SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 000-20793
SMITHWAY MOTOR XPRESS CORP.
(Exact name of registrant as specified in its charter)
Nevada 42-1433844
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
Rural Route #5
Fort Dodge, Iowa 50501
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 515/576-7418
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
$0.01 Par Value Class A Common Stock
------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $20,452,209 as of March 1, 1997, (based upon the $9 3/8 per
share closing price on that date as reported by Nasdaq). In making this
calculation the registrant has assumed, without admitting for any purpose, that
all executive officers, directors, and holders of more than 5% of a class of
outstanding common stock, and no other persons, are affiliates.
As of March 1, 1997, the registrant had 3,999,293 shares of Class A Common Stock
and 1,000,000 shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement for the 1997 annual meeting of
stockholders that will be filed no later than April 30, 1997.
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Cross Reference Index
The following cross reference index indicates the document and location of the
information contained herein and incorporated by reference into the Form 10-K.
Document and Location
Part I
Item 1 Business Page 3 herein
Item 2 Properties Page 8 herein
Item 3 Legal Proceedings Page 9 herein
Item 4 Submission of Matters to a Vote of Security
Holders Page 9 herein
Part II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters Page 9 herein
Item 6 Selected Financial Data Page 10 herein
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 11 herein
Item 8 Financial Statements and Supplementary Data Page 17 herein
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure Page 17 herein
Part III
Item 10 Directors and Executive Officers of the
Registrant Page 2 of Proxy Statement
Item 11 Executive Compensation Page 4 of Proxy Statement
Item 12 Security Ownership of Certain Beneficial
Owners and Management Page 5 of Proxy Statement
Item 13 Certain Relationships and Related
Transactions Page 7 of Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K Pages 18 and 42 herein
Form 8-K
- ------------------------------------
This report contains "forward-looking statements" in paragraphs that
are marked with an asterisk. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
anticipated. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Cautionary Statement Regarding Forward-Looking
Statements" for additional information and factors to be considered concerning
forward-looking statements.
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PART I
ITEM 1. BUSINESS
The Company
Smithway Motor Xpress Corp. ("Smithway" or the "Company") is a
truckload carrier that provides nationwide transportation of diversified
freight, concentrating primarily on the flatbed segment of the truckload market.
The Company uses its "Smithway Network" of 24 computer-connected field offices,
commission agencies, and Company-owned terminals to offer comprehensive
truckload transportation services to shippers located predominantly between the
Rocky Mountains in the West and the Appalachian Mountains in the East, and in
eight Canadian provinces.
Smithway operated essentially as a local cartage company until the
early 1970's, when it acquired the assets and operating rights of another
carrier and began expanding its flatbed operation. From that time through the
early 1980's, the Company specialized in transporting building materials and
managed growth by balancing its fleet with approximately equal numbers of
Company-owned and independent contractor tractors. William G. Smith became
President of Smithway in 1984, when the Company's revenue was $26.4 million. Mr.
Smith led the Company's effort to diversify its customer and freight base, form
the Smithway Network of locations, and grow to the size that enabled it to be
named as a core carrier by major shippers. After achieving revenue of
approximately $50 million in 1991, management focused upon profitability and
implemented systems to support sustained growth and premium service.
After establishing an efficient growth platform, management commenced
the Company's acquisition strategy in 1995 to take advantage of economies of
scale, customer relationships, and other opportunities offered by industry
consolidation. Smithway acquired the operations of three trucking companies
between June 1995 and October 1996. The Company added a fourth acquisition in
February 1997. In each transaction, Smithway purchased specific assets for fair
market value and paid the selling company's owner a small percentage of revenue
for a noncompetition arrangement. The Company acquired the business of Van
Tassel, Inc., a primarily flatbed carrier based in Pittsburg, Kansas, in June
1995, and Smith Trucking Company, a primarily dry van carrier based in
McPherson, Kansas, in January 1996. Both of these acquisitions permitted
Smithway to expand and solidify existing customer relationships as well as
access new customers. The Smith Trucking location also expanded the Company's
driver recruiting region. In October 1996, the Company acquired the business of
Marquardt Transportation, Inc., a primarily flatbed carrier based in Yankton,
South Dakota, and with a small facility in Stockton, California. Marquardt
further diversified Smithway's freight base by increasing its presence in
hauling large, manufactured items and heavy machinery. In February 1997,
Smithway acquired Fort Dodge, Iowa-based Pirie Motor Freight, Inc. Pirie was a
small flatbed carrier, and its operations were consolidated into Smithway's
headquarters.
The Company's current Chairman, President, and CEO, William G. Smith
and his father, Harold C. Smith, acquired Acme Transfer, Inc., an Iowa
corporation, in 1958. In 1972, they changed its name to Smithway Motor Xpress,
Inc. ("Smithway-Iowa"). Smithway Motor Xpress Corp. was incorporated in Nevada
in January 1995 to serve as a holding company and conduct the Company's initial
public offering, which occurred in June 1996. References to the "Company" or
"Smithway" herein refer to the consolidated operations of Smithway Motor Xpress
Corp., a Nevada corporation ("Smithway-Nevada"), and its wholly owned
subsidiary, Smithway-Iowa. Former subsidiaries Smithway Transportation
Brokerage, Inc., an Iowa corporation, and Wilmar Truck Leasing, Inc., an Iowa
corporation, were merged into Smithway-Iowa in 1996.
Strategy
Smithway's objective is to accelerate the expansion of its operations.
Management believes that the flatbed and dry van truckload markets offer growth
opportunities because of several identifiable trends. Many major shippers are
reducing the number of carriers they use in favor of service-based, ongoing
relationships with
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a limited group of core carriers. These partnerships and the increasing use of
equipment and drivers dedicated to a single shipper's needs ("dedicated fleets")
are designed to ensure higher quality, more consistent service for shippers and
greater equipment utilization and more predictable revenue for core carriers.
Other shippers that own tractor-trailer fleets are outsourcing their
transportation requirements to truckload carriers to lower operating expenses
and conserve capital for core corporate purposes. This outsourcing has resulted
in some shippers eliminating their own trucks in favor of truckload carriers,
which, according to a study commissioned by the American Trucking Associations
Foundation, can provide similar service at approximately 25% less cost.
Deregulation and economies of scale also promote consolidation. Many truckload
carriers have grown rapidly since deregulation in 1980 and have achieved the
size to negotiate lifetime equipment warranties and obtain equipment, fuel,
insurance, financing, and other items for significantly less than smaller or
more leveraged competitors. Management believes that these trends favor large
carriers with modern fleets, excellent service, in-transit communication and
load tracking, good drivers, a strong safety record, adequate insurance, and a
strong capital base.
The Smithway growth strategy contains six key elements:
o Market Leadership. Smithway strives for market prominence by offering
a combination of premium service, equipment availability, and broad geographic
coverage in a highly fragmented flatbed market segment characterized primarily
by smaller, less diversified, and less technologically advanced carriers.
Management believes the Company's service standards, as well as core carrier and
dedicated fleet relationships with major shippers, support higher rates and
prevent diversion of freight by price-competitive carriers. Management believes
the flatbed market is less developed than the dry van segment, and that the
Company's size, service standards, and financial strength have positioned it to
take advantage of predicted market consolidation.(*)
o Diversified Freight. Smithway targets a diversified mix of freight.
Management believes that diversification can reduce exposure to certain
customers' or industries' business cycles. In addition, certain shipments
outside the construction materials most typically transported by flatbed
carriers can increase profitability. Smithway's diversified operations include
revenue generated by dry van, transportation logistics, brokerage, specialized
railroad service, and dedicated route operations, together with transporting
non-construction freight such as tires, machinery, and irrigation systems.
o Acquisitions. Smithway intends to continue acquisitions of both
flatbed and dry van carriers, focusing primarily on the flatbed sector of the
industry. Management believes that industry trends will further the Company's
acquisition strategy because smaller carriers will find it difficult to compete
with larger, better capitalized carriers such as Smithway. Management believes
that acquisitions can promote the Company's growth by providing access to
drivers, customer relationships, and diversified freight. Management believes
that consolidation in the truckload industry will accelerate in future years.(*)
o Return on Equity. Smithway emphasizes return on equity by limiting
capital investment and attempting to increase the utilization of its equipment.
The Company limits capital expenditures through the use of equipment owned by
independent contractors and facilities provided by commission sales agents. The
Company's participation in the flatbed market also reduces capital requirements
because flatbed operations generally require a lower ratio of trailers to
tractors than is required for van traffic.
o Productivity Incentives. Smithway seeks to create an entrepreneurial
environment for its personnel by compensating all independent contractors,
commission sales agents, and most flatbed drivers solely on a percentage of
revenue basis, and all Company sales personnel partially through percentage of
revenue bonuses. The majority of employees also participate in profits through
the Company's contributions to its 401(k) profit-sharing plan the ("401(k)
Plan") or ownership of Smithway Class A Common Stock formerly held by the
Company's Employee Stock Ownership Plan ("ESOP"). Effective January 1, 1997, the
ESOP was merged into the
- --------
(*) May contain "forward-looking" statements.
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401(k) Plan, and the Smithway stock was placed in an employer stock fund.
Management believes that these incentives invest its workforce with a direct
personal interest in each load.
o Operating Efficiencies. Smithway enhances operating efficiency
through freight-selection software, satellite-based communication, late-model
revenue equipment, and the Smithway Network. The Spectrum freight selection
software permits dispatchers to select freight based upon profitability and
compatibility with preferred routes. The Qualcomm satellite-based tracking and
communication system permits instantaneous location of equipment and
communication with drivers. Smithway operates a late-model tractor fleet (with
an average age of 21.4 months at December 31, 1996) to enhance fuel efficiency
and driver recruitment while reducing maintenance downtime.
Operations
Smithway integrates its sales and dispatch functions throughout its
computer-connected "Smithway Network." The Smithway Network consists of the
Company's headquarters in Fort Dodge, Iowa, and 23 field offices, independent
agencies, and terminals strategically located near major shippers to provide the
consistent, local contact with shipper personnel expected by many of the
Company's flatbed customers. The headquarters and 16 terminals and field offices
are managed by Smithway employees, while the 7 agencies are managed by
independent commission agents. The customer sales representatives and agents at
each location have front-line responsibility for booking freight and dispatching
all trucks in their regions. Fleet managers at the Fort Dodge, Iowa,
headquarters coordinate all load movements via computer link to optimize load
selection and promote proper fleet balance among regions. Personnel at the
Company's headquarters also handle all sales and dispatch functions for the van
division and for flatbed traffic that does not originate within a specific sales
region.
Agents are important to the Company's operations because they are the
primary contact for shippers within their region and have regular contact with
drivers and independent contractors. The Company's agents are paid a commission
on revenue they generate. Although agent contracts typically are cancelable on
14 days' notice, Smithway's agents average nearly ten years' tenure with the
Company. In addition to sales and customer service benefits, management believes
agents offer the advantage of minimizing capital investment and fixed costs,
because agents are responsible for all of their own expenses.
Customers and Marketing
Smithway's sales force includes six national sales representatives and
personnel at 17 terminals and field offices and 7 independent commission
agencies. National sales representatives focus on national customers and van
freight, while sales personnel at terminals, field offices and agencies are
responsible for regional customer contact. The Company's sales force emphasizes
rapid response time to customer requests for equipment, undamaged and on-time
pickup and delivery, one of the nation's largest fleets of flatbed equipment,
safe and professional drivers, logistics management, dedicated fleet capability,
and its strategically located Smithway Network. Management believes that few
other carriers operating principally in the Midwest flatbed market offer similar
size, service, and the reliability of a late-model fleet. Consequently, the
Company seeks primarily service-sensitive freight rather than competing for all
freight on the basis of price.
In 1996, the Company's top 50, 25, 10, and 5 customers accounted for
64.3%, 54.7%, 31.9%, and 21.2% of revenue, respectively, with more than 450
customers accounting for the remaining 35.7% of revenue. No single customer
accounted for more than 6.0% of Smithway's revenue during 1996.
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Technology
Management believes that advances in technology can enhance the
Company's operating efficiency and customer service. Three principal
technologies used by Smithway includes freight selection software,
satellite-based tracking and communication with trucks, and Electronic Data
Interchange ("EDI") with customers. In July 1993, the Company initiated the use
of the Spectrum freight selection software. Spectrum ranks each potential load
based upon rate per loaded mile, empty mile exposure, and history of obtaining a
profitable return load from the proposed destination.
Smithway has installed Qualcomm satellite-based tracking and
communication units in all of its Company-owned tractors and has offered rental
of these units as an option to its independent contractors. Management believes
on-board communication capability can reduce unnecessary stops and out-of-route
miles because drivers are not forced to find a telephone to contact the Company
or receive instructions. In addition, drivers can immediately report breakdowns
or other emergency conditions. The system also enables the Company to advise
customers of the location of freight in transit through its hourly position
reports of each tractor's location.
Smithway also offers its customers EDI technology. EDI allows
customers to communicate directly with the Company via computer link and, with
the aid of satellite communication, obtain location updates of in-transit
freight, expected delivery times, and account payment instructions.
Drivers, Independent Contractors, And Other Personnel
Smithway seeks drivers and independent contractors who safely manage
their equipment and treat freight transportation as a business. The Company
historically has operated a fleet comprised of substantial numbers of both
Company-owned and independent contractor tractors. Management believes a mixed
fleet offers competitive advantages because the Company is able to recruit from
both personnel pools to facilitate fleet expansion. The Company intends to
retain a mixed fleet in the future to insure that its recruiting efforts toward
either group are not damaged by becoming categorized as predominantly either a
Company-owned or independent contractor fleet, although acquisitions or other
factors may cause fluctuations in the fleet mix from time to time.
Smithway has implemented several policies to promote driver and
independent contractor recruiting and retention. These include maintaining an
open-door policy with easy access to senior executives, appointing an advisory
board comprised of top drivers and independent contractors to consult with
management, and assigning each driver and independent contractor to a particular
dispatcher to insure personal contact. In addition, the Company utilizes
conventional (engine-forward) tractors, which are more comfortable for the
driver, and operates over relatively short distances (568-mile average length of
haul in 1996) to return drivers home as frequently as possible.
Smithway is not a party to a collective bargaining agreement and its
employees are not represented by a union. At December 31, 1996, the Company had
434 Company drivers, 228 non-driver employees, and 404 independent contractors.
Management believes that the Company has good relationships with its employees
and independent contractors.
Safety and Insurance
Smithway's active safety and loss prevention program has resulted in a
"satisfactory" safety and fitness rating from the DOT (the highest rating) and
numerous driving awards. Its safety and loss prevention program includes,
pre-screening, initial orientation, six weeks on-the-road training for drivers
without substantial experience, 100% log monitoring, and safety bonuses.
The Company maintains insurance covering losses in excess of a $50,000
self-insured retention for cargo loss, personal injury, property damage, and
physical damage claims. The Company has a $100,000 deductible
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for workers' compensation claims in states where a deductible is allowed. Its
primary personal injury and property damage insurance policy has a limit of $2.0
million per occurrence, and the Company carries excess liability coverage, which
management believes is adequate to cover exposure to claims exceeding its
retention limit.
Revenue Equipment
Smithway's equipment strategy for its own tractors (as opposed to
independent contractors' tractors) is to operate late-model tractors and trade
or dispose of its tractors prior to the expiration of major component
warranties. Management believes that operating newer equipment can minimize
repair and maintenance expense and offer improvements in fuel efficiency.
Smithway orders conventional (engine forward) tractors with standard engine and
drivetrain components, and trailers with standard brakes and tires to minimize
its inventory of spare parts. All equipment is subject to the Company's regular
maintenance program, and is also inspected and maintained each time it passes
through a Smithway maintenance facility. Smithway's tractor fleet had an average
age of 21.4 months at December 31, 1996.
Competition
The truckload segment of the trucking industry is highly competitive
and fragmented, and no carrier or group of carriers dominates the flatbed or van
market. Smithway competes primarily with other regional, short-to-medium-haul
carriers and private truck fleets used by shippers to transport their own
products in proprietary equipment. The Company competes to a limited extent with
rail and rail-truck intermodal service, but attempts to limit this competition
by seeking service-sensitive freight, focusing on short-to-medium lengths of
haul (568-mile average) and emphasizing destinations not conveniently or
expeditiously served by rail. Although management believes the 1,252 flatbed
trailers it operated at December 31, 1996, rank its flatbed division among the
ten largest such fleets in that industry segment, there are other trucking
companies, including diversified carriers with large flatbed fleets, that
possess substantially greater financial resources and operate more equipment
than Smithway.
Fuel Availability and Cost
The Company actively manages its fuel costs. Company drivers purchase
virtually all of the Company's fuel through service centers with which Smithway
has volume purchasing arrangements. In addition, management periodically enters
into futures contracts on heating oil, which is derived from the same petroleum
products as diesel fuel, in an effort to partially hedge increases in fuel
prices. The Company historically has recovered most increases in fuel prices and
taxes by passing the costs through to customers in the form of higher rates,
although short-term price increases may not be recovered. Most of the Company's
shipping contracts contain clauses permitting fuel surcharges. The Company
implemented surcharges with many major customers, in response to increases in
fuel prices in 1996.
Regulation
Historically, the Interstate Commerce Commission ("ICC") and various
state agencies regulated motor carriers' operating rights, accounting systems,
mergers and acquisitions, periodic financial reporting, and other matters. In
1995, federal legislation preempted state regulation of prices, routes, and
services of motor carriers and eliminated the ICC. Several ICC functions were
transferred to the Department of Transportation ("DOT"). Management does not
believe that regulation by the DOT or by the states in their remaining areas of
authority will have a material effect on the Company's operations. The Company's
drivers and independent contractors must comply with the safety and fitness
regulations promulgated by the DOT, including those relating to drug and alcohol
testing and hours of service.
The Company's operations are subject to various federal, state, and
local environmental laws and regulations, implemented principally by the EPA and
similar state regulatory agencies, governing the management of hazardous wastes,
other discharge of pollutants into the air and surface and underground waters,
and the
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disposal of certain substances. The Company transports certain commodities that
may be deemed hazardous substances, and its Fort Dodge, Iowa, headquarters has
an above-ground fuel storage tank and fueling facility. If the Company should be
involved in a spill or other accident involving hazardous substances, if any
such substances were found on the Company's properties, or if the Company were
found to be in violation of applicable laws and regulations, the Company could
be responsible for clean-up costs, property damage, and fines or other
penalties, any one of which could have a materially adverse effect on the
Company. Smithway does not have underground fuel storage tanks at any of its
properties, and the above-ground fuel tank at Fort Dodge, installed in 1990, is
the only fueling site at a Company location. Management believes that its
operations are in material compliance with current laws and regulations and does
not know of any existing condition that would cause compliance with applicable
environmental regulations to have a material effect on the Company's capital
expenditures, earnings, or competitive position. If the Company should fail to
comply with applicable regulations, the Company could be subject to substantial
fines or penalties and to civil or criminal liability.(*)
ITEM 2. PROPERTIES
Smithway's headquarters consists of 21,000 square feet of office space
and 44,800 square feet of equipment maintenance and wash facilities, located on
31 acres near Fort Dodge, Iowa. Driver recruitment activity takes place at Fort
Dodge, Iowa; Joplin, Missouri; Oklahoma City, Oklahoma; Yankton, South Dakota;
and Youngstown, Ohio. Maintenance and repair shops are operated at Fort Dodge,
Joplin, and Yankton. Of the 19 locations at which sales and dispatch functions
are performed, 11 are located in or near truckstops, to afford drivers and
independent contractors access to required facilities without capital investment
by Smithway.
<TABLE>
The Smithway Network consists of locations in or near the following
cities:
<CAPTION>
Company Locations Ownership Agent Locations
<S> <C> <C>
Chicago, Illinois............................ Owned Cedar Rapids, Iowa
Dallas, Texas................................ Leased<F1> Cincinnati, Ohio
Denver, Colorado............................. Leased<F1> Detroit, Michigan
Fort Dodge, Iowa............................. Owned Hennepin, Illinois
Joplin, Missouri............................. Owned Houston, Texas
Kansas City, Missouri........................ Leased<F1> Norfolk, Nebraska
McPherson, Kansas............................ Leased Toledo, Ohio
Memphis, Tennessee........................... Leased
Montgomery, Alabama.......................... Leased
Oklahoma City, Oklahoma...................... Owned
Oshkosh, Wisconsin........................... Leased<F1>
Philadelphia, Pennsylvania................... Leased<F1>
Stockton, California......................... Leased<F1>
St. Louis, Missouri.......................... Leased<F1>
St. Paul, Minnesota.......................... Leased<F1>
Yankton, South Dakota........................ Leased
Youngstown, Ohio............................. Leased<F1>
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<FN>
<F1> Month-to-month leases.
</FN>
</TABLE>
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(*) May contain "forward-looking" statements.
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ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is a party to litigation arising in the
ordinary course of its business, substantially all of which involves claims for
personal injury and property damage incurred in the transportation of freight.
The Company is not aware of any claims or threatened claims that might have a
materially adverse effect upon its operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 1996,
no matters were submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock. The Company's Class A common stock has
been traded on the Nasdaq National Market, under the symbol SMXC, since June 27,
1996, the date of the Company's initial public offering. The following table
sets forth for the calendar periods indicated the range of high and low bid
quotations for the Company's Class A common stock as reported by Nasdaq from
June 27, 1996, to December 31, 1996.
<TABLE>
<CAPTION>
Period High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
Calendar Year 1996
2nd Quarter (from June 27, 1996) $ 8 1/2 $ 8 1/2
3rd Quarter $ 8 1/2 $ 7 1/2
4th Quarter $ 9 3/8 $ 8
</TABLE>
The prices reported reflect interdealer quotations without retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
As of March 1, 1997, the Company had 42 stockholders of record of its Class A
common stock. However, the Company believes that many additional holders of
Class A common stock are unidentified because a substantial number of the
Company's shares are held of record by brokers or dealers for their customers in
street names.
Dividend Policy. The Company has never declared and paid a cash
dividend on its Class A common stock. It is the current intention of the
Company's Board of Directors to continue to retain earnings to finance the
growth of the Company's business rather than to pay dividends. Future payments
of cash dividends will depend upon the financial condition, results of
operations and capital commitments of the Company, restrictions under
then-existing agreements, and other factors deemed relevant by the Board of
Directors.
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<TABLE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
<CAPTION>
Years Ended December 31,
1992 1993 1994 1995 1996
---------------------------------------------
(in thousands, except per share and operating data amounts)
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenue ........... $56,073 $59,931 $69,180 $77,339 $93,667
Operating expenses:
Purchased transportation ... 23,131 23,797 27,420 31,621 37,386
Compensation and employee
benefits ................. 13,039 13,840 15,877 17,182 20,800
Fuel, supplies, and
maintenance .............. 8,054 8,876 9,368 10,183 12,347
Insurance and claims ....... 2,236 2,318 2,238 1,827 1,995
Taxes and licenses ......... 1,346 1,492 1,454 1,588 1,856
General and administrative . 3,050 3,357 3,512 3,592 4,214
Communications and utilities 563 543 585 758 971
Depreciation and
amortization .............. 2,551 2,821 2,774 3,879 5,740
-------------------------------------------------
Total operating expenses . 53,970 57,044 63,228 70,630 85,309
-------------------------------------------------
Total operating income ... 2,103 2,887 5,952 6,709 8,358
Interest expense (net) ....... 1,345 1,179 966 1,225 1,548
-------------------------------------------------
Earnings before income taxes
and accounting change ...... 758 1,708 4,986 5,484 6,810
Income taxes ................. 228 603 1,879 2,393 2,860
Accounting change ............ -- 86 -- -- --
-------------------------------------------------
Net earnings ................. 530 1,019 3,107 3,091 3,950
Pro Forma Data:
Pro forma provision for
income taxes <F1> ........... 155 177 232 -- --
-------------------------------------------------
Pro forma net earnings <F1> .. $ 375 $ 842 $ 2,875 $ 3,091 $ 3,950
=================================================
Pro forma net earnings per
common share <F1><F2> ....... $ 0.11 $ 0.25 $ 0.82 $ 0.88 $ 0.93
=================================================
Pro forma weighted averages
shares outstanding<F2> ...... 3,430,524 3,428,270 3,498,212 3,524,042 4,249,890
Operating Data<F3>:
Operating ratio<F4> ......... 96.3% 95.2% 91.4% 91.3% 91.1%
Adjusted operating ratio<F4>. 93.2% 92.9% 89.6% 88.5% 88.9%
Average revenue per tractor
per week ................... $ 2,015 $ 2,129 $ 2,272 $ 2,160 $ 2,243
Average revenue per loaded
mile ....................... $ 1.30<F5> $1.33 $ 1.39 $ 1.38 $ 1.37
Empty miles percentage ...... 16.0 15.5 15.1 15.1 15.3%
Average length of haul in
miles ...................... 599 583 571 563 568
Company tractors at end of
period ..................... 261 288 302 376 458
Independent contractor
tractors at end of period .. 229 219 258 303 406
Weighted average tractors
during period .............. 489 497 532 619 747
Trailers at end of period ... 818 814 911 1,167 1,492
Balance Sheet Data (at end of
period):
Working capital (deficit) ... $ (2,835) $ (2,236) $ 371 $ 2,516 $ 1,893
Net property and equipment .. 12,771 14,211 15,824 27,843 39,170
Total assets ................ 20,471 22,569 25,229 40,702 55,330
Long-term debt, including
current maturities ......... 9,744 10,899 11,775 23,219 15,904
Total stockholders' equity .. 2,050 2,513 4,789 7,871 24,193
- ------------------------------------
<FN>
<F1> Adjusted to reflect a provision for pro forma income taxes for certain
related entities acquired by Smithway, the earnings of which were not
subject to corporate income. Such transactions were accounted for in a
manner similar to a pooling of interests. See Notes 1 and 14 to
Consolidated Financial Statements.
<F2> Adjusted to reflect the issuance of 3,513,697 shares of Common Stock by
the Company in the formation of the holding company and acquisition of
the related entities referred to in Note (1) above. See Note 1 to
Consolidated Financial Statements.
<F3> Excludes brokerage activities except as to operating ratio.
<F4> Operating expenses as a percentage of operating revenue. The Company
finances some of its revenue equipment under operating leases rather
than through debt financing or capitalized leases and utilizes
independent contractors whose compensation includes the implied cost of
financing the equipment owned by them. As a result, the financing costs
associated with such equipment are characterized as operating expenses.
The Company's Adjusted Operating Ratio removes such implied financing
costs from operating expenses. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a more
complete explanation of Adjusted Operating Ratio.
<F5> Net of fuel surcharges.
</FN>
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company focused upon net earnings growth during the period from
1991 to 1995. During that period, management emphasized conservative revenue
growth and improved profitability, while implementing systems to support
sustained growth. After establishing a more efficient base, in 1995 and
continuing through 1996 the Company increased its rate of revenue growth. The
Company expanded internally and through acquisitions of the assets and business
of three trucking companies. In addition, the Company concluded its initial
public offering on July 2, 1996, and used the approximately $10.7 million in net
proceeds, after deducting underwriting discounts and offering expenses, to
reduce outstanding debt. The Company's revenue grew 35.4% from 1994 to 1996.
Net earnings improved 27.1% and net earnings per share 13.4% over the same
period.
The Company operates a fleet comprised of both Company-owned revenue
equipment and revenue equipment owned by independent contractors. Using
independent contractors reduces fixed costs, capital requirements, and revenue
equipment debt. This can improve the Company's return on equity. The use of
independent contractors affects the Company's expense categories by increasing
purchased transportation while decreasing compensation and employee benefits;
fuel, supplies, and maintenance; insurance and claims; and depreciation. In
addition, the independent contractors' implied financing costs for their
equipment and the implied interest component of operating leases are reflected
as operating expenses (purchased transportation) rather than interest expense,
which negatively impacts the Company's operating ratio. As a result, management
evaluates the Company's operating efficiency through the Company's "Adjusted
Operating Ratio." The Adjusted Operating Ratio is calculated by assuming that
all tractors and trailers obtained from independent contractors and under
operating leases were Company-owned equipment having a value equal to the
average net book value of the tractors and trailers owned by the Company, with
such amount financed at an interest rate equal to the average interest rate on
the Company's equipment debt. The average net book value of the Company-owned
tractors and the weighted average number of tractors provided by both
independent contractors and third-party lessors, respectively, were $34,271 and
391 in 1992, $40,846 and 374 in 1993, $36,649 and 366 in 1994, $64,371 and 380
in 1995, and $59,094 and 423 in 1996. The average net book value of the
Company-owned trailers and the weighted average number of trailers provided by
both independent contractors and third-party lessors, respectively, were $9,092
and 241 in 1992, $7,587 and 236 in 1993, $8,437 and 247 in 1994, $9,843 and 316
in 1995, and $13,408 and 375 in 1996. The Company's average interest rate on
equipment debt in such years was 11.1%, 7.9%, 7.8%, 7.8%, and 7.5%. The amount
of assumed interest expense is subtracted from operating expenses to produce an
operating ratio that excludes financing costs. The total amount of assumed
interest expense subtracted from operating expenses was approximately $1.7
million, $1.3 million, $1.2 million, $2.2 million, and $2.3 million in each of
1992 through 1996, respectively. Management believes that the Company's Adjusted
Operating Ratio reflects operating efficiency more accurately than its operating
ratio because the Adjusted Operating Ratio excludes the effects of fluctuating
numbers of independent contractors and assets obtained under operating leases.
The Company's effective income tax rate reflected herein and in its
Consolidated Financial Statements is different from the combined federal and
state expected tax rate for a corporation headquartered in Iowa. In 1992, the
Company began absorbing driver per diem travel expenses, a significant portion
of which are not deductible and inflate the Company's effective tax rate. The
impact of the Company's paying driver per diem travel expenses varies depending
upon the ratio of drivers to independent contractors and the Company's net
earnings. In addition, prior to 1995, the Company's effective tax rate was
affected because the net earnings of two former affiliated entities that were
not subject to corporate income taxes were combined with the Company's net
earnings because of common ownership. The Company acquired the entities
effective January 31, 1995, and since such date has paid corporate taxes on the
pretax earnings attributable to such entities. The pro forma provision for
income taxes reflected in this report reflects the income taxes that would have
been payable on the pretax earnings of such entities.
11
<PAGE>
Results of Operations
<TABLE>
The following table sets forth the percentage relationship of certain
items to revenue for the periods indicated:
<CAPTION>
1994 1995 1996
----------------------------
<S> <C> <C> <C>
Operating revenue............................. 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation............. 39.6 40.9 39.9
Compensation and employee benefits. . 23.0 22.2 22.2
Fuel, supplies, and maintenance...... 13.5 13.2 13.2
Insurance and claims................ 3.2 2.4 2.1
Taxes and licenses................... 2.1 2.1 2.0
General and administrative........... 5.1 4.6 4.5
Communication and utilities.......... 0.8 1.0 1.0
Depreciation and amortization........ 4.0 5.0 6.1
----------------------------
Total operating expenses............. 91.4 91.3 91.1
----------------------------
Earnings from operations...................... 8.6 8.7 8.9
Interest expense (net)........................ 1.4 1.6 1.7
----------------------------
Earnings before income taxes.................. 7.2 7.1 7.3
Income taxes including pro forma provision for
income taxes................................. 3.0 3.1 3.1
----------------------------
Pro forma net earnings........................ 4.2% 4.0% 4.2%
============================
</TABLE>
Comparison of year ended December 31, 1996 to year ended December 31, 1995.
Operating revenue increased $16.3 million (21.1%), to $93.7 million in
1996 from $77.3 million in 1995. The revenue increase resulted primarily from a
20.7% increase in weighted average tractors, to 747 in 1996 from 619 during 1995
as the Company expanded internally to meet customer demand and acquired the
business of Smith Trucking, Inc. in January 1996, and Marquardt Transportation,
Inc. in October 1996. Equipment utilization (miles per tractor) increased 3.1%
in 1996 over 1995. In addition, revenue from the Company's brokerage division
increased 0.6%, to $6.4 million in 1996. These factors were offset by a decrease
in revenue per loaded mile to $1.37 in 1996 from $1.38 in 1995, including fuel
surcharge revenue of $473,000 in 1996. Revenue per tractor per week (excluding
revenue from brokerage operations) increased 3.8%, to $2,243 in 1996 from $2,160
in 1995.
Purchased transportation increased $5.8 million (18.2%), to $37.4
million in 1996 from $31.6 million in 1995. As a percentage of revenue,
purchased transportation decreased to 39.9% in 1996 from 40.9% in 1995, as a
reduction in the number of tractors financed under operating leases more than
offset a slight increase in the percentage of revenue generated by independent
contractors. Compensation and employee benefits increased $3.6 million (21.1%),
to $20.8 million in 1996 from $17.2 million in 1995, but remained unchanged as a
percentage of revenue. An increase in non-driver employees as a result of
acquisitions offset a slight decline in the percentage of revenue produced by
Company-owned tractors.
Fuel, supplies, and maintenance increased $2.1 million (21.3%), to
$12.3 million in 1996 from $10.2 million in 1995. As a percentage of revenue,
fuel, supplies, and maintenance remained constant at 13.2% in 1996 and 1995, as
reduced repair and maintenance expense attributable to a newer Company-owned
tractor fleet was offset by higher average fuel costs. The Company's average
fuel cost increased to $1.18 per gallon in 1996 from $1.08 in 1995.
Insurance and claims increased $168,000 (9.2%), to $2.0 million in 1996
from $1.8 million in 1995. As a percentage of revenue, insurance and claims
decreased to 2.1% of revenue in 1996 from 2.4% in 1995, as the Company reduced
its self-retention without a corresponding increase in premiums paid.
12
<PAGE>
Taxes and licenses increased $268,000 (16.9%), to $1.9 million in 1996
from $1.6 million in 1995. As a percentage of revenue, taxes and licenses
decreased to 2.0% of revenue in 1996 from 2.1% in 1995, as the Company hauled
fewer loads requiring special permits.
General and administrative expenses increased $622,000 (17.3%), to $4.2
million in 1996 from $3.6 million in 1995. As a percentage of revenue, general
and administrative expenses decreased to 4.5% of revenue in 1996 from 4.6% in
1995, as the percentage of revenue generated by the Company's employees
increased and the percentage of revenue generated by Smithway's independent
commission agents and third-party freight brokers (who receive commissions
larger than the revenue bonuses received by the Company's employees) decreased.
In addition, certain fixed costs remained constant while revenue increased.
Communications and utilities increased $213,000 (28.1%), to $971,000 in
1996 from $758,000 in 1995. As a percentage of revenue, communications and
utilities remained constant at 1.0% of revenue.
Depreciation and amortization increased $1.9 million (48.0%), to $5.7
million in 1996 from $3.9 million in 1995. As a percentage of revenue,
depreciation and amortization increased to 6.1% of revenue in 1996 from 5.0% in
1995. The increase was attributable to a newer fleet of Company-owned tractors
and trailers, which increased the cost of the equipment being depreciated, and
an increase in Company tractors financed with borrowing rather than operating
leases. These factors were partially offset by an increase in revenue per
tractor.
As a result of the foregoing, the Company's operating ratio improved to
91.1% in 1996 from 91.3% in 1995. The Company's Adjusted Operating Ratio was
88.9% in 1996 compared with 88.5% in 1995.
Interest expense increased $323,000 (26.4%), to $1.5 million in 1996
from $1.2 million in 1995. As a percentage of revenue, interest expense
increased to 1.7% of revenue in 1996 from 1.6% in 1995, because increased
average debt balances associated with expanding the fleet of Company-owned
tractors and trailers ($19.7 million in 1996 compared with $17.4 million in
1995), more than offset lower average interest rates 7.5% in 1996 compared with
8.4% in 1995) and reduction of debt with the approximately $10.7 million net
proceeds of the Company's initial public offering.
The Company's effective tax rate was 42.0% in 1996 (3.1% of revenue),
compared with 43.6% in 1995 (3.1% of revenue) in each case including the cost of
nondeductible driver per diem expense absorbed by the Company.
As a result of the factors described above, net earnings increased to
$4.0 million in 1996 (4.2% of revenue) from net earnings of $3.1 million in 1995
(4.0% of revenue).
Comparison of year ended December 31, 1995 to year ended December 31, 1994.
Operating revenue increased $8.2 million (11.8%), to $77.3 million in
1995 from $69.2 million in 1994. The revenue increase resulted primarily from a
16.4% increase in weighted average tractors, to 619 in 1995 from 532 during 1994
as the Company expanded to meed demand and a 32.8% increase in revenue from the
Company's brokerage division, to $6.3 million. Revenue per loaded mile and empty
miles percentage remained essentially constant in 1994 and 1995. Revenue per
tractor per week declined 4.9%, to $2,160, in 1995 as overcapacity in the
truckload industry and a slowing economy reduced productivity.
Purchased transportation increased $4.2 million (15.3%), to $31.6
million in 1995 from $27.4 million in 1994. As a percentage of revenue,
purchased transportation increased to 40.9% in 1995 from 39.6% in 1994.
Purchased transportation increased as revenue from the brokerage division and
associated expenses increased faster than revenue from Company-transported
loads. Compensation and employee benefits increased $1.3 million (8.2%) to $17.2
million in 1995 from $15.9 million in 1994. As a percentage of revenue, the
decrease to 22.2% in 1995 from 23.0% in 1994 was principally a result of a
decrease in workers' compensation expense attributable to lower premiums
negotiated by management.
13
<PAGE>
Fuel, supplies, and maintenance increased $815,000 (8.7%), to $10.2
million in 1995 from $9.4 million in 1994. As a percentage of revenue, fuel,
supplies, and maintenance decreased to 13.2% in 1995 from 13.5% in 1994,
reflecting reduced repair and maintenance expense attributable to a newer
Company-owned tractor fleet and lower average fuel costs as a result of more
efficient use of a fuel provider network. The Company's average fuel cost
decreased to $1.08 per gallon in 1995 from $1.10 in 1994.
Insurance and claims decreased $411,000 (18.4%), to $1.8 million in
1995 from $2.2 million in 1994. As a percentage of revenue, insurance and claims
decreased to 2.4% of revenue in 1995 from 3.2% in 1994, as the Company's safety
record resulted in premium reductions while revenue increased.
Taxes and licenses increased $134,000 (9.2%), to $1.6 million in 1995
from $1.5 million in 1994. As a percentage of revenue, taxes and licenses
remained constant at 2.1% of revenue during each period.
General and administrative expenses increased $80,000 (2.3%), to $3.6
million in 1995 from $3.5 million in 1994. As a percentage of revenue, general
and administrative expenses decreased to 4.6% of revenue in 1995 from 5.1% in
1994, as the percentage of revenue generated by the Company's employees
increased and the percentage of revenue generated by Smithway's independent
commission agents and third-party freight brokers (who receive commissions
larger than the revenue bonuses received by the Company's employees) decreased.
In addition, certain fixed costs remained constant while revenue increased.
Communications and utilities increased $173,000 (29.6%), to $758,000 in
1995 from $585,000 in 1994. As a percentage of revenue, communications and
utilities increased to 1.0% of revenue in 1995 from 0.8% in 1994, as the Company
equipped substantially all of its Company-owned tractors with Qualcomm
satellite-based tracking and communications systems.
Depreciation and amortization increased $1.1 million (39.8%), to $3.9
million in 1995 from $2.8 million in 1994. As a percentage of revenue,
depreciation and amortization increased to 5.0% of revenue in 1995 from 4.0% in
1994. The increase was attributable to a newer fleet of Company-owned tractors
and trailers, and the addition of Qualcomm units, both of which increased the
cost of the equipment being depreciated. Also contributing to the increase in
depreciation were decreases in revenue per tractor and gain on sale of revenue
equipment to $96,000 in 1995 from $437,000 in 1994 also contributed as the
Company's replacement cycle resulted in the disposal of fewer tractors and
trailers.
As a result of the foregoing, the Company's operating ratio improved to
91.3% in 1995 from 91.4% in 1994. The Company's Adjusted Operating Ratio was
88.5% in 1995 compared with 89.6% in 1994.
Interest expense increased $259,000 (26.8%), to $1.2 million in 1995
from $966,000 in 1994. As a percentage of revenue, interest expense increased to
1.6% of revenue in 1995 from 1.4% in 1994, because increased average debt
balances associated with expanding the fleet of Company-owned tractors and
trailers ($17.4 million in 1995 compared with $11.0 million in 1994), more than
offset lower average interest rates (8.4% in 1995 compared with 9.1% in 1994).
In addition, lower revenue per tractor affected this fixed cost as a percentage
of revenue.
The Company's effective tax rate was 43.6% in 1995 (3.1% of revenue),
compared with 42.3% in 1994 (3.0% of revenue, including pro forma provision for
income taxes), in each case including the cost of nondeductible driver per diem
expense absorbed by the Company.
As a result of the factors described above, net earnings increased to
$3.1 million in 1995 (4.0% of revenue) from pro forma net earnings of $2.9
million in 1994 (4.2% of revenue).
14
<PAGE>
Liquidity and Capital Resources
The growth of the Company's business has required significant
investments in new revenue equipment. Smithway historically has financed its
revenue equipment requirements with borrowings under installment notes payable
to commercial lending institutions and equipment manufacturers, borrowings under
a $5.75 million line of credit, cash flow from operations, equipment leases from
third-party lessors, funds provided by its initial public offering in June 1996,
and through the use of independent contractors. The Company's primary sources of
liquidity currently are funds provided by operations and borrowings under credit
agreements with financial institutions and equipment manufacturers.(*)
Net cash provided by operating activities was $7.0 million, $6.5
million, and $7.1 million for the years ended December 31, 1994, 1995, and 1996,
respectively. The Company's principal use of cash from operations is to service
debt and internally finance accounts receivable associated with growth in the
business. Customer accounts receivable increased $993,000, $404,000, and $4.0
million for the years ended December 31, 1994, 1995, and 1996, respectively. The
average age of the Company's accounts receivable was approximately 30 days for
each of 1994, 1995, and 1996.
Net cash provided by (used in) investing activities was $81,000, ($2.6
million), and ($8.4 million) for the years ended December 31, 1994, 1995, and
1996, respectively. In each instance, the investing activities related primarily
to purchases, sales, and trades of revenue equipment. The Company expects
capital expenditures (primarily for revenue equipment and satellite-based
tracking and communication units), net of revenue equipment sales and trade-ins,
to be approximately $12.3 million for 1997. Such projected capital expenditures
will be funded with cash flow from operations, borrowings, or operating leases.
In prior years, substantially all revenue equipment additions were financed
through borrowing or leasing transactions.(*)
Net cash used in financing activities of ($7.5 million), ($2.1
million), and ($766,000), for the years ended December 31, 1994, 1995, and 1996,
respectively, consisted primarily of net payments of $3.9 million, $1.7 million,
and $16.1 million of principal under the Company's long-term debt agreements and
net borrowings (payments) of ($3.3 million), $0, and $4.5 million under the
Company's line of credit.
The maximum amount available under the Company's primary line of credit
at December 31, 1996, was $5.75 million, on which the Company had drawn $4.5
million. The interest rate on the line of credit is .5% above the bank's prime
rate. The line of credit is collateralized by accounts receivable and inventory.
At December 31, 1996, the Company had outstanding long-term debt (including
current maturities) consisting of approximately $15.9 million, most of which was
comprised of obligations for the purchase of revenue equipment. Interest rates
on this debt range from 5.67% to 7.9%, and the principal amounts mature at
various dates through July 2001.
Although the Company historically has experienced a working capital
deficit common to many truckload carriers that have expanded by financing
revenue equipment purchases, management believes that the Company's working
capital deficits have had little impact upon liquidity. Management believes that
available borrowings under the line of credit, future revenue equipment
borrowings or leases, and cash flow generated from operations will meet its
working capital requirements, anticipated capital expenditures, and obligations
under operating leases at least through 1997.(*)
- --------
(*) May contain "forward-looking" statements.
15
<PAGE>
Inflation and Fuel Costs
Most of the Company's operating expenses are inflation-sensitive, with
inflation generally producing increased costs of operation. With the exception
of occasional fuel price increases, inflation has had a minimal effect upon the
Company's profitability in recent years. In 1996, a sharp increase in fuel
prices occurred nationwide as a result of a perceived shortage in supply. The
Company historically has been able to pass through most long-term increases in
fuel prices and taxes to customers in the form of surcharges and higher rates.
Shorter-term increases are not fully recovered. As of December 31, 1996, the
Company had entered into fuel surcharge agreements with [the majority] of its
customers. The surcharges recovered approximately 27.3% of the increase in fuel
prices. The fuel surcharges are adjusted weekly based on the national weekly
average price of diesel fuel published by the Department of Energy. Management
expects to maintain the fuel surcharges and seek additional rate increases.
Seasonality
In the trucking industry, results of operations show a seasonal pattern
because customers generally reduce shipments during the winter season, and the
Company experiences some seasonality due to the open, flatbed nature of the
majority of its trailers. The Company at times has experienced delays in meeting
its shipment schedules as a result of severe weather conditions, particularly
during the winter months. In addition, the Company's operating expenses
historically have been higher in the winter months due to decreased fuel
efficiency and increased maintenance costs in colder weather.
Cautionary Statement Regarding Forward-Looking Statements
The Company may from time-to-time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission, in press releases, and in reports
to stockholders. The Private Securities Litigation Reform Act of 1995 contains a
safe harbor for forward-looking statements. The Company relies on this safe
harbor in making such disclosures. In connection with this "safe harbor"
provision, the Company is hereby identifying important factors that could cause
actual results to differ materially from those contained in any forward-looking
statement made by or on behalf of the Company. Factors that might cause such a
difference include, but are not limited to, the following:
Economic Factors; Fuel Prices. Negative economic factors such as
recessions, downturns in customers' business cycles, surplus
inventories, inflation, and higher interest rates could impair the
Company's operating results by decreasing equipment utilization or
increasing costs of operations. Increases in fuel prices usually are
not fully recovered. Accordingly, high fuel prices can have a negative
impact on the Company's profitability.
Resale of Used Revenue Equipment. The Company historically has
recognized a gain on the sale of its revenue equipment. The market for
used equipment has experienced greater supply than demand in 1995 and
1996. If the resale value of the Company's revenue equipment were to
decline, the Company could find it necessary to dispose of its
equipment at lower prices or retain some of its equipment longer, with
a resulting increase in operating expenses.
Recruitment, Retention, and Compensation of Qualified Drivers and
Independent Contractors. Competition for drivers and independent
contractors is intense in the trucking industry. There is, and
historically has been, an industry-wide shortage of qualified drivers
and independent contractors. This shortage could force the Company to
significantly increase the compensation it pays to driver employees and
independent contractors or curtail the Company's growth.
Competition. The trucking industry is highly competitive and
fragmented. The Company competes with other truckload carriers,
private fleets operated by existing and potential customers, and to
some extent railroads and rail -intermodal service. Competition is
based primarily on service, efficiency, and freight
16
<PAGE>
rates. Many competitors offer transportation service at lower rates
than the Company. The Company's results could suffer if it cannot
obtain higher rates than competitors that offer a lower level of
service.
Acquisitions. A significant portion of the Company's growth since June
1995 has occurred through acquisitions, and acquisitions are an
important component of the Company's growth strategy. Management must
continue to identify desirable target companies and negotiate, finance
and close acceptable transactions or the Company's growth could suffer.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
The Company's audited financial statements, including its consolidated
balance sheets and consolidated statements of earnings, cash flows, and
stockholders' equity, and notes related thereto, are included at pages 23 to 42
of this report. The supplementary quarterly financial data follow:
Quarterly Financial Data:
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
1995 1995 1995 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Operating revenue ........... 18,273 19,075 20,695 19,297
Earnings from operations .... 1,680 1,775 2,016 1,239
Earnings before income taxes. 1,503 1,721 832
Income taxes ................ 617 650 689 439
Net earnings ................ 813 853 1,032 393
Net earnings per share...... $ 0.23 $ 0.24 $ 0.29 $ 0.11
<S> <C> <C> <C> <C>
------ ------ ------ ------
First Second Third Fourth
Quarter Quarter Quarter Quarter
1996 1996 1996 1996
------ ------ ------ ------
Operating revenue............ 19,860 23,411 24,937 25,459
Earnings from operations..... 1,296 2,524 2,534 2,005
Earnings before income taxes. 882 1,972 2,294 1,662
Income taxes................. 369 818 964 710
Net earnings................. 513 1,154 1,330 952
Net earnings per share....... $ 0.15 $ 0.33 $ 0.27 $ 0.19
</TABLE>
As a result of rounding, the total of the four quarters may not equal the
Company's results for the full year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four months
prior to December 31, 1996, involving a change of accountants or disagreements
on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information respecting executive officers and directors set forth
under the captions "Election of Directors Information Concerning Directors and
Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" on pages 2, 3, and 4 of the Registrant's Proxy Statement for the
1997 annual meeting of stockholders, which will be filed with the Securities and
Exchange Commission in accordance with Rule 14a-6 promulgated under the
Securities Exchange Act of 1934, as amended (the "Proxy Statement") is
incorporated by reference.
17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information respecting executive compensation set forth under the
caption "Executive Compensation" on page 4 of the Proxy Statement is
incorporated herein by reference; provided, that the "Compensation Committee
Report on Executive Compensation" contained in the Proxy Statement is not
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information respecting security ownership of certain beneficial
owners and management set forth under the caption "Security Ownership of
Principal Stockholders and Management" on page 6 of the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information respecting certain relationships and transactions of
management set forth under the captions "Compensation Committee Interlocks and
Insider Participation" on page 3 and "Certain Transactions" on page 7 of the
Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The Company's audited financial statements are set forth at the
following pages of this report:
Page
Independent Auditors' Report............................................. 22
Consolidated Balance Sheets.............................................. 23
Consolidated Statements of Earnings...................................... 25
Consolidated Statements of Stockholders' Equity......................... 26
Consolidated Statements of Cash Flows.................................... 27
Notes to Consolidated Financial Statements............................... 29
2. Financial Statement Schedules.
Financial statement schedules are not required because all required
information is included in the financial statements.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter ended
December 31, 1996.
18
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C> <C>
1 <F1> Form of Underwriting Agreement.
2.1 <F1> Exchange Agreement dated as of March 1, 1995, among William G.
and Marlys L. Smith, William G. Smith d/b/a Smith Leasing, G.
Larry Owens, Smithway Motor Xpress, Inc. Employee Stock Ownership
Plan and Trust, and Smithway Motor Xpress Corp., a Nevada
corporation.
2.2 <F1> Asset Purchase Agreement dated May 31, 1995, among Smithway Motor
Xpress, Inc., Van Tassel, Inc., Teresa Van Tassel and Douglas
Van Tassel.
2.3 <F1> Amendment No. 1 to Exchange Agreement dated as of June 29, 1995,
among William G. and Marlys L. Smith, William G. Smith d/b/a Smith
Leasing, G. Larry Owens, Smithway Motor Xpress, Inc. Employee Stock
Ownership Plan and Trust, and Smithway Motor Xpress Corp., a Nevada
corporation.
2.4 <F1> Asset Purchase Agreement dated January 10, 1996, among Smithway
Motor Xpress, Inc., an Iowa corporation, Smith Trucking Company, a
Kansas corporation, and Delmar Smith.
2.5 <F2> Asset Purchase Agreement dated October 4, 1996, among Smithway
Motor Xpress, Inc., an Iowa corporation, Smithway Motor Xpress
Corp., a Nevada corporation, Marquardt Transportation, Inc., a
South Dakota corporation, and Ralph and Lucille Marquardt.
2.6 <F2> First Amendment to Asset Purchase Agreement dated as of October
24, 1996, among Smithway Motor Xpress, Inc., an Iowa corporation,
Smithway Motor Xpress Corp., a Nevada corporation, Marquardt
Transportation, Inc., a South Dakota corporation, and Ralph and
Lucille Marquardt.
2.7 <F2> Second Amendment to Asset Purchase Agreement dated as of December
27, 1996, among Smithway Motor Xpress, Inc., an Iowa corporation,
Smithway Motor Xpress Corp., a Nevada corporation, Marquardt
Transportation, Inc., a South Dakota corporation, and Ralph and
Lucille Marquardt.
3.1 <F1> Articles of Incorporation.
3.2 <F1> Bylaws.
4.1 <F1> Articles of Incorporation.
4.2 <F1> Bylaws.
10.1 <F1> Omnitracs Contract dated January 5, 1995, between Qualcomm,
Incorporated and Smithway Motor Xpress, Inc., an Iowa corporation,
for communications equipment and services.
10.2 <F1> Outside Director Stock Plan dated March 1, 1995.
10.3 <F1> Incentive Stock Plan, adopted March 1, 1995.
10.4 <F1> 401(k) Plan, adopted August 14, 1992, as amended.
10.5 <F1> Employee Stock Ownership Plan and Trust adopted January 1, 1986, as
amended.
10.7 <F1> Memorandum of arrangement between Ray Steward and Smithway Motor
Xpress, Inc., an Iowa corporation, concerning Spectrum software.
10.8 <F1> Voting Trust Agreement dated March 1, 1995, among William G. and
Marlys L. Smith and Melissa Sue Osterberg, as Trustee.
19
<PAGE>
<CAPTION>
Exhibit
Number Description
<S> <C> <C>
10.9 <F1> Exchange Agreement dated as of March 1, 1995, among William G. and
Marlys L. Smith, William G. Smith d/b/a Smith Leasing, G. Larry
Owens, Smithway Motor Xpress, Inc. Employee Stock Ownership Plan and
Trust, and Smithway Motor Xpress Corp., a Nevada corporation, filed
as Exhibit 2.1 to this Registration Statement and incorporated
herein by reference.
10.10 <F1> Form of Agency Agreement between Smithway Motor Xpress, Inc. and
its independent commission agents.
10.12 <F1> Memorandum of officer incentive compensation policy.
10.14 <F1> Form of Independent Contractor Agreement between Smithway Motor
Xpress, Inc. and its independent contractor providers of tractors.
10.15 <F1> Amendment No. 1 to Exchange Agreement dated as of June 29, 1995,
among William G. and Marlys L. Smith, William G. Smith d/b/a Smith
Leasing, G. Larry Owens, Smithway Motor Xpress, Inc. Employee Stock
Ownership Plan and Trust, and Smithway Motor Xpress Corp., a Nevada
corporation.
10.16 <F1> Asset Purchase Agreement dated May 31, 1995, among Smithway Motor
Xpress, Inc., Van Tassel, Inc., Teresa Van Tassel, and Douglas Van
Tassel, filed as Exhibit 2.2 to this Registration Statement and
incorporated by this reference.
10.17 <F1> Asset Purchase Agreement dated January 10, 1996, among Smithway
Motor Xpress, Inc., an Iowa corporation, Smith Trucking Company, a
Kansas corporation, and Delmar Smith, filed as Exhibit 2.4 to this
Registration Statement and incorporated by reference.
10.18 <F2> Asset Purchase Agreement dated October 4, 1996, among Smithway
Motor Xpress, Inc., an Iowa corporation, Smithway Motor Xpress
Corp., a Nevada corporation, Marquardt Transportation, Inc., a
South Dakota corporation, and Ralph and Lucille Marquardt.
10.19 <F2> First Amendment to Asset Purchase Agreement dated as of October
24, 1996, among Smithway Motor Xpress, Inc., an Iowa corporation,
Smithway Motor Xpress Corp., a Nevada corporation, Marquardt
Transportation, Inc., a South Dakota corporation, and Ralph and
Lucille Marquardt.
10.20 <F2> Second Amendment to Asset Purchase Agreement dated as of December
27, 1996, among Smithway Motor Xpress, Inc., an Iowa corporation,
Smithway Motor Xpress Corp., a Nevada corporation, Marquardt
Transportation, Inc., a South Dakota corporation, and Ralph and
Lucille Marquardt.
16 <F1> Letter regarding change in certified accountant.
21 <F2> List of subsidiaries.
23 <F2> Consent of KPMG Peat Marwick LLP, independent accountants.
27 <F2> Financial Data Schedule.
- ------------------
<FN>
<F1> Filed as an exhibit to the registrant's Registration Statement on Form S-1,
Registration No. 33-90356, effective June 27, 1996.
<F2> Filed herewith.
</FN>
</TABLE>
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SMITHWAY MOTOR XPRESS CORP.
Date: March 26, 1997 By: /s/ William G. Smith
--------------------------- --------------------
William G. Smith
Chairman of the Board,
President, and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Position Date
/s/ William G. Smith Chairman of the Board,
- -------------------------- President, and Chief
William G. Smith Executive Officer; Director
(principal executive officer) March 26, 1997
/s/ G. Larry Owens Executive Vice President and
- -------------------------- Chief Financial Officer;
G. Larry Owens Director March 26, 1997
/s/ Michael E. Oleson Treasurer and Chief Accounting
- -------------------------- Officer (principal financial
Michael E. Oleson and accounting officer) March 26, 1997
/s/ Herbert D. Ihle
- --------------------------
Herbert D. Ihle Director March 26, 1997
/s/ Robert E. Rich
- --------------------------
Robert E. Rich Director March 26, 1997
/s/ Terry G. Christenberry
- --------------------------
Terry G. Christenberry Director March 26, 1997
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Smithway Motor Xpress Corp.:
We have audited the accompanying consolidated balance sheets of Smithway Motor
Xpress Corp. and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of earnings, non-redeemable common stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1996. 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Smithway Motor
Xpress Corp. and subsidiary as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
February 14, 1997
22
<PAGE>
<TABLE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
<CAPTION>
December 31,
------- -------
Assets 1995 1996
- ------------------------------------------------ ------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................. $ 2,976 940
Short-term investment (note 12) ............ 500 0
Receivables (note 5):
Trade ................................... 5,708 9,676
Other ................................... 399 985
Recoverable income taxes ................ 9 211
Inventories (note 5) ....................... 416 713
Deposits, primarily with insurers (note 12). 854 921
Prepaid expenses ........................... 921 846
Deferred income taxes (note 7) ............. 176 282
------- -------
Total current assets .............. 11,959 14,574
------- -------
Property and equipment (note 6):
Land ....................................... 481 531
Buildings and improvements ................. 3,626 4,375
Tractors ................................... 20,423 28,245
Trailers ................................... 13,852 19,514
Other equipment ............................ 3,049 3,543
------- -------
41,431 56,208
Less accumulated depreciation .............. 13,588 17,038
------- -------
Net property and equipment 27,843 39,170
------- -------
Other assets, net (notes 3 and 13) ............. 900 1,586
------- -------
$40,702 55,330
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
<TABLE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
Liabilities and -------- --------
Stockholders' Equity 1995 1996
- ------------------------------------------------------- -------- --------
<S> <C> <C>
Current liabilities:
Line of credit (note 5) ........................... $ 0 4,490
Current maturities of long-term debt (note 6) ..... 4,861 3,260
Accounts payable .................................. 1,972 2,211
Accrued loss reserves (note 12) ................... 1,370 1,267
Other accrued expenses ............................ 1,240 1,453
-------- --------
Total current liabilities .............. 9,443 12,681
Long-term debt, less current maturities (note 6) ...... 18,358 12,644
Deferred income taxes (note 7) ........................ 3,618 5,812
-------- --------
Total liabilities ...................... 31,419 31,137
-------- --------
Redeemable Class A common stock (note 9) .............. 1,412 0
-------- --------
Non-redeemable common stockholders' equity (note 8):
Preferred stock ................................... 0 0
Common stock:
Class A ....................................... 18 40
Class B ....................................... 10 10
Additional paid-in capital ........................ 0 11,104
Retained earnings ................................. 8,138 13,116
Reacquired shares, at cost ........................ (52) (77)
Equity reduction for Employee Stock
Ownership Plan (ESOP) debt (note 9) ........... (243) 0
-------- --------
Total non-redeemable common stockholders'
equity 7,871 24,193
-------- --------
Commitments (notes 11 and 12)
$ 40,702 55,330
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
<TABLE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
<CAPTION>
Years ended December 31,
---------------------------------
1994 1995 1996
---------------------------------
<S> <C> <C> <C>
Operating revenue:
Freight ............................... $ 69,044 77,020 93,428
Other ................................. 136 319 239
---------------------------------
Operating revenue ............... 69,180 77,339 93,667
---------------------------------
Operating expenses:
Purchased transportation .............. 27,420 31,621 37,386
Compensation and employee benefits .... 15,877 17,182 20,800
Fuel, supplies, and maintenance ....... 9,368 10,183 12,347
Insurance and claims .................. 2,238 1,827 1,995
Taxes and licenses .................... 1,454 1,588 1,856
General and administrative ............ 3,512 3,592 4,214
Communications and utilities .......... 585 758 971
Depreciation and amortization ......... 2,774 3,879 5,740
---------------------------------
Total operating expenses ........ 63,228 70,630 85,309
---------------------------------
Earnings from operations ........ 5,952 6,709 8,358
Financial (expense) income:
Interest expense ...................... (1,066) (1,456) (1,705)
Interest income ....................... 100 231 157
---------------------------------
Earnings before income taxes .... 4,986 5,484 6,810
Income taxes (note 7) .................... 1,879 2,393 2,860
---------------------------------
Net earnings .................... $ 3,107 3,091 3,950
=================================
Pro forma data (unaudited - note 14):
Historical net earnings .............. $ 3,107 3,091 3,950
Pro forma provision for income taxes . 232 0 0
---------------------------------
Pro forma net earnings ............... $ 2,875 3,091 3,950
=================================
Net earnings per common share (pro forma
in 1994) ............................... $ 0.82 0.88 0.93
=================================
Weighted-average common shares outstanding
(pro forma in 1994) .................. 3,498,212 3,524,042 4,249,890
=================================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
<TABLE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Consolidated Statements of Non-redeemable Common Stockholders' Equity
Years ended December 31, 1994, 1995, and 1996
(Dollars in thousands)
<CAPTION>
Total
Non- Equity non-
redeem- reduction redeemable
able Additional for common
common paid-in Retained Reacquired ESOP stockholders'
stock capital earnings shares debt equity
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993 ................. $ 28 0 2,965 (37) (443) 2,513
Net earnings ............. 0 0 3,107 0 0 3,107
Net distributions ........ 0 0 (534) 0 0 (534)
Reduction of ESOP debt ... 0 0 0 0 95 95
Sale of 147,879
common shares ........ 1 219 0 0 0 220
Acquisition of common
shares (note 8) ...... 0 (219) (91) (21) 0 (331)
Change in value and number
of redeemable common
shares (note 8) ...... (1) 0 (280) 0 0 (281)
----------------------------------------------------
Balance at December 31,
1994 ................. 28 0 5,167 (58) (348) 4,789
Net earnings ............. 0 0 3,091 0 0 3,091
Net contributions ........ 0 127 0 0 0 127
Net undistributed earnings
of "S" corporation
and sole proprietorship
at date of termination
(note 1) ............. 0 47 (47) 0 0 0
Cancellation of reacquired
common shares (note 8) 0 (58) 0 58 0 0
Reduction of ESOP debt ... 0 0 0 0 105 105
Change in price of common
shares repurchased which
was provided for in 1994
(note 9) ............. 0 203 0 0 0 203
Acquisition of common
shares (note 8) ..... 0 0 0 (52) 0 (52)
Change in value and number
of redeemable common
shares (note 8) ...... 0 (319) (73) 0 0 (392)
----------------------------------------------------
Balance at December 31,
1995 ................. 28 0 8,138 (52) (243) 7,871
Net earnings ............. 0 0 3,950 0 0 3,950
Reduction of ESOP debt ... 0 0 0 0 243 243
Acquisition of common shares
(note 8) ................ 0 0 0 (25) 0 (25)
Shares sold for cash, net of
issuance costs (note 8) 15 10,727 0 0 0 10,742
Change in value and number of
redeemable common shares
(note 8) .............. 7 377 1,028 0 0 1,412
----------------------------------------------------
Balance at December 31,
1996 .................. $ 50 11,104 13,116 (77) 0 24,193
====================================================
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
<TABLE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in thousands)
<CAPTION>
Years ended December 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ........................ $ 3,107 3,091 3,950
-------- -------- --------
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization . 2,774 3,879 5,740
Deferred income taxes ......... 809 1,184 2,088
Changes in:
Trade receivables .......... (993) (404) (3,968)
Other receivables .......... 43 (90) (586)
Income taxes ............... 625 (791) (202)
Inventories ................ (41) (72) (210)
Deposits, primarily with
insurers ................. (90) (46) (67)
Prepaid expenses ........... (45) (408) 90
Accounts payable ........... 519 319 139
Accrued loss reserves ...... 183 131 (103)
Other accrued expenses ..... 154 (270) 213
-------- -------- --------
Total adjustments ....... 3,938 3,432 3,134
-------- -------- --------
Net cash provided by
operating act ........ 7,045 6,523 7,084
-------- -------- --------
Cash flows from investing activities:
Payments for acquisition of Marquardt
Transportation, Inc. ............. 0 0 (3,834)
Purchase of property and equipment .. (424) (2,836) (6,341)
Proceeds from sale of property and
equipment ........................ 428 211 1,321
Payments received on notes receivable 77 0 0
Purchase of short-term investments .. (500) (500) 0
Proceeds from short-term investments 500 500 500
-------- -------- --------
Net cash provided by (used in)
investing activities 81 (2,625) (8,354)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt ........ 0 2,869 0
Principal payments on long-term debt (3,873) (4,593) (16,068)
Borrowings on line of credit agreement 66,610 77,606 93,593
Payments on line of credit agreement (69,911) (77,606) (89,103)
Payments for reacquired shares ...... (21) (52) (25)
Proceeds from issuance of common stock, net 220 0 11,232
Distributions ....................... (574) (55) 0
Contributions ....................... 40 182 0
Other ............................... 0 (448) (395)
-------- -------- --------
Net cash (used in) provided by
financing activities (7,509) (2,097) (766)
-------- -------- --------
Net (decrease) increase in
cash and cash equivalents (383) 1,801 (2,036)
Cash and cash equivalents at beginning of year 1,558 1,175 2,976
-------- -------- --------
Cash and cash equivalents at end of year $ 1,175 2,976 940
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
27
<PAGE>
<TABLE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(Dollars in thousands)
<CAPTION>
Years ended December 31,
-----------------------------
1994 1995 1996
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest .............................. $ 1,070 1,401 1,732
Income taxes .......................... 445 2,151 971
======= ======= =======
Supplemental schedule of noncash investing and
financing activities:
Notes payable:
Tractors and trailers ............. $ 4,844 13,273 8,996
Tires on above:
Prepaid at end of year ......... 133 232 207
Expensed ....................... 209 365 439
Notes receivable issuance for
sale of property and equipment .... 453 0 0
Principal payments made by ESOP ....... 95 105 243
Liability established for fractional
shares to be acquired (note 8) .... 310 (203) 0
Liability established for remaining
payment for intangible assets
related to acquisition of
Marquardt Transportation, Inc. .... 0 0 100
======= ======= =======
Cash payments for acquisition of Marquardt
Transportation, Inc. (note 3):
Revenue equipment ..................... $ 3,004
Intangible assets ..................... 727
Inventories ........................... 87
Prepaid expenses ...................... 16
-------
$ 3,834
=======
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995 and 1996
(Dollars in thousands)
(1) Consolidated Entity
Smithway Motor Xpress Corp. and subsidiary is a Fort Dodge, Iowa, based
truckload motor carrier, primarily serving shippers in the
central United States and southern provinces of Canada. It
operates over short-to-medium traffic routes, concentrating
primarily on the flatbed segment of the truckload market.
Smithway Motor Xpress Corp. was incorporated as a Nevada corporation
on January 17, 1995, to acquire the stock of Smithway
Motor Xpress, Inc.; the stock of Smithway Transportation
Brokerage, Inc.; the stock of Wilmar Truck Leasing, Inc.
an "S" corporation); and the net assets of Smith Leasing
a sole proprietorship), in preparation for its initial public
offering of Class A common stock. Smithway Transportation
Brokerage, Inc. and Wilmar Truck Leasing, Inc. were merged
into Smithway Motor Xpress, Inc. Unless otherwise indicated,
the companies and sole proprietorship named in this paragraph
are collectively referred to as the "Company."
The transactions described above were between entities under common
control; accordingly, they have been accounted for in a manner
similar to a pooling of interests, and the accompanying
consolidated financial statements represent the historical
combined operations of such companies. Name references in the
consolidated financial statements and the notes thereto have
been changed to reflect these transactions, which were
effective as of January 31, 1995. All share and per share
information for all periods has been restated to reflect the
conversion into Smithway Motor Xpress Corp. common stock based
upon the actual shares issued.
<TABLE>
Pursuant to the acquisitions described above, Smithway Motor Xpress
Corp. issued 3,513,697 shares of its common stock as follows:
<CAPTION>
Stockholder Shares or Assets Relinquished Smithway Motor Xpress
Corp. Shares Issued
<S> <C> <C>
William G. Smith and 788,000 common shares of 942,146 Class A
Marlys L. Smith Smithway Motor Xpress, Inc. common shares
and 1,000,000
Class B common
shares (a)
All common shares of 269,500 Class A
Smithway Transportation common shares
Brokerage, Inc.
All common shares of 2,308 Class A
Wilmar Truck Leasing, Inc. common shares
Assets of Smith Leasing, 55,126 Class A
net of liabilities assumed common shares
G. Larry Owens 60,000 common shares of 147,879 Class A
Smithway Motor Xpress, Inc. common shares (b)
Smithway Motor Xpress, 444,987 common shares of 1,096,738 Class A
Inc. Employee Stock Smithway Motor Xpress, Inc. common shares
Ownership Plan (ESOP)
</TABLE>
29
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(1) Consolidated Entity, Continued
(a) Management of the Company believes the fair value of the Class
A common stock is not materially different from that of the
Class B common stock.
(b) The original 60,000 shares (147,879 Class A common shares of
the Company) issued to G. Larry Owens, Executive Vice
President of the Company, in 1994 were issued for cash based
upon the appraised value of the stock for ESOP purposes.
On July 2, 1996, the Company sold 1.5 million shares of its Class A
common stock in an initial public offering. The shares were
sold at $8.50 per share, for a total consideration of $12,750
before underwriting discounts and offering expenses. In
addition, certain shareholders sold 650,000 shares in the
initial public offering.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company as described in note 1. All significant intercompany
balances and transactions have been eliminated in
consolidation.
Customers
The Company serves a diverse base of shippers. No single customer
accounted for more than 10 percent of the Company's total
operating revenues during any of the years ended December 31,
1994, 1995, and 1996. The Company's 10 largest customers
accounted for approximately 34 percent and 32 percent of the
Company's total operating revenues during 1995 and 1996,
respectively. The Company's largest concentration of customers
is in the steel and building materials industries, which
together accounted for approximately 51 percent and 47 percent
of the Company's total operating revenues in 1995 and 1996,
respectively.
Drivers
The Company faces intense industry competition in attracting and
retaining qualified drivers and independent contractors. This
competition could result in the Company temporarily idling
some of its revenue equipment or increasing the compensation
the Company pays to its drivers and independent contractors.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers interest-bearing instruments with maturity of
three months or less at the date of purchase to be the
equivalent of cash.
30
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(2) Summary of Significant Accounting Policies, Continued
Short-Term Investment
Short-term investment, which consisted of a certificate of deposit with
a maturity of greater than three months, is stated at cost,
which approximated market value.
Receivables
The financial status of customers is checked and monitored by the
Company when granting credit. The Company routinely has
significant dollar transactions with certain customers. At
December 31, 1995, one customer accounted for approximately 13
percent of total trade receivables. At December 31, 1996, no
individual customer accounted for more than 10 percent of
total trade receivables.
Inventories
Inventories consist of tractor and trailer supplies and parts.
Inventories are stated at lower of cost (first-in, first-out
method) or market.
Prepaid Expenses
Prepaid expenses consist primarily of the cost of tarps, which are
amortized over 36 months and the cost of tires purchased with
new equipment, which are amortized six months in the year of
purchase and six months in the subsequent year. The
unamortized cost is included in prepaid expenses. Replacement
and recapped tires are expensed when placed in service.
Accounting for Leases
The Company is a lessee of revenue equipment under operating leases.
Rent expense is charged to operations as it is incurred
under the terms of the respective leases.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
by use of the straight-line and declining-balance methods over
lives of 5 to 31 years for buildings and improvements, 5 to 7
years for tractors and trailers, and 3 to 10 years for other
equipment.
Expenditures for maintenance and minor repairs are charged to
operations, and expenditures for major replacements and
betterments are capitalized. The cost and related accumulated
depreciation on property and equipment retired, traded, or
sold are eliminated from the property accounts at the time of
retirement, trade, or sale.
In accordance with industry practices, the gain or loss on retirement
or sale is included in depreciation and amortization in the
consolidated statements of earnings. Gains or losses on trade-
ins are included in the basis of the new asset.
Intangibles
Included in other assets are certain intangibles which are being
amortized using the straight-line method over periods ranging
from five to ten years. Accumulated amortization of $8 and
$55, at December 31, 1995 and 1996, respectively, have been
netted against these intangible assets.
31
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(2) Summary of Significant Accounting Policies, Continued
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," on January 1, 1996. This statement requires that long-
lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption
of this statement did not have a material impact on the
Company's financial position, results of operations, or
liquidity.
Revenue Recognition
The Company recognizes operating revenue when the freight to be
transported has been loaded. Amounts payable to independent
contractors for purchased transportation, to Company drivers
for wages, and other direct expenses are accrued when the
related revenue is recognized. The Company operates in the
short-to-medium length haul category of the trucking industry,
therefore, the Company's typical customer delivery is
completed one day after pickup. Accordingly, this method of
revenue recognition is not materially different from
recognizing revenue based on completion of delivery.
ESOP Indebtedness
At December 31, 1995, long-term indebtedness of the Company-sponsored
leveraged ESOP was recorded in the consolidated balance sheet
as a liability under the captions "Current maturities of
long-term debt" and "Long-term debt, less current maturities"
with a corresponding reduction in stockholders' equity under
the caption "Equity reduction for ESOP debt." As principal
payments were made on the debt by the ESOP, the Company's
long-term debt and related stockholders' equity reduction was
reduced. The outstanding debt was retired during 1996 with
proceeds the ESOP received from the sale of shares owned by it
in the initial public offering.
Insurance and Claims
Losses resulting from personal liability, physical damage, and workers'
compensation are covered by insurance subject to certain
deductibles, and claims resulting from cargo loss and damage
are self-insured. Losses resulting from uninsured claims are
recognized when such losses are known and can be estimated.
The Company estimates and accrues a liability for its share of
ultimate settlements using all available information. Expenses
depend on actual loss experience and changes in estimates of
settlement amounts for open claims which have not been fully
resolved.
32
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(2) Summary of Significant Accounting Policies, Continued
Income Taxes
Prior to the transactions described in note 1, Wilmar Truck Leasing,
Inc., had elected "S" Corporation status under the Internal
Revenue Code and Smith Leasing was a sole proprietorship.
Accordingly, for 1994, there was no provision for income taxes
in the consolidated financial statements related to these two
entities, since the income tax liability or benefit accrued to
the stockholders or owner and not to the Company. As discussed
in note 14, a pro forma provision for income taxes (unaudited)
relating to the earnings of the "S" Corporation and sole
proprietorship was reflected in the pro forma data included in
the accompanying consolidated statement of earnings for the
year ended December 31, 1994.
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 of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that
includes the enactment date.
Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option
plans 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 would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company
adopted SFAS 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 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net earnings and pro forma net earnings per
common share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method
defined in SFAS 123 had been applied. The Company has elected
to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS 123.
Net Earnings Per Common Share
Net earnings per common share (pro forma in 1994 - unaudited) have been
computed by dividing net earnings by the weighted-average
outstanding Class A and Class B common shares and common stock
equivalents during each of the years (see note 14). Common
stock equivalents include dilutive stock options issued under
the Company's stock option plans.
33
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(3) Acquisitions
On May 31, 1995, the Company entered into a five-year consulting and
noncompete clause with the shareholder of Van Tassel, Inc. for
$72 and assumed certain leases for trailers. The Company also
purchased certain office equipment of Van Tassel, Inc. for
approximately $37. The effect of this transaction is not
material to the consolidated financial statements of the
Company.
In January 1996, the Company purchased certain trailers, flat racks,
and office equipment from Smith Trucking Company. The Company
also entered into a two-year noncompete agreement with the
shareholder of Smith Trucking Company. The Company agreed to
pay total consideration of $381 in the transaction. The effect
of this transaction is not material to the consolidated
financial statements of the Company.
On October 4, 1996, the Company acquired certain assets and assumed
certain liabilities and leases of Marquardt Transportation,
Inc., of Yankton, South Dakota. Included in the total purchase
price of $3,934 was revenue equipment totaling $3,004;
intangible assets of $827; and various other assets totaling
$103. The acquisition was accounted for by the purchase method
of accounting. The consolidated statement of earnings reflects
these operations from the date of acquisition. A summary of
unaudited pro forma financial statement data, assuming this
transaction had occurred on January 1, 1995, is as follows:
operating revenue, $106,996 and $93,100; earnings from
operations, $8,626 and $6,908; net earnings, $3,905 and
$2,786; and net earnings per common share, $0.92 and $0.79,
for 1996 and 1995, respectively.
(4) Fair Value of Financial Instruments
SFAS 107, "Disclosures About Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current
transaction between willing parties. The following methods and
assumptions were used to estimate the fair value of each class
of financial instruments:
Cash and cash equivalents, short-term investment, trade
receivables, other receivables, accounts payable,
accrued loss reserves, and other accrued expenses:
The carrying amounts approximate fair value because
of the short maturity of those instruments.
34
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(4) Fair Value of Financial Instruments, Continued
Line of credit: The carrying value of the Company's line of
credit approximates fair value, since borrowings are
at current interest rates.
Long-term debt: The fair value of the Company's long-term
debt was estimated by discounting the future cash
flows of each instrument at rates currently
offered to the Company for similar debt instruments
of comparable maturities by the Company's bankers.
The carrying value of long-term debt at December
31, 1996, was $15,904; the fair value of long-
term debt was $15,108.
(5) Line of Credit
The Company has a line of credit agreement which allows advances up to
the lesser of 85 percent of qualifying accounts receivable or
$5,750 (see note 12). Any borrowings under this line of credit
are secured by accounts receivable and inventories. There
were no outstanding borrowings at December 31, 1995. At
December 31 , 1996, the Company had outstanding borrowings of
$4,490. This line of credit bore interest at .50 percent over
prime at December 31, 1995 and 1996. The interest rate would
have been 9.00 percent at December 31, 1995. The interest rate
at December 31, 1996 was 8.75 percent.
(6) Long-Term Debt
<TABLE>
The following is a summary of long-term debt at December 31, 1995 and
1996:
<CAPTION>
Payable Current
through interest rates 1995 1996
------- -------------- ------- ------
<S> <C> <C> <C> <C>
Equipment notes 2001 5.67% to 7.90% $21,902 15,904
Mortgages - - 1,074 -
Debt of Company-sponsored ESOP - - 243 -
------- ------
23,219 15,904
Less current maturities 4,861 3,260
------- -------
$18,358 12,644
======= ======
</TABLE>
The Company has pledged property and equipment with an undepreciated
value of $18,674 at December 31, 1996, as security for these
debts.
35
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(6) Long-Term Debt, Continued
Future maturities on long-term debt for years ending December 31, are
as follows: 1997, $3,260; 1998, $3,477; 1999, $3,010; 2000,
$3,482; and 2001, $2,675.
(7) Income Taxes
<TABLE>
Income taxes consisted of the following components for the three years
ended December 31:
<CAPTION>
1994 1995 1996
------------------- ------------------- --------------------
Federal State Total Federal State Total Federal State Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $ 905 165 1,070 1,088 121 1,209 725 47 772
Deferred 704 105 809 1,034 150 1,184 1,712 376 2,088
----- --- ----- ----- --- ----- ----- --- -----
$1,609 270 1,879 2,122 271 2,393 2,437 423 2,860
===== === ===== ===== === ===== ===== === =====
</TABLE>
<TABLE>
Total income tax expense differs from the amount of income tax expense
computed by applying the normal United States federal income
tax rate of 34 percent to income before income tax expense.
The reasons for such differences are as follows:
<CAPTION>
Years ended December 31,
---------------------------
1994 1995 1996
<S> <C> <C> <C>
Computed "expected"
income tax expense ............ $ 1,695 1,865 2,315
State income tax expense,
net of federal benefit ........ 179 179 279
Permanent differences, primarily
nondeductible portion
of driver per diem
and travel expenses ........... 142 153 176
Tax effect (at expected federal
rate) on income from nontaxable
sole proprietorship and
"S" Corporation ............... (210) -- --
Other .................................. 73 196 90
------- ------ ------
$ 1,879 2,393 2,860
======= ====== ======
</TABLE>
36
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(7) Income Taxes, Continued
<TABLE>
Temporary differences between the financial statement basis of assets
and liabilities and the related deferred tax assets and
liabilities at December 31, 1995 and 1996, were as follows:
<CAPTION>
1995 1996
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax (AMT)
credit carryforwards .................... 353 780
Accrued expenses ........................ 334 464
------- -------
Total gross deferred tax assets 687 1,244
------- -------
Deferred tax liabilities:
Prepaid expenses ........................ (158) (182)
Property and equipment .................. (3,971) (6,592)
------- -------
Total gross deferred tax liabilities (4,129) (6,774)
------- -------
Net deferred tax liabilities ... $(3,442) (5,530)
======= =======
</TABLE>
At December 31, 1995 and 1996, the Company had approximately $353 and
$780, respectively, in AMT credit carryforwards. These credits
are available indefinitely to reduce future income tax
liabilities to the extent they exceed AMT liabilities.
(8) Stockholders' Equity
The total number of shares of capital stock of all classes which the
Company has the authority to issue is 30 million shares, all
having a par value of one cent per share. Capital stock
authorized consists of 20 million shares of Class A common
stock, 5 million shares of Class B common stock, and 5 million
shares of preferred stock.
On all matters with respect to which the Company's stockholders have a
right to vote, each share of Class A common stock is entitled
to one vote, while each share of Class B common stock is
entitled to two votes. The Class B common stock is convertible
into shares of Class A common stock on a share-for-share basis
at the election of the stockholder and will be converted
automatically into shares of Class A common stock upon
transfer to any party other than William G. Smith, his wife,
Marlys L. Smith, their children, their grandchildren, trusts
for any of their benefit, and entities wholly owned by them.
Pursuant to the transactions described in note 1, the Company had
outstanding 2,513,697 shares of Class A common stock, 1
million shares of Class B common stock, and no shares of
preferred stock prior to the initial public offering and
reacquired shares described below.
The Company reacquired 14,899 common shares during 1994 at a cost of
$21. These common shares were canceled by the Company as a
result of the transactions described in note 1. The Company
also reacquired 9,627 and 4,777 common shares in 1995 and 1996
at a cost of $52 and $25, respectively.
37
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(8) Stockholders' Equity, Continued
Effective July 2, 1996, the Company sold 1.5 million shares of its
Class A common stock in an initial public offering. The shares
were sold at $8.50 per share, for a total consideration of
$12,750. Underwriting discounts and offering expenses were
$2,008, resulting in net proceeds to the Company of $10,742.
At December 31, 1994, the Company provided a current liability of $310
for certain minority common shares of the Company which were
not acquired in the transaction described in note 1. Such
amount was charged to additional paid-in capital and retained
earnings, since these shares were reacquired as fractional
shares after a reverse stock split by the Company in 1995. The
actual purchase price of these fractional shares during 1995
differed from $310 due to a change in the purchase price of
the fractional shares from an anticipated initial public
offering price to the appraised value of the Company at
December 31, 1994, and a change in the number of shares
repurchased. The effect of these changes was $203 and was
reflected in additional paid-in capital during 1995.
The Company adopted an outside director stock option plan effective
March 1, 1995. The Company has reserved 25,000 shares of
Class A common stock for issuance pursuant to the plan
agreement. The term of each option shall be six years from
the grant date. Options vest on the first anniversary of the
grant date. Exercise price of each stock option is 85 percent
of the fair market value of the common stock on the last day
of the calendar month immediately preceding the date of grant.
In July 1996, the Company granted options covering 3,000
shares with an exercise price of $7.23 per share.
The Company adopted an incentive stock option plan effective March 1,
1995. The Company has reserved 225,000 shares of Class A
common stock for issuance pursuant to the plan agreement. On
March 1, 1995, the Company granted options covering 85,000
shares to certain employees at an exercise price of $9.50 per
share. Such options become excercisable between January 1,
1996, and January 1, 2000, at the rate of 20 percent per year.
As of December 31, 1996, none of the 17,000 eligible shares
had been exercised and no additional shares had been granted.
Any shares which expire unexercised or are forfeited become
available again for issuance under the plan. Under this plan,
no awards of incentive stock options may be made after
December 31, 2004.
The Company applied APB Opinion No. 25 in accounting for its stock
option plans; and, accordingly, no compensation expense has
been recognized in the consolidated financial statements. Had
the Company determined compensation based on the fair value at
the grant date for its outstanding stock options under SFAS
123, the effect on Company's net earnings and net earnings per
common share for 1995 and 1996 would have been immaterial. The
full impact of calculating compensation cost for stock options
under SFAS 123 is reflected over the options' vesting period.
38
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(8) Stockholders' Equity, Continued
<TABLE>
The assumptions used by the Company in estimating the fair value of its
outstanding stock options at grant date and the results of its
calculations are as follows:
<CAPTION>
Outside director Incentive
stock option plan stock option plan
----------------- -----------------
<S> <C> <C>
Pricing model Black Scholes Minimum value
Risk-free interest rate 6.44% 7.12%
Expected life 3 years 6 years
Expected volatility 20% N/A
Expected dividends None None
Estimated fair value at grant date $2.72/per share None
</TABLE>
(9) ESOP and Redeemable Class A Common Stock
In connection with a purchase of common stock from a previous stock-
holder, the ESOP incurred a note payable, which had a balance
of $243 as of December 31, 1995. Such debt was recorded in
the accompanying consolidated balance sheets - see note 6.
The outstanding debt was retired by the ESOP during 1996 with
the proceeds the ESOP received from stock it sold in the
initial public offering. Actual interest expense on the ESOP
debt was $41, $31, and $11 during the years ended December 31,
1994, 1995, and 1996, respectively. Contributions made to the
plan for the years ended December 31, 1994, 1995, and 1996,
were $138, $138, and $-0-. The ESOP owned 1,080,677 and 58,454
shares of the Company's Class A common stock at December 31,
1995 and 1996, respectively.
The plan provides for 100 percent vesting after six years of service.
Vested benefits will normally be distributed to the partici-
pant from the plan upon death or retirement in the form of
cash or Company stock. Participants may sell the stock they
received to a third party; however, the Company had the right
of first refusal to purchase the stock, until the date of the
initial public offering, at which time the right of first
refusal expired.
The participant or beneficiary had two put options to the employer
which required the Company purchase the shares at a price
equal to its value in cash or in installments over a period of
five years. The first 60-day put option began the day
following the date the stock was distributed to the
participant or beneficiary. The second 60-day put option began
the first day of the fifth month of the plan year following
the date of such stock distribution. Distribution of shares
only occurs upon termination of employment or retirement.
39
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(9) ESOP and Redeemable Class A Common Stock, Continued
Due to the put option, the total appraised value at which the Company
would have to repurchase the shares at December 31, 1995, of
the 649,710 vested shares of Class A common stock, was
classified as redeemable Class A common stock in the accom-
panying consolidated balance sheets and not as part of consol-
idated non-redeemable common stockholders' equity. A change in
the balance of redeemable Class A common stock resulted from
the change in the number of vested shares and the change in
the appraised value during the periods.
In accordance with provisions of the ESOP and applicable law, the
rights to these put options no longer existed upon the
effective date of the initial public offering of common stock
by the Company.
(10) Employees' Profit Sharing and Savings Plan
The Company has an Employees' Profit Sharing and Savings Plan, which is
a qualified plan under the provisions of Sections 401(a) and
and 501(a) of the Internal Revenue Code. Eligible employees
are allowed to contribute up to a maximum of 15 percent of
pretax compensation into the plan. Employers may make savings,
matching, and discretionary contributions, subject to certain
restrictions. During the years ended December 31, 1994, 1995,
and 1996, Company contributions totaled $50, $64, and $-0-,
respectively. Effective January 1, 1997, the ESOP was merged
into the Employees' Profit Sharing and Savings Plan.
(11) Lease Commitments
The Company has entered into various noncancelable operating leases
for transportation equipment and buildings which will expire
over the next five years. Under the leases for transportation
equipment, the Company is responsible for all repairs, main-
tenance, insurance, and all other operating expenses.
Approximate future minimum lease payments under noncancelable operating
leases as of December 31, 1996, totaled $4,028 and are payable
as follows: 1997, $1,586; 1998, $1,583; 1999, $699; 2000,$156;
and 2001,$4.
Certain leases on transportation equipment require the Company to
guarantee the value at the maturity of the lease at amounts
varying from 10 percent to 20 percent of the original
equipment cost. The maximum contingent liability under such
leases is approximately $883 from 1997 to 2001.
Rent charged to expense on the above leases, expired leases, and short-
term rentals was $1,621 in 1994; $1,901 in 1995; and $1,462 in
1996.
40
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(12) Contingent Liabilities
The Company's insurance program for personal liability, physical
damage, and workers' compensation involves self-insurance for
losses up to $50 per claim, $50 per claim, and $100 per claim,
respectively.
At December 31, 1995 and 1996, the Company had approximately $1,370
and $1,267, respectively, accrued for its estimated liability
for incurred losses related to these programs. Losses in
excess of the self-insured amount per claim are covered by
insurance companies.
The insurance companies require the Company to provide letters of
credit to provide funds for payment of the self-insured
amounts. At December 31, 1995, the Company had two standby
letters of credit from a commercial bank in the amounts of
$500 and $100, both expiring on January 11, 1996. The letters
of credit were secured by a certificate of deposit in the
amount of $500 at December 31, 1995, held by a commercial
bank. At December 31, 1995 and 1996, the Company also had a
$1,000 letter of credit from a commercial bank. The letter of
credit is secured by the collateral described in note 5 for
the $5,750 line of credit with the same bank. This letter of
credit directly reduces the amount of potential borrowings
available under this line of credit. In addition, funds
totaling $801 and $862 were held by the insurance companies as
deposits at December 31, 1995 and 1996, respectively.
The Company's insurance program for health insurance provided as an
employee benefit for all eligible employees involves self-
insurance for losses up to $60 per claim and an aggregate loss
of $940. At December 31, 1995 and 1996, the Company had
approximately $400 and $268, respectively, accrued for its
estimated liability related to these claims.
The Company is also involved in certain legal actions and proceedings
arising from the normal course of operations. Management
believes that liability, if any, arising from such legal
actions and proceedings will not have a material adverse
effect on the financial position of the Company.
(13) Transactions with Related Parties
At December 31, 1995 and 1996, other receivables included $66 in
receivables from an officer and a related party.
(14) Pro Forma Data (Unaudited)
Unaudited pro forma corporate income taxes on the earnings for the
year ended December 31, 1994, of Wilmar Truck Leasing, Inc.,
an "S" Corporation, and Smith Leasing, a sole proprietorship,
as if those operations had been subject to corporate income
taxes would have been federal income taxes of $200 and state
income taxes of $32. Pro forma corporate income taxes relating
to these operations for the period January 1, 1995, to January
31, 1995, the effective date of the transactions described in
note 1, were insignificant.
The difference between the pro forma expected income tax expense
(computed using the federal income tax rate of 34 percent) and
the pro forma income tax expense is the effect of state income
taxes, net of federal benefit.
41
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
(14) Pro Forma Data (Unaudited), Continued
Pro forma net earnings per common share have been based upon the number
of common shares which would have been outstanding considering
the actual conversion ratio of Smithway Motor Xpress, Inc.
shares into Smithway Motor Xpress Corp. shares and as though
the 326,934 common shares issued in connection with the
Smithway Transportation Brokerage, Inc.; Wilmar Truck Leasing,
Inc.; and Smith Leasing acquisitions had been outstanding
during all periods presented, which assumes the transactions
described in note 1 had taken place January 1, 1994.
(15) Quarterly Financial Data (Unaudited)
<TABLE>
Summarized unaudited quarterly financial data for the Company for 1995
is as follows:
<CAPTION>
March June September December
31 30 30 31
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenue ............ $18,273 19,075 20,695 19,297
Earnings from operations ..... 1,680 1,775 2,016 1,239
Net earnings ................. 813 853 1,032 393
Net earnings per common share .23 .24 .29 .11
======= ====== ====== ======
</TABLE>
<TABLE>
Summarized unaudited quarterly financial data for the Company for 1996
is as follows:
<CAPTION>
March June September December
31 30 30 31
------- ------ ------ ------
<S> <C> <C> <C> <C>
Operating revenue ........... $19,860 23,411 24,937 25,459
Earnings from operations .... 1,296 2,524 2,534 2,005
Net earnings ................ 513 1,154 1,330 952
Net earnings per common share .15 .33 .27 .19
======== ====== ====== ======
</TABLE>
As a result of rounding, the total of the four quarters may not equal
the Company's results for the year.
(16) Subsequent Event (Unaudited)
In February 1997, the Company acquired tractors, trailers, and certain
other assets of Pirie Motor Freight, Inc. of Fort Dodge, Iowa.
In exchange for these assets, the Company assumed and repaid
approximately $1.25 million in equipment financing secured by
these assets and paid a percentage of revenue for a noncompete
and consulting agreement. Pirie Motor Freight had approxi-
mately $2.8 million of revenue during 1996.
42
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement"), dated October 4, 1996, is
entered into by and among Smithway Motor Xpress, Inc., an Iowa corporation
("Smithway"); with respect to Section 7.5 only, Smithway Motor Xpress Corp., a
Nevada corporation; and Marquardt Transportation, Inc., a South Dakota
corporation ("Seller"); and with respect to Sections 4.3, 5.1, 5.5, 6.1, and 7.1
only, Ralph and Lucille Marquardt, individual residents of Yankton, South Dakota
and Seller's sole Shareholders (together, the "Shareholders").
RECITALS
1. Shareholders and Seller desire to convey the Transferred
Assets to Smithway and Smithway desires to acquire the
Transferred Assets and assume certain obligations of Seller.
2. The parties propose to reduce to written form their agreement
as to the terms and conditions which shall govern the
transaction contemplated herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants, representations, and warranties herein contained, and upon the
terms and conditions hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
Definitions
In addition to the capitalized terms defined elsewhere herein, the
following terms, when capitalized, shall have the meanings ascribed to them
below:
1.1 "Adjustment Amount" means the dollar amount to reflect
deficiencies in the condition of assets subject to Inspection.
1.2 "Assigned Leases" means the leases relating to the Leased
Tractors and Leased Trailers assigned to and assumed by
Smithway under Section 2.2 hereof.
1.3 "Assigned Equipment Financing" means the lending documents
relating to the Tractors and Trailers assigned to and assumed
by Smithway under Section 2.2 hereof.
1.4 "Benefit Plans" means all contracts, plans, arrangements,
policies, and understandings providing for any compensation or
benefit other than base wages or salaries that are maintained
by Seller or affect its employees or independent
1
<PAGE>
contractors, regardless of whether defined as an "employee
benefit plan" under ERISA or subject to any provision of
ERISA, including, without limitation: all pension,
profit-sharing, retirement, thrift, 401(K), and other similar
plans and arrangements (defined benefit and defined
contribution); all health and welfare, disability, insurance
(including self-insurance), workers' compensation,
supplemental unemployment, severance, vacation, and similar
plans and arrangements; and all bonus, stock option, incentive
compensation, stock appreciation rights, phantom stock,
overtime guaranty, employment contract, employee handbook, and
other similar plan or arrangement.
1.5 "Business" means Seller's business of providing truckload
transportation of freight.
1.6 "Drivers" means the employee and independent contractor truck
drivers that operate tractors in the Business.
1.7 "Inspection" means the inspection of Leased Tractors, Leased
Trailers, Tractors, and Trailers conducted by Smithway as
described in Section 2.13.
1.8 "Inspection Report" means the written report prepared by
Smithway and presented to Seller which identifies each Leased
Tractor, Leased Trailer, Tractor, Trailer, MCT, and headache
rack presented for Inspection and the Adjustment Amount which
reflects the calculation in accordance with Section 2.13 to
take into account deficiencies from the required condition of
assets subject to Inspection. Any broken glass or body damage
shall be evidenced by a photograph if available.
1.9 "Judgment" means any judgment, order, writ, injunction,
decree, or award of any federal, state or provincial court, or
governmental agency.
1.10 "Law" means any federal, state, or local constitution, law,
ordinance, or governmental order, rule, or regulation
(including, without limitation, those relating to
environmental, energy, safety, health, zoning,
antidiscrimination, antitrust, and wage and hour matters).
1.11 "Leased Tractors" means the tractors identified on Exhibit A.
1.12 "Leased Trailers" means the trailers identified in Exhibit A.
1.13 "Lien" means any mortgage, lien, pledge, security interest,
conditional sale agreement, charge, claim, right, condition,
restriction, or other encumbrance or defect of title of any
nature whatsoever (including, without limitation, any
assessment, charge, or other type of notice which is levied or
given by any governmental authority and for which a lien could
be filed).
1.14 "MCT's" means the Qualcomm mobile communication terminals.
2
<PAGE>
1.15 "Miscellaneous Equipment" means (i) each set of "headache
racks," which includes for the purposes of this Agreement
tarps, tie-downs, chains, and any safety equipment; (ii) shop
and office equipment; (iii) supplies; (iv) forklifts; (v)
parts, tires, and general inventory; (vi) Seller's California
intrastate operating authority; and (vii) other assets listed
or otherwise identified on Exhibit B.
1.16 "Permits" means all permits, licenses, franchises, and other
approvals required by Law.
1.17 "Proceeding" means any litigation, arbitration, investigation,
proceeding, notice of violation, order, claim, citation,
complaint, review, or penalty assessment, in each case whether
formal or informal, administrative, civil, or criminal, at law
or in equity.
1.18 "Property" shall mean the real estate and any and all
improvements thereon presently owned by Seller and comprised
of an office building, maintenance shop, and yard, where
Seller has been conducting its trucking business, as more
fully described in the lease attached hereto as Exhibit C
("Lease").
1.19 "Specialized Equipment" means the trailers identified on
Exhibit D.
1.20 "Taxes" means all taxes, charges, fees, levies, or other
assessments of whatever kind or nature, including, without
limitation, all net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated,
severance, stamp, occupancy or property taxes, customs duties,
fees, assessments, or charges of any kind whatsoever (together
with any interest and any penalties, additions to tax or
additional amounts) imposed by any taxing authority (domestic
or foreign).
1.21 "Tractors" means the owned tractors identified on Exhibit E to
be transferred to Smithway pursuant to Section 2.2 hereof.
1.22 "Trailers" means the owned semi-trailers identified on Exhibit
F to be transferred to Smithway pursuant to Section 2.2
hereof.
1.23 "Transferred Assets" means the Trailers, Tractors, Assigned
Leases, MCTs, Miscellaneous Equipment, and Specialized
Equipment, as well as driver files, tariffs, equipment
maintenance files, extended warranty agreements, customer
files, and other business records associated with the
Business. Notwithstanding the foregoing, Seller shall retain
all of its logs, corporate minute books, corporate records,
and tax records, but will provide copies of the same to
Smithway on an as needed basis. Except as expressly identified
as a "Transferred Asset," all other assets owned by Seller are
being retained by Seller and are not being sold hereunder.
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ARTICLE 2
Purchase, Sale, and Employment
2.1 Purchase and Sale. As hereinafter provided, Smithway shall
purchase, acquire, and assume from Seller, and Seller shall
sell, assign, and transfer to Smithway, all right, title, and
interest of Seller in and to the Transferred Assets.
2.2 Assignment and Assumption. Seller shall assign and Smithway
shall assume, as of January 1, 1997, all obligations of
Seller, financial and otherwise, under the Assigned Leases and
Assigned Equipment Financing on the following terms and
conditions:
A. Assumption Period. For the period from Closing to
the assumption of leases on the Leased Tractors and
Leased Trailers and assumption of the financing on
the Tractors and Trailers on January 1, 1997 or such
later date as shall be required if the applicable
lenders or lessor should not consent to assignment
(the "Assumption Period"), Smithway shall sublease or
lease, as appropriate, the Leased Tractors, Leased
Trailers, Tractors, and Trailers on the same terms
and conditions of the Assigned Leases and Assigned
Equipment Financing and be responsible for all
operating costs associated with the Leased Tractors,
Leased Trailers, Tractors, and Trailers, including
but not limited to all state and federal road and
fuel taxes and federal highway use taxes when due.
During the Assumption Period, Smithway shall pay
directly to the appropriate lessor or lender
identified on Exhibit A, D, or E, as appropriate, an
amount equal to the aggregate monthly payment due
under the Assigned Leases and Assigned Equipment
Financing. Smithway shall provide insurance coverage
as provided in the respective Assigned Leases and
Assigned Equipment Financing, naming the lessee or
lender, as appropriate, and Seller as an additional
insured thereunder, and providing evidence of such
coverage to Seller as of Closing. Except as provided
herein, Smithway shall perform all of the other
terms, conditions, and obligations of Seller under
the Assigned Leases and Assigned Equipment Financing.
B. Assignment; Release. During the Assumption Period,
the parties shall use their best efforts to obtain
all consents required to effectively assign and
convey the Assigned Leases and Assigned Equipment
Financing to Smithway, such assignment to be
effective January 1, 1997. Smithway shall use its
best efforts to ensure that such assignments shall
result in the release of Seller and the Shareholders
from any and all liability under the Assigned Leases
and Assigned Equipment Financing, if unsuccessful in
obtaining such releases, Smithway hereby agrees to
indemnify, defend, and hold harmless Seller and the
Shareholders from any and all loss, damage, cost or
expense (including reasonable attorney fees) arising
under the Assigned Leases and Assigned Equipment
Financing. If Smithway is unable to arrange for the
release of Seller or the Shareholders from all
obligations under an Assigned
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Lease or Assigned Equipment Financing, Smithway shall
pay all amounts due thereunder, but only if there is
no prepayment penalty or other detriment.
C. Leased Tractors and Leased Trailers. Regardless of
whether assignment is obtained under Section 2.2.B.,
Smithway shall operate the Leased Tractors and Leased
Trailers from Closing until the applicable lease
expires and return the Leased Tractors and Leased
Trailers in accordance with the terms and conditions
of the Assigned Lease. Smithway shall be responsible
for returning the Leased Tractors and Leased Trailers
to "turn-in" condition as provided in the applicable
Assigned Lease (or paying any penalty for
noncompliance).
D. Tractors and Trailers. Regardless of whether
assignment is obtained under Section 2.2.B.,
Smithway shall operate the Tractors and Trailers from
Closing in accordance with the terms and conditions
of the Assigned Equipment Financing.
E. On the Closing Date, Smithway shall pay to Seller a
one-time sum of $20,000.00 in consideration for the
transitional use, for a period of 30 days, of the
tractors and trailers owned by Seller and not a part
of the Leased Tractors, Leased Trailers, Tractors,
and Trailers. Said nonacquired tractors and trailers
shall herein be referred to as the "Nonacquired
Tractors" and "Nonacquired Trailers," respectively,
and together as the "Nonacquired Trucks." Smithway
agrees to transition out of the Nonacquired Trucks in
an orderly manner and shall not send out any of the
Nonacquired Trucks that have come back to the Yankton
terminal. Smithway shall route all Nonacquired
Tractors, except where such Nonacquired Tractors are
located in California and such tractors shall be
routed on the same schedule to the Stockton terminal,
back to the Yankton terminal and return them to
Seller within 30 days after Closing at Smithway's
cost. Smithway agrees to use its best efforts to
route as many of the Nonacquired Trailers as
practicable to the Yankton terminal and return them
to Seller within 30 days after Closing at Smithway's
expense. After such 30 days, Seller and the
Shareholders will be responsible for returning the
Nonacquired Trailers, at their own expense. If
Smithway wants to lease, purchase or assume any of
the Nonacquired Trailers, it may negotiate such
lease, purchase or assumption with the Seller and
Shareholders. Smithway shall not be required in any
event to run bobtail or incur deadhead miles to
retrieve or deliver Nonacquired Trailers. Smithway
agrees to use its best efforts to route the twelve
(or more) tractors identified by Ralph Marquardt at
Closing as "priority tractors" to Yankton as soon as
reasonably practicable (with a target of less than
one week from Closing). From and after the Closing,
Smithway shall (i) provide insurance coverage on all
of the Nonacquired Trucks that it is using, and (ii)
be responsible for all operating costs associated
with the Nonacquired Trucks until the earlier of (x)
such time as such trucks have been taken out of use
and returned to the Yankton terminal or (y) the date
thirty days after the
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Closing Date. Smithway shall not assume or be
responsible for any lease or financing payments.
Seller shall remain responsible for all such
payments. Smithway shall be responsible for returning
the Nonacquired Trucks in the condition they were in
on the date of Closing with the exception of ordinary
wear. All of Smithway's obligations hereunder shall
cease on the date thirty days after Closing.
2.3 Proration of Liability. Except as otherwise provided in this
Agreement, any liability with respect to the operation of the
Leased Tractors, Leased Trailers, Tractors, or Trailers that
arises from facts or events that span all or part of the
Assumption Period and a period prior to Closing shall be
prorated based upon the relative responsibility of Smithway
and Seller for the liability accrued during the Assumption
Period. As an example, in case of a fuel tax audit that
results in liability for a period which includes the
Assumption Period, Smithway shall be liable for an amount
equal to the ratio of the amount of fuel used in the
Assumption Period bears to the total amount of fuel used in
the audit period, and Seller shall be liable for the balance.
All (i) lease payments on the Assigned Leases, (ii) payments
on the Assigned Equipment Financing, (iii) rent on the
California Property (both to the landlord and from subtenants)
(iv) property taxes on the Property and the other Transferred
Assets, and (v) similar items shall be prorated as of the
Closing.
2.4 Payment. Smithway shall pay to Seller the aggregate amount due
under Sections 2.2.E., 2.5, 2.6, 2.7, and 2.8, less the
aggregate of all then known Adjustment Amounts, at Closing in
the form of a Smithway check. Smithway shall pay the amount
due under Section 2.9 as stated therein. To the extent any
Leased Tractor, Tractor, Trailer, MCT, or headache rack has
not been inspected prior to Closing, the Adjustment Amount
with respect to such item shall be offset against remaining
payments due to Seller or Ralph Marquardt under any other
provision of this Agreement, the Lease, or any document
executed in connection with this Agreement.
2.5 Licenses. Smithway shall pay Seller $_______ for the unused
portion of the Tractor and Leased Tractor vehicle licenses and
permits (such amount equal to twenty-five percent (25%) of the
annual license and permit fee).
2.6 Miscellaneous Equipment. Smithway shall pay Seller the amount
set forth opposite each item on Exhibit B for the
Miscellaneous Equipment, plus the sum of $100 for the
California intrastate authority; provided, the headache racks,
as defined in 1.14(i), shall be the lesser of (i) $1,800/unit
or (ii) the book value on the depreciation schedule; and
further provided that Smithway shall pay for parts, tires,
supplies, and general inventory at cost (not to include
out-dated or items non-usable to Smithway).
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2.7 MCT's. Smithway shall pay Seller $2,500/unit for seventy-two
(72) MCT's; provided, that Smithway shall not pay anything for
MCT's installed in a Tractor or Leased Tractor and included in
the payments under Assigned Equipment Financing or Assigned
Tractor Leases applicable to such tractor. All Leased Tractors
and Tractors shall have MCT's installed and operational and
such terminals shall be included in the seventy-two (72)
MCT's. All other MCT's shall have the necessary wiring to make
the terminal operational without additional expense to
Smithway, other than installation costs. Smithway shall
receive a $50 credit toward the purchase price for each MCT
without wiring.
2.8 Specialized Equipment. Smithway shall purchase the Specialized
Equipment for an aggregate $471,000, payable by Smithway check
at Closing. Each trailer included in the Specialized Equipment
shall have 50% tread depth and 50% brake wear remaining at
Closing.
2.9 Business. Smithway shall pay Seller $648,000 (adjusted as set
forth below) for the goodwill associated with the Business,
including the value of ongoing shipper, Driver, and other
business relationships. Payment shall be made as follows: (a)
at Closing, Smithway shall deliver a check in the amount of
$448,000; and (b) on the date six months following Closing,
Smithway shall deliver a check in the amount of $200,000 (the
"Base Amount") adjusted as follows: (i) for each Tractor that
Seller removes from the transaction so that Smithway does not
assume the Assigned Equipment Financing related thereto,
$4,000 shall be added to the Base Amount (provided, however,
that the ten 1996 Volvos scheduled for September deliver shall
not be eligible for removal); (ii) for each Recruited or
Retained Driver below 120 at the date six months following
Closing, the Base Amount shall be reduced $1,667; and (iii)
for each Recruited or Retained Driver above 120 at the date
six months following Closing, the Base Amount shall be
increased by $2,500. For the purpose of this Section 2.9,
"Recruited or Retained Driver" shall mean (i) a Driver
operating for Seller at Closing and at the relevant date
operating for Smithway, (ii) a Driver recruited by Ralph
Marquardt after the Closing and operating for Smithway at the
relevant date, or (iii) a Driver recruited by Smithway after
the Closing and based at the Yankton or Stockton terminal at
the relevant date.
2.10 Yankton Lease. Smithway shall lease the Property from Seller
for four years at a monthly rental of $2,000, triple net,
pursuant to the Lease. The Lease shall provide Smithway with a
right of first refusal on any sale of the Property during the
Lease term or expiration thereof. Smithway and Seller shall
share equally the cost of a Phase I site environmental
assessment of the Property. Said Phase I Site Assessment shall
be completed prior to closing. If the results of the site
assessment indicate that remediation is required or additional
assessment is required, Smithway may at its
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option (i) elect not to proceed to closing or (ii) may require
Seller at Seller's expense to remediate pursuant to the South
Dakota Department of Environment and Natural Resources
Standards and Guidelines, in such event Seller shall hold
Smithway harmless from any contamination existing prior to
closing. If additional assessments or remediation are needed
for events on the Property arising after Closing, Smithway
shall bear the cost of such additional assessments or
remediation.
2.11 California Lease. Smithway shall assume from Seller the lease
of the property located in Stockton, California ("California
Property"). Such lease is attached as Exhibit F. Smithway and
Seller shall share equally the cost of a Phase I environmental
site assessment of the California Property. Said Phase I Site
Assessment shall be completed prior to Closing. If the results
of the site assessment indicate that remediation is required
or that additional assessment is required, Smithway may at its
option (i) elect to sublease the California Property from
Seller for the balance of the original lease term under the
California lease, (ii) may simply proceed to take an
assignment of said lease, or (iii) may elect not to proceed to
Closing. In any event, Seller shall hold Smithway harmless
from and against any liability arising from the presence of
contamination at the California Property during the time that
Seller has been in possession thereof. If additional
assessments or remediation are needed for events on the
California Property arising after Closing, Smithway shall bear
the cost of such additional assessments or remediation.
2.12 Marquardt Consulting Services. Ralph Marquardt agrees to
provide consulting services to Smithway, as an independent
contractor, for a period of six months following Closing.
Marquardt shall provide transition services as requested by
Smithway including driver recruitment and retention, and shall
receive $31,000, payable $5,167 monthly. Smithway shall
provide Marquardt with an office at the Yankton terminal while
he is providing services.
2.13 Inspection; Adjustment. From the period commencing with the
execution of this Agreement and continuing until all Leased
Tractors, Leased Trailers, Tractors, Trailers, MCT's and
Miscellaneous Equipment have been inspected as provided below
(even if after Closing), Seller and Smithway shall direct all
Leased Tractors, Leased Trailers, Tractors, and Trailers to
the Yankton or Stockton terminal of Seller, the Fort Dodge
terminal of Smithway, or any Kenworth or Freightliner dealer
for physical inspection (the "Inspection") either prior to or
within three (3) business days after the Closing. The
Inspection shall cover the condition and include amounts
required to return the items to satisfactory condition as
follows:
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A. as to Leased Tractors:
(i) the amount required to return the Leased
Tractors to turn-in condition under the
applicable Assigned Lease in terms of body
damage, general road worthiness, and other
maintenance or repair related turn-in
requirements under the applicable lease
(generally, no broken glass, $250 or less
body damage, and meeting DOT operating
specifications, but in each case as
specifically provided in the lease);
(ii) the amount of any penalty associated with a
violation of turn-in tread depth on tires or
if no penalty is specified, to provide tires
with at least 50% tread depth; and
(iii) the amount of excess mileage penalty
attributable to Seller. The Leased
Tractor's mileage shall be compared with the
total miles permitted without penalty under
the applicable lease, with such total
mileage being prorated to reflect the
percentage of the lease term attributable to
Seller from lease inception to Closing. If
the mileage exceeds the miles allowable
under the proportion of the lease term
served prior to Closing ("excess miles"),
Seller shall be liable for the number of
excess miles multiplied by the applicable
lease penalty per mile. For example, if a
lease permits 360,000 total miles during a
three-year term and Seller has run 240,000
miles during the first 18 months,
Shareholders or Seller would be liable for
any penalty attributable to up to the first
60,000 excess miles (240,000 mileage less
the 180,000 prorated allowable miles as of
Closing).
B. as to Tractors:
(i) the amount required to return the Tractors
to good operating condition in terms of body
damage, general road worthiness, and other
maintenance or repair, including no broken
glass, $250 or less body damage, no engine
or drive train repair required, and meeting
DOT operating specifications; and
(ii) the amount required to restore the Tractors
to 50% tread depth on tires and 50%
remaining life on brakes.
C. as to Trailers: each of the Trailers shall, at the
time of the Inspection, be in good repair and
condition, adequate for the normal course of
operating a trucking business, shall have a straight
frame and at least 50% wear remaining on brakes and
50% tread depth on all tires, shall have body damage
less than $250 per unit (excluding normally
acceptable damage to bumpers or rub rail), and shall
meet Department of Transportation standards of
road-worthiness.
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D. as to Leased Trailers: each of the Leased Trailers
shall, at the time of Inspection, be in good repair
and condition, adequate for the normal course of
operating a trucking business and shall have a
straight frame and shall include adjustment for (i)
the amount to return the Leased Trailers to turn-in
condition under the applicable Assigned Lease in
terms of body damage, general road worthiness, wear
on brakes, and wear on tires, and other maintenance
or repair related turn-in requirements under the
applicable Lease; and (ii) the amount of any penalty
associated with a violation of turn-in tread depth on
tires or if no penalty is specified, to provide tires
with at least 50% tread depth.
E. as to Miscellaneous Equipment: the MCTs and headache
racks shall be in good operating repair and
condition, suitable for continued use in the
Business. Smithway may test any of the MCTs within
72 hours of delivery of said MCTs to the Yankton
terminal and, if any malfunctions exist, Seller shall
either make necessary repairs or shall repurchase any
non-operational MCTs. After such 72-hours period,
however, Smithway shall be deemed as having accepted
such MCTs in their "as is" condition. All other
Miscellaneous Equipment shall not be subject to
warranty as to condition because Smithway is buying
only the items it elects to purchase at an agreed
price and is purchasing such items "as is."
F. Smithway shall provide the results of each Inspection
to Seller by means of an Inspection Report. The
Adjustment Amount reflected on the Inspection Report
shall be calculated as provided above and presented
to Seller for approval. In the event that Seller, for
any reason, does not approve the Adjustment Amount,
Seller shall have the following options:
(i) Seller may, at Seller's expense, repair the
Leased Tractor, Leased Trailer, Tractor,
Trailer, or other item to bring it up to the
foregoing standards;
(ii) Seller may pay Smithway the amount required
to repair such Leased Tractor, Leased
Trailer, Tractor, Trailer, or other item to
bring it up to the standard; or
(iii) Seller may elect not to sell or assign any
such Leased Tractor, Leased Trailer,
Tractor, Trailer, or other item and Smithway
shall not pay for or assume an Assigned
Lease or Assigned Equipment Financing in
connection with such item.
2.14 Excluded Assets and Liabilities. Smithway is not purchasing
any assets other than as specified herein. Smithway is not
assuming and shall not be deemed to have assumed, any
liabilities or obligations of Seller of any kind or nature
whatsoever, except as expressly provided in Section 2.2 hereof
with respect to the Assigned Leases and Assigned Equipment
Financing and pursuant to Sections 2.15 and 2.16
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with respect to accrued vacation and sick leave and Volvos,
respectively. Without limiting the generality of the
foregoing, it is hereby agreed that Smithway is not assuming,
and shall not be deemed to have assumed, any liability and
shall not have any obligation for or with respect to any
liability or obligation of Seller (i) for any advances or
receivables for Drivers, provided Smithway will assist Seller
in collecting on such advances or receivables and forwarding
collected sums to Seller, or (ii) for any notes, liabilities,
or obligations to the Shareholders.
2.15 Vacation and Sick Leave. At Closing, Seller shall pay to all
of its employees the accrued vacation and personal leave owed
to such employees by Seller.
2.16 Volvos. Smithway shall assume Seller's obligation to take
delivery of ten (10) 1996 model-year Volvo tractors that are
awaiting delivery at Sioux Falls Kenworth. Smithway shall
arrange for and be responsible for all financing of such
tractors. Seller and the Shareholders represent and warrant
that the entire purchase price of each of such tractors,
including all delivery charges, dealer preparation, federal
excise tax, and other amounts payable for or in connection
with such tractors is less than $62,500.
2.17 Revenue and Expense Cutoff. Seller shall retain all revenue
and shall pay all expenses associated with loads dispatched
prior to 12:01 a.m. on the Closing Date. Smithway shall be
deemed to take possession of any equipment in transit at the
time of Closing as of the time the load is delivered and
unloaded.
ARTICLE 3
Closing
The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur at 10:00 a.m., October ___, 1996 (the "Closing Date"), at
the office of Seller, or at such other time and place as the parties may
mutually agree (which alternative date shall become the Closing Date).
ARTICLE 4
Representations and Warranties
4.1 General Statement. The parties hereto make the representations
and warranties to each other as set forth in this Article 4.
The survival of all such representations and warranties shall
be in accordance with Section 8.3 hereof. All representations
and warranties of the parties are made subject to the
exceptions which are noted in the respective Schedules
attached hereto (the "Schedules"). Copies of all documents
referenced in the Schedules shall be attached thereto or
delivered separately.
4.2 Representations and Warranties of Smithway. Smithway
represents and warrants to Seller and the Shareholders, as
follows:
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A. Corporate Status. Smithway is a corporation, duly
organized, validly existing, and in good standing
under the laws of the State of Iowa with all
requisite power and authority to carry on its
respective business. Smithway is a wholly owned
subsidiary of Smithway Motor Xpress Corp. ("SMXC"),
a publicly traded corporation listed on the Nasdaq
National Market System.
B. Authority; Validity. Smithway has full right, power,
and authority to execute and deliver this Agreement,
and to consummate and perform the transactions
contemplated hereby. The execution and delivery of
this Agreement and any other contract or agreement
contemplated hereunder by Smithway and the
consummation and performance of the transactions
contemplated hereby have been duly and validly
authorized by all necessary corporate and other
proceedings. This Agreement has been duly executed
and delivered by Smithway and constitutes a legal,
valid, and binding obligation enforceable against
Smithway in accordance with its terms.
C. Noncontravention; Consents. The execution and
delivery of this Agreement (and every other contract
or agreement contemplated hereby) by Smithway does
not, and the performance of this Agreement (and every
other contract or agreement contemplated hereby) by
Smithway will not, violate, conflict with, or result
in the breach of any term, condition, or provision
of: (i) any existing Law to which it is subject,
(ii) any Judgment which is applicable, (iii) the
articles of incorporation or other charter documents
or bylaws of Smithway, or (iv) any contract to which
Smithway is a party or by which Smithway is otherwise
bound. No authorization, approval, or consent of,
and no registration, filing, or notice to, any
governmental authority or any other party to any
contract is required in connection with the
execution, delivery, and performance of this
Agreement by Smithway.
D. Drivers. As to all Drivers who meet Smithway's
driver standards, Smithway intends to offer
employment to such individuals and pay employee
Drivers at the rate per mile and the same other
benefits as received by Smithway employee drivers,
subject to Smithway's eligibility schedules. As to
independent contractor Drivers, Smithway shall offer
its standard independent contractor contract. All
Drivers employed by Smithway shall receive credit for
their length of service with Seller, and such
employees shall not be provided pay or benefits for
the period from Closing to six months thereafter,
which are less than those provided to such drivers by
Seller. If any employee drivers or owner operators
receive a reduction in pay or benefits and such
driver quits as a result thereof, Smithway agrees
that there shall be a like reduction in the 120
driver threshold established in Section 2.9.
E. Broker. Smithway has not contracted with or is aware
of any broker concerning the transaction contemplated
hereby except Ahern & Associates, Ltd.
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4.3 Representations and Warranties of Seller and Shareholders.
Shareholders and Seller, jointly and severally, represent
and warrant to Smithway as follows:
A. Corporate Status. Seller is a corporation, duly
organized, validly existing, and in good standing
under the laws of the State of South Dakota, with all
requisite power and authority to carry on its
business. Seller conducts its business only under its
own name and has no subsidiaries and no entities
affiliated through common ownership or otherwise that
conduct any business related to that conducted by
Seller.
B. Authority; Validity. Seller has full right, power,
and authority to execute and deliver this Agreement,
and to consummate and perform the transactions
contemplated hereby. The execution and delivery of
this Agreement by Seller and the consummation and
performance by it of the transactions contemplated
hereby have been duly and validly authorized by all
necessary corporate and other proceedings. This
Agreement has been duly executed and delivered by
Seller and the Shareholders and constitutes the
legal, valid, and binding obligation of each,
enforceable against each in accordance with its
terms.
C. Noncontravention; Consents. The execution and
delivery of this Agreement (and every other contract
or agreement contemplated hereby) by Seller and the
Shareholders does not, and the performance of this
Agreement (and every other contract or agreement
contemplated hereby) by Seller and the Shareholders
will not, violate, conflict with, or result in the
breach of any term, condition, or provision of: (i)
any existing Law to which Seller or either
Shareholder is subject; (ii) any Judgment which is
applicable to Seller or either Shareholder; (iii)
the articles of incorporation or other charter
documents or bylaws of Seller, which is a
corporation; or (iv) any material contract to which
Seller or either Shareholder is a party or by which
any is otherwise bound. No authorization, approval,
or consent of, and no registration, filing, or notice
to any governmental authority or other party to any
contract is required in connection with the
execution, delivery, and performance of this
Agreement by Seller and the Shareholders. Notwith-
standing the foregoing , approvals and consents may
generally be required by all of Seller's equipment
leasing companies, equipment financing companies,
banks, and landlords.
D. Financial Statements. Seller has delivered to
Smithway the annual, audited financial statements of
Seller as of December 31, 1994, and 1995, together
with the unaudited financial statements as of and for
the periods ended June 30, and July 31, 1996,
(collectively, the "Historical Financial
Statements"). The Historical Financial Statements,
including all balance sheets and statements of
income, cash flows, and retained earnings, and all
notes thereto, have been prepared in accordance with
GAAP, present fairly the financial condition and
results of operations of Seller for all periods
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reflected therein, are correct and complete, and are
consistent with the books and records of Seller,
which books and records are correct and complete.
E. Absence of Changes or Events. Except as disclosed on
Schedule 4.3.E., since July 31, 1996, Seller has not:
(i) sold, assigned, or transferred or agreed to
sell, assign, or transfer any of the
Leased Tractors, Leased Trailers, or
Transferred Assets or any interest therein;
(ii) created, incurred, assumed, or guaranteed
any indebtedness for money borrowed or any
other indebtedness or obligation of any
nature (absolute or contingent), that
involves the mortgage, pledge, or placement
of any Lien on any of the Leased Tractors,
Leased Trailers, or Transferred Assets, or
agreed to do any of the foregoing;
(iii) granted, entered into, or agreed to grant or
enter into any agreement or policy with any
Driver or other employee that grants
severance or termination pay, increases
compensation, increases benefits under any
current benefit plan, or creates any
continuing employment relationship;
(iv) experienced any labor unrest or union
organizing activity;
(v) suffered any material adverse change in its
Business, other than such changes as affect
all truckload carriers generally;
(vi) amended, terminated, or entered into any
agreement relating to the Leased Tractors,
Leased Trailers, Property, California
Property, Volvo Tractors, or Transferred
Assets; or
(vii) suffered any damage, destruction, or loss,
whether or not covered by insurance, which
would have a materially adverse effect on
the Business or the Transferred Assets.
F. Title and Condition of Assets. The Leased Tractors,
Leased Trailers, Tractors, Trailers, Specialized
Equipment, MCTs, and Miscellaneous Equipment are in
good repair and condition and adequate for the
ordinary course of operation of Seller's business as
presently conducted. Seller has good and valid title
to the Transferred Assets, in each case, free and
clear of all Liens, except Liens disclosed on
Schedule 4.3.F. Seller is the lessee under the
Assigned Leases and no party other than the
respective lessors thereunder has any other interest
in or Lien on the Assigned Leases (or the tractors
and trailers which are the subject thereof) except as
disclosed on Schedule 4.3.F. Seller is the borrower
under the Assigned Equipment Financing and no other
party other than the respective lender thereunder has
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any other interest in or Lien on the Assigned
Equipment Financing except as disclosed on Schedule
4.3.F. Except as disclosed on Schedule 4.3.F., there
are no agreements or similar understanding that limit
leasing of the Property or the purpose for which the
Property may be used.
G. Tax Matters. With respect to Taxes:
(i) Seller and Shareholders have filed, within
the time and in the manner prescribed by
law, all returns, declarations, reports,
estimates, information returns, and
statements (the "Returns") required to be
filed by it, including all such Returns with
respect to the Business and the Transferred
Assets, and all such Returns are true,
correct, and complete in all material
respects. Seller and Shareholders have
within the time and in the manner prescribed
by law, paid and hereafter will continue,
within the time and in the manner prescribed
by law, to pay all Taxes that relate to the
Business and the Transferred Assets for
periods prior to Closing. There are no
Liens for Taxes upon the Transferred Assets.
(ii) Except as set forth on Schedule 4.3.G.,
Seller and Shareholders have not received
notice of, nor is either under audit, any
audit by any tax authority, nor has a
deficiency for any Taxes been proposed,
asserted, or assessed against them. There
are no outstanding waivers or comparable
consents regarding the application of the
statute of limitations with respect to any
Tax or Return that have been given by Seller
or Shareholders.
(iii) Seller and Shareholders have complied in all
respects with all applicable laws, rules and
regulations relating to the payment and
withholding of Taxes and have, within the
time and in the manner prescribed by law,
withheld from employee wages and paid over
to the proper governmental authorities all
amounts required to be so withheld and paid
over under all applicable laws.
H. Litigation. Except as set forth in Schedule 4.3.H.,
there is no action, suit, or Proceeding pending or to
the best of Seller's knowledge threatened against
Seller that, if adversely determined, could have a
materially adverse effect on the Business or the
Transferred Assets.
I. Insurance. Seller maintains such insurance coverage
on (i) the Transferred Assets, its Business and
employees, which insurance covers liabilities and
risks prudently insured against by similar
businesses, (ii) the Leased Tractors and Leased
Trailers which complies in all respects with the
Assigned Leases, and (iii) the Tractors and Trailers
which complies in all material respects with the
Assigned Equipment Financing. All such insurance
policies will be maintained through Closing.
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J. Contracts and Commitments. Except for contracts
with independent contractor Drivers that relate to
the provision of equipment by such Drivers, Schedule
4.3.J. contains a complete list and description of
all contracts, involving, directly or indirectly, the
Transferred Assets, including any financing
arrangement involving the Leased Tractors, Leased
Trailers, Tractors, Trailers, or independent
contractor Drivers. Except as otherwise described,
each contract disclosed pursuant to this Section
4.3.J. is a valid and binding agreement of the
parties thereto, is in full force and effect, and no
party thereto is in material breach thereunder.
K. Drivers; Employees.
(i) Except as set forth on Schedule 4.3.K.,
Seller is not a party to any collective
bargaining agreement relating to its
employees, including employee Drivers, nor
does any such agreement determine the terms
and conditions of employment of any such
employee or employee Driver.
(ii) There are no agreements, plans, or policies
that would give rise to any severance,
termination, change-in-control, or other
similar payment to employees or independent
contractors of Seller as a result of the
consummation of this Agreement.
(iii) Schedule 4.3.K. identifies each of Seller's
Benefit Plans, copies of which, amended to
date, have been furnished to Smithway. No
Benefit Plan is a multi-employer or a
defined benefit plan, and neither Seller nor
any predecessor or affiliate has ever been a
party to or sponsored a multi-employer or
defined benefit plan. Seller and all
Benefit Plan fiduciaries have fully complied
with their obligations with respect to all
Benefit Plans; there has been no prohibited
transaction with respect to any Benefit
Plan; each Benefit Plan that is intended to
be qualified under Section 401(a) of the
Code is so qualified; each trust created
under any Benefit Plan is exempt from tax
under Section 501(a) of the Code and has
been exempt from tax from creation; and
Seller has received determination letters
from the Internal Revenue Service for each
such Benefit Plan. Each Benefit Plan has
been maintained in compliance with its terms
and all applicable Laws. All payments and
contributions due or accrued under each
Benefit Plan, determined in accordance with
such plans and prior funding and accrual
practices, have been paid. The "plan year"
of each Benefit Plan is the calendar year.
Seller has no current or projected liability
with respect to post -employment or post-
retirement welfare benefits for former or
retired employees.
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L. WARN Act Notice and Liability. The facility located
in Yankton, South Dakota is Seller's only employment
site with more than 50 employees. Seller has taken no
action in respect to employees of Seller that would
require notice or create liability under the Worker
Adjustment and Retraining Notification Act ("WARN
Act"), or any state counterpart.
M. Compliance With Laws. Seller has owned, leased, and
used all of its properties and assets involved in its
Business, and has conducted its Business, in
compliance in all material respects with all
applicable Laws.
N. Environment, Health, and Safety.
(i) Seller and affiliates have complied with all
Laws concerning pollution or protection of
the environment, public health and safety,
or employee health and safety, including
Laws relating to emissions, discharges,
releases, or threatened release of
pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or
wastes (including petroleum and any fraction
or derivative thereof) into ambient air,
surface water, ground water, or lands, or
otherwise relating to the manufacture,
processing, distribution, use, treatment,
storage, disposal, transport, or hauling of
such substances (collectively "Environmental
Laws"), and no action, suit, Proceeding,
hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or
commenced against any of them alleging any
failure so to comply. Without limiting the
generality of the preceding sentence, Seller
and affiliates have obtained and been in
compliance with all of the terms and
conditions of all Permits which are required
under, and has complied with all other
limitations, restrictions, conditions,
standards, prohibitions, requirements,
obligations, schedules, and timetables which
are contained in, all Environmental Laws.
(ii) Seller does not have any liability (and
neither Seller nor any affiliate has handled
or disposed of any substance, arranged for
the disposal of any substance, exposed any
employee or other individual to any
substance or condition, or owned or operated
any property or facility in any manner that
could form the basis for any present or
future action, suit, Proceeding, hearing,
investigation, charge, complaint, claim, or
demand against Seller giving rise to any
liability) for damage to any site, location,
or body of water (surface or subsurface),
for any illness of or personal injury to any
employee or other individual, or for any
reason under any Environmental Law.
(iii) Any fuel storage tanks located at properties
owned or used by Seller in its Business,
including the Property and California
Property, comply in all respects with
applicable Laws, do not leak, are
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registered with the appropriate state agency
(and all required actions in connection
therewith have been taken) in the manner
permitting Seller to take advantage of any
state liability limitation, insurance, or
similar program relating to fuel storage
tanks, and such tanks are not scheduled for
removal in the next five years.
O. No Untrue Statement or Omissions of Material Fact.
The representations, warranties, and covenants
contained in this Agreement and the Schedules and
Exhibits hereto and in any document delivered in
connection herewith appended to this Agreement, do
not contain any untrue statement of a material fact
and do not omit to state any fact necessary to make
any statement herein or therein not misleading or
necessary to a correct presentation of all material
aspects of the Business, the Transferred Assets, and
the matters contemplated under this Agreement.
P. Broker. Seller and Shareholders have not contracted
with or are aware of any broker concerning the
transaction contemplated hereby except Ahern &
Associates, Ltd.
ARTICLE 5
Covenants and Agreements
5.1 Conduct of Business Pending the Closing. From the date hereof
to the Closing:
A. Seller shall carry on its business diligently and
substantially in the same manner as heretofore and
shall not make or institute any unusual or novel
method of purchase, sale, lease, management,
accounting, or operation, and Seller and the Share-
holders will use their best efforts to preserve the
assets, goodwill, and value of Seller's business,
including keeping Seller's present management intact,
keeping available Seller's present employees, and
preserving the present relationships with its
suppliers and customers and others having business
relations with it.
B. Seller and the Shareholders shall not, without the
prior written consent of Smithway take, or permit to
be taken, any action which would render untrue any
representation or warranty contained in Section 4.3.
5.2 Access. Seller shall give the officers, employees, counsel,
accountants, and other authorized representatives of Smithway
free and full access to and the right to inspect, during
normal business hours upon advance notice, all of the
premises, properties, assets, records, contracts, and other
documents relating to Seller's Business and shall permit them
to consult with Seller's officers, employees, accountants,
counsel, agents, customers, and other persons having business
dealings with Seller or knowledge of its business, operations,
assets, liabilities, actual or potential litigation and
claims, properties, and prospects; provided, that such
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investigation shall not unreasonably interfere with Seller's
business. Furthermore, Seller shall promptly provide to
Smithway (and their representatives) all such reports,
surveys, documents, and copies of documents and records and
information with respect to the Business and copies of any
working papers relating thereto as they shall from time to
time reasonably request. Smithway acknowledges and agrees that
all information regarding the Seller gathered pursuant to this
Section 5.2 is confidential to Seller. Smithway further
acknowledges that Seller would be irreparably harmed if, after
having such access to Seller's confidential information,
Smithway did not proceed to closing. In consideration of
Seller making available to Smithway such books, records, and
files, Smithway agrees as follows:
A. All such information provided to Smithway by Seller
shall not be disclosed by Smithway to any third
party.
B. Smithway will disclose such information to its
officers, directors, and agents only on a "need to
know" basis.
C. Smithway shall use its best efforts and due diligence
to prevent the dissemination of any of Seller's
confidential information by buyers, directors,
officers, employees, or agents.
D. Smithway agrees to indemnify and hold harmless Seller
from any damages, loss, costs, or liabilities
(including legal fees and the cost of enforcing this
indemnity) arising out of or resulting from any
unauthorized use or disclosure of the information
gathered in Smithway's negotiations with Seller.
Smithway acknowledges that money damages will be
incalculable and an insufficient remedy for any
breach of this Agreement by Smithway or its
representatives and that any such breach would cause
Seller irreparable harm. Accordingly, Smithway also
agrees that in the event of any breach hereof, Seller
shall be entitled, without the requirement of posting
a bond or other security, to equitable relief,
including without limitation injunctive relief and
specific performance. Said remedies shall not be the
exclusive remedies for any breach of this Agreement
but shall be in addition to all of the remedies
available at law or in equity to the Seller.
5.3 Publicity and Filings. The parties agree that Smithway shall
be authorized to issue such press releases or file such
documents with the Securities and Exchange Commission, Nasdaq,
and other agencies as recommended by Smithway's counsel. The
parties acknowledge that Smithway shall announce the existence
of this Agreement only after all parties hereto have executed
this Agreement, or as it otherwise deems necessary to comply
with its obligations under the federal and state securities
laws and Nasdaq rules and regulations.
5.4 Equipment Registration. Seller shall not renew the licenses
or registrations of, or purchase new license plates for, any
of the Leased Tractors, Tractors, Trailers, or Specialized
Equipment between the date hereof and the Closing.
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5.5 Non-competition.
A. During the three years following the Closing, neither
Shareholders nor any entity of which a Shareholders
directly or indirectly owns more than 5% shall (i)
own, operate, manage, be employed or retained as a
consultant by, or in any other manner assist any
truckload carrier, broker, agent, intermodal company,
consolidator, third-party logistics provider, or
other company engaged in the business of transporting
or arranging for the transportation of truckload
freight that conducts a competitive business in the
United States; (ii) divert or solicit any person who
is or was a customer of Seller during such period; or
(iii) induce or influence any employee, agent, owner-
operator, or other representative of Seller to leave
Seller or engage in a competitive business. For the
purposes of this Agreement, "competitive business"
shall mean flatbed operations but shall not include
(i) selling or leasing the Nonacquired Trucks to
third-parties or owner-operators of Seller (but the
sale or lease to any employee driver of Seller shall
be prohibited); or (ii) owning up to three (3)
tractors used to haul the Shareholders' own farm
equipment and farm commodities from his own farm.
The parties deem the restrictions contained in this
Section reasonable and necessary to secure for
Smithway the benefits of employing Shareholders and
obtaining for the stockholders of SMXC the benefits
of this Agreement. However, if a court of competent
jurisdiction determines that such restrictions are
unreasonable, the restrictions shall be reduced by
the court to a reasonable level and enforced in
accordance therewith pursuant to Section 8.13 hereof.
B. The existence of any claim or cause of action by
Shareholders against SMXC, whether predicated on this
Agreement or otherwise, shall not constitute a
defense to the enforcement by Smithway of this
covenant. It is expressly agreed that the remedy at
law for the breach of any such covenant is inadequate
and injunctive relief shall be available to prevent
the breach or any threatened breach thereof.
5.6 Volvos. Seller shall not sign or agree to any financing on
the ten (10) 1996 Volvo tractors scheduled for delivery in
September without Smithway's consent.
5.7 Insurance. Effective as of the date of Closing, and for a
period of three years thereafter, Smithway agrees to cause
Seller and the Shareholders to be named as additional insureds
as to acts of Smithway after Closing under Smithway's primary
and umbrella public liability policies. Smithway agrees to
provide Seller with proof of coverage, from time to time, as
reasonably requested by Seller.
5.8 Driver Recruiting. Subject to Smithway's overall management
and control, Ralph Marquardt shall be afforded reasonable
support and funding for recruiting and retaining Drivers after
the Closing.
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ARTICLE 6
Conditions to Closing
6.1 Conditions Precedent for all Parties. The respective
obligations of each party to effect this Agreement shall be
subject to the fulfillment of all of the following conditions
precedent at or prior to Closing:
A. Representations and Warranties True as of Closing.
The representations and warranties of each party
hereto contained in this Agreement or in any list,
certificate, or document delivered by such party to
the other pursuant to the provisions hereof shall be
true in all material respects at and as of the
Closing with the same effect as though such
representations and warranties were made as of such
date.
B. Compliance with this Agreement. Each party hereto
shall have performed and complied in all material
respects with all agreements, covenants, and
conditions required to be performed or complied with
by such party under this Agreement.
C. Closing Certificates. Each corporate party hereto
shall have received a certificate from the other,
dated as of the Closing Date, and signed on behalf of
each by its president, and Smithway shall have
received the certificate of Shareholders, each
certifying in such detail as the other party may
reasonably request that the conditions specified in
this Article 6 have been fulfilled.
D. Opinion of Counsel. Counsel for each party shall
have delivered to the other party its written
opinion, dated as of the Closing Date, substantially
in the form of Exhibits H-1 and H-2, respectively.
E. No Bar to Consummation of Transaction. There shall
not exist any injunction or decree by any federal,
state, or provincial court which prevents the
consummation of this Agreement and there shall have
not been enacted any statute or regulation which
would prevent the consummation of this Agreement. All
governmental consents and approvals required for this
Agreement shall have been obtained.
F. Leases. The parties shall have executed the Lease
and received consents to assignment of the Lease on
the California Property as well as the agreement of
subtenants at the California Property to continue
subleasing portions of such property from Smithway
on terms comparable to those currently in place.
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6.2 Conditions Precedent to the Obligation of Smithway. In
addition to the requirements of Section 6.1, the obligations
of Smithway under this Agreement are subject to the
fulfillment of all of the following conditions precedent at or
prior to Closing:
A. Adverse Changes. There shall not have been any
materially adverse changes in the Business or the
condition of the Transferred Assets. The Transferred
Assets shall not have suffered any destruction or
damage by fire, accident or other casualty or Act of
God, whether or not covered by insurance, which
affects such equipment in a material and adverse way.
B. Due Diligence. Smithway shall have completed its due
diligence investigation of Seller, and the various
information provided by Seller, and shall have
determined that there is no material violation of any
of Seller's or the Shareholders' representations and
warranties contained herein, that there exists no
previously undisclosed condition with respect to the
Business that is materially adverse. This
investigation shall include specifically the
agreement of major customers of Seller to use
Smithway after the Closing at least to the extent
such customers used Seller; provided, that Smithway's
service is acceptable. The parties acknowledge that
the Schedules to this Agreement were delivered
without adequate time for Smithway to investigate and
understand the full nature of the items being
disclosed. Accordingly, the disclosures thereon
shall not be considered "previously disclosed"
conditions, and Smithway shall be entitled to its
full due diligence investigation and right to
terminate this Agreement without liability if any
item (or the aggregate of such items) on the
Schedules indicates a materially adverse condition
with respect to the Business.
C. Seller shall have obtained and filed releases of all
Liens on the Leased Tractors, Leased Trailers, and
Transferred Assets except the Liens imposed by the
Assigned Leases and Assignment Equipment Financing.
Notwithstanding disclosure of a Lien on any Schedule
to this Agreement, in any public record, or
otherwise, at Closing, Seller shall convey, by
appropriate documents, good and valid title to the
Leased Tractors, Leased Trailers, and Transferred
Assets, in each instance free and clear of all Liens
except the Liens imposed by the Assigned Leases and
Assigned Equipment Financing.
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ARTICLE 7
Indemnification
7.1 Indemnification by Seller and Shareholders. Seller and the
Shareholders, jointly and severally, shall indemnify, defend,
and hold harmless Smithway, SMXC, and their officers,
directors, shareholders, employees, agents, and
representatives from and against any and all claims, causes of
action, suits, judgments, taxes, losses, damages,
deficiencies, obligations, costs, and expenses (including,
without limitation, interest, penalties, reasonable attorneys'
fees, and costs) arising out of or otherwise in respect of:
(i) any misrepresentation, inaccuracy in, or breach of any
representation, warranty, covenant, or agreement of Seller or
Shareholders contained in this Agreement or any Exhibit, or
other document or agreement executed in connection herewith;
(ii) any third-party claims relating to the Business or the
Transferred Assets that are not expressly assumed by Smithway
under this Agreement and that do not arise from actions of
Smithway after Closing; and (iii) any third-party claims not
relating to the Transferred Assets or the Business that arise
from actions of Seller or Shareholders, regardless of whether
such actions are before or after Closing.
7.2 Indemnification by Smithway. Smithway shall indemnify, defend,
and hold harmless Seller and Shareholders and their officers,
directors, employees, agents, and representatives from and
against any and all claims, causes of action, suits,
judgments, taxes, losses, damages, deficiencies, obligations,
costs, and expenses (including, without limitation, interest,
penalties, reasonable attorneys' fees, and costs) arising out
of or otherwise in respect of: (i) any misrepresentation,
inaccuracy in, or breach of any representation, warranty,
covenant, or agreement of Smithway contained in this
Agreement; (ii) any transaction or claim relating to the
operation of Smithway, the Leased Tractors, the Leased
Trailers or the Transferred Assets, the factual basis of which
transaction or claim arose subsequent to the Closing
(including but not limited to Smithway's use of the
Nonacquired Trucks, Leased Tractors, Leased Trailers,
Tractors, and Trailers); and (iii) liabilities under the
Assumed Tractor Leases and Assumed Equipment Financing.
7.3 Indemnification Procedures. A party seeking indemnification
under Section 7.1 or 7.2 (the "Indemnified Party") agrees to
give prompt written notice to the party against whom
indemnification is sought (the "Indemnifying Party") of the
assertion of any claim or commencement of any Proceeding in
respect of which indemnification may be sought. The
Indemnifying Party may, at its expense, assume the defense of
any claim or Proceeding in respect of which indemnification is
sought hereunder, and take all steps to settle or defeat any
such claims, and to employ counsel to contest any such claims;
provided, however, that the Indemnifying Party shall
reasonably consider the advice of the Indemnified Party as to
the defense of such claims. The Indemnified Party shall have
the right to participate at its own expense in such defense,
but the control of such litigation or settlement shall remain
with the Indemnifying Party. The Indemnified Party shall
provide all reasonable cooperation in connection with any such
defense. If a party from whom indemnification is sought elects
not to undertake the defense thereof or does not do
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so in a timely fashion, the Indemnified Party shall be
entitled to control the defense or settlement of such claim or
Proceeding and shall be entitled to indemnity with respect
thereto.
7.4 Maximum Liability. The maximum liability of the Shareholders
for indemnification shall be $600,000 in total (and not
$600,000 for each Shareholder). Further, the Shareholders'
obligations under the indemnification section shall terminate
on that date which is three years after the date of Closing
with the exception of liabilities respecting Taxes and
environmental issues. With respect to Taxes, the obligations
of Shareholders under the indemnification shall terminate on
that date which is six months following the last date on which
a claim may be made under applicable statutes of limitations.
With respect to environmental issues, the obligations of the
Shareholders under the indemnification shall terminate on that
date which is six years following the date of Closing.
7.5 Guarantees. Smithway Motor Xpress Corp, a Nevada corporation,
hereby guarantees all liabilities of Smithway owing to Seller
or Shareholders and arising under this Agreement to the same
extent indemnification would be due and owing from Smithway.
ARTICLE 8
Miscellaneous
8.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement (and all other agreements
contemplated hereby) may be terminated by any party by written
notice of termination to the other parties before the Closing
(a) at any time if the representations and warranties made to
such party were materially incorrect when made and have not
been cured by the Closing, (b) any condition precedent to the
terminating party's obligations hereunder has not been
satisfied or waived prior to the Closing, or (c) any court of
competent jurisdiction in the United States or any state shall
have issued an order, judgment, or decree (other than a
temporary restraining order) restraining, enjoining, or
otherwise prohibiting the transaction contemplated hereby and
such order, judgment, or decree shall have become final and
non-appealable. This Agreement may also be terminated by
mutual consent of all parties hereto. In the event of
termination of this Agreement as provided above, this
Agreement shall forthwith become void and there shall be no
liability on the part of any party hereto; provided that a
party then in breach shall be liable for such breach.
8.2 Costs and Expenses; Brokers' Fees. Each party to this
Agreement shall bear its own expenses incurred in connection
with the negotiation and execution of this Agreement and the
Closing. Smithway shall pay the brokerage fee owed to Ahern &
Associates, Ltd. Any party through which a broker or finder
claims any fee, commission, or payment resulting from or
arising out of the negotiation or execution of this Agreement
or the consummation of the transactions contemplated
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hereby agrees to indemnify, defend, and hold the other
harmless from and against any claim.
8.3 Survival of Representations, Warranties, Covenants, and
Agreements. The covenants, agreements, representations, and
warranties of the parties hereto contained in this Agreement
or in any certificate or other writing delivered pursuant
hereto or in connection herewith shall survive and be
enforceable following the Closing for a period of three years.
The foregoing notwithstanding, all covenants, agreements,
representations, and warranties respecting Taxes shall survive
until the date six months following the last date on which a
claim may be made under applicable statutes of limitation and
all covenants, agreements, representations, and warranties
respecting environmental issues shall survive until six years
following the date of Closing.
8.4 Complete Agreement, etc. All exhibits and schedules referred
to herein are intended to be and hereby are specifically made
a part of this Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the
transactions contemplated hereby. It shall not be amended or
modified except by written instrument duly executed by each of
the parties hereto. Any and all previous agreements and
understandings between or among the parties regarding the
subject matter hereof, whether written or oral, are superseded
by this Agreement.
8.5 Assignment and Binding Effect. This Agreement may not be
assigned prior to the Closing by any party hereto without the
prior written consent of the other parties; provided, that
Smithway may assign its rights to another subsidiary of SMXC
if it guaranties performance of all of its obligations
hereunder. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure
to the benefit of and be enforceable by the successors and
assigns of any party.
8.6 Waiver. Any term or provision of this Agreement may be waived
at any time by a written instrument duly executed by the party
entitled to the benefit thereof.
8.7 Attorneys' Fees. Should any party hereto breach any term of
this Agreement, the defaulting party shall pay to the
non-defaulting party all reasonable attorneys' fees and other
costs and fees incurred by the non-defaulting party in
enforcing this Agreement, and such amounts shall be included
in any judgment obtained in enforcing this Agreement.
8.8 Time. Time is of the essence in connection with this Agreement
and each and every provision hereof. Any extension of time
granted for the performance of any duty under this Agreement
shall not be considered an extension of time for the
performance of any other duty under this Agreement.
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8.9 Notices. Any notice, request, demand, waiver, consent,
approval, or other communication required or permitted
hereunder shall be in writing and deemed given only if
delivered personally or sent by telecopier or certified mail,
postage prepaid, as follows:
If to Smithway: With a required copy to:
Mr. William G. Smith, President Mark A. Scudder, Esq.
Smithway Motor Xpress, Inc. Scudder Law Firm, P.C.
Rural Route #5 411 South 13th Street, Suite 200
Fort Dodge, Iowa 50501 Lincoln, Nebraska 68508
If to Shareholders or Seller: With a required copy to:
Mr. Ralph Marquardt Jonathan P. Brown, Esq.
P.O. Box 1040 Davenport, Evans, Hurwitz & Smith, L.L.P.
Yankton, South Dakota 57078 513 South Main Avenue
P.O. Box 1030
Sioux Falls, South Dakota 57101-1030
or to such other address as the addressee may have specified
in a notice duly given to the sender as provided herein. Such
notice, request, demand, waiver, consent, approval, or other
communication shall be deemed to have been given as of the
date so personally delivered, deposited in the mail, or
telecopied.
8.10 Cooperation. Subject to the terms and conditions herein
provided, the parties hereto shall use their best efforts to
take, or cause to be taken, such action, to execute and
deliver, or cause to be executed and delivered, such
additional documents and instruments and to do, or cause to be
done, all things necessary, proper, or advisable under the
provisions of this Agreement and under applicable law to
consummate and make effective the transactions contemplated by
this Agreement.
8.11 Governing Law. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the
State of South Dakota.
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8.12 Headings, Gender, and Person. All section headings contained
in this Agreement are for convenience and reference only, do
not form a part of this Agreement and shall not affect in any
way the meaning or interpretation of this Agreement. Words
used herein, regardless of the number and gender specifically
used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine,
feminine, or neuter, as the context requires. Any reference to
a "person" herein shall include an individual, firm,
corporation, partnership, trust, governmental authority, or
any other entity.
8.13 Severability. Any provision of this Agreement that is invalid
or unenforceable in any jurisdiction shall be ineffective to
the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability
in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.14 No Third Party Beneficiary Rights. This Agreement is not
intended to and shall not be construed to give any person or
entity other than the parties signatory hereto any interest or
rights (including, without limitation, any third party
beneficiary rights) with respect to or in connection with any
agreement or provision contained herein or contemplated
hereby.
8.15 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such
counterpart, each of which when executed and delivered shall
be deemed to be an original and all of which counterparts
taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or
more counterparts taken together shall have been executed and
delivered by the parties. It shall not be necessary in making
proof of this Agreement or any counterpart hereof to produce
or account for any of the other counterparts.
8.16 Approval of Exhibits and Schedules. The respective obligations
of each party is conditioned on all parties approving the
exhibits and schedules, despite such approval, if any,
occurring after signature of this agreement.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first written.
MARQUARDT TRANSPORTATION, INC., SMITHWAY MOTOR XPRESS, INC.,
a South Dakota corporation an Iowa corporation
By:------------------------------- By:------------------------------
Ralph Marquardt, President William G. Smith, President
With respect to Sections 4.3, 5.1, 5.5,
6.1, and 7.1 only,
- ------------------------------ With respect to Section 7.5 only,
Ralph Marquardt, Individually SMITHWAY MOTOR XPRESS CORP.,
a Nevada corporation
- ------------------------------
Lucille Marquardt, Individually By:------------------------------
William G. Smith, President
28
<PAGE>
FIRST AMENDMENT TO
ASSET PURCHASE AGREEMENT
This First Amendment to Asset Purchase Agreement (the "Amendment") is
made as of October 24, 1996, by and among Smithway Motor Xpress, Inc., an Iowa
corporation ("Smithway"); Smithway Motor Xpress Corp., a Nevada corporation;
Marquardt Transportation, Inc., a South Dakota corporation ("Seller"); and Ralph
and Lucille Marquardt, individual residents of Yankton, South Dakota and
Seller's sole Shareholders (together, the "Shareholders").
RECITALS
The parties previously entered into that certain Asset Purchase
Agreement dated October 4, 1996, (the "Main Agreement"). Certain events have
transpired since the execution of the Main Agreement that the parties wish to
reflect in writing.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants, representations, and warranties herein contained, and upon the
terms and conditions hereinafter set forth, the parties hereto agree as follows:
1. Amendment of Main Agreement. The provisions of this Amendment shall
supplement and amend the Main Agreement as specifically stated herein. Except as
stated herein, the Main Agreement shall continue in full force and effect.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed in the Main Agreement.
2. California Lease. Section 2.11 of the Main Agreement is deleted in
its entirety and replaced with new Section 2.11, which shall read as follows:
2.11 California Lease. The parties have requested a Phase I
environmental site assessment concerning the property leased by Seller
in Stockton, California (the "California Property"). The parties have
received a draft of the executive summary, but the entire report has
not been delivered because of delays in receiving county records. The
executive summary recommends that samples be taken in two locations and
the parties have agreed to do so. It is anticipated that the results of
the sampling process and county records search will be known on or
about November 15. Seller hereby grants Smithway a license to use the
California Property to the full extent Seller is able to use the
California Property under the leased attached as Exhibit F to the Main
Agreement (the "California Lease"). The license granted pursuant to
this Section shall commence at Closing and extend until consummation of
one of Smithway's options set forth below. With five (5) business days
after the later of (a) delivery to Smithway of the final Phase I
environmental site assessment and (b) delivery to Smithway of the
results of the site sampling mentioned above, Smithway will select and
consummate one of the following options: (a) take an assignment of the
California Lease and all rights to payments from subtenants from
1
<PAGE>
Seller and agree to pay, perform, and discharge all obligations under
the California Lease; or (b) decline to accept assignment of the
California Lease and cease using the California Property, in which
event, the license referred to above shall extend for another thirty
(30) days. During the period of the license, Smithway shall reimburse
Seller, on a prorated daily basis, for the difference between Seller's
rent under the California Lease and the payments received from
subtenants. The deferred decision on the California Property shall not
affect the Closing of the other transactions under the Main Agreement.
3. Miscellaneous Equipment. Exhibit B to the Main Agreement is amended
to read as reflected on attached Amended Exhibit B. Exhibit B lists a Computer
System 36/400, disk drive, printers (4), 19 Memorex/IBM terminals, one XT
Caliber Computer, 15 emulation cards (the "Computer Equipment"). Seller shall
retain the Computer Equipment after Closing for a period of at least thirty (30)
days.
4. Transition Services. The parties recognize that each will require the
services of certain employees and assets employed or owned by the other after
Closing in order to effect a smooth transition. Certain employees of Seller are
listed on attached Exhibit X (the "Subject Employees"). Seller agrees to
continue the employment of the Subject Employees for thirty (30) days after
Closing, or such lesser period as to which the parties mutually agree (the
"Employment Period"). During the Employment Period, the Subject Employees shall
devote their time to duties of both Seller and Smithway, including, but not
limited to billing and collecting receivables of both Seller and Smithway and
performing such other tasks as may be reasonably requested. Smithway shall
reimburse Seller for all wages paid to the Subject Employees for services
performed during the Employment Period. Smithway and Seller also shall have
joint use of the Computer Equipment (and such other related equipment required
to make the Computer Equipment useful in the ordinary course of business).
Smithway shall pay Seller $5,000 for the use of the Computer Equipment from
Closing until conversion to Smithway's system.
5. Prepayment Penalties. Seller estimates that the maximum amount of such
prepayment penalties for Orix will be $7,000. Smithway shall pay up to $7,000 of
the actual amount of such Orix penalties. The penalty on Newcourt is estimated
at $6,993.81. Smithway will pay up to $3,500 of the amount finally negotiated by
Ralph Marquardt.
6. Cabovers. No financing documents or payoff amounts have been provided
with respect to Tractor No. 780 and 781 listed on Exhibit E to the Main
Agreement (the "Cabovers"). Smithway shall purchase the Cabovers from Seller as
follows: Upon receipt of a payoff letter from the lender on the Cabovers,
Smithway shall pay the lender up to $114,000 of the total amount due to retire
all obligations for both Cabovers and Seller shall pay the remainder, if any and
convey title to the Cabovers to Smithway free and clear of all liens. If the
amount required to retire the obligations and convey free and clear title is
greater than $114,000 for both Cabovers, (a) Seller may pay the remainder and
Smithway shall complete the purchase or (b) Seller may retain the Cabovers and
Smithway shall have no obligation or liability whatsoever with respect to the
Cabovers. If the payoff amount is not known at Closing, Smithway may rent the
Cabovers from Closing until November 2, 1996, for $44 each per day.
2
<PAGE>
7. Inspections and Inventory. Under Section 2.13 of the Main Agreement,
the parties have agreed to certain Inspections of Tractors, Trailers, Leased
Tractors, and Leased Trailers, the majority of which will occur within the three
(3) business days after Closing. The parties also intend to conduct a physical
count of certain inventory listed on Exhibit B to the Main Agreement. For
purposes of Closing, the inventory purchase price is assumed to be $179,663.12,
which shall be paid at closing but shall be adjusted to be an actual amount
following a physical count as promptly as possible after Closing. The settlement
of (a) the inventory adjustment and (b) the payment of any aggregate Adjustment
Amount by Seller shall be held on or before November 2, 1996.
8. Prepaid Licenses. The amount of the payment by Smithway under Section
2.5 of the Main Agreement shall be $15,240.
9. Driver Assets.
A. Seller has permitted drivers to have pets on board certain
Tractors and Leased Tractors if such drivers pay a $500 deposit.
Smithway does not permit drivers to have pets. As a driver retention
incentive Smithway will "grandfather" existing drivers and pets that
have paid deposits and will permit any drivers with pets that have not
yet paid deposits to become "grandfathered" by making a $500 deposit
with Smithway. Seller will transfer all deposits to Smithway at
Closing.
B. All driver-owned toolboxes will be left on Tractors and
Leased Tractors and will be given to drivers if installed on tractors
not being purchased by Smithway. All Seller-owned toolboxes may be
removed from Tractors and Leased Tractors by Seller.
10. Deposit of Transfer Documents and Purchase Price. The parties have
agreed to meet and execute Closing documents on October 24, 1996. They have
agreed that the Closing will be effective at 12:01 a.m. October 26, 1996. The
Closing deliveries of Seller and the Shareholders shall be held by Scudder Law
Firm, P.C., until the effective time of the Closing, and the Closing deliveries
of Smithway and SMXC shall be held by Doug Kettering or wire transferred to
creditors October 25, 1996, until the effective time of the Closing. Scudder Law
Firm, P.C., shall be authorized to deliver the respective Closing deliveries
held by it at or after the effective time of the Closing unless it has received
notice of a breach of the Main Agreement by Seller or the Shareholders prior to
such time. Davenport, Evans, Hurwitz & Smith L.P., shall be authorized to
deliver the respective Closing deliveries held by it at or after the effective
time of the Closing unless it has received notice of a breach of the Main
Agreement by Smithway or SMXC prior to such time.
11. Auction. Seller has stored certain non-rolling stock assets
(storage trailers and passenger trailers) at the rear of the Property. Smithway
agrees that Seller may hold one auction on a mutually acceptable weekend day to
dispose of the assets. Seller agrees that neither the auction, nor any
pre-auction activities, will disrupt Smithway's business, and Seller agrees to
arrange all the auction and related activities to prevent any business
disruption. The rights granted hereunder do not afford the right to use any of
the physical structures on the Property.
3
<PAGE>
12. Counterparts. This Amendment may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Amendment shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Amendment or any counterpart hereof to
produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment on the date first written.
MARQUARDT TRANSPORTATION, INC., SMITHWAY MOTOR XPRESS, INC.,
a South Dakota corporation an Iowa corporation
By:--------------------------- By:-------------------------
Ralph Marquardt, President William G. Smith, President
- ------------------------------ SMITHWAY MOTOR XPRESS CORP.,
Ralph Marquardt, Individually a Nevada corporation
- ------------------------------ By:-------------------------
Lucille Marquardt, Individually William G. Smith, President
4
<PAGE>
SECOND AMENDMENT TO
ASSET PURCHASE AGREEMENT
This Second Amendment to Asset Purchase Agreement (the "Amendment") is
made as of December 12, 1996, by and among Smithway Motor Xpress, Inc., an Iowa
corporation ("Smithway"); Smithway Motor Xpress Corp., a Nevada corporation;
Marquardt Transportation, Inc., a South Dakota corporation ("Seller"); and Ralph
and Lucille Marquardt, individual residents of Yankton, South Dakota and
Seller's sole Shareholders (together, the "Shareholders").
RECITALS
The parties previously entered into that certain Asset Purchase
Agreement dated October 4, 1996, (the "Main Agreement") and a First Amendment to
Asset Purchase Agreement dated October 24, 1996 (the "First Amendment"). Certain
events have transpired since the execution of the Main Agreement and First
Amendment that the parties wish to reflect in writing.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants, representations, and warranties herein contained, and upon the
terms and conditions hereinafter set forth, the parties hereto agree as follows:
1. Amendment of Main Agreement and First Amendment. The provisions of
this Amendment shall supplement and amend the Main Agreement and First Amendment
as specifically stated herein. Except as stated herein, the Main Agreement and
First Amendment shall continue in full force and effect. Capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed in the
Main Agreement and First Amendment.
2. California Lease. On the date hereof, Seller shall assign to
Smithway, and Smithway shall accept from Seller, an assignment of the lease
attached as Exhibit G to the Main Agreement (the "California Lease") and all
rights to payments from subtenants, and Smithway shall agree to pay, perform,
and discharge all obligations under the California Lease from and after the date
hereof. Rent payable by Smithway under the California Lease shall be prorated
from October 26, 1996, to November 1, 1996, resulting in a $967 payment by
Smithway to Seller. For the additional soil samplings that were required in the
Stockton Phase I Environmental Assessment, Seller and Smithway each shall pay
half of the $1,226.50 fee assessed for the soil samplings. Smithway shall pay
the entire amount due for the additional soil samplings and $613 will be
deducted from the Escrowed Funds, as hereinafter defined, released to Seller.
3. Inventory. Pursuant to Section 2.6 of the Main Agreement Smithway was to
pay cost for parts, tires, supplies, and general inventory (not to include items
out-dated and non-usable to Smithway). Pursuant to the First Amendment, such
amount was subject to adjustment from a physical count of such inventory.
Smithway has conducted an inspection and tagging of the inventory and determined
the amount that is not out-dated and non-usable. At closing, Smithway deposited
1
<PAGE>
in escrow with Davenport, Evans, Hurwitz & Smith, L.P. ("Escrow Agent"),
the amount of $369,313 (the "Escrowed Funds"), including $179,663.12 as an
estimated amount for the parts and tire inventory. The parties hereby agree to
deductions of $40,975 and $51,686 for the parts and tire inventory,
respectively, from the $179,663.12 estimated amount. The parties further agree
that $92,661 shall be deducted from the remaining Escrowed Funds and returned to
Smithway to effect the parts and tire inventory adjustment previously described.
4. Goodwill Payment. Smithway heretofore has paid Seller $448,000
pursuant to Section 2.9 of the Main Agreement. The Main Agreement provided for a
payment of $200,000 on April 25, 1997, adjusted upward or downward based upon
the number of drivers then based in Yankton. The parties hereby agree to
eliminate such adjustment and alter the payment schedule to provide that
Smithway shall pay Seller $100,000 on the date hereof and deliver Seller a
promissory note due April 25, 1997, in the amount of $100,000. Accordingly,
Section 2.9 of the Main Agreement is deleted in its entirety and replaced with
new Section 2.9, which shall read as follows:
2.9 Business. Smithway shall pay Seller $648,000 for the
goodwill associated with the Business, including the
value of ongoing shipper, Driver, and other business
relationships. Payment shall be made as follows: (a)
at Closing, Smithway paid $448,000 to Marquardt, and
(b) on December 12, 1996, Smithway shall deliver to
Seller a check in the amount of $100,000 and a
promissory note due April 25, 1997, in the amount of
$100,000.
5. Inspections and Return of Marquardt Equipment. Pursuant to Section
2.13 of the Main Agreement, the parties conducted certain Inspections of
Tractors, Leased Tractors, Trailers, and Leased Trailers. The parties hereby
agree that the Adjustment Amount is $33,286, representing $8,271 for brake and
tire wear to the Tractors, Leased Tractors, Trailers, and Leased Trailers
purchased or assumed by Smithway and $25,015 for mileage penalties. Accordingly,
the sum of $33,286 shall be deducted from the Escrowed Funds and returned to
Smithway in settlement of the Adjustment Amount. In addition, Smithway hereby
agrees to relinquish its claim for $13,025, in body damage to the Tractors,
Leased Tractors, Trailers, and Leased Trailers purchased or assumed by Smithway
and, in exchange, Seller and Shareholders hereby accept all Nonacquired Tractors
and Trailers returned or to be returned to them by Smithway "as is" and waive,
release, and relinquish all rights to a claim for damages regarding the
condition of such returned tractors and trailers.
6. Damage to Tractor Struck in Yankton Yard. Smithway shall pay the
agreed cost of parts and labor incurred in connection with damage to the
driver's side of the tractor struck in the Yankton yard ($2,094) and Seller
shall pay the agreed cost of parts and labor incurred for damage to the opposite
side of the tractor ($1,681), such agreed costs being those depicted in
parentheses. The parties agree that $2,094 shall be paid to Seller by Smithway
and Seller shall be obligated to pay any repair costs on such tractor struck in
the Yankton yard.
7. Repair Expenses. Smithway shall pay the repair and towing expense on
tractor #314 in the amount of $1,412. Seller shall pay the $654 in repair
expense for the tractor driver shaft that broke while under a Marquardt load.
Smithway previously paid this amount and $654 shall be deducted from the
Escrowed Funds and returned to Smithway.
2
<PAGE>
8. Headache Racks. Smithway shall forgive any deficiencies in the number,
or portions thereof, of headache racks delivered by Seller and no amount shall
be deducted from any sums paid to Seller. Any uncounted portions of the headache
racks that are in the possession of Smithway on the date hereof shall be the
property of Smithway.
9. Equipment Rental and Return. Smithway shall pay Seller the sum of
$8,000 for (a) use of Nonacquired Trucks beyond the 30-day allowed period, (b)
use of Nonacquired Trucks that were taken from the Yankton or Stockton terminal
after being brought to such terminal, and (c) any late return of the priority
tractors to Yankton. Seller agrees that all Nonacquired Tractors have been
returned to Seller. Seller shall pick up seven dry vans from Fort Dodge, Iowa,
Smithway shall not be required to return such vans to Seller, and Smithway shall
deliver on or prior to December 19, 1996 the one remaining dry van to Yankton or
Sioux City, as instructed by Ralph Marquardt.
10. Consulting Services of Ralph Marquardt. Smithway shall continue to
pay Ralph Marquardt the consulting fee as provided in Section 2.12 of the Main
Agreement and shall rent an office for Ralph Marquardt in Yankton through
January 31, 1997. Except for the purposes and at the times provided in the
Yankton lease entered into between the parties and the auction provided in the
First Amendment, Ralph Marquardt shall not enter the Yankton terminal or the
premises on which it is located, and shall instruct John Marquardt to refrain
from entering the Yankton terminal and premises.
11. Forklifts. Smithway shall not purchase either of the forklifts at the
Yankton terminal. Smithway previously paid Seller $7,500 for one forklift and
such amount shall be deducted from the Escrowed Funds and be returned to
Smithway.
12. Yankton Terminal Rent. The first sentence of Section 2.10 of the Main
Agreement shall be deleted in its entirety and replaced with the following
sentence, which shall read as follows:
2.10 Yankton Lease. Smithway shall lease the Property from
Seller for four years at a monthly rental of $2,000,
triple net, pursuant to the Lease; provided, however,
the Yankton terminal rent payable by Smithway shall
be prorated from October 26, 1996 to November 1,
1996, resulting in a $387 payment by Smithway to
Seller.
The remaining language of Section 2.10 of the Main Agreement shall read as
stated in the Main Agreement.
13. Phone Service at Yankton Terminal. Seller and Shareholders agree to
continue the present phone service, with the existing phone number, at the
Yankton terminal through January 31, 1997, at which time the phone number may be
transferred as Ralph Marquardt desires. Although the phone service may be
switched to Smithway's account prior to January 31, 1997, the phone number or
any other aspects of the phone service will not be modified by Seller or
Shareholders in any manner. Seller and Shareholders acknowledge that the harm to
Smithway's business would be irreparable if there were a disruption, for any
period of time, in the phone service at the Yankton terminal by reason of a
3
<PAGE>
modification, cancellation, or change in the phone service or number before
Smithway is ready to change the phone service and number on January 31, 1997.
14. Services of Oren Post. Through January 31, 1997, Oren Post shall be
permitted to assist Mike Kabeiseman for a reasonable amount of time in gathering
documents necessary in the preparation of Seller's and Shareholders' tax
returns; provided, however, that only Mike Kabeiseman or his staff may call Mr.
Post and such calls and the assistance of Mr. Post shall not interfere with his
services to Smithway.
15. Miscellaneous.
a. Smithway shall pay Seller $37,736 for the G.E.
Capital title, California inventory, and California
air compressor and battery charger not previously
paid for by Smithway. Such payment shall be made by
the release of such amount of the Escrowed Funds to
Seller.
b. Revenue shall be split on the load from the East
Coast to Carson, Nevada for which Smithway equipment
was used for a portion of the load. Seller has
previously collected all of the revenue from the load
and shall pay Smithway $1,080 by deducting $1,080
from the Escrowed Funds and returning such amount to
Smithway.
c. Seller shall pay Smithway $17,015 for one missing
trailer. Such amount shall be paid by deducting it
from the Escrowed Funds and returning such amount to
Smithway.
d. Seller shall pay the cargo claim relating to a
particular Seller transported load on which a $2,270
cargo claim was incurred, and any other cargo claims
on Seller transported loads. The sum of $2,270 shall
be deducted from the Escrowed Funds and returned to
Smithway.
e. Seller owes approximately $5,500 in quarterly safety
bonuses that were due to drivers for the quarter
ended September 30, 1996. Smithway shall pay such
amount to the drivers, and $5,500 shall be deducted
from the Escrowed Funds and returned to Smithway.
Drivers are not entitled to safety bonuses unless in
the employ of Seller or Smithway at December 31,
1996. Oren Post shall determine if any safety bonus
amount is not payable to a driver because such driver
left Seller or Smithway before December 31, 1996, and
any such amount shall be paid to Seller by Smithway
within ten days of presentation to Smithway by Mr.
Post.
16. Direction to Escrow Agent. The parties hereby agree that the amount
of the Escrowed Fund is $132,000. The parties further agree that under the terms
of this Amendment, such amount shall be distributed $11,395 to Smithway and
$120,605 to Seller as set forth in the attached schedule, incorporated herein by
this reference. The parties hereby direct Escrow Agent to distribute the
Escrowed Fund in accordance with this Section 16 immediately.
4
<PAGE>
17. Counterparts. This Amendment can be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Amendment shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Amendment or any counterpart hereof to
produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment on the date first written.
MARQUARDT TRANSPORTATION, INC., SMITHWAY MOTOR XPRESS, INC.,
a South Dakota corporation an Iowa corporation
By: By:
Ralph Marquardt, President William G. Smith, President
SMITHWAY MOTOR XPRESS CORP.,
Ralph Marquardt, Individually a Nevada corporation
Lucille Marquardt, Individually By:
William G. Smith, President
5
<PAGE>
SCHEDULE
Remaining Escrowed Funds: $ 132,000
=========
Deductions from payments to Seller:
Half of California soil samplings (613)
Adjustment for parts inventory (40,975)
Adjustment for tire inventory (51,686)
Adjustment Amount for brake and tire wear (8,271)
Adjustment Amount for mileage penalty (25,015)
Repair expense on tractor drive shaft under
Marquardt load (654)
Returned forklift at Yankton terminal (7,500)
Revenue share on load from East Coast to
Carson, Nevada (1,080)
One missing trailer (17,015)
Seller cargo claim (2,270)
Quarterly safety bonus (5,500)
------------
Total deductions to Seller: $(160,579)
Balance to Seller after application of remaining Escrowed Funds: $ (28,579)
===========
Credits to Seller:
California lease prorate 967
Goodwill payment 100,000
Equipment rental and return 8,000
Damage to driver side of tractor struck
in Yankton yard 2,094
Yankton lease prorate 387
G.E. Title, California inventory, and California
air compressor and battery charger 37,736
----------
Total credits to Seller: $ 149,184
----------
Total Amount Owed Seller by Smithway: $ 120,605
==========
Amount from remaining Escrowed Funds to be Released to Seller: $ 120,605
Amount from remaining Escrowed Funds to be Released to Smithway: $ 11,395
6
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
Former subsidiaries Smithway Transportation Brokerage, Inc., an Iowa
corporation, and Wilmar Truck Leasing, Inc., an Iowa corporation, were merged in
1996 into Smithway Motor Xpress, Inc., an Iowa corporation, the only remaining
subsidiary of Smithway Motor Xpress Corp.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Smithway Motor Xpress Corp.
We consent to incorporation by reference in the Registration Statements (No.
333-10249, 333-10251, and 333-21253) on Form S-8 of Smithway Motor Xpress Corp.
of our report dated February 14, 1997, relating to the consolidated balance
sheets of Smithway Motor Xpress Corp. and subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of earnings, non-redeemable common
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, which report appears in the December 31, 1996
Annual Report on Form 10-K of Smithway Motor Xpress Corp.
/s/ KPMG Peat Marwick LLP
--------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
March 27, 1997
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 940
<SECURITIES> 0
<RECEIVABLES> 10872
<ALLOWANCES> 0
<INVENTORY> 713
<CURRENT-ASSETS> 14574
<PP&E> 56208
<DEPRECIATION> 17038
<TOTAL-ASSETS> 55330
<CURRENT-LIABILITIES> 12681
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 24143
<TOTAL-LIABILITY-AND-EQUITY> 55330
<SALES> 0
<TOTAL-REVENUES> 93667
<CGS> 0
<TOTAL-COSTS> 85309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1548
<INCOME-PRETAX> 6810
<INCOME-TAX> 2860
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<CHANGES> 0
<NET-INCOME> 3950
<EPS-PRIMARY> .93
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</TABLE>
