivery thereof, the Grantee's right to
purchase such Options Shares may be terminated
2
<PAGE> 3
by the Company. The date specified in the Grantee's notice as the date of
exercise shall be deemed the date of exercise of the Option, provided that
payment in full for the Option Shares to be purchased upon such exercise shall
have been received by such date.
4. ADJUSTMENT OF AND CHANGES IN STOCK OF THE COMPANY.
In the event of a reorganization, recapitalization, change of shares,
stock split, spin-off, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of capital stock of the Company, the
Board shall make such adjustment as it deems appropriate in the number and kind
of shares of Stock subject to the Option or in the option price as provided
under the Plan; provided, however, that no such adjustment shall give the
Grantee any additional benefits under the Option.
5. NO RIGHTS OF STOCKHOLDERS.
Neither the Grantee nor any personal representatives shall be, or shall
have any of the rights and privileges of, a stockholder of the Company with
respect to any shares of Stock purchasable or issuable upon the exercise of the
Option, in whole or in part, prior to the date of exercise of the Option.
6. NON-TRANSFERABILITY OF OPTION.
During the Grantee's lifetime, the Option hereunder shall be
exercisable only by the Grantee or any guardian or legal representative of the
Grantee, and the Option shall not be transferable except, in case of the death
of the Grantee, by will or the laws of descent and distribution, nor shall the
Option be subject to attachment, execution or other similar process. In the
event of (a) any attempt by the Grantee to alienate, assign, pledge, hypothecate
or otherwise dispose of the Option, except as provided for herein, or (b) the
levy of any attachment, execution or similar process upon the rights or interest
hereby conferred, the Company may terminate the Option by notice to the Grantee
and it shall thereupon become null and void.
7. AMENDMENT OF AN OPTION.
The Option may be amended by the Board at any time (i) if the Board
determines, in its sole discretion, that amendment is necessary or advisable in
the light of any addition to or change in the Code or in the regulations issued
thereunder, or any federal or state securities law or other law or regulation,
which change occurs after the Date of Grant and by its terms applies to the
Option; or (ii) other than in the circumstances described in clause (i), with
the consent of the Grantee.
3
<PAGE> 4
8. NOTICE.
Any notice to the Company provided for in this statement shall be
addressed to it in care of its Secretary at its executive offices at 201
Perimeter Park, Suite A, Knoxville, Tennessee 37922, and any notice to the
Grantee shall be addressed to the Grantee at the current address shown on the
records of the Company. Any notice shall be deemed to be duly given if and when
properly addressed and posted by registered or certified mail, postage prepaid.
9. GOVERNING LAW.
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by and determined in accordance with
the law of the State of Tennessee, except to the extent preempted by federal
law, which shall to the extent govern.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to execute and attest this grant of Option, and to apply the corporate seal
hereto, and the Grantee has placed his signature hereon, effective as of the
Date of Grant.
AMPACE CORPORATION
By: s/Bruce W. Jones
-----------------------------------
BRUCE W. JONES, Chairman
ACCEPTED AND AGREED TO:
s/Jay N. Taylor
-----------------------------------
JAY N. TAYLOR
4
<PAGE> 1
EXHIBIT 10.17
GRANT OF STOCK OPTION
Date of Grant: As of December 10, 1997
THIS GRANT, dated as of the date of grant first stated above (the "Date
of Grant"), is delivered by Ampace Corporation, a Delaware corporation (the
"Company") to David C. Freeman, (the "Grantee"), who is a director of the
Company.
WHEREAS, the Board of Directors of the Company (the "Board") on
December 10, 1997 approved the grant of this option; and
WHEREAS, the Board desires to grant the stock options documented
herein.
NOW, THEREFORE, the parties hereto intending to be legally bound
hereby, agree as follows:
1. GRANT OF OPTION.
Subject to the terms and conditions hereinafter set forth, the Company
hereby grants to the Grantee, as of the Date of Grant, an option to purchase up
to 100,000 shares of Stock at a price of $1.00 per share, which is equal to the
closing price of the Common Stock on the Date of Grant. Such option is
hereinafter referred to as the "Option" and the shares of stock purchasable upon
exercise of the Option are hereinafter sometimes referred to as the "Option
Shares." The Option shall vest at a rate of 12,500 Option Shares per calendar
quarter, commencing January 1, 1998. Notwithstanding the foregoing, if any event
(a "Change of Control") described in Section 5(d) of the Employment and Stock
Option Agreement dated February 25, 1995 between the Grantee and the Company
(the "Agreement") shall occur, (i) the Company shall provide the Grantee written
notice of such Change of Control and (ii) the Option shall automatically
accelerate and become fully exercisable. In addition, upon a Change of Control
described in Section 5(d)(v)(i) of the Agreement, the portion of the Option that
is not exercised shall be assumed by, or replaced with comparable options by,
the surviving corporation. Any replacement options shall entitle the Grantee to
receive the same amount and type of securities as the Grantee would have
received as a result of the Change of Control had the Grantee exercised the
Option immediately prior to the Change of Control.
2. TERMINATION OF OPTION.
(a) Except as otherwise provided herein, the Option and all rights
hereunder with respect thereto, to the extent such rights shall not have been
exercised, shall terminate and become null and void after the expiration of ten
(10) years from the Date of Grant (the "Option Term").
(b) In the event of the disability or death of the Grantee, or if the
Grantee no longer serves as a director of the Company, the Option may be
exercised during the following period, but
<PAGE> 2
only to the extent that the Option was outstanding on any such date of
disability or death or cessation of service: (i) the one-year period following
the date of disability (within the meaning of Section 22(e)(3) of the Code);
(ii) the six-month period following the date of issuance of letters testamentary
or letters of administration to the executor or administrator of a deceased
Grantee, but not later than one year after the Grantee's death; and (iii) the
one-year period following the date on which service as director of the Company
ceases. In no event, however, shall any such period extend beyond the Option
Term.
(c) In the event of the death of the Grantee, the Option may be
exercised by the Grantee's legal representative(s), but only to the extent that
the Option would otherwise have been exercisable by the Grantee.
(d) Notwithstanding any other provisions set forth herein, if the
Grantee shall commit any act of malfeasance or wrongdoing affecting the Company
or any subsidiary of the Company, any unexercised portion of the Option shall
immediately terminate and be void.
3. EXERCISE OF OPTION.
(a) The Grantee may exercise the Option at any time after vesting, with
respect to all or any part of the number of Option Shares by giving the
Secretary of the Company written notice of intent to exercise. The notice of
exercise shall specify the number of Option Shares as to which the Option is to
be exercised and the date of exercise thereof, which date shall be at least five
days after the giving of such notice unless an earlier time shall have been
mutually agreed upon.
(b) Full payment (in U.S. Dollars) by the Grantee of the option price
for the Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written consent
of the Board, in whole or in part through the surrender of previously acquired
shares of Stock at their fair market value on the exercise date.
On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to the
Grantee, a certificate or certificates for the Option Shares then being
purchased (out of theretofore unissued Stock or reacquired Stock, as the Company
may elect) upon full payment for such Option Shares. The obligation of the
Company to deliver Stock shall, however, be subject to the condition that if at
any time the Committee shall determine in its discretion that the listing,
registration or qualification of the Option or the Option Shares upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the Option or the issuance or purchase of
Stock thereunder, the Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
(c) If the Grantee fails to pay for any of the Option Shares specified
in such notice or fails to accept delivery thereof, the Grantee's right to
purchase such Options Shares may be terminated
2
<PAGE> 3
by the Company. The date specified in the Grantee's notice as the date of
exercise shall be deemed the date of exercise of the Option, provided that
payment in full for the Option Shares to be purchased upon such exercise shall
have been received by such date.
4. ADJUSTMENT OF AND CHANGES IN STOCK OF THE COMPANY.
In the event of a reorganization, recapitalization, change of shares,
stock split, spin-off, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of capital stock of the Company, the
Board shall make such adjustment as it deems appropriate in the number and kind
of shares of Stock subject to the Option or in the option price as provided
under the Plan; provided, however, that no such adjustment shall give the
Grantee any additional benefits under the Option.
5. NO RIGHTS OF STOCKHOLDERS.
Neither the Grantee nor any personal representatives shall be, or shall
have any of the rights and privileges of, a stockholder of the Company with
respect to any shares of Stock purchasable or issuable upon the exercise of the
Option, in whole or in part, prior to the date of exercise of the Option.
6. NON-TRANSFERABILITY OF OPTION.
During the Grantee's lifetime, the Option hereunder shall be
exercisable only by the Grantee or any guardian or legal representative of the
Grantee, and the Option shall not be transferable except, in case of the death
of the Grantee, by will or the laws of descent and distribution, nor shall the
Option be subject to attachment, execution or other similar process. In the
event of (a) any attempt by the Grantee to alienate, assign, pledge, hypothecate
or otherwise dispose of the Option, except as provided for herein, or (b) the
levy of any attachment, execution or similar process upon the rights or interest
hereby conferred, the Company may terminate the Option by notice to the Grantee
and it shall thereupon become null and void.
7. AMENDMENT OF AN OPTION.
The Option may be amended by the Board at any time (i) if the Board
determines, in its sole discretion, that amendment is necessary or advisable in
the light of any addition to or change in the Code or in the regulations issued
thereunder, or any federal or state securities law or other law or regulation,
which change occurs after the Date of Grant and by its terms applies to the
Option; or (ii) other than in the circumstances described in clause (i), with
the consent of the Grantee.
3
<PAGE> 4
8. NOTICE.
Any notice to the Company provided for in this statement shall be
addressed to it in care of its Secretary at its executive offices at 201
Perimeter Park, Suite A, Knoxville, Tennessee 37922, and any notice to the
Grantee shall be addressed to the Grantee at the current address shown on the
records of the Company. Any notice shall be deemed to be duly given if and when
properly addressed and posted by registered or certified mail, postage prepaid.
9. GOVERNING LAW.
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by and determined in accordance with
the law of the State of Tennessee, except to the extent preempted by federal
law, which shall to the extent govern.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to execute and attest this grant of Option, and to apply the corporate seal
hereto, and the Grantee has placed his signature hereon, effective as of the
Date of Grant.
AMPACE CORPORATION
By: s/Jay N. Taylor
----------------------------------
JAY N. TAYLOR, President
ACCEPTED AND AGREED TO:
s/David C. Freeman
DAVID C. FREEMAN
4
<PAGE> 1
Exhibit 23.1
The Board of Directors
Ampace Corporation:
We consent to incorporation by reference in the Registration Statements No.
333-44889, No. 333-41521 and No. 333-41515 on Form S-8 of Ampace Corporation of
our report dated March 12, 1998, except as to note 3 which is as of March 30,
1998, relating to the consolidated balance sheets of Ampace Corporation and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years then ended, which report is included in the December 31, 1997 annual
report on Form 10-KSB of Ampace Corporation.
KPMG Peat Marwick LLP
Little Rock Arkansas
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMPACE CORP. FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 539,165
<SECURITIES> 0
<RECEIVABLES> 4,238,267
<ALLOWANCES> 154,057
<INVENTORY> 0
<CURRENT-ASSETS> 5,689,513
<PP&E> 17,951,350
<DEPRECIATION> 7,805,091
<TOTAL-ASSETS> 18,131,446
<CURRENT-LIABILITIES> 6,792,446
<BONDS> 10,510,938
0
0
<COMMON> 7,476,182
<OTHER-SE> (2,414,300)
<TOTAL-LIABILITY-AND-EQUITY> 18,131,446
<SALES> 34,856,505
<TOTAL-REVENUES> 34,856,505
<CGS> 35,625,729
<TOTAL-COSTS> 35,625,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (855,688)
<INCOME-PRETAX> (1,492,988)
<INCOME-TAX> (236,448)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,256,540)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
