UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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for the fiscal year December 31, 2009.
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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for the transition period from
to
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Commission file number
0-19969
ARKANSAS BEST CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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71-0673405
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3801 Old Greenwood Road, Fort Smith, Arkansas
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72903
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code
479-785-6000
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
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Title of each class
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on which registered
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Common Stock, $.01 Par Value
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The NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes
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No
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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
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
(Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
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No
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The aggregate market value of the Common Stock held by nonaffiliates of the registrant as of June
30, 2009, was $610,165,080.
The number of shares of Common Stock, $.01 par value, outstanding as of February 18, 2010, was
25,300,405.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Definitive Proxy Statement to be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934 in connection with the registrants Annual Stockholders
Meeting to be held April 22, 2010, are incorporated by reference in Part III of this Form 10-K.
(This page intentionally left blank.)
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ARKANSAS BEST CORPORATION
FORM 10-K
TABLE OF CONTENTS
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PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of
the federal securities laws. All statements, other than statements of historical fact, included or
incorporated by reference in this Form 10-K, including, but not limited to, those under Business
in Item 1, Risk Factors in Item 1A, Legal Proceedings in Item 3 and Managements Discussion
and Analysis of Financial Condition and Results of Operations in Item 7, are forward-looking
statements. These statements are based on managements belief and assumptions using currently
available information and expectations as of the date hereof, are not guarantees of future
performance and involve certain risks and uncertainties. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure you that our
expectations will prove to be correct. Therefore, actual outcomes and results could materially
differ from what is expressed, implied or forecast in these statements. Any differences could be
caused by a number of factors including, but not limited to:
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recessionary economic conditions;
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competitive initiatives, pricing pressures and the effect of volatility in fuel prices
and the associated changes in fuel surcharges on securing increases in base freight rates;
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the impact of any limitations on our customers access to adequate financial resources;
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availability and cost of capital;
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shifts in market demand;
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the performance and needs of industries served by Arkansas Best Corporations
subsidiaries;
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future costs of operating expenses such as fuel and related taxes;
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self-insurance claims and insurance premium costs;
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relationships with employees, including unions;
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union and nonunion employee wages and benefits, including changes in required
contributions to multiemployer pension plans;
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governmental regulations and policies;
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future climate change legislation;
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costs of continuing investments in technology;
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the timing and amount of capital expenditures;
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the cost, integration and performance of any future acquisitions; and
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other financial, operational and legal risks and uncertainties detailed from time to
time in Arkansas Best Corporations Securities and Exchange Commission (SEC) public
filings.
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Cautionary statements identifying important factors that could cause actual results to differ
materially from our expectations are set forth in this Form 10-K, including, without limitation, in
conjunction with the forward-looking statements included or incorporated by reference in this Form
10-K that are referred to above. When considering forward-looking statements, you should keep in
mind the risk factors and other cautionary statements set forth in this Form 10-K in Risk Factors
under Item 1A. All forward-looking statements included or incorporated by reference in this Form
10-K and all subsequent written or oral forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety by the cautionary statements. The
forward-looking statements speak only as of the date made and, other than as required by law, we
undertake no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
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ITEM 1. BUSINESS
(a)
General Development of Business
Corporate Profile
Arkansas Best Corporation (the Company), a Delaware corporation, is a holding company engaged
through its subsidiaries primarily in motor carrier freight transportation. The Companys
principal operations are conducted through ABF Freight System, Inc. and other subsidiaries of the
Company (collectively ABF).
Historical Background
The Company was publicly owned from 1966 until 1988, when it was acquired in a leveraged buyout by
a corporation organized by Kelso & Company, L.P. (Kelso).
In 1992, the Company completed a public offering of its Common Stock, par value $.01 (the Common
Stock). The Company also repurchased substantially all of the remaining shares of Common Stock
beneficially owned by Kelso, thus ending Kelsos investment in the Company.
In 1993, the Company completed a public offering of 1,495,000 shares of $2.875 Series A Cumulative
Convertible Exchangeable Preferred Stock (Preferred Stock). The Companys Preferred Stock was
traded on The Nasdaq National Market under the symbol ABFSP. In July 2000, the Company purchased
105,000 shares of its Preferred Stock at $37.375 per share, for a total cost of $3.9 million. All
of the shares purchased were retired. In August 2001, the Company announced the call for redemption
of the 1,390,000 shares of Preferred Stock that remained outstanding. At the end of the extended
redemption period in September 2001, 1,382,650 shares of the Preferred Stock were converted to
3,511,439 shares of Common Stock. The remaining 7,350 shares of Preferred Stock were redeemed at
the redemption price of $50.58 per share for a total cost of $0.4 million. The Company delisted its
Preferred Stock from trading on The Nasdaq National Market in September 2001.
In 1995, pursuant to a tender offer, a wholly owned subsidiary of the Company purchased the
outstanding shares of common stock of WorldWay Corporation (WorldWay), for a total purchase price
of approximately $76.0 million. WorldWay was a publicly held company engaged through its
subsidiaries in motor carrier freight transportation.
In 1999, the Company acquired 2,457,000 shares of Treadco, Inc. (Treadco) common stock for $23.7
million via a cash tender offer pursuant to a definitive merger agreement. As a result of the
transaction, Treadco became a wholly owned subsidiary of the Company. In September 2000, Treadco
entered into a joint venture agreement with The Goodyear Tire & Rubber Company (Goodyear) to
contribute its business to a new limited liability company called Wingfoot Commercial Tire
Systems, LLC (Wingfoot). In April 2003, the Company sold its 19.0% ownership interest in
Wingfoot to Goodyear for $71.3 million.
In 2001, the Company sold the stock of G.I. Trucking Company, a wholly owned subsidiary of the
Company acquired as part of the WorldWay transaction, for $40.5 million to a company formed by the
senior executives of G.I. Trucking Company and Estes Express Lines.
In 2003, Clipper Exxpress Company (Clipper), a wholly owned subsidiary of the Company acquired in
1994, sold all customer and vendor lists related to Clippers less-than-truckload (LTL) freight
business to Hercules Forwarding, Inc. of Vernon, California for $2.7 million. With this sale,
Clipper exited the LTL business.
In June 2006, the Company sold Clipper to a division of Wheels Group for $21.5 million. With this
sale, the Company exited the intermodal transportation business.
(b)
Financial Information about Industry Segments
The response to this portion of Item 1 is included in Note L to the consolidated financial
statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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ITEM 1. BUSINESS continued
(c)
Narrative Description of Business
General
The Company is headquartered in Fort Smith, Arkansas. ABF, which is engaged in motor carrier
freight transportation, is the Companys only reportable operating segment. Note L to the
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K
contains additional information regarding the Companys operating segment for the year ended
December 31, 2009.
Employees
At December 31,
2009, the Company and its subsidiaries had a total of 10,347 active employees of
which approximately 72% were members of labor unions.
Motor Carrier Freight Transportation
General
The Companys LTL motor carrier operations are conducted through ABF Freight System, Inc., the
Companys largest subsidiary; ABF Freight System (B.C.), Ltd.; ABF Freight System Canada, Ltd.; ABF
Cartage, Inc.; and Land-Marine Cargo, Inc. (collectively ABF).
ABF provides shipping services to its customers by transporting a wide variety of large and small
shipments to geographically dispersed destinations. Typically, shipments are picked up at
customers places of business and consolidated at a local terminal. Shipments are consolidated by
destination for transportation by intercity units to their destination cities or to distribution
centers. At distribution centers, shipments from various terminals can be reconsolidated for other
distribution centers or, more typically, local terminals. Once delivered to a local terminal, a
shipment is delivered to the customer by local trucks operating from the terminal. In some cases,
when one large shipment or a sufficient number of different shipments at one origin terminal are
going to a common destination, they can be combined to make a full trailer load. A trailer is then
dispatched to that destination without rehandling. In addition to the traditional long-haul model,
the Company has implemented a regional network to facilitate its customers next-day and second-day
delivery needs. Development and expansion of the regional network required added labor flexibility,
strategically positioned freight exchange points and increased door capacity at a number of key
locations. Through a multi-phased program, ABFs regional network now covers the eastern two-thirds
of the United States. Marketing of the regional initiative was initiated in August 2006 in the East
Coast states and in January 2007 in the South and Central regions. Further operational changes,
which were implemented in August 2008 and marketed beginning in September 2008, reduced transit
times in the regional network and in certain of ABFs long-haul lanes. Although the timing is not
certain, ABF expects to expand the regional network to the Western region of the United States in
the future.
Competition, Pricing and Industry Factors
The trucking industry is highly competitive. The Companys LTL motor carrier subsidiaries actively
compete for freight business with other national, regional and local motor carriers and, to a
lesser extent, with private carriage, freight forwarders, railroads and airlines. Competition is
based primarily on price, service and personal relationships. Competition for freight revenue
has resulted in price reductions. In an effort to maintain and improve its market share,
the Companys LTL motor carrier subsidiaries offer and negotiate various discounts from established
pricing. ABF also charges a fuel surcharge based upon changes in diesel fuel prices compared to a
national index. Throughout 2009, the fuel surcharge mechanism continued to have strong market
acceptance among ABF customers, although certain nonstandard arrangements with some of ABFs
customers have limited the amount of fuel surcharge recovered.
The trucking industry, including the Companys LTL motor carrier subsidiaries, is directly affected
by the state of the residential and commercial construction, manufacturing and retail sectors of
the North American economy. The trucking industry faces rising costs, including costs of compliance
with government regulations on safety, equipment design and maintenance, driver utilization and
fuel economy. The trucking industry is dependent upon the availability of adequate fuel supplies.
The Company has not experienced a lack of available fuel but could be adversely impacted if a fuel
shortage were to develop. Freight shipments, operating costs and earnings are also adversely
affected by inclement weather conditions. In addition, seasonal fluctuations affect tonnage levels.
The second and third calendar quarters of each year usually have the
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ITEM 1. BUSINESS continued
highest tonnage levels while the first quarter generally has the lowest, although other factors,
including the state of the economy, may influence quarterly freight tonnage levels.
ABF competes with nonunion and union LTL carriers. Competitors include YRC National Transportation,
YRC Regional Transportation, FedEx Freight, FedEx National LTL, UPS Freight, Con-way Freight, Old
Dominion Freight Line, Inc., Saia, Inc. and Vitran Corporation, Inc.
The final hours of service rules regulating driving time for commercial truck drivers, announced by
the U.S. Department of Transportation (DOT) in April 2003, became effective in January 2009. The
rules, which were implemented by ABF in January 2004, allow a driver to drive up to 11 hours within
a 14-hour nonextendable window from the start of the workday, following at least 10 consecutive
hours off duty. The hours of service rules have been challenged in federal court, and future
modifications to the rules, if any, may impact ABFs operating practices. The operational impact of
these rules on ABFs over-the-road linehaul relay network has been to provide modest opportunity to
increase driver and equipment utilization and improve transit times. The rules also have allowed
LTL carriers, such as ABF, to adjust their over-the-road linehaul relay network to take advantage
of the 11 hours of drive time during a tour of duty. Impacts on the truckload industry have
included a decline in driver utilization and flexibility and, as a result, truckload carriers have
increased charges for stop-off and detention services, making LTL carriers somewhat more
competitive on many larger shipments.
Insurance, Safety and Security
Generally, claims exposure in the motor carrier industry consists of cargo loss and damage,
third-party casualty and workers compensation. The Companys motor carrier subsidiaries are
effectively self-insured for the first $1.0 million of each cargo loss, $1.0 million of each
workers compensation loss and generally $1.0 million of each third-party casualty loss. The
Company maintains insurance which it believes is adequate to cover losses in excess of such
self-insured amounts. However, the Company has experienced situations where excess insurance
carriers have become insolvent (see Note O to the consolidated financial statements included in
Part II, Item 8 of this Annual Report on Form 10-K). The Company pays assessments and fees to state
guaranty funds in states where it has workers compensation self-insurance authority. In some of
these states, depending on each states rules, the guaranty funds may pay excess claims if the
insurer cannot pay due to insolvency. However, there can be no certainty of the solvency of
individual state guaranty funds. The Company has been able to obtain what it believes to be
adequate insurance coverage for 2010 and is not aware of any matters which would significantly
impair its ability to obtain adequate insurance coverage at market rates for its motor carrier
operations in the foreseeable future.
ABF has been subject to cargo security and transportation regulations issued by the Transportation
Security Administration (TSA) since 2001 and regulations issued by the U.S. Department of
Homeland Security (DHS) since 2002. ABF is not able to accurately predict how past or future
events will affect government regulations and the transportation industry. ABF believes that any
additional security measures that may be required by future regulations could result in additional
costs; however, other carriers would be similarly affected.
ABF
ABF accounted for 94% of the Companys consolidated revenues for 2009. ABF is one of North
Americas largest LTL motor carriers and provides direct service to more than 98% of U.S. cities
having a population of 30,000 or more. ABF provides interstate and intrastate direct service to
more than 44,000 communities through 281 service centers in all 50 states, Canada and Puerto Rico.
Through arrangements with trucking companies in Mexico, ABF provides motor carrier services to
customers in that country as well. ABF has been in continuous service since 1923. ABF was
incorporated in Delaware in 1982 and is the successor to Arkansas Motor Freight, a business
originally organized in 1935. Arkansas Motor Freight was the successor to a business originally
organized in 1923.
ABF offers transportation of general commodities through standard, expedited and guaranteed LTL
services. General commodities include all freight except hazardous waste, dangerous explosives,
commodities of exceptionally high value and commodities in bulk. ABFs shipments of general
commodities differ from shipments of bulk raw materials, which are commonly transported by
railroad, truckload tank car, pipeline and water carrier. General commodities transported by ABF
include, among other things, food, textiles, apparel, furniture, appliances, chemicals, nonbulk
petroleum products, rubber, plastics, metal and metal products, wood, glass, automotive parts,
machinery and miscellaneous manufactured products.
During the year ended December 31, 2009, no single customer accounted for more than 3.0% of ABFs
revenues, and the ten largest customers accounted for 8.8% of ABFs revenues.
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ITEM 1. BUSINESS continued
Employees
At December 31, 2009, ABF had a total of 9,814 active employees. Employee compensation and related
costs are the largest components of ABFs operating expenses. In 2009, such costs amounted to 70.1%
of ABFs revenues. Approximately 75% of ABFs employees are covered under a collective bargaining
agreement with the International Brotherhood of Teamsters (IBT). ABFs current five-year
agreement with the IBT extends through March 31, 2013. The agreement provides for compounded annual
contractual wage and benefit increases of approximately 4%, subject to wage rate cost-of-living
adjustments, which includes ABF contributions to various multiemployer plans maintained for the
benefit of its employees who are members of the IBT. Amendments to the Employee Retirement Income
Security Act of 1974 (ERISA), pursuant to the Multiemployer Pension Plan Amendments Act of 1980
(the MPPA Act), substantially expanded the potential liabilities of employers who participate in
such plans. Under ERISA, as amended by the MPPA Act, an employer who contributes to a multiemployer
pension plan and the members of such employers controlled group are jointly and severally liable
for their share of the plans unfunded vested liabilities in the event the employer ceases to have
an obligation to contribute to the plan or substantially reduces its contributions to the plan
(i.e., in the event of plan termination or withdrawal by the Company from the multiemployer plans).
See Note I to the consolidated financial statements included in Part II, Item 8 of this Annual
Report on Form 10-K for more specific disclosures regarding the multiemployer plans.
ABF operates in a highly competitive industry with both union and nonunion motor carriers. The
Companys nonunion competitors generally have a lower fringe benefit cost structure, and certain
carriers reduced their wage rates for their freight-handling and driving personnel during 2009. In
addition, wage and benefit concessions granted to certain union competitors allow for a lower cost
structure than that of ABF. Competitors with lower labor cost structures have reduced freight
rates resulting in increased pricing competition in the LTL market. The Company believes that
union companies experience lower employee turnover, higher productivity, lower loss and damage
claims and lower accident rates compared to some nonunion firms. Due to its national reputation,
its working conditions and its wages and benefits, ABF has not historically experienced any
significant long-term difficulty in attracting or retaining qualified employees, although
short-term difficulties have been encountered in certain situations.
Environmental and Other Government Regulations
The Company is subject to federal, state and local environmental laws and regulations relating to,
among other things: emissions control, transportation of hazardous materials, underground storage
tanks, contingency planning for spills of petroleum products and disposal of waste oil. New tractor
engine design requirements mandated by the Environmental Protection Agency (EPA) intended to
reduce emissions became effective on January 1, 2007, and more restrictive EPA emission-control
design requirements became effective for engines built beginning January 1, 2010.
The Companys subsidiaries store fuel for use in tractors and trucks in 69 underground tanks
located in 23 states. Maintenance of such tanks is regulated at the federal and, in some cases,
state levels. The Company believes that it is in substantial compliance with all such regulations.
The Companys underground storage tanks are required to have leak detection systems. The Company is
not aware of any leaks from such tanks that could reasonably be expected to have a material adverse
effect on the Company.
The Company has received notices from the EPA and others that it has been identified as a
potentially responsible party under the Comprehensive Environmental Response Compensation and
Liability Act, or other federal or state environmental statutes, at several hazardous waste sites.
After investigating the Companys or its subsidiaries involvement in waste disposal or waste
generation at such sites, the Company has either agreed to de minimis settlements (aggregating
approximately $0.1 million over the last ten years, primarily at six sites) or believes its obligations,
other than those specifically accrued for with respect to such sites, would involve immaterial
monetary liability, although there can be no assurances in this regard.
At December 31, 2009 and 2008, the Companys reserve for estimated environmental clean-up costs of
properties currently or previously operated by the Company included in accrued expenses totaled
$1.2 million and $1.1 million, respectively. Amounts accrued reflect managements best estimate of
the Companys future undiscounted exposure related to identified properties based on current
environmental regulations. It is anticipated that the resolution of the Companys environmental
matters could take place over several years. The Companys estimate is based on managements
experience with similar environmental matters and on testing performed at certain sites.
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ITEM 1. BUSINESS continued
Certain states have enacted legislation relating to engine emissions. At the present time,
management believes that these regulations will not result in significant additional costs to the
Company. However, there can be no assurance that more restrictive regulations will not be enacted.
In addition, legislation has been introduced in the U.S. Congress related to climate change. The
Company is unable to determine with any certainty the effects of the proposals that have been
introduced. However, emission-related regulatory actions have historically resulted in increased
costs of revenue equipment and diesel fuel, and future legislation, if passed, could result in
increases in these and other costs.
Reputation and Responsibility
The Company has a corporate culture focused on quality service and responsibility. In March 2009,
the Company received the highest ranking of LTL carriers in
FORTUNE
magazines Worlds Most
Admired Companies. In September 2009, ABF was listed on
Information Week
magazines 2009
Information Week 500, which spotlights innovators in information technology. For the eighth
consecutive year, ABF was ranked in the top ten on
Selling Power
magazines list of Best Company
to Sell For. In February 2010, ABF was honored as one of the 2010 Training Top 125 companies by
Training
magazine. The employees of the Company are committed to the communities in which they live
and work. In February 2009, the Company received the 2008 Outstanding Philanthropic Corporation
Award by the Arkansas Community Foundation in recognition of the service that our employees have
provided to exemplify the spirit of good citizenship, concern for the community and support of
worthy philanthropic endeavors.
ABF is dedicated to safety and security in providing transportation and freight-handling services
to its customers. ABF is the only five-time winner of the American Trucking Associations
Presidents Trophy for Safety, the only five-time winner of the Excellence in Security Award and
the only four-time winner of the Excellence in Claims/Loss Prevention Award. ABF is the only
carrier to earn both the Excellence in Claims/Loss Prevention Award and the Excellence in Security
Award in the same year, which it has accomplished twice.
ABF is actively involved in efforts to promote a cleaner environment by reducing both fuel
consumption and emissions. For many years, ABF voluntarily limited the maximum speed of its trucks,
which reduces fuel consumption and emissions and contributes to ABFs safety record. Fuel
consumption and emissions have also been minimized through a strict equipment maintenance schedule
and equipment replacement program. In 2006, ABF was accepted in the EPAs SmartWay Transportation
Partnership, a voluntary collaboration between the EPA and the freight industry designed to
increase energy efficiency while significantly reducing air pollution. Furthermore, in association
with the American Trucking Associations Sustainability Task Force, ABF is participating in other
opportunities to address environmental issues.
(d)
Financial Information About Geographic Areas
Classifications of operations or revenues by geographic location beyond the descriptions previously
provided are impractical and, therefore, are not provided. The Companys foreign operations are not
significant.
(e)
Available Information
The Company files its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, amendments to those reports, proxy and information statements and other information
electronically with the Securities Exchange Commission (SEC). All reports and financial
information filed with, or furnished to, the SEC can be obtained, free of charge, through the
Companys Web site located at
arkbest.com
or through the SEC Web site located at
sec.gov
as soon as
reasonably practical after such material is electronically filed with, or furnished to, the SEC.
The information contained on our Web site does not constitute part of this Annual Report on Form
10-K nor shall it be deemed incorporated by reference into this Annual Report on Form 10-K.
9
ITEM 1A. RISK FACTORS
Each of the following risk factors could adversely affect our business, operating results and
financial condition. Our operations include our primary operating subsidiary, ABF. For 2009, ABF
represented 94% of the Companys consolidated revenues.
The transportation industry is affected by business risks that are largely out of our control, any
of which could significantly reduce our operating margins and income.
Factors that could have a negative impact on our performance in the future include general economic
factors; loss of key employees; antiterrorism measures; an increasingly competitive freight rate
environment; volatile fuel prices as well as the rate of changes in associated fuel surcharges and
the effect of fuel surcharge changes on securing increases in base freight rates and the inability
to collect fuel surcharges or to obtain sufficient fuel supplies; loss of third-party rail service
providers; increasing capital requirements; increases in new equipment costs and decreases in the
amount we are able to obtain for sales of our used equipment; emissions-control regulations;
climate change legislation; decreases in the availability of new equipment; increases in the
frequency and/or the severity of workers compensation and/or third-party casualty claims;
increases in workers compensation and/or third-party casualty insurance premiums; violation of
federal regulations and increasing costs for compliance with regulations; a workforce stoppage by
our employees covered under our collective bargaining agreement; difficulty in attracting and
retaining qualified drivers and/or dockworkers; increases in the required contributions under our
collective bargaining agreements with the IBT for wage contributions and/or benefits contributions
to multiemployer plans; a failure of our information systems; a violation of an environmental law
or regulation; and/or weather or seasonal fluctuations, including any influence of climate change.
The foregoing risks are largely out of our control and any one of these risks could have a
significant adverse effect on our results of operations.
We are subject to general economic factors that are largely beyond our control, any of which could
significantly reduce our operating margins and income.
Our performance is affected by recessionary economic cycles and downturns in customers business
cycles and changes in their business practices. Recessionary economic conditions may result in a
general decline in demand for freight transportation services. The pricing environment generally
becomes more competitive during economic recessions which adversely affects the profit margin for
our services. Customers may select transportation services based on pricing alone, which may result
in a loss of business for us in some cases. Economic conditions could adversely affect our
customers business levels, the amount of transportation services they need and their ability to
pay for our services. Customers encountering adverse economic conditions represent a greater
potential for uncollectible accounts receivable, and, as a result, we may be required to increase
our allowances for uncollectible accounts receivable. In addition, customers could reduce the
number of carriers they use by selecting so-called core carriers as approved transportation
service providers, and in some instances, we may not be selected.
We are affected by the instability in the financial and credit markets that has created volatility
in various interest rates and returns on invested assets in recent years. We have historically been
subject to market risk due to variable interest rates, on all or a part of our borrowings under
bank credit lines, and continue to be subject to such risk on our accounts receivable
securitization facility which became effective in December 2009 (see Note G to the Companys
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K).
Changes in interest rates may increase our financing costs in the event we need to borrow against
our accounts receivable securitization facility, enter into additional capital lease arrangements
or obtain additional sources of financing.
Our qualified nonunion defined benefit pension plan trust also holds investments in equity and debt
securities. Declines in the value of plan assets resulting from the instability in the financial
markets, general economic downturn or other economic factors beyond our control could further
diminish the funded status of the nonunion pension plan and potentially increase our requirement to
make contributions to the plan. Significant plan contribution requirements could reduce the cash
available for working capital and other business needs and opportunities. An increase in required
pension plan contributions may adversely impact our financial condition and liquidity. Substantial
future investment losses on plan assets would also increase pension expense in the years following
the losses. Investment returns that differ from expected returns are amortized to expense over the
remaining active service period of plan participants. An increase in pension expense may adversely
impact our results of operations. We could also experience losses on investments related to our
cash surrender value of variable life insurance policies which may reduce our net income.
10
ITEM 1A. RISK FACTORS continued
It is not possible to predict the effects of armed conflicts or terrorist attacks and subsequent
events on the economy or on consumer confidence in the United States or the impact, if any, on our
future results of operations or financial condition.
We operate in a highly competitive industry and our business could suffer if our operating
subsidiaries were unable to adequately address downward pricing pressures and other factors that
could adversely affect their ability to compete with other companies.
Numerous competitive factors could adversely impact our operating results. These factors include:
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We compete with many other LTL carriers of varying sizes, including both union and
nonunion LTL carriers and, to a lesser extent, with truckload carriers and railroads.
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Our nonunion competitors generally have a lower fringe benefit cost structure for their
freight-handling and driving personnel than union carriers. Wage and benefit concessions
granted to certain union competitors allow for a lower cost structure than ours and may
impact our competitiveness in the LTL industry. Our competitors could reduce their freight
rates to gain market share, especially during times of reduced growth rates in the economy.
This could limit our ability to maintain or increase freight rates, maintain our operating
margins or grow tonnage levels.
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Some of our competitors periodically reduce their prices to gain business, especially
during times of reduced growth rates in the economy, which limits our ability to maintain
or increase prices or maintain or grow our business.
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Competition from non-asset-based logistics and freight brokerage companies may adversely
affect our customer relationships and prices.
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The trend toward consolidation in the transportation industry could continue to create
larger LTL carriers with greater financial resources and other competitive advantages
relating to their size. We could experience some difficulty if the remaining LTL carriers,
in fact, have a competitive advantage because of their size.
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Our management team is an important part of our business and loss of key employees could impair our
success.
We benefit from the leadership and experience of our senior management team and depend on their
continued services to successfully implement our business strategy. The unexpected loss of key
employees could have an adverse effect on our operations and profitability.
We depend on our employees to support our operating business and future growth opportunities. If
our relationship with our employees were to deteriorate, we could be faced with labor disruptions
or stoppages, which could have a material adverse effect on our business, reduce our operating
results and place us at a disadvantage relative to nonunion competitors.
Most of our union employees are covered under a five-year collective bargaining agreement with the
IBT which expires on March 31, 2013. The agreement with the IBT provides for compounded annual
contractual wage and benefit increases of approximately 4%, subject to wage rate cost-of-living
adjustments.
We compete against both union and nonunion LTL carriers. Union companies typically have similar
wage costs and significantly higher fringe benefit costs compared to nonunion companies. However,
certain nonunion carriers reduced their wage rates in 2009 for freight-handling and driving
personnel, and wage and benefit concessions granted to certain union competitors have also allowed
for a lower cost structure than that of ABF. We have not historically experienced any significant
long-term difficulty in attracting or retaining qualified drivers, although short-term difficulties
have been encountered in certain situations, such as periods of significant increases in tonnage
levels. Difficulty in attracting and retaining qualified drivers or increases in compensation or
fringe benefit costs could affect our profitability and our ability to grow. If we were unable to
continue to attract and retain qualified drivers, we could incur higher driver recruiting expenses
or a loss of business.
We depend heavily on the availability of fuel for our trucks. Fuel shortages, increases in fuel
costs and the inability to collect fuel surcharges or obtain sufficient fuel supplies could have a
material adverse effect on our operating results.
The transportation industry is dependent upon the availability of adequate fuel supplies. We have
not experienced a lack of available fuel but could be adversely impacted if a fuel shortage were to
develop. Fuel prices have fluctuated significantly in
recent years. For example, the average monthly price per gallon, excluding taxes, that we paid for
fuel in 2008 and 2009
11
ITEM 1A. RISK FACTORS continued
ranged from $1.38 to $4.03. We charge a fuel surcharge based on changes in
diesel fuel prices compared to a national index. The fuel surcharge rate in effect is available on
the ABF Web site at
abf.com
. (The information contained on the ABF Web site is not a part of this
Annual Report on Form
10-K
nor shall it be deemed incorporated by reference into this Annual Report
on
Form 10-K.)
Although revenues from fuel surcharges generally more than offset increases in
direct diesel fuel costs, other operating costs have been, and may continue to be, impacted by
fluctuating fuel prices. The total impact of higher energy prices on other nonfuel-related expenses
is difficult to ascertain. We cannot predict, with reasonable certainty, future fuel price
fluctuations, the impact of higher energy prices on other cost elements, recoverability of higher
fuel costs through fuel surcharges, the effect of fuel surcharges on our overall rate structure or
the total price that we will receive from our customers. During periods of changing diesel fuel
prices, the fuel surcharge and associated direct diesel fuel costs also vary by different degrees.
Depending upon the rates of these changes and the impact on costs in other fuel- and energy-related
areas, operating margins could be impacted. Whether fuel prices fluctuate or remain constant,
operating income may be adversely affected if competitive pressures limit our ability to recover
fuel surcharges. Throughout 2009, the fuel surcharge mechanism continued to have strong market
acceptance among our customers, although certain nonstandard arrangements with some of ABFs
customers have limited the amount of fuel surcharge recovered. While the fuel surcharge is one of
several components in our overall rate structure, the actual rate paid by customers is governed by
market forces based on value provided to the customer. As fuel prices decline, lower fuel surcharge
levels may over time improve our ability to increase other elements of margin, although there can
be no assurances in this regard. When fuel surcharges constitute a higher proportion of the total
freight rate paid, our customers are less receptive to increases in base freight rates. Prolonged
periods of inadequate base rate improvements could adversely impact operating profit as elements of
costs, including contractual wage rates, continue to increase.
We do not have any long-term fuel purchase contracts or any hedging arrangements to protect against
fuel price increases. Significant changes in diesel fuel prices and the associated fuel surcharge
may increase volatility in our fuel surcharge revenue and fuel-related costs. Volatile fuel prices
will continue to impact the base rate increases we are able to secure and could continue to have an
adverse effect on our operating margin.
Our business could be harmed by antiterrorism measures.
As a result of terrorist attacks on the United States, federal, state and municipal authorities
have implemented and may implement in the future various security measures, including checkpoints
and travel restrictions on large trucks. Although many companies will be adversely affected by any
slowdown in the availability of freight transportation, the negative impact could affect our
business disproportionately. For example, we offer specialized services that guarantee on-time
delivery. If security measures disrupt the timing of deliveries, we could fail to meet the needs of
our customers or could incur increased costs in order to do so.
We depend on transportation provided by rail services and a disruption of this service could
adversely affect our operations.
In 2009, rail utilization was 12.0% of our total miles. If a disruption in transportation services
from our rail service providers occurred, we could be faced with business interruptions that could
cause us to fail to meet the needs of our customers. If these situations occurred, our results of
operations and cash flows could be adversely impacted.
We operate in a highly regulated industry and costs of compliance with, or liability for violations
of, existing or future regulations could have a material adverse effect on our operating results.
Various federal and state agencies exercise broad regulatory powers over the transportation
industry, generally governing such activities as authorization to engage in motor carrier
operations, safety, contract compliance, insurance requirements and financial reporting. We could
also become subject to new or more restrictive regulations, such as regulations relating to engine
emissions, drivers hours of service, ergonomics or cargo security. Compliance with such
regulations could substantially reduce equipment productivity, and the costs of compliance could
increase our operating expenses.
In January 2004, we implemented the DOT rules regulating driving time for commercial truck drivers.
The rules have had a minimal impact upon our operations. However, future changes in these rules
could materially and adversely affect our operating efficiency and increase costs.
12
ITEM 1A. RISK FACTORS continued
Our drivers and dockworkers also 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 TSA has
adopted regulations that require all drivers who carry hazardous materials to undergo background
checks by the Federal Bureau of Investigation when they obtain or renew their licenses.
Failures to comply with DOT safety regulations or downgrades in our safety rating could have a
material adverse impact on our operations or financial condition. A downgrade in our safety rating
could cause us to lose the ability to self-insure. The loss of our ability to self-insure for any
significant period of time could materially increase insurance costs. In addition, we could
experience difficulty in obtaining adequate levels of insurance coverage in that event.
Increases in license and registration fees could also have an adverse effect on our operating
results.
Our operations are subject to various environmental laws and regulations, the violation of which
could result in substantial fines or penalties.
We are subject to various environmental laws and regulations dealing with the handling of hazardous
materials and similar matters. We operate in industrial areas where truck terminals and other
industrial activities are located and where groundwater or other forms of environmental
contamination could occur. We also store fuel in underground tanks at some facilities. Our
operations involve the risks of, among others, fuel spillage or leakage, environmental damage and
hazardous waste disposal. If we were involved in a spill or other accident involving hazardous
substances, or if we were found to be in violation of applicable laws or regulations, it could have
a material adverse effect on our business and operating results. If we should fail to comply with
applicable environmental regulations, we could be subject to substantial fines or penalties and to
civil and criminal liability.
Concern over climate change, including the impact of global warming, has led to significant
legislative and regulatory efforts to limit greenhouse gas emissions, and some form of federal
climate change legislation is possible in the relatively near future. Climate change legislation
has been introduced in the U.S. Congress. The Company is unable to determine with any certainty the
effects of the proposals that have been introduced. However, emission-related regulatory actions
have historically resulted in increased costs of revenue equipment and diesel fuel, and future
legislation, if passed, could result in increases in these and other costs. Increased regulation
regarding greenhouse gas emissions, including diesel engine emissions, could impose substantial
costs on us that may adversely impact our results of operations. Until the timing, scope and extent
of any future regulation becomes known, we cannot predict its effect on our cost structure or our
operating results.
We have significant ongoing capital requirements that could affect profitability if we were unable
to generate sufficient cash from operations.
We have significant ongoing capital requirements. If we are not able to generate sufficient cash
from operations in the future, our growth could be limited, we could have to utilize our existing
financing arrangements to a greater extent or enter into additional leasing arrangements, or our
revenue equipment may have to be held for longer periods, which would result in increased
maintenance costs. If these situations occurred, there could be an adverse effect on our
profitability.
Increased prices for new revenue equipment and decreases in the value of used revenue equipment
could adversely affect our earnings and cash flows.
Manufacturers have raised the prices of new revenue equipment significantly due to increased costs
of materials and, in part, to offset their costs of compliance with new tractor engine design
requirements mandated by the EPA intended to reduce emissions. New EPA engine design requirements
became effective on January 1, 2007, and more restrictive EPA emission-control design requirements
became effective for engines built beginning January 1, 2010. Further equipment price increases may
result from these requirements. If new equipment prices increase more than anticipated, we could
incur higher depreciation and rental expenses than anticipated. If we were unable to offset any
such increases in expenses with freight rate increases, our results of operations could be
adversely affected. If the market value of revenue equipment being used in our operations were to
decrease, we could incur impairment losses and our cash flows could be adversely affected.
During prolonged periods of decreased tonnage levels, we may make strategic fleet reductions. In
addition, other trucking companies may reduce fleet levels during recessionary economic cycles
which could result in an increase in the supply of
13
ITEM 1A. RISK FACTORS continued
used equipment. If market prices for used revenue equipment decline, we could incur impairment
losses on assets held for sale and our cash flows could be adversely affected.
The engines used in our newer tractors are subject to new emissions-control regulations, which
could substantially increase operating expenses.
Tractor engines that comply with the EPA emission-control design requirements that took effect on
January 1, 2007 are generally less fuel-efficient and have increased maintenance costs compared to
engines in tractors manufactured before these requirements became effective. However, the
adjustments engine manufacturers have made to the operating software on these engines have resulted
in slightly improved fuel economy. Although we anticipate additional improvement in fuel economy as
a result of the technologies to be implemented for compliance with the more stringent EPA
requirements that became effective for engines built beginning January 1, 2010, our costs to
acquire compliant equipment could increase substantially. If we are unable to offset resulting
increases in equipment costs with higher freight rates, our results of operations could be
adversely affected.
Decreases in the availability of new tractors and trailers could have a material adverse effect on
our operating results.
From time to time, some tractor and trailer vendors have reduced their manufacturing output due,
for example, to lower demand for their products in economic downturns or a shortage of component
parts. As a result of the current economic environment, component suppliers have reduced production
creating difficulty for vehicle manufacturers to source materials in a timely manner in reaction to
increased demand for new equipment as economic conditions change. An inability to continue to
obtain an adequate supply of new tractors or trailers could have a material adverse effect on our
results of operations and financial condition.
We could be obligated to make additional significant contributions to multiemployer pension plans.
Under the provisions of the Taft-Hartley Act, retirement and health care benefits for our
contractual employees are provided by a number of multiemployer plans. The trust funds for these
plans are administered by trustees, an equal number of whom generally are appointed by the IBT and
certain management carrier organizations or other appointing authorities for employer trustees as
set forth in the funds trust agreements. We contribute to these plans monthly based generally on
the time worked by our contractual employees, as specified in the collective bargaining agreement
and other supporting supplemental agreements. We recognize as expense the contractually required
contribution for the period and recognize as a liability any contributions due and unpaid.
In 2006, the Pension Protection Act (the PPA) became law and together with related regulations
established new minimum funding requirements for multiemployer pension plans. The PPA mandates that
multiemployer pension plans that are below certain funding levels or that have projected funding
deficiencies adopt a funding improvement plan or a rehabilitation program to improve the funding
levels over a defined period of time. The PPA also accelerates the timing of annual funding notices
and requires additional disclosures from multiemployer pension plans if such plans fall below the
required funding levels. In December 2008, the Worker, Retiree, and Employer Recovery Act of 2008
(the Recovery Act) became law. For plan years beginning October 1, 2008 through September 30,
2009, the Recovery Act allows multiemployer plans the option to freeze their funding certification
based on the funding status of the previous plan year. In addition, for multiemployer plans in
endangered or critical status in plan years beginning in 2008 or 2009, the Recovery Act provides a
three-year extension of the plans funding improvement or rehabilitation period.
We currently contribute to 26 multiemployer pension plans, which vary in size and in funding
status. In the event of the termination of certain multiemployer pension plans or if ABF were to
withdraw from certain multiemployer pension plans, under current law, we would have material
liabilities, the amounts of which could be in excess of our current ability to adequately finance,
for our share of the unfunded vested liabilities of each such plan. We have not received
notification of any plan termination, and we do not currently intend to withdraw from these plans.
Approximately 50% of our multiemployer pension contributions are made to the Central States
Southeast and Southwest Area Pension Fund (the Central States Pension Fund). The Central States
Pension Fund adopted a rehabilitation plan as a result of its actuarial certification for the plan
year beginning January 1, 2008 which placed the Central States Pension Fund in critical status in
accordance with the PPA. Our current collective bargaining agreement complies with the
rehabilitation plan which was adopted by the Central States Pension Fund prior to the April 1, 2008
effective date of the collective
14
ITEM 1A. RISK FACTORS continued
bargaining agreement. The actuarial certification for the plan year beginning January 1, 2009
certified that the Central States Pension Fund remains in critical status with a funded percentage
of 58%.
In 2005, the U.S. Internal Revenue Service (IRS) extended the period over which the Central
States Pension Fund amortizes unfunded liabilities by ten years subject to the condition that a
targeted funding ratio will be maintained by the fund. Due, in part, to the decline in asset values
associated with the returns in the financial markets during 2008, the funding level of the Central
States Pension Fund as of the January 1, 2009 actuarial valuation dropped below the targeted
funding ratio set forth as a condition of the ten-year amortization extension. However, the
amortization extension approved by the IRS in 2005 expressly indicated that modifications of
conditions would be considered in the event of unforeseen market fluctuations which cause the plan
to fail the funded ratio condition for a certain plan year. Based on information currently
available to the Company, the Central States Pension Fund has not received notice of revocation of
the ten-year amortization extension by the IRS. In the unlikely event the IRS were to revoke the
extension, revocation would apply retroactively to the 2004 plan year, which would result in a
material liability for ABFs share of the resulting funding deficiency, the extent of which is
currently unknown to the Company.
Other multiemployer pension plans in which ABF participates have adopted or will have to adopt
either a funding improvement plan or a rehabilitation program, depending on their current funding
status as required by the PPA. We believe that the contribution rates under the current collective
bargaining agreement will comply with any rehabilitation plan that has been or may be adopted by
the majority of the multiemployer pension plans in which we participate. If the contribution rates
in the collective bargaining agreement fail to meet the requirements established by the
rehabilitation or funding improvement plan required by the PPA for underfunded plans, the PPA would
impose additional contribution requirements in the form of a surcharge of an additional 5% to 10%.
However, under our collective bargaining agreement which expires March 31, 2013, any surcharges
that may be required by the PPA are covered by the contractual contribution rate and should not
increase our overall contribution obligation. The plans trustees have the ability to take a wide
range of actions to improve the funding status of the plans which include adopting an automatic
five-year extension of the amortization period available under the PPA; requesting an additional
five-year extension from the IRS; obtaining changes to or waivers of the requirements used by the
plans to calculate funding levels; or modifying pension benefits.
The underfunded status of many plans in which we participate occurred over many years, and we
believe that an improved funded status will also take time to be achieved. We believe that the
trustees of these funds will take appropriate measures to fulfill their fiduciary duty to preserve
the integrity of the plans, utilizing a combination of several possible initiatives as they have
done in the past, although we cannot make any assurances in this regard. While increasing employer
contributions is one potential remedy to address the underfunded status, it is our understanding
that our annual contribution increases are limited to negotiated contribution rates through March
31, 2013 as provided in the current collective bargaining agreement. Other alternatives that may be
pursued by the trustees of underfunded plans include reducing or eliminating certain adjustable
benefits of the plan or redesigning the plan structure. Furthermore, additional legislative
changes or action taken by governmental agencies could provide relief.
As previously mentioned, the highly competitive industry in which we operate could impact the
viability of contributing employers. In 2009, a contributing competitor of ABF was granted
concessions from the IBT which allowed for the suspension of multiemployer pension plan
contributions for the eighteen-month period ending December 31, 2010. The reduction of
contributions by member employers and the effect of any one or combination of the aforementioned
business risks, which are outside our control, have the potential to adversely affect the funding
status of the multiemployer pension plans, potential withdrawal liabilities and our future
contribution requirements.
Ongoing claims expenses could have a material adverse effect on our operating results.
Our self-insurance retention levels are currently $1.0 million for each workers compensation loss,
$1.0 million for each cargo loss and generally $1.0 million for each third-party casualty loss.
Effective February 1, 2010, our self-insurance retention levels for medical benefits increased from
$175,000 to $225,000 per person, per claim year. We maintain insurance for liabilities above the
amounts of self-insurance to certain limits. If the frequency and/or severity of claims increase,
our operating results could be adversely affected. The timing of the incurrence of these costs
could significantly and adversely impact our operating results compared to prior periods. In
addition, if we were to lose our ability to self-insure for any significant period of time,
insurance costs could materially increase and we could experience difficulty in obtaining adequate
levels of insurance coverage in that event.
15
ITEM 1A. RISK FACTORS continued
Increased insurance premium costs could have an adverse effect on our operating results.
Our recent insurance renewals did not result in significant changes in premiums; however, insurance
carriers are expected to increase premiums for many companies, including transportation companies,
in the coming years. We could experience additional increases in our insurance premiums in the
future. If our insurance or claims expenses increase and we were unable to offset the increase with
higher freight rates, our earnings could be adversely affected.
Market penetration of our service and growth initiatives may take longer than anticipated.
The level of revenues expected to be generated from our development of second-day service lanes,
overnight lanes and same-day service offerings may be impacted by actions of our competitors and by
general economic conditions. Maintaining and developing these services requires ongoing investment
in personnel and infrastructure. Depending on the timing and level of revenues generated from these
service initiatives, the results of operations and cash flows we anticipate from these service
initiatives may not be achieved.
We may be unsuccessful in realizing all or any part of the anticipated benefits of any future
acquisitions.
We evaluate acquisition candidates from time to time and may acquire assets and businesses that we
believe complement our existing assets and business. Acquisitions may require substantial capital
or the incurrence of substantial indebtedness. If we consummate any future acquisitions, our
capitalization and results of operations may change significantly. The degree of success of
acquisitions will depend, in part, on our ability to realize anticipated cost savings and growth
opportunities. Our success in realizing these benefits and the timing of this realization depends
in part upon the successful change of ownership structure. The difficulties of managing this change
include, among others: unanticipated issues in the assimilation and consolidation of information,
communications and other systems; inefficiencies and difficulties that arise because of
unfamiliarity with potentially new geographic areas and new assets and the businesses associated
with them; retaining customers and key employees; consolidating corporate and administrative
infrastructures; the diversion of managements attention from ongoing business concerns; the effect
on internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act
of 2002; and unanticipated issues, expenses and liabilities. The diversion of the attention of
management from our current operations to the acquired operations and any difficulties encountered
in combining operations could prevent us from realizing the full benefits anticipated to result
from the acquisitions and could adversely impact our results of operations and financial condition.
Also, following an acquisition, we may discover previously unknown liabilities associated with the
acquired business for which we have no recourse under applicable indemnification provisions.
Our information technology systems are subject to certain risks that are beyond our control.
We depend on the proper functioning and availability of our information systems, including
communications and data processing systems, in operating our business. Our information systems are
protected through physical and software safeguards. However, they are still vulnerable to fire,
storm, flood, power loss, telecommunications failures, physical or software break-ins and similar
events. To mitigate the potential for such occurrences at our corporate headquarters, we have
implemented various systems including redundant telecommunication facilities; a fire suppression
system to protect our on-site data center; and a generator that is able to adequately supply power
to the headquarters building in the event of power outages. We have a catastrophic disaster
recovery plan and alternate processing capability, which is designed so that critical data
processes should be fully operational within 48 hours. This plan provides for work space, phones,
and desktop computers for basic operations within 48 hours of a catastrophe which renders our
corporate headquarters unusable. An emergency communications Web site has also been constructed to
provide information to our employees and customers during such a disaster. We have business
interruption insurance, including, in certain circumstances, insurance against terrorist attacks
under the federal Terrorism Risk Insurance Act of 2002, which would offset losses up to certain
coverage limits in the event of a catastrophe. However, a significant system failure, security
breach, disruption by a virus or other damage could still interrupt or delay our operations, damage
our reputation and cause a loss of customers.
Our results of operations can be impacted by seasonal fluctuations or adverse weather conditions.
We can be impacted by seasonal fluctuations which affect tonnage and shipment levels. Freight
shipments, operating costs and earnings can also be adversely affected by inclement weather
conditions. Climate change may have an influence on the severity of weather conditions, which could
adversely affect our freight shipments and, consequently, our operating results.
16
ITEM 1A. RISK FACTORS continued
We are also subject to risks and uncertainties that affect many other businesses, including:
Any liability resulting from and the cost of defending against class-action litigation, such as
alleged violations of anti-trust laws, wage-and-hour and discrimination claims, and any other legal
proceedings;
Widespread outbreak of an illness or communicable disease or public health crisis; and
Operational or market disruptions, including infrastructure damage, arising from natural
calamities, such as hurricanes or earthquakes, and from illegal acts including terrorist attacks.
Our results of operations and financial condition could be adversely affected by an unfavorable
outcome resulting from these risks and uncertainties.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
17
ITEM 2. PROPERTIES
The Company owns its executive office building in Fort Smith, Arkansas, which contains
approximately 189,000 square feet.
ABF currently operates out of 281 terminal facilities, 10 of which also serve as distribution
centers. The Company owns 124 of these facilities and leases the remainder from nonaffiliates.
ABFs distribution centers are as follows:
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No. of Doors
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Square Footage
|
|
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|
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|
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|
|
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Owned:
|
|
|
|
|
|
|
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Dayton, Ohio
|
|
|
330
|
|
|
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250,704
|
|
Carlisle, Pennsylvania
|
|
|
333
|
|
|
|
196,200
|
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Kansas City, Missouri
|
|
|
252
|
|
|
|
166,235
|
|
Winston-Salem, North Carolina
|
|
|
150
|
|
|
|
164,200
|
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Atlanta, Georgia
|
|
|
226
|
|
|
|
158,209
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|
South Chicago, Illinois
|
|
|
274
|
|
|
|
152,810
|
|
North Little Rock, Arkansas
|
|
|
196
|
|
|
|
150,512
|
|
Dallas, Texas
|
|
|
196
|
|
|
|
144,170
|
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Albuquerque, New Mexico
|
|
|
85
|
|
|
|
71,020
|
|
|
|
|
|
|
|
|
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Leased from nonaffiliate:
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|
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Salt Lake City, Utah
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|
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89
|
|
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53,916
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The Company believes that its facilities are suitable and adequate and that they have sufficient
capacity to meet current business requirements.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions, the majority of which arise in the normal course of business, are pending.
These legal actions are not expected to have a material adverse effect, individually or in the
aggregate, on the Companys financial condition, cash flows or results of operations. The Company
maintains insurance against certain risks arising out of the normal course of its business, subject
to certain self-insured retention limits. The Company has accruals for certain legal and
environmental exposures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth quarter ended December 31,
2009.
18
PART II
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ITEM 5.
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MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
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Market Information, Dividends and Holders
The Common Stock of Arkansas Best Corporation (the Company) trades on The NASDAQ Global Select
Market (NASDAQ) under the symbol ABFS. The following table sets forth the high and low recorded
sale prices of the Common Stock during the periods indicated as reported by NASDAQ and the cash
dividends declared:
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Cash
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High
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Low
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Dividend
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2008
|
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First quarter
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$
|
35.32
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|
|
$
|
17.94
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|
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$
|
0.15
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Second quarter
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|
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42.45
|
|
|
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30.31
|
|
|
|
0.15
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|
Third quarter
|
|
|
45.13
|
|
|
|
30.10
|
|
|
|
0.15
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Fourth quarter
|
|
|
34.04
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|
|
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19.41
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|
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0.15
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
31.24
|
|
|
$
|
15.84
|
|
|
$
|
0.15
|
|
Second quarter
|
|
|
31.56
|
|
|
|
17.98
|
|
|
|
0.15
|
|
Third quarter
|
|
|
34.56
|
|
|
|
24.02
|
|
|
|
0.15
|
|
Fourth quarter
|
|
|
33.54
|
|
|
|
23.31
|
|
|
|
0.15
|
|
At February 18, 2010,
there were 25,300,405 shares of the Companys Common Stock outstanding, which
were held by 334 stockholders of record.
The Company expects to continue to pay quarterly dividends in the foreseeable future, although
there can be no assurances in this regard since future dividends will be at the discretion of the
Board of Directors and will depend upon the Companys future earnings, capital requirements,
financial condition and other factors. There are no material contractual restrictions on our
ability to declare dividends. In response to the current prolonged freight recession, the Board of
Directors of the Company reduced the quarterly dividend and in January 2010 declared a dividend of
$0.03 per share to stockholders of record on February 9, 2010.
Issuer Purchases of Equity Securities
The Company has a program to repurchase its Common Stock in the open market or in privately
negotiated transactions. The Companys Board of Directors authorized stock repurchases of up to
$25.0 million in 2003 and an additional $50.0 million in 2005. The repurchases may be made either
from the Companys cash reserves or from other available sources. The program has no expiration
date but may be terminated at any time at the Boards discretion. The Company made no repurchases
of its Common Stock during 2009.
As of December 31, 2009, the Company has purchased 1,618,150 shares for an aggregate cost of $56.8
million, leaving $18.2 million available for repurchase under the program. The total shares
repurchased by the Company, since the inception of the program, have been made at an average price
of $35.11 per share.
19
ITEM 6. SELECTED FINANCIAL DATA
The following table includes selected financial and operating data for the Company as of and for
each of the five years in the period ended December 31, 2009. This information should be read in
conjunction with Item 7, Managements Discussion and Analysis of Financial Condition and Results
of Operations, and Item 8, Financial Statements and Supplementary Data, in Part II of this
Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
(1)
|
|
|
2008
|
|
|
2007
|
|
|
2006
(2)
|
|
|
2005
(3)
|
|
|
|
($ thousands, except per share data)
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,472,901
|
|
|
$
|
1,833,052
|
|
|
$
|
1,836,878
|
|
|
$
|
1,881,500
|
|
|
$
|
1,769,576
|
|
Operating income (loss)
|
|
|
(168,706
|
)
|
|
|
48,524
|
|
|
|
84,844
|
|
|
|
124,679
|
|
|
|
166,524
|
|
Income (loss) from continuing operations
before income taxes
|
|
|
(165,518
|
)
|
|
|
49,910
|
|
|
|
90,791
|
|
|
|
131,519
|
|
|
|
168,451
|
|
Provision (benefit) for income taxes
|
|
|
(37,996
|
)
|
|
|
20,742
|
|
|
|
33,966
|
|
|
|
51,018
|
|
|
|
65,698
|
|
Income (loss) from continuing operations
(4)
|
|
|
(127,889
|
)
|
|
|
29,168
|
|
|
|
56,825
|
|
|
|
80,501
|
|
|
|
102,753
|
|
Income (loss) from continuing operations
per common share, diluted
(4,5)
|
|
|
(5.12
|
)
|
|
|
1.14
|
|
|
|
2.23
|
|
|
|
3.13
|
|
|
|
3.98
|
|
Cash dividends declared per common share
(6)
|
|
|
0.60
|
|
|
|
0.60
|
|
|
|
0.60
|
|
|
|
0.60
|
|
|
|
0.54
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
869,546
|
|
|
|
972,298
|
|
|
|
983,349
|
|
|
|
938,716
|
|
|
|
921,060
|
|
Current portion of long-term debt
|
|
|
3,603
|
|
|
|
159
|
|
|
|
171
|
|
|
|
249
|
|
|
|
317
|
|
Long-term debt (including capital leases
and excluding current portion)
|
|
|
13,373
|
|
|
|
1,457
|
|
|
|
1,400
|
|
|
|
1,184
|
|
|
|
1,433
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net capital expenditures, including
capital leases
(7)
|
|
|
43,676
|
|
|
|
41,996
|
|
|
|
86,102
|
|
|
|
135,550
|
|
|
|
64,309
|
|
Depreciation and amortization of
property, plant and equipment
|
|
|
75,226
|
|
|
|
76,872
|
|
|
|
77,318
|
|
|
|
67,727
|
|
|
|
61,851
|
|
|
|
|
(1)
|
|
2009 includes a goodwill impairment charge of $64.0 million (nondeductible for tax
purposes), or $2.55 per share, (see Note D to the Companys consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K) and pre-tax pension
settlement expense of $4.6 million, or $0.11 per share, related to the supplemental benefit
plan (see Note I to the Companys consolidated financial statements included in Part II, Item
8 of this Annual Report on Form 10-K).
|
|
(2)
|
|
2006 includes pre-tax pension settlement expense of $10.2 million, or $0.24 per share,
related to the supplemental benefit plan.
|
|
(3)
|
|
2005 includes a pre-tax gain of $15.4 million, or $0.38 per share, from the sale of
properties to G.I. Trucking Company.
|
|
(4)
|
|
In 2009, loss from continuing operations excludes a noncontrolling interest in net income of a
subsidiary of $0.4 million.
|
|
(5)
|
|
Effective January 1, 2009, the Company adopted new accounting guidance that requires an
allocation of dividends paid and a portion of undistributed net income to unvested restricted
stock for calculating per share amounts. As a result, per share amounts for 2005 through 2008
have been retrospectively adjusted to be consistent with the 2009 presentation.
|
|
(6)
|
|
In January 2010, the Companys Board of Directors reduced the quarterly cash dividend to
$0.03 per share.
|
|
(7)
|
|
Capital expenditures are shown net of proceeds from the sale of property, plant and equipment.
|
20
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
Arkansas Best Corporation (the Company), a Delaware corporation, is a holding company engaged
through its subsidiaries primarily in motor carrier freight transportation. The Companys principal
operations are conducted through ABF Freight System, Inc. and other subsidiaries of the Company
that are engaged in motor carrier freight transportation (collectively ABF).
Organization of Information
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
comprised of three major sections: Results of Operations, Liquidity and Capital Resources and
Critical Accounting Policies. These sections include the following information:
|
|
|
Results of Operations includes an overview of the Companys consolidated 2009 results
compared to 2008, and 2008 results compared to 2007. The consolidated overview is followed
by a financial summary and analysis of ABFs 2009 results compared to 2008, and 2008
results compared to 2007. This section also includes a discussion of key actions and events
that impacted the results.
|
|
|
|
Liquidity and Capital Resources provides an analysis of key elements of the cash flow
statements, borrowing capacity and contractual cash obligations, including a discussion of
financial commitments.
|
|
|
|
Critical Accounting Policies discusses those accounting policies that are important to
understanding certain of the material judgments and assumptions incorporated in the
reported financial results.
|
The key indicators necessary to understand the Companys operating results include:
|
|
|
the overall customer demand for ABFs freight transportation services;
|
|
|
|
the volume of transportation services provided by ABF, primarily measured by average
daily shipment weight (tonnage);
|
|
|
|
the prices ABF obtains for its services, primarily measured by yield (revenue per
hundredweight); and
|
|
|
|
ABFs ability to manage its cost structure as measured on an overall basis by the
percent of operating expenses to revenue levels (operating ratio).
|
Results of Operations
Executive Overview
Consolidated net loss was $127.9 million in 2009 compared to net income of $29.2 million in 2008
and net income of $56.8 million in 2007. These results primarily reflect the operations of ABF,
including the impact of a noncash goodwill impairment charge in 2009 in the amount of $64.0
million, which is nondeductible for tax purposes.
ABF represented 94% of the Companys consolidated revenues for the year ended December 31, 2009
and 96% of the Companys consolidated revenues for the years ended December 31, 2008 and 2007. On
an ongoing basis, ABFs ability to operate profitably and generate cash is impacted by tonnage,
which influences operating leverage as tonnage levels vary; the pricing environment; customer
account mix; and the ability to manage costs effectively, primarily in the area of salaries, wages
and benefits (labor).
During the year ended December 31, 2009, ABFs revenues decreased 21.0% on a per-day basis
compared to 2008. ABFs 2008 revenues decreased 0.9% on a per-day basis compared to 2007 revenues.
These revenue declines primarily reflect decreases in tonnage levels and changes in revenue per
hundredweight, including fuel surcharges. Tonnage per day for the year ended December 31, 2009
decreased by 11.4% compared to 2008, and was preceded by year-over-year declines of 4.2% in 2008
and 5.3% in 2007. ABFs 2009 operating ratio increased to 112.2%, or 107.2% after excluding
goodwill impairment and supplemental pension settlements, from 97.2% in 2008 and 95.2% in 2007.
The ABF operating results are more fully discussed below in the ABF sections of MD&A.
ABFs operations are affected by general economic conditions, as well as a number of other
competitive factors that are more fully described in the Business and Risk Factors sections of
this Annual Report on Form 10-K. The prolonged unfavorable economic environment has adversely
impacted business activities of ABFs customers which has had a corresponding adverse effect on
ABFs tonnage levels and limited ABFs ability to secure adequate pricing for its services.
21
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
ABFs management believes that the declining tonnage trends which have continued since the fourth
quarter of 2006 are representative of the weakened domestic and global economies due, in part, to
turmoil in the financial markets and the related effects on industrial production and the
residential and commercial construction and retail sectors. Although ABF has experienced
improvements in year-over-year tonnage comparisons each month since June 2009, including a
year-over-year increase for the month of December 2009, the comparison was influenced by declining
tonnage trends experienced by the Company in the second half of 2008.
ABFs tonnage trends continued to be positive during the first quarter of 2010, although
tonnage levels have been impacted by severe weather conditions. Quarter-to-date through
mid-February 2010, average daily total tonnage for ABF increased
slightly more than 1% compared to the
same period last year. There can be no assurances that ABF will not experience declines in tonnage
levels due to a number of factors including, but not limited to, continued weakness in general
economic activity. First quarter tonnage levels are normally lower during January and February
while March provides a disproportionately higher amount of the quarters business. The first
quarter of each year generally has the highest operating ratio of the year, although other
factors, including the state of the economy, may influence quarterly comparisons.
As a result of the extended period of an adverse economic environment and the historically severe
tonnage declines, ABF has implemented cost reduction programs. ABF is generally effective in
managing its costs to business levels. However, incremental reductions in labor and other operating
costs become increasingly challenging and less effective as ABF maintains service levels and
continues its focus on serving the regional markets, including next-day and second-day markets,
during prolonged periods of depressed tonnage levels. A larger proportion of ABFs costs are fixed
in nature when maintaining customer service levels. Shipments per dock, street and yard (DSY)
hour and total pounds per mile are measures ABF uses to assess the effectiveness of labor costs.
Shipments per DSY hour is used to measure effectiveness in ABFs local operations, although total
pounds per DSY hour is also a relevant measure when the average shipment size is changing. Total
pounds per mile is used by ABF to measure the effectiveness of its linehaul operations, although
this metric is influenced by other factors including freight density, loading efficiency, average
length of haul and the degree to which rail service is used. ABFs ability to effectively manage
labor costs, which amounted to 70.1%, 59.6% and 60.5% of ABFs revenues for 2009, 2008 and 2007,
respectively, has a direct impact on its operating performance. Labor costs, including retirement
and health care benefits for ABFs contractual employees that are provided by a number of
multiemployer plans (see Note I to the Companys consolidated financial statements included in Part
II, Item 8 of this Annual Report on
Form 10-K), are impacted by ABFs contractual obligations under its labor agreement primarily with
the IBT. The current five-year collective bargaining agreement, which became effective April 1,
2008, provides for compounded annual contractual wage and benefit increases of approximately 4%,
subject to wage rate cost-of-living adjustments, as further discussed in the ABF section of MD&A.
In addition to reducing headcount, equipment levels and costs in a number of areas in relation to
available business levels, the Company has taken further actions to reduce nonunion fringe benefit
costs in 2010. However, ABFs operating results will continue to be adversely impacted if tonnage
remains at the current levels.
The industry pricing environment is another key to ABFs operating performance. The pricing
environment, which generally becomes more competitive during periods of lower tonnage levels,
influences ABFs ability to obtain compensatory margins and price increases on customer accounts.
ABFs pricing is typically measured by billed revenue per hundredweight, which is a reasonable,
although approximate, measure of price change. This measure is affected by freight profile factors
such as average shipment size, average length of haul, freight density and customer and geographic
mix. ABF focuses on individual account profitability rather than billed revenue per hundredweight
when considering customer account or market evaluations due to the difficulty in quantifying, with
sufficient accuracy, the impact of changes in freight profile characteristics, which is necessary
to estimate true price changes. However, total company profitability for ABF is considered
together with measures of billed revenue per hundredweight. Total billed revenue per hundredweight
decreased 10.8% during 2009 versus 2008 primarily due to lower fuel surcharges resulting from
lower fuel-related costs. The fuel surcharge constituted a higher proportion of the total freight
rate during the majority of 2008, as further discussed in the paragraph below. During 2009, ABF
also experienced freight profile changes that impacted the reported billed revenue per
hundredweight, as further discussed in the ABF section of MD&A. Excluding freight profile changes
and the changes in fuel surcharges, pricing on ABFs traditional less-than-truckload (LTL)
business weakened in 2009 with percentage declines in the low single digits as compared to 2008.
The pricing environment was very competitive in 2009 and management expects the pricing
environment in 2010 to remain very competitive, although there can be no assurances in this
regard. Effective January 11, 2010, ABF implemented a general rate increase of 5.70% to cover
known and expected cost increases, although the amounts vary by lane and shipment characteristic.
The 2010 general rate increase, which is in line with increases announced by other LTL carriers,
was implemented one week later than the 2009 increase. The general rate increase affected
approximately 45% of ABFs business, and rate increases on the remaining business are subject to
individual negotiations. ABFs ability to
22
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
retain the general rate increase
and to increase rates on the remainder of its business is dependent on the competitive pricing
environment. Obtaining overall base rate increases involves a lengthy process to address the
pricing and resulting profitability
of individual customer accounts. Prolonged periods with insufficient base LTL rate improvements
result in higher operating ratios as elements of unit cost, including contractual wage and benefit
rates, continue to increase.
The transportation industry is dependent upon the availability of adequate fuel supplies. The
Company has not experienced a lack of available fuel but could be adversely impacted if a fuel
shortage were to develop. ABF charges a fuel surcharge based on changes in diesel fuel prices
compared to a national index. The ABF fuel surcharge rate in effect is available on the ABF Web
site at
abf.com
. (The information contained on the ABF Web site is not a part of this Annual
Report on Form 10-K nor shall it be deemed incorporated by reference into this Annual Report on
Form 10-K.) Although revenues from fuel surcharges generally more than offset increases in direct
diesel fuel costs, other operating costs have been, and may continue to be, impacted by
fluctuating fuel prices. The total impact of energy prices on other nonfuel-related expenses is
difficult to ascertain. ABF cannot predict, with reasonable certainty, future fuel price
fluctuations, the impact of energy prices on other cost elements, recoverability of fuel costs
through fuel surcharges, and the effect of fuel surcharges on ABFs overall rate structure or the
total price that ABF will receive from its customers. During periods of changing diesel fuel
prices, the fuel surcharge and associated direct diesel fuel costs also vary by different degrees.
Depending upon the rates of these changes and the impact on costs in other fuel- and
energy-related areas, operating margins could be impacted. Whether fuel prices fluctuate or remain
constant, ABFs operating income may be adversely affected if competitive pressures limit its
ability to recover fuel surcharges. Throughout 2009, the fuel surcharge mechanism had strong
market acceptance among ABF customers, although certain nonstandard arrangements with some of
ABFs customers have limited the amount of fuel surcharge recovered. While the fuel surcharge is
one of several components in ABFs overall rate structure, the actual rate paid by customers is
governed by market forces based on value provided to the customer. ABF experienced significantly
higher fuel prices in the first ten months of 2008 compared to the same period in 2007. After
reaching a peak in the middle of July 2008, fuel prices declined steadily through mid-March 2009.
Although fuel prices have increased over 50% from the March 2009 low to the end of 2009, the 2009
average fuel surcharge rate was approximately 13 revenue percentage points below the 2008 average.
While fuel prices and the related fuel surcharge levels declined in 2009 compared to 2008, ABF has
not been able to increase other elements of margin primarily due to the competitive freight
environment which has been influenced by lower levels of available tonnage.
ABF operates in a highly competitive industry with both union and nonunion motor carriers. The
Companys nonunion competitors generally have a lower fringe benefit cost structure, and certain
carriers reduced their wage rates for their freight-handling and driving personnel. In addition,
wage and benefit concessions granted to certain union competitors allow for a lower cost structure
than that of ABF. Competitors with lower labor cost structures have reduced freight rates to gain
market share which may further limit ABFs ability to maintain or increase base freight rates. ABF
has communicated and continues its attempts to address with the IBT the effect of these matters on
ABFs operating results.
2009 Compared to 2008
Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands, except workdays and per share data)
|
|
WORKDAYS
|
|
|
251.5
|
|
|
|
252.5
|
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
ABF
|
|
$
|
1,384,419
|
|
|
$
|
1,758,780
|
|
Other revenues and eliminations
|
|
|
88,482
|
|
|
|
74,272
|
|
|
|
|
|
|
|
|
|
|
$
|
1,472,901
|
|
|
$
|
1,833,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
|
|
|
|
|
|
ABF
|
|
$
|
(168,465
|
)
|
|
$
|
48,435
|
|
Other and eliminations
|
|
|
(241
|
)
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
$
|
(168,706
|
)
|
|
$
|
48,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS (LOSS) PER SHARE
|
|
$
|
(5.12
|
)
|
|
$
|
1.14
|
|
23
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
The 2009 operating loss includes a goodwill impairment charge of $64.0 million (nondeductible for
tax purposes), or $2.55 per share, and pension settlement expense of $4.6 million (pre-tax), or
$0.11 per share. The comparable pension settlement expense for 2008 was $1.5 million (pre-tax), or
$0.04 per share. Consolidated revenues for the year ended December 31, 2009 decreased 19.3% on a
per-day basis compared to 2008. Excluding impairment and settlement charges, consolidated operating
loss for 2009 was $100.2 million, compared to operating income of $50.1 million for 2008. Excluding
charges, consolidated net loss was $2.46 per share for the year ended December 31, 2009 compared to
net income of $1.18 per share for 2008. The decrease in revenues, operating income and earnings per
share primarily reflect the operating results of ABF, as discussed in the ABF section that follows.
ABF
The following table sets forth a summary of operating expenses and operating income (loss) as a
percentage of revenue for ABF:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
ABF Operating Expenses and Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
70.1
|
%
|
|
|
59.6
|
%
|
Fuel, supplies and expenses
|
|
|
16.0
|
|
|
|
19.4
|
|
Operating taxes and licenses
|
|
|
3.1
|
|
|
|
2.7
|
|
Insurance
|
|
|
1.5
|
|
|
|
1.2
|
|
Communications and utilities
|
|
|
1.0
|
|
|
|
0.9
|
|
Depreciation and amortization
|
|
|
5.2
|
|
|
|
4.2
|
|
Rents and purchased transportation
|
|
|
9.9
|
|
|
|
9.0
|
|
Pension settlement expense
|
|
|
0.4
|
|
|
|
|
|
Gain on sale of property and equipment
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
Other
|
|
|
0.5
|
|
|
|
0.4
|
|
Goodwill impairment charge
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112.2
|
%
|
|
|
97.2
|
%
|
|
|
|
|
|
|
|
|
|
ABF Operating Income (Loss)
|
|
|
(12.2
|
)%
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a comparison of key operating statistics for ABF:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workdays
|
|
|
251.5
|
|
|
|
252.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed revenue
(1)
per hundredweight, including fuel surcharges
|
|
$
|
23.81
|
|
|
$
|
26.70
|
|
|
|
(10.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds
|
|
|
5,814,325,308
|
|
|
|
6,586,822,376
|
|
|
|
(11.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per day
|
|
|
23,118,590
|
|
|
|
26,086,425
|
|
|
|
(11.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments per DSY hour
|
|
|
0.485
|
|
|
|
0.483
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per DSY hour
|
|
|
641.87
|
|
|
|
633.97
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per shipment
|
|
|
1,323
|
|
|
|
1,313
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per mile
|
|
|
19.11
|
|
|
|
18.97
|
|
|
|
0.7
|
%
|
|
|
|
(1)
|
|
Billed revenue does not include revenue deferral required for financial statement purposes
under the Companys revenue recognition policy.
|
24
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
ABFs revenue for the year ended December 31, 2009 was $1,384.4 million, compared to $1,758.8
million reported in 2008, for a decrease of 21.0% on a per-day basis. The revenue decrease in 2009
compared to 2008 primarily reflects tonnage declines of 11.4% per day and a decrease in billed
revenue per hundredweight of 10.8%, which was attributable to lower fuel surcharges and a very
competitive pricing environment. Excluding changes in freight profile and the decrease in fuel
surcharges, management believes that pricing on ABFs traditional LTL business experienced low
single-digit percentage declines in 2009 compared to 2008. ABF charges a fuel surcharge based on
changes in diesel fuel prices compared to a national index. The ABF fuel surcharge rate in effect
is available at
abf.com
. (The information contained on the ABF Web site is not a part of this
Annual Report on Form 10-K nor shall it be deemed incorporated by reference into this Annual
Report on Form 10-K.)
Effective January 5, 2009 and February 4, 2008, ABF implemented general rate increases to cover
known and expected cost increases. Nominally, the increases were 5.79% and 5.45%, respectively,
although the amounts vary by lane and shipment characteristics. For 2009, the general rate
increase affected approximately 45% of ABFs business, while rate increases on the remaining
business are subject to individually negotiated pricing arrangements that are effective at various
times throughout the year. As previously mentioned in the Executive Overview, ABF put into place a
general rate increase on January 11, 2010, to cover known and expected cost increases during the
remainder of 2010. ABFs ability to retain this rate increase is dependent on the competitive
pricing environment. The reduction of wage rates for freight-handling and driving personnel by
certain nonunion carriers and wage and benefit concessions granted to certain union carriers allow
these LTL carriers to have a lower labor cost structure than is afforded to ABF and, as a result,
may limit ABFs ability to maintain or increase base freight rates. Despite the general rate
increase implemented in 2009, pricing on ABFs traditional LTL business experienced low
single-digit percentage declines, as previously discussed.
ABFs 10.8% decrease in billed revenue per hundredweight for the year ended December 31, 2009
compared to 2008 was also impacted by changes in freight profile such as length of haul, pounds
per shipment, freight density and customer and geographic mix. Total weight per shipment for 2009
increased 0.8% compared to 2008 while ABFs length of haul in 2009 was relatively consistent with
2008. Increased weight per shipment has the effect of decreasing the nominal revenue per
hundredweight without a commensurate impact on effective pricing or shipment profitability. For
the year ended December 31, 2009, the decrease in billed revenue per hundredweight compared to
2008 reflected a very competitive pricing environment.
ABF generated an operating loss of $168.5 million in 2009 versus operating income of $48.4 million
in 2008. ABFs 2009 operating ratio increased to 112.2% from 97.2% in 2008. The increase in ABFs
operating ratio in 2009 was influenced by the declines in tonnage levels and billed revenue per
hundredweight mentioned above, as well as a goodwill impairment charge of $64.0 million and
pension settlement expense of $4.6 million. These charges added 5% to ABFs operating ratio in
2009 with no comparable impact in 2008. The increase in ABFs operating ratio, excluding the
impact of the 2009 charges, reflects the effect of base LTL rates not adequately covering
increases in elements of unit cost, including contractual wage rates,
as discussed below. ABFs
operating ratio was also impacted by other changes in operating expenses as discussed in the
following paragraphs.
Salaries, wages and benefits expense decreased $78.3 million for the year ended December 31, 2009
but as a percentage of revenue increased by 10.5% compared to 2008. Portions of salaries, wages
and benefits are fixed in nature and increase, as a percent of revenue, during periods of lower
revenues, including fuel surcharge revenues which ABF experienced during 2009 as compared to 2008.
The increase in salaries, wages and benefits as a percentage of revenue was impacted by
contractual increases under the IBT National Freight Industry Standards Agreement that extends
through March 31, 2013. The annual contractual wage increases effective on April 1, 2009 and 2008
were 1.8% and 2.2%, respectively. On August 1, 2009 and August 1, 2008, health, welfare and
pension benefit costs under the agreement increased 7.5% and 8.1%, respectively. The increase in
salaries, wages and benefits as a percentage of revenue in 2009 was also impacted by an $8.4
million increase in nonunion employee benefit plan costs, primarily attributable to an increase in
amortization of net actuarial losses related to the nonunion pension plan in 2009 as a result of
the effect of 2008 market declines on pension assets.
Although ABF has implemented cost reduction programs, incremental reductions in labor and other
operating costs become increasingly challenging and less effective as ABF maintains customer
service levels and continues its focus on serving the regional markets. Salaries, wages and
benefits expense was favorably impacted by managing labor costs to business levels as measured by
pounds per DSY hour and pounds per mile. For 2009, pounds per DSY hour increased 1.2% and pounds
per mile increased 0.7%, reflecting improved management of labor costs but also the effect of a
0.8% increase in pounds per
25
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
shipment. However, the historically depressed tonnage levels that have continued since the fourth
quarter of 2008 and the prolonged period of an unfavorable economic environment had a significant
impact on ABFs operating results due to ABFs inability to correspondingly adjust its cost
structure throughout the ABF system. ABFs operating results will continue to be adversely
impacted if tonnage remains at these levels. ABFs ability to improve its operating ratio is
dependent on securing price increases to cover contractual wage rates and other inflationary
increases in cost elements.
Fuel, supplies and expenses as a percentage of revenue decreased by 3.4% for 2009 compared to
2008, primarily reflecting a 37.3% decrease in the average price per gallon of diesel fuel.
Insurance expense as a percentage of revenue increased by 0.3% over 2008 primarily due to an
increase in severity of third-party casualty claims. Third-party casualty claims in 2009 as a
percent of revenue were approximately 0.2% above ABFs ten-year historical average.
Depreciation and amortization as a percentage of revenue increased by 1.0% compared to 2008
reflecting higher depreciation on road tractors and trailers due to increased unit costs of
equipment purchased in 2008 and 2009 and the effect of replacing older, fully depreciated trailers
with new trailers.
Rents and purchased transportation as a percentage of revenue increased by 0.9% in 2009 compared to
2008. This change was primarily attributable to an increase in amounts paid to service providers
associated with ABFs import business and an increase in rail utilization from 11% of total miles
in 2008 to 12% in 2009.
Operating taxes and licenses and communications and utilities decreased in amount during 2009
compared to 2008, primarily due to lower business levels. As a percent of revenue, these costs were
higher during 2009 compared to 2008 as a portion of these items are fixed in nature and increase as
a percent of revenue with decreases in revenue levels including fuel surcharges.
2008 Compared to 2007
Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands, except workdays and per share data)
|
|
WORKDAYS
|
|
|
252.5
|
|
|
|
252.0
|
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
ABF
|
|
$
|
1,758,780
|
|
|
$
|
1,770,749
|
|
Other revenues and eliminations
|
|
|
74,272
|
|
|
|
66,129
|
|
|
|
|
|
|
|
|
|
|
$
|
1,833,052
|
|
|
$
|
1,836,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
|
|
|
|
|
|
ABF
|
|
$
|
48,435
|
|
|
$
|
84,521
|
|
Other and eliminations
|
|
|
89
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
$
|
48,524
|
|
|
$
|
84,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
$
|
1.14
|
|
|
$
|
2.23
|
|
Consolidated revenues for the year ended December 31, 2008 decreased 0.4% on a per-day basis
compared to 2007. Consolidated operating income for 2008 decreased $36.3 million, or 42.8%,
compared to 2007. Consolidated earnings per share for the year ended December 31, 2008 decreased
49.1% compared to 2007. The decrease in revenues, operating income and earnings per share primarily
reflect the operating results of ABF, as discussed in the ABF section that follows.
26
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
ABF
The following table sets forth a summary of operating expenses and operating income as a
percentage of revenue for ABF:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
ABF Operating Expenses and Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
59.6
|
%
|
|
|
60.5
|
%
|
Fuel, supplies and expenses
|
|
|
19.4
|
|
|
|
16.5
|
|
Operating taxes and licenses
|
|
|
2.7
|
|
|
|
2.7
|
|
Insurance
|
|
|
1.2
|
|
|
|
1.3
|
|
Communications and utilities
|
|
|
0.9
|
|
|
|
0.9
|
|
Depreciation and amortization
|
|
|
4.2
|
|
|
|
4.2
|
|
Rents and purchased transportation
|
|
|
9.0
|
|
|
|
9.0
|
|
Pension settlement expense
|
|
|
|
|
|
|
0.1
|
|
Gain on sale of property and equipment
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Other
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
97.2
|
%
|
|
|
95.2
|
%
|
|
|
|
|
|
|
|
|
|
ABF Operating Income
|
|
|
2.8
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a comparison of key operating statistics for ABF:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workdays
|
|
|
252.5
|
|
|
|
252.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed revenue
(1)
per hundredweight, including fuel surcharges
|
|
$
|
26.70
|
|
|
$
|
25.81
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds
|
|
|
6,586,822,376
|
|
|
|
6,860,725,274
|
|
|
|
(4.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per day
|
|
|
26,086,425
|
|
|
|
27,225,100
|
|
|
|
(4.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments per DSY hour
|
|
|
0.483
|
|
|
|
0.482
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per DSY hour
|
|
|
633.97
|
|
|
|
613.30
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per shipment
|
|
|
1,313
|
|
|
|
1,272
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per mile
|
|
|
18.97
|
|
|
|
18.54
|
|
|
|
2.3
|
%
|
|
|
|
(1)
|
|
Billed revenue does not include revenue deferral required for financial statement purposes
under the Companys revenue recognition policy.
|
ABFs revenue for the year ended December 31, 2008 was $1,758.8 million, compared to $1,770.7
million in 2007, for a decrease of 0.9% on a per-day basis. The revenue decrease primarily
reflects tonnage declines of 4.2% per day compared to 2007. The impact of the tonnage decrease on
revenue was partially offset by a 3.4% increase in billed revenue per hundredweight for 2008, as
compared to 2007, which was primarily attributable to higher fuel surcharges.
The fuel surcharge constituted a higher proportion of the total freight rate during the majority
of 2008 due to substantially higher fuel prices for the first ten months of 2008 compared to the
same period of 2007. As a result, ABF was unable to secure adequate increases in base LTL rates.
Excluding freight profile changes and the increase in fuel surcharges, management believes that
pricing on ABFs traditional LTL business improved only slightly during 2008 compared to 2007.
27
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
Effective February 4, 2008 and March 26, 2007, ABF implemented general rate increases to cover
known and expected cost increases. Nominally, the increases were 5.45% and 4.95%, respectively,
although the amounts vary by lane and shipment characteristics. For 2008, the general rate
increase affected approximately 45% of ABFs business, while rate increases on the remaining
business are subject to individually negotiated pricing arrangements that are effective at various
times throughout the year.
ABFs 3.4% increase in billed revenue per hundredweight for the year ended December 31, 2008
compared to 2007 was impacted not only by the general rate increase and fuel surcharge, but also
by changes in freight profile such as length of haul, pounds per shipment, freight density and
customer and geographic mix. Total weight per shipment for 2008 increased 3.2% compared to 2007.
ABFs length of haul decreased 1.6% in 2008 compared to 2007, influenced in part by the regional
freight initiative. In addition, ABF experienced a higher proportion of truckload-rated shipments,
including business in the volume spot market. Increased weight per shipment, combined with a
shorter length of haul and higher mix of truckload-rated shipments, has the effect of decreasing
the nominal revenue per hundredweight without a commensurate impact on effective pricing or
shipment profitability.
ABF generated operating income of $48.4 million in 2008 versus $84.5 million in 2007, a decrease
of 42.7%. ABFs 2008 operating ratio increased to 97.2% from 95.2% in 2007. The increase in ABFs
operating ratio in 2008 was influenced by the decline in tonnage levels mentioned above, as well
as the effect of base LTL rates not adequately covering increases in elements of unit cost,
including contractual wage rates. ABFs operating ratio was also impacted by other changes in
operating expenses as discussed in the following paragraphs.
Salaries, wages and benefits expense for the year ended December 31, 2008 as a percentage of
revenue decreased by 0.9%. Portions of salaries, wages and benefits are fixed in nature and
decrease as a percent of revenue during periods of higher revenues, including fuel surcharge
revenues which ABF experienced during the majority of 2008 as compared to 2007. Salaries, wages
and benefits expense was favorably impacted by managing labor costs to business levels as measured
by pounds per DSY hour and pounds per mile. For 2008, pounds per DSY hour increased 3.4% and
pounds per mile increased 2.3%, compared with 2007, reflecting improved management of labor costs
but also the effect of a 3.2% increase in pounds per shipment and a shorter length of haul.
In 2008, salaries, wages and benefits expense was also positively impacted by a $7.8 million
reduction in workers compensation costs primarily reflecting fewer new claims, a decline in the
frequency of existing claim changes and the associated loss development on those claims. In
addition, the reduction in workers compensation costs was also influenced by lower development
factors applied to existing claims resulting from ABFs annual first quarter review of historical
claims development. Workers compensation costs as a percent of revenue for 2008 were below ABFs
ten-year historical average.
The decrease in salaries, wages and benefits described above was offset, in part, by contractual
increases under the IBT National Freight Industry Standards Agreement. The annual contractual wage
increases effective on April 1, 2008 and 2007 were 2.2% and 2.3%, respectively. On August 1, 2008
and August 1, 2007, health, welfare and pension benefit costs under the agreement increased 8.1%
and 6.0%, respectively.
Fuel, supplies and expenses as a percentage of revenue increased by 2.9% for 2008 compared to
2007, primarily reflecting a 37.5% increase in the average price per gallon of diesel fuel.
28
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
Liquidity and Capital Resources
The Companys primary sources of liquidity are cash generated by operations, short-term investments
and borrowing capacity under its accounts receivable securitization program.
Cash Flow and Short-Term Investments:
Components of cash and cash equivalents and short-term
investments at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
Cash and cash equivalents, primarily money market funds
|
|
$
|
39,332
|
|
|
$
|
100,880
|
|
Short-term investments (FDIC-insured certificates of deposit)
|
|
|
93,861
|
|
|
|
117,855
|
|
|
|
|
|
|
|
|
Total unrestricted
|
|
|
133,193
|
|
|
|
218,735
|
|
Restricted
(1)
|
|
|
50,857
|
|
|
|
2,299
|
|
|
|
|
|
|
|
|
Total
(2)
|
|
$
|
184,050
|
|
|
$
|
221,034
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Restricted cash equivalents and short-term investments represent certificates of deposit,
cash deposits and money market funds pledged as collateral for outstanding letters of credit
in support of workers compensation and third-party casualty claims liabilities (see Financing
Arrangements in this section of Managements Discussion and Analysis of Financial Condition
and Results of Operations and Note F to the Companys consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K). Restricted cash equivalents
at December 31, 2008 were reclassified to conform to the current years presentation (see
Notes B and C to the Companys consolidated financial statements included in Part II, Item 8
of this Annual Report on Form 10-K).
|
|
(2)
|
|
Cash and certificates of deposit are recorded at cost plus accrued interest, which
approximates fair value. Money market funds are recorded at fair value based on quoted prices.
|
Cash, cash equivalents and short-term investments declined $37.0 million from December 31, 2008 to
December 31, 2009. During 2009, cash, cash equivalents and short-term investments on hand combined
with cash provided by operations of $11.8 million and proceeds from the issuance of long-term debt
related to capital leases of $15.0 million were used primarily for the purchase of revenue
equipment (tractors and trailers used primarily in ABFs operations) and other property and
equipment totaling $43.1 million net of asset sales and the payment of dividends of $15.5 million.
The $93.5 million decline in cash provided by operations during 2009 compared to 2008 primarily
reflects the impact of the continued weak freight tonnage environment on ABFs operating income.
The Company made contributions to the nonunion pension plan of $15.5 million in 2009 compared to
$25.0 million in 2008.
Cash, cash equivalents and short-term investments increased $45.5 million from December 31, 2007 to
December 31, 2008. During 2008, cash provided by operations of $105.3 million was primarily used to
purchase revenue equipment and other property and equipment totaling $41.7 million net of asset
sales and pay dividends of $15.3 million. The $37.8 million decline in cash provided by operations
during 2008 compared to 2007 primarily reflects the impact of the weaker freight tonnage
environment on ABFs operating income. In addition, contributions to the nonunion pension plan were
$25.0 million in 2008 versus $5.0 million in 2007.
During 2007, cash provided from operations of $143.1 million was primarily used to purchase revenue
equipment and other property and equipment totaling $84.6 million net of asset sales, purchase
125,000 shares of the Companys Common Stock for $4.9 million and pay dividends of $15.2 million.
Financing Arrangements:
On December 30, 2009, the Company entered into a two-year, asset-backed
securitization program with SunTrust Bank, which provides for cash proceeds of up to $75.0 million.
Under this agreement, ABF continuously sells a designated pool of trade accounts receivables to a
wholly owned subsidiary, which in turn may borrow funds on a revolving basis. This wholly-owned
consolidated subsidiary is a separate bankruptcy-remote entity and its assets would be available
only to satisfy the claims related to the interest in the trade accounts receivables. Advances
under the facility bear interest based upon LIBOR, plus a margin. The Company also pays annual fees
equal to 0.75% of the unused portion of the accounts receivable facility. This agreement contains
representations and warranties, affirmative and negative covenants and events of default that are
customary for financings of this type, including maintaining consolidated tangible net worth, as
defined, of $375.0 million. As of December 31, 2009, the Company was in compliance with the
covenants. There
were no borrowings under this facility, and, based on qualifying accounts, the borrowing capacity
was $74.0 million as of December 31, 2009.
29
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
In 2009, the Company entered into agreements with four financial institutions to provide
collateralized facilities for the issuance of letters of credit (LC Agreements). The Company
issues letters of credit primarily in support of workers compensation and third-party casualty
claims liabilities in various states in which the Company is self-insured. The Company has up to
$90.0 million of availability for the issuance of letters of credit under the LC Agreements of
which $75.0 million is committed subject to the Companys compliance with the requirements of
issuance. The LC Agreements require cash or short-term investments to be pledged as collateral for
outstanding letters of credit. As of December 31, 2009, the Company had $48.9 million of letters of
credit outstanding under the LC Agreements of which $48.5 million were collateralized by restricted
cash equivalents and short-term investments. Prior to the LC Agreements, the Company arranged for
the letters of credit as a part of the Second Amended and Restated Credit Agreement (the Credit
Agreement) dated May 4, 2007. The Company terminated the Credit Agreement in December 2009. There
were no borrowings outstanding under the Credit Agreement on the date of termination. Deferred
financing costs of $1.0 million were expensed in the fourth quarter of 2009 in conjunction with the
termination of the Credit Agreement. Prior to termination, the Companys borrowing capacity was
limited to $22.6 million under the Credit Agreement as disclosed in the Companys Quarterly Report
on Form 10-Q for the third quarter of 2009.
In December 2009, ABF entered into capital lease agreements to finance $15.0 million of revenue
equipment. These capital lease agreements specify the monthly base rent and interest rates for the
36-month lease terms as well as a rental adjustment clause for which the maximum amounts due to the
lessor are included in the recorded capital lease obligation and the future minimum rent payments
shown in the Contractual Obligations within this section. The present values of net minimum lease
payments are recorded in long-term debt. In January 2010, $11.4 million of revenue equipment was
financed under capital lease transactions. The Company could utilize capital lease arrangements to
finance future purchases of revenue equipment.
Contractual Obligations:
The following table provides the aggregate annual contractual obligations
of the Company including capital and operating lease obligations, purchase obligations and
near-term estimated benefit plan distributions as of December 31, 2009:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, including interest
(1)
|
|
$
|
18,730
|
|
|
$
|
4,205
|
|
|
$
|
8,409
|
|
|
$
|
5,011
|
|
|
$
|
1,105
|
|
Operating lease obligations
(2)
|
|
|
51,969
|
|
|
|
11,410
|
|
|
|
17,452
|
|
|
|
10,268
|
|
|
|
12,839
|
|
Purchase obligations
(3)
|
|
|
26,885
|
|
|
|
26,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary savings plan distributions
(4)
|
|
|
6,303
|
|
|
|
1,479
|
|
|
|
2,207
|
|
|
|
594
|
|
|
|
2,023
|
|
Postretirement health expenditures
(5)
|
|
|
7,713
|
|
|
|
597
|
|
|
|
1,352
|
|
|
|
1,471
|
|
|
|
4,293
|
|
Deferred salary distributions
(6)
|
|
|
12,286
|
|
|
|
1,158
|
|
|
|
2,310
|
|
|
|
2,002
|
|
|
|
6,816
|
|
Supplemental pension distributions
(7)
|
|
|
18,539
|
|
|
|
7,753
|
|
|
|
3,651
|
|
|
|
|
|
|
|
7,135
|
|
Noncontrolling interest in subsidiary
(8)
|
|
|
2,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
144,704
|
|
|
$
|
53,487
|
|
|
$
|
35,381
|
|
|
$
|
19,346
|
|
|
$
|
36,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The future minimum rental commitments are presented exclusive of executory costs such as
insurance, maintenance and taxes.
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|
|
|
(2) While the Company owns the majority of its larger terminals and distribution centers,
certain facilities and equipment are leased. As of December 31, 2009, the Company had future
minimum rental commitments, net of noncancelable subleases, totaling $51.7 million for terminal
facilities and $0.3 million for other equipment. The future minimum rental commitments are
presented exclusive of executory costs such as insurance, maintenance and taxes. In addition,
the Company has provided lease guarantees through March 2012 totaling $0.6 million related to
Clipper Exxpress Company, a former subsidiary of the Company.
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|
|
|
(3) Purchase obligations primarily includes purchase orders or authorizations to purchase rather
than binding agreements relating to revenue equipment and property. These purchase
authorizations are included in the Companys 2010 capital expenditure plan (see the following
Capital Expenditures section).
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30
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|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
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|
|
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|
(4) The Company maintains a Voluntary Savings Plan (VSP), a nonqualified deferred compensation
plan for the benefit of certain executives of the Company and certain subsidiaries. Eligible
employees may defer receipt of a portion of their regular compensation, incentive compensation
and other bonuses into the VSP. The Company credits participants accounts with applicable
matching contributions and rates of return based on investments selected by the participants.
All deferrals, Company match and investment earnings are considered part of the general assets
of the Company until paid. Accordingly, the consolidated balance sheets reflect the fair value
of the aggregate participant balances, based on quoted prices of the mutual fund investments, as
both an asset and a liability of the Company. As of December 31, 2009, VSP related assets
totaling $6.3 million were included in other assets with a corresponding amount recorded in
other liabilities. Elective distributions anticipated under this plan are included in the
contractual obligations table above. Future distributions are subject to change for retirement,
death or disability of current employees.
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|
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|
(5) The Company sponsors an insured postretirement health benefit plan that provides
supplemental medical benefits, life and accident insurance and vision care to certain officers
of the Company and certain subsidiaries. The plan is generally noncontributory, with the Company
paying the premiums. The Companys projected distributions for premiums related to
postretirement health benefits, which represent estimates for the next ten years, are subject to
change based upon increases and other changes in premiums and medical costs and continuation of
the plan for current participants. Postretirement health benefit plan liabilities accrued in the
consolidated balance sheet totaled $13.5 million as of December 31, 2009.
|
|
|
|
(6) The Company has deferred salary agreements with certain employees of the Company. The
Companys projected deferred salary agreement distributions are subject to change based upon
assumptions for projected salaries and retirements, deaths, disabilities or early retirements of
current employees. Liabilities for deferred salary agreements accrued in the consolidated
balance sheet totaled $8.7 million as of December 31, 2009.
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|
|
(7) The Company has an unfunded supplemental benefit plan (SBP) for the purpose of
supplementing benefits under the nonunion pension plan for executive officers of the Company and
certain subsidiaries. Distributions presented above represent estimated amounts over the next
ten years. The Company anticipates making distributions of $7.8 million during 2010 under this
plan related to retirements in 2009. The amounts and dates of distributions in future periods
are dependent upon actual retirement dates of eligible officers and other events and factors.
SBP liabilities accrued in the consolidated balance sheet totaled $16.5 million at December 31,
2009.
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|
|
|
Effective January 1, 2006, the Compensation Committee of the Companys Board of Directors
(Compensation Committee) elected to close the SBP and deferred salary agreement programs to
new entrants. In place of these programs, officers appointed after 2005 participate in a
long-term cash incentive plan that is based 60% on the Companys three-year average return on
capital employed and 40% on the Company achieving specified levels of profitability or earnings
per share growth, as defined in the plan. Effective December 31, 2009, the Compensation
Committee elected to freeze the accrual of benefits under the SBP, resulting in a plan
curtailment (see Note I to the Companys consolidated financial statements included in Part II,
Item 8 of this Annual Report on Form 10-K). In connection with the election to freeze benefits,
the Compensation Committee provided the SBP participants an option to freeze their SBP benefits
without early retirement penalties and continue participation in the deferred salary agreement
program or to freeze their benefits in both the SBP and deferred salary agreement program and
begin participation in the long-term cash incentive plan.
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|
(8) Noncontrolling interest in subsidiary represents the option, provided to noncontrolling
shareholders, to sell to the Company their remaining interest in a logistics business. The
option to sell may not be exercised until the sixth anniversary of the acquisition date at a
price determined by a formula, which amount is consistent with the noncontrolling interest
recorded in the balance sheet. The Company acquired a controlling interest in this logistics
business during the second quarter of 2009.
|
Based upon current information, the Company does not expect to have cash outlays for required
minimum contributions, but could make tax-deductible contributions, to its nonunion pension plan in
2010. As of December 31, 2009, the nonunion
pension plan was underfunded by $45.8 million on a projected benefit obligation basis (see Note I
to the Companys consolidated financial statements included in Part II, Item 8 of this Annual
Report on Form 10-K).
31
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
ABF contributes to multiemployer health, welfare and pension plans based on the time worked by its
contractual employees, as specified in the collective bargaining agreement and other supporting
supplemental agreements (see Note I to the Companys consolidated financial statements included in
Part II, Item 8 of this Annual Report on Form 10-K).
Capital Expenditures:
The following table sets forth the Companys historical capital expenditures,
net of proceeds from asset sales, for the periods indicated below:
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|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, gross including capital leases
|
|
$
|
48,589
|
|
|
$
|
59,069
|
|
|
$
|
98,169
|
|
Less proceeds from capital lease obligations
(1)
|
|
|
(545
|
)
|
|
|
(340
|
)
|
|
|
(1,499
|
)
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net of capital leases
|
|
|
48,044
|
|
|
|
58,729
|
|
|
|
96,670
|
|
Less proceeds from asset sales
|
|
|
(4,913
|
)
|
|
|
(17,073
|
)
|
|
|
(12,067
|
)
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures, net
|
|
$
|
43,131
|
|
|
$
|
41,656
|
|
|
$
|
84,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Capital lease proceeds presented do not include proceeds from the issuance of $15.0 million
of long-term debt in 2009 associated with capital lease transactions which have been presented
as financing activities in the consolidated statements of cash flows included in Part II, Item
8 of this Annual Report on Form 10-K.
|
The variation in the Companys net capital expenditures for the years presented above primarily
relate to changes in ABFs capital expenditures. ABFs 2009 net capital expenditures were above
2008 levels primarily reflecting lower proceeds from asset sales partially offset by $4.0 million
less spending on road trailers and $5.6 million less spending on real estate for terminal
operations. In 2008, ABF spent $14.9 million less on road trailers and $9.8 million less on road
tractors than in 2007. ABFs lower net capital expenditures in 2008 compared to 2007 were also
impacted by lower expenditures related to city delivery and other equipment.
In 2010, net capital expenditures are estimated to be in a range of $45.0 million to $50.0
million, which relates primarily to ABF. The low end of this expected 2010 range consists of road
and city equipment replacements of approximately $35.0 million and real estate for terminal
operations and other capital expenditures (including dock/yard equipment and technology) of
approximately $10.0 million. The 2010 plan does not include an expansion in the road tractor and
trailer fleets. The Company has the flexibility to adjust planned 2010 capital expenditures as
business levels dictate. There is the potential for additional 2010 capital expenditures above the
low-end figure of $45.0 million. These expenditures could include purchases of real estate for
terminal operations, if needs and opportunities arise.
Depreciation and amortization expense is estimated to be approximately $70 million to $75 million
in 2010.
Other Liquidity Information:
Cash, cash equivalents and short-term investments, including amounts
restricted, totaled $184.1 million at December 31, 2009. The Company has generated $11.8 million,
$105.3 million and $143.1 million of operating cash flow for the years 2009, 2008 and 2007,
respectively. Continued operating losses, primarily resulting from depressed tonnage levels, could
continue to adversely affect the Companys ability to generate cash from operations. Management
believes cash generated by operations, existing cash, cash equivalents and short-term investments
and amounts available under the accounts receivable securitization program will be sufficient for
the foreseeable future to maintain current operations; finance the Companys lease commitments;
letter of credit commitments; quarterly dividends; nonunion benefit plan distributions; capital
expenditures; health, welfare and pension contributions under collective bargaining agreements; and
other expenditures. Additional capital lease and other secured financing may also be used to fund
capital expenditures. The Company also anticipates receiving approximately $30 million in tax
refunds during 2010 resulting primarily from net operating loss carrybacks to prior period federal
income tax returns.
The Company expects to continue to pay quarterly dividends in the foreseeable future, although
there can be no assurances in this regard since future dividends are dependent upon future
earnings, capital requirements, the Companys financial condition and other factors, including net
worth limitations under the Companys securitized accounts receivable facility. In
response to the current prolonged freight recession, the Board of Directors of the Company reduced
the quarterly dividend declared in January 2010 to $0.03 per share.
32
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
Financial Instruments:
The Company has not historically entered into financial instruments for
trading purposes, nor has the Company historically engaged in a program for fuel price hedging. No
such instruments were outstanding as of December 31, 2009 or 2008.
Off-Balance-Sheet Arrangements
The Companys off-balance-sheet arrangements include future minimum rental commitments, net of
noncancelable subleases, of $52.0 million under operating lease agreements primarily for terminal
facilities (see Note F to the Companys consolidated financial statements included in Part II, Item
8 of this Annual Report on Form 10-K).
The Company has no investments, loans or any other known contractual arrangements with
unconsolidated special-purpose entities, variable interest entities or financial partnerships and
has no outstanding loans with executive officers or directors of the Company.
Balance Sheet Changes
Goodwill:
Goodwill decreased $60.2 million from December 31, 2008 to December 31, 2009, primarily
due to the fourth quarter 2009 impairment charge related to ABF goodwill (see Note D to the
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K).
Long-Term Debt and Current Portion of Long-Term Debt:
Long-term debt, including the current
portion, increased $15.4 million from December 31, 2008 to December 31, 2009, due primarily to new
capital leases related to ABF revenue equipment (see Note G to the consolidated financial
statements included in Part II, Item 8 of this Annual Report on
Form 10-K).
Pension and Postretirement Liabilities:
Liabilities for pension and postretirement benefits
decreased $22.0 million from December 31, 2008 to December 31, 2009, due primarily to $15.5 million
of contributions to the Companys nonunion pension plan and the classification of $7.8 million of
SBP liabilities, which will be distributed to retired officers in 2010, in accrued expenses at
December 31, 2009. (see Note I to the consolidated financial statements included in Part II, Item 8
of this Annual Report on Form 10-K).
Income Taxes
The difference between the Companys effective tax rate and the federal statutory rate primarily
results from the effect of state income taxes, nondeductible expenses, and alternative fuel tax
credits in 2007, 2008 and 2009; tax-exempt income in 2007; and the write-off of nondeductible
goodwill in 2009. The Companys effective tax benefit rate for 2009 was 23.0% compared to the
effective tax provision rate of 41.6% for 2008 and 37.4% for 2007. The low effective tax benefit in
2009 primarily reflects the write-off of goodwill which is a nondeductible item. The 2010 effective
tax rate will depend on pre-tax income or loss levels. The U.S. statutory rate of the Company is
35% and the average state tax rate, net of the associated federal deduction, is approximately 3%.
However, various factors could cause the 2010 tax rate to vary significantly from the statutory
rate. Specifically, continued losses could limit the Companys ability to recognize tax benefits,
which would result in a significantly lower benefit rate. Low levels of financial reporting income
could produce a very high effective tax rate because of the proportionately large impact of
permanent nondeductible expenses.
Management does not expect that the cash outlays for income taxes will materially exceed income tax
expense during the foreseeable future. Because of statutory limitations on tax loss carrybacks,
cash refunds for income taxes in 2010 may be substantially less than tax benefits that may be
recorded related to any continuing operating losses, although these tax benefits may be offset in
whole or in part by valuation allowances in the event the realization of these tax benefits is not
judged by management to be more likely than not.
At December 31, 2009, the Company had recorded total deferred tax assets of $84.5 million and total
deferred tax liabilities of $76.5 million, resulting in net deferred tax assets of $8.0 million.
Net deferred tax assets include $28.0 million related to
unamortized nonunion pension and postretirement benefit costs which are included in accumulated
other comprehensive loss. The Company has evaluated the need for a valuation allowance for deferred
tax assets by considering the future reversal of existing taxable temporary differences, taxable
income in prior carryback years, future taxable income and tax-planning
33
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
strategies. Deferred tax
liabilities scheduled to reverse in future years will offset the majority of deferred tax assets.
Federal legislative changes in 2009 allow taxable losses for 2008 or 2009 to be carried back five
years. After 2009, the federal loss carryback period reverts to two years. In 2008, the Company had
a net operating tax loss of $29.5 million. The Company had taxable income of $88.5 million, $122.1
million, $157.1 million and $99.5 million in 2007, 2006, 2005 and 2004, respectively. Federal taxes
paid in 2004 through 2007, and in some cases, state taxes paid would be available for recovery by
carryback of losses incurred for 2009 and through February 28, 2010, the end of the Companys tax
year. Because of the uncertainty regarding the level and timing of future taxable income, the
expectation of future taxable income alone does not make realization of deferred tax assets more
likely than not. There are tax-planning strategies available which would support deferred tax
assets recorded at December 31, 2009. For example, certain expense components that generate
deferred tax assets are eligible for a significantly longer carryback period if the Company so
elects. Because there is sufficient taxable income in the longer carryback period, these assets,
which amount to approximately $11.0 million, will be fully realized. Also, payments on the
Companys non-union pension obligation prior to September 15, 2010, and payment acceleration of
other types that relate to deferred tax assets, are also available to convert deferred tax assets
to refundable taxes. The Company would need approximately $23.0 million of future taxable income to
realize net deferred tax assets at December 31, 2009.
At December 31, 2009 and 2008, the Companys valuation allowances totaled $3.0 million and $0.8
million, respectively. The Company had a valuation allowance of $0.9 million at December 31, 2009
and $0.8 million at December 31, 2008 for state net operating loss and contribution carryovers for
which realization is not more likely than not. Management considered that the realization of
certain state net operating losses and contribution carryovers in the state of Arkansas was not
likely because the state does not allow loss carrybacks and limits the loss carryforward period to
five years, and only about 5% of ABFs business is conducted in Arkansas. The Company has a history
of low levels of taxable income in Arkansas and some loss carryovers have expired unused in
previous years. Due to the same factors, the Company has also established a valuation allowance of
$1.3 million at December 31, 2009, for deferred tax assets related to Arkansas operations. The
Company has established a valuation allowance of $0.7 million for foreign tax credit carryforwards
at December 31, 2009. Foreign tax credits can be carried forward; however, the annual amount that
may be used is dependent on future taxable income and realization is not more likely than not. The
need for additional valuation allowances will be continually monitored by management.
Financial reporting income differs significantly from taxable income because of such items as the
charge for goodwill impairment, accelerated depreciation, including bonus depreciation amounts
available in recent years, pension accounting rules, and a significant number of liabilities such
as vacation pay, workers compensation reserves and other reserves, which, for tax purposes, are
generally only deductible when paid. In recent years, financial reporting income has exceeded
taxable income. In 2009, the financial reporting loss exceeded the tax loss.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual results could
differ from those estimates under different assumptions or conditions.
The accounting policies (see Note B to the Companys consolidated financial statements included in
Part II, Item 8 of this Annual Report on Form 10-K) that are critical to understand the
Companys financial condition and results of operations and that require management to make the
most difficult judgments are described as follows.
Revenue Recognition:
The Company utilizes a bill-by-bill analysis to establish estimates of
revenue in transit for recognition in the appropriate reporting period under the accounting policy
for revenue recognition. The Company recognizes revenue based on relative transit times in each
reporting period with expenses being recognized as incurred. Because the bill-by-bill methodology
utilizes the approximate location of the shipment in the delivery process to determine the revenue
to recognize, management believes it to be a reliable method. The Company reports revenue and
purchased transportation expense on a gross basis for certain shipments where ABF utilizes a
third-party carrier for pickup or delivery of freight but remains the primary obligor.
Allowance for Doubtful Accounts:
The Company estimates its allowance for doubtful accounts based
on the Companys historical write-offs, as well as trends and factors surrounding the credit risk
of specific customers. In order to gather
34
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
information regarding these trends and factors, the
Company performs ongoing credit evaluations of its customers. The allowance for revenue
adjustments is an estimate based on historical revenue adjustments. Actual write-offs or
adjustments could differ from the allowance estimates due to a number of factors. These factors
include unanticipated changes in the overall economic environment or factors and risks surrounding
a particular customer. The Company continually updates the history it uses to make these estimates
so as to reflect the most recent trends, factors and other information available. Actual
write-offs and adjustments are charged against the allowances for doubtful accounts and revenue
adjustments. Management believes this methodology to be reliable in estimating the allowances for
doubtful accounts and revenue adjustments. A ten percent increase in the estimate of allowances
for doubtful accounts and revenue adjustments would decrease operating results by $0.3 million on
a pre-tax basis.
Revenue Equipment:
The Company utilizes tractors and trailers in its motor carrier freight
transportation operations. Tractors and trailers are commonly referred to as revenue equipment
in the transportation business. Under its accounting policy for property, plant and equipment,
management establishes appropriate depreciable lives and salvage values for revenue equipment
based on their estimated useful lives and estimated fair values to be received when the equipment
is sold or traded. Management continually monitors salvage values and depreciable lives in order
to make timely, appropriate adjustments to them. ABF has reported gains on the sale of its assets
in the amount of $1.4 million, $3.7 million and $4.3 million in 2009, 2008 and 2007, respectively.
The Company has historically purchased revenue equipment with cash or financed through capital
leases rather than utilizing off-balance-sheet financing.
The Company reviews its long-lived assets, including property, plant, equipment and capitalized
software that are held and used in its operations for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable
.
If such an
event or change in circumstances is present, the Company will estimate the undiscounted future
cash flows expected to result from the use of the asset and its eventual disposition. If the sum
of the undiscounted future cash flows is less than the carrying amount of the related assets, the
Company will recognize an impairment loss. The economic factors and industry environment that were
considered in the goodwill impairment evaluation discussed below were also considered in assessing
recoverability of long-lived assets, including revenue equipment. ABFs equipment replacement
program and strict maintenance schedules have served to minimize declines in the value of revenue
equipment. Management determined that long-lived assets were not impaired as of December 31, 2009.
Goodwill:
Goodwill represents the excess of the purchase price in a business combination over the
fair value of net tangible and intangible assets acquired. Goodwill is not amortized, but rather is
evaluated for impairment annually or more frequently if indicators of impairment exist. The
measurement of goodwill impairment consists of two steps. In the first step, a comparison is made
of the estimated fair value of a reporting unit to its carrying value. If the results of the first
test indicate that the fair value of the reporting unit is less than the carrying value, the second
step of the impairment test is required. In the second step, an estimate of the current fair values
of all assets and liabilities is made to determine the amount of implied goodwill and consequently
the amount of any goodwill impairment.
While the Companys annual impairment test date is January 1, the Companys fourth quarter 2009
losses, combined with the challenging industry environment reflected in historically low daily
tonnage levels and an aggressive pricing environment, indicated that the goodwill associated with
ABF may be impaired. In the prior year goodwill evaluation, the Company assumed that available LTL
tonnage would improve in the fourth quarter of 2009. However, ABF experienced reduced tonnage and
pricing on its LTL business and consequently lower operating results in the fourth quarter of 2009.
Based on the results of the impairment testing of goodwill, the Company recorded a noncash charge
of $64.0 million for impairment of the value of ABFs entire goodwill balance in the fourth quarter
of 2009. The goodwill impairment charge, which is not tax deductible, was included in operating
expenses within the ABF segment. The goodwill balance remaining at December 31, 2009 of $3.7
million was related to the second quarter 2009 acquisition of a privately-owned logistics company
that is included in the Companys business operations other than ABF.
The evaluation of goodwill impairment requires managements judgment and the use of estimates and
assumptions to determine the fair value of the ABF reporting unit. Assumptions require considerable
judgment because changes in broad economic factors and industry factors can result in variable and
volatile fair values. Changes in key estimates and assumptions that impact the fair value of the
operations could materially affect the impairment analysis. Key assumptions in determining the step
one estimated fair value for ABF included a continuing competitive freight environment, overall
weakness in the
economy, longer term growth rates consistent with historical trends, an increased weighted average
cost of capital, and anticipated expenses including costs under the Companys collective bargaining
agreement.
35
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
Under the first step of the goodwill impairment evaluation, the aggregate carrying amount of ABF
was compared to its fair value utilizing an equal combination of valuation methods, including
earnings before interest, taxes, depreciation and amortization (EBITDA) multiples (market
approach) and the present value of discounted cash flows (income approach). Incorporation of the
two methods into the impairment test supported the reasonableness of conclusions reached. The
valuation determined by the market approach was not significantly different from the value derived
by the income approach in the current year evaluation.
To determine the EBITDA multiple, the Company obtained information from third parties for the
EBITDA multiples observed for recent acquisitions in the trucking industry. For the annual
impairment tests performed by the Company in the last three years, this marketplace EBITDA multiple
was in the mid-single digit range. The fair value that was estimated from the market approach was
negatively impacted by ABFs recent operating losses.
The discounted cash flows model utilized in the income approach incorporates discount rates and
projections of future revenue growth rates, operating margins and net capital expenditures. The
projections used have changed over time based on historical performance and changing business
conditions. Assumptions with respect to rates used to discount cash flows are dependent upon market
interest rates and the cost of capital for the Company and the industry at a point in time. In the
recent evaluation process, the 12.5% discount rate used was higher than the rate used in the prior
year due to increased risk associated with extremely challenging freight conditions. The Company
included a cash flow period of ten years in the income approach that, due to the length of time,
assumed the occurrence of another recessionary cycle. In addition, the near-term outlook for the
LTL market is highly uncertain due to the current freight recession and the negative impact of
aggressive pricing. The resulting annual revenue growth rate assumption in the low to mid-single
digits was generally consistent with historical trends. The assumed revenue projections were lower
than the prior year estimates due to the impact of the recent recessionary period on the revenues
in the base year of the cash flow model and the resulting influence on the assumed timing of a
recovery in available freight tonnage. In addition, the revenue projections did not assume regional
or long-haul market share gains or significant pricing improvement. The timing of estimated
measurable tonnage and pricing improvement and the assumption related to future market share were
significant to the associated cash flows and resulting valuation.
Based on the first step of the analysis, the carrying amount of ABF was determined to be in excess
of its fair value. In completing the step two estimate of the current fair value of identifiable
assets and liabilities, significant assumptions included the estimated value of previously
unrecognized intangible assets, as well as the estimated appreciation in value of land and
structures. These currently unrecognized amounts reduced the amount of implied goodwill in ABF. The
resulting estimated values of ABFs net assets were deducted from the fair value of ABF determined
in the first step of the analysis to determine the implied fair value of goodwill. The carrying
value of ABFs goodwill exceeded its implied fair value, and, as a result, the value of ABFs
entire goodwill balance was impaired.
Management believes that the long-term economics of ABFs business operations remain intact and
that operating results will ultimately improve, although it cannot predict the timing of an
economic recovery. The noncash goodwill impairment charge does not directly impact the Companys
normal business operations, liquidity or credit availability under its existing facilities,
although the factors leading to the goodwill impairment have negatively impacted the Companys
operating results.
Nonunion Pension Expense:
The Company has a noncontributory defined benefit pension plan covering
substantially all noncontractual employees hired before January 1, 2006. Benefits are generally
based on years of service and employee compensation. Nonunion pension expense and liability are
estimated based upon a number of assumptions and using the services of a third-party actuary. The
assumptions with the greatest impact on expense are the expected return on plan assets, the rate
used to discount the plans obligations and the assumed compensation cost increase.
36
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
The following table provides the key assumptions used for 2009 compared to those it anticipates
using for 2010 nonunion pension expense:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.3
|
%
|
|
|
6.3
|
%
|
Expected return on plan assets
|
|
|
7.5
|
%
|
|
|
6.0
|
%
|
Rate of compensation increase
|
|
|
3.2
|
%
|
|
|
3.3
|
%
|
The assumptions directly impact the nonunion pension expense for a particular year. If actual
results vary from the assumption, an actuarial gain or loss is created and amortized into pension
expense over the average remaining service period of the plan participants beginning in the
following year. The discount rate is determined by matching projected cash distributions with the
appropriate high-quality corporate bond yields in a yield curve analysis. A quarter percentage
point decrease in the discount rate would increase annual nonunion pension expense by $0.3 million
on a pre-tax basis. The Company establishes the expected rate of return on plan assets by
considering the historical returns for the plans current investment mix and its investment
advisors range of expected returns for the plans current investment mix. The expected rate of
return on plan assets is a long-term rate, and the Company can make no assurances that the rate
will be achieved. A decrease in expected returns on plan assets increases nonunion pension expense.
A quarter percentage point decrease in the expected rate of return on plan assets would increase
annual pension expense by approximately $0.4 million on a pre-tax basis. The Company establishes
the assumed rate of compensation increase considering historical changes in compensation combined
with an estimate of compensation rates for the next two years. A quarter percentage point increase
in the rate of compensation increase would increase annual pension expense by approximately $0.6
million on a pre-tax basis.
At December 31, 2009, the nonunion pension plan had $70.2 million in unamortized actuarial losses,
for which the amortization period is approximately nine years. The Company amortizes actuarial
losses over the average remaining active service period of the plan participants. A corridor
approach is not used for determining amounts to be amortized. The Companys 2010 nonunion pension
expense will include amortization of actuarial losses of approximately $7.7 million. The
comparable amounts for 2009 and 2008 were $9.4 million and $3.3 million, respectively. The
Companys 2010 total nonunion pension expense will be available before its first quarter 2010 Form
10-Q filing and, based on currently available information, is expected to be approximately 10% to
15% below the 2009 expense of $20.6 million, with the decrease primarily due to the lower
amortization of actuarial losses.
The nonunion pension plan assets include investments in cash equivalents, fixed income securities
and equity mutual funds totaling $138.8 million, which are reported at fair value based on quoted
market prices (i.e., classified as Level 1 investments in the fair value hierarchy). The remaining
nonunion pension plan assets of $33.8 million are fixed income security investments, primarily
corporate debt instruments, for which fair value is determined by a pricing service using a market
approach with inputs derived from observable market data (i.e., classified as Level 2 investments
in the fair value hierarchy). See Note I to the Companys consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K for disclosures related to the
nonunion pension plan.
Share-Based Compensation:
Effective January 1, 2006, the Company adopted the fair value recognition
provisions for accounting for share-based payments using the modified-prospective transition
method, which requires that the fair value of unvested stock options be recognized in the income
statement over the remaining vesting period. The Company has not granted stock options since
January 2004. Recognition of compensation expense related to the cost of stock options, which was
based on estimated grant date fair values and assumed forfeitures, was completed in December 2008.
Since 2005, the Company has granted restricted stock and restricted stock units under its
share-based compensation program. The Company amortizes the fair value of restricted stock and
restricted stock unit awards, which is based on the closing market price on the date of grant, to
compensation expense generally on a straight-line basis over the vesting period, taking into
consideration an estimate of shares expected to vest. Share-based compensation expense totaled $6.2
million, $6.1 million and $4.9 million in 2009, 2008 and 2007, respectively. See Notes B and J to
the Companys consolidated financial statements included in Part II, Item 8 of this Annual Report
on Form 10-K for disclosures related to share-based compensation.
37
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
Insurance Reserves:
The Company is self-insured up to certain limits for workers compensation and
certain third-party casualty claims. For 2009 and 2008, these limits are $1.0 million for each
workers compensation loss and generally $1.0 million for each third-party casualty loss. Workers
compensation and third-party casualty claims liabilities, which are reported in accrued expenses,
totaled $70.2 million and $72.3 million at December 31, 2009 and 2008, respectively. The Company
does not discount its claims liabilities.
Management estimates the development of the claims by applying the Companys historical claim
development factors to incurred claim amounts. Actual payments may differ from managements
estimates as a result of a number of factors, including increases in medical costs and other
case-specific factors. The actual claims payments are charged against the Companys accrued claims
liabilities and have been reasonable with respect to the estimates of the liabilities made under
the Companys methodology.
Environmental Matters
The Companys subsidiaries store fuel for use in tractors and trucks in 69 underground tanks
located in 23 states. Maintenance of such tanks is regulated at the federal and, in some cases,
state levels. The Company believes that it is in substantial compliance with these regulations. The
Companys underground storage tanks are required to have leak detection systems. The Company is not
aware of any leaks from such tanks that could reasonably be expected to have a material adverse
effect on the Company.
The Company has received notices from the Environmental Protection Agency and others that it has
been identified as a potentially responsible party under the Comprehensive Environmental Response
Compensation and Liability Act, or other federal or state environmental statutes, at several
hazardous waste sites. After investigating the Companys or its subsidiaries involvement in waste
disposal or waste generation at such sites, the Company has either agreed to de minimis settlements
(aggregating approximately $0.1 million over the last ten years, primarily at six sites) or believes its
obligations, other than those specifically accrued for with respect to such sites, would involve
immaterial monetary liability, although there can be no assurances in this regard.
At December 31, 2009 and 2008, the reserve for estimated environmental clean-up costs of properties
currently or previously operated by the Company totaled $1.2 million and $1.1 million,
respectively, which is included in accrued expenses in the consolidated balance sheets. Amounts
accrued reflect managements best estimate of the future undiscounted exposure related to
identified properties based on current environmental regulations. This estimate is based on
managements experience with similar environmental matters and on testing performed at certain
sites.
Concern over climate change, including the impact of global warming, has led to significant
legislative and regulatory efforts to limit greenhouse gas emissions, and some form of federal
climate change legislation is possible in the relatively near future. Climate change legislation
has been introduced in the U.S. Congress. The Company is unable to determine with any certainty the
effects of the proposals that have been introduced. However, emission-related regulatory actions
have historically resulted in increased costs of revenue equipment and diesel fuel, and future
legislation, if passed, could result in increases in these and other costs. Increased regulation
regarding greenhouse gas emissions, including diesel engine emissions, could impose substantial
costs on the Company that may adversely impact the results of operations. Until the timing, scope
and extent of any future regulation becomes known, management cannot predict its effect on the
Companys cost structure or operating results.
Seasonality
ABF is impacted by seasonal fluctuations, which affect tonnage and shipment levels. Freight
shipments, operating costs and earnings are also affected adversely by inclement weather
conditions. The second and third calendar quarters of each year usually have the highest tonnage
levels while the first quarter generally has the lowest, although other factors, including the
state of the economy, may influence quarterly freight tonnage levels.
Effects of Inflation
Generally, inflationary and contractual increases in labor and fuel costs, which are discussed in
the Results of Operations section of MD&A, have historically been offset through price increases
and fuel surcharges. In periods of increasing fuel
38
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
|
prices, the effect of higher associated fuel surcharges on the overall price to the customer
influences ABFs ability to obtain increases in base freight rates. In periods with declining fuel
surcharge levels, the timing and extent of base price increases on ABFs revenues may not
correspond with contractual increases in wage rates and other inflationary increases in cost
elements and as a result could adversely impact the Companys operating results. During 2009,
management believes ABFs base LTL pricing was negative while wage rates increased on April 1, 2009
and health, welfare and pension rates increased on August 1, 2009 under the collective bargaining
agreement with its union employees. ABFs revenue equipment (tractors and trailers used primarily
in ABFs operations) will likely be replaced during its normal replacement cycles at higher costs
which could result in higher depreciation charges on a per-unit basis. ABF considers these costs in
setting its pricing policies, although ABFs overall freight rate structure is governed by market
forces based on value provided to the customer. As discussed above, the pricing environment has
been very competitive during the economic recession and has limited ABFs ability to offset
inflationary and contractual cost increases.
39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in certain interest rates, prices of diesel
fuel, credit ratings, and foreign currency exchange rates. These market risks arise in the normal
course of business, as the Company does not engage in speculative trading activities.
Interest Rate Risk
The instability in the financial and credit markets has created volatility in various interest
rates and returns on invested assets during 2009. At December 31, 2009 and 2008, cash and cash
equivalents and short-term investments subject to fluctuations in interest rates totaled $184.1
million and $221.0 million, respectively. The weighted-average yield on cash equivalents and
short-term investments was 1.5% and 2.8% in 2009 and 2008, respectively. The yield decline reflects
changes in market rates.
Liabilities associated with the nonunion defined benefit pension plan, the supplemental benefit
plan and the postretirement health benefit plan are remeasured on an annual basis based on discount
rates which are determined by matching projected cash distributions from the plans with the
appropriate high-quality corporate bond yields in a yield curve analysis. Changes in high-quality
corporate bond yields will impact interest expense associated with the benefit plans as well as the
amount of liabilities recorded.
The Company has historically been subject to market risk due to variable interest rates on all or a
part of its borrowings under bank credit lines and continues to be subject to such risk on its
accounts receivable securitization facility which became effective December 30, 2009 (see Note G to
the Companys consolidated financial statements included in Part II, Item 8 of this Annual Report
on Form 10-K). During 2009 and 2008, the Company incurred no borrowings and had no outstanding debt
obligations other than capital leases and letters of credit which were issued under the letters of
credit agreements (LC Agreements) (see Note F to the Companys consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K) and the Credit Agreement, as
applicable (see Note G to the Companys consolidated financial statements included in Part II, Item
8 of this Annual Report on Form 10-K).
In December 2009 and January 2010, ABF entered into capital lease arrangements to finance certain
revenue equipment (see Notes G and P to the Companys consolidated financial statements included in
Part II, Item 8 of this Annual Report on Form 10-K). The monthly base rent for the lease terms is
specified in the lease agreements and is not subject to interest rate changes. However, ABF could
enter into additional capital lease arrangements which will be impacted by changes in interest
rates until the transactions are finalized.
Other Market Risks
The Company is subject to market risk for increases in diesel fuel prices; however, this risk is
mitigated by fuel surcharges which are included in the revenues of ABF based on increases in diesel
fuel prices compared to relevant indexes. When fuel surcharges constitute a higher proportion of
the total freight rate paid, our customers are less receptive to increases in base freight rates.
Prolonged periods of inadequate base rate improvements adversely impact operating profit as
elements of costs, including contractual wage rates, continue to annually increase. The Company has
not historically engaged in a program for fuel price hedging and had no fuel hedging agreements
outstanding at December 31, 2009 and 2008.
Financial instruments that potentially subject the Company to concentrations of credit risk consist
primarily of cash, cash equivalents and short-term investments. The Company reduces credit risk by
placing its cash, cash equivalents and short-term investments with major financial institutions
with high credit ratings and by investing unrestricted short-term investments in FDIC-insured
certificates of deposit with varying original maturities of ninety-one days to one year. However,
restricted short-term investments in certificates of deposit pledged as collateral for outstanding
letters of credit under the Companys LC Agreements may exceed federally insured limits. At
December 31, 2009, the Company had certificates of deposit of $29.4 million which exceeded the
FDIC-insured limit.
40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Continued
Equity and fixed income assets held in the Companys qualified nonunion defined benefit pension
plan trust are subject to market risk. Declines in the value of plan assets resulting from the
instability in the financial markets, general economic downturn or other economic factors beyond
our control could diminish the funded status of the nonunion pension plan and potentially increase
our requirement to make contributions to the plan. An increase in required pension plan
contributions may adversely impact our financial condition and liquidity. Substantial investment
losses on plan assets will also increase pension expense in the years following the losses.
Investment returns that differ from expected returns are amortized to expense over the remaining
active service period of plan participants (see Note I to the Companys consolidated financial
statements included in Part II, Item 8 of this Annual Report on Form 10-K). An increase in pension
expense may adversely impact our results of operations. In addition, the cash surrender value of
variable life insurance contracts, which totaled $13.1 million and $13.4 million at December 31,
2009 and 2008, respectively, are subject to equity and fixed income market returns and,
consequently, market risk.
Foreign operations are not significant to the Companys total revenues or assets, and accordingly
the Company does not have a formal foreign currency risk management policy. Revenues from non-U.S.
operations amounted to approximately 2% of total revenues for 2009. Foreign currency exchange rate
fluctuations have not had a material impact on the Company and they are not expected to in the
foreseeable future.
41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is included in this Item 8:
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Arkansas Best Corporation
We have audited the accompanying consolidated balance sheets of Arkansas Best Corporation as of
December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period ended December 31, 2009. Our
audits also included the financial statement schedule listed in Part IV, Item 15(a)(2). These
financial statements and the schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Arkansas Best Corporation at December 31, 2009 and
2008, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Arkansas Best Corporations internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 24, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Rogers, Arkansas
February 24, 2010
43
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,332
|
|
|
$
|
100,880
|
|
Short-term investment securities
|
|
|
93,861
|
|
|
|
117,855
|
|
Restricted cash equivalents and short-term investments
|
|
|
50,857
|
|
|
|
2,299
|
|
Accounts receivable, less allowances (2009 $3,470; 2008 $3,513)
|
|
|
115,459
|
|
|
|
111,452
|
|
Other accounts receivable, less allowances (2009 $1,149; 2008 $1,001)
|
|
|
6,749
|
|
|
|
6,611
|
|
Prepaid expenses
|
|
|
10,390
|
|
|
|
10,670
|
|
Deferred income taxes
|
|
|
39,035
|
|
|
|
36,079
|
|
Prepaid and refundable income taxes
|
|
|
24,726
|
|
|
|
17,661
|
|
Other
|
|
|
4,333
|
|
|
|
4,683
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
384,742
|
|
|
|
408,190
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land and structures
|
|
|
240,185
|
|
|
|
235,861
|
|
Revenue equipment
|
|
|
514,481
|
|
|
|
514,503
|
|
Service, office and other equipment
|
|
|
157,885
|
|
|
|
150,524
|
|
Leasehold improvements
|
|
|
21,839
|
|
|
|
21,697
|
|
|
|
|
|
|
|
|
|
|
|
934,390
|
|
|
|
922,585
|
|
Less allowances for depreciation and amortization
|
|
|
505,538
|
|
|
|
473,010
|
|
|
|
|
|
|
|
|
|
|
|
428,852
|
|
|
|
449,575
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
52,292
|
|
|
|
50,636
|
|
|
|
|
|
|
|
|
|
|
GOODWILL
|
|
|
3,660
|
|
|
|
63,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
869,546
|
|
|
$
|
972,298
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
44
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Bank overdraft and drafts payable
|
|
$
|
21,941
|
|
|
$
|
15,189
|
|
Accounts payable
|
|
|
59,386
|
|
|
|
51,646
|
|
Income taxes payable
|
|
|
826
|
|
|
|
758
|
|
Accrued expenses
|
|
|
150,799
|
|
|
|
147,540
|
|
Current portion of long-term debt
|
|
|
3,603
|
|
|
|
159
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
236,555
|
|
|
|
215,292
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, less current portion
|
|
|
13,373
|
|
|
|
1,457
|
|
|
|
|
|
|
|
|
|
|
PENSION AND POSTRETIREMENT LIABILITIES
|
|
|
67,445
|
|
|
|
89,472
|
|
|
|
|
|
|
|
|
|
|
OTHER LIABILITIES
|
|
|
20,254
|
|
|
|
17,314
|
|
|
|
|
|
|
|
|
|
|
DEFERRED INCOME TAXES
|
|
|
31,023
|
|
|
|
24,017
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, authorized 70,000,000 shares;
issued 2009: 26,749,265 shares; 2008: 26,702,222 shares
|
|
|
267
|
|
|
|
267
|
|
Additional paid-in capital
|
|
|
274,663
|
|
|
|
268,396
|
|
Retained earnings
|
|
|
327,948
|
|
|
|
471,360
|
|
Treasury stock, at cost, 1,677,932 shares
|
|
|
(57,770
|
)
|
|
|
(57,770
|
)
|
Accumulated other comprehensive loss
|
|
|
(44,212
|
)
|
|
|
(57,507
|
)
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY
|
|
|
500,896
|
|
|
|
624,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
869,546
|
|
|
$
|
972,298
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
45
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES
|
|
$
|
1,472,901
|
|
|
$
|
1,833,052
|
|
|
$
|
1,836,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES AND COSTS
(1)
|
|
|
1,641,607
|
|
|
|
1,784,528
|
|
|
|
1,752,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(168,706
|
)
|
|
|
48,524
|
|
|
|
84,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
2,853
|
|
|
|
5,937
|
|
|
|
5,671
|
|
Interest expense and other related financing costs
|
|
|
(2,389
|
)
|
|
|
(1,181
|
)
|
|
|
(1,189
|
)
|
Other, net
|
|
|
2,724
|
|
|
|
(3,370
|
)
|
|
|
1,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,188
|
|
|
|
1,386
|
|
|
|
5,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
(165,518
|
)
|
|
|
49,910
|
|
|
|
90,791
|
|
|
|
|
|
|
FEDERAL AND STATE INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current (benefit) provision
|
|
|
(33,054
|
)
|
|
|
8,171
|
|
|
|
27,806
|
|
Deferred (benefit) provision
|
|
|
(4,942
|
)
|
|
|
12,571
|
|
|
|
6,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,996
|
)
|
|
|
20,742
|
|
|
|
33,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
(127,522
|
)
|
|
|
29,168
|
|
|
|
56,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS: NONCONTROLLING INTEREST IN
NET INCOME OF SUBSIDIARY
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO
ARKANSAS BEST CORPORATION
|
|
$
|
(127,889
|
)
|
|
$
|
29,168
|
|
|
$
|
56,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(5.12
|
)
|
|
$
|
1.14
|
|
|
$
|
2.25
|
|
Diluted
|
|
|
(5.12
|
)
|
|
|
1.14
|
|
|
|
2.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,052,303
|
|
|
|
24,976,412
|
|
|
|
24,822,673
|
|
Diluted
|
|
|
25,052,303
|
|
|
|
25,110,539
|
|
|
|
25,018,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS DECLARED AND PAID
PER COMMON SHARE
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The year ended December 31, 2009 includes a $64.0 million goodwill impairment charge
(nondeductible for tax purposes). See Note D.
|
The accompanying notes are an integral part of the consolidated financial statements.
46
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Loss
|
|
|
Equity
|
|
|
|
($ and shares, thousands)
|
|
Balances at January 1, 2007
|
|
|
26,407
|
|
|
$
|
264
|
|
|
$
|
250,469
|
|
|
$
|
415,876
|
|
|
|
1,553
|
|
|
$
|
(52,825
|
)
|
|
$
|
(34,389
|
)
|
|
$
|
579,395
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,825
|
|
Change in foreign currency
translation, net of tax of $40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
Amortization of unrecognized net periodic
benefit costs, net of tax of $2,831:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,030
|
|
|
|
4,030
|
|
Prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405
|
|
|
|
405
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
Pension settlement expense,
net of tax of $647
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,018
|
|
|
|
1,018
|
|
Unrecognized net actuarial gain,
net of tax of $1,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,341
|
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
share-based compensation plans
|
|
|
142
|
|
|
|
1
|
|
|
|
2,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,683
|
|
Tax effect of share-based compensation
plans (including excess tax benefits
of $683) and other
|
|
|
|
|
|
|
|
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
816
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,911
|
|
Purchases of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
(4,945
|
)
|
|
|
|
|
|
|
(4,945
|
)
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
26,549
|
|
|
|
265
|
|
|
|
258,878
|
|
|
|
457,536
|
|
|
|
1,678
|
|
|
|
(57,770
|
)
|
|
|
(26,523
|
)
|
|
|
632,386
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,168
|
|
Change in foreign currency translation,
net of tax of $232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(368
|
)
|
|
|
(368
|
)
|
Amortization of unrecognized net periodic
benefit costs, net of tax of $2,098:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,845
|
|
|
|
2,845
|
|
Prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405
|
|
|
|
405
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
47
|
|
Pension settlement expense,
net of tax of $599
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
941
|
|
|
|
941
|
|
Unrecognized net actuarial loss,
net of tax benefits of $22,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,854
|
)
|
|
|
(34,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
share-based compensation plans
|
|
|
153
|
|
|
|
2
|
|
|
|
2,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,976
|
|
Tax effect of share-based compensation
plans (including excess tax benefits
of $692) and other
|
|
|
|
|
|
|
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
438
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
6,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,106
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
26,702
|
|
|
|
267
|
|
|
|
268,396
|
|
|
|
471,360
|
|
|
|
1,678
|
|
|
|
(57,770
|
)
|
|
|
(57,507
|
)
|
|
|
624,746
|
|
Net loss (excluding noncontrolling interest
in net income of subsidiary of $367)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127,889
|
)
|
Change in foreign currency translation,
net of tax of $149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234
|
|
|
|
234
|
|
Amortization of unrecognized net periodic
benefit costs, net of tax of $4,376:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,486
|
|
|
|
6,486
|
|
Prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305
|
|
|
|
305
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
82
|
|
Pension settlement expense,
net of tax of $1,785
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,803
|
|
|
|
2,803
|
|
Unrecognized net actuarial gain,
net of tax of $2,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,266
|
|
|
|
3,266
|
|
Increase in fair value of available
for sale security, net of tax of $63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
share-based compensation plans
|
|
|
47
|
|
|
|
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469
|
|
Tax effect of share-based compensation
plans and other
|
|
|
|
|
|
|
|
|
|
|
(359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(359
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
6,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,157
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
26,749
|
|
|
$
|
267
|
|
|
$
|
274,663
|
|
|
$
|
327,948
|
|
|
|
1,678
|
|
|
$
|
(57,770
|
)
|
|
$
|
(44,212
|
)
|
|
$
|
500,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of adjustments to unrecognized actuarial loss and transition obligation in 2007 and
2008 and to unrecognized actuarial loss in 2009 as a result of pension settlement expense (see
Note I).
|
The accompanying notes are an integral part of the consolidated financial statements.
47
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(127,522
|
)
|
|
$
|
29,168
|
|
|
$
|
56,825
|
|
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
75,226
|
|
|
|
76,872
|
|
|
|
77,318
|
|
Other amortization
|
|
|
1,278
|
|
|
|
293
|
|
|
|
261
|
|
Goodwill impairment charge
|
|
|
63,958
|
|
|
|
|
|
|
|
|
|
Pension settlement expense
|
|
|
4,588
|
|
|
|
1,540
|
|
|
|
1,665
|
|
Share-based compensation expense
|
|
|
6,157
|
|
|
|
6,106
|
|
|
|
4,911
|
|
Provision for losses on accounts receivable
|
|
|
2,587
|
|
|
|
1,623
|
|
|
|
1,056
|
|
Deferred income tax provision (benefit)
|
|
|
(4,942
|
)
|
|
|
12,571
|
|
|
|
6,160
|
|
Gain on sales of assets
|
|
|
(1,409
|
)
|
|
|
(3,720
|
)
|
|
|
(4,351
|
)
|
Excess tax benefits from share-based compensation
|
|
|
|
|
|
|
(692
|
)
|
|
|
(683
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(3,735
|
)
|
|
|
30,568
|
|
|
|
533
|
|
Prepaid expenses
|
|
|
429
|
|
|
|
573
|
|
|
|
491
|
|
Other assets
|
|
|
790
|
|
|
|
11,087
|
|
|
|
(676
|
)
|
Accounts payable, taxes payable,
accrued expenses and other liabilities
(1, 2)
|
|
|
(5,615
|
)
|
|
|
(60,652
|
)
|
|
|
(377
|
)
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
11,790
|
|
|
|
105,337
|
|
|
|
143,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment, net of capital leases
(1)
|
|
|
(48,044
|
)
|
|
|
(58,729
|
)
|
|
|
(96,670
|
)
|
Proceeds from asset sales
|
|
|
4,913
|
|
|
|
17,073
|
|
|
|
12,067
|
|
Purchases of short-term investment securities
|
|
|
(109,806
|
)
|
|
|
(146,655
|
)
|
|
|
(292,064
|
)
|
Proceeds from sales of short-term investment securities
|
|
|
133,800
|
|
|
|
107,404
|
|
|
|
348,008
|
|
Business acquisition, net of cash acquired
|
|
|
(4,873
|
)
|
|
|
|
|
|
|
|
|
Capitalization of internally developed software and other
|
|
|
(5,176
|
)
|
|
|
(5,325
|
)
|
|
|
(4,599
|
)
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED BY INVESTING ACTIVITIES
|
|
|
(29,186
|
)
|
|
|
(86,232
|
)
|
|
|
(33,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(1,433
|
)
|
|
|
(295
|
)
|
|
|
(1,360
|
)
|
Proceeds from issuance of long-term debt
|
|
|
14,958
|
|
|
|
|
|
|
|
|
|
Net change in bank overdraft
|
|
|
6,752
|
|
|
|
(59
|
)
|
|
|
(2,175
|
)
|
Change in restricted cash equivalents and short-term investments
|
|
|
(48,558
|
)
|
|
|
|
|
|
|
|
|
Deferred financing costs
|
|
|
(817
|
)
|
|
|
|
|
|
|
(800
|
)
|
Payment of common stock dividends
|
|
|
(15,523
|
)
|
|
|
(15,344
|
)
|
|
|
(15,165
|
)
|
Excess tax benefits from share-based compensation
|
|
|
|
|
|
|
692
|
|
|
|
683
|
|
Purchases of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(4,945
|
)
|
Proceeds from the exercise of stock options and other
|
|
|
469
|
|
|
|
2,976
|
|
|
|
2,683
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED BY FINANCING ACTIVITIES
|
|
|
(44,152
|
)
|
|
|
(12,030
|
)
|
|
|
(21,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(61,548
|
)
|
|
|
7,075
|
|
|
|
88,796
|
|
Cash and cash equivalents at beginning of period
|
|
|
100,880
|
|
|
|
93,805
|
|
|
|
5,009
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
39,332
|
|
|
$
|
100,880
|
|
|
$
|
93,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Does not include $0.1 million and $0.7 million of equipment which was received but not yet
paid for at December 31, 2008 and 2007, respectively.
|
|
(2)
|
|
Includes contributions to the Companys nonunion pension plan of $15.5 million, $25.0 million
and $5.0 million in 2009, 2008 and 2007, respectively, and payments to retiring officers under
the Companys unfunded supplemental benefit plan of $7.8 million, $6.2 million and $5.3
million in 2009, 2008 and 2007, respectively.
|
The accompanying notes are an integral part of the consolidated financial statements.
48
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Arkansas Best Corporation (the Company) is a holding company engaged, through its subsidiaries,
primarily in motor carrier freight transportation. The Companys principal operations are
conducted through ABF Freight System, Inc. and other subsidiaries of the Company that are engaged
in motor carrier freight transportation (collectively ABF).
Approximately 75% of ABFs employees are covered under a five-year collective bargaining agreement
with the International Brotherhood of Teamsters (IBT). The agreement with the IBT, which became
effective April 1, 2008, provides for compounded annual contractual wage and benefit increases of
approximately 4%, subject to wage rate cost-of-living adjustments.
NOTE B ACCOUNTING POLICIES
Consolidation:
The consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions are eliminated in
consolidation.
Cash and Cash Equivalents:
Short-term investments that have a maturity of ninety days or less when
purchased are considered cash equivalents. Cash and cash equivalents, which totaled $39.3 million
at December 31, 2009, consisted primarily of money market funds. Interest and dividends related to
cash and cash equivalents are included in interest and dividend income.
Short-Term Investments:
Short-term investments consist of FDIC-insured certificates of deposit with
original maturities ranging from ninety-one days to one year. Interest related to these investments
is included in interest and dividend income.
Restricted Cash Equivalents and Short-Term Investments:
Cash, cash equivalents and short-term
investments that are pledged as collateral, primarily for the Companys outstanding letters of
credit, are classified as restricted. The Companys letters of credit are primarily issued in
support of certain workers compensation and third-party casualty claims liabilities in various
states in which the Company is self-insured. The restricted cash equivalents and short-term
investments are classified consistent with the classification of liabilities to which they relate
and in accordance with the duration of the letters of credit. Changes in the amount of restricted
funds are reflected as financing activities in the statements of cash flows.
Concentration of Credit Risk:
The Companys services are provided primarily to customers throughout
the United States and Canada. ABF, which represented 94% of the Companys annual revenues for 2009,
had no single customer representing more than 3% of its 2009 revenues or 8% of its accounts
receivable balance at December 31, 2009. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains an allowance for
doubtful accounts based upon historical trends and factors surrounding the credit risk of specific
customers. Historically, credit losses have been within managements expectations.
The Company is potentially subject to concentrations of credit risk related to financial
instruments which consist primarily of cash, cash equivalents and short-term investments. The
Company reduces credit risk by placing its cash, cash equivalents and short-term investments with
major financial institutions with high credit ratings and by investing unrestricted short-term
investments in FDIC-insured certificates of deposit with varying original maturities of ninety-one
days to one year. However, restricted short-term investments in certificates of deposit pledged as
collateral for outstanding letters of credit under the Companys letter of credit agreements may
exceed federally insured limits. At December 31, 2009, the Company had certificates of deposit of
$29.4 million which exceeded the FDIC-insured limit.
Allowances:
The Company maintains allowances for doubtful accounts, revenue adjustments and
deferred tax assets. The Companys allowance for doubtful accounts represents an estimate of
potential accounts receivable write-offs associated with recognized revenue based on historical
trends and factors surrounding the credit risk of specific customers. The Company writes off
accounts receivable when accounts are turned over to a collection agency or when determined to be
uncollectible.
49
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Receivables written off are charged against the allowance. The Companys allowance for revenue
adjustments represents an estimate of potential adjustments associated with recognized revenue
based upon historical trends. The Companys valuation allowance for deferred tax assets is
determined by evaluating whether it is more likely than not that the benefits of its deferred tax
assets will be realized through future reversal of existing taxable temporary differences, taxable
income in carryback years, the reduction of future taxable income or tax-planning strategies.
Property, Plant and Equipment Including Repairs and Maintenance:
The Company utilizes tractors and
trailers in its motor carrier freight transportation operations. Tractors and trailers are commonly
referred to as revenue equipment in the transportation business. Purchases of property, plant and
equipment are recorded at cost. For financial reporting purposes, property, plant and equipment is
depreciated principally by the straight-line method, using the following lives: structures
primarily 15 to 20 years; revenue equipment 3 to 12 years; other equipment 2 to 15 years; and
leasehold improvements 4 to 20 years, or over the remaining life of the lease, whichever is
shorter. For tax reporting purposes, accelerated depreciation or cost recovery methods are used.
Gains and losses on asset sales are reflected in the year of disposal. Exchanges of nonmonetary
assets that have commercial substance are measured based on the fair value of the assets exchanged.
Tires purchased with revenue equipment are capitalized as a part of the cost of such equipment,
with replacement tires being expensed when placed in service. Repair and maintenance costs
associated with property, plant and equipment are expensed as incurred if the costs do not extend
the useful life of the asset. If such costs do extend the useful life of the asset, the costs are
capitalized and depreciated over the appropriate remaining useful life.
Computer Software Developed or Obtained for Internal Use, Including Web Site Development Costs:
The
Company capitalizes qualifying computer software costs incurred during the application development
stage. For financial reporting purposes, capitalized software costs are amortized by the
straight-line method over 2 to 3 years. The amount of costs capitalized within any period is
dependent on the nature of software development activities and projects in each period.
Impairment Assessment of Long-Lived Assets:
The Company reviews its long-lived assets, including
property, plant, equipment and capitalized software that are held and used in its operations for
impairment whenever events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable
.
If such an event or change in circumstances is present, the Company
will estimate the undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the undiscounted future cash flows is less than the
carrying amount of the related assets, the Company will recognize an impairment loss. The Company
records impairment losses in operating income.
Assets to be disposed of are reclassified as assets held for sale at the lower of their carrying
amount or fair value less cost to sell. Assets held for sale primarily represent ABFs nonoperating
properties, older revenue equipment and other equipment. Write-downs to fair value less cost to
sell are reported in operating income. Assets held for sale are expected to be disposed of by
selling the properties or assets within the next 12 months. Gains and losses on property and
equipment are reported in operating income.
Assets held for sale are included in other noncurrent assets. During 2009, property and equipment
classified as held for sale and carried at $2.8 million was sold for net gains totaling $1.2
million. At December 31, 2009, management was not aware of any events or circumstances indicating
the Companys long-lived assets would not be recoverable.
The following table is a summary of assets held for sale for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
Assets held for sale January 1
|
|
$
|
1,133
|
|
|
$
|
10,127
|
|
Reclassifications of assets
|
|
|
3,713
|
|
|
|
2,819
|
|
Sale of assets
|
|
|
(2,837
|
)
|
|
|
(11,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale December 31
|
|
$
|
2,009
|
|
|
$
|
1,133
|
|
|
|
|
|
|
|
|
Asset Retirement Obligations:
The Company records estimated liabilities for the cost to remove
underground storage tanks, dispose of tires and return leased real property to its original
condition at the end of a lease term. The liabilities are discounted using the Companys credit
adjusted risk-free rate. Revisions to these liabilities for such costs may occur due to changes in
the estimates for fuel tank removal costs, tire disposal fees and real property lease restoration
costs, or changes in
50
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
regulations or agreements affecting these obligations. At December 31, 2009
and 2008, the Companys estimated asset retirement obligations totaled $2.2 million and $2.0
million, respectively.
Goodwill:
Goodwill represents the excess of the purchase price in a business combination over the
fair value of net tangible and intangible assets acquired. Goodwill is not amortized, but rather is
evaluated for impairment annually or more frequently if indicators of impairment exist. The
measurement of goodwill impairment consists of two steps. In the first step, a comparison is made
of the estimated fair value of a reporting unit to its carrying value. If the results of the first
test indicate that the fair value of the reporting unit is less than the carrying value, the second
step of the impairment test is required. In the second step, an estimate of the current fair values
of all assets and liabilities is made to determine the amount of implied goodwill and consequently
the amount of any goodwill impairment. The application of the impairment test resulted in a
goodwill impairment charge of $64.0 million in 2009 (see Note D).
Income Taxes:
Deferred income taxes are accounted for under the liability method, which takes into
account the differences between the tax basis of the assets and liabilities for financial reporting
purposes and amounts recognized for income tax purposes. Deferred income taxes relate principally
to asset and liability basis differences resulting from the timing of the depreciation and cost
recovery deductions and to temporary differences in the recognition of certain revenues and
expenses. The Company classifies interest and penalty amounts related to income tax matters as
interest expense and operating expenses, respectively.
Claims Liabilities
: The Company is self-insured up to certain limits for workers compensation,
certain third-party casualty claims and cargo loss and damage claims. Amounts in excess of the
self-insured limits are fully insured to levels which management considers appropriate for the
Companys operations. The Companys claims liabilities have not been discounted.
The Company records a liability for self-insured workers compensation and third-party casualty
claims based on the incurred claim amount plus an estimate of future claim development and a
reserve for claims incurred but not reported. Management estimates the development of the claims by
applying the Companys historical claim development factors to incurred claim amounts. The Company
is entitled to recover, from insurance carriers and insurance pool arrangements, amounts which have
been previously paid by the Company for claims above the self-insurance retention level. These
amounts are included in other accounts receivable, net of allowances for potentially unrecoverable
amounts.
The Company records an estimate of its potential self-insured cargo loss and damage claims by
estimating the amount of potential claims based on the Companys historical trends and certain
event-specific information.
Insurance-Related Assessments:
The Company recorded estimated liabilities for state guaranty fund
assessments and other insurance-related assessments of $0.8 million at December 31, 2009 and 2008.
Management has estimated the amounts incurred using the best available information regarding
premiums and guaranty assessments by state. These amounts are expected to be paid within a period
not to exceed one year. The liabilities recorded have not been discounted.
Nonunion Defined Benefit Pension, Supplemental Pension and Postretirement Health Plans:
The Company
recognizes the funded status (the difference between the fair value of plan assets and the benefit
obligation) of its defined benefit pension plan, supplemental benefit plan (SBP) and
postretirement health benefit plan in the balance sheet and recognizes changes in the funded
status, net of tax, in the year in which they occur as a component of other comprehensive loss.
Amounts recognized in other comprehensive loss are subsequently expensed as components of net
periodic benefit cost in the consolidated statements of income by amortizing the amounts over the
average remaining active service period of the plan participants. A corridor approach is not used
for determining amounts to be amortized.
The expense and liability related to the Companys defined benefit pension plan, SBP and
postretirement health benefit plan are measured based upon a number of assumptions and using the
services of a third-party actuary. Assumptions are made regarding expected retirement age,
mortality, employee turnover and future increases in healthcare costs. The assumptions with the
greatest impact on the Companys expense are the discount rate used to discount the plans
obligations, the expected return on plan assets and the assumed compensation cost increase. The
discount rate is determined by matching projected cash distributions with appropriate high quality
corporate bond yields in a yield curve analysis. The Company establishes the expected rate of
return on plan assets by considering the historical returns for the plans current investment mix
and its investment advisors range of expected returns for the plans current investment mix. The
Company establishes the assumed rate of compensation increase considering historical changes in
compensation combined with an estimate of compensation rates for the next two years.
51
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The assumptions used directly impact the defined benefit pension expense for a particular year. If
actual results vary from the assumption, an actuarial gain or loss results. Actuarial gains and
losses that arise which are not included in net periodic
benefit cost in the same period are recognized as a component of other comprehensive loss and
subsequently amortized as a component of net periodic benefit cost.
The Company uses December 31 as the measurement date for its defined benefit pension plan, SBP and
postretirement health benefit plan.
Comprehensive Income or Loss:
The Company reports the components of other comprehensive income or
loss by their nature in the financial statements and displays the accumulated balance of other
comprehensive income or loss separately in the consolidated statements of stockholders equity.
Other comprehensive income or loss refers to revenues, expenses, gains and losses that are included
in comprehensive income or loss but excluded from net income or loss.
Revenue Recognition:
Revenue is recognized based on relative transit time in each reporting period
with expenses recognized as incurred. The Company utilizes a bill-by-bill analysis to establish
estimates of revenue in transit for recognition in the appropriate reporting period. The Company
reports revenue and purchased transportation expense on a gross basis for certain shipments where
ABF utilizes a third-party carrier for pickup, linehaul or delivery of freight but remains the
primary obligor.
Earnings Per Share:
The calculation of earnings per share is based on the weighted-average number
of common (basic earnings per share) or common equivalent shares outstanding (diluted earnings per
share) during the applicable period. The dilutive effect of common stock equivalents is excluded
from basic earnings per share and included in the calculation of diluted earnings per share.
Share-Based Compensation:
For share-based awards granted prior to January 1, 2006, the Company
amortized the fair value of the awards to compensation expense on a straight-line basis over the
five-year vesting period and accelerated unrecognized compensation upon a grantees death,
disability or retirement. Share-based awards granted or modified subsequent to January 1, 2006 are
amortized to compensation expense over the five-year vesting period or the period to which the
employee first becomes eligible for retirement, whichever is shorter, with vesting accelerated upon
death or disability. Compensation expense reflects an estimate of shares expected to be forfeited
over the service period. Estimated forfeitures, which are based on historical experience, are
adjusted to the extent that actual forfeitures differ, or are expected to differ, from these
estimates.
The fair value of restricted stock awards is determined based upon the closing market price of the
Companys Common Stock on the date of grant. The restricted stock awards generally vest at the end
of a five-year period following the date of grant, subject to accelerated vesting due to death,
disability, retirement or change-in-control provisions. The Company issues new shares upon the
granting of restricted stock. However, no new shares are issued upon the granting of restricted
stock units until such units become vested. Dividends or dividend equivalents are paid on all
restricted stock awards during the vesting period.
The Company has not granted stock options since January 2004. Compensation expense for 2008 and
2007 includes the pro rata cost of stock options granted prior to but not yet vested as of January
1, 2006, based upon the grant date fair value. Tax benefits in excess of the compensation cost
recognized for stock options (excess tax benefits) are reported as financing cash flows for those
same years. Stock options generally vested in equal amounts over a five-year period and expire ten
years from the date of grant. The Company issues new shares upon the exercise of stock options. The
grant date fair value of stock options was estimated based on a Black-Scholes-Merton option pricing
model that utilizes several assumptions, including expected volatility, weighted-average life and a
risk-free interest rate. Expected volatilities were estimated using the historical volatility of
the Companys stock, based upon the expected term of the option. The Company was not aware of
information in determining the grant date fair value that would have indicated that future
volatility would be expected to be significantly different than historical volatility. The expected
term of the option was derived from historical data and represents the period of time that options
are estimated to be outstanding. The risk-free interest rate for periods within the estimated life
of the option was based on the U.S. Treasury Strip rate in effect at the time of the grant.
Fair Value Measurements:
The Company adopted fair value disclosure provisions with respect to its
financial assets and liabilities that are measured at fair value on a recurring basis effective
January 1, 2008, and adopted the provisions with respect to its nonfinancial assets and liabilities
that are measured at fair value on a nonrecurring basis effective January 1,
52
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
2009. The Company is
required to disclose its fair value measurements using a hierarchy of valuation techniques based on
whether the inputs to those valuation techniques are observable or unobservable.
Environmental Matters:
The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no current or future benefit is
discernible. Expenditures which extend the life of the related property or mitigate or prevent
future environmental contamination are capitalized. Amounts accrued reflect managements best
estimate of the future undiscounted exposure related to identified properties based on current
environmental regulations. The Companys estimate is based on managements experience with similar
environmental matters and on testing performed at certain sites. The estimated liability is not
reduced for possible recoveries from insurance carriers or other third parties.
Exit or Disposal Activities:
The Company recognizes liabilities for costs associated with exit or
disposal activities when the liability is incurred.
Variable Interest Entities:
The Company has no investments in or known contractual arrangements
with variable interest entities.
Segment Information:
The Company uses the management approach for determining its reportable
segment information. The management approach is based on the way management organizes the
reportable segments within the Company for making operating decisions and assessing performance.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual amounts may
differ from those estimates.
Reclassifications:
Certain reclassifications of restricted cash equivalents have been made to the
prior years financial statements to conform to the current years presentation. Restricted cash
equivalents and short-term investments are further discussed in Note C.
NOTE C FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Financial Instruments
The following methods and assumptions were used by the Company in estimating its fair value
disclosures for financial instruments.
Cash and Cash Equivalents:
Cash and cash equivalents totaling $39.3 million and $100.9 million at
December 31, 2009 and 2008, respectively, consist primarily of money market funds for which quoted
prices are used to determine fair value.
Short-Term Investments:
Short-term investments totaling $93.9 million and $117.9 million at
December 31, 2009 and 2008, respectively, consist of FDIC-insured certificates of deposit which are
recorded at cost plus accrued interest, which approximates fair value. The Company sold $133.8
million, $107.4 million and $348.0 million in short-term investments during the years ended
December 31, 2009, 2008 and 2007, respectively, with no realized gains or losses.
Restricted Cash Equivalents and Short-Term Investments:
At December 31, 2009, $48.0 million of
restricted funds were invested in cash and certificates of deposit and recorded at cost plus
accrued interest, which approximates fair value. The remaining balance of $2.9 million at December
31, 2009 and $2.3 million at December 31, 2008 consist of money market funds which are recorded at
fair value as determined by quoted prices.
Long-Term Investments:
Long-term investments which are reported at fair value within other
long-term assets at December 31, 2009 and 2008 consist of mutual fund investments held in trust
related to the Companys Voluntary Savings Plan (VSP) and an insured, investment-grade available
for sale auction rate debt security. The available for sale security, for which the underlying debt
instrument matures in 2025, is valued using the income approach with inputs derived from observable
market data. The VSP is a nonqualified deferred compensation plan (see Note I). The mutual fund
investments held in trust related to the VSP are associated with the deferral of compensation, the
Companys match on deferred
53
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
compensation and investment earnings related to the plan. These
securities are considered general assets of the Company until distributed to the participant.
Quoted market prices were used to determine fair values of the mutual fund investments.
Debt:
Debt reported in the consolidated balance sheets consists of capital lease obligations (see
Note G).
Financial Assets Measured at Fair Value
Fair value is generally determined based on the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants at the measurement
date. In the absence of active markets for the identical assets or liabilities, such measurements
generally involve developing assumptions based on observable market data. Observable inputs reflect
market data obtained from independent sources, while unobservable inputs reflect the Companys
market assumptions. These inputs form a three-level valuation hierarchy as follows:
|
|
|
Level 1 Quoted prices for identical assets and liabilities in active markets.
|
|
|
|
Level 2 Quoted prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets and liabilities in markets that are not active, or
other inputs that are observable or can be corroborated by observable market data.
|
|
|
|
Level 3 Unobservable inputs that are significant to the valuation model.
|
Assets Measured at Fair Value on a Recurring Basis
The following table presents, for each of the fair value hierarchy levels, the Companys assets
that are measured at fair value on a recurring basis at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
($ thousands)
|
|
Money market funds
(1)
|
|
$
|
34,437
|
|
|
$
|
34,437
|
|
|
$
|
|
|
|
$
|
|
|
Available for sale security
(2)
|
|
|
780
|
|
|
|
|
|
|
|
780
|
|
|
|
|
|
Equity, bond and money market mutual funds held in trust
related to a nonqualified deferred compensation plan
(3)
|
|
|
6,303
|
|
|
|
6,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,520
|
|
|
$
|
40,740
|
|
|
$
|
780
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
($ thousands)
|
|
Money market funds
(1)
|
|
$
|
95,605
|
|
|
$
|
95,605
|
|
|
$
|
|
|
|
$
|
|
|
Available for sale security
(2)
|
|
|
608
|
|
|
|
|
|
|
|
608
|
|
|
|
|
|
Equity, bond and money market mutual funds held in trust
related to a nonqualified deferred compensation plan
(3)
|
|
|
7,427
|
|
|
|
7,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,640
|
|
|
$
|
103,032
|
|
|
$
|
608
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Included in cash equivalents and restricted cash equivalents.
|
|
(2)
|
|
Consists of an insured, investment-grade auction rate debt security which is included in
other long-term assets. An unrealized gain of $0.1 million, net of taxes, related to the
security is included in accumulated other comprehensive loss as of December 31, 2009.
|
|
(3)
|
|
Securities related to the Companys VSP and included in other long-term assets consist of
U.S. and international equity mutual funds, government and corporate bond mutual funds and
money market funds, held in a trust with a third-party brokerage firm. A corresponding
liability is included in other long-term liabilities in the consolidated balance sheet.
|
NOTE D GOODWILL
While the Companys annual goodwill impairment test date is January 1, the Companys fourth quarter
2009 losses, combined with the challenging industry environment reflected in historically low daily
tonnage levels and an aggressive pricing environment, indicated that the goodwill associated with
ABF may be impaired. In the prior year goodwill evaluation, the Company assumed that available LTL
tonnage would improve in the fourth quarter of 2009. However, ABF experienced reduced tonnage and
pricing on its LTL business and consequently lower operating results in the fourth quarter
54
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
of 2009.
Based on the results of the impairment testing of goodwill, the Company recorded a noncash charge
of $64.0 million for impairment of the value of ABFs entire goodwill balance in the fourth quarter
of 2009. The goodwill impairment charge, which is not tax deductible, was included in operating
expenses within the ABF segment. Goodwill of $63.9 million at
December 31, 2008 was attributable to ABF as a result of a 1988 leveraged buyout. Changes occurred
in ABFs goodwill asset balance during 2009 because of foreign currency translation adjustments on
the portion of the goodwill related to ABFs Canadian operations. The goodwill balance remaining at
December 31, 2009 of $3.7 million was related to the second quarter 2009 acquisition of a
privately-owned logistics company that is included in the Companys business operations other than
ABF.
Under the first step of the goodwill impairment evaluation, the aggregate carrying amount of ABF
was compared to its fair value utilizing an equal combination of valuation methods, including
earnings before interest, taxes, depreciation and amortization (EBITDA) multiples (market
approach) and the present value of discounted cash flows (income approach). Incorporation of the
two methods into the impairment test supported the reasonableness of conclusions reached. The
valuation determined by the market approach was not significantly different from the value derived
by the income approach in the current year evaluation.
To determine the EBITDA multiple, the Company obtained information from third parties for the
EBITDA multiples observed for recent acquisitions in the trucking industry. For the annual
impairment tests performed by the Company in the last three years, this marketplace EBITDA
multiple was in the mid-single digit range. The fair value that was estimated from the market
approach was negatively impacted by ABFs recent operating losses.
The discounted cash flows model utilized in the income approach incorporates discount rates and
projections of future revenue growth rates, operating margins and net capital expenditures. The
projections used have changed over time based on historical performance and changing business
conditions. Assumptions with respect to rates used to discount cash flows are dependent upon market
interest rates and the cost of capital for the Company and the industry at a point in time. In the
recent evaluation process, the 12.5% discount rate used was higher than the rate used in the prior
year due to increased risk associated with extremely challenging freight conditions. The Company
included a cash flow period of ten years in the income approach that, due to the length of time,
assumed the occurrence of another recessionary cycle. In addition, the near-term outlook for the
LTL market is highly uncertain due to the current freight recession and the negative impact of
aggressive pricing. The resulting annual revenue growth rate assumption in the low to mid-single
digits was generally consistent with historical trends. The assumed revenue projections were lower
than the prior year estimates due to the impact of the recent recessionary period on the revenues
in the base year of the cash flow model and the resulting influence on the assumed timing of a
recovery in available freight tonnage. In addition, the revenue projections did not assume regional
or long-haul market share gains or significant pricing improvement. The timing of estimated
measurable tonnage and pricing improvement and the assumptions related to future market share were
significant to the associated cash flows and resulting valuation.
Based on the first step of the analysis, the carrying amount of ABF was determined to be in excess
of its fair value. In completing the step two estimate of the current fair value of identifiable
assets and liabilities, significant assumptions included the estimated value of previously
unrecognized intangible assets, as well as the estimated appreciation in value of land and
structures. These currently unrecognized amounts reduced the amount of implied goodwill in ABF.
The resulting estimated values of ABFs net assets were deducted from the fair value of ABF
determined in the first step of the analysis to determine the implied fair value of goodwill. The
carrying value of ABFs goodwill exceeded its implied fair value, and, as a result, the value of
ABFs entire goodwill balance was impaired. The measurement of fair value of ABFs goodwill
involves the use of significant unobservable inputs, and is considered a Level 3 fair value
measurement.
Management believes that the long-term economics of ABFs business operations remain intact and
that operating results will ultimately improve, although it cannot predict the timing of an
economic recovery. The noncash goodwill impairment charge does not directly impact the Companys
normal business operations, liquidity or credit availability under its existing facilities,
although the factors leading to the goodwill impairment have negatively impacted the Companys
operating results.
55
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE E FEDERAL AND STATE INCOME TAXES
Significant components of the provision or benefit for income taxes for the years ended December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(33,163
|
)
|
|
$
|
6,002
|
|
|
$
|
21,845
|
|
State
|
|
|
(402
|
)
|
|
|
968
|
|
|
|
5,341
|
|
Foreign
|
|
|
511
|
|
|
|
1,201
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,054
|
)
|
|
|
8,171
|
|
|
|
27,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,333
|
)
|
|
|
10,421
|
|
|
|
5,535
|
|
State
|
|
|
(3,614
|
)
|
|
|
2,153
|
|
|
|
644
|
|
Foreign
|
|
|
5
|
|
|
|
(3
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,942
|
)
|
|
|
12,571
|
|
|
|
6,160
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
(37,996
|
)
|
|
$
|
20,742
|
|
|
$
|
33,966
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes.
Significant components of the deferred tax provision or benefit for the years ended December 31 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
Amortization, depreciation and basis differences for property,
plant and equipment and other long-lived assets
|
|
$
|
625
|
|
|
$
|
9,053
|
|
|
$
|
8,472
|
|
Changes in reserves for workers compensation and cargo claims
|
|
|
797
|
|
|
|
2,338
|
|
|
|
(1,803
|
)
|
Revenue recognition
|
|
|
41
|
|
|
|
(3,174
|
)
|
|
|
562
|
|
Foreign tax credit carryforward
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
|
|
Nonunion pension and other retirement plans
|
|
|
(2,109
|
)
|
|
|
6,143
|
|
|
|
(2,860
|
)
|
Deferred compensation plans
|
|
|
1,004
|
|
|
|
1,493
|
|
|
|
384
|
|
State net operating loss carryforwards
|
|
|
(2,923
|
)
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
(1,760
|
)
|
|
|
(1,392
|
)
|
|
|
(1,019
|
)
|
Other
|
|
|
(1,708
|
)
|
|
|
(1,770
|
)
|
|
|
2,386
|
|
Valuation allowance increase (decrease)
|
|
|
2,175
|
|
|
|
(120
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit)
|
|
$
|
(4,942
|
)
|
|
$
|
12,571
|
|
|
$
|
6,160
|
|
|
|
|
|
|
|
|
|
|
|
56
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Significant components of deferred tax assets and liabilities at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
48,336
|
|
|
$
|
49,775
|
|
Pension liabilities
|
|
|
24,490
|
|
|
|
27,744
|
|
Postretirement liabilities other than pensions
|
|
|
5,227
|
|
|
|
7,801
|
|
Share-based compensation
|
|
|
5,236
|
|
|
|
3,487
|
|
State net operating loss carryovers
|
|
|
3,829
|
|
|
|
838
|
|
Other
|
|
|
358
|
|
|
|
205
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
87,476
|
|
|
|
89,850
|
|
Valuation allowance
|
|
|
(3,013
|
)
|
|
|
(838
|
)
|
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowance
|
|
|
84,463
|
|
|
|
89,012
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Amortization, depreciation and basis differences
for property, plant and equipment and other long-lived assets
|
|
|
69,985
|
|
|
|
69,805
|
|
Revenue recognition
|
|
|
3,290
|
|
|
|
3,642
|
|
Prepaid expenses
|
|
|
3,176
|
|
|
|
3,503
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
76,451
|
|
|
|
76,950
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
8,012
|
|
|
$
|
12,062
|
|
|
|
|
|
|
|
|
Reconciliation between the effective income tax rate, as computed on income or loss before income
taxes, and the statutory federal income tax rate for the years ended December 31 is presented in
the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax at the statutory federal rate of 35%
|
|
$
|
(57,931
|
)
|
|
$
|
17,468
|
|
|
$
|
31,777
|
|
Federal income tax effects of:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes
|
|
|
1,406
|
|
|
|
(1,092
|
)
|
|
|
(2,160
|
)
|
Nondeductible expenses
|
|
|
915
|
|
|
|
1,443
|
|
|
|
2,091
|
|
Nondeductible goodwill impairment
|
|
|
22,386
|
|
|
|
|
|
|
|
|
|
Life insurance proceeds and changes in cash surrender value
|
|
|
(913
|
)
|
|
|
1,225
|
|
|
|
(586
|
)
|
Dividends received deduction
|
|
|
(18
|
)
|
|
|
(44
|
)
|
|
|
(317
|
)
|
Tax-exempt investment income
|
|
|
|
|
|
|
(22
|
)
|
|
|
(1,451
|
)
|
Alternative fuel credit
|
|
|
(931
|
)
|
|
|
(1,024
|
)
|
|
|
(960
|
)
|
Other
|
|
|
590
|
|
|
|
(1,531
|
)
|
|
|
(1,014
|
)
|
|
|
|
|
|
|
|
|
|
|
Federal income taxes
|
|
|
(34,496
|
)
|
|
|
16,423
|
|
|
|
27,380
|
|
State income taxes
|
|
|
(4,016
|
)
|
|
|
3,121
|
|
|
|
5,985
|
|
Foreign income taxes
|
|
|
516
|
|
|
|
1,198
|
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
(37,996
|
)
|
|
$
|
20,742
|
|
|
$
|
33,966
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax (benefit) rate
|
|
|
(23.0
|
)%
|
|
|
41.6
|
%
|
|
|
37.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid totaled $3.8 million in 2009, $28.8 million in 2008, and $39.6 million in 2007
before income tax refunds of $30.1 million in 2009, $7.6 million in 2008, and $10.6 million in
2007.
The tax benefit for exercised options in 2009 was less than $0.1 million of which none was
reflected in paid-in capital. A paid-in capital benefit could be recognized as additional
information becomes available to the Company regarding stock sales by employees. The tax benefits
associated with stock options exercised totaled $1.0 million in 2008 and $0.9 million in 2007,
which were reflected in paid-in capital. In 2008, the Company began recognizing the income tax
benefits of dividends on share-based payment awards as an increase in paid-in capital. The tax
benefit of dividends on share-based payment awards reflected in paid-in capital totaled $0.2
million in 2009 and $0.1 million in 2008.
The Company had state net operating loss carryovers of approximately $27.5 million and state
contribution carryovers of $0.9 million at December 31, 2009. These state net operating loss and
contribution carryovers expire in twenty years or less. As of December 31, 2009, the Company had
valuation allowances of $0.9 million for state net operating loss and
57
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
contribution carryovers, $1.3
million for deferred tax assets related to future state income tax benefits, $0.7 million related
to foreign tax credit carryovers and $0.1 million related to foreign net operating loss carryovers,
due to the uncertainty of realization of these items. Foreign tax credit carryovers expire in ten
years. Valuation allowances were increased in 2009 for state net operating losses and state
deferred tax assets of companies which operate in a state with a limited carryforward period, low
levels of historical income and limited options for tax planning strategies.
During 2007, the U.S. Internal Revenue Service (the IRS) completed an examination of the
Companys federal income tax return for 2004, and no changes were made to the Companys return. The
Company is under examination by certain state taxing authorities. Although the outcome of tax
audits is always uncertain and could result in payment of additional taxes, the Company does not
believe the results of any of these audits will have a material effect on its financial position,
results of operations or cash flows.
Effective January 1, 2007, the Company adopted accounting and disclosure requirements for uncertain
tax positions, which requires a two-step approach to evaluate tax positions. This approach involves
recognizing any tax positions that are more likely than not to occur and then measuring those
positions to determine the amounts to be recognized in the financial statements. Federal income tax
returns filed for years through 2005 are closed by the applicable statute of limitations. The
Company has determined that no reserves for uncertain tax positions were required at December 31,
2009 and 2008 or during the years then ended. The Company is not aware of any matters that would
cause a significant change in this determination in 2010.
Interest expense related to amended federal and state income tax returns yet to be filed was less
than $0.1 million for the year ended December 31, 2009. At December 31, 2009 and 2008, the accrued
interest liability, which related to federal and state income taxes to be paid on amended returns,
totaled $0.8 million and $1.0 million, respectively. Interest of $0.4 million was paid related to
federal and state income taxes in 2009. Less than $0.1 million of interest was paid related to
state income taxes, and no interest was paid related to federal income taxes during 2008 and 2007.
NOTE F OPERATING LEASES AND COMMITMENTS
While the Company maintains ownership of most of its larger terminals and distribution centers,
certain facilities and equipment are leased. Rental expense totaled $18.3 million, $16.2 million
and $14.7 million in 2009, 2008 and 2007, respectively.
The future minimum rental commitments, net of minimum rentals to be received under noncancelable
subleases, as of December 31, 2009, for all noncancelable operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
Period
|
|
Total
|
|
|
Terminals
|
|
|
and Other
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
11,410
|
|
|
$
|
11,235
|
|
|
$
|
175
|
|
2011
|
|
|
10,012
|
|
|
|
9,866
|
|
|
|
146
|
|
2012
|
|
|
7,440
|
|
|
|
7,440
|
|
|
|
|
|
2013
|
|
|
5,728
|
|
|
|
5,728
|
|
|
|
|
|
2014
|
|
|
4,540
|
|
|
|
4,540
|
|
|
|
|
|
Thereafter
|
|
|
12,839
|
|
|
|
12,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,969
|
|
|
$
|
51,648
|
|
|
$
|
321
|
|
|
|
|
|
|
|
|
|
|
|
Certain of the leases are renewable for additional periods with similar rent payments. In addition
to the above, the Company has guaranteed rent payments through March 2012 totaling $0.6 million for
office space that continues to be leased by Clipper Exxpress Company, an intermodal transportation
subsidiary that was sold in June 2006. Future minimum rentals to be received under noncancelable
subleases totaled approximately $0.1 million at December 31, 2009.
Commitments to purchase revenue equipment, property and other equipment, which are cancelable by
the Company if certain conditions are met, were approximately $26.9 million at December 31, 2009.
58
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
In 2009, the Company entered into agreements with four financial institutions to provide
collateralized facilities for the issuance of letters of credit (LC Agreements). The Company
issues letters of credit primarily in support of workers compensation and third-party casualty
claims liabilities in various states in which the Company is self-insured. The Company has up to
$90.0 million of availability for the issuance of letters of credit under the LC Agreements of
which $75.0 million is committed subject to the Companys compliance with the requirements of
issuance. The LC Agreements require cash or short-term investments to be pledged as collateral for
outstanding letters of credit. As of December 31, 2009, the Company had $48.9 million outstanding
in letters of credit under the LC Agreements of which $48.5 million were collateralized by
restricted cash equivalents and short-term investments (see Note C).
NOTE G LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of capital lease obligations as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
Capitalized lease obligations
|
|
$
|
16,976
|
|
|
$
|
1,616
|
|
Less current portion
|
|
|
3,603
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
$
|
13,373
|
|
|
$
|
1,457
|
|
|
|
|
|
|
|
|
In December 2009, ABF entered into capital lease agreements to finance $15.0 million of revenue
equipment. These capital lease agreements specify the monthly base rent and interest rates over the
36-month terms. The arrangements contain a rental adjustment clause for which the maximum amount
has been included in the final payment of the future minimum payments under the capital leases in
the table below.
The Company also has other capitalized lease obligations related to real estate and certain
computer equipment. The future minimum payments under capitalized leases at December 31, 2009,
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
Equipment
|
|
|
|
Total
|
|
|
Equipment
|
|
|
Terminals
|
|
|
and Other
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
4,205
|
|
|
$
|
3,878
|
|
|
$
|
168
|
|
|
$
|
159
|
|
2011
|
|
|
4,202
|
|
|
|
3,878
|
|
|
|
182
|
|
|
|
142
|
|
2012
|
|
|
4,207
|
|
|
|
3,879
|
|
|
|
186
|
|
|
|
142
|
|
2013
|
|
|
4,761
|
|
|
|
4,487
|
|
|
|
193
|
|
|
|
81
|
|
2014
|
|
|
250
|
|
|
|
|
|
|
|
199
|
|
|
|
51
|
|
Thereafter
|
|
|
1,105
|
|
|
|
|
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
18,730
|
|
|
|
16,122
|
|
|
|
2,033
|
|
|
|
575
|
|
Less amounts representing interest
|
|
|
1,754
|
|
|
|
1,164
|
|
|
|
520
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum
leases included in long-term debt
|
|
$
|
16,976
|
|
|
$
|
14,958
|
|
|
$
|
1,513
|
|
|
$
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held under capitalized leases at December 31 are included in property, plant and equipment as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
Land and structures (terminals)
|
|
$
|
1,780
|
|
|
$
|
1,529
|
|
Revenue equipment
|
|
|
14,958
|
|
|
|
|
|
Service, office and other equipment
|
|
|
622
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
17,360
|
|
|
|
1,680
|
|
Less accumulated amortization
|
|
|
538
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
$
|
16,822
|
|
|
$
|
1,390
|
|
|
|
|
|
|
|
|
59
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The Companys capital lease obligations have a weighted-average interest rate of 4.25% at December
31, 2009. The Company paid interest of $0.5 million in 2009, $0.5 million in 2008, and $0.6
million in 2007, net of capitalized interest which totaled $0.1 million, $0.1 million and $0.2
million for the years ended December 31, 2009, 2008 and 2007, respectively. Amortization of assets
under capital leases is included in depreciation expense.
On December 30, 2009, the Company entered into a two-year, asset-backed securitization program with
SunTrust Bank, which provides for cash proceeds of an amount up to $75.0 million. Under this
agreement, ABF continuously sells a designated pool of trade accounts receivables to a wholly owned
subsidiary, which in turn may borrow funds on a revolving basis. This wholly-owned consolidated
subsidiary is a separate bankruptcy-remote entity and its assets would be available only to satisfy
the claims related to the interest in the trade accounts receivables. The Company also pays annual
fees equal to 0.75% of the unused portion of the accounts receivable facility. This agreement
contains representations and warranties, affirmative and negative covenants and events of default
that are customary for financings of this type, including maintaining consolidated tangible net
worth, as defined, of $375.0 million. As of December 31, 2009, the Company was in compliance with
the covenants. As of December 31, 2009, there were no borrowings under this facility, and the
borrowing capacity was $74.0 million.
In December 2009, the Company terminated its $325.0 million Second Amended and Restated Credit
Agreement (the Credit Agreement) dated May 4, 2007. There were no borrowings outstanding under
the Credit Agreement on the date of termination. Deferred financing costs of $1.0 million were
expensed in the fourth quarter of 2009 in conjunction with the termination of the Credit Agreement.
As of December 31, 2008, there were no outstanding revolver advances and $50.9 million of
outstanding letters of credit issued under the facility.
NOTE H ACCRUED EXPENSES
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
$
|
11,911
|
|
|
$
|
11,630
|
|
Accrued vacation pay
|
|
|
39,168
|
|
|
|
40,115
|
|
Taxes other than income
|
|
|
7,388
|
|
|
|
6,960
|
|
Loss, injury, damage and workers compensation claims reserves
|
|
|
78,224
|
|
|
|
80,539
|
|
Current portion of supplemental pension benefits
|
|
|
7,753
|
|
|
|
|
|
Other
|
|
|
6,355
|
|
|
|
8,296
|
|
|
|
|
|
|
|
|
|
|
$
|
150,799
|
|
|
$
|
147,540
|
|
|
|
|
|
|
|
|
NOTE I EMPLOYEE BENEFIT PLANS
Nonunion Defined Benefit Pension, Supplemental Pension and Postretirement Health Plans
The Company has a noncontributory defined benefit pension plan covering substantially all
noncontractual employees hired before January 1, 2006. Noncontractual employees hired after 2005
participate in a defined contribution plan (see Defined Contribution Plans within this note).
Benefits under the defined benefit pension plan are generally based on years of service and
employee compensation. The Companys contributions to the defined benefit pension plan are based
upon the minimum funding levels required under provisions of the Employee Retirement Income
Security Act of 1974 and the Pension Protection Act of 2006 (the PPA), with the maximum
contributions not to exceed deductible limits under the U.S. Internal Revenue Code (IRC).
The Company also has an unfunded supplemental benefit plan (SBP) for the purpose of supplementing
benefits under the Companys defined benefit pension plan. Under the SBP, the Company will pay sums
in addition to amounts payable under the defined benefit plan to eligible participants.
Participation in the SBP is limited to employees of the Company who are participants in the
Companys defined benefit plan and who are designated as participants in the SBP by the Companys
Board of Directors. The SBP provides for a lump-sum payment following termination made in
accordance with the six month delay provision for key employees as required by section 409A of the
IRC. The Compensation Committee of the Companys
Board of Directors (Compensation Committee) elected to close the SBP to new entrants and to place
a cap on
60
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
the maximum payment per participant to existing participants in the SBP effective January
1, 2006. In place of the SBP, eligible officers of the Company appointed after 2005 participate in
a long-term cash incentive plan (see Long-Term Cash Incentive Plan within this note).
Effective December 31, 2009, the Compensation Committee elected to freeze the accrual of benefits
for remaining participants under the SBP, resulting in a plan curtailment. The Compensation
Committee provided the SBP participants an option to freeze their SBP benefits without early
retirement penalties and continue participation in the deferred salary agreement program (see
Deferred Compensation Plans within this note) or to freeze their benefits in both the SBP and
deferred salary agreement program and begin participation in the Companys long-term cash incentive
plan. With the exception of early retirement penalties that may apply in certain cases, the
valuation inputs for calculating the frozen SBP benefits to be paid to participants, including
final average salary and the interest rate, were established at December 31, 2009. The curtailment
decreased the projected benefit obligation resulting in a curtailment gain of $0.1 million, which
was netted with the unrecognized actuarial loss at December 31, 2009, to be amortized over the
remaining service period of the SBP participants.
The Company also sponsors an insured postretirement health benefit plan that provides supplemental
medical benefits, dental benefits, accident insurance and vision care primarily to certain officers
of the Company and certain subsidiaries. The plan is generally noncontributory with the Company
paying the premiums.
The following table discloses the changes in benefit obligations and plan assets of the Companys
nonunion benefit plans for years ended December 31, the measurement date of the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined
|
|
|
Supplemental
|
|
|
Postretirement
|
|
|
|
Benefit Pension Plan
|
|
|
Benefit Pension Plan
|
|
|
Health Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at beginning of year
|
|
$
|
201,985
|
|
|
$
|
196,253
|
|
|
$
|
19,084
|
|
|
$
|
24,181
|
|
|
$
|
19,889
|
|
|
$
|
19,467
|
|
Service cost
|
|
|
9,082
|
|
|
|
9,178
|
|
|
|
572
|
|
|
|
581
|
|
|
|
170
|
|
|
|
173
|
|
Interest cost
|
|
|
12,361
|
|
|
|
11,733
|
|
|
|
982
|
|
|
|
1,070
|
|
|
|
1,110
|
|
|
|
1,168
|
|
Actuarial loss (gain) and other
|
|
|
16,717
|
|
|
|
2,652
|
|
|
|
3,677
|
|
|
|
(530
|
)
|
|
|
(6,899
|
)
|
|
|
(106
|
)
|
Benefits paid
|
|
|
(21,716
|
)
|
|
|
(17,831
|
)
|
|
|
(7,772
|
)
|
|
|
(6,218
|
)
|
|
|
(810
|
)
|
|
|
(813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at end of year
|
|
|
218,429
|
|
|
|
201,985
|
|
|
|
16,543
|
|
|
|
19,084
|
|
|
|
13,460
|
|
|
|
19,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
150,576
|
|
|
|
184,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return (loss) on plan assets and other
|
|
|
28,274
|
|
|
|
(41,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
15,500
|
|
|
|
25,000
|
|
|
|
7,772
|
|
|
|
6,218
|
|
|
|
810
|
|
|
|
813
|
|
Benefits paid
|
|
|
(21,716
|
)
|
|
|
(17,831
|
)
|
|
|
(7,772
|
)
|
|
|
(6,218
|
)
|
|
|
(810
|
)
|
|
|
(813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
172,634
|
|
|
|
150,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(45,795
|
)
|
|
$
|
(51,409
|
)
|
|
$
|
(16,543
|
)
|
|
$
|
(19,084
|
)
|
|
$
|
(13,460
|
)
|
|
$
|
(19,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
193,700
|
|
|
$
|
181,199
|
|
|
$
|
16,543
|
|
|
$
|
16,341
|
|
|
$
|
13,460
|
|
|
$
|
19,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets at December 31 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined
|
|
|
Supplemental
|
|
|
Postretirement
|
|
|
|
Benefit Pension Plan
|
|
|
Benefit Pension Plan
|
|
|
Health Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
Current liabilities (included in accrued expenses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7,753
|
)
|
|
$
|
|
|
|
$
|
(600
|
)
|
|
$
|
(910
|
)
|
Noncurrent liabilities (included in pension and
postretirement liabilities)
|
|
|
(45,795
|
)
|
|
|
(51,409
|
)
|
|
|
(8,790
|
)
|
|
|
(19,084
|
)
|
|
|
(12,860
|
)
|
|
|
(18,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities recognized
|
|
$
|
(45,795
|
)
|
|
$
|
(51,409
|
)
|
|
$
|
(16,543
|
)
|
|
$
|
(19,084
|
)
|
|
$
|
(13,460
|
)
|
|
$
|
(19,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The following is a summary of the components of net periodic benefit cost for the Companys
nonunion benefit plans for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined
|
|
|
Supplemental
|
|
|
Postretirement
|
|
|
|
Benefit Pension Plan
|
|
|
Benefit Pension Plan
|
|
|
Health Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net
periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
9,082
|
|
|
$
|
9,178
|
|
|
$
|
9,995
|
|
|
$
|
572
|
|
|
$
|
581
|
|
|
$
|
796
|
|
|
$
|
170
|
|
|
$
|
173
|
|
|
$
|
185
|
|
Interest cost
|
|
|
12,361
|
|
|
|
11,733
|
|
|
|
11,030
|
|
|
|
982
|
|
|
|
1,070
|
|
|
|
1,256
|
|
|
|
1,110
|
|
|
|
1,168
|
|
|
|
1,140
|
|
Expected return
on plan assets
|
|
|
(9,434
|
)
|
|
|
(13,718
|
)
|
|
|
(14,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition (asset)
obligation
recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
(116
|
)
|
|
|
135
|
|
|
|
135
|
|
|
|
135
|
|
Amortization of
prior service
(credit) cost
|
|
|
(897
|
)
|
|
|
(897
|
)
|
|
|
(897
|
)
|
|
|
1,396
|
|
|
|
1,560
|
|
|
|
1,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension settlement
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,588
|
|
|
|
1,540
|
|
|
|
1,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized net
actuarial loss
(1)
|
|
|
9,440
|
|
|
|
3,274
|
|
|
|
4,153
|
|
|
|
607
|
|
|
|
723
|
|
|
|
1,408
|
|
|
|
568
|
|
|
|
657
|
|
|
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic
benefit cost
|
|
$
|
20,552
|
|
|
$
|
9,570
|
|
|
$
|
10,237
|
|
|
$
|
8,145
|
|
|
$
|
5,417
|
|
|
$
|
6,569
|
|
|
$
|
1,983
|
|
|
$
|
2,133
|
|
|
$
|
2,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Company amortizes actuarial losses over the average remaining active service period of
the plan participants and does not use a corridor approach.
|
The following is a summary of the cash distributions and pension settlement expense related to the
SBP for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
$
|
7,772
|
|
|
$
|
6,218
|
|
|
$
|
5,255
|
|
Pension settlement expense, pre-tax
|
|
$
|
4,588
|
|
|
$
|
1,540
|
|
|
$
|
1,665
|
|
Pension settlement expense per diluted share, net of taxes
|
|
$
|
0.11
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
Based on available information, the Company anticipates making distributions of $7.8 million from
the SBP in 2010 related to officer retirements that occurred in 2009. These distribution amounts
were fixed at the retirement date, but IRC Section 409A requires that distributions to certain key
employees be delayed for six months after retirement. The pension settlement expense related to
these distributions was recognized in 2009 and is included in the table above.
Included in accumulated other comprehensive loss at December 31 are the following pre-tax amounts
that have not yet been recognized in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined
|
|
|
Supplemental
|
|
|
Postretirement
|
|
|
|
Benefit Pension Plan
|
|
|
Benefit Pension Plan
|
|
|
Health Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial (gain) loss
|
|
$
|
70,236
|
|
|
$
|
81,798
|
|
|
$
|
2,810
|
|
|
$
|
4,329
|
|
|
$
|
(1,522
|
)
|
|
$
|
5,945
|
|
Unrecognized prior service (credit) cost
|
|
|
(7
|
)
|
|
|
(903
|
)
|
|
|
|
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
Unrecognized net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
70,229
|
|
|
$
|
80,895
|
|
|
$
|
2,810
|
|
|
$
|
5,725
|
|
|
$
|
(1,125
|
)
|
|
$
|
6,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The following amounts, which are included in accumulated other comprehensive loss, are expected to
be recognized as components of net periodic benefit cost in 2010 on a pre-tax basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined
|
|
|
Supplemental
|
|
|
Postretirement
|
|
|
|
Benefit Pension Plan
|
|
|
Benefit Pension Plan
|
|
|
Health Benefit Plan
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial (gain) loss
|
|
$
|
7,721
|
|
|
$
|
235
|
|
|
$
|
(148
|
)
|
Unrecognized prior service credit
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
Unrecognized net transition obligation
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,714
|
|
|
$
|
235
|
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine nonunion benefit obligations at December 31 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined
|
|
|
Supplemental
|
|
|
Postretirement
|
|
|
|
Benefit Pension Plan
|
|
|
Benefit Pension Plan
|
|
|
Health Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
(1)
|
|
|
5.3
|
%
|
|
|
6.3
|
%
|
|
|
4.8
|
%
|
|
|
6.1
|
%
|
|
|
5.9
|
%
|
|
|
6.1
|
%
|
Rate of compensation increase
(2)
|
|
|
3.2
|
%
|
|
|
3.3
|
%
|
|
|
N/A
|
|
|
|
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1)
|
|
The discount rate was determined at December 31, 2009 and 2008, respectively.
|
|
(2)
|
|
The compensation assumption is not applicable to the SBP as of December 31, 2009 due to
benefits being frozen.
|
Weighted-average assumptions used to determine net periodic benefit cost for the Companys nonunion
benefit plans for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined
|
|
|
Supplemental
|
|
|
Postretirement
|
|
|
|
Benefit Pension Plan
|
|
|
Benefit Pension Plan
|
|
|
Health Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
(1)
|
|
|
6.3
|
%
|
|
|
6.1
|
%
|
|
|
5.8
|
%
|
|
|
6.1
|
%
|
|
|
5.8
|
%
|
|
|
5.5
|
%
|
|
|
6.1
|
%
|
|
|
6.5
|
%
|
|
|
5.8
|
%
|
Expected return on plan assets
|
|
|
6.0
|
%
|
|
|
7.6
|
%
|
|
|
7.9
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
3.3
|
%
|
|
|
3.3
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1)
|
|
The discount rate was determined at December 31, 2008, 2007 and 2006, respectively, for the years 2009, 2008 and 2007.
|
The assumed health care cost trend rates for the Companys postretirement health benefit plan at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
(1)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Health care cost trend rate assumed for next year
|
|
|
7.2
|
%
|
|
|
9.0
|
%
|
Rate to which the cost trend rate is assumed to decline
|
|
|
5.6
|
%
|
|
|
5.5
|
%
|
Year that the rate reaches the cost trend assumed rate
|
|
|
2018
|
|
|
|
2017
|
|
|
|
|
(1)
|
|
For December 31, 2009, the number of years to the ultimate trend rate was extended beyond the
actuarial assumptions used in prior years. The table above provides comparable information
with December 31, 2008. At December 31, 2009, the health care cost trend rate is assumed to
decline to an ultimate trend rate of 4.0% in 2085.
|
63
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The health care cost trend rates have a significant effect on the amounts reported for health care
plans. A one-percentage-point change in assumed health care cost trend rates would have the
following effects on the Companys postretirement health benefit plan for the year ended December
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
One Percentage Point
|
|
|
|
Increase
|
|
|
Decrease
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
Effect on total of service and interest cost components
|
|
$
|
200
|
|
|
$
|
(163
|
)
|
Effect on postretirement benefit obligation
|
|
$
|
2,033
|
|
|
$
|
(1,554
|
)
|
The Company establishes the expected long-term rate of return on defined benefit pension plan
assets by considering the historical returns for the current mix of investments. In addition,
consideration is given to the range of expected returns for the pension plan investment mix
provided by the plans investment advisors. This approach is intended to establish a long-term,
nonvolatile rate. The Companys long-term expected rate of return utilized in determining its 2010
defined benefit pension plan expense is expected to be 7.5%.
The weighted-average asset allocation of the Companys defined benefit pension plan at December 31
is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
Large Cap U.S. Equity
|
|
|
36.5
|
%
|
|
|
28.4
|
%
|
Small Cap U.S. Equity
|
|
|
16.0
|
|
|
|
12.1
|
|
International Equity
|
|
|
10.3
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
36.0
|
|
|
|
39.0
|
|
Cash Equivalents
|
|
|
1.2
|
|
|
|
12.9
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
The investment strategy for the Companys defined benefit pension plan is to maximize the long-term
return on plan assets subject to an acceptable level of investment risk, liquidity risk and
long-term funding risk utilizing target asset allocations for investments. The plans long-term
asset allocation policy is intended to achieve a reasonable return, protect or improve the
purchasing power of plan assets and provide adequate diversification to limit the possibility of
experiencing a substantial loss over a one-year period.
At December 31, 2009, the target allocations and acceptable ranges were as follows:
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
Acceptable
|
|
|
|
Allocation
|
|
|
Range
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
Large Cap U.S. Equity
|
|
|
35.0
|
%
|
|
|
30.0% 40.0%
|
|
Small Cap U.S. Equity
|
|
|
15.0
|
%
|
|
|
11.0% 19.0%
|
|
International Equity
|
|
|
10.0
|
%
|
|
|
8.0% 12.0%
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
40.0
|
%
|
|
|
35.0% 45.0%
|
|
Cash Equivalents
|
|
|
0.0
|
%
|
|
|
0.0% 5.0%
|
|
Investment balances and results are reviewed quarterly. Although investment allocations which fall
outside the acceptable range at the end of any quarter are usually rebalanced based on the target
allocation, the Company has the discretion to maintain cash or other short-term investments during
periods of market volatility. Investment performance is generally compared to the three-to-five
year performance of recognized market indices.
Certain types of investments and transactions are prohibited or restricted by the Companys written
investment policy, including, but not limited to, borrowing of money; purchase of securities on
margin; short sales; purchase or sale of futures; options or derivatives for speculation or
leverage; private placements; purchase or sale of commodities; or illiquid interests in real estate
or mortgages. Index funds are primarily used for investments in equity and, historically, for fixed
income securities. During 2009, the Company invested a portion of the fixed income assets into an
actively managed short-term fixed income portfolio. The objectives of this portfolio are to
preserve principal and maintain an investment maturity
64
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
structure that matches scheduled cash flows
of benefit payments. In addition to the requirements of the investment policy, certain investment
restrictions apply to the actively managed portfolio, including: minimum acceptable credit quality
of securities; maximum average maturity of investments of 2.5 years; maximum maturity of
investments of 5 years; and, at the time of purchase, no single issue or issuer other than U.S.
government securities representing more than 5% of portfolio investments and no more than 20% of
the portfolio invested in BBB rated debt or collectively in mortgage-backed securities and
asset-backed securities.
The fair value of the Companys defined benefit pension plan assets at December 31, 2009, by major
asset category and fair value hierarchy level (see Note C), were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
|
In Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
(1)
|
|
$
|
2,123
|
|
|
$
|
2,123
|
|
|
$
|
|
|
|
$
|
|
|
Fixed income securities
(2)
|
|
|
62,118
|
|
|
|
28,295
|
|
|
|
33,823
|
|
|
|
|
|
Large cap U.S. equity
|
|
|
63,013
|
|
|
|
63,013
|
|
|
|
|
|
|
|
|
|
Small cap U.S. equity
|
|
|
27,579
|
|
|
|
27,579
|
|
|
|
|
|
|
|
|
|
International equity
|
|
|
17,801
|
|
|
|
17,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
172,634
|
|
|
$
|
138,811
|
|
|
$
|
33,823
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of cash deposit and money market mutual funds.
|
|
(2)
|
|
Level 1 investments consist of a bond mutual fund. Level 2 investments include corporate debt
securities (82%), mortgage- or asset-backed securities (9%) and other fixed income securities
(9%), primarily commercial paper. The fair value measurements of Level 2 investments are
provided by a pricing service which uses the market approach with inputs derived from
observable market data.
|
Based upon current information, the Company does not expect to have cash outlays for required
minimum contributions, but could make tax-deductible contributions, to its defined benefit pension
plan in 2010.
Estimated future benefit payments from the Companys defined benefit pension, SBP and
postretirement health benefit plans, which reflect expected future service, as appropriate, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined
|
|
|
Supplemental
|
|
|
Postretirement
|
|
|
|
Benefit Pension Plan
|
|
|
Benefit Pension Plan
|
|
|
Health Benefit Plan
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
20,666
|
|
|
$
|
7,753
|
|
|
$
|
597
|
|
2011
|
|
|
20,826
|
|
|
|
|
|
|
|
651
|
|
2012
|
|
|
19,738
|
|
|
|
3,651
|
|
|
|
701
|
|
2013
|
|
|
18,440
|
|
|
|
|
|
|
|
737
|
|
2014
|
|
|
17,341
|
|
|
|
|
|
|
|
734
|
|
2015-2019
|
|
|
79,263
|
|
|
|
7,135
|
|
|
|
4,293
|
|
Deferred Compensation Plans
The Company has deferred salary agreements with certain executives for which liabilities of $7.2
million and $6.4 million as of December 31, 2009 and 2008, respectively, have been recorded. The
deferred salary agreements include a provision that
immediately vests all benefits and provides for a lump-sum payment upon a change in control of the
Company. The Compensation Committee elected to close the deferred salary agreement program to new
entrants effective January 1, 2006. In place of the deferred salary agreement program, officers
appointed after 2005 participate in the Long-Term Cash Incentive Plan (see Long-Term Cash Incentive
Plan within this note). In conjunction with the SBP curtailment effective December 31, 2009 (see
Nonunion Defined Benefit Pension, Supplemental Pension and Postretirement Health Plans within this
note), two participants elected to freeze their benefits in the deferred salary agreement program
and begin participation in the Companys long-term cash incentive plan.
65
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
An additional benefit plan provides certain death and retirement benefits for certain officers and
directors of an acquired company and its former subsidiaries. The Company has recorded liabilities
of $1.3 million and $1.4 million at December 31, 2009 and 2008, respectively, for future costs
under this plan.
The Company maintains a Voluntary Savings Plan, a nonqualified deferred compensation program for
the benefit of certain executives of the Company and certain subsidiaries. Eligible employees may
defer receipt of a portion of their regular compensation, incentive compensation and other bonuses
into the Voluntary Savings Plan by making an election before the compensation is payable. The
Company credits participants accounts with applicable matching contributions and rates of return
based on a portfolio selected by the participants from the investments available in the plan. All
deferrals, Company match and investment earnings are considered part of the general assets of the
Company until paid. Accordingly, the consolidated balance sheets reflect the aggregate participant
balances as both an asset and a liability of the Company. As of December 31, 2009 and 2008, $6.3
million and $7.4 million, respectively, are included in other assets with a corresponding amount
recorded in other liabilities. The Company match related to the Voluntary Savings Plan was
suspended beginning January 1, 2010.
Defined Contribution Plans
The Company and its subsidiaries have various defined contribution 401(k) plans that cover
substantially all of its employees. The plans permit participants to defer a portion of their
salary up to a maximum of 75% as provided in Section 401(k) of the IRC. The Company has
historically matched 50% of nonunion participant contributions up to the first 6% of annual
compensation for certain participating subsidiaries. The plans also allow for discretionary Company
contributions determined annually. The Companys matching expense for the 401(k) plans totaled $3.7
million for 2009, $4.2 million for 2008, and $4.4 million for 2007. The Company match was suspended
beginning January 1, 2010.
In place of the Companys defined benefit pension plan, all nonunion employees hired subsequent to
December 31, 2005, participate in a defined contribution plan into which the Company may make
discretionary contributions. Participants will be fully vested in the contributions made to their
account after three years of service. All employees who were participants in the defined benefit
pension plan on December 31, 2005, will continue in that plan. The Company suspended the
discretionary match on the defined contribution plan for 2009. In 2008 and 2007, the Company
recognized expense of $1.1 million and $0.8 million, respectively, related to its contributions to
this plan.
Long-Term Cash Incentive Plan
Pursuant to stockholder approval of the 2005 Ownership Incentive Plan, the Compensation Committee
created a performance-based Long-Term Cash Incentive Plan (the C-LTIP) effective in
January 2006. Participants in the C-LTIP are officers of the Company or its subsidiaries who are
not participants in the Companys SBP or deferred salary agreement program. The C-LTIP incentive,
which is generally earned over three years, is based 60% on return on capital employed and 40% on
the Company achieving specified levels of profitability or earnings per share growth, as defined
in the C-LTIP. Incentive targets of $0.3 million, earned for the three-year plan that ended
December 31, 2008, were paid in early 2009. Minimum levels of return on capital employed and
growth were not achieved in 2009 and, as a result, no expense for estimated future distributions
under the C-LTIP was accrued as of December 31, 2009.
Other Plans
Other long-term assets include $36.7 million and $36.4 million at December 31, 2009 and 2008,
respectively, in cash surrender value of life insurance policies. These policies are intended to
provide funding for long-term nonunion benefit arrangements such as the Companys SBP and certain
deferred compensation plans. A portion of the Companys cash surrender value of
variable life insurance policies have investments, through separate accounts, in equity and fixed
income securities and are, therefore, subject to market volatility. In 2009, the Company took a
loan of $2.0 million against the variable life policies which is netted against the related cash
surrender value and for which repayment is not required. The Company recognized a gain of $2.6
million, a loss of $3.6 million and a gain of $1.7 million in other expense during 2009, 2008 and
2007, respectively, associated with changes in the cash surrender value and proceeds from life
insurance policies.
66
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Multiemployer Plans
Under the provisions of the Taft-Hartley Act, retirement and health care benefits for ABFs
contractual employees are provided by a number of multiemployer plans. The trust funds for these
plans are administered by trustees, an equal number of whom generally are appointed by the IBT and
certain management carrier organizations or other appointing authorities for employer trustees, as
set forth in the funds trust agreements. ABF contributes to these plans monthly based generally
on the time worked by its contractual employees, as specified in the collective bargaining
agreement and other supporting supplemental agreements. ABF recognizes as expense the
contractually required contribution for the period and recognizes as a liability any contributions
due and unpaid. The Company intends to meet its obligations to the multiemployer plans under its
collective bargaining agreement with the IBT.
In 2006, the PPA became law and together with related regulations established new minimum funding
requirements for multiemployer pension plans. The PPA mandates that multiemployer pension plans
that are below certain funding levels or that have projected funding deficiencies adopt a funding
improvement plan or a rehabilitation program to improve the funding levels over a defined period of
time. The PPA also accelerates the timing of annual funding notices and requires additional
disclosures from multiemployer pension plans, if such plans fall below the required funding levels.
In December 2008, the Worker, Retiree, and Employer Recovery Act of 2008 (the Recovery Act)
became law. For plan years beginning October 1, 2008 through September 30, 2009, the Recovery Act
allows multiemployer plans the option to freeze their funding certification based on the funding
status of the previous plan year. In addition, the Recovery Act provides multiemployer plans in
endangered or critical status in plan years beginning in 2008 or 2009 a three-year extension of the
plans funding improvement or rehabilitation period.
ABF currently contributes to 26 multiemployer pension plans, which vary in size and in funding
status. In the event of the termination of a multiemployer pension plan or if ABF were to withdraw
from a multiemployer pension plan, under current law, ABF would have material liabilities for its
share of the unfunded vested liabilities of each such plan. ABF has not received notification of
any plan termination, and ABF does not currently intend to withdraw from these plans. Therefore,
the Company believes the occurrence of events that would require recognition of liabilities for
its share of unfunded vested benefits is remote.
Approximately 50% of ABFs contributions are made to the Central States Southeast and Southwest
Area Pension Fund (the Central States Pension Fund). The Central States Pension Fund adopted a
rehabilitation plan as a result of its actuarial certification for the plan year beginning January
1, 2008 which placed the Central States Pension Fund in critical status in accordance with the
PPA. ABFs current collective bargaining agreement complies with the rehabilitation plan which was
adopted by the Central States Pension Fund prior to the April 1, 2008 effective date of the
collective bargaining agreement. The actuarial certification for the plan year beginning January 1,
2009 certified that the Central States Pension Fund remains in critical status with a funded
percentage of 58%.
In 2005, the IRS extended the period over which the Central States Pension Fund amortizes unfunded
liabilities by ten years subject to the condition that a targeted funding ratio will be maintained
by the fund. Due, in part, to the decline in asset values associated with the returns in the
financial markets during 2008, the funding level of the Central States Pension Fund as of the
January 1, 2009 actuarial valuation dropped below the targeted funding ratio set forth as a
condition of the ten-year amortization extension. However, the amortization extension approved by
the IRS in 2005 expressly indicated that modifications of conditions would be considered in the
event of unforeseen market fluctuations which cause the plan to fail the funded ratio condition for
a certain plan year. Based on information currently available to the Company, the Central States
Pension Fund has not received notice of revocation of the ten-year amortization extension by the
IRS. In the unlikely event the IRS were to revoke the extension, revocation would apply
retroactively to the 2004 plan year, which would result in a material liability for ABFs share of
the resulting funding deficiency, the extent of which is currently unknown to the Company. The
Company believes that the occurrence of events that would require recognition of liabilities for
ABFs share of a funding deficiency is remote.
Other multiemployer pension plans in which ABF participates have adopted or will have to adopt
either a funding improvement plan or a rehabilitation program, depending on their current funding
status as required by the PPA. The Company believes that the contribution rates under ABFs
collective bargaining agreement will comply with any rehabilitation plan that has been or may be
adopted by the majority of the multiemployer pension plans in which ABF participates. If the
contribution rates in the collective bargaining agreement fail to meet the requirements established
by the rehabilitation or
funding improvement plan required by the PPA for underfunded plans, the PPA would impose additional
67
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
contribution requirements on ABF in the form of a surcharge of an additional 5% to 10%. However,
under the current collective bargaining agreement, which extends through March 31, 2013, any
surcharges that may be required by the PPA are covered by the contractual contribution rate and
should not increase ABFs overall contribution obligation.
Health, welfare and pension benefit costs under the Companys collective bargaining agreement
increased 7.5% and 8.1% effective August 1, 2009 and August 1, 2008, respectively. ABFs aggregate
contributions to the multiemployer health, welfare and pension plans for the years ended December
31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and welfare
|
|
$
|
99,282
|
|
|
$
|
108,792
|
|
|
$
|
108,132
|
|
Pension
|
|
|
107,585
|
|
|
|
111,064
|
|
|
|
109,959
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions to multiemployer plans
|
|
$
|
206,867
|
|
|
$
|
219,856
|
|
|
$
|
218,091
|
|
|
|
|
|
|
|
|
|
|
|
NOTE J STOCKHOLDERS EQUITY
Common Stock:
The following table is a summary of dividends declared during the applicable quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Per Share
|
|
|
Amount
|
|
|
Per Share
|
|
|
Amount
|
|
|
Per Share
|
|
|
Amount
|
|
|
|
($ thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
0.15
|
|
|
$
|
3,847
|
|
|
$
|
0.15
|
|
|
$
|
3,803
|
|
|
$
|
0.15
|
|
|
$
|
3,780
|
|
Second quarter
|
|
$
|
0.15
|
|
|
$
|
3,893
|
|
|
$
|
0.15
|
|
|
$
|
3,846
|
|
|
$
|
0.15
|
|
|
$
|
3,790
|
|
Third quarter
|
|
$
|
0.15
|
|
|
$
|
3,892
|
|
|
$
|
0.15
|
|
|
$
|
3,848
|
|
|
$
|
0.15
|
|
|
$
|
3,790
|
|
Fourth quarter
|
|
$
|
0.15
|
|
|
$
|
3,891
|
|
|
$
|
0.15
|
|
|
$
|
3,847
|
|
|
$
|
0.15
|
|
|
$
|
3,805
|
|
Stockholders Rights Plan:
Under the Companys stockholders rights plan, each issued and
outstanding share of Common Stock has associated with it one Common Stock right to purchase a share
of Common Stock from the Company at an exercise price of $80 per right. The rights are not
currently exercisable, but could become exercisable if certain events occur, including the
acquisition of 15% or more of the outstanding Common Stock of the Company. Under certain
conditions, the rights will entitle holders, other than an acquirer in a nonpermitted transaction,
to purchase shares of Common Stock with a market value of two times the exercise price of the
right. The rights will expire in 2011 unless extended. On May 18, 2007, the Company amended its
stockholders rights plan to permit a named stockholder to beneficially own up to 17.999% of the
Companys Common Stock without causing the rights to become exercisable.
Treasury Stock:
The Company has a program to repurchase its Common Stock in the open market or in
privately negotiated transactions. In 2003, the Companys Board of Directors authorized stock
repurchases of up to $25.0 million and in 2005, an additional $50.0 million was authorized for a
total of $75.0 million. As of December 31, 2009, the Company has purchased 1,618,150 shares for an
aggregate cost of $56.8 million, leaving $18.2 million available for repurchase under the current
buyback program. The program has no expiration date but may be terminated at any time at the Board
of Directors discretion. Repurchases may be made using the Companys cash reserves or other
available sources.
Stock Awards:
As of December 31, 2009, the Company had outstanding stock options granted under the
1992 Stock Option Plan, the 2000 Non-Qualified Stock Option Plan and the 2002 Stock Option Plan and
outstanding restricted stock and restricted stock units granted under the 2005 Ownership Incentive
Plan (the 2005 Plan). The 1992 Stock Option Plan expired on December 31, 2001. The 2005 Plan
superseded the Companys 2000 Non-Qualified Stock Option Plan and 2002 Stock Option Plan with
respect to future awards and provides for the granting of 1.5 million shares, which may be awarded
as incentive and nonqualified stock options, Stock Appreciation Rights (SARs), restricted stock
or restricted stock units. Any outstanding stock options under the 1992, 2000 or 2002 stock option
plans which are forfeited or otherwise unexercised will be included in the shares available for
grant under the 2005 Plan. As of December 31, 2009, the Company had not elected to treat any
exercised options as employer SARs and no employee SARs had been granted. No stock options have
been granted since 2004.
68
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Restricted Stock
A summary of the Companys restricted stock program, which consists of restricted stock and
restricted stock units awarded under the 2005 Plan, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares/Units
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2009
|
|
|
627,522
|
|
|
$
|
38.03
|
|
Granted
|
|
|
306,730
|
|
|
|
22.55
|
|
Vested
|
|
|
(38,503
|
)
|
|
|
36.09
|
|
Forfeited
|
|
|
(57,445
|
)
|
|
|
32.61
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2009
|
|
|
838,304
|
|
|
$
|
32.80
|
|
|
|
|
|
|
|
|
The Compensation Committee granted restricted stock and restricted stock units under the 2005 Plan
during the years ended December 31, 2009, 2008 and 2007 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares/Units
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
306,730
|
|
|
$
|
22.55
|
|
2008
|
|
|
183,380
|
|
|
$
|
39.48
|
|
2007
|
|
|
191,520
|
|
|
$
|
38.98
|
|
The fair value of restricted stock that vested was $1.1 million in 2009, $1.0 million in 2008 and
$0.7 million in 2007.
Unrecognized compensation cost related to restricted stock awards outstanding as of December 31,
2009 was approximately $12.0 million, which is expected to be recognized over a weighted-average
period of three years.
Stock Options
A summary of the Companys stock option program is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Average
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Under Option
|
|
|
Exercise Price
|
|
|
Term
|
|
|
($000)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2009
|
|
|
576,364
|
|
|
$
|
26.02
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(23,182
|
)
|
|
|
21.65
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(13,325
|
)
|
|
|
28.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2009
(2)
|
|
|
539,857
|
|
|
$
|
26.16
|
|
|
|
2.5
|
|
|
$
|
1,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The intrinsic value for each option represents the excess, if any, of the market value of the
Companys Common Stock on December 31, 2009 over the exercise price of the option.
|
|
(2)
|
|
Options outstanding at December 31, 2009 are vested and available to be exercised.
|
The following table summarizes additional activity related to the Companys stock option program
for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of options exercised
|
|
$
|
143
|
|
|
$
|
2,596
|
|
|
$
|
2,217
|
|
Cash proceeds of options exercised
|
|
|
469
|
|
|
|
2,976
|
|
|
|
2,683
|
|
Tax benefit of options exercised
|
|
|
|
|
|
|
853
|
|
|
|
862
|
|
Compensation expense related to stock option awards was fully recognized as of December 31, 2008.
69
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Accumulated Other Comprehensive Loss
: Components of accumulated other comprehensive loss are as
follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
$
|
(639
|
)
|
|
$
|
(1,022
|
)
|
|
$
|
(422
|
)
|
Unrecognized net periodic benefit costs (see Note I)
|
|
|
(71,916
|
)
|
|
|
(93,097
|
)
|
|
|
(42,988
|
)
|
Increase in fair value of available for sale security (see Note C)
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(72,373
|
)
|
|
$
|
(94,119
|
)
|
|
$
|
(43,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
$
|
(391
|
)
|
|
$
|
(625
|
)
|
|
$
|
(257
|
)
|
Unrecognized net periodic benefit costs (see Note I)
|
|
|
(43,940
|
)
|
|
|
(56,882
|
)
|
|
|
(26,266
|
)
|
Increase in fair value of available for sale security (see Note C)
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(44,212
|
)
|
|
$
|
(57,507
|
)
|
|
$
|
(26,523
|
)
|
|
|
|
|
|
|
|
|
|
|
NOTE K EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Arkansas Best Corporation
|
|
$
|
(127,889
|
)
|
|
$
|
29,168
|
|
|
$
|
56,825
|
|
Effect of unvested restricted stock awards
|
|
|
(443
|
)
|
|
|
(661
|
)
|
|
|
(996
|
)
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss)
|
|
$
|
(128,332
|
)
|
|
$
|
28,507
|
|
|
$
|
55,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
|
|
|
25,052,303
|
|
|
|
24,976,412
|
|
|
|
24,822,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(5.12
|
)
|
|
$
|
1.14
|
|
|
$
|
2.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Arkansas Best Corporation
|
|
$
|
(127,889
|
)
|
|
$
|
29,168
|
|
|
$
|
56,825
|
|
Effect of unvested restricted stock awards
|
|
|
(443
|
)
|
|
|
(661
|
)
|
|
|
(996
|
)
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss)
|
|
$
|
(128,332
|
)
|
|
$
|
28,507
|
|
|
$
|
55,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
|
|
|
25,052,303
|
|
|
|
24,976,412
|
|
|
|
24,822,673
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
134,127
|
|
|
|
196,069
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares and assumed conversations
|
|
|
25,052,303
|
|
|
|
25,110,539
|
|
|
|
25,018,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(5.12
|
)
|
|
$
|
1.14
|
|
|
$
|
2.23
|
|
|
|
|
|
|
|
|
|
|
|
Effective January 1, 2009, the Company adopted new accounting guidance that requires an allocation
of dividends paid and a portion of undistributed net income, but not losses, to unvested restricted
stock and restricted stock units, which are considered participating securities for purposes of
calculating earnings per share. The application of this new guidance also required retrospective
adjustment of earnings per share for prior periods. Under the new guidelines, basic earnings per
share
decreased by $0.03 and $0.04 for the years ended December 31, 2008 and 2007, respectively, and
diluted earnings per share decreased by $0.01 and $0.03 for the years ended December 31, 2008 and
2007, respectively, compared to amounts presented in prior periods.
70
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended December 31, 2009, the outstanding stock awards disclosed in Note J are not
included in the diluted earnings per share calculations because their inclusion would have the
effect of reducing the loss per share. For the year ended December 31, 2008, outstanding stock
awards of 176,425 were not included in the diluted earnings per share calculations because their
inclusion would have the effect of increasing the earnings per share. For the year ended
December 31, 2007, all outstanding stock awards were included in the diluted earnings per share
calculation.
NOTE L OPERATING SEGMENT DATA
The Company uses the management approach to determine its reportable operating segments, as well
as to determine the basis of reporting the operating segment information. The management approach
focuses on financial information that the Companys management uses to make decisions about
operating matters. Management uses operating revenues, operating expense categories, operating
ratios, operating income and key operating statistics to evaluate performance and allocate
resources to the Companys operations.
ABF, which provides transportation of general commodities, represents the Companys only reportable
operating segment. ABF is headquartered in Fort Smith, Arkansas, and provides direct service to
over 98% of the cities in the United States having a population of 30,000 or more. The operations
of ABF include, in the aggregate, national, inter-regional and regional transportation of general
commodities through standard, expedited and guaranteed LTL services.
The Companys other business activities and operating segments that are not reportable include
FleetNet America, Inc., a third-party vehicle maintenance company; Arkansas Best Corporation, the
parent holding company; and other subsidiaries.
The Company eliminates intercompany transactions in consolidation. However, the information used by
the Companys management with respect to its reportable segments is before intersegment
eliminations of revenues and expenses. Intersegment revenues and expenses are not significant.
Further classifications of operations or revenues by geographic location are impractical and are,
therefore, not provided. The Companys foreign operations are not significant.
71
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The following table reflects reportable operating segment information for the Company for the years
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
ABF
|
|
$
|
1,384,419
|
|
|
$
|
1,758,780
|
|
|
$
|
1,770,749
|
|
Other revenues and eliminations
|
|
|
88,482
|
|
|
|
74,272
|
|
|
|
66,129
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
1,472,901
|
|
|
$
|
1,833,052
|
|
|
$
|
1,836,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES AND COSTS
|
|
|
|
|
|
|
|
|
|
|
|
|
ABF
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
$
|
970,523
|
|
|
$
|
1,048,779
|
|
|
$
|
1,070,708
|
|
Fuel, supplies and expenses
|
|
|
221,732
|
|
|
|
341,826
|
|
|
|
293,056
|
|
Operating taxes and licenses
|
|
|
42,314
|
|
|
|
47,088
|
|
|
|
47,682
|
|
Insurance
|
|
|
20,356
|
|
|
|
21,370
|
|
|
|
22,230
|
|
Communications and utilities
|
|
|
14,393
|
|
|
|
15,102
|
|
|
|
15,334
|
|
Depreciation and amortization
|
|
|
72,180
|
|
|
|
74,000
|
|
|
|
74,231
|
|
Rents and purchased transportation
|
|
|
136,826
|
|
|
|
158,943
|
|
|
|
160,062
|
|
Gain on sale of property and equipment
|
|
|
(1,412
|
)
|
|
|
(3,723
|
)
|
|
|
(4,347
|
)
|
Pension settlement expense
|
|
|
4,588
|
|
|
|
691
|
|
|
|
1,665
|
|
Other
|
|
|
7,426
|
|
|
|
6,269
|
|
|
|
5,607
|
|
Goodwill impairment charge
|
|
|
63,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,552,884
|
|
|
|
1,710,345
|
|
|
|
1,686,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other and eliminations
|
|
|
88,723
|
|
|
|
74,183
|
|
|
|
65,806
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses and costs
|
|
$
|
1,641,607
|
|
|
$
|
1,784,528
|
|
|
$
|
1,752,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
ABF
|
|
$
|
(168,465
|
)
|
|
$
|
48,435
|
|
|
$
|
84,521
|
|
Other and eliminations
|
|
|
(241
|
)
|
|
|
89
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168,706
|
)
|
|
|
48,524
|
|
|
|
84,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
2,853
|
|
|
|
5,937
|
|
|
|
5,671
|
|
Interest expense and other related financing costs
|
|
|
(2,389
|
)
|
|
|
(1,181
|
)
|
|
|
(1,189
|
)
|
Other, net
(1)
|
|
|
2,724
|
|
|
|
(3,370
|
)
|
|
|
1,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,188
|
|
|
|
1,386
|
|
|
|
5,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
$
|
(165,518
|
)
|
|
$
|
49,910
|
|
|
$
|
90,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Other, net includes gains (losses) on cash surrender value of life insurance policies.
|
72
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The following table provides asset, capital expenditure and depreciation and amortization
information by reportable operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
ABF
(1)
|
|
$
|
583,448
|
|
|
$
|
732,826
|
|
|
$
|
720,496
|
|
Other and eliminations
|
|
|
286,098
|
|
|
|
239,472
|
|
|
|
262,853
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$
|
869,546
|
|
|
$
|
972,298
|
|
|
$
|
983,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL EXPENDITURES, GROSS
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
ABF
|
|
$
|
47,048
|
|
|
$
|
57,674
|
|
|
$
|
96,702
|
|
Other equipment and information technology purchases
|
|
|
1,541
|
|
|
|
1,395
|
|
|
|
1,467
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated capital expenditures, gross
|
|
$
|
48,589
|
|
|
$
|
59,069
|
|
|
$
|
98,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEPRECIATION AND AMORTIZATION EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
ABF
|
|
$
|
72,180
|
|
|
$
|
74,000
|
|
|
$
|
74,231
|
|
Other
|
|
|
3,046
|
|
|
|
2,872
|
|
|
|
3,087
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated depreciation and amortization expense
|
|
$
|
75,226
|
|
|
$
|
76,872
|
|
|
$
|
77,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Decrease from 2008 to 2009 reflects impairment of goodwill in the amount of $64.0 million.
|
|
(2)
|
|
Includes assets acquired through capital leases.
|
NOTE M QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present unaudited quarterly financial information for 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
(1)
|
|
|
|
($ thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
339,677
|
|
|
$
|
362,635
|
|
|
$
|
398,957
|
|
|
$
|
371,631
|
|
Operating expenses and costs
|
|
|
368,278
|
|
|
|
389,932
|
|
|
|
411,194
|
|
|
|
472,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(28,601
|
)
|
|
|
(27,297
|
)
|
|
|
(12,237
|
)
|
|
|
(100,570
|
)
|
Other income (expense) net
|
|
|
(493
|
)
|
|
|
1,851
|
|
|
|
2,344
|
|
|
|
(515
|
)
|
Income tax provision (benefit)
|
|
|
(10,937
|
)
|
|
|
(10,082
|
)
|
|
|
(4,565
|
)
|
|
|
(12,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(18,157
|
)
|
|
|
(15,364
|
)
|
|
|
(5,328
|
)
|
|
|
(88,672
|
)
|
Less: noncontrolling interest in net income of subsidiary
|
|
|
|
|
|
|
79
|
|
|
|
245
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Arkansas Best Corporation
|
|
$
|
(18,157
|
)
|
|
$
|
(15,443
|
)
|
|
$
|
(5,573
|
)
|
|
$
|
(88,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.73
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(3.54
|
)
|
Diluted
|
|
|
(0.73
|
)
|
|
|
(0.62
|
)
|
|
|
(0.23
|
)
|
|
|
(3.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,038,626
|
|
|
|
25,043,815
|
|
|
|
25,047,975
|
|
|
|
25,054,389
|
|
Diluted
|
|
|
25,038,626
|
|
|
|
25,043,815
|
|
|
|
25,047,975
|
|
|
|
25,054,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The fourth quarter of 2009 includes a $64.0 million, or $2.55 per share, goodwill impairment
charge (nondeductible for tax purposes).
|
73
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
($ thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
447,511
|
|
|
$
|
498,514
|
|
|
$
|
495,815
|
|
|
$
|
391,211
|
|
Operating expenses and costs
|
|
|
434,359
|
|
|
|
472,832
|
|
|
|
470,323
|
|
|
|
407,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
13,152
|
|
|
|
25,682
|
|
|
|
25,492
|
|
|
|
(15,802
|
)
|
Other income (expense) net
|
|
|
969
|
|
|
|
1,130
|
|
|
|
605
|
|
|
|
(1,318
|
)
|
Income tax provision (benefit)
|
|
|
5,577
|
|
|
|
10,657
|
|
|
|
10,655
|
|
|
|
(6,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,544
|
|
|
$
|
16,155
|
|
|
$
|
15,442
|
|
|
$
|
(10,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.34
|
|
|
$
|
0.63
|
|
|
$
|
0.60
|
|
|
$
|
(0.44
|
)
|
Diluted
|
|
|
0.34
|
|
|
|
0.63
|
|
|
|
0.60
|
|
|
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,873,651
|
|
|
|
24,968,217
|
|
|
|
25,013,314
|
|
|
|
25,023,794
|
|
Diluted
|
|
|
24,967,412
|
|
|
|
25,146,822
|
|
|
|
25,174,345
|
|
|
|
25,023,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Effective January 1, 2009, the Company adopted new accounting guidance that requires an
allocation of dividends paid and a portion of undistributed net income to unvested restricted
stock for calculating per share amounts. As a result, per share amounts for periods prior to
2009 have been retrospectively adjusted to be consistent with the 2009 presentation (see
Note K).
|
NOTE N LEGAL PROCEEDINGS, ENVIRONMENTAL MATTERS AND OTHER EVENTS
The Company is involved in various legal actions arising in the ordinary course of business. The
Company maintains liability insurance against certain risks arising out of the normal course of its
business, subject to certain self-insured retention limits. The Company routinely establishes and
reviews the adequacy of reserves for estimated legal, environmental and self-insurance exposures.
While management believes that amounts accrued in the consolidated financial statements are
adequate, estimates of these liabilities may change as circumstances develop. Considering amounts
recorded, these matters are not expected to have a material adverse effect on the Companys
financial condition, cash flows or results of operations.
The Companys subsidiaries store fuel for use in tractors and trucks in 69 underground tanks
located in 23 states. Maintenance of such tanks is regulated at the federal and, in some cases,
state levels. The Company believes that it is in substantial compliance with all such regulations.
The Companys underground storage tanks are required to have leak detection systems. The Company is
not aware of any leaks from such tanks that could reasonably be expected to have a material adverse
effect on the Company.
The Company has received notices from the Environmental Protection Agency and others that it has
been identified as a potentially responsible party under the Comprehensive Environmental Response
Compensation and Liability Act, or other federal or state environmental statutes, at several
hazardous waste sites. After investigating the Companys or its subsidiaries involvement in waste
disposal or waste generation at such sites, the Company has either agreed to de minimis settlements
(aggregating approximately $0.1 million over the last ten years, primarily at six sites) or
believes its obligations, other than those specifically accrued for with respect to such sites,
would involve immaterial monetary liability, although there can be no assurances in this regard.
At December 31, 2009 and 2008, the Companys reserve for estimated environmental clean-up costs of
properties currently or previously operated by the Company totaled $1.2 million and $1.1 million,
respectively, which is included in accrued expenses. Amounts accrued reflect managements best
estimate of the future undiscounted exposure related to identified properties based on current
environmental regulations. The Companys estimate is based on managements experience with similar
environmental matters and on testing performed at certain sites.
74
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE O EXCESS INSURANCE CARRIERS
Reliance Insurance Company (Reliance), which was determined to be insolvent in 2001, was the
Companys excess insurer for workers compensation claims above the self-insured retention level of
$0.3 million for the 1993 through 1999 policy years. The Company has been in contact with and has
received either written or verbal confirmation from a number of state guaranty funds that they will
accept certain excess claims. For claims not accepted by state guaranty funds, the Company has
continually maintained liabilities since 2001 for its estimated exposure to the Reliance
liquidation. The Company anticipates receiving either full reimbursement from state guaranty funds
or partial reimbursement through orderly liquidation; however, this process could take several
years.
Kemper Insurance Companies (Kemper) insured the Companys workers compensation excess claims
above $0.3 million for the 2000 through 2001 policy years. In March 2003, Kemper announced that it
was discontinuing its business of providing insurance coverage. Lumbermens Mutual Casualty
Company, the Kemper company which insures the Companys excess claims, received audit opinions
with a going-concern explanatory paragraph on its statutory financial statements issued from 2004
to 2008. Although Kemper continues to pay amounts owed, the Company is uncertain as to the future
impact that Kempers financial condition will have on excess insurance coverage during the 2000
and 2001 policy years. Based upon Kempers available financial information, the Company has
recorded an allowance for uncollectible receivables and additional liabilities for excess claims.
The Company has recorded receivables, net of related allowances, totaling $0.7 million and $0.5
million at December 31, 2009 and 2008, respectively, for workers compensation excess claims paid
by the Company but insured by Reliance and Kemper. The Company has accrued liabilities for workers
compensation excess claims insured by but not expected to be covered by Reliance and Kemper in the
amount of $1.6 million and $1.5 million at December 31, 2009 and 2008, respectively.
NOTE P SUBSEQUENT EVENTS
In January 2010, ABF entered into capital lease agreements to finance $11.4 million of revenue
equipment. The capital lease agreements specify the monthly base rent and interest rates for the
36-month lease terms. The present values of net minimum lease payments will be recorded in
long-term debt.
Management performed an evaluation of events through February 24, 2010, the date of filing this
Annual Report on Form 10-K. Other than the events disclosed in this note, management believes there are no material
events subsequent to the balance sheet date requiring additional disclosure or recognition in this
Form 10-K.
75
|
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
ITEM 9A. CONTROLS AND PROCEDURES
An evaluation was performed by the Companys management, under the supervision and with the
participation of the Companys Principal Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)) as of December 31, 2009. The Companys disclosure controls and
procedures are designed to provide reasonable assurance that the information required to be
disclosed by the Company in reports that the Company files under the Exchange Act is accumulated
and communicated to the Companys management, including the Companys Principal Executive Officer
and Principal Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure and is recorded, processed, summarized and reported within the time periods specified in
the rules and forms of the SEC. Based on such evaluation, the Companys Principal Executive Officer
and Principal Financial Officer have concluded that the Companys disclosure controls and
procedures were effective as of December 31, 2009 at the reasonable assurance level.
There have been no changes in the Companys internal control over financial reporting (as such term
is defined in
Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) during the quarter ended
December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
Managements assessment of internal control over financial reporting and the report of the
independent registered public accounting firm appear on the following pages.
76
MANAGEMENTS ASSESSMENT OF INTERNAL CONTROL
OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934. The Companys internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. The Companys internal control over financial reporting includes those policies and
procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and the Board of Directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions or that
the degree of compliance with the policies or procedures may deteriorate.
Management conducted its evaluation of the effectiveness of internal control over financial
reporting based on the framework in
Internal Control Integrated Framework
issued by the Committee
of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the
documentation of controls, evaluation of the design effectiveness of controls, testing of the
operating effectiveness of controls and a conclusion on this evaluation. Although there are
inherent limitations in the effectiveness of any system of internal control over financial
reporting, based on our evaluation, we have concluded that the Companys internal control over
financial reporting was effective as of December 31, 2009.
The Companys independent registered public accounting firm Ernst & Young LLP, who has also audited
the Companys consolidated financial statements, has issued a report on the Companys internal
control over financial reporting. This report appears on the following page.
77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Arkansas Best Corporation
We have audited Arkansas Best Corporations internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Arkansas Best Corporations management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Managements Assessment of Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Arkansas Best Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the COSO criteria
.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the 2009 consolidated financial statements of Arkansas Best Corporation and
our report dated February 24, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Rogers, Arkansas
February 24, 2010
78
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The sections entitled Proposal I. Election of Directors, Directors of the Company, Governance
of the Company, Executive Officers of the Company and Section 16(a) Beneficial Ownership
Reporting Compliance contained in the Companys Definitive Proxy Statement to be filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with the Companys Annual
Stockholders Meeting to be held April 22, 2010, are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled Compensation Discussion & Analysis, Summary Compensation Table, 2009
Grants of Plan-Based Awards, Outstanding Equity Awards at 2009 Fiscal Year-End, 2009 Option
Exercises and Stock Vested, 2009 Pension Benefits, 2009 Non-Qualified Deferred Compensation,
Compensation Committee Interlocks and Insider Participation, Potential Payments Upon Termination
or Change in Control, 2009 Director Compensation Table, and Compensation Committee Report
contained in the Companys Definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 in connection with the Companys Annual Stockholders Meeting to be
held April 22, 2010, are incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
The sections entitled Principal Stockholders and Management Ownership and 2009 Equity
Compensation Plan Information contained in the Companys Definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934 in connection with the Companys
Annual Stockholders Meeting to be held April 22, 2010, are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The sections entitled Certain Transactions and Relationships and Governance of the Company
contained in the Companys Definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 in connection with the Companys Annual Stockholders Meeting to be
held April 22, 2010, are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The sections entitled Principal Accountant Fees and Services and Audit Committee Pre-Approval of
Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
contained in the Companys Definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 in connection with the Companys Annual Stockholders Meeting to be
held April 22, 2010, are incorporated herein by reference.
79
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)
Financial Statements
A list of the financial statements filed as a part of this Annual Report on Form 10-K is set forth
in Part II, Item 8 on page 42 of this Form 10-K and is incorporated by reference.
(a)(2)
Financial Statement Schedules
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ARKANSAS BEST CORPORATION
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Column A
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Column B
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Column C
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Column D
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Column E
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Column F
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Additions
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Balance at
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Charged to
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Charged to
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Beginning
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Costs and
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Other Accounts
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Deductions
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Balance at
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Description
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of Period
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Expenses
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Describe
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Describe
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End of Period
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($ thousands)
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Year Ended December 31, 2009:
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Deducted from asset accounts:
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Allowance for doubtful
accounts receivable
and revenue adjustments
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$
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3,513
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$
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2,587
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$
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464
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(a)
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$
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3,094
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(b)
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$
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3,470
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Allowance for other accounts
receivable
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1,001
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148
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(c)
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1,149
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Year Ended December 31, 2008:
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Deducted from asset accounts:
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Allowance for doubtful
accounts receivable
and revenue adjustments
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$
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3,942
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$
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1,623
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$
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224
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(a)
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$
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2,276
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(b)
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$
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3,513
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Allowance for other accounts
receivable
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774
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227
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(c)
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1,001
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Year Ended December 31, 2007:
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Deducted from asset accounts:
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Allowance for doubtful
accounts receivable
and revenue adjustments
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$
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4,476
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$
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1,056
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$
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755
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(a)
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$
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2,345
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(b)
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$
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3,942
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Allowance for other accounts
receivable
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1,272
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(498
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)(c)
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774
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Note a
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Recoveries of amounts previously written off.
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Note b
|
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Uncollectible accounts written off.
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Note c
|
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Debited / (credited) to workers compensation expense.
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80
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES continued
(a)(3)
Exhibits
The exhibits filed with this Annual Report on Form 10-K are listed in the Exhibit Index, which is
submitted as a separate section of this report.
(b)
Exhibits
See Item 15(a)(3) above.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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ARKANSAS BEST CORPORATION
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Date: February 24, 2010
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By:
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/s/ Judy R. McReynolds
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Judy R. McReynolds
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President Chief Executive Officer,
and Principal Executive Officer
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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.
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Signature
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Title
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Date
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/s/ Robert
A. Young III
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Chairman of the Board and Director
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February 24, 2010
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/s/ Judy R. McReynolds
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Director, President Chief Executive Officer
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February 24, 2010
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and Principal Executive Officer
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/s/ Donald W. Pearson
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Vice President Treasurer
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February 24, 2010
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and Principal Financial Officer
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/s/ David R. Cobb
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Vice President Controller
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February 24, 2010
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and Principal Accounting Officer
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/s/ Frank Edelstein
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Director
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February 24, 2010
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/s/ John H. Morris
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Director
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February 24, 2010
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/s/ Alan J. Zakon
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Director
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February 24, 2010
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/s/ William M. Legg
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Director
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February 24, 2010
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/s/ Fred A. Allardyce
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Director
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February 24, 2010
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/s/ John W. Alden
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Director
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February 24, 2010
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82
FORM 10-K ITEM 15(a)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
The following exhibits are filed or furnished with this report or are incorporated by reference to
previously filed material:
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Exhibit
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No.
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3.1
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Restated Certificate of Incorporation of the Company (previously filed as Exhibit 3.1 to
the Companys Registration Statement on Form S-1 under the Securities Act of 1933 filed with
the Securities and Exchange Commission (the Commission) on March 17, 1992, Commission File
No. 33-46483, and incorporated herein by reference).
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3.2
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Certificate of Designations of $2.875 Series A Cumulative Convertible Exchangeable
Preferred Stock of the Company (previously filed as Exhibit 3.2 to the Companys Quarterly
Report on Form 10-Q, filed with the Commission on May 5, 2009, Commission File No.
000-19969, and incorporated herein by reference).
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3.3
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Certificate of Amendment to the Restated Certificate of Incorporation of the Company
(previously filed as Exhibit 3.1 to the Companys Current Report on Form 8-K, filed with the
Commission on April 24, 2009, Commission File No. 000-19969, and incorporated herein by
reference).
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3.4
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Second Amended and Restated Bylaws of the Company dated as of April 21, 2009 (previously
filed as Exhibit 3.2 to the Companys Current Report on Form 8-K, filed with the Commission
on April 24, 2009, Commission File No. 000-19969, and incorporated herein by reference).
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4.1
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First Amended and Restated Rights Agreement, dated as of May 1, 2001 between Arkansas
Best Corporation and Computershare Investor Services, LLC, as Rights Agent (including
exhibits thereto) (previously filed as Exhibit 4.1 to the Form 8-A/A Amendment No. 2 filed
with the Commission on May 16, 2001, Commission File No. 000-19969, and incorporated herein
by reference).
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4.2
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|
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Amendment to First Amended and Restated Rights Agreement, dated as of April 4, 2003,
between Arkansas Best Corporation and LaSalle Bank, National Association, as Rights Agent
(previously filed as Exhibit 4.2 to the Form 8-A/A Amendment No. 3 filed with the Commission
on April 4, 2003, Commission File No. 000-19969, and incorporated herein by reference).
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4.3
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Second Amendment to First Amended and Restated Rights Agreement, dated as of May 18,
2007, between Arkansas Best Corporation and LaSalle Bank, National Association, as Rights
Agent (previously filed as Exhibit 4.3 to the Form 8-K filed with the Commission on May 18,
2007, Commission File No. 000-19969, and incorporated herein by reference).
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10.1
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#
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Stock Option Plan (previously filed as Exhibit 10.3 to the Companys Registration
Statement on Form S-1 under the Securities Act of 1933 filed with the Commission on March 17,
1992, Commission File No. 33-46483, and incorporated herein by reference).
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10.2
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|
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Collective Bargaining Agreement, effective April 1, 2008 through March 31, 2013, among the
International Brotherhood of Teamsters and ABF Freight System, Inc. (Previously filed as
Exhibit 10.1 to the Form 8-K, filed with the Commission on February 15, 2008, Commission File
No. 0-19969, and incorporated herein by reference).
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10.3
|
*
|
|
Form of Indemnification Agreement by and between Arkansas Best Corporation and the
Companys Board of Directors.
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|
10.4
|
#
|
|
The Companys Executive Officer Annual Incentive Compensation Plan (previously filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K, filed with the Commission on April
22, 2005, Commission File No. 0-19969, and incorporated herein by reference).
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83
FORM 10-K ITEM 15(a)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
(Continued)
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|
Exhibit
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|
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No.
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|
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|
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10.5
|
#
|
|
The 2005 Ownership Incentive Plan (previously filed as Exhibit 10.2 to the Companys
Current Report on Form 8-K, filed with the Commission on April 22, 2005, Commission File No.
0-19969, and incorporated herein by reference).
|
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|
|
10.6
|
#
|
|
The Form of Restricted Stock Award Agreement (Non-Employee Directors) (previously filed as
Exhibit 10.3 to the Companys Current Report on Form 8-K, filed with the Commission on April
22, 2005, Commission File No. 0-19969, and incorporated herein by reference).
|
|
|
|
10.7
|
#
|
|
The Form of Restricted Stock Award Agreement (Employee) (previously filed as Exhibit 10.4
to the Companys Current Report on Form 8-K, filed with the Commission on April 22, 2005,
Commission File No. 0-19969, and incorporated herein by reference).
|
|
|
|
10.8
|
#
|
|
Amended and Restated Voluntary Savings Plan dated as of January 1, 2005 (previously filed
as Exhibit 10.1 to the Companys Current Report on Form 8-K, filed with the Commission on
April 21, 2006, Commission File No. 0-19969, and incorporated herein by reference).
|
|
|
|
10.9
|
#
|
|
The ABC/DTC/ABF Long-Term (3-Year) Incentive Compensation Plan Total, ROCE Portion and
Growth Portion and form of award (previously filed as Exhibit 10.17 to the Companys 2006
Form 10-K, filed with the Commission on February 23, 2007, Commission File No. 0-19969, and
incorporated herein by reference).
|
|
|
|
10.10
|
#
|
|
The [_] Schedule ABF Annual Incentive Compensation Plan and form of award (previously
filed as Exhibit 10.13 to the Companys 2008 Form 10-K filed with the Commission on February
20, 2009, Commission File No. 000-19969, and incorporated herein by reference).
|
|
|
|
10.11
|
#
|
|
The [_] Schedule ABC Annual Incentive Compensation Plan and form of award (previously
filed as Exhibit 10.14 to the Companys 2008 Form 10-K filed with the Commission on February
20, 2009, Commission File No. 000-19969, and incorporated herein by reference).
|
|
|
|
10.12
|
#
|
|
The ABC/DTC/ABF Long-Term (3-Year) Incentive Compensation Plan Total, ROCE Portion and
Growth Portion and form of award (previously filed as Exhibit 10.15 to the Companys 2008
Form 10-K filed with the Commission on February 20, 2009, Commission File No. 000-19969, and
incorporated herein by reference).
|
|
|
|
10.13
|
#
|
|
The Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) (previously
filed as Exhibit 10.1 to the Form 8-K, filed with the Commission on April 25, 2008,
Commission File No. 0-19969, and incorporated herein by reference).
|
|
|
|
10.14
|
#
|
|
The Form of Restricted Stock Unit Award Agreement (Employees) (previously filed as Exhibit
10.2 to the Form 8-K, filed with the Commission on April 25, 2008, Commission File No.
0-19969, and incorporated herein by reference).
|
|
|
|
|
10.15
|
#
|
|
The Form of Restricted Stock Unit Award Agreement (Non-Employee Directors with deferral
feature) (previously filed as Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q,
filed with the Commission on May 5, 2009, Commission File No. 000-19969, and incorporated
herein by reference).
|
|
|
|
|
10.16
|
#
|
|
The Form of Restricted Stock Unit Award Agreement (Employees) (previously filed as Exhibit
10.2 to the Companys Quarterly Report on Form 10-Q, filed with the Commission on May 5,
2009, Commission File No. 000-19969, and incorporated herein by reference).
|
84
FORM 10-K ITEM 15(a)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
(Continued)
|
|
|
|
Exhibit
|
|
|
No.
|
|
|
|
|
|
|
10.17
|
#*
|
|
The Arkansas Best Corporation Supplemental Benefit Plan, amended and restated effective August 1, 2009.
|
|
|
|
|
10.18
|
#*
|
|
Amendment One to the Arkansas Best Corporation Supplemental Benefit Plan, effective December 31, 2009.
|
|
|
|
|
10.19
|
#*
|
|
Form of Amended and Restated Deferred Salary Agreement.
|
|
|
|
|
10.20
|
*+
|
|
Master Continuing Letter of Credit Reimbursement and Security Agreement, dated November
24, 2009, among The Bank of Tokyo-Mitsubishi UFJ, Ltd., Arkansas Best Corporation, ABF
Freight System, Inc., ABF Cartage, Inc., FleetNet America, Inc., Data-Tronics Corp., ABF
Farms, Inc., Transport Realty, Inc., Tread-Ark Corporation, ABF Aviation LLC, Global Supply
Chain Services, Inc., FreightValue, Inc., and Moving Solutions, Inc.
|
|
|
|
|
10.21
|
*+
|
|
Letter of Credit Agreement, dated December 8, 2009, between PNC Bank, National Association
and Arkansas Best Corporation.
|
|
|
|
|
10.22
|
*+
|
|
Letter of Credit Agreement, dated December 9, 2009, between Arkansas Best Corporation and
SunTrust Bank.
|
|
|
|
|
10.23
|
*
|
|
Continuing Reimbursement Agreement for Letters of Credit, dated November 12, 2009, between
U.S. Bank National Association and Arkansas Best Corporation.
|
|
|
|
|
10.24
|
*+
|
|
Receivables Loan Agreement, dated December 30, 2009, among ABF Freight Funding LLC, as
Borrower, ABF Freight System, Inc., as initial Servicer, SunTrust Bank and SunTrust Robinson
Humphrey, Inc., as Agent.
|
|
|
|
|
10.25
|
*
|
|
Master Lease Agreement, dated December 30, 2009, between BB&T Equipment Finance Corporation
and ABF Freight System, Inc.
|
|
|
|
|
10.26
|
*
|
|
Master Lease Guaranty, dated December 30, 2009, by Arkansas Best Corporation in favor of
BB&T Equipment Finance Corporation.
|
|
|
|
|
21
|
*
|
|
List of Subsidiary Corporations.
|
|
|
|
|
23
|
*
|
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
|
|
|
|
|
31.1
|
*
|
|
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
31.2
|
*
|
|
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32
|
**
|
|
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
#
|
|
Designates a compensation plan or arrangement for directors or executive officers.
|
|
*
|
|
Filed herewith.
|
|
**
|
|
Furnished herewith.
|
|
+
|
|
Certain portions of this exhibit have been omitted and filed separately with the Securities
and Exchange Commission under a confidential treatment request pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
85
Exhibit 10.22
CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION UNDER A CONFIDENTIAL TREATMENT REQUEST, PURSUANT TO RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT
AT THE APPROPRIATE PLACE WITH THREE ASTERISKS [***].
LETTER OF CREDIT AGREEMENT
dated as of December 9, 2009
between
ARKANSAS BEST CORPORATION
and
SUNTRUST BANK
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
ARTICLE I. DEFINITIONS; CONSTRUCTION
|
|
|
1
|
|
Section 1.1. Definitions
|
|
|
1
|
|
Section 1.2. Accounting Terms and Determination
|
|
|
4
|
|
Section 1.3. Terms Generally
|
|
|
4
|
|
|
|
|
|
|
ARTICLE II. THE LETTER OF CREDIT COMMITMENT
|
|
|
4
|
|
|
|
|
|
|
Section 2.1. Letters of Credit
|
|
|
4
|
|
Section 2.2. Optional Reduction and Termination of Revolving Commitment
|
|
|
6
|
|
Section 2.3. Interest and Fees
|
|
|
6
|
|
Section 2.4. Computation of Interest and Fees
|
|
|
6
|
|
Section 2.5. Increased Costs
|
|
|
6
|
|
Section 2.6. Payments Generally
|
|
|
7
|
|
|
|
|
|
|
ARTICLE III. CONDITIONS PRECEDENT TO LOANS
|
|
|
7
|
|
|
|
|
|
|
Section 3.1. Conditions to Effectiveness
|
|
|
7
|
|
Section 3.2. Each Credit Event
|
|
|
8
|
|
|
|
|
|
|
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
|
|
|
8
|
|
|
|
|
|
|
Section 4.1. Existence; Power
|
|
|
8
|
|
Section 4.2. Organizational Power; Authorization
|
|
|
8
|
|
Section 4.3. Governmental Approvals; No Conflicts
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9
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Section 4.4. Financial Statements
|
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9
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Section 4.5. Litigation
|
|
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9
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Section 4.6. Compliance with Laws and Agreements
|
|
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9
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|
Section 4.7. Investment Company Act, Etc.
|
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9
|
|
Section 4.8 Title to Assets, Etc.
|
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9
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|
Section 4.9 Information
|
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9
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Section 4.10 Labor Matters
|
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9
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Section 4.11 Subsidiaries
|
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10
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Section 4.12 Insolvency
|
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10
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Section 4.13 OFAC
|
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10
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Section 4.14 Patriot Act
|
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10
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ARTICLE V. AFFIRMATIVE COVENANTS
|
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10
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Section 5.1. Financial Statements and other Information
|
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10
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Section 5.2. Notices of Material Events
|
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11
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Section 5.3. Existence; Conduct of Business
|
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11
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Section 5.4. Compliance with Laws, Etc.
|
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11
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|
Section 5.5. Use of Letters of Credit
|
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11
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Section 5.6. Taxes
|
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11
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Section 5.7. Books and Records
|
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11
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|
Section 5.8. Inspections
|
|
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11
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Section 5.9. Maintenance of Properties
|
|
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11
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Section 5.10. Subsidiaries
|
|
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12
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|
Section 5.11. Further Assurances
|
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12
|
|
Section 5.12. Cash Collateral
|
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12
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Section 5.13. Existing Credit Agreement
|
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12
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Page
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ARTICLE VI. EVENTS OF DEFAULT
|
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12
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Section 6.1. Events of Default
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12
|
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ARTICLE VII. MISCELLANEOUS
|
|
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14
|
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|
|
|
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Section 7.1. Notices
|
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14
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Section 7.2. Waiver; Amendments
|
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14
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Section 7.3. Expenses; Indemnification
|
|
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15
|
|
Section 7.4. Successors and Assigns
|
|
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15
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|
Section 7.5. Governing Law; Jurisdiction; Consent to Service of Process
|
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16
|
|
Section 7.6. Waiver of Jury Trial
|
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16
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|
Section 7.7. Counterparts; Integration
|
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16
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Section 7.8. Survival
|
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17
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|
Section 7.9. Severability
|
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17
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|
Schedules
|
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|
Schedule I Existing Letters of Credit
|
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|
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|
Schedule II Subsidiaries
|
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LETTER OF CREDIT AGREEMENT
THIS LETTER OF CREDIT AGREEMENT
(this
Agreement
) is made and entered into as of December 9,
2009 between ARKANSAS BEST CORPORATION, a Delaware corporation (Company), and SUNTRUST BANK, a
Georgia banking corporation (together with its successors and assigns, Bank).
W I T N E S S E T H:
WHEREAS
, the Company has requested, and the Bank has agreed, subject to the terms and
conditions of this Agreement, to establish a $15,000,000 letter of credit facility;
NOW, THEREFORE
, in consideration of the premises and the mutual covenants herein contained,
the Company and the Bank agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
Section 1.1.
Definitions
. In addition to the other terms defined herein, the
following terms used herein shall have the meanings herein specified (to be equally applicable to
both the singular and plural forms of the terms defined):
Availability Period
shall mean the period from the Closing Date to the Commitment
Termination Date.
Bank
shall have the meaning assigned to it in the opening paragraph of this Agreement.
Base Rate
shall mean the higher of (i) the per annum rate which the Bank publicly announces
from time to time to be its prime lending rate, as in effect from time to time, and (ii) the
Federal Funds Rate, as in effect from time to time,
plus
one-half of one percent (0.50%). The
Banks prime lending rate is a reference rate and does not necessarily represent the lowest or best
rate charged to customers. The Bank may make commercial loans or other loans at rates of interest
at, above or below the Banks prime lending rate. Any changes in such rates shall be effective as
of the date of such change in such rates.
Business Day
shall mean any day other than a Saturday, Sunday or other day on which
commercial banks in Atlanta, Georgia are authorized or required by law to close.
Cash Collateral
shall have the meaning assigned to it in
Section 5.12
.
Change in Law
shall mean (i) the adoption of any applicable law, rule or regulation after
the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any
change in the interpretation or application thereof, by any Governmental Authority after the date
of this Agreement, or (iii) compliance by the Bank (or for purposes of
Section
2.5
(
b
), by the Banks holding company, if applicable) with any request, guideline or
directive (whether or not having the force of law) of any Governmental Authority made or issued
after the date of this Agreement.
Closing Date
shall mean the date on which the conditions precedent set forth in
Section
3.1
and
Section 3.2
have been satisfied or waived in accordance with
Section
7.2
.
Co
mmitment
shall mean the obligation of the Bank, subject to the terms and conditions
hereof, to issue Letters of Credit for the account of the Company in an aggregate principal
amount not exceeding $15,000,000.
Commitment Termination Date
shall mean the earliest of (i) December 9, 2011, (ii) the date
on which the Commitment is terminated pursuant to
Section 2.2
, and (iii) the date on which
the Commitment is terminated pursuant to
Section 6.1
.
Company
shall have the meaning assigned to it in the opening paragraph of this Agreement.
Default
shall mean any condition or event that, with the giving of notice or the lapse of
time or both, would constitute an Event of Default.
Dollar(s)
and the sign
$
shall mean lawful money of the United States of America.
Domestic Subsidiary
means a Subsidiary of the Company formed under the laws of the United
States or any state or territory thereof.
Event of Default
shall have the meaning provided in
Article VI
.
Existing Letters of Credit
shall mean those Letters of Credit that are outstanding on the
date of this Agreement as set forth on
Schedule I
attached hereto.
Existing Loan Documents
shall mean the Second Amended and Restated Credit Agreement, dated
as of May 4, 2007, among the Company, certain of its Subsidiaries, Wells Fargo Bank, National
Association, as Administrative Agent and Lead Arranger, and the Lenders party thereto, among
others, as amended or modified to date.
Federal Funds Rate
shall mean, for any day, the rate per annum (rounded upwards, if
necessary, to the next 1/100
th
of 1%) equal to the weighted average of the rates on
overnight Federal funds transactions with member banks of the Federal Reserve System arranged by
Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding
Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for
such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the
quotations for such day on such transactions received by the Bank from three Federal funds brokers
of recognized standing selected by the Bank.
Final Termination Date
shall mean that date when (a) t he Commitment Termination Date has
occurred, (b) all Letters of Credit issued hereunder have expired, been cancelled or been fully
drawn upon and (c) all Obligations have been paid in full in cash.
GAAP
shall mean generally accepted accounting principles in the United States, as in effect
from time to time, applied on a consistent basis and subject to the terms of
Section 1.2
hereof.
Governmental Authority
shall mean the government of the United States of America, any other
nation or any political subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government.
2
Guarantors
shall mean, collectively, each Domestic Subsidiary of the Company and each other
Person who from time to time executes a Guaranty of the Obligations hereunder.
Guarantor
shall
mean any of the foregoing.
Guaranty
shall mean each guaranty of the Obligations.
LC Disbursement
shall mean a payment made by the Bank pursuant to a Letter of Credit.
LC Exposure
shall mean, at any time, the sum of (i) the aggregate undrawn amount of all
outstanding Letters of Credit at such time,
plus
(ii) the aggregate amount of all LC Disbursements
that have not been reimbursed by or on behalf of the Company at such time.
Letter of Credit Applications
shall have the meaning assigned to it in
Section
2.1(b)
.
Letters of Credit
shall mean (i) the Existing Letters of Credit and (ii) any letter of
credit issued pursuant to
Section 2.1
by the Bank for the account of the Company under the
Commitment.
Letter of Credit Documents
shall mean, collectively, this Agreement, the Guaranty, the
Letters of Credit, the Pledge Agreement, each Letter of Credit Application and any and all other
instruments, agreements, documents, notices and writings executed in connection with any of the
foregoing.
Material Adverse Effect
shall mean, with respect to any event, act, condition or occurrence
of whatever nature (including any adverse determination in any litigation, arbitration, or
governmental investigation or proceeding), whether singularly or in conjunction with any other
event or events, act or acts, condition or conditions, occurrence or occurrences whether or not
related, a material adverse change in, or a material adverse effect on, (i) the business, results
of operations, financial condition, assets, liabilities or prospects of the Company or of the
Company and its Subsidiaries taken as a whole, (ii) the ability of the Company and the Guarantors
to perform any of their respective obligations under the Letter of Credit Documents, (iii) the
rights and remedies of the Bank under any of the Letter of Credit Documents or (iv) the legality,
validity or enforceability of any of the Letter of Credit Documents.
Obligations
shall mean all amounts owing by the Company to the Bank pursuant to or in
connection with this Agreement or any of the other Letter of Credit Documents, including without
limitation, all principal, interest (including any interest accruing after the filing of any
petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding
relating to the Company, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), all reimbursement obligations, fees, expenses, indemnification and
reimbursement payments, costs and expenses (including all fees and expenses of counsel to the Bank
incurred pursuant to this Agreement or any of the other Letter of Credit Documents, whether direct
or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising
hereunder or thereunder, together with all renewals, extensions, modifications or refinancings
thereof.
Payment Office
shall mean the office of the Bank located at 303 Peachtree Street, N.E.,
Atlanta, Georgia 30308, or such other location as to which the Bank shall have given written notice
to the Company.
Person
shall mean any individual, partnership, firm, corporation, association, joint
venture, limited liability company, trust or other entity, or any Governmental Authority.
Pledge Agreement
shall have the meaning assigned to it in
Section 5.12
.
Responsible Officer
shall mean any of the president, the chief executive officer, the chief
operating officer, the chief financial officer, the treasurer or a vice president of the Company or
such other representative of the Company as may be designated in writing by any one of the
foregoing with the consent of the Bank.
Subsidiary
shall mean, with respect to any Person (the
parent
), any corporation,
partnership, joint venture, limited liability company, association or other entity the accounts of
which would be consolidated with those of the parent in the parents consolidated financial
statements if such financial statements were prepared in accordance with International Accounting
Standards as of such date, as well as any other corporation, partnership, joint venture, limited
liability company, association or other entity (i) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the ordinary
voting power, or in the case of a partnership, more than 50% of the general partnership interests
are, as of such date, owned, controlled or held, or (ii) that is, as of such date, otherwise
controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent. Unless otherwise indicated, all references to Subsidiary
hereunder shall mean a Subsidiary of the Company.
3
Voting Stock
shall mean any capital stock or other equity interest of the Company of any
class having, by the terms thereof, voting power to elect directors of the Company in the absence
of a default or failure to pay dividends with respect to any class or classes of capital stock. Any
percentage of Voting Stock held by any person shall be determined by dividing the total number of
votes that such person may cast based on the Voting Stock held by such person by the total number
of votes that may be cast based upon the total issued and outstanding Voting Stock.
Section 1.2.
Accounting Terms and Determination
. Unless otherwise defined or
specified herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to be delivered
hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent (except for
such changes approved by the Companys independent public accountants) with the most recent audited
consolidated financial statement of the Company delivered pursuant to the Bank.
Section 1.3.
Terms Generally
. The definitions of terms herein shall apply equally to
the singular and plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. In the computation of
periods of time from a specified date to a later specified date, the word from means from and
including and the word to means to but excluding. Unless the context requires otherwise (i)
any definition of or reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as it was originally
executed or as it may from time to time be amended, supplemented or otherwise modified (subject to
any restrictions on such amendments, supplements or modifications set forth herein), (ii) any
reference herein to any Person shall be construed to include such Persons successors and permitted
assigns, (iii) the words hereof, herein and hereunder and words of similar import shall be
construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv)
all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific
time shall be construed to refer to the time in the city and state of the Banks principal office,
unless otherwise indicated.
ARTICLE II
THE LETTER OF CREDIT COMMITMENT
Section 2.1. Letters of Credit
.
(a) Subject to the terms and conditions hereof, during the Availability Period, the Bank
agrees to issue, at the request of the Company, Letters of Credit for the account of the Company in
aggregate face amounts not to exceed the Commitment;
provided
,
however
, that (i)
each Letter of Credit shall expire on the date one year after the date of issuance of such Letter
of Credit (provided that, subject to the limitation in clause (ii) below, a Letter of Credit may
contain a provision providing for automatic annual renewal for one year periods, in the absence of
notice of non-renewal from the Bank); (ii) no Letter of Credit shall have an expiration date that
is later than the first anniversary of the date provided in clause (i) of the definition of
Commitment Termination Date, (iii) each Letter of Credit shall be denominated in Dollars and in a
stated amount of at least $100,000; and (iv) the Company may not request any Letter of Credit, if,
after giving effect to such issuance the LC Exposure would exceed the Commitment.
(b) To request the issuance of a Letter of Credit (or any amendment, renewal or extension of
an outstanding Letter of Credit), the Company shall give the Bank irrevocable written notice at
least three (3) Business Days prior to the requested date of such issuance specifying the date
(which shall be a Business Day) such Letter of Credit is to be issued (or amended, extended or
renewed, as the case may be), the expiration date of such Letter of Credit, the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such other information as
shall be necessary to prepare, amend, renew or extend such Letter of Credit. In addition to the
satisfaction of the conditions in
Article III
, the issuance of such Letter of Credit (or
any amendment which increases the amount of such Letter of Credit) will be subject to the further
conditions that such Letter of Credit shall be in such form and contain such terms as the Bank
shall approve and that the Company shall have executed and delivered any additional applications,
agreements and instruments relating to such Letter of Credit as the Bank shall reasonably require
(collectively, Letter of Credit Applications);
provided
, that in the event of any conflict between such applications, agreements or
instruments and this Agreement, the terms of this Agreement shall control.
4
(c) The Bank shall examine all documents purporting to represent a demand for payment under a
Letter of Credit promptly following its receipt thereof. The Bank shall notify the Company of such
demand for payment and whether the Bank has made or will make a LC Disbursement thereunder;
provided
, that any failure to give or delay in giving such notice shall not relieve the
Company of its obligation to reimburse the Bank with respect to such LC Disbursement. The Company
shall be irrevocably and unconditionally obligated immediately to reimburse the Bank for any LC
Disbursements paid by the Bank in respect of such drawing, without presentment, demand or other
formalities of any kind.
(d) The Companys obligation to reimburse LC Disbursements hereunder shall be absolute,
unconditional and irrevocable and shall be performed strictly in accordance with the terms of this
Agreement under all circumstances whatsoever and irrespective of any of the following
circumstances:
(i) Any lack of validity or enforceability of any Letter of Credit or this Agreement;
(ii) The existence of any claim, set-off, defense or other right which the Company or
any Subsidiary or affiliate of the Company may have at any time against a beneficiary or any
transferee of any Letter of Credit (or any Persons or entities for whom any such beneficiary
or transferee may be acting), the Bank or any other Person, whether in connection with this
Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated
transaction;
(iii) Any draft or other document presented under a Letter of Credit proving to be
forged, fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) Payment by the Bank under a Letter of Credit against presentation of a draft or
other document to the Bank that does not comply with the terms of such Letter of Credit;
(v) Any other event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section, constitute a legal or
equitable discharge of, or provide a right of setoff against, the Companys obligations
hereunder; or
(vi) The existence of a Default or an Event of Default.
The Bank shall not have any liability or responsibility by reason of or in connection with the
issuance or transfer of any Letter of Credit or any payment or failure to make any payment
thereunder (irrespective of any of the circumstances referred to above), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or other communication
under or relating to any Letter of Credit (including any document required to make a drawing
thereunder), any error in interpretation of technical terms or any consequence arising from causes
beyond the control of the Bank;
provided
, that the foregoing shall not be construed to
excuse the Bank from liability to the Company to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the Company to the extent
permitted by applicable law) suffered by the Company that are caused by the Banks failure to
exercise care when determining whether drafts or other documents presented under a Letter of Credit
comply with the terms thereof. The parties hereto expressly agree, that in the absence of gross
negligence or willful misconduct on the part of the Bank (as finally determined by a court of
competent jurisdiction), the Bank shall be deemed to have exercised care in each such
determination. In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented that appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the Bank may, in its sole discretion,
either accept and make payment upon such documents without responsibility for further
investigation, regardless of any notice or information to the contrary, or refuse to accept and
make payment upon such documents if such documents are not in strict compliance with the terms of
such Letter of Credit.
(e) All Existing Letters of Credit shall be deemed to be Letters of Credit issued pursuant to
the terms of this Agreement. The Company hereby agrees that, to the extent that any Subsidiary of
the Company is the account party on any of the Existing Letters of Credit, it shall unconditionally
and irrevocably guarantee the payment on such Existing Letters of Credit as if it were the account
party thereon.
5
(f) Unless otherwise expressly agreed by the Bank and the Company when a Letter of Credit is
issued and subject to applicable laws, performance under Letters of Credit by the Bank, its
correspondents, and the beneficiaries thereof will be governed by the rules of the International
Standby Practices 1998 (ISP98) (or such later revision as may be published by the Institute of
International Banking Law & Practice on any date any Letter of Credit may be issued) and to the
extent not inconsistent therewith, the governing law of this Agreement set forth in
Section
7.5
.
Section 2.2.
Optional Reduction and Termination of Commitment
.
(a) Unless previously terminated, the Commitment shall terminate on the Commitment Termination
Date.
(b) Upon at least two (2) Business Days prior written notice (or telephonic notice promptly
confirmed in writing) to the Bank (which notice shall be irrevocable), the Company may reduce the
Commitment in part or terminate the Commitment in whole;
provided
, that (i) any partial
reduction pursuant to this
Section 2.2
shall be in an amount of at least $1,000,000 and any
larger multiple of $100,000, and (ii) no such reduction shall be permitted which would reduce the
Commitment to an amount less than the outstanding LC Exposure.
Section 2.3.
Interest and Fees
.
(a)
Interest
. To the extent that any LC Disbursement made hereunder is not reimbursed by the
Company to the Bank on the same day when made (including by application of Cash Collateral pursuant
to
Section 5.12
), without limitation of the Banks rights and remedies hereunder and under
the other Letter of Credit Documents, interest will accrue on such LC Disbursement a per annum
rate of the Prime Rate plus four percent (4%). Such interest shall be payable immediately on
demand and in any event concurrently with the Companys reimbursement to the Bank of the applicable
LC Disbursement.
(b) Letter of Credit Fees.
The Company agrees to pay to the Bank a letter of credit fee which
shall accrue at rate equal to
[***]
% per annum on the average daily undrawn amount of each
outstanding Letter of Credit during the period from the Closing Date to the Final Termination Date.
Such fees shall be payable quarterly on the last day of each calendar quarter, commencing on
December 31, 2009, and on the Final Termination Date. In addition the Company will pay the Banks
standard fees with respect to amendment of any Letter of Credit, limited, however, to the sum of
$150 with respect to each amendment. If any Event of Default shall exist hereunder, at Lenders
option, the letter of credit fee payable pursuant to the first sentence hereof shall be increased
to a rate of
[***]
% per annum
.
Section 2.4.
Computation of Interest and Fees
. All computations of interest and fees
hereunder shall be made on the basis of a year of 360 days for the actual number of days (including
the first day but excluding the last day) occurring in the period for which such interest or fees
are payable (to the extent computed on the basis of days elapsed). Each determination by the Bank
of an interest amount or fee hereunder shall be made in good faith and, except for manifest error,
shall be final, conclusive and binding for all purposes.
Section 2.5.
Increased Costs
.
(a) If any Change in Law shall:
(i) subject the Bank to any tax in respect of any Letter of Credit or on any amount
paid or to be paid under the Letter of Credit (other than any tax measured by or based upon
the overall net income of the Bank);
(ii) change the basis of taxation of payments to the Bank of any amounts payable
hereunder (other than tax measured by or based upon the overall net income of the Bank);
(iii) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit extended by,
the Bank; or
(ii) impose on the Bank any other condition affecting this Agreement or any Letters of
Credit issued by the Bank;
and the result of the foregoing is to increase the cost to the Bank of maintaining this Agreement
or issuing or maintaining the Letters of Credit or to reduce the amount received or receivable by
the Bank hereunder (whether of principal, interest or any other amount), then the Company shall
promptly pay, upon written notice from and demand by the Bank, within five Business Days after the
date of such notice and demand, additional amount or amounts sufficient to reasonably compensate
the Bank for such additional costs incurred or reduction suffered.
6
(b) If the Bank shall have determined that on or after the date of this Agreement any Change
in Law regarding capital requirements has or would have the effect of reducing the rate of return
on the Banks capital (or on the capital of the Banks parent corporation) as a consequence of its
obligations hereunder or under or in respect of any Letter of Credit to a level below that which
the Bank or the Banks parent corporation could have achieved but for such Change in Law (taking
into consideration the Banks policies or the policies of the Banks parent corporation with
respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt
by the Company of written demand by the Bank, the Company shall pay to the Bank such additional
amounts as will reasonably compensate the Bank or the Banks parent corporation for any such
reduction suffered.
(c) A certificate of the Bank setting forth the amount or amounts necessary to compensate the
Bank or its parent corporation, as the case may be, specified in paragraph (a) or (b) of this
Section shall be delivered to the Company and shall be conclusive, absent manifest error. The
Company shall pay the Bank such reasonable amount or amounts within 10 days after receipt thereof.
(d) Failure or delay on the part of the Bank to demand compensation pursuant to this Section
shall not constitute a waiver of the Banks right to demand such compensation.
Section 2.6.
Payments Generally
.
The Company shall make each payment required to be made by it hereunder (whether of principal,
interest, reimbursement amounts, fees or of amounts payable under
Section 2.5
or otherwise)
prior to 2:00 p.m., on the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the discretion of the Bank,
be deemed to have been received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Bank at its Payment Office. If any
payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be
extended to the next succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be made payable for the period of such extension. All fees and all other
amounts due hereunder shall be made in Dollars.
ARTICLE III
CONDITIONS PRECEDENT TO LOANS
Section 3.1.
Conditions To Effectiveness
. The obligation of the Bank to issue the
initial Letters of Credit hereunder is subject to the receipt by the Bank of the following
documents in form and substance reasonably satisfactory to the Bank:
(a) this Agreement duly executed and delivered by the Company;
(b) a Guaranty duly executed and delivered by each Guarantor;
(c) a Pledge Agreement duly executed and delivered by the Company;
(d) a certificate of the Secretary or Assistant Secretary of the Company and each Guarantor,
attaching and certifying copies of its articles of incorporation and bylaws (or other applicable
governing documents) and of the resolutions of its boards of directors (or other governing body),
authorizing the execution, delivery and performance of the Letter of Credit Documents to which it
is a party and certifying the name, title and true signature of each officer of the Company or such
Guarantor executing the Letter of Credit Documents to which it is a party;
(e) a certificate of good standing, as may be available from the Secretary of State of the
jurisdiction of incorporation of the Company and each Guarantor;
(f) a certificate, dated the Closing Date and signed by a Responsible Officer, confirming
compliance with the conditions set forth in paragraphs (a) and (b) of
Section 3.2
;
7
(g) a legal opinion of counsel to the Company and Guarantors as to due execution and delivery
of this Agreement and the other Letter of Credit Documents and such other matters as the Bank shall
require; and
(h) The consolidated and consolidating financial statements of the Company and its
Subsidiaries for the fiscal years of the Company ending December 31, 2006, December 31, 2007 and
December 31, 2008, including balance sheets, income statements and cash flow statements, together
with an unqualified audit letter with respect thereto issued by independent public accountants of
recognized national standing and the consolidated and consolidated financial statements of the
Company and its Subsidiaries, including balance sheets, income statements and cash flow statements,
for the fiscal quarters of the Company ending March 31, 2009, June 30, 2009 and September 30,
2009.
Section 3.2.
Each Credit Event
.
The obligation of the Bank to issue, amend, renew
or extend any Letter of Credit is subject to the satisfaction of the following conditions:
(a) at the time of and immediately after giving effect to the issuance, amendment, renewal or
extension of such Letter of Credit, no Default or Event of Default shall exist; and
(b) all representations and warranties of the Company set forth herein and of any Guarantor
set forth in a Guaranty shall be true and correct in all material respects on and as of the date of
issuance, amendment, extension or renewal of such Letter of Credit, in each case before and after
giving effect thereto;
(c) the Company shall have delivered and pledged to the Bank all Cash Collateral required
pursuant to
Section 5.12
;
(d) the Company shall have delivered to the Bank a completed and executed Letter of Credit
Application with respect to the applicable Letter of Credit;
(e) the Bank shall have received such other documents, certificates, information or legal
opinions as it may reasonably request (including without limitation any applications and other
agreements relating to a Letter of Credit), all in form and substance reasonably satisfactory to
the Bank.
The issuance, amendment, renewal or extension of each Letter of Credit shall be deemed to
constitute a representation and warranty by the Company on the date thereof as to the matters
specified in paragraphs (a) and (b) of this
Section 3.2
.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Bank as follows:
Section 4.1.
Existence; Power
. The Company and each of its Subsidiaries (i) is duly
organized, validly existing and in good standing as a corporation under the laws of the
jurisdiction of its organization, (ii) has all requisite power and authority to carry on its
business as now conducted, and (iii) is duly qualified to do business, and is in good standing, in
each jurisdiction where such qualification is required, except where a failure to be so qualified
could not reasonably be expected to result in a Material Adverse Effect.
Section 4.2.
Organizational Power; Authorization
. The execution, delivery and
performance by the Company and the Guarantors of this Agreement and the other Letter of Credit
Documents, to the extent that each is party thereto, are within such the Companys or such
Guarantors organizational powers and have been duly authorized by all necessary organizational,
and if required, stockholder action. This Agreement has been duly executed and delivered by the
Company, and constitutes, and the other Letter of Credit Documents when executed and delivered by
the
Company or the Guarantors, to the extent that each is party thereto, will constitute, valid
and binding obligations of the Company and each Guarantor, as applicable, enforceable against it in
accordance with their respective terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors
rights generally and by general principles of equity.
8
Section 4.3.
Governmental Approvals; No Conflicts
. The execution, delivery and
performance by the Company and the Guarantors of this Agreement and the other Letter of Credit
Documents, to the extent that each is party thereto (a) do not require any consent or approval of,
registration or filing with, or any action by, any Governmental Authority, except (i) those as have
been obtained or made and are in full force and effect and (ii) disclosure filings on Form 8-K to
be made in the ordinary course of business with the Securities and Exchange Commission subsequent
to the date hereof, (b) will not violate any applicable law or regulation or the charter, by-laws
or other organizational documents of the Company or any of its Subsidiaries or any order of any
Governmental Authority, (c) will not violate or result in a default under any indenture, material
agreement or other material instrument binding on the Company or any of its Subsidiaries or any of
its assets or give rise to a right thereunder to require any payment to be made by the Company or
any of its Subsidiaries and (d) will not result in the creation or imposition of any lien on any
asset of the Company or any of its Subsidiaries.
Section 4.4.
Financial Statements
. The Company has furnished to the Bank the audited
consolidated and consolidating balance sheets of the Company and its Subsidiaries as of December
31, 2006, December 31, 2007 and December 31, 2008 and the related consolidated and consolidating
statements of income, shareholders equity and cash flows for the fiscal years then ended audited
by independent certified public accountants and the unaudited consolidated and consolidating
balance sheets of the Company and its Subsidiaries as of March 31, 2009, June 30, 2009 and
September 30, 2009 and the related unaudited consolidated and consolidating statements of income
and cash flows for the fiscal half-year then ended. Such financial statements fairly present the
consolidated financial condition of the Company and its Subsidiaries as of such dates and the
consolidated results of operations for such periods in conformity with GAAP consistently applied.
Section 4.5.
Litigation
.
Unless previously disclosed to the Bank in writing, no
litigation, investigation or proceeding of or before any arbitrators or Governmental Authorities is
pending against or, to the knowledge of the Company, threatened against or affecting the Company or
any of its Subsidiaries as to which there is a reasonable possibility of an adverse determination
that could reasonably be expected to have, either individually or in the aggregate, a Material
Adverse Effect.
Section 4.6.
Compliance with Laws and Agreements
. The Company and each Subsidiary is
not in violation of (a) any applicable laws, rules, regulations and orders of any Governmental
Authority (including, without limitation any of the foregoing related to environmental matters or
ERISA), and (b) any indentures, agreements or other instruments binding upon it or its properties,
which, in the case of clause (a) or clause (b), could have a Material Adverse Effect.
Section 4.7.
Investment Company Act, Etc.
Neither the Company nor any of its
Subsidiaries is (a) an investment company, as defined in, or subject to regulation under, the
Investment Company Act of 1940, as amended, or (b) otherwise subject to any other regulatory scheme
limiting its ability to incur debt.
Section 4.8
.
Title to Assets, Etc
. Each of the Company and its Subsidiaries has
good title to, or valid leasehold interests in, all of its real and personal property material to
the operation of its business. Each of the Company and its Subsidiaries owns, or is licensed, or
otherwise has the right, to use, all patents, trademarks, service marks, trade names, copyrights
and other intellectual property material to its business, and the use thereof by the Company and
its Subsidiaries does not infringe on the rights of any other Person, except for any such
infringements that, individually or in the aggregate, would not have a Material Adverse Effect.
Section 4.9.
Information
. The Company has disclosed to the Bank all agreements,
instruments, and corporate or other restrictions to which the Company or any of its Subsidiaries is
subject, and all other matters known to any of them, that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. None of the reports (including
without limitation all reports that the Company is required to file with the Securities and
Exchange Commission), financial statements, certificates or other information furnished by or on
behalf of the Company to the Bank in connection with the negotiation of this Agreement or any of
the other Letter of Credit Documents, or delivered hereunder or thereunder (as modified or
supplemented by any other information so furnished) contains any material misstatement of fact or
omits to state any material fact necessary to make the statements therein, taken as a whole, in
light of the circumstances under which they were made, not misleading.
Section 4.10
.
Labor Matters
. There are no strikes, lockouts or other material labor
disputes or grievances against the Company or any of its Subsidiaries, or, to the Companys
knowledge, threatened against or affecting the Company or any of its Subsidiaries, and no
significant unfair labor practice, charges or grievances are pending against the Company or any of
its Subsidiaries, or to the Companys knowledge, threatened against any of them before any
Governmental Authority. All payments due from the Company or any of its Subsidiaries pursuant to
the provisions of any collective bargaining agreement have been paid or accrued as a liability on
the books of the Company or any such Subsidiary, except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
9
Section 4.11
.
Subsidiaries
.
Schedule II
sets forth the name of, the
jurisdiction of organization of, and the address of, each Subsidiary as of the date of this
Agreement.
Section 4.12
.
Insolvency
. After giving effect to the execution and delivery of the
Letter of Credit Documents and the issuance of each Letter of Credit under this Agreement, neither
the Company nor its Subsidiaries will be insolvent, within the meaning of such term as defined in
§ 101 of Title 11 of the United States Code, as amended from time to time, or be unable to pay its
debts generally as such debts become due, or have an unreasonably small capital to engage in any
business or transaction, whether current or contemplated.
Section 4.13
.
OFAC
. Neither the Company nor any Guarantor (i) is a person whose
property or interest in property is blocked or subject to blocking pursuant to Section 1 of
Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With
Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii)
engages in any dealings or transactions prohibited by Section 2 of such executive order, or is
otherwise associated with any such person in any manner violative of Section 2, or (iii) is a
person on the list of Specially Designated Nationals and Blocked Persons or subject to the
limitations or prohibitions under any other U.S. Department of Treasurys Office of Foreign Assets
Control regulation or executive order.
Section 4.14
.
Patriot Act
. The Company and each Guarantor is in compliance, in all
material respects, with (i) the Trading with the Enemy Act, as amended, and each of the foreign
assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V,
as amended) and any other enabling legislation or executive order relating thereto, and (ii) the
Uniting And Strengthening America By Providing Appropriate Tools Required To Intercept And Obstruct
Terrorism (USA Patriot Act of 2001). No Letter of Credit will be used, directly or indirectly, for
any payments to any governmental official or employee, political party, official of a political
party, candidate for political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation of the United
States Foreign Corrupt Practices Act of 1977, as amended.
ARTICLE V
AFFIRMATIVE COVENANTS
The Company covenants and agrees that so long as the Commitment is outstanding hereunder or
any amount payable hereunder remains unpaid or any Letter of Credit remains outstanding:
Section 5.1.
Financial Statements and Other Information
. The Company will deliver to
the Bank:
(a) as soon as available and in any event within 90 days after the end of each fiscal year of
the Company, a copy of the annual audited report for such fiscal year for the Company, containing
consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of
such fiscal year and the related consolidated and consolidating statements of income, stockholders
equity and cash flows (together with all footnotes thereto) of the Company and its Subsidiaries for
such fiscal year, setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and reported on by independent public accountants of
nationally recognized standing (without a going concern or like qualification, exception or
explanation and without any qualification or exception as to scope of such audit) to the effect
that such financial statements present fairly in all material respects the financial condition and
the results of operations of the Company and its Subsidiaries for such fiscal year on a
consolidated and consolidating basis in accordance with GAAP and that the examination by such
accountants in connection with such consolidated financial statements has been made in accordance
with generally accepted auditing standards;
(b) as soon as available and in any event within 45 days after the end of each fiscal quarter
of the Company, unaudited consolidated and consolidating balance sheets of the Company as of the
end of such fiscal quarter and the related unaudited consolidated and consolidating statements of
income and cash flows of the Company and its Subsidiaries for such fiscal quarter, setting forth in
each case in comparative form the figures for the corresponding fiscal quarter from the Companys
previous fiscal year, certified by the chief financial officer of the Company as presenting fairly
in all material respects the financial condition and results of operations of the Company and its
Subsidiaries on a consolidated and consolidating basis in accordance with GAAP, subject to normal
year-end audit adjustments; and
10
(c) promptly following any request therefor, such other information regarding the results of
operations, business affairs and financial condition of the Company or any Subsidiary as the Bank
may reasonably request.
Section 5.2.
Notices of Material Events
. The Company will furnish to the Bank prompt
written notice of the following:
(a) the occurrence of any Default or Event of Default; and
(b) any other development that results in, or could reasonably be expected to result in, a
Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a written statement of a
Responsible Officer setting forth the details of the event or development requiring such notice and
any action taken or proposed to be taken with respect thereto.
Section 5.3.
Existence; Conduct of Business
. The Company will, and will cause each
of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and maintain
in full force and effect its legal existence and its respective rights, licenses, permits,
privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of
its business and will continue to engage in the same business as presently conducted or such other
businesses that are reasonably related thereto.
Section 5.4.
Compliance with Laws, Etc.
The Company will, and will cause each of its
Subsidiaries to, comply with all laws, rules, regulations and requirements of any Governmental
Authority applicable to its properties, except where the failure to do so, either individually or
in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
Section 5.5.
Use of Letters of Credit
. The Company will use the Letters of Credit
to assure performance of workers compensation self-insurance programs, to support insurance
policies related thereto and for other general corporate purposes of the Company and its
Subsidiaries.
Section 5.6
.
Taxes
. The Company will, and will cause each of its Subsidiaries to, pay
and discharge at or before maturity, all of its obligations and liabilities (including without
limitation all tax liabilities and claims that could result in a statutory lien) before the same
shall become delinquent or in default, except where (i) the validity or amount thereof is being
contested in good faith by appropriate proceedings, (ii) the Company or such Subsidiary has set
aside on its books adequate reserves with respect thereto in accordance with GAAP and (iii) the
failure to make payment pending such contest could not reasonably be expected to result in a
Material Adverse Effect.
Section 5.7
Books and Records
. The Company will, and will cause each of its
Subsidiaries to, keep proper books of record and account in which full, true and correct entries
shall be made of all dealings and transactions in relation to its business and activities to the
extent necessary to prepare the consolidated financial statements of Company in conformity with
GAAP.
Section 5.8
Inspections
. The Company will, and will cause each of its Subsidiaries
to, permit any representative of the Bank to visit and inspect its properties, to examine its books
and records and to make copies and take extracts therefrom, and to discuss its affairs, finances
and accounts with any of its officers and with its independent certified public accountants, all at
such reasonable times and as often as the Bank may reasonably request after reasonable prior notice
to the Company.
Section 5.9
.
Maintenance of Properties
. The Company will, and will cause each of its
Subsidiaries to, (i) keep and maintain all property material to the conduct of its business in good
working order and condition, allowing for ordinary wear and tear except where the failure to do so,
either individually or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect and (ii) maintain with financially sound and reputable insurance companies,
insurance with respect to its properties and business, and the properties and business of its
Subsidiaries, against loss or damage of the kinds customarily insured against by companies in the
same or similar businesses operating in the same or similar locations.
11
Section 5.10
.
Subsidiaries
. If any additional Domestic Subsidiary is acquired or
formed after the date hereof, the Company will, within ten (10) Business Days after such Domestic
Subsidiary is acquired or formed, cause such Domestic Subsidiary to execute and deliver a Guaranty
to the Bank.
Section 5.11
.
Further Assurances
. The Company will, and will cause each Subsidiary
to, at any time and from time to time upon the written request of the Bank, execute and deliver
such further documents and do such further acts and things as the Bank may reasonably request in
order to effect the purposes of this Agreement.
Section 5.12
.
Cash Collateral
. The Company shall have pledged to the Bank at all
times until the Final Termination Date an amount in cash, or with the consent of the Bank (which it
may or may not give in its sole discretion), as to not more than twenty-five percent (25%) of the
required amount, investments in money market funds approved by Bank (such cash and other
amounts, collectively, Cash Collateral) in an aggregate amount at least equal to the LC
Exposure. Such Cash Collateral shall be maintained in an account or accounts of the Company at
the Bank or at a securities intermediary satisfactory to the Bank (collectively, Pledged
Accounts) subject to a pledge agreement or pledge agreements and control agreements (with the
applicable securities intermediary) in form and substance satisfactory to the Bank
(collectively, Pledge Agreement) . If at any time the amount of the Cash Collateral is less
than the LC Exposure, the Company shall immediately deposit additional Cash Collateral in the form
of cash with the Bank and shall execute and deliver to the Bank an additional Pledge Agreement (or
amendment to existing Pledge Agreement) as the Bank may require in regard thereto. Such Cash
Collateral shall secure the payment and performance of the Obligations. The Bank shall have
exclusive dominion and control, including the exclusive right of withdrawal, over the Pledged
Accounts. Moneys and other assets in the Pledged Accounts may be applied by the Bank at any time
to reimburse itself for LC Disbursements for which it has not been reimbursed or to pay any other
Obligations. Interest earned on amounts in the Pledged Accounts shall accumulate in the Pledged
Accounts and shall become part of the Cash Collateral;
provided
,
however
, that, at
the written request of the Company, made not more often than once per calendar month, so long as
the Company is in compliance with the provisions of this
Section 5.12
and no Default or
Event of Default otherwise exists, the Bank shall pay to the Company any amount then on deposit in
the Pledged Accounts which is in excess of the LC Exposure.
Section 5.13.
Existing Credit Agreement
. Within sixty (60) days after the date
hereof, the Company shall deliver to the Bank evidence satisfactory to the Bank that the Existing
Credit Agreement has been terminated and all obligations thereunder have been paid in full and
the Administrative Agent thereunder has released its liens (if any) in any collateral thereunder.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.1.
Events of Default
. If any of the following events (each an
Event
of Default
) shall occur:
(a) the Company shall fail to pay any reimbursement obligation in respect of any LC
Disbursement when and as the same shall become due and payable; or
(b) the Company shall fail to pay any interest or any fee or any other Obligation (other than
an amount payable under clause (a) of this Article) payable under this Agreement or under any other
Letter of Credit Document when and as the same shall become due and payable, and such failure shall
continue unremedied for a period of three (3) Business Days; or
(c) any representation or warranty made or deemed made by or on behalf of the Company or any
Guarantor in or in connection with this Agreement or any Letter of Credit Document or in any
certificate, report, financial statement or other document submitted to the Bank by the Company or
any Guarantor pursuant to or in connection with this Agreement shall prove to be incorrect in any
material respect when made or deemed made; or
(d) (i) the Company shall fail to observe or perform any covenant set forth in
Section
5.1
,
5.3
,
5.5
,
5.7
,
5.8
or
5.12
or (ii) the Company
shall fail to observe or perform any other covenant or agreement contained in
Article V
and
such failure
described in this clause (ii) shall remain unremedied for 30 days after the earlier of (i) any
officer of the Company becomes aware of such failure, or (ii) notice thereof shall have been given
to the Company by the Bank; or
12
(e) the Company or any Guarantor or any other Subsidiary of the Company (whether as primary
obligor or as guarantor or other surety) shall fail to pay any principal of or premium or interest
on any indebtedness in an amount greater than Ten Million Dollars ($10,000,000), when and as the
same shall become due and payable (whether at scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument evidencing such indebtedness; or any other
event shall occur or condition shall exist under any agreement or instrument relating to such
indebtedness and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to accelerate, or permit the
acceleration of, the maturity of such indebtedness; or any such indebtedness shall be declared to
be due and payable; or
(f) the Company, any Guarantor or any other Subsidiary of the Company shall (i) commence a
voluntary case or other proceeding or file any petition seeking liquidation, reorganization or
other relief under any federal, state or foreign bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a custodian, trustee, receiver, liquidator or
other similar official of it or any substantial part of its property, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition
described in clause (i) of this Section, (iii) apply for or consent to the appointment of a
custodian, trustee, receiver, liquidator or other similar official for the Company, such Guarantor
or such other Subsidiary for a substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any
of the foregoing; or
(g)an involuntary proceeding shall be commenced or an involuntary petition shall be filed
seeking (i) liquidation, reorganization or other relief in respect of the Company, any Guarantor or
any other Subsidiary of the Company or its debts, or any substantial part of its assets, under any
federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect
or (ii) the appointment of a custodian, trustee, receiver, liquidator or other similar official for
the Company, any Guarantor or any other Subsidiary of the Company or for a substantial part of its
assets, and in any such case, such proceeding or petition shall remain undismissed for a period of
60 days or an order or decree approving or ordering any of the foregoing shall be entered; or
(h) the Company, Guarantor or any other Subsidiary of the Company shall become unable to
pay, shall admit in writing its inability to pay, or shall fail to pay, its debts as they become
due; or
(i) the shareholders of the Company on the date of this Agreement shall cease to own at least
51% of the Voting Stock of the Company; or
(j) any provision of any Guaranty shall for any reason cease to be valid and binding on, or
enforceable against, any Guarantor, or any Guarantor shall so state in writing, or any Guarantor
shall seek to terminate its Guaranty; or
(k) any default, event of default or similar event shall occur under any Letter of Credit
Application or any other Letter of Credit Document (other than as set forth in the preceding
clauses (a) through (j)) then, and in every such event (other than an event described in clause
(f), (g) or(h) of this Section) and at any time thereafter during the continuance of such event,
the Bank may, by notice to the Company, take any or all of the following actions, at the same or
different times
:
(i) terminate the Commitment; (ii) declare all Obligations to be, whereupon the
same shall become, due and payable immediately, without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company and (iii) exercise any or all
remedies contained in any Letter of Credit Document or under applicable law or in equity; and
that, if an Event of Default specified in either clause (f), (g) or (h) shall occur, the
Commitment shall automatically terminate and all Obligations shall automatically become due and
payable, without presentment, demand, protest or other notice of any kind, all of which are hereby
waived by the Company. Credit.
13
ARTICLE VII
MISCELLANEOUS
Section 7.1.
Notices
.
(a) Except in the case of notices and other communications expressly permitted to be given by
telephone, all notices and other communications to any party herein to be effective shall be in
writing and shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
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To the Company:
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Arkansas Best Corporation
3801 Old Greenwood Road
Fort Smith, Arkansas 72903
Attention: Donald W. Pearson
Telephone Number: (479)785-6136
Telecopy Number: (479)785-8650
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To the Bank:
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SunTrust Bank
303 Peachtree Street, N. E.
Atlanta, Georgia 30308
Attention: Tesha Winslow, Portfolio Manager
Telephone Number: (404) 813-0581
Telecopy Number: (404) 588-8833
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Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All such notices and other
communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered
for overnight (next-day) delivery, or transmitted in legible form by facsimile machine,
respectively, or if mailed, upon the third Business Day after the date deposited into the mails or
if delivered, upon delivery;
provided
, that notices delivered to the Bank shall not be
effective until actually received by the Bank at its address specified in this
Section 7.1
.
(b) Any agreement of the Bank herein to receive certain notices by telephone or facsimile is
solely for the convenience and at the request of the Company. The Bank shall be entitled to rely
on the authority of any Person purporting to be a Person authorized by the Company to give such
notice and the Bank shall not have any liability to the Company or other Person on account of any
action taken or not taken by the Bank in reliance upon such telephonic or facsimile notice. The
obligation of the Company to pay the Obligations shall not be affected in any way or to any extent
by any failure of the Bank to receive written confirmation of any telephonic or facsimile notice or
the receipt by the Bank of a confirmation which is at variance with the terms understood by the
Bank to be contained in any such telephonic or facsimile notice.
Section 7.2.
Waiver; Amendments
.
(a) No failure or delay by the Bank in exercising any right or power hereunder or under any
other Letter of Credit Document, and no course of dealing between the Company and the Bank
,
shall
operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or
any abandonment or discontinuance of steps to enforce such right or power, preclude any other or
further exercise thereof or the exercise of any other right or power hereunder or thereunder. The
rights and remedies of the Bank hereunder and under the other Letter of Credit Documents are
cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any
provision of this Agreement or any other Letter of Credit Document or consent to any departure by
the Company therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the generality of the
foregoing, the issuance of a Letter of Credit shall not be construed as a waiver of any Default or
Event of Default, regardless of whether the Bank may have had notice or knowledge of such Default
or Event of Default at the time.
(b) No amendment or waiver of any provision of this Agreement or the other Letter of Credit
Documents, nor consent to any departure by the Company therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Company and the Bank and then such waiver or
consent shall be effective only in the specific instance and for the specific purpose for which
given.
14
Section 7.3.
Expenses; Indemnification
.
(a) The Company shall pay (i) all reasonable, out-of-pocket costs and expenses of the Bank,
including the reasonable fees, charges and disbursements of counsel for the Administrative Agent
and its affiliates, in connection the preparation and administration of the Letter of Credit
Documents and any amendments, modifications or waivers thereof (whether or not the transactions
contemplated in this Agreement or any other Letter of Credit Document shall be consummated), (ii)
all reasonable out-of-pocket expenses incurred by the Bank in connection with any demand for
payment under any Letter of Credit and (iii) all out-of-pocket costs and expenses (including,
without limitation, the reasonable fees, charges and disbursements of outside counsel and the
reasonable allocated cost of inside counsel) incurred by the Bank in connection with the
enforcement or protection of its rights in connection with this Agreement, including its rights
under this
Section 7.3
, or in connection with the Letters of Credit issued hereunder,
including all such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.
(b) The Company shall indemnify the Bank and its affiliates and the directors, officers,
employees, agents, attorneys and advisors of the Bank and its affiliates (each such Person being
called an
Indemnitee
) against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses (including the fees, charges and
disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each
Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of
any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or
by the Company arising out of, in connection with, or as a result of (i) the execution or delivery
of this Agreement, any other Letter of Credit Document or any agreement or instrument contemplated
hereby or thereby, the performance by the parties hereto of their respective obligations hereunder
or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any
Letter of Credit or the use therefrom (including any refusal by the Bank to honor a demand for
payment under a Letter of Credit if the documents presented in connection with such demand do not
strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged violation of
environmental laws related in any way to the Borrower or any of its Subsidiaries, or (iv) any
actual or prospective claim, litigation, investigation or proceeding relating to any of the
foregoing, whether based on contract, tort or any other theory, whether brought by a third party or
by the Company, and regardless of whether any Indemnitee is a party thereto,
provided
that
such indemnity shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses (x) are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or
willful misconduct of such Indemnitee or (y) result from a claim brought by the Company against an
Indemnitee for breach in bad faith of such Indemnitees obligations hereunder or under any other
Letter of Credit Document, if the Company has obtained a final and nonappealable judgment in its
favor on such claim as determined by a court of competent jurisdiction.
(c) The Company shall pay, and hold the Bank harmless from and against, any and all present
and future stamp, documentary, and other similar taxes with respect to this Agreement and any other
Letter of Credit Documents, any collateral described therein, or any payments due thereunder, and
save the Bank harmless from and against any and all liabilities with respect to or resulting from
any delay or omission to pay such taxes.
(d) To the extent permitted by applicable law, the Company shall not assert, and hereby
waives, any claim against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to actual or direct damages) arising out of, in
connection with or as a result of, this Agreement or any agreement or instrument contemplated
hereby, the transactions contemplated therein, or any Letter of Credit or the use thereof.
Section 7.4.
Successors and Assigns
.
(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the Company may not assign
or transfer any of its rights hereunder without the prior written consent of the Bank (and any
attempted assignment or transfer by the Company without such consent shall be null and void).
(b) The Bank may at any time assign to one or more assignees all or a portion of its rights
and obligations under this Agreement and the other Letter of Credit Documents (including all or a
portion of its obligations under the Letters of Credit) or grant participations in all or a portion
of its rights and obligations under this Agreement and the other Letter of Credit Documents;
provided, that the Company must give its prior written consent (which consent shall not be
unreasonably withheld or delayed), to any assignment, except during the occurrence and continuation
of a Default or an Event of Default. Upon the execution and delivery of an assignment agreement by
the Bank and such assignee and payment by such assignee of an amount equal to the purchase price
agreed between the Bank and such assignee, such assignee shall become a party to this Agreement and
the other Letter of Credit Documents
and shall have the rights and obligations of a Bank under this Agreement, and the Bank shall
be released from its obligations hereunder to a corresponding extent.
15
(c) The Bank may at any time pledge or assign a security interest in all or any portion of its
rights under this Agreement and the other Letter of Credit Documents to secure its obligations to a
Federal Reserve Bank without complying with this Section;
provided
, that no such pledge or
assignment shall release the Bank from any of its obligations hereunder or substitute any such
pledgee or assignee for such Bank as a party hereto.
Section 7.5.
Governing Law; Jurisdiction; Consent to Service of Process
.
(a) This Agreement and the other Letter of Credit Documents shall be construed in accordance
with and be governed by the law (without giving effect to the conflict of law principles thereof)
of the State of Georgia.
(b) The Company hereby irrevocably and unconditionally submits, for itself and its property,
to the non-exclusive jurisdiction of the United States District Court of the Northern District of
Georgia, and of any state court of the State of Georgia located in Fulton County and any appellate
court from any thereof, in any action or proceeding arising out of or relating to this Agreement or
any other Letter of Credit Document or the transactions contemplated hereby or thereby, or for
recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or proceeding may be heard and
determined in such Georgia state court or, to the extent permitted by applicable law, such Federal
court. Each of the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. Nothing in this Agreement or any other Letter of Credit Document
shall affect any right that the Bank may otherwise have to bring any action or proceeding relating
to this Agreement or any other Letter of Credit Document against the Company or its properties in
the courts of any jurisdiction.
(c) The Company irrevocably and unconditionally waives any objection which it may now or
hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph
(b) of this Section and brought in any court referred to in paragraph (b) of this Section. Each of
the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the
defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to the service of process in the manner
provided for notices in
Section 7.1
. Nothing in this Agreement or in any other Letter of
Credit Document will affect the right of any party hereto to serve process in any other manner
permitted by law.
Section 7.6.
WAIVER OF JURY TRIAL
. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LETTER OF CREDIT
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LETTER OF CREDIT
DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 7.7.
Counterparts; Integration
. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to constitute one and the
same instrument. This Agreement and the other Letter of Credit Documents constitute the entire
agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and
supersede all prior agreements and understandings, oral or written, regarding such subject matters.
16
Section 7.8.
Survival
. All covenants, agreements, representations and warranties made
by the Company herein and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto
and shall survive the execution and delivery of this Agreement and the issuance of any Letters of
Credit, regardless of any investigation made by any such other party or on its behalf and
notwithstanding that the Bank may have had notice or knowledge of any Default or Event of Default
or incorrect representation or warranty at the time any credit is extended hereunder, and shall
continue in full force and effect until the Final Termination Date. The provisions of
Sections
2.5
and
7.3
shall
survive and remain in full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Obligations, the expiration or termination of the
Commitment, the cancellation or expiration of all Letters of Credit or the termination of this
Agreement or any provision hereof. All representations and warranties made herein, or in the
certificates, reports, notices, and other documents delivered pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the other Letter of Credit Documents, and
the issuance of the Letters of Credit.
Section 7.9.
Severability
. Any provision of this Agreement or any other Letter of
Credit Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such
jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability
without affecting the legality, validity or enforceability of the remaining provisions hereof or
thereof; and the illegality, invalidity or unenforceability of a particular provision in a
particular jurisdiction shall not invalidate or render unenforceable such provision in any other
jurisdiction.
[Remainder of page intentionally left blank]
17
IN WITNESS WHEREOF
, the parties hereto have caused this Agreement to be duly executed under
seal in the case of the Company by their respective authorized officers as of the day and year
first above written.
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ARKANSAS BEST CORPORATION
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By:
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/s/ Judy R. McReynolds
|
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|
Name:
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Judy R. McReynolds
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|
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Title:
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Senior Vice President, Chief Financial
Officer and Treasurer
|
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SUNTRUST BANK
|
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By:
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/s/ Tesha Winslow
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Name:
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Tesha Winslow
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Title:
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Portfolio Manager
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[SIGNATURE PAGE TO
LETTER OF CREDIT AGREEMENT]
Schedule I
Existing Letters of Credit
1.
|
|
Letter of Credit Number F401036 dated August 20, 2002 in the initial face amount of
$1,810,000 with an expiry date of August 26, 2010.
|
2.
|
|
Letter of Credit Number F847094 dated September 12, 2005 in the initial face amount of
$1,425,000 with an expiry date of August 31, 2010.
|
3.
|
|
Letter of Credit Number F841245 dated May 15, 2003 in the initial face amount of
$1,000,000 with an expiry date of May 14, 2010.
|
4.
|
|
Letter of Credit Number F854256 dated
in the initial face amount of $400,000
with an expiry date of
.
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Schedule II
Subsidiaries
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|
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Jurisdiction of
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Name of Subsidiary
|
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Incorporation
|
|
Address of Principal Office
|
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|
|
|
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ABF Aviation, LLC
|
|
Arkansas
|
|
3801 Old Greenwood Road
Fort Smith, AR 72903
|
|
|
|
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ABF Cartage, Inc.
|
|
Delaware
|
|
3801 Old Greenwood Road
Fort Smith, AR 72903
|
|
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|
|
|
ABF Farms, Inc.
|
|
Arkansas
|
|
3801 Old Greenwood Road
Fort Smith, AR 72903
|
|
|
|
|
|
ABF Freight System,
Inc.
|
|
Delaware
|
|
3801 Old Greenwood Road
Fort Smith, AR 72903
|
|
|
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ABF Freight System
B.C. Ltd.
|
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British Columbia
|
|
3801 Old Greenwood Road
Fort Smith, AR 72903
|
|
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ABF Freight System
Canada Ltd.
|
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Canadian Federal
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Data-Tronics Corp.
|
|
Arkansas
|
|
3801 Old Greenwood Road
Fort Smith, AR 72903
|
|
|
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FleetNet America, Inc.
|
|
Arkansas
|
|
P.O. Box 970
Cherryville, NC 28021
|
|
|
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Freightvalue, Inc.
|
|
Arkansas
|
|
3801 Old Greenwood Road
Fort Smith, AR 72903
|
|
|
|
|
|
Global Supply Chain
Services, Inc.
|
|
Arkansas
|
|
3801 Old Greenwood Road
Fort Smith, AR 72903
|
|
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|
Land-Marine Cargo, Inc.
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Puerto Rico
|
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3801 Old Greenwood Road
Fort Smith, AR 72903
|
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Motor Carrier
Insurance, Ltd.
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Bermuda
|
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P.O. Box 1022 Clarendon House
Church Street West
Hamilton HM DX Bermuda
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Transport Realty, Inc.
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Arkansas
|
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3801 Old Greenwood Road
Fort Smith, AR 72903
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Tread-Ark Corporation
|
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Delaware
|
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3801 Old Greenwood Road
Fort Smith, AR 72903
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Exhibit 10.24
CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION UNDER A CONFIDENTIAL TREATMENT REQUEST, PURSUANT TO RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT
AT THE APPROPRIATE PLACE WITH THREE ASTERISKS [***].
Receivables Loan Agreement
Dated as of December 30, 2009
Among
ABF Freight Funding LLC,
as Borrower
,
ABF Freight System, Inc.,
as initial Servicer
,
SunTrust Bank
and
SunTrust Robinson Humphrey, Inc
., as Agent
Table of Contents
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Section
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Heading
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Page
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Article I
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Commitment; Borrowing Procedures
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1
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Section 1.1.
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Commitment
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1
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Section 1.2.
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Borrowing Procedures
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1
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Section 1.3.
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Prepayments
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2
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Section 1.4.
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Deemed Collections
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2
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Section 1.5.
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Payment Requirements and Computations
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3
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Article II
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Payments and Collections
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3
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Section 2.1.
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Payments of Recourse Obligations
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3
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Section 2.2.
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Collections Prior to the Facility Termination Date
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3
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Section 2.3.
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Application of Collections After the Facility Termination Date
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4
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Section 2.4.
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Payment Rescission
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4
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Section 2.5.
|
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Clean Up Call; Release of Security Interests
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4
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Article III
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[Reserved]
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5
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Article IV
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Loans
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5
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Section 4.1.
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Loans
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5
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Section 4.2.
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Interest Payments
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5
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Section 4.3.
|
|
Loan Interest Rates
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5
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Section 4.4.
|
|
Suspension of the LIBO Rate
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|
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5
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Section 4.5.
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Default Rate
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5
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Article V
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Representations and Warranties
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6
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Section 5.1.
|
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Representations and Warranties of the Borrower Parties
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6
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Article VI
|
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Conditions of Loans
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8
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Section 6.1.
|
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Conditions Precedent to Initial Loan
|
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8
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Section 6.2.
|
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Conditions Precedent to All Loans
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8
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Article VII
|
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Covenants
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9
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Section 7.1.
|
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Affirmative Covenants of the Borrower Parties
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9
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Section 7.2.
|
|
Negative Covenants of the Borrower Parties
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14
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Section 7.3.
|
|
Affirmative Post-Closing Covenants of the Borrower Parties
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15
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Article VIII
|
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Administration and Collection
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15
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Section 8.1.
|
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Designation of Servicer
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15
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Section 8.2.
|
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Duties of Servicer
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15
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Section 8.3.
|
|
Collection Notices
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16
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Section 8.4.
|
|
Responsibilities of the Borrower
|
|
|
16
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Section 8.5.
|
|
Receivables Reports
|
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|
17
|
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Section 8.6.
|
|
Servicing Fee
|
|
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17
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Article IX
|
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Amortization Events
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17
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Section 9.1.
|
|
Amortization Events
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17
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Section 9.2.
|
|
Servicer Termination Events
|
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|
19
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Section 9.3.
|
|
Remedies
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|
|
19
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Section
|
|
Heading
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|
Page
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Article X
|
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Indemnification
|
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20
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Section 10.1.
|
|
Indemnities by the Borrower Parties
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20
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|
Section 10.2.
|
|
Increased Cost and Reduced Return
|
|
|
21
|
|
Section 10.3.
|
|
Other Costs and Expenses
|
|
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22
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Article XI
|
|
The Agent
|
|
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22
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|
Section 11.1.
|
|
Authorization and Action
|
|
|
22
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|
Section 11.2.
|
|
STRH, SunTrust Bank and Affiliates
|
|
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22
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Article XII
|
|
Assignments and Participations; Refinancing
|
|
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22
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|
Section 12.1.
|
|
Successors and Assigns
|
|
|
22
|
|
Section 12.2.
|
|
Participants
|
|
|
22
|
|
Section 12.3.
|
|
Assignments
|
|
|
22
|
|
Section 12.4.
|
|
Prohibition on Assignments by the Borrower Parties
|
|
|
23
|
|
Section 12.5.
|
|
Refinancing by Three Pillars
|
|
|
23
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|
|
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|
Article XIII
|
|
Miscellaneous
|
|
|
23
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|
|
|
|
|
|
|
|
Section 13.1.
|
|
Waivers and Amendments
|
|
|
23
|
|
Section 13.2.
|
|
Notices
|
|
|
24
|
|
Section 13.3.
|
|
Protection of Agents Security Interest
|
|
|
24
|
|
Section 13.4.
|
|
Confidentiality
|
|
|
24
|
|
Section 13.5.
|
|
Limitation of Liability
|
|
|
25
|
|
Section 13.6.
|
|
No Recourse Against the Lender
|
|
|
25
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|
Section 13.7.
|
|
Choice of Law
|
|
|
25
|
|
Section 13.8.
|
|
Consent to Jurisdiction
|
|
|
25
|
|
Section 13.9.
|
|
Waiver of Jury Trial
|
|
|
26
|
|
Section 13.10.
|
|
Integration; Binding Effect; Survival of Terms
|
|
|
26
|
|
Section 13.11.
|
|
Counterparts; Severability; Section References
|
|
|
26
|
|
Section 13.12.
|
|
Characterization; Security Interest
|
|
|
26
|
|
Section 13.13.
|
|
Increase in Commitment
|
|
|
26
|
|
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|
|
Exhibit I
|
|
Definitions
|
|
|
|
Exhibit II
|
|
Form of Borrowing Request
|
|
|
|
Exhibit III
|
|
Jurisdiction of Organization of the Borrower Parties; Places of Business of the Borrower Parties; Locations of Records; Federal Employer
Identification Number(s)
|
|
|
|
Exhibit IV
|
|
Names of Collection Banks and Segregated Account Banks; Lock-Boxes, Segregated Accounts and Collection Accounts
|
|
|
|
Exhibit V
|
|
Form of Compliance Certificate
|
|
|
|
Exhibit VI
|
|
[Reserved]
|
|
|
|
Exhibit VII
|
|
Form of Monthly Report
|
|
|
|
Exhibit VIII
|
|
Form of Weekly Report
|
|
|
|
Exhibit IX
|
|
Form of Prepayment Notice
|
|
|
|
Exhibit X
|
|
Form of Assignment and Acceptance
|
|
|
|
Schedule A
|
|
Documents to be Delivered to the Agent on or Prior to the Initial Loan
|
-ii-
Receivables Loan Agreement
This Receivables Loan Agreement
, dated as of December 30, 2009 (this
Agreement
), is
entered into by and among:
(a) ABF Freight Funding LLC, a Delaware limited liability company (the
Borrower
),
(b) ABF Freight System, Inc., a Delaware corporation (
ABF
or the
Servicer
), as
initial Servicer (the Servicer together with the Borrower, the
Borrower Parties
and each,
a
Borrower Party
),
(c) SunTrust Bank, a Georgia banking corporation (
SunTrust
or the
Lender
), and
(d) SunTrust Robinson Humphrey, Inc., a Tennessee corporation (
STRH
), as agent and
administrator for the Lender and its assigns under the Transaction Documents (together with
its successors and assigns in such capacity, the
Agent
).
Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the
meanings assigned to such terms in Exhibit I.
Preliminary Statements
Whereas
, Borrower desires that the Lender extend financing to Borrower on the terms
and conditions set forth herein.
Whereas
, the Lender is willing to provide such financing on the terms and conditions
set forth in this Agreement.
Whereas,
STRH has been requested and is willing to act as agent and administrator on
behalf of the Lender and its assigns in accordance with the terms hereof.
Article I
Commitment; Borrowing Procedures
Section 1.1. Commitment
. (a) Upon the terms and subject to the conditions of this Agreement
(including, without limitation, Article VI), the Lender agrees to make loans to Borrower on a
revolving basis from time to time (the
Commitment
) prior to the Facility Termination Date in such
amounts as may be from time to time requested by Borrower pursuant to Section 1.2;
provided
that no
Loans shall be made by the Lender if, after giving effect thereto, the Aggregate Loan Amount would
exceed the lesser of (a) the Facility Limit and (b) the Net Pool Balance less the Required Reserve.
The Borrower will pay Interest on Loans made pursuant to this Agreement at the Alternate Base Rate
or the LIBO Rate, selected in accordance with Article IV hereof. Within the limits of the
Commitment, Borrower may borrow, prepay and reborrow under this Section 1.1.
(b) The Borrower may, upon at least ten (10) Business Days notice to the Agent, terminate in
whole or reduce in part, the unused portion of the Facility Limit, without premium or penalty;
provided that each partial reduction of the Facility Limit shall be in an amount equal to
$5,000,000 (or a larger integral multiple of $1,000,000 if in excess thereof) and shall not reduce
the Facility Limit below $10,000,000.
Section 1.2. Borrowing Procedures
. The Borrower (or the Servicer, on its behalf) may request
a Loan hereunder by giving notice to Agent of a proposed borrowing not later than 12:00 noon
(Atlanta, Georgia time), at least (i) three (3) Business Days prior to the proposed date of such
borrowing (or such lesser period of time as Lender may consent) in the case of a Loan which is to
bear interest at the LIBO Rate, and (ii) one (1) Business Day prior to the proposed date of such
borrowing (or such lesser period of time as Lender may consent) in the case of a Loan which is to
bear interest at the Alternate Base Rate, in a form set forth as Exhibit II hereto (each, a
Borrowing Request
). Each Borrowing Request shall be subject to Section 6.2 hereof and shall be
irrevocable and binding on the Borrower. Each Borrowing Request shall specify the requested Loan
amount (which shall not be less than $1,000,000 or a larger integral multiple of $100,000
)
, whether
the Loan is to be made at the LIBO Rate or the Alternate Base Rate, and the Borrowing Date (which
shall be on a Business Day). There shall not be more than four (4) Loans which are accruing
interest at the LIBO Rate outstanding at any time. On each Borrowing Date, upon satisfaction of
the applicable conditions precedent set forth in Article VI and this Section 1.2, the Lender shall
deposit to the Facility Account, in immediately available funds, no later than 2:00 p.m. (Atlanta
time), an amount equal to the requested Loan.
Section 1.3. Prepayments
. (a) The Borrower shall provide the Agent with prior written notice
in conformity with the Required Notice Period in the form of Exhibit IX hereto (a
Prepayment
Notice
) of any proposed prepayment of any Loan or, in the case of any Loan bearing interest at the
Alternate Base Rate, any portion thereof. The Borrower shall only deliver a Prepayment Notice if
Collections are available in an
amount sufficient to make the proposed prepayment of a Loan plus any related accrued and unpaid
Interest and Broken Funding Costs. Such Prepayment Notice shall designate (i) the date (the
Proposed Prepayment Date
) upon which any such prepayment shall occur (which date shall give
effect to the applicable Required Notice Period and need not be a Settlement Date), (ii) the amount
of the Loan or Loans to be prepaid, and (iii) to which Loan or Loans such prepayment shall apply
(in the absence of direction from the Borrower as to which Loans shall be prepaid such prepayment
shall be applied as the Agent shall determine in its reasonable discretion) (the
Aggregate
Prepayment
). Only one (1) Prepayment Notice shall be outstanding at any time. The Borrower shall
pay any Broken Funding Costs and accrued and unpaid Interest on the portion of the Aggregate Loan
Amount which has been prepaid on the Proposed Prepayment Date,
provided, however
, that unpaid
accrued Interest on such prepaid amount shall only be paid on such date if so requested by the
Administrator, on behalf of the Lender, in its sole discretion, otherwise such Interest shall be
payable on the next occurring Settlement Date.
(b) If on any day the Aggregate Loan Amount exceeds the amount obtained by subtracting the
Required Reserve from the Net Pool Balance (such an event, a
Borrowing Base Deficiency
), the
Borrower, upon notice from Lender or Agent of such Borrowing Base Deficiency or upon the knowledge
of an Authorized Officer of the Borrower thereof, shall make a prepayment of the Aggregate Loan
Amount in an amount equal to such excess, plus any Broken Funding Costs and accrued and unpaid
Interest on the portion of the Aggregate Loan Amount which has been prepaid,
provided, however
,
that unpaid accrued Interest on such prepaid amount shall only be paid on such date if so requested
by the Administrator, on behalf of the Lender, in its sole discretion, otherwise such Interest
shall be payable on the next occurring Settlement Date
Section 1.4. Deemed Collections
. If on any day:
(i) the Outstanding Balance of any Receivable that was included as an Eligible
Receivable in the most recent Monthly Report or Weekly Report provided to the Agent is
reduced or cancelled as a result of any defective, returned or rejected goods or services,
any cash discount or any other adjustment by the Originator or any Affiliate thereof, or as
a result of any governmental or regulatory action, or
(ii) the Outstanding Balance of any Receivable that was included as an Eligible
Receivable in the most recent Monthly Report or Weekly Report provided to the Agent is
reduced or canceled as a result of a setoff in respect of any claim by the Obligor thereof
(whether such claim arises out of the same or a related or an unrelated transaction), or
(iii) the Outstanding Balance of any Receivable that was included as an Eligible
Receivable in the most recent Monthly Report or Weekly Report provided to the Agent is
reduced on account of the obligation of the Originator or any Affiliate thereof to pay to
the related Obligor any rebate or refund, or
(iv) the Outstanding Balance of any Receivable that was included as an Eligible
Receivable in the most recent Monthly Report or Weekly Report provided to the Agent is less
than the amount included in calculating the Net Pool Balance for purposes of any Monthly
Report or Weekly Report (for any reason other than receipt of Collections or such Receivable
becoming a Defaulted Receivable), or
(v) any of the representations or warranties of the Borrower set forth in
Section 5.1(g), Section 5.1(i), Section 5.1(j), Section 5.1(q), Section 5.1(r),
Section 5.1(s), Section 5.1(t), Section 5.1(u) or Section 5.1(y) were not true when made
with respect to any Purchased Receivable,
then, on such day as notice has been given to Borrower by Lender or Agent of such occurrence or an
Authorized Officer of the Borrower shall have knowledge thereof, the Borrower shall be deemed to
have received a Collection of such Receivable (A) in the case of clauses (i)-(iv) above, in the
amount of such reduction or cancellation or the difference between the actual Outstanding Balance
and the amount included in calculating such Net Pool Balance, as applicable; and (B) in the case of
clause (v) above, in the amount of the Outstanding Balance of such Receivable, and (in either
case), (1) at all times prior to an Amortization Event, if as a result of such Deemed Collection a
Borrowing Base Deficiency would occur, not later than two Business Days thereafter the Borrower
shall pay to the Agents Account an amount necessary to cure such Borrowing Base Deficiency and (2)
at all times after an Amortization Event has occurred, not later than two Business Days thereafter
the Borrower shall pay an amount equal to such Deemed Collection to the Agents Account to be
distributed in the same manner as actual cash collections are distributed pursuant to Section 2.3
hereof.
If the Borrower pays the Outstanding Balance of any Purchased Receivable under clause (B)
above, the Agent agrees to release all right, title and interest it may have in and to such
Purchased Receivable and the Related Security relating solely to such Receivable to the extent the
Originator is required to repurchase such Receivable from the Borrower, and does repurchase such
Receivable, in accordance with the terms of Receivables Sale Agreement.
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Section 1.5. Payment Requirements and Computations
. All amounts to be paid or deposited by a
Borrower Party pursuant to any provision of this Agreement shall be paid or deposited in accordance
with the terms hereof no later than 12:00 noon (Atlanta time) on the day when due in immediately
available funds, and if not received before 12:00 noon (Atlanta time) shall be deemed to be
received on the next succeeding Business Day. If such amounts are payable to the Agent for the
account of the Lender, they shall be paid to the Agents Account, for the account of the Lender
until otherwise notified by the Agent. All computations of Interest which accrues at the Alternate
Base Rate shall be made on the basis of a year of 365 or 366 days, as applicable, for the actual
number of days elapsed in the applicable Interest Period. All computations of Interest (other than
Interest which accrues at the Alternate Base Rate), per annum fees hereunder and per annum fees
under the Fee Letter shall be made on the basis of a year of 360 days for the actual number of days
elapsed in the applicable Interest Period. If any amount hereunder shall be payable on a day which
is not a Business Day, such amount shall be payable on the next succeeding Business Day.
Article II
Payments and Collections
Section 2.1. Payments of Recourse Obligations
. The Borrower hereby promises to pay the
following (collectively, the
Recourse Obligations
):
(a) all amounts due and owing under Section 1.3 or Section 1.4 on the dates specified
therein or in order to cure a Borrowing Base Deficiency within two (2) Business Days of
knowledge of an Authorized Officer of the Borrower or notice from Agent or Lender of the
occurrence thereof;
(b) the fees set forth in the Fee Letter on the dates specified therein;
(c) all accrued and unpaid Interest on the Loans accruing Interest at the Alternate
Base Rate or the Default Rate on each Settlement Date applicable thereto;
(d) all accrued and unpaid Interest on the Loans accruing Interest at the LIBO Rate on
the last day of each Interest Period applicable thereto; and
(e) all Broken Funding Costs and Indemnified Amounts upon demand.
Section 2.2. Collections Prior to the Facility Termination Date
. (a) Prior to the Facility
Termination Date, any Deemed Collections and any Collections received by the Servicer shall be set
aside in the Master Collection Account and held in trust by the Servicer for the payment of any
accrued and unpaid Recourse Obligations as provided in this Section 2.2. Any Collections not
required to be set aside pursuant to the foregoing sentence may be distributed prior to the next
Settlement Date to the Servicer in respect of the Servicing Fee or to the Borrower for purposes of
purchasing new Receivables pursuant to the Receivables Sale Agreement or paying down the
Subordinated Note or, to the extent that the amount in the Master Collection Account available for
distribution on any day exceeds the sum of (i) the purchase price of the Receivables to then be
purchased under the Receivables Sale Agreement, (ii) the amounts outstanding and payable under the
Subordinated Note and (iii) any other Recourse Obligations payable on or prior to the next
scheduled Settlement Date, such excess amount may be distributed by the Borrower to the Originator
in accordance with the terms of the Borrowers limited liability company agreement so long as a
Borrowing Base Deficiency will not result from such proposed distribution.
(b) On each Settlement Date and, with respect to clause
first
and
fourth
below, on the
last day of each Interest Period for a LIBO Loan and on the date any prepayment of the Loans is
required pursuant to Section 1.3 hereof, prior to the Facility Termination Date, the Servicer shall
apply the amounts set aside in the Master Collection Account that are not permitted to be
distributed to the Borrower under Section 2.2(a) (if not previously paid in accordance with Section
2.1) in the order specified below:
first,
ratably to the payment of all accrued and unpaid Interest and Broken Funding
Costs (if any) that are then due and owing,
second
, to the extent funds are available therefor after payment of clause
first
, to
the accrued and unpaid Servicing Fee,
third,
to the extent funds are available therefor after payment of clauses
first
and
second
, ratably to the payment of all accrued and unpaid fees under the Fee Letter (if any)
that are then due and owing,
fourth,
to the extent funds are available therefor after payment of clauses
first
through
third
, if required under Section 1.3 or Section 1.4 or in order to avoid an
Amortization Event or Unmatured Amortization Event under Section 9.1(n), to the ratable
reduction of the Aggregate Loan Amount,
provided,
that such application shall be made to
such Loans as will, and otherwise in a manner reasonably calculated to, minimize the
Borrowers liability for Broken Funding Costs as a result of such application of such funds
in reduction of the Aggregate Loan Amount,
fifth,
to the extent funds are available therefor after payment of clauses
first
through
fourth
, for the ratable payment of all other unpaid Recourse Obligations, if any,
that are then due and owing, and
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sixth,
to the extent funds are available therefor after payment of clauses
first
through
fifth
, the balance, if any, to the Borrower or otherwise in accordance with the
Borrowers instructions,
provided, however,
that if any event has occurred and is continuing
that would constitute an Amortization Event, Unmatured Amortization Event, Unmatured
Servicer Termination Event or a Servicer Termination Event, any funds available to be
applied pursuant to this clause
sixth
shall be retained in the Master Collection Account
(unless otherwise consented to in writing by the Agent) until such time as the event that
would constitute an Amortization Event, Unmatured Amortization Event, Unmatured Servicer
Termination Event or Servicer Termination Event has been cured or waived in accordance with
the terms of this Agreement.
(c) In the event that a Collection Notice has been delivered pursuant to any Collection
Account Agreement, all amounts received in any Collection Account shall at the sole discretion of
the Agent, either (i) be retained in such Collection Account or other account of the Agent for such
day, Interest Period or part thereof and applied on the next following Settlement Date or the last
day of any Interest Period occurring prior to the next following Settlement Date in accordance with
the terms of this Agreement until the Aggregate Loan Amount and all other amounts owing hereunder
are paid in full or (ii) be released to the Borrower and applied in accordance with the terms of
this Agreement.
Section 2.3. Application of Collections After the Facility Termination Date
. (a) On the
Facility Termination Date and on each day thereafter, the Servicer shall set aside and hold in
trust, for the benefit of the Secured Parties, all Collections received on each such day. On and
after the Facility Termination Date, the Servicer shall, on each Settlement Date and on each other
Business Day specified by the Agent remit to the Agents Account the amounts set aside pursuant to
the preceding sentence. The Agent shall apply such amounts on each Settlement Date, and, with
respect to clause
second
and
fifth
below, on the last day of each Interest Period for a LIBO
Loan, and on each other Business Day it so chooses in the order specified below:
first,
to the reimbursement of the Agents costs of collection and enforcement of this
Agreement,
second,
to the extent funds are available therefor after payment of clause
first
,
ratably to the payment of all accrued and unpaid Interest and Broken Funding Costs,
third
, to the extent funds are available therefor after payment of clauses
first
and
second
, to the accrued and unpaid Servicing Fee,
fourth
, to the extent funds are available therefor after payment of clauses
first
through
third
, ratably to the payment of all accrued and unpaid fees under the Fee Letter,
fifth
, to the extent funds are available therefor after payment of clauses
first
through
fourth
, to the ratable reduction of the Aggregate Loan Amount,
provided,
that such
application shall be made to such Loans as will, and otherwise in a manner reasonably
calculated to, minimize the Borrowers liability for Broken Funding Costs as a result of
such application of such funds in reduction of the Aggregate Loan Amount,
sixth
, to the extent funds are available therefor after payment of clauses
first
through
fifth
, for the ratable payment of all other Aggregate Unpaids, and
seventh
, to the extent funds are available therefor after payment of clauses
first
through
sixth
, to the Borrower.
Section 2.4. Payment Rescission
. No payment of any of the Aggregate Unpaids shall be
considered paid or applied hereunder to the extent that, at any time, all or any portion of such
payment or application is rescinded by application of law or judicial authority, or must otherwise
be returned or refunded for any reason. The Borrower shall remain obligated for the amount of any
payment or application so rescinded, returned or refunded, and shall promptly pay to the Agent (for
application to the Person or Persons who suffered such rescission, return or refund) the full
amount thereof, plus interest thereon at the Default Rate from the date of any such rescission,
return or refunding.
Section 2.5. Clean Up Call; Release of Security Interests
. (a) The Servicer (so long as the
Servicer is an Affiliate of the Borrower) shall have the right (after providing written notice to
the Agent in accordance with the Required Notice Period), at any time following the reduction of
the Aggregate Loan Amount to a level that is less than 10.0% of the highest Aggregate Loan Amount
outstanding during the term of this Agreement, to purchase all of the remaining Purchased
Receivables from the Borrower for the fair and reasonably equivalent value thereof, but in no event
shall the amount paid pursuant to any such purchase be less than the Aggregate Unpaids through the
date of such purchase,
provided, however
, that any portion of the Aggregate Unpaids consisting of
unpaid accrued Interest shall only be paid on such date if so requested by the Administrator, on
behalf of the Lender, in its sole discretion, otherwise such Interest shall be payable on the next
occurring Settlement Date. Such payment shall be payable in immediately available funds to the
Agents Account. Upon such prepayment, the Agent shall release any
Adverse Claim on such Receivables, Related Security and Collections with respect thereto created by
the Agent. Such release shall be without representation, warranty or recourse of any kind by, on
the part of, or against the Lender or the Agent.
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(b) On the Final Payout Date, the Agent on behalf of the Secured Parties shall be considered
to have released, free and clear of any Adverse Claim created by the Agent (but otherwise shall be
without representation, warranty or recourse of any kind by, on the part of, or against the Secured
Parties or the Agent) to the Borrower the Agents (on behalf of the Secured Parties) security
interest in the Purchased Receivables, Related Security and Collections with respect thereto and
shall at the request, and sole cost and expense, of the Borrower, execute and deliver to the
Borrower, all such documents or instruments as are necessary to terminate the Agents security
interest on behalf of the Secured Parties in the Purchased Receivables, Related Security and
Collections with respect thereto.
Article III
[Reserved]
Article IV
Loans
Section 4.1. Loans
. Prior to the occurrence of an Amortization Event, the outstanding
principal amount of each Loan shall accrue Interest for each day during the related Interest Period
at either the LIBO Rate or the Alternate Base Rate, as applicable, in accordance with the terms and
conditions hereof. Until the Borrower gives the required notice to the Agent of another Interest
Rate in accordance with Section 4.3, the initial Interest Rate for any Loan shall be the LIBO Rate
(unless the Default Rate is then applicable).
Section 4.2. Interest Payments
. On each Settlement Date, the Borrower shall pay to the Agent
(for the benefit of the Lender) an aggregate amount equal to the accrued and unpaid Interest on
each Loan for the entire Interest Period of each Loan in accordance with Article II.
Section 4.3. Loan Interest Rates
. At the date of each borrowing of a Loan and at the
commencement of each Interest Period (with the required prior notice described in this Section 4),
the Borrower may select the LIBO Rate (subject to Section 4.4 below) or the Alternate Base Rate as
the Interest Rate applicable for each Loan during such Interest Period. The Borrower shall by
12:00 noon (Atlanta time): (a) at least three (3) Business Days prior to the commencement of any
Interest Period with respect to which the LIBO Rate is being requested as a new Interest Rate and
(b) at least one (1) Business Day prior to the commencement of any Interest Period with respect to
which the Alternate Base Rate is being requested as a new Interest Rate, give the Agent irrevocable
notice of the new Interest Rate for the Loan associated with such new Interest Period and the
duration of such Interest Period.
Section 4.4. Suspension of the LIBO Rate
. (a) If the Lender notifies the Agent that it has
determined that funding its Loans at a LIBO Rate would violate any applicable law, rule,
regulation, or directive of any governmental or regulatory authority, whether or not having the
force of law, or that (i) deposits of a type and maturity appropriate to match fund its Loan at
such LIBO Rate are not available or (ii) such LIBO Rate does not accurately reflect the cost of
acquiring or maintaining a Loan at such LIBO Rate, then the Agent will promptly notify the Borrower
Parties and the Agent shall suspend the availability of such LIBO Rate and require the Borrower to
select the Alternate Base Rate for any Loans accruing Interest at such LIBO Rate;
provided
,
however
, the failure to so notify any Borrower Party shall not result in the non-suspension of the
availability of such LIBO Rate.
(b) Upon the occurrence of any event giving rise to the operation of Section 4.4(a) with
respect to the Lender, it will, if requested by the Borrower, to the extent permissible under
applicable law, endeavor in good faith to change the funding office at which it books its ratable
share of any Loan accruing Interest at a LIBO Rate hereunder if such change would make it lawful
for the Lender to fund such Loan at a LIBO Rate;
provided, however,
that such change may be made in
such manner that the Lender, in its sole and reasonable determination, suffers no unreimbursed cost
or expense or any disadvantage whatsoever.
Section 4.5. Default Rate
. From and after the occurrence of an Event of Default, all Loans
shall accrue Interest at the Default Rate.
-5-
Article V
Representations and Warranties
Section 5.1
.
Representations and Warranties of the Borrower Parties
. Each Borrower Party
hereby represents and warrants to the Agent and the Lender, as to itself, as of the date hereof and
as of the date of each Loan that:
(a)
Existence and Power.
Such Borrower Partys jurisdiction of organization is
correctly set forth in the preamble to this Agreement and such jurisdiction is its sole
jurisdiction of organization. Such Borrower Party is duly organized under the laws of its
jurisdiction of organization and is a registered organization as defined in the UCC in
effect in such jurisdiction. Such Borrower Party is validly existing and in good standing
under the laws of its jurisdiction of organization and no other state or jurisdiction, and
such jurisdiction must maintain a public record showing the organization to have been
organized. Such Borrower Party is duly qualified to do business and is in good standing as
a foreign entity, and has and holds all organizational power and all governmental licenses,
authorizations, consents and approvals required to carry on its business in each
jurisdiction in which its business is conducted except where the failure to so qualify or so
hold could not reasonably be expected to have a Material Adverse Effect.
(b)
Power and Authority; Due Authorization, Execution and Delivery.
The execution and
delivery by such Borrower Party of this Agreement and each other Transaction Document to
which it is a party, and the performance of its obligations hereunder and thereunder and, in
the case of the Borrower, the Borrowers use of the proceeds of Loans made hereunder, are
within its entity power and authority and have been duly authorized by all necessary entity
action on its part. This Agreement and each other Transaction Document to which such
Borrower Party is a party has been duly executed and delivered by such Borrower Party.
(c)
No Conflict.
The execution and delivery by such Borrower Party of this Agreement
and each other Transaction Document to which it is a party, and the performance of its
obligations hereunder and thereunder do not contravene or violate (i) its organizational
documents, (ii) any law, rule or regulation applicable to it, (iii) any restrictions under
any agreement, contract or instrument to which it is a party or by which it or any of its
property is bound, or (iv) any order, writ, judgment, award, injunction or decree binding on
or affecting it or its property, and do not result in the creation or imposition of any
Adverse Claim on assets of such Borrower Party or its Subsidiaries (except as created
hereunder) except, in any case, where such contravention or violation could not reasonably
be expected to have a Material Adverse Effect; and no transaction contemplated hereby
requires compliance with any bulk sales act or similar law.
(d)
Governmental Authorization.
Other than the filing of the financing statements
required hereunder, no authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the due execution
and delivery by such Borrower Party of this Agreement and each other Transaction Document to
which it is a party and the performance of its obligations hereunder and thereunder.
(e)
Actions, Suits.
There are no actions, suits or proceedings pending, or to the best
of such Borrower Partys knowledge, threatened, against it, or any of its properties, in or
before any court, arbitrator or other body, that could reasonably be expected to have a
Material Adverse Effect. Such Borrower Party is not in default with respect to any order of
any court, arbitrator or governmental body which default could reasonably be expected to
have a Material Adverse Effect.
(f)
Binding Effect.
This Agreement and each other Transaction Document to which such
Borrower Party is a party constitute the legal, valid and binding obligations of such
Borrower Party enforceable against such Borrower Party in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors rights generally and
by general principles of equity (regardless of whether enforcement is sought in a proceeding
in equity or at law).
(g)
Accuracy of Information.
All information (other than any projection or other
forward-looking information) heretofore furnished by such Borrower Party or any of its
Affiliates to the Agent or the Lender for purposes of or in connection with this Agreement,
any of the other Transaction Documents or any transaction contemplated hereby or thereby is,
and all such information (other than any projection or other forward-looking information)
hereafter furnished by such Borrower Party or any of its Affiliates to the Agent or the
Lender will be, true and accurate in every material respect on the date such information is
stated or certified (unless such representations and warranties are made as of an earlier
date) and does not and will not contain any material misstatement of fact.
(h)
Use of Proceeds.
No proceeds of any Loan hereunder will be used by such Borrower
Party (i) for a purpose that violates, or would be inconsistent with, (A) Section 7.2(e) of
this Agreement or (B) Regulation T, U or X promulgated by the Board of Governors of the
Federal Reserve System from time to time or (ii) to acquire any security in any transaction
which is subject to Section 12, 13 or 14 of the Securities Exchange Act of 1934, as amended
other than the repurchase of equity securities of the Parent so long as such repurchase does
not violate Sections 12, 13 or 14 of the Securities Exchange Act of 1934, as amended.
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(i)
Good Title.
The Borrower is (i) the legal and beneficial owner of the Purchased
Receivables and (ii) is the legal and beneficial owner of the Related Security with respect
thereto, free and clear of any Adverse
Claim, except as created by the Transaction Documents. There have been duly filed all
financing statements or other similar instruments or documents necessary under the UCC (or
any comparable law) of all appropriate jurisdictions to perfect the Borrowers ownership
interest in each Purchased Receivable and all other items of Collateral in which an interest
therein may be perfected by the filing of a financing statement under Article 9 of the UCC
and proceeds of the foregoing.
(j)
Perfection.
This Agreement is effective to create a valid security interest in
favor of the Agent for the benefit of the Secured Parties in the Pledged Assets to secure
payment of the Aggregate Unpaids, free and clear of any Adverse Claim except as created by
the Transaction Documents. There have been duly filed all financing statements or other
similar instruments or documents necessary under the applicable UCC (or any comparable law)
of all appropriate jurisdictions to perfect the Agents (on behalf of the Secured Parties)
security interest in the Purchased Receivables, and all other items of Collateral in which a
security interest therein may be perfected by the filing of a financing statement under
Article 9 of the applicable UCC and the proceeds of the foregoing. Such Borrower Partys
jurisdiction of organization is a jurisdiction whose law generally requires information
concerning the existence of a nonpossessory security interest to be made generally available
in a filing, record or registration system as a condition or result of such a security
interests obtaining priority over the rights of a lien creditor which respect to
collateral.
(k)
Places of Business and Locations of Records.
The jurisdiction of organization,
principal places of business and chief executive office of such Borrower Party and the
offices where it keeps all of its Records are located at the address(es) listed on
Exhibit III or such other locations of which the Agent has been notified in accordance with
Section 7.2(a) in jurisdictions where all action required by Section 13.3(a) has been taken
and completed. The Borrowers Federal Employer Identification Number is correctly set forth
on Exhibit III.
(l)
Collections.
The conditions and requirements set forth in subclauses (i), (ii),
(iii) and (iv) of Section 7.1(j) and Section 8.2 have at all times since the Closing Date,
been satisfied and duly performed. The conditions and requirements set forth in
subclause (v) of Section 7.1(j) have been satisfied from and after the Closing Date. The
names and addresses of all Collection Banks, together with the account numbers of the
Collection Accounts at each Collection Bank and the post office box number of each Lock-Box,
are listed on Exhibit IV (as the same may be updated from time to time in accordance with
Section 7.1(m) hereof). The names and addresses of all Segregated Account Banks, together
with the account numbers of the Segregated Accounts at each Segregated Account Bank and the
post office box number of each Lock-Box, are listed on Exhibit IV (as the same may be
updated from time to time in accordance with Section 7.1(m) hereof). The Borrower has not
granted any Person, other than the Agent as contemplated by this Agreement, dominion and
control of any Lock-Box, Segregated Account or Collection Account, or the right to take
dominion and control of any such Lock-Box, Segregated Account or Collection Account at a
future time or upon the occurrence of a future event.
(m)
Material Adverse Effect.
(i) The initial Servicer represents and warrants that
since September 30, 2009, no event has occurred that would have a material adverse effect on
the financial condition or operations of the initial Servicer and its Subsidiaries taken as
a whole or the ability of the initial Servicer to perform its obligations under this
Agreement, and (ii) the Borrower represents and warrants that since the Closing Date, no
event has occurred that would have a material adverse effect on (A) the financial condition
or operations of the Borrower, (B) the ability of the Borrower to perform its obligations
under the Transaction Documents, or (C) the collectibility of the Purchased Receivables
generally or any material portion of the Purchased Receivables, in the case of both (i) and
(ii), other than any events or matters relating to multi-employer pension contingencies, of
the type disclosed and discussed in the Parents Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009 as filed with the SEC.
(n)
Names.
The name in which the Borrower has executed this Agreement is identical to
the name of the Borrower as indicated on the public record of its state of organization
which shows the Borrower to have been organized. In the past five (5) years, the Borrower
has not used any entity names, trade names or assumed names other than the name in which it
has executed this Agreement.
(o)
Ownership of the Borrower.
The Originator owns, directly or indirectly, 100% of
the equity member interests of the Borrower, free and clear of any Adverse Claim. There are
no options, warrants or other rights to acquire securities of the Borrower.
(p)
Not an Investment Company.
Such Borrower Party is not an investment company
within the meaning of the Investment Company Act of 1940, as amended, or any successor
statute.
(q)
Compliance with Law.
Such Borrower Party has complied in all respects with all
applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards to which it may be subject, except where the failure to so comply could not
reasonably be expected to have a Material Adverse Effect. Each Purchased
Receivable, together with the Contract related thereto, does not contravene any laws, rules
or regulations applicable thereto (including, without limitation, laws, rules and
regulations relating to truth in lending, fair credit billing, fair credit reporting, equal
credit opportunity, fair debt collection practices and privacy), and no part of such
Contract is in violation of any such law, rule or regulation, except where such
contravention or violation could not reasonably be expected to have a Material Adverse
Effect.
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(r)
Compliance with Credit and Collection Policy.
Such Borrower Party has complied in
all material respects with the Credit and Collection Policy with regard to each Purchased
Receivable and the related Contract, and has not made any material change to such Credit and
Collection Policy, except such material change as to which the Agent has been notified in
accordance with Section 7.1(a)(vii).
(s)
Payments to Originator.
With respect to each Purchased Receivable transferred to
the Borrower under the Receivables Sale Agreement, the Borrower has given reasonably
equivalent value to the Originator in consideration therefor and such transfer was not made
for or on account of an antecedent debt. No transfer by the Originator of any Purchased
Receivable under the Receivables Sale Agreement is or may be voidable under any section of
the Bankruptcy Reform Act of 1978 (11 U.S.C. §§ 101
et seq.
), as amended.
(t)
Enforceability of Contracts.
Each Contract with respect to each Purchased
Receivable is effective to create, and has created, a legal, valid and binding obligation of
the related Obligor to pay the Outstanding Balance of the Purchased Receivable created
thereunder and any accrued interest thereon, enforceable against the Obligor in accordance
with its terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or limiting creditors rights
generally and by general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law).
(u)
Eligible Receivables.
Each Receivable included in the Net Pool Balance as an
Eligible Receivable on the date of any Monthly Report or Weekly Report was an Eligible
Receivable on such date.
(v)
Facility Limit and Maximum Loan Amount.
Immediately after giving effect to each
Loan hereunder, the Aggregate Loan Amount is less than or equal to the lesser of (i) the
Facility Limit and (ii) the Net Pool Balance minus the Required Reserves.
(w)
Accounting.
The Borrower Parties will treat the transfer of the Purchased
Receivables to the Borrower pursuant to the Receivables Sale Agreement as an absolute
conveyance and true sale on their respective books and records; provided that, the notes to
the consolidated financial statements of the Parent and its consolidated Subsidiaries will
disclose that the Purchased Receivables have been purchased by the Borrower in transactions
contemplated by this Agreement and the Receivables Sale Agreement.
(x)
Separateness.
From the date of the formation of the Borrower, the Borrower has
complied with all provisions of Section 7.1(i) applicable to it.
Article VI
Conditions of Loans
Section 6.1. Conditions Precedent to Initial Loan
. The obligation of the Lender to make the
initial Loan under this Agreement is subject to the conditions precedent that (a) the Agent shall
have received on or before the Closing Date the documents listed on Schedule A and (b) the Agent
shall have received all fees and expenses required to be paid on such date pursuant to the terms of
this Agreement and the Fee Letter.
Section 6.2. Conditions Precedent to All Loans
. The making of the initial Loan under this
Agreement and each subsequent Loan are subject to the following further conditions precedent (a)
the Servicer shall have delivered to the Agent on or prior to the date of such Loan, in form and
substance satisfactory to the Agent, all Monthly Reports as and when due under Section 8.5, (b)
upon the Agents request, the Servicer shall have delivered to the Agent at least three (3) days
prior to such Loan an interim Monthly Report showing the amount of Eligible Receivables; (c) the
Agent shall have received such other approvals, opinions or documents as it may reasonably request
and (d) on each Borrowing Date, the following statements shall be true (and acceptance of the
proceeds of such Loan shall be deemed a representation and warranty by the Borrower that such
statements are then true):
(i) the representations and warranties set forth in Section 5.1 are true and correct in
all material respects (unless such representation and warranty is already qualified as to
materiality) on and as of the date of such Loan as though made on and as of such Borrowing
Date, except to the extent such representations and warranties are expressly limited to an
earlier date;
(ii) no event has occurred and is continuing, or would result from such Loan, that will
constitute an Amortization Event or a Servicer Termination Event and no event has occurred
and is continuing, or would result from such Loan, that would constitute an Unmatured
Amortization Event;
(iii) the Facility Termination Date shall not have occurred; and
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(iv) the Aggregate Loan Amount does not exceed the lesser of (i) the Facility Limit in
effect on such Borrowing Date and (ii) the Net Pool Balance less the Required Reserves.
Article VII
Covenants
Section 7.1. Affirmative Covenants of the Borrower Parties
. Until the date on which the
Aggregate Unpaids have been indefeasibly paid in full and this Agreement terminates in accordance
with its terms, each Borrower Party hereby covenants, as to itself, as set forth below:
(a)
Financial Reporting.
Such Borrower Party will maintain, for itself and each of its
Subsidiaries, a system of accounting established and administered in accordance with GAAP,
and furnish or cause to be furnished to the Agent:
(i)
Annual Reporting.
Within 90 days after the close of each of its fiscal
years, audited, unqualified consolidated financial statements (which shall include
balance sheets, statements of income and retained earnings and a statement of cash
flows) for the Parent and its consolidated subsidiaries for such fiscal year
certified in a manner acceptable to the Agent by Ernst & Young LLP, independent
public accountants, or any other independent public accountants of recognized
national standing.
(ii)
Quarterly Reporting.
Within 45 days after the close of the first three (3)
quarterly periods of each of its respective fiscal years, balance sheets of each of
the Borrower Parties as at the close of each such period and consolidated statements
of income and a statement of cash flows for the Parent and its consolidated
subsidiaries for the period from the beginning of such fiscal year to the end of such
quarter, all certified by its respective chief financial officer, principal
accounting officer, treasurer or corporate controller.
(iii)
Compliance Certificate.
Together with the financial statements required
hereunder, a compliance certificate in substantially the form of Exhibit V which
shall include, without limitation, calculations of the Consolidated Net Worth of the
Parent and the Borrower, which is signed by an Authorized Officer of the Parent, and
which is dated the date of such annual financial statement or such quarterly
financial statement, as the case may be.
(iv)
Shareholders Statements and Reports.
Promptly after being mailed to the
shareholders of the Parent copies of all financial statements, reports and proxy
statements so furnished to them.
(v)
S.E.C. Filings.
Promptly after becoming publicly available, copies of all
registration statements and annual and quarterly periodic reports which the Parent or
any of its Subsidiaries files with the SEC. For so long as the Parent is subject to
the periodic reporting obligations of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, or files any registration statement with the SEC by
means of the SECs EDGAR system, the Borrower Parties may comply with the covenants
set forth in this clause (v) by filing of such registration statements and its Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q required by such act on the
SECs EDGAR system; provided, that one or more of the Borrower Parties shall notify,
or cause to be notified, the Agent promptly upon any such electronic filing.
(vi)
Copies of Notices.
Promptly upon its receipt of any notice, request for
consent, financial statements, certification, report or other communication under or
in connection with any Transaction Document from any Person other than the Agent or
the Lender, copies of the same.
(vii)
Change in Credit and Collection Policy.
At least thirty (30) days prior
to the effectiveness of any material change in or material amendment to the Credit
and Collection Policy, a copy of the Credit and Collection Policy then in effect and
a notice (A) indicating such change or amendment, and (B) requesting the Agents
consent thereto.
(viii)
Other Information.
Promptly, from time to time, such other information,
documents, records or reports relating to (A) the financial condition or operations
of such Borrower Party as the Agent may from time to time reasonably request in order
to protect the interests of the Agent, for the benefit of the
Lender, under or as contemplated by this Agreement or (B) the Receivables as the
Agent may reasonably request.
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(b)
Notices.
Such Borrower Party will notify the Agent in writing of any of the
following promptly upon learning of the occurrence thereof, describing the same and, if
applicable, the steps being taken with respect thereto:
(i)
Amortization Events, Servicer Termination Event, Unmatured Servicer
Termination Events or Unmatured Amortization Events.
The occurrence of each
Amortization Event, Servicer Termination Event, Unmatured Servicer Termination Event
and each Unmatured Amortization Event, by a statement of an Authorized Officer of
such Borrower Party.
(ii)
Judgments and Proceedings.
(A) The entry of any judgment or decree against
the Servicer or its Subsidiaries if the amount of such judgment or decree then
outstanding against the Servicer and its Subsidiaries exceeds $10,000,000 after
deducting (1) the amount with respect to which the Servicer or any such Subsidiary,
as the case may be, is insured and with respect to which the insurer has not
disclaimed responsibility in writing, and (2) the amount for which the Servicer or
any such Subsidiary is otherwise indemnified if the terms of such indemnification are
satisfactory in the reasonable discretion of the Agent, and (B) the institution of
any litigation, arbitration proceeding or governmental proceeding against the
Servicer which, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect; and (C) the entry of any judgment or decree or the
institution of any litigation, arbitration proceeding or governmental proceeding
against the Borrower.
(iii)
Material Adverse Effect.
The occurrence of any event or condition that
has had, or could reasonably be expected to have, a Material Adverse Effect.
(iv)
Termination Date.
The occurrence of the Termination Date under and as
defined in the Receivables Sale Agreement.
(v)
Defaults Under Other Agreements.
The occurrence of a default or an event of
default under any other financing arrangement pursuant to which the Borrower is a
debtor or an obligor; or the occurrence of a default that could lead to an event of
default or an event of default under any other financing arrangement in a principal
amount greater than or equal to $10,000,000 pursuant to which the Servicer is a
debtor or an obligor.
(vi)
Notices under Receivables Sale Agreement.
Copies of all notices delivered
under the Receivables Sale Agreement.
(vii)
Appointment of Independent Director
. The decision to appoint a new
director of the Borrower as the Independent Director for purposes of this
Agreement, such notice to be issued not less than ten (10) days prior to the
effective date of such appointment and to certify that the designated Person
satisfies the criteria set forth in the definition herein of Independent Director.
(c)
Compliance with Laws and Preservation of Existence.
Such Borrower Party will
comply in all respects with all applicable laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject, except where the
failure to so comply could not reasonably be expected to have a Material Adverse Effect.
Such Borrower Party will preserve and maintain its entity existence, rights, franchises and
privileges in the jurisdiction of its organization, and qualify and remain qualified in good
standing as a foreign entity in each jurisdiction where its business is conducted, except
where the failure to so preserve and maintain or qualify could not reasonably be expected to
have a Material Adverse Effect.
(d)
Audits.
In addition to information that may be required pursuant to
Section 7.1(a)(viii), each Borrower Party will furnish to the Agent from time to time such
information with respect to it and the Receivables as the Agent may reasonably request.
Such Borrower Party will, from time to time during regular business hours as requested by
the Agent upon reasonable notice and at the sole cost of such Borrower Party, permit the
Agent, or its agents or representatives (and shall cause the Originator to permit the Agent
or its agents or representatives): (i) to examine and make copies of and abstracts from all
Records in the possession or under the control of such Person relating to the Pledged
Assets, including, without limitation, the related Contracts, and (ii) to visit the offices
and properties of such Person for the purpose of examining such materials described in
clause (i) above, and to discuss matters relating to such Persons financial condition or
the Pledged Assets or any Persons performance under any of the Transaction Documents or any
Persons performance under the Contracts and, in each case, with any of the officers or
employees of the Borrower or the Servicer having knowledge of such matters (each of the
foregoing examinations and visits, a
Review
). A Review of each Borrower Party shall occur
no less frequently than annually.
(e)
Keeping and Marking of Records and Books.
(i) The Servicer will (and will cause
the Originator to) maintain and implement administrative and operating procedures
(including, without limitation, an ability to recreate records evidencing Receivables in the
event of the destruction of the originals thereof), and keep and maintain all documents,
books, records and other information, in each such case as reasonably necessary or advisable
for the collection of all Receivables (including, without limitation, records adequate to
permit the immediate identification of each new Receivable and all Collections of and
adjustments to each existing Receivable). The Servicer will (and will cause the Originator
to) give the Agent notice of any material change in the administrative and operating
procedures referred to in the previous sentence.
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(ii) Such Borrower Party will (and will cause the Originator to) on or prior to the
date hereof, mark its master data processing system and all accounts receivable reports
generated thereby with a legend, reasonably acceptable to the Agent, describing the Agents
security interest in the Pledged Assets.
(f)
Compliance with Contracts and Credit and Collection Policy.
Such Borrower Party
will (and will cause the Originator to) timely and fully (i) perform and comply in all
material respects with all provisions, covenants and other promises required to be observed
by it under the Contracts related to the Purchased Receivables, in each case to the same
extent as though such Contracts had not been transferred to the Agent and (ii) comply in all
material respects with the Credit and Collection Policy in regard to each Receivable and the
related Contract.
(g)
Performance and Enforcement of Receivables Sale Agreement.
The Borrower will, and
will require the Originator to, perform each of their respective obligations and
undertakings under and pursuant to the Receivables Sale Agreement, will purchase Receivables
thereunder in strict compliance with the terms thereof and will vigorously enforce the
rights and remedies accorded to the Borrower under the Receivables Sale Agreement. The
Borrower will take all actions to perfect and enforce its rights and interests (and the
rights and interests of the Agent, as the Borrowers assignee) under the Receivables Sale
Agreement as the Agent may from time to time reasonably request, including, without
limitation, making claims to which it may be entitled under any indemnity, reimbursement or
similar provision contained in the Receivables Sale Agreement.
(h)
Ownership.
The Borrower will (or will cause the Originator to) take all necessary
action to establish and maintain, irrevocably in Borrower (i) legal and equitable title to
the Purchased Receivables and the Collections and (ii) all of the Originators right, title
and interest in the Related Security associated with the Purchased Receivables, in each
case, free and clear of any Adverse Claims, other than Adverse Claims in favor of the Agent,
for the benefit of the Secured Parties (including, without limitation, the filing of all
financing statements or other similar instruments or documents necessary under the UCC (or
any comparable law) of all appropriate jurisdictions to perfect the Agents (for the benefit
of the Secured Parties) security interest in the Pledged Assets and such other action to
perfect, protect or more fully evidence the interest of the Agent for the benefit of the
Secured Parties as the Agent may reasonably request); provided, however, that unless and
until an Amortization Event, a Servicer Termination Event, an Unmatured Servicer Termination
Event or an Unmatured Amortization Event has occurred, no Borrower Party shall be required
to take any actions to establish, maintain or perfect the Agents ownership interest in the
Related Security other than the filing of financing statements under the UCC of all
appropriate jurisdictions.
(i)
Separate Identity.
The Borrower acknowledges that the Agent and the Lender are
entering into the transactions contemplated by this Agreement in reliance upon the
Borrowers identity as a legal entity that is separate from the Originator. Therefore, from
and after the date of execution and delivery of this Agreement, the Borrower shall take all
reasonable steps, including, without limitation, all steps that the Agent or the Lender may
from time to time reasonably request, to maintain the Borrowers identity as a separate
legal entity and to make it manifest to third parties that the Borrower is an entity with
assets and liabilities distinct from those of the Originator and any Affiliates thereof
(other than the Borrower) and not just a division of the Originator or any such Affiliate.
Without limiting the generality of the foregoing and in addition to the other covenants set
forth herein, the Borrower will:
(i) hold itself out to the public and conduct its own business in its own name
and require that all full-time employees of the Borrower, if any, identify themselves
as such and not as employees of the Originator (including, without limitation, by
means of providing appropriate employees with business or identification cards
identifying such employees as the Borrowers employees);
(ii) compensate all employees, consultants and agents directly, from the
Borrowers own funds, for services provided to the Borrower by such employees,
consultants and agents and, to the extent any employee, consultant or agent of the
Borrower is also an employee, consultant or agent of the Originator or any Affiliate
thereof, allocate the compensation of such employee, consultant or agent
between the Borrower and the Originator or such Affiliate, as applicable, on a basis
that reflects the services rendered to the Borrower and the Originator or such
Affiliate, as applicable;
(iii) maintain separate stationery, invoices, checks and other business forms in
its own name;
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(iv) conduct all transactions with the Originator and the Servicer (including,
without limitation, any delegation of its obligations hereunder to the Servicer)
strictly on an arms-length basis, allocate fairly and reasonably all overhead
expenses (including, without limitation, telephone and other utility charges) for
items shared between the Borrower and the Originator on the basis of actual use to
the extent practicable and, to the extent such allocation is not practicable, on a
basis reasonably related to actual use;
(v) at all times have a Board of Directors consisting of at least one member
that is an Independent Director;
(vi) observe all organizational formalities as a distinct entity, and ensure
that all entity actions relating to (A) the selection, maintenance or replacement of
the Independent Director, (B) the dissolution or liquidation of the Borrower or
(C) the initiation of, participation in, acquiescence in or consent to any
bankruptcy, insolvency, reorganization or similar proceeding involving the Borrower,
are duly authorized by unanimous vote of its Board of Directors (including the
Independent Director);
(vii) maintain the Borrowers books and records separate and distinct from those
of the Originator and any Affiliate thereof and otherwise in such a manner so that
the assets of the Borrower are readily identifiable as its own assets rather than
assets of the Originator or any Affiliate thereof;
(viii) prepare its financial statements separately from those of the Originator
and insure that any consolidated financial statements of the Parent or any Affiliate
thereof that include the Borrower and that are filed with the Securities and Exchange
Commission or any other governmental agency have notes clearly stating that the
Borrower is a separate legal entity and that its assets will be available only to
satisfy the claims of the creditors of the Borrower;
(ix) except as herein specifically otherwise provided, maintain the funds and
other assets of the Borrower separate from, and not commingled with, those of the
Originator or any Affiliate thereof and only maintain bank accounts or other
depository accounts to which the Borrower alone is the account party, into which the
Borrower alone makes deposits and from which the Borrower alone (or the Agent
hereunder) has the power to make withdrawals;
(x) pay all of the Borrowers operating expenses from the Borrowers own assets
(except for certain payments by the Originator or other Persons pursuant to
allocation arrangements that comply with the requirements of this Section 7.1(i)) and
pay its own liabilities out of its own funds;
(xi) operate its business and activities such that: it does not engage in any
business or activity of any kind, or enter into any transaction or indenture,
mortgage, instrument, agreement, contract, lease or other undertaking, other than the
transactions contemplated and authorized by this Agreement and the Receivables Sale
Agreement; and does not create, incur, guarantee, assume or suffer to exist any
indebtedness or other liabilities, whether direct or contingent, other than (A) as a
result of the endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business, (B) the incurrence of
obligations under this Agreement, (C) the incurrence of obligations, as expressly
contemplated in the Receivables Sale Agreement, to make payment to the Originator
thereunder for the purchase of Receivables from the Originator under the Receivables
Sale Agreement, and (D) the incurrence of operating expenses in the ordinary course
of business of the type otherwise contemplated by this Agreement;
(xii) maintain its organizational documents in conformity with this Agreement,
such that it does not amend, restate, supplement or otherwise modify its Certificate
of Formation or Limited Liability Company Agreement in any respect that would impair
its ability to comply with the terms or provisions of any of the Transaction
Documents, including, without limitation, Section 7.1(i) of this Agreement;
(xiii) maintain the effectiveness of, and continue to perform under the
Receivables Sale Agreement, such that it does not amend, restate, supplement, cancel,
terminate or otherwise modify the Receivables Sale Agreement, or give any consent,
waiver, directive or approval thereunder or waive any default, action, omission or
breach under the Receivables Sale Agreement or otherwise grant any indulgence
thereunder, without (in each case) the prior written consent of the Agent;
(xiv) maintain its entity separateness such that it does not merge or
consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether
in one transaction or in a series of transactions, and except as otherwise
contemplated herein) all or substantially all of its assets (whether now owned or
hereafter acquired) to, or acquire all or substantially all of the assets of, any
Person, nor at any time create, have, acquire, maintain or hold any interest in any
Subsidiary;
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(xv) maintain at all times the Required Capital Amount (as defined in the
Receivables Sale Agreement) and refrain from making any dividend, distribution,
redemption of capital stock or payment of any subordinated indebtedness which would
cause the Required Capital Amount to cease to be so maintained;
(xvi) operate its business and activities such that it (A) does not hold itself
out as having agreed to guarantee or be obligated for the debts of the Originator or
any Affiliate thereof, (B) does not hold out its credit as being available to satisfy
the obligations of the Originator or any Affiliate thereof and (C) has not pledged
assets for the benefit of the Originator or any Affiliate thereof; and
(xvii) take such other actions as are necessary on its part to ensure that the
facts and assumptions set forth in the opinion issued by Andrews Kurth LLP as counsel
for the Borrower, in connection with the closing or initial Loan under this Agreement
and relating to substantive consolidation issues, and in the certificates
accompanying such opinion, remain true and correct in all material respects at all
times; and
(xviii) maintain its organizational documents in conformity with this Agreement,
such that its organizational documents, at all times that this Agreement is in
effect, provides for not less than ten (10) days prior written notice to the Agent
of the replacement or appointment of any director that is to serve as an Independent
Director for purposes of this Agreement and the condition precedent to giving effect
to such replacement or appointment that the Borrower certify that the designated
Person satisfied the criteria set forth in the definition herein of Independent
Director and the Agents written acknowledgement that in its reasonable judgment the
designated Person satisfies the criteria set forth in the definition herein of
Independent Director;
(j)
Collections.
Such Borrower Party will cause (i) all Collections to be deposited
into a Lock-Box, Segregated Account, or a Collection Account, (ii) all proceeds from all
Lock-Boxes, if any, to be directly deposited into a Segregated Account or a Collection
Account, (iii) all amounts in each Segregated Account to be deposited into the Master
Collection Account within two (2) Business Days following receipt thereof, (iv) all amounts
in each Collection Account (other than the Master Collection Account) to be deposited into
the Master Collection Account within two (2) Business Days following receipt thereof and
(v) on and after the date specified by Section 7.3 hereof, each Collection Account to be
subject at all times to a Collection Account Agreement that is in full force and effect. In
the event any payments relating to the Pledged Assets are remitted directly to any Borrower
Party, such Borrower Party will remit such payments (or will cause all such payments to be
remitted) directly to a Segregated Account or the Collection Bank at which the Master
Collection Account is maintained and deposited into such Segregated Account or the Master
Collection Account within two (2) Business Days following receipt thereof, and, at all times
prior to such remittance, such Borrower Party will itself hold or, if applicable, will cause
such payments to be held in trust for the exclusive benefit of the Agent and the Lender.
The Borrower, FreightValue or the Servicer will maintain exclusive ownership, dominion and
control (subject to the terms of this Agreement) of each Lock-Box and each Segregated
Account and shall not grant the right to take dominion and control of any Lock-Box,
Segregated Account or Collection Account at a future time or upon the occurrence of a future
event to any Person, except to the Agent as contemplated by this Agreement. At all times
after the date specified by Section 7.3 hereof, the Borrower will maintain exclusive
ownership, dominion and control (subject to the terms of this Agreement and each applicable
Collection Account Agreement) of each Collection Account and shall not grant the right to
take dominion and control of any such Collection Account at a future time or upon the
occurrence of a future event to any Person, except to the Agent as contemplated by this
Agreement.
(k)
Taxes.
Such Borrower Party will file all tax returns and reports required by law
to be filed by it and will promptly pay all taxes and governmental charges at any time
owing, except any such taxes which are not yet delinquent or are being diligently contested
in good faith by appropriate proceedings and for which adequate reserves in accordance with
GAAP shall have been set aside on its books. The Borrower will pay when due any taxes
payable in connection with the Purchased Receivables, exclusive of taxes on or measured by
income or gross receipts of the Agent or the Lender.
(l)
Payment to the Originator.
With respect to any Receivable purchased by the
Borrower from the Originator, such sale shall be effected under, and in compliance with the
terms of, the Receivables Sale Agreement,
including, without limitation, the terms relating to the amount and timing of payments to be
made to the Originator in respect of the purchase price for such Receivable.
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(m)
Updates to Exhibit IV.
In connection with each Monthly Report delivered by the
Servicer pursuant to Section 8.5 hereof, the Servicer will provide the Agent with the
account number and the name of the corresponding Segregated Account Bank of each Segregated
Account that has been opened during the related Calculation Period, if any, and an updated
listing of the Collection Banks and Segregated Account Banks; Lock-Boxes, Segregated
Accounts and Collection Accounts in the form of Exhibit IV to the extent any new Segregated
Account has been so opened.
Section 7.2. Negative Covenants of the Borrower Parties
. Until the date on which the
Aggregate Unpaids have been indefeasibly paid in full and this Agreement terminates in accordance
with its terms, each Borrower Party hereby covenants, as to itself, that:
(a)
Change in Name, Jurisdiction of Organization.
Such Borrower Party will not change
(i) its name as it appears in official filings in its jurisdiction of organization, (ii) its
status as a registered organization (within the meaning of any applicable enactment of the
UCC), (iii) its organizational identification number, if any, issued by its jurisdiction of
organization, or (iv) its jurisdiction of organization unless it shall have: (A) given the
Agent at least thirty (30) days prior written notice thereof and (B) delivered to the Agent
all financing statements, instruments and other documents requested by the Agent in
connection with such change or relocation.
(b)
Change in Collection Accounts.
Except as may be required by the Agent pursuant to
Section 8.2(b), such Borrower Party will not add or terminate any bank as a Collection Bank
unless the Agent shall have received, at least ten (10) days before the proposed effective
date therefor, (i) written notice of such addition or termination and (ii) an executed
Collection Account Agreement with respect to the new Collection Account.
(c)
Modifications to Contracts and Credit and Collection Policy.
Except as may be
required in order for such Borrower Party to comply with applicable law, such Borrower Party
will not, and will not permit the Originator to, make any material change or material
amendment to the Credit and Collection Policy unless, at least 30 days prior to such
material change or material amendment, it has delivered to the Agent a copy of the Credit
and Collection Policy then in effect and notice (i) indicating such proposed change or
amendment, and (ii) requesting the Agents consent thereto. Except as provided in Section
8.2(d), the Servicer will not, and will not permit the Originator to, extend, amend or
otherwise modify the terms of any Purchased Receivable which at any time is or has been an
Eligible Receivable or any Contract related thereto other than in accordance with the Credit
and Collection Policy.
(d)
Sales, Liens.
The Borrower will not sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer
to exist any Adverse Claim upon (including, without limitation, the filing of any valid and
effective financing statement) or with respect to, any of the Pledged Assets, or assign any
right to receive income with respect thereto (other than, in each case, the creation of a
security interest therein in favor of the Agent as provided for herein or in any Transaction
Document), and the Borrower will defend the right, title and interest of the Secured Parties
in, to and under any of the foregoing property, against all claims of third parties claiming
through or under the Borrower or the Originator.
(e)
Use of Proceeds.
The Borrower will not use the proceeds of the Loans for any
purpose other than (i) paying for Receivables and Related Security under and in accordance
with the Receivables Sale Agreement, including without limitation, making payments on the
Subordinated Note to the extent permitted thereunder and under the Receivables Sale
Agreement, (ii) paying its ordinary and necessary operating expenses when and as due, and
(iii) making Restricted Junior Payments to the extent permitted under this Agreement.
(f)
Termination Date Determination.
The Borrower will not designate the Termination
Date (as defined in the Receivables Sale Agreement), or send any written notice to the
Originator in respect thereof, without the prior written consent of the Agent, except with
respect to the occurrence of such Termination Date arising pursuant to Section 6.2 of the
Receivables Sale Agreement.
(g)
Restricted Junior Payments.
The Borrower will not make any Restricted Junior
Payment if after giving effect thereto, the Borrowers Consolidated Net Worth would be less
than the amount required pursuant to Section 9.1(r) hereof.
(h)
Borrower Indebtedness.
The Borrower will not incur or permit to exist any
Indebtedness or liability on account of deposits except: (i) the Aggregate Unpaids,
(ii) the Subordinated Loans (as defined in the Receivables Sale Agreement), (iii) other
current accounts payable arising in the ordinary course of business and not overdue,
(iv) the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, (v) the incurrence of obligations under
this Agreement, (vi) the incurrence of
obligations, as expressly contemplated in the Receivables Sale Agreement, to make payment to
the Originator thereunder for the purchase of Receivables from the Originator under the
Receivables Sale Agreement, and (vii) the incurrence of operating expenses in the ordinary
course of business of the type otherwise contemplated by this Agreement. The Borrower shall
not hold out its credit as available to satisfy the obligations of others, pledge its assets
for the benefit of any other entity, make loans or advances to any other entity or acquire
obligations or securities of its members.
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(i)
Prohibition on Additional Negative Pledges.
No such Borrower Party will enter into
or assume any agreement (other than this Agreement and the other Transaction Documents)
prohibiting the creation or assumption of any Adverse Claim upon the Pledged Assets except
as contemplated by the Transaction Documents, or otherwise prohibiting or restricting any
transaction contemplated hereby or by the other Transaction Documents, and no such Borrower
Party will enter into or assume any agreement creating any Adverse Claim upon the
Subordinated Note.
Section 7.3. Affirmative Post-Closing Covenants of the Borrower Parties
. Each Borrower Party
hereby covenants within 90 days of the Closing Date to ensure that each Collection Account (other
than the Master Collection Account) is in the name of the Borrower and subject at all times to a
Collection Account Agreement that is in full force and effect. The Master Collection Account shall
be in the name of the Borrower and subject to a Collection Account Agreement that is in full force
and effect at all times after the Closing Date.
Article VIII
Administration and Collection
Section 8.1. Designation of Servicer
. (a) The servicing, administration and collection of the
Purchased Receivables shall be conducted by such Person (the
Servicer
) so designated from time to
time in accordance with this Section 8.1. ABF is hereby designated as, and hereby agrees to
perform the duties and obligations of, the Servicer pursuant to the terms of this Agreement. The
Agent may, upon the occurrence of an Unmatured Servicer Termination Event (other than one arising
as a result of a Voluntary Termination, unless another Unmatured Servicer Termination Event
occurs), designate as Servicer any Person to succeed ABF or any successor Servicer.
(b) Without the prior written consent of the Agent, ABF shall not be permitted to delegate any
of its duties or responsibilities as Servicer to any Person other than (i) the Borrower, (ii) the
Originator, and (iii) with respect to certain Defaulted Receivables, outside collection agencies in
accordance with its customary practices. Neither the Borrower nor the Originator shall be
permitted to further delegate to any other Person any of the duties or responsibilities of the
Servicer delegated to it by ABF. If at any time the Agent shall designate as Servicer any Person
other than ABF, all duties and responsibilities theretofore delegated by ABF to the Borrower or the
Originator may, at the discretion of the Agent, be terminated forthwith on notice given by the
Agent to ABF and to the Borrower and the Originator.
(c) Notwithstanding the foregoing subsection (b): (i) ABF shall be and remain primarily liable
to the Agent and the Lender for the full and prompt performance of all duties and responsibilities
of the Servicer hereunder and (ii) the Agent and the Lender shall be entitled to deal exclusively
with ABF in matters relating to the discharge by the Servicer of its duties and responsibilities
hereunder. The Agent and the Lender shall not be required to give notice, demand or other
communication to any Person other than ABF in order for communication to the Servicer and its
sub-servicer or other delegate with respect thereto to be accomplished. ABF, at all times that it
is the Servicer, shall be responsible for providing any sub-servicer or other delegate of the
Servicer with any notice given to the Servicer under this Agreement.
Section 8.2. Duties of Servicer
. (a) The Servicer shall take or cause to be taken all such
actions as may be reasonably necessary or advisable to collect each Receivable from time to time,
all in accordance with applicable laws, rules and regulations, with reasonable care and diligence,
and in accordance with the Credit and Collection Policy.
(b) The Servicer shall cause (i) all Collections from all Lock-Boxes to be directly deposited
into a Collection Account, (ii) all amounts in each Segregated Account to be deposited into the
Master Collection Account within two (2) Business Days following such funds becoming available to
the party in whose name such Segregated Account is held, (iii) all amounts in each Collection
Account (other than the Master Collection Account) to be deposited into the Master Collection
Account within two (2) Business Days following receipt thereof and (iv) on and after such date as
specified by Section 7.3 hereof, each Collection Account to be subject at all times to a Collection
Account Agreement that is in full force and effect. In the case of any remittances received in any
Lock-Box, Segregated Account or Collection Account that shall have been identified, to the
satisfaction of the Servicer, to not constitute Collections or other proceeds of the Receivables or
the Related Security, the Servicer shall promptly remit such items to the Person identified to it
as being the owner of such remittances. From and after the date the Agent delivers to any
Collection Bank a Collection Notice pursuant to Section 8.3, the Agent may
request that the Servicer, and the Servicer thereupon promptly shall instruct all Obligors with
respect to the Purchased Receivables, to remit all payments thereon to a new depositary account
specified by the Agent and, at all times thereafter, the Borrower and the Servicer shall not
deposit or otherwise credit, and shall not take any affirmative action to permit or assist any
other Person to deposit or otherwise credit to such new depositary account any cash or payment item
other than Collections.
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(c) The Servicer shall administer the Collections in accordance with the procedures described
herein and in Article II. The Servicer shall set aside and hold in trust for the account of the
Borrower and the Lender their respective shares of the Collections in accordance with Article II.
The Servicer shall, upon the request of the Agent during the occurrence of an Unmatured
Amortization Event, segregate, in a manner acceptable to the Agent, all cash, checks and other
instruments received by it from time to time constituting Collections from the general funds of the
Servicer or the Borrower prior to the remittance thereof in accordance with Article II. If the
Servicer shall be required to segregate Collections pursuant to the preceding sentence, the
Servicer shall segregate and deposit with a bank designated by the Agent such allocable share of
Collections of Purchased Receivables set aside for the Lender on the first Business Day following
receipt by the Servicer of such Collections, duly endorsed or with duly executed instruments of
transfer.
(d) The Servicer may, in accordance with the Credit and Collection Policy, extend the maturity
of any Receivable or adjust the Outstanding Balance of any Receivable as the Servicer determines to
be appropriate to maximize Collections thereof; provided, however, that such extension or
adjustment shall not alter the status of such Receivable as a Delinquent Receivable or Defaulted
Receivable or limit the rights of the Agent or the Lender under this Agreement. The Agent shall
have the right to direct the Servicer to commence or settle any legal action with respect to any
Receivable (whether or not such Receivable is a Defaulted or Delinquent Receivable) of an Obligor
which is an Obligor under any Defaulted or Delinquent Receivable; provided, however, that the
Servicer shall not be required to comply with such direction if the Borrower determines, in its
reasonable business judgment, that it is preferable not to enforce or settle any Delinquent or
Defaulted Receivable, in which case such Defaulted or Delinquent Receivable (and, at the option of
the Agent, any other Receivable of such Obligor) shall be treated as a Deemed Collection, and
payment shall be made thereon in a manner consistent with Section 1.4.
(e) The Servicer shall hold in trust for the Borrower and the Agent and the Lender all Records
that (i) evidence or relate to the Purchased Receivables, the related Contracts (other than the
Master Contracts) and Related Security or (ii) are otherwise necessary or desirable to collect the
Purchased Receivables (other than the Master Contracts) and shall, as soon as practicable upon
demand of the Agent during the occurrence of an Unmatured Servicer Termination Event or Unmatured
Amortization Event, deliver or make available to the Agent all such Records (other than any Record
that contains confidentiality provisions (except for Records as to which the related Obligor has
consented to such delivery) that cannot be satisfied by the execution and delivery of a
confidentiality agreement), at a place selected by the Agent. The Servicer shall, as soon as
practicable following receipt thereof turn over to the Borrower any cash collections or other cash
proceeds received with respect to Indebtedness owing to the Borrower not constituting Purchased
Receivables. The Servicer shall, from time to time at the request of the Agent or the Lender,
furnish to the Lender (promptly after any such request) a calculation of the amounts set aside for
the Lender pursuant to Article II.
(f) Any payment made by an Obligor that is not specified by such Obligor to relate to a
particular invoice or other obligation of such Obligor to the Originator, FreightValue or the
Borrower, , except as otherwise required by contract or law and unless otherwise instructed by the
Agent, shall be applied as a Collection of any Receivable of such Obligor (starting with the oldest
such Receivable) to the extent of any amounts then due and payable thereunder before being applied
to any other receivable or other obligation of such Obligor.
Section 8.3. Collection Notices
. The Agent is authorized at any time after the occurrence and
during the continuance of an Amortization Event to date and to deliver to the Collection Banks the
Collection Notices. The Borrower hereby transfers to the Agent for the benefit of the Lender,
effective when the Agent delivers such notice, the exclusive dominion and control of each Lock-Box
and the Collection Accounts. In case any authorized signatory of the Borrower whose signature
appears on a Collection Account Agreement shall cease to have such authority before the delivery of
such notice, such Collection Notice shall nevertheless be valid as if such authority had remained
in force. The Borrower hereby authorizes the Agent, and agrees that the Agent shall be entitled
(a) at any time after delivery of the Collection Notices, to endorse the Borrowers name on checks
and other instruments representing Collections, (b) at any time after the occurrence of an
Amortization Event, to enforce the Purchased Receivables, the related Contracts (other than any
Master Contract which contains a prohibition against the assignment thereof) and the Related
Security, and (c) at any time after the occurrence of an Amortization Event, to take such action as
shall be necessary or desirable to cause all cash, checks and other instruments constituting
Collections of Purchased Receivables to come into the possession of the Agent rather than the
Borrower.
Section 8.4. Responsibilities of the Borrower
. Anything herein to the contrary
notwithstanding, the exercise by the Agent, on behalf of the Lender, of the Agents rights
hereunder shall not release the Servicer, the Originator, FreightValue or the Borrower from any of
their duties or obligations with respect to any Purchased Receivables or under the related
Contracts. The Agent and the Lender shall have no obligation or liability with respect to any
Receivables or related Contracts, nor shall any of them be obligated to perform the obligations of
the Borrower or the Originator thereunder.
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Section 8.5. Receivables Reports
. (a)
Monthly.
The Servicer shall prepare and forward to the
Agent (i) on each Monthly Reporting Date, a Monthly Report and an electronic file of the data
contained therein, and (ii) at such times as the Agent may request upon reasonable advance notice,
a listing by Obligor of all Purchased Receivables together with an aging of such Receivables.
(b)
Weekly.
Additionally, the Servicer may, but shall not be required to, prepare and forward
to the Agent a Weekly Report showing calculations as of the end of each prior week on each Weekly
Reporting Date. Failure to provide any such Weekly Report shall result in the imposition of the
Reporting Frequency Modifier until the next Weekly Reporting Date with respect to which the
Servicer provides a Weekly Report.
Section 8.6. Servicing Fee
. As compensation for the Servicers servicing activities on their
behalf, the Servicer shall be paid the Servicing Fee in arrears on each Settlement Date out of
Collections.
Article IX
Amortization Events
Section 9.1. Amortization Events
. The occurrence of any one or more of the following events
shall constitute an Amortization Event:
(a) Any of the Borrower Parties shall fail to make any payment or deposit required to
be made by it under the Transaction Documents when due and such failure shall continue for
two (2) Business Days.
(b) (i) Any representation or warranty made by any of the Borrower Parties in this
Agreement or the Receivables Sale Agreement shall prove to have been incorrect in any
material respect (solely in cases where such representation and warranty is not already
qualified by materiality) or in any respect (in all other cases) when made or deemed made,
(ii) any information contained in any Monthly Report or Weekly Report shall prove to have
been incorrect in any material respect when made, or (iii) any representation, warranty,
certification or statement (other than relating to projections or other forward-looking
information) made by any of the Borrower Parties in any other Transaction Document or in any
other document delivered pursuant hereto or thereto (other than in a Monthly Report or
Weekly Report) shall prove to have been incorrect in any material respect when made or
deemed made;
provided,
that no such event shall constitute an Amortization Event if the
Borrower shall have timely paid to the Agent the Deemed Collection required to be paid as a
result of such event in accordance with Section 1.4.
(c) Any of the Borrower Parties shall fail to perform or observe any covenant contained
in Section 7.1(a) or (b), Section 7.2 or Section 8.5 when required.
(d) Any of the Borrower Parties shall fail to perform or observe any other covenant or
agreement under any Transaction Documents (after giving effect to all cure periods and
notice requirements) and such failure shall continue for fifteen (15) consecutive Business
Days.
(e) Failure of the Borrower to pay any Indebtedness (other than the Aggregate Unpaids)
in excess of $10,000 when due or the default by the Borrower in the performance of any term,
provision or condition contained in any agreement under which any such Indebtedness was
created or is governed, the effect of which is to cause, or to permit the holder or holders
of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity;
or any such Indebtedness of the Borrower shall be declared to be due and payable or required
to be prepaid (other than by a regularly scheduled payment) prior to the date of maturity
thereof.
(f) Failure of the Parent or any of its Subsidiaries other than the Borrower to pay
Indebtedness in excess of $10,000,000 in aggregate principal amount (Indebtedness in such
amount being referred to hereinafter as
Material Indebtedness
) when due (after giving
effect to any applicable grace periods with respect thereto and whether or not such failure
to pay is waived); or the default by the Parent or any of its Subsidiaries other than the
Borrower in the performance of any term, provision or condition contained in any agreement
under which any Material Indebtedness was created or is governed, the effect of which is to
cause, or to permit the holder or holders of such Material Indebtedness to cause, such
Material Indebtedness to become due prior to its stated maturity; or any Material
Indebtedness of the Parent or any of its Subsidiaries other than the Borrower shall be
declared to be due and payable or required to be prepaid (other than by a regularly
scheduled payment) prior to the date of maturity thereof.
(g) An Event of Bankruptcy shall occur with respect to any Borrower Party or the
Parent.
(h) As at the end of any Calculation Period (other than any Special Calculation
Period):
(i) the three-month rolling average Delinquency Ratio shall be greater than or
equal to 2.00%,
(ii) the three-month rolling average Default Ratio shall be greater than or
equal to 1.00%,
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(iii) the three-month rolling average Dilution Ratio shall be greater than or
equal to 3.50%, or
(iv) the Accounts Receivable Turnover Ratio shall be less than 10.00.
(i) As at the end of any Special Calculation Period:
(i) the three-month rolling average Delinquency Ratio shall be greater than or
equal to 4.00%,
(ii) the three-month rolling average Default Ratio shall be greater than or
equal to 2.00%,
(iii) the three-month rolling average Dilution Ratio shall be greater than or
equal to 5.50%, or
(iv) the Accounts Receivable Turnover Ratio shall be less than 8.00.
(j) A Change of Control shall occur.
(k) (i) One or more final judgments of a court of competent jurisdiction for the
payment of money in an aggregate amount of $10,000 or more shall be entered against the
Borrower or (ii) one or more final judgments of a court of competent jurisdiction for the
payment of money in an amount in excess of $10,000,000, individually or in the aggregate,
shall be entered against the Parent or any of its Subsidiaries (other than the Borrower) on
claims not covered by insurance or as to which the insurance carrier has denied its
responsibility, and such judgment shall continue unsatisfied and in effect for thirty (30)
consecutive days without a stay of execution.
(l) The Termination Date under and as defined in the Receivables Sale Agreement shall
occur under the Receivables Sale Agreement or the Originator shall for any reason cease to
transfer, or cease to have the legal capacity to transfer, or otherwise be incapable of
transferring Receivables to the Borrower under the Receivables Sale Agreement.
(m) This Agreement shall terminate in whole or in part (except in accordance with its
terms), or shall cease to be effective or to be the legally valid, binding and enforceable
obligation of the Borrower, or the Originator shall directly or indirectly contest in any
manner such effectiveness, validity, binding nature or enforceability, or the Agent for the
benefit of the Lender shall cease to have a valid and perfected first priority security
interest in the Purchased Receivables and all other items of Collateral in which an interest
therein may be perfected by the filing of a financing statement under Article 9 of the
applicable UCC and the proceeds of the foregoing.
(n) On any day, the Aggregate Loan Amount shall exceed the Facility Limit or a
Borrowing Base Deficiency shall exist, and such event shall continue unremedied for two (2)
Business Days after notice has been given to the Borrower by Lender or Agent of such
occurrence or an Authorized Officer of the Borrower shall have knowledge thereof.
(o) The Internal Revenue Service shall file notice of a lien pursuant to Section 6323
of the Tax Code with regard to any of the Purchased Receivables or the Related Security or
the PBGC shall, file notice of a lien pursuant to Section 4068 of ERISA with regard to any
of the Purchased Receivables or the Related Security, and any such lien shall not have been
released within the earlier to occur of (i) seven (7) days after the date of such filing and
(ii) the day on which the Agent becomes aware of such filing.
(p) the Borrower or any Subsidiary, or any member of its Controlled Group, shall fail
to pay by the final date on which any such payment may be made without penalty or without
attachment of liens on its assets an amount or amounts aggregating in excess of $10,000,000
which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA;
(q) Any event shall occur which has, or could be reasonably expected to have a Material
Adverse Effect (excluding any events or matters, including, without limitation,
multi-employer pension contingencies of the type disclosed and discussed in the Parents
Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 as filed with the
SEC)).
(r) (i) The Consolidated Net Worth of the Parent shall be less than or equal to
$375,000,000 or (ii) the Consolidated Net Worth of the Borrower shall be less than $10,000.
(s) Any Person shall be appointed as an Independent Director of the Borrower without
prior notice thereof having been given to the Agent in accordance with Section 7.1(b)(vii).
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Section 9.2. Servicer Termination Events
. The occurrence of any one or more of the following
events shall constitute a Servicer Termination Event:
(a) The Servicer shall fail to make any payment or deposit required to be made by it under the
Transaction Documents and such failure shall continue for two (2) Business Days.
(b) (i) Any representation or warranty made by the Servicer in this Agreement shall prove to
have been incorrect in any material respect (solely in cases where such representation and warranty
is not already qualified by materiality) or in any respect (in all other cases) when made or deemed
made, (ii) any information contained in any Monthly Report or Weekly Report shall prove to have
been incorrect in any material respect when made, or (iii) any representation, warranty,
certification or statement (other than relating to projections or other forward-looking
information) made by the Servicer in any other Transaction Document or in any other document
delivered pursuant hereto or thereto (other than in a Monthly Report or Weekly Report) shall prove
to have been incorrect in any material respect when made or deemed made;
provided,
that no such
event shall constitute a Servicer Termination Event if the Borrower shall have timely paid to the
Agent the Deemed Collection required to be paid as a result of such event in accordance with
Section 1.4.
(c) An Event of Bankruptcy shall occur with respect to the Servicer.
(d) A Change of Control shall occur.
(e) (i) One or more final judgments of a court of competent jurisdiction for the payment of
money in an amount in excess of $10,000,000, individually or in the aggregate, shall be entered
against the Servicer on claims not covered by insurance or as to which the insurance carrier has
denied its responsibility, and such judgment shall continue unsatisfied and in effect for thirty
(30) consecutive days without a stay of execution.
(f) Any event shall occur with respect to the Servicer which has, or could be reasonably
expected to have a Material Adverse Effect (excluding any events or matters, including, without
limitation, multi-employer pension contingencies of the type disclosed and discussed in the
Servicers Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 as filed with the
SEC).
(g) Failure of the Servicer to pay any Material Indebtedness when due (after giving effect to
any applicable grace periods with respect thereto and whether or not such failure to pay is
waived); or the default by the Servicer in the performance of any term, provision or condition
contained in any agreement under which any Material Indebtedness was created or is governed, the
effect of which is to cause, or to permit the holder or holders of such Material Indebtedness to
cause, such Material Indebtedness to become due prior to its stated maturity; or any Material
Indebtedness of the Servicer shall be declared to be due and payable or required to be prepaid
(other than by a regularly scheduled payment) prior to the date of maturity thereof.
(h) The Servicer shall fail to perform or observe any covenant of the Servicer contained in
Section 7.1(a) or (b), Section 7.2 or Section 8.5 when required.
(i) The Servicer shall fail to perform or observe any other covenant or agreement under any
Transaction Document (after giving effect to all cure periods and notice requirements) and such
failure shall continue for fifteen (15) consecutive Business Days.
Section 9.3. Remedies
. (a) Upon the occurrence and during the continuation of an Amortization
Event, the Agent may, or upon the direction of the Lender shall, take any of the following actions:
(i) declare the Facility Termination Date to have occurred, whereupon the Facility Termination
Date shall forthwith occur, all without demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower Parties;
provided
,
however
, that upon the occurrence of
an Event of Bankruptcy with respect to a Borrower Party, the Facility Termination Date shall
automatically occur, without demand, protest or any notice of any kind, all of which are hereby
expressly waived by such Borrower Party and (ii) deliver the Collection Notices to the Collection
Banks.
(b) Upon the occurrence and during the continuation of any Event of Default, the Agent may, or
upon the direction of the Lender shall, take any of the following actions: (i) exercise all rights
and remedies of a secured party upon default under the UCC and other applicable laws, and
(ii) notify Obligors of the Agents security interest in the Purchased Receivables and other
Pledged Assets. The aforementioned rights and remedies shall be without limitation, and shall be
in addition to all other rights and remedies of the Agent and the Lender otherwise available under
any other provision of this Agreement, by operation of law, at equity or otherwise, all of which
are hereby expressly preserved, including, without limitation, all rights and remedies provided
under the UCC, all of which rights shall be cumulative.
(c) Upon the occurrence and during the continuation of a Servicer Termination Event, the Agent
may, or upon the direction of the Lender shall, replace the Person then acting as Servicer.
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Article X
Indemnification
Section 10.1. Indemnities by the Borrower Parties
. Without limiting any other rights that the
Agent or the Lender may have hereunder or under applicable law, (a) the Borrower hereby agrees to
indemnify (and pay upon demand to) the Agent, the Lender and each of the respective assigns,
officers, directors, agents and employees of the foregoing (each, an
Indemnified Party
) from and
against any and all damages, losses, claims, taxes, liabilities, costs, expenses and for all other
amounts payable, including reasonable attorneys fees and disbursements (all of the foregoing being
collectively referred to as
Indemnified Amounts
) awarded against or incurred by any of them
arising out of or as a result of this Agreement or the acquisition, either directly or indirectly,
by the Lender of any security interest or other interest in the Purchased Receivables, and (b) the
Servicer hereby agrees to indemnify (and pay upon demand to) each Indemnified Party for Indemnified
Amounts awarded against or incurred by any of them arising out of the Servicers activities as
Servicer hereunder excluding, however, in all of the foregoing instances under the preceding
clauses (a) and (b):
(i) Indemnified Amounts to the extent a final judgment of a court of competent
jurisdiction holds that such Indemnified Amounts resulted from gross negligence or willful
misconduct on the part of the Indemnified Party seeking indemnification;
(ii) Indemnified Amounts to the extent the same includes losses in respect of Purchased
Receivables that are uncollectible on account of the insolvency, bankruptcy or lack of
creditworthiness of the related Obligor; or
(iii) taxes imposed by the United States, the Indemnified Partys jurisdiction of
organization (or in the case of an individual, his or her jurisdiction of primary residence)
or any other jurisdiction in which such Indemnified Party has established a taxable nexus
other than in connection with the transactions contemplated hereby, on or measured by the
overall net income or gross receipts of such Indemnified Party to the extent that the
computation of such taxes is consistent with the characterization for tax purposes of the
acquisition by the Lender of a security interest in the Purchased Receivables as a loan or
loans by the Lender to the Borrower secured by the Collateral;
provided, however,
that nothing contained in this sentence shall limit the liability of the
Borrower Parties or limit the recourse of the Lender to the Borrower Parties for amounts otherwise
specifically provided to be paid by the Borrower Parties under the terms of this Agreement.
Without limiting the generality of the foregoing indemnification, the Borrower shall indemnify the
Agent and the Lender for Indemnified Amounts (including, without limitation, losses in respect of
uncollectible receivables, regardless of whether reimbursement therefor would constitute recourse
to the Borrower or the Servicer) resulting from:
(i) any representation or warranty made by a Borrower Party or the Originator (or any
officers of any such Person) under or in connection with this Agreement, any other
Transaction Document or any other information or report delivered by any such Person
pursuant hereto or thereto, which shall have been false or incorrect when made or deemed
made;
(ii) the failure by the Borrower, the Servicer or the Originator to comply in any
material respect with any applicable law, rule or regulation with respect to any Receivable
or Contract related thereto, or the nonconformity of any Receivable or Contract included
therein with any such applicable law, rule or regulation or any failure of the Originator to
keep or perform any of its obligations, express or implied, with respect to any Contract;
(iii) any failure of the Borrower, the Servicer or the Originator to perform in any
material respect its duties, covenants or other obligations in accordance with the
provisions of this Agreement or any other Transaction Document;
(iv) any products liability, personal injury or damage suit, or other similar claim
arising out of or in connection with services or provision of equipment that are the subject
of any Contract or any Receivable;
(v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the
Obligor) of the Obligor to the payment of any Eligible Receivable (including, without
limitation, a defense based on such Receivable or the related Contract not being a legal,
valid and binding obligation of such Obligor enforceable against it in accordance with its
terms), or any other claim resulting from the provision of the service related to such
Receivable or the furnishing or failure to furnish such services;
(vi) the commingling of Collections of Purchased Receivables at any time with other
funds;
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(vii) any investigation, litigation or proceeding arising from this Agreement or any
other Transaction Document, the transactions contemplated hereby, the use of the proceeds of
any Loan, the Pledged Assets or any other investigation, litigation or proceeding relating
to the Borrower, the Servicer or the Originator in which any Indemnified Party becomes
involved as a result of any of the transactions contemplated hereby (other than any
litigation or proceeding in which an Indemnified Party is a plaintiff or complaining party
and a Borrower Party is a defendant and such Indemnified Party shall not prevail in such
litigation or proceeding);
(viii) any inability to litigate any claim against any Obligor in respect of any
Receivable as a result of such Obligor being immune from civil and commercial law and suit
on the grounds of sovereignty or otherwise from any legal action, suit or proceeding;
(ix) any Amortization Event of the type described in Section 9.1(g);
(x) any failure of the Borrower to acquire and maintain legal and equitable title to,
and ownership of any of the Pledged Assets from the Originator, free and clear of any
Adverse Claim (other than as created hereunder); or any failure of the Borrower to give
reasonably equivalent value to the Originator under the Receivables Sale Agreement in
consideration of the transfer by the Originator of any Receivable, or any attempt by any
Person to void such transfer under statutory provisions or common law or equitable action
(except as created by the Transaction Documents);
(xi) any failure to vest and maintain vested in the Agent for the benefit of the
Lender, or to transfer to the Agent for the benefit of the Secured Parties, a valid first
priority perfected security interests in the Pledged Assets, free and clear of any Adverse
Claim (except as created by the Transaction Documents);
(xii) the failure to have filed, or any delay in filing, financing statements or other
similar instruments or documents under the UCC of any applicable jurisdiction or other
applicable laws with respect to any Pledged Assets, and the proceeds thereof, whether at the
time of any Loan or at any subsequent time;
(xiii) any action or omission by a Borrower Party which reduces or impairs the rights
of the Agent or the Lender with respect to any Pledged Assets or the value of any Pledged
Assets;
(xiv) any attempt by any Person to void any Loan or the Agents security interest in
the Pledged Assets under statutory provisions or common law or equitable action;
(xv) the failure of any Receivable included in the calculation of the Net Pool Balance
as an Eligible Receivable to be an Eligible Receivable at the time so included;
(xvi) the failure of any Loan to occur after any Borrowing Request has been given
hereunder;
(xvii) the failure of the Parent to properly calculate of the Consolidated Net Worth of
the Parent and the Borrower or to provide a properly completed compliance certificate as
required by Section 7.1(a) hereof; and
(xviii) any provision in any Contract that either (i) permits or provides for any
reduction in the Outstanding Balance of the Receivable created under such Contract and any
accrued interest thereon or (ii) could otherwise materially hinder the ability to receive
Collections with respect to such Receivable.
Section 10.2. Increased Cost and Reduced Return
. If after the date hereof, the Lender shall
be charged any fee, expense or increased cost (other than taxes) on account of the adoption of any
applicable law, rule or regulation (including any applicable law, rule or regulation regarding
capital adequacy) or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance with any request or directive (whether or
not having the force of law) of any such authority, central bank or comparable agency or on account
of the adoption of any change in (or change in the interpretation of) any generally accepted
accounting principles or regulatory accounting principles applicable to the Lender (a
Regulatory
Change
): (a) that subjects (or has the effect of subjecting) the Lender to any charge or
withholding on or with respect to this Agreement or the Lenders obligations under this Agreement,
or on or with respect to the Purchased Receivables, or (b) that imposes, modifies or deems
applicable (or has the effect of imposing, modifying or deeming applicable) any reserve,
assessment, insurance charge, special deposit or similar requirement against assets of, deposits
with or for the account of the Lender, or credit extended by the Lender pursuant to this Agreement
or (c) that imposes (or has the effect of imposing) any other condition the result of which is to
increase the cost to the Lender of performing its obligations under this Agreement, or to reduce
the rate of return on the Lenders capital as a consequence of its obligations under this
Agreement, or to reduce the amount of any sum received or receivable by the Lender under this
Agreement or to require any payment calculated by reference to the amount of interests or loans
held or interest received by it, then, promptly upon demand by the Agent, the Borrower shall pay to
the Agent, for the benefit of the Lender, such amounts charged to the Lender or such amounts to
otherwise compensate the Lender for such increase costs or such reduction;
provided, however,
that
the Lender shall not be entitled to any compensation for any
increased costs under this Section 10.2 unless the Agent or the Lender delivers a reasonably
detailed certificate to the Borrower setting forth the amounts and the basis for such increased
costs.
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Neither the Borrower nor any other Borrower Party shall be required to compensate the Lender
pursuant to the foregoing provisions of this Section 10.2 for any increased costs incurred or
reductions suffered more than nine months prior to the date that the Lender notifies Borrower of
the Regulatory Change giving rise to such increased costs or reductions and of the Lenders
intention to claim compensation therefor.
Section 10.3. Other Costs and Expenses
. The Borrower shall pay to the Agent and the Lender
promptly on demand all reasonable costs and out-of-pocket expenses in connection with the
preparation, execution, delivery and administration of the Transaction Documents and the
transactions contemplated thereby, including without limitation, the cost of the Lenders auditors
auditing the books, records and procedures of the Borrower, reasonable fees and out-of-pocket
expenses of legal counsel for the Lender and the Agent with respect thereto and with respect to
advising the Lender and the Agent as to their respective rights and remedies under this Agreement.
The Borrower shall pay to the Agent promptly on demand any and all reasonable costs and expenses of
the Agent and the Lender, if any, including reasonable counsel fees and expenses in connection with
the enforcement of this Agreement and the other documents delivered hereunder and in connection
with any restructuring or workout of this Agreement or such documents, or the administration of
this Agreement following an Amortization Event.
Article XI
The Agent
Section 11.1. Authorization and Action
. The Lender, on behalf of itself and its assigns,
hereby designates and appoints STRH to act as its agent and administrator under this Agreement and
under each other Transaction Document, and authorizes the Agent to take such actions as agent on
its behalf and to exercise such powers as are delegated to the Agent by the terms of this Agreement
and the other Transaction Documents together with such powers as are reasonably incidental thereto,
including, without limitation, the power to perfect all security interests granted under the
Transaction Documents.
Section 11.2. STRH, SunTrust Bank and Affiliates
. STRH, SunTrust Bank and their Affiliates
may generally engage in any kind of business with the Borrower, the Servicer, any Obligor, any of
their respective Affiliates and any Person who may do business with or own securities of any of the
foregoing, all as if STRH were not Agent and without any duty to account therefor to the Lender.
Article XII
Assignments and Participations; Refinancing
Section 12.1. Successors and Assigns
. This Agreement shall be binding upon each Borrower
Party and their successors and assigns, and shall inure to the benefit of the Agent and the Lender
and the benefit of their respective successors and assigns, including any subsequent holder of any
of the Loans. No Borrower Party may assign any of its rights or obligations under any Transaction
Document without the written consent of each of the Agent and the Lender.
Section 12.2. Participants
. The Lender shall have the right at its own cost to grant
participations (to be evidenced by one or more agreements or certificates of participation) in the
Loans made or the Commitment held by the Lender at any time and from time to time to one or more
other Persons; provided that no such participation shall relieve the Lender of any of its
obligations under this Agreement, and, provided, further that no such participant shall have any
rights under this Agreement except as provided in this Section, and the Agent shall have no
obligation or responsibility to such participant. Any agreement pursuant to which such
participation is granted shall provide that the Lender shall retain the sole right and
responsibility to enforce the obligations of the Borrower under this Agreement and the other
Transaction Documents including, without limitation, the right to approve any amendment,
modification or waiver of any provision of the Transaction Documents, except that such agreement
may provide that the Lender will not agree to any modification, amendment or waiver of the
Transaction Documents that would reduce the amount of or postpone any fixed date for payment of any
Loan in which such participant has an interest. Any party to which such a participation has been
granted shall have the benefits of Article 10 (solely to the extent such cost or expense accrues
only after such participation is made) and Section 1.3 hereof.
Section 12.3. Assignments
. (a) The Lender may at any time assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this Agreement (including all or a
portion of the Commitment and the Loans at the time owing to it);
provided
that any such assignment
shall be subject to the following conditions:
(i)
Minimum Amounts
. (A) In the case of an assignment of the entire remaining amount of the
Commitment and the Loans or in the case of an assignment to an Affiliate of the Lender, no minimum
amount need be assigned; and (B) in any
case not described in subsection (a)(i)(A) of this Section, the aggregate amount of the Commitment
or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the
Lender subject to each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Agent or, if Effective Date is specified in
the Assignment and Acceptance, as of the Effective Date) shall not be less than $5,000,000, unless
each of the Agent and, so long as no Amortization Event has occurred and is continuing, the
Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed);
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(ii)
Proportionate Amounts
. Each partial assignment shall be made as an assignment of a
proportionate part of all of the Lenders rights and obligations under this Agreement with respect
to the Loan or the Commitment assigned.
(iii)
Required Consents
.
(a) The consent of the Borrower (such consent not to be unreasonably withheld or
delayed) shall be required unless (x) an Amortization Event has occurred and is continuing
at the time of such assignment or (y) such assignment is to an Affiliate of the Lender
(provided such assignment does not result in any liability, cost or expense for which the
Borrower is liable or must reimburse or indemnify such assignee Lender pursuant to Section
10); and
(b) the consent of the Agent (such consent not to be unreasonably withheld or delayed)
shall be required for assignments if such assignment is to a Person that is not an Affiliate
of the Lender.
(iv)
Assignment and Acceptance
. The parties to each assignment shall execute and deliver to
the Agent an Assignment and Acceptance.
(v)
No Assignment to Borrower or Parent
. No such assignment shall be made to the Borrower or
any of its Affiliates or Subsidiaries.
(vi)
No Assignment to Natural Persons
. No such assignment shall be made to a natural person.
Subject to acceptance and recording thereof by the Agent pursuant to Section 12.3(b) hereof, from
and after the effective date specified in each Assignment and Acceptance, the assignee thereunder
shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment
and Acceptance, have the rights and obligations of the Lender under this Agreement, and the Lender
thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the Lenders rights and obligations under this Agreement, the Lender
shall cease to be a party hereto) but shall continue to be entitled to the benefits of Section 10.1
with respect to facts and circumstances occurring prior to the effective date of such assignment.
Any assignment or transfer by the Lender of rights or obligations under this Agreement that does
not comply with this Section shall be treated for purposes of this Agreement as a sale by the
Lender of a participation in such rights and obligations in accordance with Section 12.2 hereof.
(b) The Lender may at any time pledge or grant a security interest in all or any portion of
its rights under this Agreement to secure obligations of the Lender, including any such pledge or
grant to a Federal Reserve Bank, and this Section shall not apply to any such pledge or grant of a
security interest;
provided
that no such pledge or grant of a security interest shall release the
Lender from any of its obligations hereunder or substitute any such pledgee or secured party for
the Lender as a party hereto;
provided further, however,
the right of any such pledgee or grantee
(other than any Federal Reserve Bank) to further transfer all or any portion of the rights pledged
or granted to it, whether by means of foreclosure or otherwise, shall be at all times subject to
the terms of this Agreement.
Section 12.4. Prohibition on Assignments by the Borrower Parties
. No Borrower Party may
assign any of its rights or obligations under this Agreement without the prior written consent of
each of the Agent and the Lender.
Section 12.5. Refinancing by Three Pillars
. In the event that the commercial paper notes of
Three Pillars Funding LLC (
TPF
) are rated both A-1 by S&P and P-1 by Moodys, each party to this
Agreement agrees that it will discuss in good faith the refinancing of the credit facility
contemplated by this Agreement with a securitization facility funded primarily with commercial
paper notes issued by TPF (it being understood that TPF would concurrently enter into credit and
liquidity arrangements with other lenders to fund its obligations under any such securitization
facility upon the occurrence of certain events including, but not limited to, TPFs inability to
issue commercial paper notes).
Article XIII
Miscellaneous
Section 13.1. Waivers and Amendments
. No failure or delay on the part of the Agent or the
Lender in exercising any power, right or remedy under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any
other further
exercise thereof or the exercise of any other power, right or remedy. The rights and remedies
herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law.
Any waiver of this Agreement shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement may be amended, supplemented, modified or
waived except in writing in accordance with the provisions of this Section 13.1. The Lender, the
Borrower and the Agent, may enter into written modifications or waivers of any provisions of this
Agreement.
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Section 13.2. Notices
. Except as provided in this Section 13.2, all communications and
notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic
facsimile transmission or similar writing) and shall be given to the other parties hereto at their
respective addresses or telecopy numbers set forth on the signature pages hereof or at such other
address or telecopy number as such Person may hereafter specify for the purpose of notice to each
of the other parties hereto. Each such notice or other communication shall be effective (a) if
given by telecopy, upon the receipt thereof, (b) if given by mail, three (3) Business Days after
the time such communication is deposited in the mail with first class postage prepaid or (c) if
given by any other means, when received at the address specified in this Section 13.2. The
Borrower hereby authorizes the Agent to effect Loans and Interest Period and Interest Rate
selections based on telephonic notices made by any Person whom the Agent in good faith believes to
be acting on behalf of the Borrower. The Borrower agrees to deliver promptly to the Agent a
written confirmation of each telephonic notice signed by an authorized officer of the Borrower;
provided, however,
the absence of such confirmation shall not affect the validity of such notice.
If the written confirmation differs from the action taken by the Agent, the records of the Agent
shall govern absent manifest error.
Section 13.3. Protection of Agents Security Interest
. (a) The Borrower agrees that from time
to time, at its expense, it will promptly execute and deliver all instruments and documents, and
take all actions, that may be necessary or desirable, or that the Agent may request, to perfect,
protect or more fully evidence the Agents security interest in the Pledged Assets, or to enable
the Agent or the Lender to exercise and enforce their rights and remedies hereunder;
provided,
however,
that unless and until an Amortization Event or an Unmatured Amortization Event has
occurred, no Borrower Party shall be required to take any actions to establish, maintain or perfect
the Borrowers ownership interest in the Related Security other than the filing of financing
statements under the UCC of all appropriate jurisdictions. During the occurrence and continuance
of an Unmatured Amortization Event or an Amortization Event, the Agent may, or the Agent may direct
the Borrower or the Servicer to, notify the Obligors of Purchased Receivables, at the Borrowers
expense, of the ownership or security interests of the Lender under this Agreement. During the
occurrence and continuance of an Unmatured Amortization Event or an Amortization Event, the Agent
may direct the Borrower or the Servicer to direct (and, if the Borrower or the Servicer fails to do
so, the Agent may direct) that payments of all amounts due or that become due under any or all
Purchased Receivables be made directly to an account specified by the Agent or its designee which
may be an account of the Agent or its designee. The Borrower or the Servicer (as applicable)
shall, at the Agents request, withhold the identities of the Agent and the Lender in any such
notification.
(b) If any Borrower Party fails to perform any of its obligations hereunder, the Agent or the
Lender may (but shall not be required to) upon notice to such Borrower Party perform, or cause
performance of, such obligations, and the Agents or the Lenders costs and expenses incurred in
connection therewith shall be payable by the Borrower as provided in Section 10.3. Each Borrower
Party (i) irrevocably authorizes and appoints the Agent as its attorney-in-fact, at any time and
from time to time in the sole discretion of the Agent, to execute on behalf of the Borrower as
debtor and to file financing statements and other filing or recording documents necessary or
desirable in the Agents sole discretion, in such offices and in such form, including carbon,
photographic or other reproduction, as the Agent reasonably determines appropriate to perfect or
maintain the perfection and priority of Agents interest in the Purchased Receivables and Related
Security (including any amendments thereto, or continuation or termination statements thereof)
including, without limitation, financing statements naming Borrower as debtor and describing the
collateral as all assets or all personal property of the debtor, whether now owned and existing
or hereafter arising or acquired, (ii) acknowledges and agrees that it is not authorized to, and
will not, file financing statements or other filing or recording documents with respect to the
Purchased Receivables or Related Security (including any amendments thereto, or continuation or
termination statements thereof), without the express prior written approval by the Agent,
consenting to the form and substance of such filing or recording document, and (iii) approves,
authorizes and ratifies any filings or recordings made by or on behalf of the Agent in connection
with the perfection of the security interests in favor of the Borrower or the Agent. The
appointment of Agent as attorney-in-fact as described herein is coupled with an interest and is
irrevocable.
Section 13.4. Confidentiality
. (a) Each of the Borrower Parties shall maintain and shall
cause each of its employees and officers to maintain the confidentiality of any confidential or
proprietary information with respect to the Agent and the Lender and their respective businesses
obtained by it or them in connection with the structuring, negotiating and execution of the
transactions contemplated herein, except that the Borrower Parties and their respective officers
and employees may disclose such information to such Borrower Partys directors, external
accountants and attorneys and in accordance with any applicable law, rule, regulation, direction,
request or order of any judicial, administrative or regulatory authority or proceeding (whether or
not having the force or effect of law).
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(b) Anything herein to the contrary notwithstanding, the Borrower Parties hereby consent to
the disclosure of any nonpublic information with respect to it (i) to the Agent or the Lender by
each other, and (ii) by the Agent or the Lender to any prospective or actual assignee or
participant of any of them and to any officers, directors, employees, outside accountants and
attorneys of any of the foregoing,
provided
that each such Person is informed of the confidential
nature of such information. In addition, the Lender and the Agent may disclose any such nonpublic
information in accordance with any law, rule, regulation, direction, request or order of any
judicial, administrative or regulatory authority or proceedings (whether or not having the force or
effect of law).
(c) The Lender and the Agent shall each maintain and shall cause each of its employees and
officers to maintain the confidentiality of any confidential or proprietary information with
respect to the Originator, the Obligors and their respective businesses obtained by it in
connection with the due diligence evaluations, structuring, negotiating and execution of the
Transaction Documents, and the consummation of the transactions contemplated herein and any other
activities of the Lender or the Agent arising from or related to the transactions contemplated
herein
provided, however,
that each of the Lender and the Agent and its employees and officers
shall be permitted to disclose such confidential or proprietary information: (i) to the other
Secured Parties, (ii) to any prospective or actual assignee or participant of the Lender, the Agent
or the other Secured Parties who execute a confidentiality agreement for the benefit of the
Originator and the Borrower on terms comparable to those required of the Lender and the Agent
hereunder with respect to such disclosed information, (iii) to any rating agency, provider of a
surety, guaranty or credit or liquidity enhancement to the Lender, (iv) to any officers, directors,
employees, outside accountants and attorneys of any of the foregoing, and (v) to the extent
required pursuant to any applicable law, rule, regulation, direction, request or order of any
judicial, administrative or regulatory authority or proceedings with competent jurisdiction
(whether or not having the force or effect of law).
(d) Notwithstanding any other express or implied agreement to the contrary contained herein,
the parties agree and acknowledge that each of them and each of their employees, representatives,
and other agents may disclose to any and all persons, without limitation of any kind, the tax
treatment and tax structure of the transaction and all materials of any kind (including opinions or
other tax analyses) that are provided to any of them relating to such tax treatment and tax
structure, except to the extent that confidentiality is reasonably necessary to comply with U.S.
federal or state securities laws. For purposes of this paragraph, the terms tax treatment and
tax structure have the meanings specified in Treasury Regulation section 1.6011-4(c).
Section 13.5. Limitation of Liability
. Except with respect to any claim arising out of the
willful misconduct or gross negligence of the Lender or the Agent, no claim may be made by a
Borrower Party or any other Person against the Lender or the Agent or their respective Affiliates,
directors, officers, employees, attorneys or agents for any special, indirect, consequential or
punitive damages in respect of any claim for breach of contract or any other theory of liability
arising out of or related to the transactions contemplated by this Agreement, or any act, omission
or event occurring in connection therewith; and the Borrower Parties hereby waive, release, and
agree not to sue upon any claim for any such damages, whether or not accrued and whether or not
known or suspected to exist in its favor.
Section 13.6. No Recourse Against the Lender
. The obligations of the Lender under this
Agreement are solely the obligations of the Lender. No recourse shall be had for any obligation,
covenant or agreement (including, without limitation, the payment of any amount owing in respect to
this Agreement or the payment of any Fee hereunder or for any other obligation or claim) arising
out of or based upon this Agreement or any other agreement, instrument or Transaction Document
entered into pursuant hereto or in connection herewith against any member, employee, officer,
director, manager, Agent or organizer of the Lender, as such, by the enforcement of any assessment
or by any legal or equitable proceeding, by virtue of any statute or otherwise.
Section 13.7.
Choice of Law
. This Agreement shall be governed and construed in accordance
with the laws of the State of New York, without regard to the principles of conflicts of laws
thereof other than Section 5-1401 of the General Obligations law and except to the extent that the
perfection of the Ownership Interest of Borrower or the Security Interest of the Agent, for the
benefit of the Secured Parties, in any of the Collateral is governed by the laws of a jurisdiction
other than the State of New York
.
Section 13.8.
Consent to Jurisdiction
. E
ach party to this Agreement hereby
irrevocably submits to the non-exclusive jurisdiction of any United States Federal or New York
State Court sitting in New York, New York, in any action or proceeding arising out of or relating
to this Agreement or any document executed by such person pursuant to this Agreement, and each such
party hereby irrevocably agrees that all claims in respect of such action or proceeding may be
heard and determined in any such court and irrevocably waives any objection it may now or hereafter
have as to the venue of any such suit, action or proceeding brought in such a court or that such
court is an inconvenient forum
. N
othing herein shall limit the right of the Agent or any
Secured Party to bring
proceedings against any Borrower Party in the courts of any other jurisdiction. Any judicial
proceeding by any Borrower Party against the Agent or any Secured Party or any affiliate of the
Agent or any Secured Party involving, directly or indirectly, any matter in any way arising out of,
related to, or connected with this Agreement or any document executed by such Borrower Party
pursuant to this Agreement shall be brought only in a court in New York, New York
.
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Section 13.9.
Waiver of Jury Trial
. E
ach party hereto hereby waives trial by
jury in any judicial proceeding involving, directly or indirectly, any matter (whether sounding in
tort, contract or otherwise) in any way arising out of, related to, or connected with this
Agreement, any document executed by any Borrower Party pursuant to this Agreement or the
relationship established hereunder or thereunder
.
Section 13.10. Integration; Binding Effect; Survival of Terms
. (a) This Agreement and each
other Transaction Document contain the final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof superseding all prior
oral or written understandings.
(b) This Agreement shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns (including any trustee in bankruptcy). This
Agreement shall create and constitute the continuing obligations of the parties hereto in
accordance with its terms and shall remain in full force and effect until terminated in accordance
with its terms;
provided, however,
that the rights and remedies with respect to (i) any breach of
any representation and warranty made by the Borrower Parties pursuant to Article V, (ii) the
indemnification and payment provisions of Article X, and the provisions of Section 13.4 through and
including Section 13.8 shall be continuing and shall survive any termination of this Agreement.
Section 13.11. Counterparts; Severability; Section References
. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which when taken together shall
constitute one and the same Agreement. Delivery of an executed counterpart of a signature page to
this Agreement by fax or other means of electronic transmission shall be effective as delivery of a
manually executed counterpart of a signature page to this Agreement. Any provisions of this
Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise
expressly indicated, all references herein to Article, Section, Schedule or Exhibit shall
mean articles and sections of, and schedules and exhibits to, this Agreement.
Section 13.12. Characterization; Security Interest
. (a) It is the intention of the parties
hereto that each Loan hereunder shall constitute and be treated as a secured loan. The Borrower
shall be liable to the Lender and the Agent for all representations, warranties, covenants and
indemnities made by the Borrower pursuant to the terms of this Agreement, and (ii) the transaction
contemplated by this Agreement do not constitute and are not intended to result in an assumption by
the Lender or the Agent or any assignee thereof of any obligation of the Borrower or the Originator
or any other person arising in connection with the Purchased Receivables, the Related Security, or
the related Contracts, or any other obligations of the Borrower or the Originator. It is the
intention of the parties hereto that for federal, state and local income and franchise tax purposes
the Lenders acquisition of its interest in the Purchased Receivables, Related Security and
Collections shall be treated as a secured loan by the Lender to the Borrower, and each party hereto
agrees to characterize all Loans hereunder as secured loans on all tax returns filed by such party.
(b) In addition to any security interest or other interest which the Agent or the Lender may
from time to time acquire pursuant hereto, the Borrower hereby grants to the Agent for the benefit
of the Lender a valid security interest in all of the Borrowers right, title and interest, whether
now owned or hereafter acquired, in, to and under (i) all Purchased Receivables now existing or
hereafter arising, (ii) the Collections as and when received, (iii) each Lock-Box and each
Segregated Account, (iv) each Collection Account, (v) all Related Security, (vi) all other rights
of the Borrower and payments relating to such Purchased Receivables, (vii) all proceeds of the
foregoing, (viii) the Borrowers right, title and interest in, to and under the Receivables Sale
Agreement and (ix) all other assets of the Borrower (collectively, the
Collateral
) prior to all
other liens on and security interests therein to secure the prompt and complete payment of the
Aggregate Unpaids. The Agent, on behalf of the Lender, shall have, in addition to the rights and
remedies that it may have under this Agreement, all other rights and remedies provided to a secured
creditor under the applicable UCC and other applicable law, which rights and remedies shall be
cumulative.
Section 13.13. Increase in Commitment
.
Increase in Commitment
At any time the Borrower may
request (in consultation with the Agent), an increase of the aggregate amount of the Commitment by
delivering a written request therefor in a form acceptable to the Agent at least 30 Days prior to
the desired effective date of such increase (the
Increase
), identifying an additional Lender(s),
which additional Lenders shall be reasonably acceptable to the Agent and the amount of such
additional Lenders Commitment;
provided, however
, that (i) the aggregate amount of all such
Increases shall not exceed $50,000,000 without the written consent of the existing Lender, (ii) any
such Increase shall be in an amount not less than $5,000,000, (iii) no Amortization Event or
Unmatured Amortization Event shall exist at the time of such request or on the effective date of
the Increase after giving effect to the additional Loans made pursuant to such Increase, (iv) the
Borrower may exercise an Increase under this Section 13.13 only once during the term of this
Agreement. The effective date (the
Increase Date
) of the Increase shall be agreed upon by the
Borrower and the Agent (such agreement not to be unreasonably withheld or delayed). The Borrower
agrees to pay any reasonable expenses of the Agent relating to any Increase. The parties hereto
shall effect such amendments to this Agreement and the other Transaction Documents as may be
necessary or appropriate, in the reasonable opinion of the Agent and the Borrower, to effect the
provisions of this Section 13.13.
[Signature pages follow]
-26-
In Witness Whereof
, the parties hereto have caused this Agreement to be executed and
delivered by their duly authorized officers or attorneys-in-fact as of the date hereof.
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ABF Freight Funding LLC
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By:
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ABF Freight System, Inc., its sole member
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By:
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/s/ Judy R. McReynolds
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Name:
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Judy R. McReynolds
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Title:
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Assistant Treasurer
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Address:
3801 Old Greenwood Road
Fort Smith, Arkansas 72903
Attention: Don Pearson
Phone: 479-785-6136
Fax: 479-785-8650
ABF Freight System, Inc.
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By:
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/s/ Judy R. McReynolds
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Name:
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Judy R. McReynolds
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Title:
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Assistant Treasurer
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Address:
3801 Old Greenwood Road
Fort Smith, Arkansas 72903
Attention: Don Pearson
Phone:479-785-6136
Fax: 479-785-8650
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SunTrust Bank
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By:
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/s/ David Fourniter
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Name:
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David Fourniter
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Title:
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Vice President
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Address:
SunTrust Bank
Mail Code GA-Atlanta-1921
303 Peachtree Street, 3rd Floor
Atlanta, Georgia 30308
Attention: Robert Anderson
Phone: (404) 588-7762
Fax: (404) 588-8833
SunTrust Robinson Humphrey, Inc
., as Agent
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By:
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/s/ Kecia P. Howson
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Name:
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Kecia P. Howson
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Title:
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Director
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Address:
SunTrust Robinson Humphrey, Inc.
Mailcode GA-3950
303 Peachtree Street NE, 24th Floor
Atlanta, Georgia 30308
Attention: Kecia Howson
Phone: 404-813-5207
Fax: 404-813-5000
S-2
Exhibit I
Definitions
As used in the Agreement and the Exhibits and Schedules thereto, the following terms shall
have the meanings set forth in this Exhibit I (such meanings to be equally applicable to both the
singular and plural forms of the terms defined). If a capitalized term is used in the Agreement,
or any Exhibit or Schedule thereto, and is not otherwise defined therein or in this Exhibit I, such
term shall have the meaning assigned thereto in Exhibit I to the Receivables Sale Agreement
(hereinafter defined):
ABF
as defined in the preamble to this Agreement.
Accounts Receivable Turnover Ratio
As of any Cut-Off Date, the ratio computed by
dividing (a) the aggregate amount of Credit Sales during the 12 Calculation Periods ending
on such Cut-Off Date by (b) the average of the aggregate Outstanding Balance of all
Receivables as of the last 12 Cut-Off Dates.
Adverse Claim
A lien, security interest, charge or encumbrance, or other right or
claim in, of or on any Persons assets or properties in favor of any other Person, provided,
however, that the following shall not constitute Adverse Claims (a) liens imposed by law
for taxes that are not yet due or are being contested in good faith in appropriate
proceedings, or (b) judgment liens and carriers, warehousemens, mechanics, materialmens,
repairmens and other like liens imposed by law, arising in the ordinary course of business
and securing obligations that are not overdue or are being contested in good faith in
appropriate proceedings.
Affiliate
With respect to any Person, any other Person directly or indirectly
controlling, controlled by, or under direct or indirect common control with, such Person or
any Subsidiary of such Person. A Person shall be deemed to control another Person if the
controlling Person owns 10% or more of any class of voting securities of the controlled
Person or possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of the controlled Person, whether through ownership of stock, by
contract or otherwise.
Agent
As defined in the preamble to this Agreement.
Agents Account
Agents Account
# [***]
, ABA No.
[***]
, at SunTrust Banks office at
25 Park Place, in Atlanta, Georgia, Attn:
[***]
.
Aggregate Loan Amount
On any date of determination, the aggregate principal amount
of all Loans from time to time outstanding hereunder.
Aggregate Prepayment
As defined in Section 1.3(a).
Aggregate Unpaids
At any time, an amount equal to the sum of (i) the Aggregate Loan
Amount, plus (ii) all Recourse Obligations (whether due or accrued) at such time.
Agreement
This Receivables Loan Agreement, as it may be amended or modified and in
effect from time to time.
Alternate Base Rate
For any day, the rate per annum equal to the sum of (a) the
higher as of such day of (i) the Prime Rate, or (ii) one-half of one percent (0.50%) above
the Federal Funds Effective Rate, plus (b) the Applicable Margin. For purposes of
determining the Alternate Base Rate for any day, changes in the Prime Rate or the Federal
Funds Effective Rate shall be effective on the date of each such change.
Amortization Date
The earliest to occur of (i) the Business Day immediately prior to
the occurrence of an Event of Bankruptcy with respect to a Borrower Party, (ii) the Business
Day specified in a written notice from the Agent following the occurrence of any other
Amortization Event, and (iii) the date which is ten (10) Business Days after the Agents
receipt of written notice from the Borrower that it wishes to terminate the facility
evidenced by this Agreement.
Amortization Event
As defined in Article IX.
Applicable Margin
As defined in the Fee Letter.
Assignment and Acceptance
means an assignment and acceptance entered into by the
Lender and an Eligible Assignee (with the consent of any party whose consent is required by
Section 12.3 hereof), and accepted by the Agent, in substantially the form of Exhibit X or
any other form approved by the Agent.
Authorized Officer
With respect to any Person, its president, chief executive
officer, general counsel, corporate controller, treasurer or chief financial officer;
provided, however, in the case of Borrower, the Authorized Officers shall be the president,
chief executive, general counsel, corporate controller, treasurer or chief financial officer
of the Originator.
Borrower
As defined in the preamble to this Agreement.
Borrower Parties
As defined in the preamble to this Agreement.
Borrowing Base Deficiency
As defined in Section 1.3(b).
Borrowing Date
Each Business Day on which a Loan is made hereunder.
Borrowing Request
As defined in Section 1.2.
Broken Funding Costs
For any LIBO Loan that: (i) does not become subject to an
Aggregate Prepayment following the delivery of any Prepayment Notice with respect to such
LIBO Loan or (ii) is terminated prior to the date on which the Interest Period ends; an
amount equal to the excess, if any, of (A) the Interest that would have accrued during the
remainder of the Interest Period determined by the Agent to relate to such Loan subsequent
to the date of such reduction or termination (or in respect of clause (i) above, the date
such Aggregate Prepayment was designated to occur pursuant to the Prepayment Notice) of the
Loan if such reduction or termination had not occurred or such Prepayment Notice had not
been delivered, over (B) the Interest actually accrued during the remainder of such Interest
Period on such Loan.
Business Day
Any day on which banks are not authorized or required to close in
New York, New York or Atlanta, Georgia, and The Depository Trust Company of New York is open
for business, and, if the applicable Business Day relates to any computation or payment to
be made with respect to the LIBO Rate, any day on which dealings in dollar deposits are
carried on in the London interbank market.
Calculation Period
A calendar month.
Canadian Obligors
means an Obligor who has agreed to pay for a Receivable at a
location in Canada.
Change of Control
(i) (a) a change in control is reported by the Parent in response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the
Exchange Act
), or (b) any person or group (as
such terms are used in Section 13(d) and Section 14(d) of the Exchange Act, but excluding
any employee benefit plan of such person or its subsidiaries, and any person or entity
acting in its capacity as trustee, agent or other fiduciary or administrator or any such
plan) is or becomes the beneficial owner (as defined in Rule 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of voting capital stock of the Parent (or securities
convertible into or exchangeable for such capital stock) representing the Control Percentage
or more of the combined voting power of the Parents then outstanding capital stock, (ii)
the Parent ceases to own 100% of the outstanding shares of voting stock of the Originator,
or (iii) the Originator ceases to own 100% of the outstanding shares of voting stock of the
Borrower.
Charge-Offs
All Receivables that are written off by the Servicer or should, in
accordance with the Credit and Collection Policy, be written off as uncollectible.
Closing Date
December 30, 2009.
Collateral
As defined in Section 13.12(b).
Collection Account
Each concentration account, depositary account, lock-box account
or similar account in which any Collections are collected or deposited which is listed on
Exhibit IV (as the same may be updated from time to time in accordance with Section 7.1(m)
hereof) and which is in the name of the Borrower and subject to a Collection Account
Agreement at all times on and after the dated specified in Section 7.3 hereof, including the
Master Collection Agreement;
provided, however,
that prior to the date specified in Section
7.3, the Collection Account may be in the name of the Servicer.
Collection Account Agreement
An agreement in form reasonably acceptable to the Agent
among the Originator, the Servicer and/or the Borrower, the Agent and a Collection Bank
establishing control over a Collection Account.
Collection Bank
At any time, any of the banks holding one or more Collection
Accounts.
Collection Notice
A notice, in substantially the form attached to a Collection
Account Agreement from the Agent to a Collection Bank.
Collections
With respect to any Receivable, all cash collections and other cash
proceeds in respect of such Receivable, including, without limitation, all Finance Charges
or other related amounts accruing in respect thereof and all cash proceeds of Related
Security with respect to such Receivable.
Commitment
As defined in Section 1.1.
-2-
Concentration Limit
(a) For any Special Obligor, 6.0% of the aggregate Outstanding Balance of all Eligible
Receivables.
(b) For any Obligor who is not a Special Obligor but is a Rated Obligor, 2.5% of the
aggregate Outstanding Balance of all Eligible Receivables.
(c) For any Obligor who is not a Special Obligor or a Rated Obligor, 2.0% of the
aggregate Outstanding Balance of all Eligible Receivables.
(d) For all Canadian Obligors in the aggregate, 5.0% of the aggregate Outstanding
Balance of all Eligible Receivables.
Consolidated Net Worth
means at any date of determination, with respect to any
Person, the consolidated stockholders equity of such Person and its consolidated
Subsidiaries,
plus
the principal amount of subordinated debt of such Person,
minus
(to the
extent reflected in determining such consolidated stockholders equity) all intangible
assets other than, with respect to the Parent and its consolidated Subsidiaries, the
computer software and all rights and interests therein and licenses therefor that have been
capitalized by one or more of the Parent and its consolidated Subsidiaries and which are
reflected in the determination of the consolidated shareholders equity of the Parent and
its consolidated Subsidiaries, all as determined in accordance with GAAP and as reported in
the audited consolidated financial statements of such Person for such Persons most recently
ended fiscal year.
Contingent Obligation
Of a Person means any agreement, undertaking or arrangement by
which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide
funds for the payment of, or otherwise becomes or is contingently liable upon, the
obligation or liability of any other Person, other than a Pension Plan Obligation, or agrees
to maintain the net worth or working capital or other financial condition of any other
Person, or otherwise assures any creditor of such other Person against loss, including,
without limitation, any comfort letter, operating agreement, take-or-pay contract or
application for a letter of credit.
Contract
With respect to any Receivable, any and all instruments, agreements,
invoices or other writings pursuant to which such Receivable arises or which evidences such
Receivable.
Control Percentage
means, with respect to any Person, the percentage of the
outstanding capital stock of such Person having ordinary voting power which gives the direct
or indirect holder of such stock the power to elect a majority of the board of directors (or
individuals or body or group of individuals performing the same or substantially similar
functions as the board of directors of a corporation) of such Person.
Controlled Group
means all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) under common control which, together with
the Borrower, are treated as a single employer under Section 414 of the Code.
Credit and Collection Policy
Each Borrower Partys credit and collection policies and
practices relating to Contracts and Receivables existing on the date hereof, as modified
from time to time in accordance with this Agreement.
Credit Sales
For any Calculation Period, the aggregate amount of all Receivables with
credit terms of any kind originated or purchased by the Originator during such Calculation
Period.
Cut-Off Date
The last day of a Calculation Period.
Days Sales Outstanding Ratio
On any date of determination, the ratio computed as of
the most recent Cut-Off Date by dividing (a) 360 by (b) the Accounts Receivable Turnover
Ratio for the Calculation Period ending on such Cut-Off Date.
Deemed Collections
Collections deemed received by the Borrower under Section 1.4.
Default Rate
For any day, the rate per annum equal to the sum of (a) the higher as of
such day of (i) the Prime Rate, or (ii) one-half of one percent (0.50%) above the Federal
Funds Effective Rate, plus (b) 3.0%. For purposes of determining the Default Rate for any
day, changes in the Prime Rate or the Federal Funds Effective Rate shall be effective on the
date of each such change.
Default Ratio
As of any Cut-Off Date, the ratio (expressed as a percentage) computed
by dividing (i) the aggregate amount (without double-counting) of Receivables which became
Defaulted Receivables or Charge-Offs during the Calculation Period that includes such
Cut-Off Date, by (b) Credit Sales for the Calculation Period occurring four (4) months prior
to the Calculation Period ending on such Cut-Off Date.
-3-
Defaulted Receivable
A Receivable: (i) as to which the Obligor thereof has suffered
an Event of Bankruptcy; (ii) which is a Charge-Off; or (iii) as to which any payment, or
part thereof, remains unpaid for 120 days or more from the date of billing applicable to
such payment.
Delinquency Ratio
As of any Cut-Off Date, the ratio (expressed as a percentage)
computed by dividing (i) the aggregate Outstanding Balance of Receivables that were
Delinquent Receivables as of such Cut-Off Date, by (ii) the Outstanding Balance of all
Receivables as of such Cut-Off Date.
Delinquent Receivable
A Receivable (i) as to which any payment, or part thereof,
remains unpaid for 90 days or more from the date of billing applicable to such payment and
(ii) which does not constitute a Defaulted Receivable.
Dilution
The amount of any reduction or cancellation of the Outstanding Balance of a
Receivable as described in Section 1.4,
provided,
that Dilution shall not include the amount
of any write-down, reserve or other reduction due to a Receivable subsequently becoming a
Defaulted Receivable on account of the insolvency, bankruptcy, lack of credit worthiness or
financial inability to pay off such Defaulted Receivable of the applicable Obligor.
Dilution Horizon Ratio
As of any Cut-Off Date, a ratio (expressed as a decimal),
computed by dividing (i) the aggregate Credit Sales for the Calculation Period ending on
such Cut-Off Date, by (ii) the Net Pool Balance as of such Cut-Off Date.
Dilution Ratio
As of any Cut-Off Date, a ratio (expressed as a percentage), computed
by dividing (i) the total amount of decreases in Outstanding Balance of Receivables due to
Dilution during the Calculation Period ending on such Cut-Off Date, by (ii) the Credit Sales
for the Calculation Period ending on the previous Cut-Off Date.
Dilution Reserve
On any date of determination, computed as of the most recent Cut-Off
Date, the product (expressed as a percentage) of (a) the sum of (i) the product of (x) the
Stress Factor times (y) the Expected Dilution Ratio, plus (ii) the Dilution Volatility
Component, times (b) the Dilution Horizon Ratio.
Dilution Spike Rate
means the highest Dilution Ratio over the past 12 Calculation
Periods.
Dilution Volatility Component
The product (expressed as a percentage) of (i) the
positive difference (if any) between (A) the Dilution Spike Rate and (B) the Expected
Dilution Ratio, and (ii) a fraction, the numerator of which is equal to the Dilution Spike
Rate and the denominator of which is the Expected Dilution Ratio.
Eligible Assignee
A commercial bank having a combined capital and surplus of at least
$250,000,000 with a rating of its (or its parent holding companys) short-term securities
equal to or higher than (i) A-1 by S&P and (ii) P-1 by Moodys.
Eligible Receivable
At any time, a Receivable:
(i) the Obligor of which (A) if a natural person, is a resident of the United
States or Canada, or, if a corporation or other business organization, is organized
under the laws of the United States or Canada or any political subdivision thereof,
or is any other business organization that has a significant presence in the United
States or Canada, and has agreed pay for such Receivable at a location in the United
States or Canada, and (B) is not an Affiliate of any of the parties hereto;
(ii) that arises under a Contract;
(iii) which is not a Defaulted Receivable and is not a Delinquent Receivable;
(iv) which is not a Government Receivable;
(v) which by its terms is due and payable within 30 days of the date of billing
therefore,
provided, however,
any Receivable which by its terms is due and payable
within 31-60 days of the date of billing therefore may be considered an Eligible
Receivable so long as such Receivables satisfies all of the other criteria set forth
in this definition of Eligible Receivable and the Outstanding Balance of such
Receivable, when added to the Outstanding Balance of all other Receivables which are
due and payable within 31-60 days of the date of billing therefore, would not cause
the Outstanding Balance of Receivables which are due and payable within 31-60 days of
the date of billing therefore to exceed 40% of the aggregate Outstanding Balance of
all Eligible Receivables;
(vi) which is an account within the meaning of Section 9-102(a)(2) of the UCC
of all applicable jurisdictions;
-4-
(vii) which is denominated and payable only in United States dollars in the
United States;
(viii) which arises under a Contract which, together with such Receivable, is in
full force and effect and constitutes the legal, valid and binding obligation of the
related Obligor enforceable against such Obligor in accordance with its terms;
(ix) which arises under a Contract that contains an obligation to pay a
specified sum of money, contingent only upon the provision of services or the use of
equipment by the Originator or FreightValue;
(x) which, together with the Contract related thereto, does not contravene any
law, rule or regulation applicable thereto (including, without limitation, any law,
rule and regulation relating to truth in lending, fair credit billing, fair credit
reporting, equal credit opportunity, fair debt collection practices and privacy) and
with respect to which no part of the Contract related thereto is in violation of any
such law, rule or regulation except any such contravention or violation which does
not have an adverse effect on the Receivables;
(xi) which satisfies all applicable requirements of the Credit and Collection
Policy;
(xii) which was generated in the ordinary course of the Originators or
FreightValues business and is documented consistent with the Originators or
FreightValues standard administration and documentation policies and procedures;
(xiii) which arises from the provision of services or the use of equipment, to
the related Obligor by the Originator or FreightValue, and except for incidental
amounts, not from the provision of services by any other Person (in whole or in
part);
(xiv) which is not subject to any current dispute, right of rescission, set-off,
counterclaim or any other defense (including defenses arising out of violations of
usury laws) of the applicable Obligor against the Originator or FreightValue or any
other Adverse Claim;
(xv) as to which the Originator or FreightValue has satisfied and fully
performed all obligations on its part with respect to such Receivable required to be
fulfilled by it, and no further action is required to be performed by any Person with
respect thereto other than payment thereon by the applicable Obligor (excluding
warranty obligations for which no claim exists);
(xvi) as to which each of the representations and warranties contained in
Section 5.1(g), Section 5.1(i), Section 5.1(j), Section 5.1(r), Section 5.1(s), and
Section 5.1(t) is true and correct;
(xvii) all right, title and interest to and in which has been validly
transferred by the Originator directly to the Borrower under and in accordance with
the Receivables Sale Agreement, and the Borrower has good and marketable title
thereto free and clear of any Adverse Claim (other than as created by the Transaction
Documents);
(xviii) which is not owing from an Obligor as to which more than 25% of the
balance of all Receivables for which such Obligor is obligated remain unpaid for 90
or more days past the date of billing;
(xix) the Obligor of which at the time the Receivable was initially pledged to
the Agent (on behalf of the Secured Parties) has not, as a result of a deterioration
of such Obligors financial condition or creditworthiness, been required by the
Originator or FreightValue at any time during the immediately preceding 12 months for
a period of more than 30 days to pay for services rendered on a cash basis;
(xx) the Obligor of which is not the Obligor on any Receivables which have been
sold or pledged to any person other than the Borrower or, in the case of Receivables
acquired by the Originator from FreightValue, the Originator;
(xxi) with respect to which the Servicer is in possession of the related
Contract file, or in the case of electronic purchases, the applicable computer data
files, with respect to such Receivable; and
(xxii) if such Receivable was sold or otherwise transferred to the Originator by
FreightValue, the Outstanding Balance of such Receivable, when added to the
Outstanding Balance of all other Receivables which were sold or otherwise transferred
to the Originator by FreightValue, would not cause the Outstanding Balance of
Receivables which were sold or otherwise transferred to the Originator by
FreightValue to exceed 2% of the aggregate Outstanding Balance of all Eligible
Receivables.
-5-
ERISA
The Employee Retirement Income Security Act of 1974, as amended from time to
time, and any rule or regulation issued thereunder.
ERISA Affiliate
Any trade or business (whether or not incorporated) under common
control with the Parent within the meaning of Section 414(b) or (c) of the Tax Code (and
Sections 414(m) and (o) of the Tax Code for purposes of provisions relating to Section 412
of the Tax Code).
Event of Bankruptcy
Shall be deemed to have occurred with respect to a Person if
either:
(i) a case or other proceeding shall be commenced, without the application or
consent of such Person, in any court, seeking the liquidation, reorganization, debt
arrangement, dissolution, winding up, or composition or readjustment of debts of such
Person, the appointment of a trustee, receiver, custodian, liquidator, assignee,
sequestrator or the like for such Person or all or substantially all of its assets,
or any similar action with respect to such Person under any law relating to
bankruptcy, insolvency, reorganization, winding up or composition or adjustment of
debts, and such case or proceeding shall continue undismissed, or unstayed and in
effect, for a period of 60 consecutive days; or an order for relief in respect of
such Person shall be entered in an involuntary case under the federal bankruptcy laws
or other similar laws now or hereafter in effect; or
(ii) such Person shall commence a voluntary case or other proceeding under any
applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or
other similar law now or hereafter in effect, or shall consent to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee (other than a
trustee under a deed of trust, indenture or similar instrument), custodian,
sequestrator (or other similar official) for, such Person or for any substantial part
of its property, or shall make any general assignment for the benefit of creditors,
or shall be adjudicated insolvent, or admit in writing its inability to pay its debts
generally as they become due, or, if a corporation or similar entity, its board of
directors shall vote to implement any of the foregoing.
Event of Default
Any Amortization Event described in Sections 9.1(a)-(g), Section
9.1(j) (only if such Amortization Event arises due to an event of the type described in
clause (ii) or (iii) of the definition of Change of Control), Section 9.1(k), Sections
9.1(m)-(q), or Section 9.1(s).
Excess Concentration Amount
At any time with respect to any Obligor or group of
Obligors described in the definition of Concentration Limit, the amount, if any, by which
the aggregate Outstanding Balance of all Eligible Receivables of such Obligor or group of
Obligors exceeds the Concentration Limit applicable to such Obligor or group of Obligors at
such time.
Expected Dilution Ratio
At any time, the rolling average of the Dilution Ratio for
the 12 Calculation Periods then most recently ended.
Facility Account
The Borrowers account no.
[***]
at
[***]
.
Facility Limit
$75,000,000.
Facility Termination Date
The earliest to occur of (i) the Amortization Date, and
(ii) December 30, 2011.
Federal Bankruptcy Code
Title 11 of the United States Code entitled Bankruptcy, as
amended and any successor statute thereto.
Federal Funds Effective Rate
Means, for any day the greater of (i) the average rate
per annum as determined by SunTrust Bank at which overnight Federal funds are offered to
SunTrust Bank for such day by major banks in the interbank market, and (ii) if SunTrust Bank
is borrowing overnight funds from a Federal Reserve Bank that day, the average rate per
annum at which such overnight borrowings are made on that day. Each determination of the
Federal Funds Effective Rate by SunTrust Bank shall be conclusive and binding on the
Borrower except in the case of manifest error.
Fee Letter
That certain letter agreement dated as of the date hereof among the
Borrower, ABF, the Lender and the Agent, as it may be amended, restated or otherwise
modified and in effect from time to time.
Final Payout Date
The date on which all Aggregate Unpaids have been paid in full and
the Facility Limit has been reduced to zero.
Finance Charges
With respect to a Contract, any finance, interest, late payment
charges or similar charges owing by an Obligor pursuant to such Contract.
-6-
FreightValue
Freight Value, Inc., a subsidiary of the Parent.
GAAP
Generally accepted accounting principles in effect in the United States of
America as in effect from time to time. If at any time any change in GAAP would affect the
computation of any financial ratio or requirement set forth in any Transaction Document, and
either any Borrower Party, Agent or the Lender shall so request, the Agent, the Lender and
each Borrower Party affected shall negotiate in good faith to amend such ratio or
requirement to preserve the original intent thereof in light of such change in GAAP;
provided that, until so amended, (i) such ratio or requirement shall continue to be computed
in accordance with GAAP prior to such change therein and (ii) each Borrower Party shall
provide to the Agent and the Lender financial statements and other documents required under
this Agreement or as reasonably requested hereunder setting forth a reconciliation between
calculations of such ratio or requirement made before and after giving effect to such change
in GAAP.
Government Receivable
A Receivable as to which the Obligor is any nation or
government, any federal, state, local or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative authority or
functions of or pertaining to government including any authority or other quasi-governmental
entity established to perform any of such functions.
Indebtedness
Of a Person means such Persons (i) obligations for borrowed money,
(ii) obligations representing the deferred purchase price of property or services (other
than accounts payable arising in the ordinary course of such Persons business payable on
terms customary in the trade, which shall include, but not be limited to all Pension Plan
Obligations), (iii) obligations, whether or not assumed, secured by liens or payable out of
the proceeds or production from property now or hereafter owned or acquired by such Person,
(iv) obligations which are evidenced by notes, acceptances, or other instruments,
(v) capitalized lease obligations, (vi) net liabilities under interest rate swap, exchange
or cap agreements, and (vii) Contingent Obligations.
Indemnified Amounts
As defined in Section 10.1.
Indemnified Party
As defined in Section 10.1.
Independent Manager
shall mean a manager of the Borrower who (i) shall not have been
at the time of such Persons appointment or at any time during the preceding five years, and
shall not be as long as such Person is a manager of the Borrower, (A) a director, officer,
employee, partner, shareholder, member, manager or Affiliate of any of the following Persons
(collectively, the
Independent Parties
): Servicer, Originator, or any of their respective
Subsidiaries or Affiliates (other than Borrower), (B) a supplier to any of the Independent
Parties, (C) a Person controlling or under common control with any partner, shareholder,
member, manager, Affiliate or supplier of any of the Independent Parties, or (D) a member of
the immediate family of any director, officer, employee, partner, shareholder, member,
manager, Affiliate or supplier of any of the Independent Parties; (ii) has prior experience
as an independent director for a corporation or limited liability company whose charter
documents required the unanimous consent of all independent directors or managers thereof
before such corporation or limited liability company could consent to the institution of
bankruptcy or insolvency proceedings against it or could file a petition seeking relief
under any applicable federal or state law relating to bankruptcy and (iii) has at least
three years of employment experience with one or more entities that provide, in the ordinary
course of their respective businesses, advisory, management or placement services to issuers
of securitization or structured finance instruments, agreements or securities.
Interest
For each Interest Period relating to a Loan, an amount equal to the product
of the applicable Interest Rate for such Loan multiplied by the principal amount of such
Loan for each day elapsed during such Interest Period, annualized on (i) a 360 basis for
Interest accruing at the LIBO Rate, or (ii) a 365 or 366 day basis, as applicable, for
Interest accruing at the Alternate Base Rate.
Interest Period
means with respect to any Loan:
(a) for any Loan accruing Interest at the Alternate Base Rate, (i) the period
commencing on the date of the initial funding of such Loan and ending on, but excluding, the
next following Settlement Date; and thereafter, (ii) each period commencing on, and
including, a Settlement Date and ending on, but excluding, the next following Settlement
Date;
(b) for any LIBO Loan, the period commencing on the date on which such LIBO Loan is
funded under the Agreement or the date on which any Loan bearing interest at the Alternate
Base Rate commences bearing interest at the LIBO Rate and ending on the last day of the
period selected by a Borrower pursuant to the provisions below and
Section 1.2 or 4.3 of
the Agreement
and, thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the period selected by
such Borrower pursuant to the provisions below and
Section 1.2 or 4.3 of the
Agreement
. The duration of each such Interest Period shall be 28 days, one month, or
such other period which does not exceed 35 days as may be mutually agreeable to
the Agent and the Borrower, in each case as the Borrower may, upon notice received by
the Agent not later than 12:00 noon (Atlanta, Georgia time) on the third Business Day prior
to the first day of such Interest Period (except as otherwise provided in
Section 1.2
and 4.3 of the Agreement (as applicable
), select;
provided
,
however
,
that:
-7-
(i) whenever the last day of any Interest Period would otherwise occur on a day
other than a Business Day, the last day of such Interest Period shall be extended to
occur on the next succeeding Business Day, provided that if such extension would
cause the last day of such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the next preceding
Business Day;
(ii) any Interest Period which begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last Business Day
of the calendar month in which it would have ended if there were a numerically
corresponding day in such calendar month; and
(iii) no Interest Period with respect to any LIBO Loan shall extend beyond the
scheduled Facility Termination Date.
Interest Rate
With respect to each Loan, the LIBO Rate, the Alternate Base Rate or
the Default Rate, as applicable.
Interest Reserve
For any Calculation Period, the product (expressed as a percentage)
of (i) the Stress Factor, (ii) the Prime Rate as of the immediately preceding Cut-Off Date,
(iii) the highest Days Sales Outstanding Ratio for the most recent 12 Calculation Periods,
and (iv) 1/360.
Lender
As defined in the preamble to this Agreement.
LIBO Loan
Any Loan bearing interest at a LIBO Rate.
LIBO Rate
For any Interest Period with respect to a LIBO Loan, the rate per annum
determined on the basis of (i) the offered rate for deposits in U.S. dollars of amounts
equal or comparable to the principal amount of such Loan offered for a term comparable to
such Interest Period, which rates appear on Telerate page 3750 (or any successor page)
effective as of 11:00 A.M., London time, two Business Days prior to the first day of such
Interest Period (the
Rate Setting Day
) or if such rate is unavailable, the rate
per annum
(rounded upwards, if necessary, to the nearest 1/100th of one percent) based on the rates at
which deposits in U.S. dollars for one month are displayed on page
LIBOR
of the Reuters
Screen as of 11:00 a.m. (London time) on the Rate Setting Day (it being understood that if
at least two (2) such rates appear on such page, the rate will be the arithmetic mean of
such displayed rates),
provided
that if no such offered rates appear on such pages, the LIBO
Rate for such Interest Period will be the arithmetic average (rounded upwards, if necessary,
to the next higher 1/100th of 1%) of rates quoted by not less than two major banks in
New York, New York, selected by the Agent, at approximately 10:00 a.m.(Atlanta time), two
Business Days prior to the first day of such Interest Period, for deposits in U.S. dollars
offered by leading European banks for a period comparable to such Interest Period in an
amount comparable to the principal amount of the Loan, divided by (ii) one minus the maximum
aggregate reserve requirement (including all basic, supplemental, marginal or other
reserves) which is imposed against the Agent in respect of Eurocurrency liabilities, as
defined in Regulation D of the Board of Governors of the Federal Reserve System as in effect
from time to time (expressed as a decimal), applicable to such Interest Period plus
(iii) the Applicable Margin.
Loan
means any amount disbursed as principal by Lender to Borrower under this
Agreement.
Lock-Box
Each locked postal box with respect to which a Collection Bank or a
Segregated Account Bank has been granted exclusive access for the purpose of retrieving and
processing payments made on the Receivables and which is listed on Exhibit IV (as the same
may be updated from time to time in accordance with Section 7.1(m) hereof).
Loss Horizon Ratio
As of any Cut-Off Date, the ratio (expressed as a decimal)
computed by dividing (a) the aggregate Credit Sales for the four (4) most recent Calculation
Periods (including the Calculation Period ending on such Cut-Off Date), by (b) the Net Pool
Balance as of such Cut-Off Date.
Loss Reserve
For any Calculation Period, the product (expressed as a percentage) of
(i) the Stress Factor, times (ii) the highest three-month rolling average Default Ratio
during the 12 Calculation Periods ending on the immediately preceding Cut-Off Date, times
(iii) the Loss Horizon Ratio as of the immediately preceding Cut-Off Date.
Master Collection Account
means the Collection Account designated as such on Exhibit
IV hereto.
-8-
Master Contract
A Contract between an Obligor and the Originator or FreightValue that
contains the terms upon which the carriage of freight performed by the Originator for such
Obligor or each instance of provision of equipment provided by FreightValue to an Obligor
over the term of the Master Contract will be governed.
Material Adverse Effect
A material adverse effect on (i) the financial condition or
operations of the Parent or ABF and its Subsidiaries taken as a whole, (ii) the ability of
any Borrower Party to perform its obligations under this Agreement, (iii) the legality,
validity or enforceability of this Agreement or any other Transaction Document, (iv) the
Agents security interest, for the benefit of the Secured Parties, in the Purchased
Receivables generally or in any significant portion of the Purchased Receivables, the
Related Security or the Collections with respect thereto, or (v) the collectibility of the
Purchased Receivables generally or of any material portion of the Purchased Receivables.
Material Indebtedness
As defined in Section 9.1(f).
Monthly Report
A report, in substantially the form of Exhibit VII hereto
(appropriately completed), furnished by the Servicer to the Agent pursuant to Section 8.5.
Monthly Reporting Date
With respect to any calendar month, the second Business Day
occurring before the Settlement Date for such calendar month, or such other days of any
month as Agent may request in connection with Section 8.5 hereof.
Moodys
Moodys Investors Service, Inc.
Net Pool Balance
At any time, the aggregate Outstanding Balance of all Eligible
Receivables and all amounts on deposit in the Collection Accounts and the Agents Account at
such time reduced by the Excess Concentration Amount.
Obligor
A Person obligated to make payments pursuant to a Contract.
Originator
ABF Freight System, Inc., a Delaware corporation.
Other Costs
As defined in Section 10.3.
Other Customers
As defined in Section 10.4.
Outstanding Balance
Of any Receivable at any time means the then outstanding
principal balance thereof.
Parent
means Arkansas Best Corporation, a Delaware corporation.
PBGC
The Pension Benefit Guaranty Corporation, or any successor thereto.
Pension Plan
A pension plan (as defined in Section 3(2) of ERISA) subject to Title IV
of ERISA which the Originator sponsors or maintains, or to which it makes, is making, or is
obligated to make contributions, or in the case of a multiple employer plan (as described in
Section 4064(a) of ERISA) has made contributions at any time during the immediately
preceding five plan years.
Pension Plan Obligation
An obligation to contribute to a Pension Plan, as required by
a collective bargaining agreement.
Person
An individual, partnership, corporation (including a business trust), limited
liability company, joint stock company, trust, unincorporated association, joint venture or
other entity, or a government or any political subdivision or agency thereof.
Plan
An employee benefit plan (as defined in Section 3(3) of ERISA) which the
Originator or any of its ERISA Affiliates sponsors or maintains or to which the Originator
or any of its ERISA Affiliates makes, is making, or is obligated to make contributions and
includes any Pension Plan, other than a Plan maintained outside the United States primarily
for the benefit of Persons who are not U.S. residents.
Pledged Assets
All of the Borrowers right, title and interest, whether now owned and
existing or hereafter arising in and to all of the Purchased Receivables, the Related
Security, the Collections and all proceeds of the foregoing.
Prepayment Notice
As defined in Section 1.3.
Prime Rate
A rate per annum equal to the prime rate of interest announced from time
to time by SunTrust Bank (which is not necessarily the lowest rate charged to any customer),
changing when and as said prime rate changes.
-9-
Proposed Prepayment Date
As defined in Section 1.3(a).
Purchased Receivable
All Receivables purchased by the Borrower from the Originator
pursuant to the Receivables Sale Agreement and not otherwise repurchased by the Originator
in accordance with the terms thereof.
Rated Obligor
An Obligor who has a senior unsecured long-term debt rating by either
of S&P or Moodys.
Receivable
All indebtedness and other obligations owed to the Borrower or the
Originator or FreightValue (at the time it arises, and before giving effect to any transfer
or conveyance under the Receivables Sale Agreement or, in the case of FreightValue, any
transfer or conveyance to the Originator) or in which the Borrower or the Originator or
FreightValue has a security interest or other interest, including, without limitation, any
indebtedness, obligation or interest constituting an account, chattel paper, instrument or
general intangible, arising in connection with any carriage of freight or other services in
relation to such carriage of freight (including, without limitation, refrigeration, loading,
unloading, diversion, switching and weighting charges, demurrage, and detention) by the
Originator or the rental or other provision of the use of trucks, tractors and trailers or
other transportation equipment to third parties on a contract basis by FreightValue
(including, without limitation, any rents, fees, commissions, and refrigeration, loading,
unloading, diversion, switching and weighting charges, demurrage, and detention) and further
includes, without limitation and in either case, the obligation to pay any Finance Charges
with respect thereto.
Receivables Sale Agreement
That certain Receivables Sale Agreement, dated as of
December 30, 2009, among the Originator and the Borrower, as the same may be amended,
restated or otherwise modified from time to time.
Records
With respect to any Receivable, all Contracts and other documents, books,
records and other information (including, without limitation, tapes, disks, punch cards, and
related property and rights (but not any right, title or interest to any information on any
such tapes, disks, or punch cards not relating to a Receivable or any related property or
rights thereto and not any right, title or interest in any computer program or data
processing software or any license for the use thereof) relating to such Receivable, any
Related Security therefor and the related Obligor
Recourse Obligations
As defined in Section 2.1.
Regulatory Change
As defined in Section 10.2.
Related Security
All of the Borrowers right, title and interest in, to and under and
with respect to any Receivable:
(i) all security interests or liens and property subject thereto from time to
time, if any, purporting to secure payment of such Receivable, whether pursuant to
the Contract related to such Receivable or otherwise, together with all financing
statements and security agreements describing any collateral securing such
Receivable,
(ii) all guaranties, letters of credit (to the extent they may be pledged),
insurance and other agreements or arrangements of whatever character from time to
time supporting or securing payment of such Receivable whether pursuant to the
Contract related to such Receivable or otherwise,
(iii) all service contracts and other contracts and agreements associated with
such Receivable other than Master Contracts,
(iv) all Records other than Master Contracts related to such Receivable,
(v) all of the Borrowers right, title and interest in, to and under the
Receivables Sale Agreement,
(vi) any other items constituting Supporting Obligations (as defined in
Article 9 of the UCC in effect in each relevant jurisdiction) to the extent not
included in clauses (i)-(v) above,
(vii) all proceeds of any of the foregoing.
Reporting Frequency Modifier
At any time, if the Servicer has not provided a Weekly
Report for the previous calendar week within the time frame required by Section 8.5 hereof,
5%.
-10-
Required Notice Period
The number of days required notice set forth below applicable
to the Aggregate Prepayment indicated below:
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Aggregate Prepayment
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Required Notice Period
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Loans accruing Interest at the LIBO Rate
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3 Business Days
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Loans accruing Interest at the Alternate Base Rate
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1 Business Day
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Required Reserve
On any day during a Calculation Period, the product of (A) (i) the
greater of (a) the Required Reserve Factor Floor and (b) the sum of the Loss Reserve, the
Interest Reserve, the Dilution Reserve and the Servicing Reserve, plus (ii) the Reporting
Frequency Modifier (if any), and (B) the Net Pool Balance as of the Cut-Off Date immediately
preceding such Calculation Period.
Required Reserve Factor Floor
For any Calculation Period, the sum (expressed as a
percentage) of (i) 15% plus (ii) the product of the Expected Dilution Ratio and the Dilution
Horizon Ratio, in each case, as of the immediately preceding Cut-Off Date.
Restricted Junior Payment
(i) any dividend or other distribution, direct or indirect,
on account of any shares of any class of capital stock of the Borrower now or hereafter
outstanding, except a dividend payable solely in shares of that class of stock or in any
junior class of stock of the Borrower, (ii) any redemption, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of any shares
of any class of capital stock of the Borrower now or hereafter outstanding, (iii) any
payment or prepayment of principal of, premium, if any, or interest, fees or other charges
on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or
similar payment and any claim for rescission with respect to the Subordinated Loans (as
defined in the Receivables Sale Agreement), (iv) any payment made to redeem, purchase,
repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of capital stock of the Borrower now or
hereafter outstanding, and (v) any payment of management fees by the Borrower (except for
the Servicing Fee and reasonable management fees to the Originator or its Affiliates in
reimbursement of actual management services performed).
Review
As defined in Section 7.1(d)(ii).
S&P
Standard and Poors Ratings Services, a division of The McGraw-Hill
Companies, Inc.
SEC
means the Securities and Exchange Commission of the United States of America and
any successor commission or agency thereof.
Secured Parties
The Indemnified Parties.
Segregated Account
means an account in the name of the Originator, Freight Value, the
Borrower or the Servicer in which no monies other than amounts constituting Collections are
deposited at any time and which is listed on Exhibit IV (as the same may be updated from
time to time in accordance with Section 7.1(m) hereof).
Segregated Account Bank
means at any time, any of the banks holding one or more
Segregated Accounts.
Servicer
At any time the Person (which may be the Agent) then authorized pursuant to
Article VIII to service, administer and collect Purchased Receivables.
Servicer Termination Event A
s defined in Section 9.2.
Servicing Fee
For each day in a Calculation Period:
(i) an amount equal to (A) the Servicing Fee Rate (or, at any time while ABF or
one of its Affiliates is the Servicer, such lesser percentage as may be agreed
between the Borrower and the Servicer on an arms length basis based on then
prevailing market terms for similar services), times (B) the aggregate Outstanding
Balance of all Purchased Receivables at the close of business on the Cut-Off Date
immediately preceding such Calculation Period, times (C) 1/360; or
(ii) on and after the Servicers reasonable request made at any time when ABF or
one of its Affiliates is no longer acting as Servicer hereunder, an alternative
amount specified by the successor Servicer not exceeding (A) 110% of such Servicers
reasonable costs and expenses of performing its obligations under this Agreement
during the preceding Calculation Period, divided by (B) the number of days in the
current Calculation Period.
Servicing Fee Rate
2.40% per annum.
-11-
Servicing Reserve
For any Calculation Period, the product (expressed as a percentage)
of (a) the highest Days Sales Outstanding Ratio during the most recent 12 Calculation
Periods, (b) the Stress Factor, (c) the Servicing Fee Rate, and (d) 1/360.
Settlement Date
The 12th day of each month or, if such day is not a Business Day, the
Business Day immediately thereafter.
Special Calculation Period
means any Calculation Period that commences 60-180 days
after the occurrence of a Yellow Roadway Event.
Special Obligor
As identified in the Fee Letter.
Stress Factor
2.50.
Subordinated Note
As defined in the Receivables Sale Agreement.
Subsidiary
Of a Person means (i) any corporation more than 50% of the outstanding
securities having ordinary voting power of which shall at the time be owned or controlled,
directly or indirectly, by such Person or by one or more of its Subsidiaries or by such
Person and one or more of its Subsidiaries, or (ii) any partnership, association, limited
liability company, joint venture or similar business organization more than 50% of the
ownership interests having ordinary voting power of which shall at the time be so owned or
controlled.
Tax Code
The Internal Revenue Code of 1986, as the same may be amended from time to
time.
Transaction Documents
Collectively, this Agreement, each Borrowing Request, the
Receivables Sale Agreement, each Collection Account Agreement, the Fee Letter, the
Subordinated Note and all other instruments, documents and agreements executed and delivered
in connection herewith.
UCC
The Uniform Commercial Code as from time to time in effect in the specified
jurisdiction.
Unfunded Vested Liabilities
means, for any Plan at any time, the amount (if any) by
which the present value of all vested nonforfeitable accrued benefits under such Plan
exceeds the fair market value of all Plan assets allocable to such benefits, all determined
as of the then most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the Controlled Group to the PBGC or
the Plan under Title IV of ERISA
Unmatured Amortization Event
An event which, with the passage of time or the giving
of notice, or both, would constitute an Amortization Event.
Unmatured Servicer Termination Event
An event which, with the passage of time or the
giving of notice, or both, would constitute a Servicer Termination Event.
Voluntary Termination
The occurrence of an Amortization Event resulting from the
occurrence of the Termination Date pursuant to subclause (iv) of the definition of
Termination Date in the Receivables Sale Agreement.
Weekly Report
A certificate, in substantially the form of Exhibit VIII hereto
(appropriately completed), furnished by the Servicer to the Agent pursuant to Section
8.5(b).
Weekly Reporting Date
The second Business Day of each calendar week.
Yellow Roadway Event
The occurrence of an Event of Bankruptcy with respect to YRC
Worldwide Inc. or any of its Subsidiaries within one year of the date of this Agreement.
All accounting terms not specifically defined herein shall be construed in accordance with GAAP.
Unless otherwise specified, all terms used in Article 9 of the UCC in the State of New York, and
not specifically defined herein, are used herein as defined in such Article 9.
-12-
Exhibit II
Form of Borrowing Request
ABF Freight Funding LLC
Borrowing Request
dated ______________, 20__
for Loan on ________________, 20__
SunTrust Robinson Humphrey, Inc., as Agent
Mailcode GA-3950
303 Peachtree Street NE, 24th Floor
Atlanta, Georgia 30308
Attention: Kecia Howson,
Fax No. (404) 813-5000
Ladies and Gentlemen:
Reference is made to the Receivables Loan Agreement dated as of December 30, 2009 (as amended,
supplemented or otherwise modified from time to time, the
Receivables Loan Agreement
) among ABF
Freight Funding LLC (the
Borrower
), ABF Freight System, Inc., as initial Servicer, SunTrust Bank
(the
Lender
), and SunTrust Robinson Humphrey, Inc., as Agent. Capitalized terms defined in the
Receivables Loan Agreement are used herein with the same meanings.
1. The Borrower hereby certifies, represents and warrants to the Agent and the Lender that on
and as of the Borrowing Date (as hereinafter defined):
(a) all applicable conditions precedent set forth in Article VI of the Receivables Loan
Agreement have been satisfied;
(b) each of its representations and warranties contained in Section 5.1 of the
Receivables Loan Agreement will be true and correct, in all material respects, as if made on
and as of the Borrowing Date;
(c) no event has occurred and is continuing, or would result from the requested Loan,
that constitutes an Amortization Event, Servicer Termination Event, Unmatured Servicer
Termination Event or Unmatured Amortization Event; and
(d) the Facility Termination Date has not occurred.
2. The Borrower hereby requests that the Lender make a Loan on
_____, 20_____ (the
Borrowing Date
) as follows:
(a)
Amount of Loan:
$_____
(b) The Borrower requests that the Loan (which will initially accrue Interest at the
LIBO Rate) begin to accrued Interest at the
_____ Rate on
_____).
(c) If the Loan is a LIBO Loan, the Interest Period shall be (check period elected):
_____
28 days
_____
one month
_____
[_____] days (not to exceed 35 days)
3. Please disburse the proceeds of the Loan as follows:
[Apply $_____
to payment of Aggregate Unpaids due on the Borrowing Date]. [Wire
transfer $_____
to account no.
_____
at
_____
Bank, in [city, state], ABA No.
_____, Reference:
_____].
In Witness Whereof
, the Borrower has caused this Borrowing Request to be executed and
delivered as of this
_____ day of
_____,
_____.
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ABF Freight Funding LLC, as
Borrower
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By: ABF Freight System, Inc., its sole member
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By:
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Name:
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Title:
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-2-
Exhibit III
Jurisdiction of Organization of the Borrower Parties;
Places of Business of The Borrower Parties; Locations of Records;
Federal Employer Identification Number(s)
ABF Freight System, Inc.
Jurisdiction of Organization: Delaware
Principal places of business:
3801 Old Greenwood Road Fort Smith,
Arkansas 72903
Location(s) of Records:
3801 Old Greenwood Road Fort
Smith, Arkansas 72903
Federal employer identification number: 71-0249444
Legal, Trade & Assumed Names: ABF Freight System, Inc.
ABF Freight Funding LLC
Jurisdiction of Organization: Delaware
Organization Number (if any): 4764479
Principal Place(s) of Business: Ft. Smith, Arkansas
Location(s) of Records: 3801 Old Greenwood Road Fort Smith, Arkansas 72903
Federal Employer Identification Number: 27-1518269
Legal, Trade and Assumed Names: ABF Freight Funding LLC
Exhibit IV
Names of Collection Banks and Segregated Account Banks; Lock-Boxes, Segregated Accounts and
Collection Accounts
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Master Collection Account
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[***]
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Account Number:
[***]
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Collection Accounts
[***]
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Account Number:
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[***]
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[***]
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Account Number:
|
|
[***]
|
|
|
|
[***]
|
|
|
Account Number:
|
|
[***]
|
Segregated Accounts
[To Be Attached]
Exhibit V
Form of Compliance Certificate
To: SunTrust Robinson Humphrey, Inc., as Agent
This Compliance Certificate is furnished pursuant to Section 7.1(a)(iii) of that certain
Receivables Loan Agreement dated as of December 30, 2009 among ABF Freight Funding LLC (the
Borrower
), ABF Freight System, Inc. (the
Servicer
), SunTrust Bank and SunTrust Robinson
Humphrey, Inc., as Agent (the
Agreement
).
The undersigned hereby certifies that
:
1. I am the duly elected
_____
of Arkansas Best Corporation.
2. I have reviewed the terms of the Agreement and I have made, or have caused to be
made under my supervision, a detailed review of the transactions and financial conditions of
the Borrower and its Subsidiaries during the accounting period covered by the attached
financial statements.
3. I have calculated the Consolidated Net Worth (as such term is defined under the
Agreement) of the Parent and the Borrower as further set forth on Schedule I hereto.
4. The examinations described in paragraphs 2 and 3 did not disclose, and I have no
knowledge of, the existence of any condition or event which constitutes an Amortization
Event, Servicer Termination Event, Unmatured Servicer Termination Event or Unmatured
Amortization Event, as each such term is defined under the Agreement, during or at the end
of the accounting period covered by the attached financial statements or as of the date of
this Certificate
[, except as set forth in paragraph 5 below]
.
[5. Described below are the exceptions, if any, to paragraph 4 by listing, in detail,
the nature of the condition or event, the period during which it has existed and the action
which the Borrower has taken, is taking, or proposes to take with respect to each such
condition or event:
_____]
The foregoing certifications, and the financial statements delivered with this Certificate in
support hereof, are made and delivered as of
_____, 20_____.
Schedule I to Compliance Certificate
Calculations of Consolidated Net Worth
[Attach Calculations of Consolidated Net Worth]
Exhibit VII
Form of Monthly Report
__________________ 2010
MONTHLY REPORT
|
|
|
|
|
|
|
|
|
Seller:
|
|
ABF Freight Funding LLC
|
|
|
|
Purchaser:
|
|
SunTrust Bank
|
Sevicer:
|
|
ABF Freight System, Inc.
|
|
|
|
Administrator:
|
|
SunTrust Robinson Humphrey, Inc.
|
Pursuant to Section 8.5 (a) of the Receivables Purchase Agreement, dated as of December 28, 2009,
as amended from time to time, among: ABF Freight Systems, Inc., ABF Freight Fudning, LLC, SunTrust
Bank, and SunTrust Robinson Humphrey, Inc., the Servicer is required to prepare certain information
each Calculation Period regarding the Receivables. The undersigned, a duly authorized
representative of the Servicer, does hereby certify that the information provided is true and as of
the date hereof, to the best knowledge of the undersigned, the Servicer has performed in all
material respects all of its obligations under the Receivables Loan Agreement.
ACCOUNTS RECEIVABLE ACTIVITY
|
|
|
|
|
|
|
(in $)
|
|
Beginning Outstanding Balance of all Receivables:
|
|
|
|
|
+ Net Credit Sales:
|
|
|
|
|
- Collections:
|
|
|
|
|
- Dilution:
|
|
|
|
|
- Write-offs:
|
|
|
|
|
- Recon Items:
|
|
|
|
|
+ Manual Adjustments:
|
|
|
|
|
Ending Outstanding Balance of all Receivables:
|
|
|
|
|
Active Accounts:
|
|
|
|
|
ACCOUNTS RECEIVABLE AGING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
(in $)
|
|
|
(% of Total)
|
|
1-30 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
31-60 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
61-90 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
91-120 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
121-150 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
151-180 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
181+ days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diff:
|
|
|
|
|
|
|
|
|
EXCESS CONCENTRATIONS
|
|
|
Rating
|
|
Limit
|
Rated
|
|
2.5%
|
Non Rated
|
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration Limit
|
|
|
|
|
|
|
Excess
|
|
Special Obligor
|
|
Rating
|
|
|
Rating
|
|
|
%
|
|
|
Dollar
|
|
|
Balance
|
|
|
Concentration
|
|
[***]
|
|
|
|
|
|
|
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Top Obligors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Obligor
concentrations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian Obligors
|
|
|
|
|
|
|
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Gvt. Receivables
|
|
|
|
|
|
|
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Pmt Terms 31-60 days
|
|
|
|
|
|
|
|
|
|
|
40.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Excess Concentrations
|
|
|
|
|
|
|
|
|
|
ABF Freight System, Inc.
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
____________________
|
|
|
Title:
|
|
____________________
|
|
|
Date:
|
|
____________________
|
|
|
RESERVE CALCULATION
|
|
|
|
|
Default Ratio
|
|
|
|
|
LTM Max. 3-Mo. Avg. Default Ratio
|
|
|
|
|
Loss Horizon Ratio
|
|
|
|
|
Loss Reserve
|
|
|
|
|
|
|
|
|
|
Dilution Ratio
|
|
|
|
|
LTM Avg. Dilution Ratio
|
|
|
|
|
LTM Max. 3-Mo. Avg. Dilution Ratio
|
|
|
|
|
Dilution Horizon Ratio
|
|
|
|
|
Dilution Reserve
|
|
|
|
|
|
|
|
|
|
Days Sales Outstanding Ratio
|
|
|
|
|
LTM Max Days Sales Outstanding Ratio
|
|
|
|
|
Prime Rate
|
|
|
|
|
Backup Servicing Rate
|
|
|
|
|
Yield Reserve
|
|
|
|
|
Servicing Reserve
|
|
|
|
|
Dynamic Calculation
|
|
|
|
|
Reserve Floor
|
|
|
15.00
|
%
|
Reporting Frequency Modifier
|
|
|
|
|
Reserve Percentage
|
|
|
|
|
Required Reserve (RR)
|
|
|
|
|
NET POOL BALANCE
|
|
|
|
|
|
|
(in $)
|
|
Outstanding Receivables Balance
|
|
|
|
|
Receivables >90 days past billing
|
|
|
|
|
Bankrupt < 90 days past billing
|
|
|
|
|
Unpermitted Foreign (Mexican)
|
|
|
|
|
Disputes
|
|
|
|
|
Unapplied Cash
|
|
|
|
|
Unearned A/R
|
|
|
|
|
Contra A/R
|
|
|
|
|
Terms >60 days
|
|
|
|
|
Other Ineligibles
|
|
|
|
|
Eligible Receivables
|
|
|
|
|
Excess Obligor Concentrations
|
|
|
|
|
Excess Canadian Concentrations
|
|
|
|
|
Excess Government Concentrations
|
|
|
|
|
Excess Payment Term Concentrations
|
|
|
|
|
Net Pool Balance (NPB)
|
|
|
|
|
INVESTED AMOUNT INFORMATION
|
|
|
|
|
|
|
(in $)
|
|
Aggregate Loan Amount (ALA) as of: ____________________
|
|
|
|
|
Facility Limit:
|
|
|
75,000,000
|
|
Borrowing Base:
|
|
|
|
|
Addtl Amt Avail. / (Required Paydown) as of: ____________________
|
|
|
|
|
Borrowing Base in Compliance as of: ____________________
|
|
|
|
|
|
|
|
|
|
Increases after ____________________
|
|
|
|
|
(Paydowns) after ____________________
|
|
|
|
|
Requested Increases on ____________________
|
|
|
|
|
ALA following Increase / Paydown as of: ____________________
|
|
|
|
|
Addtl Amt Avail. / (Required Paydown) as of: ____________________
|
|
|
|
|
Borrowing Base in Compliance as of: ____________________
|
|
|
|
|
AMORTIZATION EVENTS
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
In Compliance
|
|
NPB - (ALA + RR) < 0
|
|
|
|
|
|
|
|
|
3M Avg. Default Rate > 1.00%
|
|
|
|
|
|
|
|
|
3M Avg. Delinquency Rate > 2.00%
|
|
|
|
|
|
|
|
|
3M Avg. Dilution Rate > 4.5%
|
|
|
|
|
|
|
|
|
Account Receivable Turnover < 10.0:1
|
|
|
|
|
|
|
|
|
Consolidated Tangible Net Worth Covenent
|
|
|
|
|
|
|
|
|
Exhibit VIII
Form of Weekly Report
______2010
WEEKLY REPORT
|
|
|
|
|
|
|
|
|
Seller:
|
|
ABF Freight Funding LLC
|
|
|
|
Purchaser:
|
|
SunTrust Bank
|
Sevicer:
|
|
ABF Freight System, Inc.
|
|
|
|
Administrator:
|
|
SunTrust Robinson Humphrey, Inc.
|
Pursuant to Section 8.5 (b) of the Receivables Purchase Agreement, dated as of December 28, 2009,
as amended from time to time, among: ABF Freight Systems, Inc., ABF Freight Fudning, LLC, SunTrust
Bank, and SunTrust Robinson Humphrey, Inc., the Servicer is required to prepare certain information
each Calculation Period regarding the Receivables. The undersigned, a duly authorized
representative of the Servicer, does hereby certify that the information provided is true and as of
the date hereof, to the best knowledge of the undersigned, the Servicer has performed in all
material respects all of its obligations under the Receivables Loan Agreement.
ACCOUNTS RECEIVABLE AGING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
(in $)
|
|
|
(% of Total)
|
|
1-30 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
31-60 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
61-90 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
91-120 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
121-150 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
151-180 days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
181+ days past billing
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diff:
|
|
|
|
|
|
|
|
|
EXCESS CONCENTRATIONS
|
|
|
Rating
|
|
Limit
|
Rated
|
|
2.5%
|
Non Rated
|
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration Limit
|
|
|
|
|
|
|
Excess
|
|
Special Obligor
|
|
Rating
|
|
|
Rating
|
|
|
%
|
|
|
Dollar
|
|
|
Balance
|
|
|
Concentration
|
|
[***]
|
|
|
|
|
|
|
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Top Obligors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Obligor
concentrations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian Obligors
|
|
|
|
|
|
|
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Gvt. Receivables
|
|
|
|
|
|
|
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Pmt Terms 31-60 days
|
|
|
|
|
|
|
|
|
|
|
40.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Excess Concentrations
|
|
|
|
|
|
|
|
|
|
ABF Freight System, Inc.
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
_______
|
|
|
Title:
|
|
_______
|
|
|
Date:
|
|
_______
|
|
|
RESERVE CALCULATION
|
|
|
|
|
Dynamic Calculation
|
|
|
|
|
Reserve Floor
|
|
|
15.00
|
%
|
Reporting Frequency Modifier
|
|
|
|
|
Reserve Percentage
|
|
|
|
|
Required Reserve (RR)
|
|
|
|
|
NET POOL BALANCE
|
|
|
|
|
|
|
(in $)
|
|
Outstanding Receivables Balance
|
|
|
|
|
Receivables >90 days past billing
|
|
|
|
|
Other Ineligible Receivables (prior month end)
|
|
|
|
|
Eligible Receivables
|
|
|
|
|
Excess Obligor Concentrations
|
|
|
|
|
Excess Canadian Concentrations (prior month end)
|
|
|
|
|
Excess Government Concentrations (prior month end)
|
|
|
|
|
Excess Payment Term Concentrations (prior month end)
|
|
|
|
|
Net Pool Balance (NPB)
|
|
|
|
|
INVESTED AMOUNT INFORMATION
|
|
|
|
|
|
|
(in $)
|
|
Aggregate
Loan Amount (ALA) as of: ______
|
|
|
|
|
Facility Limit:
|
|
|
75,000,000
|
|
Borrowing Base:
|
|
|
|
|
Addtl Amt
Avail. / (Required Paydown) as of: ______
|
|
|
|
|
Borrowing
Base in Compliance as of: ______
|
|
|
|
|
|
|
|
|
|
Increases
after ______
|
|
|
|
|
(Paydowns)
after ______
|
|
|
|
|
Requested
Increases on ______
|
|
|
|
|
ALA
following Increase / Paydown as of: ______
|
|
|
|
|
Addtl Amt
Avail. / (Required Paydown) as of: ______
|
|
|
|
|
Borrowing
Base in Compliance as of: ______
|
|
|
|
|
Exhibit IX
Form of Prepayment Notice
ABF Freight Funding LLC
Prepayment Notice
dated ______________, 20__
for a prepayment on ________________, 20__
|
|
|
SunTrust Robinson Humphrey, Inc., as Agent
|
|
|
|
|
|
|
|
|
Attention:
,
Fax No. ( )
_____
Ladies and Gentlemen:
Reference is made to the Receivables Loan Agreement dated as of December 30, 2009 (as amended,
supplemented or otherwise modified from time to time, the
Receivables Loan Agreement
) among ABF
Freight Funding LLC (the
Borrower
), ABF Freight System, Inc., as initial Servicer, SunTrust Bank,
and SunTrust Robinson Humphrey, Inc., as Agent. Capitalized terms defined in the Receivables Loan
Agreement are used herein with the same meanings.
1. The Borrower hereby requests that the Lender reduce the Aggregate Loan Amount in an amount
equal to $_____
the (
Aggregate Prepayment
) on
[
_____, 20_____
Insert Date of prepayment which
complies with Required Notice Period]
(the
Proposed Prepayment Date
).
2. All payments to SunTrust Bank must be made by 12:00 pm Eastern Time.
In Witness Whereof
, the Borrower has caused this Prepayment Notice to be executed and
delivered as of this
_____
day of
_____,
_____.
|
|
|
|
|
|
|
|
|
|
|
ABF Freight Funding LLC,
as the Borrower
|
|
|
|
|
|
|
|
|
|
|
|
By: ABF Freight System, Inc., its sole member
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit X
Form of Assignment and Acceptance
Dated ____________, 20__
Reference is made to the Receivables Loan Agreement dated as of December 30, 2009 (as amended
heretofore, the
Agreement
) among ABF Freight Funding LLC (the
Borrower
), ABF Freight System,
Inc., as initial Servicer, SunTrust Bank (the
Lender
) and SunTrust Robinson Humphrey, Inc., as
Agent (the
Agent
). Terms defined in the Agreement are used herein with the same meaning.
SunTrust Bank (the
Assignor
) and
_____
(the
Assignee
) agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases
and assumes from the Assignor, the amount and specified percentage interest shown on Schedule 1
hereto of the Assignors rights and obligations under the Agreement as of the date hereof,
including, without limitation, the Assignors Commitment as in effect as of the date hereof, and
the Loans, if any, owing to the Assignor on the date hereof.
2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the
interest being assigned by it hereunder and that such interest is free and clear of any adverse
claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement
or any other instrument or document furnished pursuant thereto; and (iii) makes no representation
or warranty and assumes no responsibility with respect to the financial condition of the Borrower
or the performance or observance by the Borrower of any of its obligations under the Agreement or
any other instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the Agreement, together with
copies of the financial statements referred to in Section 7.1(a) thereof and such other documents
and information as it has deemed appropriate to make its own credit analysis and decision to enter
into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance
upon the Agent, the Assignor or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in taking or not
taking action under the Agreement; (iii) confirms that it has satisfied all the requirements
applicable to an assignee provided in the Agreement; (iv) appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under the Agreement as are delegated
to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto;
(v) agrees that it will perform, in accordance with their terms, all of the obligations which by
the terms of the Agreement are required to be performed by it as a Lender; (vi) specifies as its
lending office the office (and address for notice) set forth beneath its name on the signature
pages hereof; and (vii) attaches the forms prescribed by the Internal Revenue Service of the United
States certifying as to the Assignees status for purposes of determining exemption from United
States withholding taxes with respect to all payments to be made to the Assignee under the
Agreement and the Notes or such other documents as are necessary to indicate that all such payments
are subject to such taxes at a rate reduced by an applicable tax treaty.
4. Following the execution of this Assignment and Acceptance by the Assignor and the Assignee,
it will be delivered to the Agent for acceptance and recording by the Agent. The effective date of
this Assignment and Acceptance shall be the date of acceptance thereof by the Agent, unless
otherwise specified on Schedule 1 hereto (the
Effective Date
).
5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee
shall be a party to the Agreement and, to the extent provided in this Assignment and Acceptance,
have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Agreement.
6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the
Agent shall make all payments under the Agreement in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and fees with respect thereto)
to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments
under the Agreement for periods prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the
laws of the State of New York.
In Witness Whereof
, the parties hereto have caused this Assignment and Acceptance to
be executed by their respective officers thereunto duly authorized, as of the date first above
written, such execution being made on Schedule 1 hereto.
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SunTrust Bank,
as Assignor
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By:
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Title:
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,
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as Assignee
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By:
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Title:
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[Lending Office:]
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[Address]
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Accepted this
_____
day of
_____,
_____ by:
SunTrust Robinson Humphrey, Inc.,
as Agent
-2-
Schedule 1
to
Assignment and Acceptance
Dated __________, ____
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AggregateCommitment/Loans
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Amount of Commitment / Loans
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Percentage Assigned of
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for all Lenders
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Assigned
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Commitment/Loans
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Schedule A
Documents to Be Delivered to the Agent
on or Prior to the Initial Loan
1. Executed copies of the Receivables Sale Agreement, duly executed by the parties thereto.
2. Subordinated Note in favor of the Originator.
3. Executed copies of the Receivables Loan Agreement, duly executed by the parties thereto
complete with all Exhibits and Schedules thereto.
4. A certificate of the Secretary of the Originator, the Servicer and the Borrower certifying:
(a) a copy of the resolutions of the Board of Directors of such Person certified by its
Secretary authorizing such Persons execution, delivery and performance of this Agreement
and the other documents to be delivered by it hereunder;
(b) the names and signatures of the officers authorized on its behalf to execute this
Agreement and any other documents to be delivered by it hereunder;
(c) a copy of such Persons By-Laws or Operating Agreement, as applicable;
(d) such Persons articles or certificate of incorporation or formation, as applicable,
certified by the secretary of state of its jurisdiction of incorporation or formation on or
within thirty (30) days prior to the initial Loan; and
(e) a good standing certificate for such Person issued by the secretary of state of its
state of incorporation/formation.
5. Pre-filing state and federal tax lien, judgment lien and UCC lien searches against the
Originator and the Borrower from its jurisdiction of organization and from the jurisdiction where
its chief executive office is located.
6. UCC financing statements in form suitable for filing under the UCC naming each of the
Originator and the Borrower, as a debtor, and Agent, as secured party or total assignee.
7. UCC termination statements, if any, necessary to release all security interests and other
rights of any Person in the Receivables, Contracts or Related Security previously granted by the
Borrower or the Originator, together with authorization to file the same.
8. Executed copies of the Collection Account Agreement for the Master Collection Account.
9. Opinions of legal counsel for the Borrower Parties reasonably acceptable to the Agent:
(a) Enforceability, Non-Contravention and Corporate Matters
(b) True Sale/Non-consolidation
(c) UCC Opinion
(d) In House Counsel Opinion
10. Certificates of the chief financial officer or treasurer of the Originator as to the
absence of an Amortization Event or an Unmatured Amortization Event under the Receivables Sale
Agreement, a certificates of the chief financial officer or treasurer of Borrower as to the absence
of an Amortization Event, a Servicer Termination Event, an Unmatured Servicer Termination Event or
an Unmatured Amortization Event under the Receivables Loan Agreement
11. The Fee Letter, duly executed by each of the parties thereto.
12. Borrowing Request, duly executed by Borrower.
Exhibit 10.25
BB&T EQUIPMENT FINANCE CORPORATION
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT (this
Lease
) is made as of December 30, 2009, between BB&T
EQUIPMENT FINANCE CORPORATION, its successors and assigns (
Lessor
), and ABF FREIGHT SYSTEM, INC.,
its successors and permitted assigns (
Lessee
).
Lessee desires to lease from Lessor the equipment and other property (the
Equipment
)
described in each Equipment Schedule executed pursuant to this Lease (each, a
Schedule
)
incorporating by reference the terms and conditions of this Lease (the term
Lease
shall also
include any Riders to this Lease entered into with respect to such Schedule). Certain definitions
and construction of certain of the terms used in this Lease are provided in Section 19 hereof.
For good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Lease agree as follows:
1.
AGREEMENT TO LEASE; TERM
. This Lease is effective as of the date specified above. By entering
into a Schedule, Lessor leases the Equipment described therein to Lessee, and Lessee leases such
Equipment from Lessor, in each case, subject to the terms and conditions in this Lease and such
Schedule and all of the other documents and agreements executed in connection herewith
(collectively, the
Lease Documents
). Each Schedule, incorporating the terms and conditions of
this Lease, will constitute a separate instrument of lease. The term of lease with respect to each
item of Equipment leased under a Schedule shall commence on the date of execution of such Schedule
and continue for the term provided in that Schedule.
2.
RENT
. Lessee shall pay Lessor (a) the rental installments (
Basic Rent
) as and when specified
in each Schedule, without demand, and (b) all of the other amounts payable in accordance with this
Lease, such Schedule and/or any of the other Lease Documents (
Other Payments
, and together with
the Basic Rent, collectively, the
Rent
). Upon Lessees execution thereof, the related Schedule
shall constitute a non-cancelable net lease, and Lessees obligation to pay Rent, and otherwise to
perform its obligations under or with respect to such Schedule and all of the other Lease
Documents, are and shall be absolute and unconditional and shall not be affected by any
circumstances whatsoever, including any right of setoff, counterclaim, recoupment, deduction,
defense or other right which Lessee may have against Lessor, the manufacturer or vendor of the
Equipment (the
Suppliers
), or anyone else, for any reason whatsoever (each, an
Abatement
).
Lessee agrees that all Rent shall be paid in accordance with Lessors or Assignees written
direction. Time is of the essence. If any Rent is not paid within five (5) days of the due date,
Lessee shall pay a late charge equal to five (5) percent of the amount in arrears.
3.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF LESSEE
. Lessee represents, warrants and agrees
that, as of the effective date of this Lease and of each Schedule: (a) Lessee has the form of
business organization indicated, and is and will remain duly organized and existing in good
standing under the laws of the state specified, under Lessees signature and is duly qualified to
do business wherever necessary to perform its obligations under the Lease Documents, including each
jurisdiction in which the Equipment is or will be located. Lessees legal name is as shown in the
preamble of this Lease; and Lessees Federal Employer Identification Number and organizational
number are as set forth under Lessees signature. Within the previous six (6) years, Lessee has
not changed its name, done business under any other name, or merged or been the surviving entity of
any merger, except as disclosed to Lessor in writing. (b) The Lease Documents (1) have been duly
authorized by all necessary action consistent with Lessees form of organization, (2) do not
require the approval of, or giving notice to, any governmental authority, (3) do not contravene or
constitute a default under any applicable law, Lessees organizational documents, or any agreement,
indenture, or other instrument to which Lessee is a party or by which it may be bound, and (4)
constitute legal, valid and binding obligations of Lessee enforceable against Lessee, in accordance
with the terms thereof. (c) Other than Lessees obligations for Lessees contractual employees as
provided by existing multiemployer plans, there are no pending actions or proceedings to which
Lessee is a party, and there are no other pending or threatened actions or proceedings of which
Lessee has knowledge, before any court, arbitrator or administrative agency, which, either
individually or in the aggregate, would have a Material Adverse Effect. As used herein,
Material
Adverse Effect
shall mean (i) a materially adverse effect on the business, condition (financial
or otherwise), operations, performance or properties of Lessee, or on Lessors rights and remedies
under this Lease, or (ii) a material impairment of the ability of Lessee to perform its obligations
under or remain in compliance with such Schedule or any of the other Lease Documents. Further,
Lessee is not in default under any financial or other material agreement that, either individually,
or in the aggregate, would have a Material Adverse Effect. (d) Under the applicable laws of each
such jurisdiction, such Equipment consists (and shall continue to consist) solely of personal
property and not fixtures. Such Equipment is removable from and is not essential to the premises
at which it is located. (e) The financial statements of Lessee (copies of which have been
furnished to Lessor) have been prepared in accordance with generally accepted accounting principles
consistently applied (
GAAP
), and fairly present Lessees financial condition and the results of
its operations as of the date of and for the period covered by such statements, and since the date
of such statements there has been no material adverse change in such conditions or operations. (f)
With respect to any Collateral, Lessee has good title to, rights in, and/or power to transfer all
of the same. (g) The Supplier is not an affiliate of Lessee. (h) The Supply Contract (as such
term is hereinafter defined) represents an arms length transaction and the purchase price for the
Equipment specified therein is the amount obtainable in an arms length transaction between a
willing and informed buyer and a willing and informed seller under no compulsion to sell.
LEASE AGREEMENT TRUE LEASE
4.
FURTHER ASSURANCES AND OTHER COVENANTS
. Lessee agrees as follows: (a) Lessee shall obtain and
deliver to Lessor and/or promptly execute or otherwise authenticate any documents, filings, waivers
(including any landlord and mortgagee waivers), releases and other records, and will take such
further action as Lessor may reasonably request in furtherance of Lessors rights under any of the
Lease Documents. Lessee irrevocably authorizes Lessor to file UCC financing statements (
UCCs
),
and other filings with respect to the Equipment or any Collateral. Without Lessors prior written
consent, Lessee agrees not to file any corrective or termination statements or partial releases
with respect to any UCCs filed by Lessor pursuant to this Lease. (b) Lessee shall provide written
notice to Lessor: (1) thirty (30) days prior to any change in Lessees name or jurisdiction or form
of organization; (2) promptly upon the occurrence of any Event of Default (as defined in Section
15) or event which, with the lapse of time or the giving of notice, or both, would become an Event
of Default (a
Default
); and (3) promptly upon Lessee becoming aware of any alleged violation of
applicable law relating to the Equipment or this Lease. (c) Lessee has been advised by Lessor that
the USA Patriot Act establishes minimum standards of account information to be collected and
maintained by Lessor, and that to help the government fight the funding of terrorism and money
laundering activities, Federal law requires all financial institutions to obtain, verify and record
information that identifies each person who opens an account; and specifically, this means that
when Lessee executes this Lease, Lessor may ask for Lessees name and address, the date of birth of
the officers executing this Lease, and other information that will allow Lessor to identify Lessee;
and that Lessor may also ask to see the drivers license or other identifying documents of the
officers of Lessee executing this Lease. (d) Lessee is and will remain in full compliance with all
applicable laws including, without limitation, (i) ensuring that no person who owns a controlling
interest in or otherwise controls Lessee is or shall be (A) listed on the Specially Designated
Nationals and Blocked Person List maintained by the Office of Foreign Assets Control (
OFAC
),
Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any
authorizing statute, Executive Order or regulation, or (B) a person designated under Sections 1(b),
(c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or
any other similar Executive Orders, and (ii) compliance with all applicable Bank Secrecy Act
(
BSA
) laws, regulations and government guidance on BSA compliance and on the prevention and
detection of money laundering violations.
5.
CONDITIONS PRECEDENT
. Lessors agreement to purchase and lease any Equipment under a Schedule,
is conditioned upon Lessors determination that all of the following have been satisfied: (a)
Lessor having received the following, in form and substance reasonably satisfactory to Lessor: (1)
evidence as to due compliance with the insurance provisions of Section 11; (2) if requested, lien
searches in the jurisdiction of Lessees organization, and wherever else Lessor deems appropriate;
(3) UCCs, real property waivers and all other filings required by Lessor; (4) a certificate of an
appropriate officer of Lessee certifying: (A) resolutions duly authorizing the transactions
contemplated in the applicable Lease Documents, and (B) the incumbency and signature of the
officers of Lessee authorized to execute such documents; (5) an opinion of counsel for Lessee as to
each of the matters set forth in sub-parts (a) through (c) of Section 3; (6) the only manually
executed original of the Schedule, and counterpart originals of all other Lease Documents; (7) all
purchase documents pertaining to the Equipment (collectively, the
Supply Contract
); (8) if
requested by Lessor, good standing certificates from the jurisdiction of Lessees organization and
the location of the Equipment, and evidence of Lessees organizational number; (9) the Master Lease
Guaranty (the
Guaranty
), in form and substance satisfactory to Lessor, duly executed by Arkansas
Best Corporation (the
Guarantor
); (10) a certificate of Guarantors secretary certifying: (A)
resolutions duly authorizing the undertaking to guarantee the payment and performance of the
obligations of Lessee under this Lease, and (B) the incumbency and signature of the officers of
Guarantor authorized to execute the Guaranty; (11) an opinion of counsel for Guarantor as to each
of the matters set forth in Subparts (a)(1) and (2), (b) and (c) of Section 4 of the Guaranty; and
(12) such other documents, agreements, instruments, certificates, opinions, and
assurances, as Lessor reasonably may require. (b) All representations and warranties provided by
Lessee in favor of Lessor in any of the Lease Documents shall be true and correct on the effective
date of the related Schedule (Lessees execution and delivery of the Schedule shall constitute
Lessees acknowledgment of the same). (c) There shall be no Default or Event of Default under the
Schedule or any other Lease Documents. The Equipment shall have been delivered to and accepted by
Lessee, as evidenced by the Schedule, and shall be in the condition and repair required hereby; and
on the effective date of such Schedule Lessor shall have received good title to the Equipment
described therein, free and clear of any claims, liens, attachments, rights of others and legal
processes (
Liens
).
LEASE AGREEMENT TRUE LEASE
2
6.
ACCEPTANCE UNDER LEASE.
Upon delivery, Lessee shall inspect and, if conforming to the condition
required by the applicable Supply Contract, accept the Equipment and execute and deliver to Lessor
a Schedule describing such Equipment. The Schedule will evidence Lessees unconditional and
irrevocable acceptance under the Schedule of the Equipment described therein. However, if Lessee
fails to accept delivery of any item of the Equipment, or accepts such Equipment but fails to
satisfy any or all of the other conditions set forth in Section 5, Lessor shall have no obligation
to purchase or lease such Equipment. In such event, Lessors rights shall include, among other
things, the right to demand that Lessee (a) fully assume all obligations as purchaser of the
Equipment, with the effect of causing Lessor to be released from any liability relating thereto,
(b) immediately remit to Lessor an amount sufficient to reimburse it for all advance payments,
costs, taxes or other charges paid or incurred with respect to the Equipment (including any of such
amounts paid by Lessor to Supplier under the Supply Contract or as a reimbursement to Lessee),
together with interest at the Default Rate accruing from the date or dates such amounts were paid
by Lessor until indefeasibly repaid by Lessee in full, and (c) take all other actions necessary to
accomplish such assumption.
7.
USE AND MAINTENANCE
. (a) Lessee shall (1) use the Equipment solely in the continental United
States (provided, however, that without limiting Lessees indemnification obligations pursuant to
Section 14(b) hereof, Lessee may use the Equipment on an occasional basis in Mexico and/or Canada
so long as such use does not cause the Equipment to be deemed to constitute tangible property used
predominantly outside the United States, within the meaning of the Internal Revenue Code of 1986,
as now or hereafter amended (the
Code
)) and in the conduct of its business, for the purpose for
which the Equipment was designed, in a careful and proper manner, and shall not permanently
discontinue use of the Equipment; (2) operate, maintain, service and repair the Equipment, and
maintain all records and other materials relating thereto, (A) in accordance and consistent with
(i) the Suppliers recommendations and all maintenance and operating manuals or service agreements,
whenever furnished or entered into, including any subsequent amendments or replacements thereof,
issued by the Supplier or service provider, (ii) the requirements of all applicable insurance
policies, (iii) the Supply Contract, so as to preserve all of Lessees and Lessors rights
thereunder, including all rights to any warranties, indemnities or other rights or remedies, (iv)
all applicable laws, and (v) the prudent practice of other similar companies in the same business
as Lessee, but in any event, to no lesser standard than that employed by Lessee for comparable
equipment owned or leased by it; and (B) without limiting the foregoing, so as to cause the
Equipment to be in good repair and operating condition and in at least the same condition as when
delivered to Lessee hereunder, except for ordinary wear and tear resulting despite Lessees full
compliance with the terms hereof; (3) provide written notice to Lessor not less than thirty (30)
days after any change of the location of any Equipment (or the location of the principal garage of
any Equipment, to the extent that such Equipment is mobile equipment) as specified in the Schedule;
and (4) not attach or incorporate the Equipment to or in any other property in such a manner that
the Equipment may be deemed to have become an accession to or a part of such other property. (b)
Within a reasonable time, Lessee will replace any parts of the Equipment which become worn out,
lost, destroyed, damaged beyond repair or otherwise unfit for use, by new or reconditioned
replacement parts which are free and clear of all Liens and have a value, utility and remaining
useful life at least equal to the parts replaced (assuming that they were in the condition required
by this Lease). Any modification or addition to the Equipment that is required by this Lease shall
be made by Lessee. Title to all such parts, modifications and additions to the Equipment
immediately shall vest in Lessor, without any further action by Lessor or any other person, and
they shall be deemed incorporated in the Equipment for all purposes of the related Schedule.
Unless replaced in accordance with this Section, Lessee shall not remove any parts originally or
from time to time attached to the Equipment, if such parts are essential to the operation of the
Equipment, are required by any other provision of this Lease or cannot be detached from the
Equipment without materially interfering with the operation of the Equipment or adversely affecting
the value, utility and remaining useful life which the Equipment would have had without the
addition of such parts. Except as permitted in this Section, Lessee shall not make any material
alterations to the Equipment. (c) Upon forty-eight (48) hours notice, Lessee shall afford Lessor
and/or its designated representatives access to the premises where the Equipment is located for the
purpose of inspecting such Equipment and all applicable maintenance or other records relating
thereto at any reasonable time during normal business hours; provided, however, if a Default or
Event of Default shall have occurred and then be continuing, no notice of any inspection by Lessor
shall be required. If any discrepancies are found as they pertain to the general condition of the
Equipment, Lessor will communicate these discrepancies to
Lessee in writing. Lessee shall then have thirty (30) days to rectify these discrepancies at its
sole expense. Lessee shall pay all expenses of a re-inspection by Lessors appointed
representative, if corrective measures were required.
LEASE AGREEMENT TRUE LEASE
3
8.
DISCLAIMER; QUIET ENJOYMENT. (a) THE EQUIPMENT IS LEASED HEREUNDER AS IS, WHERE IS. LESSOR
SHALL NOT BE DEEMED TO HAVE MADE, AND HEREBY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EITHER
EXPRESS OR IMPLIED, AS TO THE EQUIPMENT, INCLUDING ANY PART, OR ANY MATTER WHATSOEVER, INCLUDING,
AS TO EACH ITEM OF EQUIPMENT, ITS DESIGN, CONDITION, MERCHANTABILITY, FITNESS FOR ANY PARTICULAR
PURPOSE, TITLE, ABSENCE OF ANY PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT OR LATENT DEFECT
(WHETHER OR NOT DISCOVERABLE BY LESSEE), COMPLIANCE OF SUCH ITEM WITH ANY APPLICABLE LAW,
CONFORMITY OF SUCH ITEM TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE DOCUMENT OR TO THE
DESCRIPTION SET FORTH IN THE RELATED SCHEDULE OR ANY OF THE OTHER LEASE DOCUMENTS, OR ANY
INTERFERENCE OR INFRINGEMENT (EXCEPT AS EXPRESSLY PROVIDED IN SECTION
8(b)
), OR ARISING FROM ANY
COURSE OF DEALING OR USAGE OF TRADE, NOR SHALL LESSOR BE LIABLE, FOR ANY INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES OR FOR STRICT OR ABSOLUTE LIABILITY IN TORT; AND LESSEE HEREBY
WAIVES ANY CLAIMS ARISING OUT OF ANY OF THE FOREGOING.
Without limiting the foregoing, Lessor will
not be responsible to Lessee or any other person with respect to, and Lessee agrees to bear sole
responsibility for, any risk or other matter that is the subject of Lessors disclaimer; and
Lessors agreement to enter into this Lease and any Schedule is in reliance upon the freedom from
and complete negation of liability or responsibility for the matters so waived or disclaimed herein
or covered by the indemnity in this Lease. So long as no Event of Default has occurred, Lessee may
exercise Lessors rights, if any, under any warranty with respect to the Equipment. Lessees
exercise of such rights shall be at its sole risk, shall not result in any prejudice to Lessor, and
may be exercised only during the term of the related Schedule. Lessee shall not attempt to enforce
any such warranty by legal proceeding without Lessors prior written approval. (b) Lessor
warrants that during the term of each Schedule, so long as no Event of Default has occurred,
Lessees possession and use of the Equipment leased thereunder shall not be interfered with by
Lessor or anyone rightfully claiming an interest through Lessor. The preceding warranty is in lieu
of all other warranties by Lessor, whether written, oral or implied, with respect to this Lease or
the Equipment. Any actual or purported breach of this warranty shall not give rise to any
Abatement, but Lessee may bring a direct cause of action against Lessor for any actual damages
directly resulting from any such breach.
9.
FEES AND TAXES
. Lessee agrees to: (a) (1) if permitted by law, file in Lessees own name or on
Lessors behalf, directly with all appropriate taxing authorities all declarations, returns,
inventories and other documentation with respect to any personal property taxes (or any other taxes
in the nature of or imposed in lieu of property taxes) due or to become due with respect to the
Equipment, and if not so permitted by law, to promptly notify Lessor and provide it with all
information required in order for Lessor to timely file all such declarations, returns,
inventories, or other documentation, and (2) pay on or before the date when due all such taxes
assessed, billed or otherwise payable with respect to the Equipment directly to the appropriate
taxing authorities; (b) (1) pay when due as requested by Lessor, and (2) defend and indemnify
Lessor on a net after-tax basis against liability for all license and/or registration fees,
assessments, and sales, use, property, excise, privilege, value added and other taxes or other
charges or fees now or hereafter imposed by any governmental body or agency upon the Equipment or
with respect to the manufacture, shipment, purchase, ownership, delivery, installation, leasing,
operation, possession, use, return, or other disposition thereof or the Rent hereunder (other than
taxes on or measured solely by the net income of Lessor (except as and to the extent expressly
addressed in Section 14(b) hereof)); and (c) indemnify Lessor against any penalties, charges,
interest or costs imposed with respect to any items referred to in clauses (a) and (b) above (the
items referred to in clauses (a), (b), and (c) above being referred to herein as
Impositions
).
Any Impositions which are not paid when due and which are paid by Lessor shall, at Lessors option,
become immediately due from Lessee to Lessor.
10.
TITLE; GRANTING CLAUSE.
(a) Lessee and Lessor intend that: (1) each Schedule, incorporating by
reference the terms of this Lease, constitutes a true lease and a finance lease as such terms
are defined in Article 2A and not a sale or retention of a security interest; and (2) Lessor is and
shall remain the owner of each item of Equipment (unless sold by Lessor pursuant to any Lease
Document), and Lessee shall not acquire any right, title or interest in or to such Equipment except
the right to use it in accordance with the terms of the related Schedule. (b) In order to secure
the prompt payment of the Rent and all of the other amounts from time to time outstanding with
respect hereto and to each Schedule, and the performance and observance by Lessee of all of the
provisions hereof and thereof and of all of the other Lease Documents, Lessee hereby collaterally
assigns, grants, and conveys to Lessor, a security interest in and lien on all of Lessees right,
title and interest in and to all of the following (whether now existing or hereafter created, and
including any other collateral described on any rider hereto; the
Collateral
): (1) (if contrary
to the parties intentions a court determines that such Schedule is not a true lease under the
UCC) the Equipment described in such Schedule or otherwise covered thereby (including all
inventory, fixtures or other property comprising the Equipment), together with all related software
(embedded therein or otherwise) and general intangibles, all additions, attachments, accessories
and accessions thereto whether or not furnished by the Supplier; (2) all subleases, chattel paper,
accounts, security deposits, and general intangibles relating thereto, and any and all
substitutions, replacements or exchanges for any such item of Equipment or other collateral, in
each such case in which Lessee shall from time to time acquire an interest; and (3) any and all
insurance and/or other proceeds of the property and other collateral in and against which a
security interest is granted hereunder. The collateral assignment, security interest and lien
granted herein shall survive the termination, cancellation or expiration of each Schedule until
such time as Lessees obligations thereunder and under the other Lease Documents are fully and
indefeasibly discharged. (c) If contrary to the parties intentions a court determines that any
Schedule is not a true lease, the parties agree that in such event Lessee agrees that: (1) with
respect to the Equipment, in addition to all of the other rights and remedies available to Lessor
hereunder upon the occurrence of a Default, Lessor shall have all of the rights and remedies of a
first priority secured party under the UCC; and (2) any obligation to pay Basic Rent or any Other
Payment, to the extent constituting the payment of interest, shall be at an interest rate that is
equal to the lesser of the maximum lawful rate permitted by applicable law or the effective
interest rate used by Lessor in calculating such amounts.
LEASE AGREEMENT TRUE LEASE
4
11.
INSURANCE
. Upon acceptance under a Schedule, until the Equipment is returned to Lessor in
accordance with this Lease, Lessee shall maintain all-risk insurance coverage with respect to the
Equipment insuring against, among other things: (a) any casualty to the Equipment (or any portion
thereof), including loss or damage due to fire and the risks normally included in extended
coverage, malicious mischief and vandalism, for not less than the full replacement value of the
Equipment; and (b) any commercial liability arising in connection with the Equipment, including
both bodily injury and property damage with a combined single limit per occurrence of not less than
the amount specified in the Schedule; having a deductible or self-insured retention in a maximum
amount of $1,000,000.00 or such greater amount as may be mutually agreed to by Lessor and Lessee.
Notwithstanding the foregoing, provided that no Event of Default has then occurred, Lessee may
self-insure with respect to the coverage required pursuant to Clause (a) of the immediately
preceding sentence. The required insurance policies (including endorsements) or self-insurance
shall (i) be in form and amount generally acceptable under industry standards, and written by
insurers of recognized reputation and responsibility satisfactory to Lessor (but such insurer shall
carry a current rating by A.M. Best Company of at least A for a general policyholder and a
financial rating of at least VIII), (ii) be endorsed to name Lessor as an additional insured (but
without responsibility for premiums), (iii) provide that any amount payable under the required
physical damage coverage shall be paid directly to Lessor as sole loss payee, and (iv) provide for
thirty (30) days written notice by such insurer of cancellation, material change, or non-renewal.
Lessee agrees that it shall obtain and maintain such other coverages (including pollution
coverage), or cause adjustments to be made to the scope, amount or other aspects of the existing
coverages, promptly upon Lessors request, as and when Lessor and Lessee agree that such additional
coverages or modifications to be appropriate in light of any changes in applicable law, prudent
industry practices, Lessees anticipated use of the Equipment or other pertinent circumstances.
12.
LOSS AND DAMAGE
. (a) At all times until the Equipment is returned to Lessor in accordance
with this Lease, Lessee shall bear the risk of loss, theft, confiscation, taking, unavailability,
damage or partial destruction of the Equipment and shall not be released from its obligations under
any Schedule or other Lease Document in any such event. (b) Lessee shall provide prompt written
notice to Lessor of any Total Loss or any material damage to the Equipment. Any such notice must
be provided together with any damage reports provided to any governmental authority, the insurer or
Supplier, and any documents pertaining to the repair of such damage, including copies of work
orders, and all invoices for related charges. (c) Without limiting any other provision hereof,
Lessee shall repair all damage to any item of Equipment from any and all causes, other than a Total
Loss, so as to cause it to be in the condition and repair required by this Lease. (d) A
Total
Loss
shall be deemed to have occurred to an item of Equipment upon: (1) the actual or constructive
total loss of any item of the Equipment, (2) the loss, disappearance, theft or destruction of any
item of the Equipment, or damage to any item of the Equipment that is uneconomical to repair or
renders it unfit for normal use, or (3) the condemnation, confiscation, requisition, seizure,
forfeiture or other taking of title to or use of any item of the Equipment or the imposition of any
Lien thereon by any governmental authority. On the next rent payment date following a Total Loss
(a
Loss Payment Date
), Lessee shall pay to Lessor the Basic Rent due on that date plus the
Stipulated Loss Value of the item or items of the Equipment with respect to which the Total Loss
has occurred (the
Lost Equipment
), together with any Other Payments due hereunder with respect to
the Lost Equipment. Upon making such payment, (i) Lessees obligation to pay future Basic Rent
shall terminate solely with respect to the items of Lost Equipment so paid for, but Lessee shall
remain liable for, and pay as and when due, all Other Payments, and (ii) Lessor shall convey to
Lessee all of Lessors right, title and interest in the Lost Equipment,
AS IS WHERE IS
, but
subject to the requirements of any third party insurance carrier in order to settle an insurance
claim. As used in this Lease,
Stipulated Loss Value
shall mean the product of the Total Invoice
Cost of the Lost Equipment, times the percentage factor applicable to the Loss Payment Date, as set
forth in the Schedule of Stipulated Loss Values incorporated in such Schedule. After the final
rent payment date of the original term or any renewal term of a Schedule, the Stipulated Loss Value
shall be determined as of the last rent payment date during the
applicable term of such Schedule, and the applicable percentage factor shall be the last percentage
factor set forth in the Schedule of Stipulated Loss Values incorporated in such Schedule. (e)
Lessor shall be under no duty to Lessee to pursue any claim against any person in connection with a
Total Loss or other loss or damage. (f) If Lessor receives a payment under an insurance policy
required under this Lease in connection with any Total Loss or other loss of or damage to an item
of Equipment, and such payment is both unconditional and indefeasible, then provided Lessee shall
have complied with the applicable provisions of this Section, Lessor shall either (1) if received
pursuant to a Total Loss, remit such proceeds to Lessee up to an amount equal to the amount paid by
Lessee to Lessor as the Stipulated Loss Value, or credit such proceeds against any amounts owed by
Lessee pursuant to Section 12(d), or (2) if received with respect to repairs made pursuant to
Section 12(c), remit such proceeds to Lessee up to an amount equal to the amount of the costs of
repair actually incurred by Lessee, as established to Lessors satisfaction.
LEASE AGREEMENT TRUE LEASE
5
13.
REDELIVERY
. (a) Lessee shall provide written notice to Lessor not less than one hundred
eighty (180) days and not more than two hundred forty (240) days prior to the expiration of the
term of any Schedule (or of any renewal thereof, if applicable) of Lessees intent to return the
Equipment described on such Schedule to Lessor upon the expiration of the term of such Schedule.
IF LESSEE FAILS TO PROVIDE THE FOREGOING NOTICE IN A TIMELY MANNER, THE TERM OF THE APPLICABLE
SCHEDULE AUTOMATICALLY SHALL BE DEEMED TO HAVE BEEN EXTENDED, WHICH EXTENSION SHALL CONTINUE UNTIL
ONE HUNDRED EIGHTY (180) DAYS AFTER THE DATE ON WHICH LESSEE PROVIDES THE REQUIRED NOTICE, DURING
WHICH EXTENSION PERIOD LESSEE SHALL CONTINUE TO PAY TO LESSOR PER DIEM RENT AT THE LAST PREVAILING
LEASE RATE UNDER THE APPLICABLE SCHEDULE; provided, however that Lessor may elect to terminate
such extension at any time upon ten (10) days written notice to Lessee. During such extension
period, the terms and conditions of this Lease (including, without limitation, the provisions of
this Section 13) shall continue to be applicable. Solely for purposes of the definition of
Stipulated Loss Value in Section 12(d) hereof, any such extension shall be deemed a renewal of the
term of such Schedule. (b) Upon the expiration or earlier cancellation or termination of any
Schedule, Lessee shall return the Equipment described on such Schedule to Lessor free and clear of
all Liens whatsoever, to any of Lessees distribution center locations within the continental
United States. Lessee shall provide, at its expense, transit insurance for the redelivery period
in an amount equal to the replacement value of such Equipment and Lessor shall be named as the
loss payee on all such policies of insurance. Lessee shall cause: (1) the Suppliers
representative or other qualified person acceptable to Lessor (the
Designated Person
) to
de-install such Equipment in accordance with the Suppliers specifications (as applicable) and
pack such Equipment properly and in accordance with the Suppliers recommendations (as
applicable); and (2) such Equipment to be transported in a manner consistent with the Suppliers
recommendations and practices (as applicable). Upon return, such Equipment shall be: (i) in the
same condition as when delivered to Lessee under the related Schedule, ordinary wear and tear
excepted; (ii) mechanically and structurally sound, capable of performing the functions for which
such Equipment was originally designed, in accordance with the Suppliers published and
recommended specifications (as applicable); (iii) redelivered with all component parts in good
operating condition (and all components must meet or exceed the Suppliers minimum recommended
specifications, unless otherwise agreed by Lessor in writing); (iv) redelivered with all software
and documentation necessary for the operation of such Equipment for the performance of the
functions for which such Equipment was originally designed (whether or not such software is
embedded in or otherwise is a part of such Equipment); and (v) cleaned and cosmetically
acceptable, with all Lessee-installed markings removed and all rust, corrosion or other
contamination having been removed or properly treated, and in such condition so that it may be
immediately installed and placed in service by a third party. Upon delivery, such Equipment shall
be in compliance with all applicable Federal, state and local laws, and health and safety
guidelines. Lessee shall be responsible for the cost of all repairs, alterations, inspections,
appraisals, storage charges, insurance costs, demonstration costs and other related costs
necessary to cause such Equipment to be in full compliance with the terms of this Lease. (c) If
requested by Lessor, Lessee shall also deliver all related records and other data to Lessor,
including all records of maintenance, modifications, additions and major repairs, computerized
maintenance history, and any maintenance and repair manuals (collectively, the
Records
). All
manuals or other documents delivered to Lessor that are subject to periodic revision will be fully
up-to-date and current to the latest revision standard of any particular manual or document. In
the event any such Records are missing or incomplete, Lessor shall have the right to cause the
same to be reconstructed at Lessees expense. (d) In addition to Lessors other rights and
remedies hereunder, if such Equipment and the related Records are not returned in a timely
fashion, or if repairs are necessary to place any item of Equipment in the condition required in
this Section, Lessee shall (i) continue to pay to Lessor per diem rent at the last prevailing
lease rate under the applicable Schedule with respect to such item of Equipment, for the period of
delay in redelivery, and/or for the period of time reasonably necessary to accomplish such
repairs, and (ii) pay to Lessor an amount equal to the aggregate cost of any such repairs.
Lessors acceptance of such rent on account of such delay and/or repair does not constitute an
extension or renewal of the term of the related Schedule or a waiver of Lessors right to prompt
return of such Equipment in proper condition. Such amount shall be payable upon the earlier of
Lessors demand or the return of such Equipment in accordance with this Lease. (e) Without
limiting any other terms or conditions of this Lease, the provisions of this Section are
of the essence of each Schedule, and upon application to any court of equity having jurisdiction,
Lessor shall be entitled to a decree against Lessee requiring Lessees specific performance of its
agreements in this Section.
LEASE AGREEMENT TRUE LEASE
6
14.
INDEMNITY
. (a)
General
. Lessee shall indemnify, defend and keep harmless Lessor and
any Assignee (as defined in Section 17), and their respective agents and employees (each, an
Indemnitee
), from and against any and all Claims (other than such as may directly and proximately
result from the actual, but not imputed, negligence or willful misconduct of such Indemnitee), by
paying, on a net after-tax basis, or otherwise discharging same, when and as such Claims shall
become due. Lessee agrees to further indemnify each such Indemnitee with respect to Claims for
which such Indemnitee is strictly liable. Lessor shall give Lessee prompt notice of any Claim
hereby indemnified against and Lessee shall be entitled to control the defense of and/or to settle
any Claim, in each case, so long as (1) no Default or Event of Default has occurred and is then
continuing, (2) Lessee confirms, in writing, its unconditional and irrevocable commitment to
indemnify each Indemnitee with respect to such Claim, (3) Lessee is financially capable of
satisfying its obligations under this Section, (4) Lessor approves the defense counsel selected by
Lessee, and (5) there is no reasonable risk of criminal liability being imposed on Lessor or any of
its directors, officers or employees as a result of such Claim. The term
Claims
shall mean all
claims, allegations, harms, judgments, settlements, suits, actions, debts, obligations, direct
damages, demands (for compensation, indemnification, reimbursement or otherwise), losses,
penalties, fines, liabilities (including strict liability), charges that Lessor has incurred or for
which it is responsible, in the nature of interest, Liens, and costs (including attorneys fees and
disbursements and any other legal or non-legal expenses of investigation or defense of any Claim,
whether or not such Claim is ultimately defeated or enforcing the rights, remedies or indemnities
provided for hereunder, or otherwise available at law or equity to Lessor), of whatever kind or
nature, contingent or otherwise, matured or unmatured, foreseeable or unforeseeable, by or against
any person, arising on account of (A) any Lease Document, including the performance, breach
(including any Default or Event of Default) or enforcement of any of the terms thereof, or (B) the
Equipment, or any part or other contents thereof, any substance at any time contained therein or
emitted therefrom, including any hazardous substances, or the premises at which the Equipment may
be located from time to time, or (C) the ordering, acquisition, delivery, installation or rejection
of the Equipment, the possession of any property to which it may be attached from time to time,
maintenance, use, condition, ownership or operation of any item of Equipment, and by whomsoever
owned, used, possessed or operated, during the term of any Schedule with respect to that item of
Equipment, the existence of latent and other defects (whether or not discoverable by Lessor or
Lessee) any claim in tort for negligence or strict liability, and any claim for patent, trademark
or copyright infringement, or the loss, damage, destruction, theft, removal, return, surrender,
sale or other disposition of the Equipment, or any item thereof, including, Claims involving or
alleging environmental damage, or any criminal or terrorist act, or for whatever other reason
whatsoever. If any Claim is made against Lessee or an Indemnitee, the party receiving notice of
such Claim shall promptly notify the other, but the failure of the party receiving notice to so
notify the other shall not relieve Lessee of any obligation hereunder.
(b)
Tax Indemnity
. (1) Lessee represents and warrants that: (A) it believes that it
is reasonable to estimate that the useful life of the Equipment exceeds the lease term (including
any interim and fixed rental renewal periods) by the greater of one (1) year or twenty (20) percent
of such estimated useful life, and that said Equipment will have a value at the end of the lease
term, including any fixed rate renewal period, of at least twenty (20) percent of the Total Invoice
Cost of the Equipment, without including in such value any increase or decrease for inflation or
deflation during the original lease term; and (B) the Equipment is, and will be used by Lessee so
as to remain, property eligible for the MACRS Deductions (as defined below).
(2) (A) If by reason of (i) any act or failure to act of Lessee (including a breach of any
covenant or agreement of Lessee set forth in this Lease), or (ii) the misrepresentation of or
breach by Lessee of any of the warranties and representations set forth in Section 14(b) (1) of
this Lease and Section 6(b) of the Schedule (if applicable), Lessor in computing its taxable income
or liability for tax, shall lose, or shall not have, or shall lose the right to claim or there
shall be disallowed or recaptured for Federal and/or state income tax purposes, in whole or in
part, the benefit of MACRS Deductions; or (B) Lessor shall become liable for additional tax as a
result of Lessee having added an attachment or made an alteration to the Equipment, including
(without limitation) any such attachment or alteration which would increase the productivity or
capability of the Equipment so as to violate the provisions of Rev. Proc. 2001-28, 2001-1 C.B. 1156
(as it may hereafter be modified or superseded); or (C) Lessor shall be entitled to claim a lesser
credit for foreign taxes against its Federal income tax liability than that to which Lessor would
have been entitled if each item of income, gain, loss and deduction with respect to the Equipment
had been treated as income from sources within the United States pursuant to Section 861 of the
Code; hereinafter referred to as a
Loss
; then Lessee shall pay Lessor the Tax Indemnification
Payment as additional rent and Lessor shall revise the Schedule(s) of Stipulated Loss Values to
reflect the Loss. As used herein,
MACRS Deductions
shall mean the deductions under Section 167
of the Code, determined in accordance with the modified Accelerated Cost Recovery System with
respect to the Total Invoice Cost of any item of the
Equipment using the accelerated method set forth in Section 168(b)(1) or 168(b)(2) of the Code
as in effect on the date of this Lease for property assigned to the class of property specified in
the Schedule pertaining thereto and (if the applicable Schedule specifies that bonus depreciation
is available) taking into account the fifty (50) percent special depreciation allowance and basis
adjustment under Section 168(k)(1) of the Code;
Lessor
shall be deemed to include the
consolidated Federal taxpayer group of which Lessor is a member; and
Tax Indemnification Payment
shall mean such amount as, after consideration of (i) all taxes required to be paid by Lessor in
respect of the receipt thereof under the laws of any governmental or taxing authority in the United
States, and (ii) the amount of any interest or penalty which may be payable by Lessor in connection
with the Loss, shall be required to cause Lessors after-tax net return (the
Net Return
) to be
equal to, but no greater than, the Net Return computed consistently with current tax laws (and with
the assumption that Lessor is taxed at the highest marginal Federal and state tax rates) as of the
date of this Lease that would have been available to Lessor had the Loss not occurred.
LEASE AGREEMENT TRUE LEASE
7
(c) Lessor promptly shall notify Lessee in writing of such Loss and Lessee shall pay to Lessor
the Tax Indemnification Payment within thirty (30) days of such notice. For these purposes, a Loss
shall occur upon the earliest of: (A) the happening of any event (such as disposition or change in
use of any item of the Equipment) which will cause such Loss, (B) the payment by Lessor to the
Internal Revenue Service or state taxing authority of the tax increase (including an increase in
estimated taxes) resulting from such Loss; (C) the date on which the Loss is realized by Lessor; or
(D) the adjustment of the tax return of Lessor to reflect such Loss.
15.
DEFAULT
. A default shall be deemed to have occurred hereunder and under a Schedule upon the
occurrence of any of the following (each, an
Event of Default
): (a) non-payment of Basic Rent on
the applicable rent payment date; (b) non-payment of any Other Payment within five (5) days after
it is due; (c) failure to maintain, use or operate the Equipment in compliance with applicable law;
(d) breach by Lessee of its covenants pursuant to Section 4(d) hereof; (e) failure to obtain,
maintain and comply with all of the insurance coverages required under this Lease; (f) any transfer
or encumbrance, or the existence of any Lien, that is prohibited by this Lease; (g) a payment or
other default by Lessee under any loan, lease, guaranty or other financial obligation to Lessor or
its affiliates which default has been declared; (h) a payment or other default by Lessee under any
material (that is, for an amount in excess of $10,000,000) loan, lease, guaranty or other material
financial obligation to any third party which default has been declared; (i) an inaccuracy in any
representation or breach of warranty by Lessee (including any false or misleading representation or
warranty) in any financial statement or Lease Document, including any omission of any substantial
contingent or unliquidated liability or claim against Lessee; (j) the commencement of any
bankruptcy, insolvency, receivership or similar proceeding by or against Lessee or any of its
properties or business (unless, if involuntary, the proceeding is dismissed within sixty (60) days
of the filing thereof) or the rejection of this Lease or any other Lease Document in any such
proceeding; (k) the failure by Lessee generally to pay its debts as they become due or its
admission in writing of its inability to pay the same; (l) Lessee shall (1) enter into any
transaction of merger or consolidation, unless Lessee shall be the surviving entity (such actions
being referred to as an
Event
), unless the surviving entity is organized and existing under the
laws of the United States or any state, and prior to such Event: (A) such person executes and
delivers to Lessor (x) an agreement satisfactory to Lessor, in its sole discretion, containing such
persons effective assumption, and its agreement to pay, perform, comply with and otherwise be
liable for, in a due and punctual manner, all of Lessees obligations having previously arisen, or
then or thereafter arising, under any and all of the Lease Documents, and (y) any and all other
documents, agreements, instruments, certificates, opinions and filings requested by Lessor; and (B)
Lessor is satisfied as to the creditworthiness of such person, and as to such persons conformance
to the other standard criteria then used by Lessor when approving transactions similar to the
transactions contemplated in this Lease; (2) cease to do business as a going concern, liquidate, or
dissolve; or (3) sell, transfer, or otherwise dispose of all or substantially all of its assets or
property; (m) effective control of Lessees voting capital stock, issued and outstanding from time
to time, is not retained by the present holders (unless Lessee shall have provided thirty (30)
days prior written notice to Lessor of the proposed disposition and Lessor shall have consented
thereto in writing); (n) there occurs a default or anticipatory repudiation under the Guaranty; or
(o) breach by Lessee of any other covenant, condition or agreement (other than those in items
(a)-(n)) under this Lease or any of the other Lease Documents that continues for thirty (30) days
after Lessors written notice to Lessee (but such notice and cure period will not be applicable
unless such breach is curable by practical means within such notice period). The occurrence of an
Event of Default with respect to any Schedule shall, at the sole discretion of Lessor, constitute
an Event of Default with respect to any or all Schedules to which it is then a party.
Notwithstanding anything to the contrary set forth herein, Lessor may exercise all rights and
remedies hereunder independently with respect to each Schedule.
LEASE AGREEMENT TRUE LEASE
8
16.
REMEDIES
. (a) If an Event of Default occurs with respect to any Schedule, the Lessor
thereunder may (in its sole discretion) exercise any one or more of the following remedies with
respect to such Schedule and any or all other Schedules to which such Lessor is then a party: (1)
proceed at law or in equity, to enforce specifically Lessees performance or to recover damages;
(2) declare each such Schedule in default, and cancel each such Schedule or
otherwise terminate Lessees right to use the Equipment and Lessees other rights, but not its
obligations, thereunder and Lessee shall immediately assemble, make available and, if Lessor
requests, return the Equipment to Lessor in accordance with the terms of this Lease; (3) enter any
premises where any item of Equipment is located and take immediate possession of and remove (or
disable in place) such item (and/or any unattached parts) by self-help, summary proceedings or
otherwise without liability (except for liability for loss or damage to cargo or other property
located in the Equipment); provided, however, Lessor shall not be entitled to any lien with regard
to any cargo or other property located in the Equipment and Lessee shall have the absolute right to
remove such cargo or property prior to any such taking; (4) use Lessees premises for storage
without liability; (5) sell, re-lease or otherwise dispose of any or all of the Equipment, whether
or not in Lessors possession, at public or private sale, with or without notice to Lessee, and
apply or retain the net proceeds of such disposition, with Lessee remaining liable for any
deficiency and with any excess being retained by Lessor; (6) enforce any or all of the preceding
remedies with respect to any related Collateral, and apply any deposit or other cash collateral, or
any proceeds of any such Collateral, at any time to reduce any amounts due to Lessor; (7) demand
and recover from Lessee all Liquidated Damages and all Other Payments whenever the same shall be
due; and (8) exercise any and all other remedies allowed by applicable law, including the UCC. As
used herein,
Liquidated Damages
shall mean the liquidated damages (all of which, Lessee hereby
acknowledges, are damages to be paid in lieu of future Basic Rent and are reasonable in light of
the anticipated harm arising by reason of an Event of Default, and are not a penalty) described in
the first sentence of parts (1) or (2) of Section 16(b), depending upon the recovery and
disposition of the Equipment leased under the applicable Schedule. Upon the occurrence of the
Event of Default described in Section 15(j) hereof, the remedy provided in Clause (7) above shall
be automatically exercised without the requirement of prior written notice to Lessee or of any
other act or declaration by Lessor, and the Liquidated Damages described therein shall be
immediately due and payable.
(b) (1) If an Event of Default occurs with respect to any Schedule, if Lessor recovers the
Equipment and disposes of it by a lease or elects not to dispose of the Equipment after recovery,
upon demand, Lessee shall pay to Lessor an amount equal to the sum of (A) any accrued and unpaid
Rent as of the date Lessor recovers possession of the Equipment,
plus
(B) the present value
as of such date of the total Basic Rent for the then remaining term of such Schedule,
minus
(C) either, as applicable, (i) the present value, as of the commencement date of any substantially
similar re-lease of the Equipment, of the re-lease rent payable for that period, commencing on such
date, which is comparable to the then remaining term of such Schedule or (ii) the present value, as
of that certain date which may be determined by taking into account Lessors having a reasonable
opportunity to remarket the Equipment, of the market rent for such Equipment (as computed
pursuant to Article 2A) in the continental United States on that date, computed for that period,
commencing on such date, which is comparable to the then remaining term of such Schedule; provided,
however, Lessee acknowledges that if Lessor is unable after reasonable effort to dispose of the
Equipment at a reasonable price and pursuant to other reasonable terms, or the circumstances
reasonably indicate that such an effort will be unavailing, the market rent in such event will be
deemed to be $0.00, but in the event that Lessor does eventually re-lease or otherwise dispose of
the Equipment, it will apply the net proceeds of such disposition, to the extent received in good
and indefeasible funds, as a credit or reimbursement, as applicable, in a manner consistent with
the applicable provisions of Article 2A. Any amounts discounted to present value, shall be
discounted at the rate of three percent (3%) per annum, compounded annually.
(2) If an Event of Default occurs with respect to any Schedule, if Lessee fails to return the
Equipment in the manner and condition required by this Lease, or Lessor recovers and sells the
Equipment, upon demand, Lessee shall pay to Lessor an amount calculated as the Stipulated Loss
Value of the Equipment (determined as of the next rent payment date after the date of the
occurrence of the subject Event of Default), together with all other Rent due with respect to the
related Schedule as of such determination date, any amount due from Lessee pursuant to Rider No. 1
attached to the Schedule, and all Enforcement Costs (defined in Section 16(c)), less a credit for
any disposition proceeds, if applicable pursuant to the application provisions in the next
sentence. If Lessor demands the Liquidated Damages under this part (2), and recovers and sells the
Equipment, any proceeds received in good and indefeasible funds shall be applied by Lessor, with
respect to the related Schedule:
first
, to pay all Enforcement Costs, to the extent not
previously paid;
second
, to pay to Lessor an amount equal to any unpaid Rent due and
payable, together with the Liquidated Damage amounts specified in this part (2), to the extent not
previously paid;
third
, to pay to Lessor any interest accruing on the amounts covered by
the preceding clauses, at the Default Rate, from and after the date the same becomes due, through
the date of payment; and
fourth
, (A) if the Lessor under such Schedule is also the Lessor
under any other Schedules (whether by retaining the same, or as Assignee), to satisfy any remaining
obligations under any or all such other Schedules, or (B) if such Lessor is not the Lessor under
any other Schedule, or if Lessees obligations to such Lessor under such other Schedules have been
fully and indefeasibly satisfied, to reimburse Lessee for such amounts to the extent paid by Lessee
as Liquidated Damages pursuant to this part (2).
LEASE AGREEMENT TRUE LEASE
9
(c) A cancellation of any Schedule shall occur only upon written notice by Lessor to Lessee.
Unless already specifically provided for in Section 16(b), if an Event of Default occurs with
respect to any Schedule, Lessee shall also be liable for all of the following (
Enforcement
Costs
): (1) all unpaid Rent due before, during or after exercise of any of the foregoing remedies,
and (2) all reasonable legal fees (including consultation, drafting notices or other documents,
expert witness fees, sending notices or instituting, prosecuting or defending litigation or
arbitration) and other enforcement costs and expenses incurred by reason of any Default or Event of
Default or the exercise of Lessors rights or remedies, including all expenses incurred in
connection with the return or other recovery of any Equipment in accordance with the terms of this
Lease or in placing such Equipment in the condition required hereby, or the sale, re-lease or other
disposition (including but not limited to costs of transportation, possession, storage, insurance,
taxes, lien removal, repair, refurbishing, advertising and brokers fees), and sales or use taxes
incurred by Lessor in connection with any disposition of the Equipment after the occurrence of an
Event of Default, and all other pre-judgment and post-judgment enforcement related actions taken by
Lessor or any actions taken by Lessor in any bankruptcy case involving Lessee, the Equipment, or
any other person. From and after the date on which an Event of Default occurs, Lessee shall pay
interest to Lessor with respect to all amounts due hereunder until such amounts are received by
Lessor in good funds at a per annum interest rate that is the lesser of ten (10) percent or the
maximum rate permitted by applicable law (the
Default Rate
). No right or remedy is exclusive and
each may be used successively and cumulatively. Any failure to exercise the rights granted
hereunder upon any Default or Event of Default shall not constitute a waiver of any such right. No
extension of time for payment or performance of any of Lessees obligations hereunder shall operate
to release, discharge, modify, change or affect the original liability of Lessee for such
obligations, either in whole or in part. In any action to repossess any Equipment or other
Collateral, Lessee waives any bonds and any surety or security required by any applicable laws as
an incident to such repossession. Notices of Lessors intention to accelerate, acceleration,
nonpayment, presentment, protest, dishonor or any other notice whatsoever (other than as expressly
set forth herein) are waived by Lessee. Any notice given by Lessor of any disposition of the
Equipment or any Collateral or other intended action of Lessor which is given in accordance with
this Lease at least five (5) business days prior to such action, shall constitute fair and
reasonable notice of such action. The execution of a Schedule shall not constitute a waiver by
Lessor of any pre-existing Default or Event of Default. With respect to any disposition of any
Equipment or Collateral pursuant to this Section, (i) Lessor shall have no obligation, subject to
the requirements of commercial reasonableness, to clean-up or otherwise prepare the same for
disposition, (ii) Lessor may comply with any applicable law in connection with any such
disposition, and any actions taken in connection therewith shall not be deemed to have adversely
affected the commercial reasonableness of any disposition thereof, (iii) Lessor may disclaim any
title or other warranties in connection with any such disposition, and (iv) Lessee shall remain
responsible for any deficiency remaining after Lessors exercise of its remedies and application of
any funds or credits against Lessees obligations under any Schedule, and Lessor shall retain any
excess after such application.
17.
ASSIGNMENT
. (a) LESSEE SHALL NOT ASSIGN, DELEGATE, TRANSFER OR ENCUMBER ANY OF ITS RIGHTS OR
OBLIGATIONS HEREUNDER OR UNDER ANY SCHEDULE, OR ITS LEASEHOLD INTEREST OR ANY COLLATERAL, SUBLET
THE EQUIPMENT OR OTHERWISE PERMIT THE EQUIPMENT TO BE OPERATED OR USED BY, OR TO COME INTO OR
REMAIN IN THE POSSESSION OF, ANYONE BUT LESSEE. Without limiting the foregoing, (1) Lessee may not
attempt to dispose of any of the Equipment, and (2) Lessee shall (A) maintain the Equipment free
from all Liens, other than Permitted Liens, (B) notify Lessor immediately upon receipt of notice of
any Lien affecting the Equipment, and (C) defend Lessors title to the Equipment. A
Permitted
Lien
shall mean any Lien for Impositions, Liens of mechanics, materialmen, or suppliers and
similar Liens arising by operation of law, provided that any such Lien is incurred by Lessee in the
ordinary course of business, for sums that are not yet delinquent or are being contested in good
faith and with due diligence, by negotiations or by appropriate proceedings which suspend the
collection thereof and, in Lessors sole discretion, (i) do not involve any substantial danger of
the sale, forfeiture or loss of the Equipment or any interest therein, and (ii) for the payment of
which adequate assurances or security have been provided to Lessor. No disposition referred to in
this Section shall relieve Lessee of its obligations, and Lessee shall remain primarily liable
under each Schedule and all of the other Lease Documents. (b) Lessor may at any time with or
without notice to Lessee grant a security interest in, sell, assign, delegate or otherwise transfer
(an
Assignment
) all or any part of its interest in the Equipment, this Lease or any Schedule and
any related Lease Documents or any Rent thereunder, or the right to enter into any Schedule, and
Lessee shall perform all of its obligations thereunder, to the extent so transferred, for the
benefit of the beneficiary of such Assignment (such beneficiary, including any successors and
assigns, an
Assignee
). Lessee agrees not to assert against any Assignee any Abatement (without
limiting the provisions of Section 2) or Claim that Lessee may have against Lessor, and Assignee
shall not be bound by, or otherwise required to perform any of Lessors obligations, unless
expressly assumed by such Assignee. Lessor shall be relieved of any such assumed obligations. If
so directed in writing, Lessee shall pay all Rent and all other sums that become due under the
assigned Schedule and other Lease Documents directly to the Assignee or any other party designated
in writing by Lessor or such Assignee. Lessee acknowledges that Lessors right to enter into an
Assignment is essential to Lessor and, accordingly,
waives any restrictions under applicable law with respect to an Assignment and any related
remedies. Upon the request of Lessor or any Assignee, Lessee also agrees (i) to promptly execute
and deliver to Lessor or to such Assignee an acknowledgment of the Assignment in form and substance
satisfactory to the requesting party, an insurance certificate and such other documents and
assurances reasonably requested by Lessor or Assignee, and (ii) to comply with all other reasonable
requirements of any such Assignee in connection with any such Assignment. Upon such Assignment and
except as may otherwise be provided herein, all references in this Lease to Lessor shall include
such Assignee. (c) Subject always to the foregoing, this Lease and each Schedule shall inure to
the benefit of, and are binding upon, Lessees and Lessors respective successors and assigns.
LEASE AGREEMENT TRUE LEASE
10
18.
MISCELLANEOUS
. (a) This Lease, each Schedule, any Riders hereto or thereto and any commitment
letter between the parties, constitute the entire agreement between the parties with respect to the
subject matter hereof and thereof and shall not be amended or modified in any manner except by a
document in writing executed by both parties. (b) Any provision of this Lease that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. (c) The representations, warranties and
agreements of Lessee herein shall be deemed to be continuing and to survive the execution and
delivery of this Lease, each Schedule and any other Lease Documents. With respect to each
Schedule, the obligations of Lessee under Sections 8, 9, 10, 12, 13 and 14 hereof, together with
any of Lessees obligations under the other provisions of this Lease (as incorporated therein)
which have accrued but not been fully satisfied, performed or complied with prior to the expiration
or earlier cancellation or termination of such Schedule, shall survive the expiration or earlier
cancellation or termination thereof. (d) All of Lessees obligations hereunder and under any
Schedule shall be performed at Lessees sole expense. Lessee shall reimburse Lessor promptly upon
demand for all expenses incurred by Lessor in connection with (1) any action taken by Lessor at
Lessees request, or in connection with any option, (2) the filing or recording of real property
waivers and UCCs, (3) any Enforcement Costs not recovered pursuant to Section 16, (4) all
inspections, and (5) all lien search reports (and copies of filings) requested by Lessor. If
Lessee fails to perform any of its obligations with respect to a Schedule, Lessor shall have the
right, but shall not be obligated, to effect such performance, and Lessee shall reimburse Lessor,
upon demand, for all expenses incurred by Lessor in connection with such performance. Lessors
effecting such compliance shall not be a waiver of Lessees default. (e) Lessee irrevocably
appoints Lessor as Lessees attorney-in-fact (which power shall be deemed coupled with an interest)
to: (1) make minor corrections to manifest errors in factual data in any Schedule and/or any
addenda, attachments, exhibits and/or riders to this Lease or any Schedule; and (2) execute,
endorse and deliver any documents and checks or drafts relating to or received in payment for any
loss or damage under the policies of insurance required by this Lease, but only to the extent that
the same relates to the Equipment, or are required by titling agencies in order to reflect Lessor
as the owner and/or lienholder with respect to certificates of title pertaining to motor vehicles
(if any) comprising the Equipment. (f) LESSOR AND LESSEE HEREBY WAIVE TRIAL BY JURY IN ANY ACTION
OR PROCEEDING TO WHICH LESSEE AND/OR LESSOR MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING
TO THIS LEASE. (g) All notices (excluding billings and communications in the ordinary course of
business) hereunder shall be in writing, personally delivered, delivered by overnight courier
service, sent by facsimile transmission (with confirmation of receipt), or sent by certified mail,
return receipt requested, addressed to the other party at its respective address stated below the
signature of such party or at such other address as such party shall from time to time designate in
writing to the other party; and shall be effective from the date of receipt. (h) This Lease shall
not be effective unless and until accepted by execution by an officer of Lessor at the address, in
the State of Maryland (the
State
), as set forth below the signature of Lessor. THIS LEASE AND
ALL OF THE OTHER LEASE DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND
THEREUNDER, SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL
LAWS OF THE STATE (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF THE STATE), INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT.
The parties agree that any action or proceeding arising out of or relating to this Lease may be
commenced in any state or Federal court in the State, and agree that a summons and complaint
commencing an action or proceeding in any such court shall be properly served and shall confer
personal jurisdiction if served personally or by certified mail to it at the mailing address below
Lessees signature, or as it may provide in writing from time to time, or as otherwise provided
under the laws of the State. (i) This Lease and all of the other Lease Documents may be executed
in counterparts. Photocopies or facsimile transmissions of signatures shall be deemed original
signatures and shall be fully binding on the parties to the same extent as original signatures.
The transfer or possession of the Original of this Lease shall be irrelevant to the full or
collateral assignment of, or grant of security interest in, any Schedule; provided, however, no
security interest in any Schedule may be created through the transfer, possession or control, as
applicable, of any counterpart of such Schedule other than the original thereof, which shall be
identified as the document or record (as applicable) marked Original and all other counterparts
shall be marked Duplicate. (j) If Lessor is required by the terms
hereof to pay to or for the benefit of Lessee any amount received as a refund of an Imposition or
as insurance proceeds, Lessor shall not be required to pay such amount, if any Default has occurred
and not been cured or any Event of Default shall have occurred and not been waived by Lessor. In
addition, if Lessor is required by the terms hereof to cooperate with Lessee in connection with
certain matters, such cooperation shall not be required if a Default or Event of Default has then
occurred and is continuing. (k) To the extent Lessor is required to give its consent or approval
with respect to any matter, the reasonableness of Lessors withholding of such consent shall be
determined based on the then existing circumstances; provided, that Lessors withholding of its
consent shall be deemed reasonable for all purposes if (i) the taking of the action that is the
subject of such request, might result (in Lessors discretion), in (A) an impairment of Lessors
rights, title or interests hereunder or under any Schedule or other Lease Document, or to the
Equipment, or (B) expose Lessor to any Claims or Impositions, or (ii) Lessee fails to provide
promptly to Lessor any filings, certificates, opinions or indemnities required by Lessor as a
condition to such consent. (l) There is no restriction (either express or implied) on any
disclosure or dissemination of the tax treatment or tax structure of the transactions contemplated
by this Lease or any documents executed in connection herewith. Further, each party hereto
acknowledges that it has no proprietary rights to any tax matter or tax idea or to any element of
the transaction structure contemplated by this Lease; and each party hereto (and any employee,
representative or agent of any party hereto) may disclose to any and all persons (without
limitation of any kind), the Federal tax treatment and Federal tax structure of the transaction
contemplated by this Lease. This Section 18(l) is intended to cause the transaction contemplated
by this Lease to be treated as not having been offered under conditions of confidentiality for
purposes of Section 1.6011-4(b)(3) (or any successor provision) of the Treasury Regulations
promulgated under Section 6011 of the Code and Section 6111 of the Code and the Treasury
Regulations promulgated thereunder; and shall be construed in a manner consistent with such
purpose.
LEASE AGREEMENT TRUE LEASE
11
19.
DEFINITIONS AND RULES OF CONSTRUCTION
. (a) The following terms when used in this Lease or in
any of the Schedules have the following meanings: (1)
affiliate
: with respect to any given
person, shall mean (i) each person that directly or indirectly owns or controls, whether
beneficially or as a trustee, guardian or other fiduciary, five (5) percent or more of the voting
stock, membership interest or similar equity interest having ordinary voting power in the election
of directors or managers of such person, (ii) each person that controls, is controlled by, or is
under common control with, such person, or (iii) each of such persons officers, directors,
members, joint venturers and partners. For the purposes of this definition, control of a person
means the possession, directly or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting securities, by contract or
otherwise; (2)
applicable law
or
law
: any law, rule, regulation, ordinance, order, code, common
law, interpretation, judgment, directive, decree, treaty, injunction, writ, determination, award,
permit or similar norm or decision of any governmental authority; (3)
AS IS, WHERE IS
:
AS IS,
WHERE IS
, without warranty, express or implied, with respect to any matter whatsoever; (4)
business day
: any day, other than a Saturday, Sunday, or legal holiday for commercial banks under
the laws of the state of the Lessors notice address; (5)
governmental authority
: any federal,
state, county, municipal, regional or other governmental authority, agency, board, body,
instrumentality or court, in each case, whether domestic or foreign; (6)
person
: any individual,
corporation, limited liability entity, partnership, joint venture, or other legal entity or a
governmental authority, whether employed, hired, affiliated, owned, contracted with, or otherwise
related or unrelated to Lessee or Lessor; and (7)
UCC
or
Uniform Commercial Code
: the Uniform
Commercial Code as in effect in the State or in any other applicable jurisdiction; and any
reference to an article (including Article 2A) or section thereof shall mean the corresponding
article or section (however termed) of any such applicable version of the Uniform Commercial Code.
(b) The following terms when used herein or in any of the Schedules shall be construed as follows:
(1)
herein
,
hereof
,
hereunder
, etc.: in, of, under, etc. this Lease or such other Lease
Document in which such term appears (and not merely in, of, under, etc. the section or provision
where the reference occurs); (2)
including
: means including without limitation unless such term
is followed by the words and limited to, or similar words; and (3)
or
: at least one, but not
necessarily only one, of the alternatives enumerated. Any defined term used in the singular
preceded by any indicates any number of the members of the relevant class. Any Lease Document or
other agreement or instrument referred to herein means such agreement or instrument as supplemented
and amended from time to time. Any reference to Lessor or Lessee shall include their permitted
successors and assigns. Any reference to an applicable law shall also mean such law as amended,
superseded or replaced from time to time.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
LEASE AGREEMENT TRUE LEASE
12
IN WITNESS WHEREOF, the parties hereto have caused this Master Lease Agreement to be duly
executed, under seal, as of the day and year first above set forth.
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BB&T EQUIPMENT FINANCE CORPORATION
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ABF FREIGHT SYSTEM, INC.
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Lessor
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Lessee
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By:
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/s/ Stephen Gray
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[SEAL]
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By:
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/s/ Judy R. McReynolds
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[SEAL]
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Name: Stephan Gray
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Name: Judy R. McReynolds
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Title: Senior Vice President
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Title: Assistant Treasurer
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600 Washington Avenue
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3801 Old Greenwood Road
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Suite 201
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Fort Smith, Arkansas 72903
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Towson, Maryland 21204
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Facsimile: 479-785-8650
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Facsimile: 410-825-1691
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Form of Organization: Corporation
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Jurisdiction of Organization: Delaware
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Organizational No.: 0937905
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Federal Employer Identification No.: 71-0249444
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LEASE AGREEMENT TRUE LEASE
13
BB&T EQUIPMENT FINANCE CORPORATION
EQUIPMENT SCHEDULE SERIES ____ NO. _____
executed pursuant to that certain Master Lease Agreement dated as of December 30, 2009 (the
Lease; which is incorporated herein by reference). This Equipment Schedule, incorporating by
reference the terms and conditions of the Lease, constitutes a separate instrument of lease. To the
extent of any conflict or inconsistency between the terms of this Equipment Schedule and the Lease,
the terms of this Equipment Schedule shall prevail.
1. EQUIPMENT. The Equipment leased hereunder shall be as set forth in the schedule attached
hereto.
TOTAL INVOICE COST: $________________________
2. TERM. Upon and after the date of execution hereof, the Equipment shall be subject to the
terms and conditions provided herein and in the Lease.
A full term of lease with respect to said Equipment shall commence on the date hereof and
shall extend for thirty-six (36) months after the first day of
_____, 2010 (the Base
Lease Commencement Date).
3. RENT.
(a) During the period from the date hereof to the Base Lease Commencement Date (the Interim
Term), the pro-rated daily rent for said Equipment shall be
$______ per day; computed as
_____% of the Total Invoice Cost specified above. This pro-rated payment shall be made on the
last day of the month for each month during the Interim Term.
(b) From and after the Base Lease Commencement Date, the monthly rent for said Equipment
during the term of this Lease shall be $_____, computed as
_____% of the Total
Invoice Cost specified above. Rent payments shall be made, in advance, on the first day of the
month for each month during the term of this Lease.
4. LESSEES CONFIRMATION. Lessee hereby confirms and warrants to Lessor that the Equipment:
(a) was duly delivered to Lessee at the location specified in Section 5 hereof; (b) has been
received, inspected and determined to be in compliance with all applicable specifications and that
the Equipment is hereby accepted for all purposes of the Lease; and (c) is a part of the
Equipment referred to in the Lease and is taken subject to all terms and conditions therein and
herein provided.
5. LOCATION OF EQUIPMENT. The location of the Equipment is specified on the Schedule of
Equipment attached hereto.
6. TAX ATTRIBUTES. (a) The class of property to which the Equipment is assigned (as
referenced in Section 14(b)(2) of the Lease) is 3-year property.
(b) The bonus depreciation [is/is not] available with respect to the Equipment. [IF BONUS
DEPRECIATION IS AVAILABLE, INCLUDE THE FOLLOWING: Lessee represents and warrants that: (1) each
item of Equipment constitutes qualified property pursuant to Section 168(k) of the Code and is
eligible for the additional first-year depreciation deduction equal to fifty (50) percent of the
Total Invoice Cost of the Equipment contemplated by the Code, as specified on this Schedule; (2)
the Equipment shall be treated as originally placed in service not earlier than the date of the
execution and delivery of this Schedule, or in the event the transaction is a sale-leaseback
transaction, Lessee shall not have placed in service the Equipment subject to this Lease at any
time prior to three (3) months before the execution and delivery of this Schedule; (3) Lessee has
not arranged to purchase, and Lessor is not purchasing, the Equipment pursuant to a binding written
contract entered into before January 1, 2008; and (4) each item of Equipment shall be placed in
service before January 1, 2010.]
7. COMMERCIAL LIABILITY INSURANCE. The amount of commercial liability insurance referenced in
Section 11 of the Lease is $10,000,000.00.
8. PERSONAL PROPERTY TAXES.
Please choose one of the options below by initialing where indicated. Initial ONLY ONE choice of option:
OPTION 1 Lessees Initials:
_____
(Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees that it will not
list any of such Equipment for property tax purposes or report any property tax assessed against
such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax
bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax
and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly
reimburse Lessor for such expense;
OPTION 2 Lessees Initials:
_____
(Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee agrees that it will (a)
list all such Equipment, (b) report all property taxes assessed against such Equipment, and (c) pay
all such taxes when due directly to the appropriate taxing authority until Lessor shall otherwise
direct in writing.
9. SCHEDULE OF STIPULATED LOSS VALUES. This Schedule of Stipulated Loss Values shall be
applicable solely to the Equipment described in this Equipment Schedule.
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Rent
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Percent of Total
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Payment No.
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Invoice Cost
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10. RIDER. Rider No. 1 attached hereto is incorporated in this Equipment Schedule.
11. PAYMENT AUTHORIZATION. Lessor is hereby irrevocably authorized and directed to pay the
Total Invoice Cost specified above as follows:
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Company Name
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Address
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Amount
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Lessor is hereby authorized to insert such factually correct information as is necessary to
complete this Equipment Schedule, including (without limitation) the date of execution, and the
rental payment amount(s) and factor(s).
[OPTIONAL: USE ONLY IF ALL EQUIPMENT ON THIS SCHEDULE IS SALE-LEASEBACK]
12. BILL OF SALE. In consideration of the payment by Lessor of the amount specified herein
as the Total Invoice Cost of the items of Equipment listed on the Schedule of Equipment attached
hereto, the receipt and sufficiency of which are hereby acknowledged, Lessee does hereby bargain,
sell, assign, transfer and set over to Lessor such Equipment, together with whatever claims and
rights Lessee may have against the manufacturer and/or supplier of such Equipment, including (but
not limited to) all warranties with respect thereto.
15
Lessee represents and warrants that: (a) Lessee has good and marketable title to such
Equipment conveyed hereunder and does hereby transfer an interest therein free and clear of any and
all encumbrances, liens, charges or defects; (b) the transfer of an interest in such Equipment (1)
has been duly authorized by all necessary action on the part of Lessee, (2) does not require the
consent of any stockholder, member, trustee or holders of any indebtedness of
Lessee, except such as have been duly obtained, and (3) does not and will not contravene any
law, governmental rule, regulation or order now binding on Lessee, or the organizational documents
of Lessee, or contravene the provisions of, or constitute a default under, or result in the
creation of any lien or encumbrance upon the property of Lessee under, any indenture, mortgage,
contract or other agreement to which Lessee is a party or by which it or its property is bound; and
(c) no filing or recordation must be made, no notice must be given, and no other action must be
taken with respect to any state or local jurisdiction, or any person, in order to preserve to
Lessor all the rights transferred hereby.
DATE OF EXECUTION: __________________, 20_____
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BB&T EQUIPMENT FINANCE CORPORATION
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ABF FREIGHT SYSTEM, INC.
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Lessor
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Lessee
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By:
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[SEAL]
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By:
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[SEAL]
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Name:
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Name:
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Title:
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Title:
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16
BB&T EQUIPMENT FINANCE CORPORATION
RIDER NO. 1 TO EQUIPMENT SCHEDULE SERIES ___ NO. _____
To and
part of Equipment Schedule Series ______ No.
_____
dated as of the
_____
day of
_____, 20_____
(the Schedule), executed pursuant to that certain Master Lease Agreement
dated as of the 30th day of December, 2009 (the Lease), each between BB&T EQUIPMENT FINANCE
CORPORATION, its successors and assigns (Lessor), and ABF FREIGHT SYSTEM, INC., its successors
and permitted assigns (Lessee).
A. TERMINAL RENTAL ADJUSTMENT. It is presently anticipated that the fair market value of the
Equipment upon the expiration of the original lease term relating thereto will be an amount equal
to the Estimated Residual Value of the Equipment specified on this Schedule. Upon expiration of
the original lease term, Lessor will attempt to sell the Equipment. If the Net Proceeds of Sale
(as hereafter defined) is less than thirty (30) percent of the Total Invoice Cost of the Equipment
(the Estimated Residual Value), promptly upon demand Lessee shall pay to Lessor the amount of the
difference. If the Net Proceeds of Sale exceeds the Estimated Residual Value, the amount of the
difference promptly shall be paid by Lessor to Lessee. If the Equipment has not been sold on the
expiration date of the original lease term relating thereto, then the Net Proceeds of Sale shall be
deemed to be zero; and promptly upon demand Lessee shall pay to Lessor an amount equal to the
Estimated Residual Value of the Equipment. If Lessor thereafter shall sell the Equipment, the Net
Proceeds of Sale promptly shall be paid by Lessor to Lessee. Any such payment by either Lessee or
Lessor shall be deemed to be a Terminal Rental Adjustment with respect to the Equipment. As used
herein, Net Proceeds of Sale shall mean the gross selling price actually received by Lessor less
all (i) selling expenses incurred by Lessor, (ii) amounts which (if not paid) would constitute a
lien on the Equipment for which Lessee is responsible under the Lease, and (iii) applicable sales
or other transfer taxes paid by Lessor. As used herein, Equipment shall mean the Equipment
described on all Schedules of this series.
As required by Section 7701(h) of the Internal Revenue Code of 1986, as now or hereafter
amended, Lessee shall execute and deliver to Lessor the Certification by Lessee in substantially
the form attached hereto as Exhibit No. 1. Lessee acknowledges that the Truth in Mileage Act of
1986 (and the regulations promulgated thereunder) requires the lessee of motor vehicles (at the
time such motor vehicles are terminated from the lease) to provide a written disclosure to the
lessor regarding the mileage of such motor vehicles. Under this law, the failure to complete or
providing false information may result in fines and/or imprisonment. Therefore, Lessee agrees to
provide to Lessor (on a form provided by Lessor) upon termination of a motor vehicle from the Lease
the mileage disclosure information required by the Federal regulations.
B. OPTION TO PURCHASE. Provided that no Default or Event of Default has then occurred, Lessee
shall have the option to purchase, upon the expiration of the term of the Lease, all but not less
than all of the Equipment upon the following terms and conditions: If Lessee desires to exercise
this option it shall, at least two hundred forty (240) days before expiration of the term of the
Lease with respect to the first Schedule of this series to terminate in accordance with its terms,
give Lessor written notice of its intention to exercise this option to purchase and shall engage in
negotiations with Lessor to determine the purchase price for the Equipment. Not less than one
hundred eighty (180) days before expiration of the term of the Lease with respect to the first
Schedule of this series to terminate in accordance with its terms, Lessee shall give Lessor written
notice of its election to purchase on the terms mutually agreed upon during negotiations. Such
election shall be effective with respect to all Equipment leased under all Schedules of this
series. At the expiration of the term of the Lease, Lessee shall pay to Lessor in cash any Rent
due on that date plus the purchase price for the Equipment so purchased, determined as hereinafter
provided. Lessees exercise of the purchase option contained herein shall constitute a sale of the
Equipment pursuant to Section A above and Lessee shall be responsible for the performance of its
obligations pursuant to Section A above.
The purchase price of the Equipment shall be an amount equal to its then Fair Market Value,
together with all taxes and charges upon sale. For purposes of this Section, Fair Market Value
shall be deemed to be an amount equal to the sale price obtainable in an arms length transaction
between a willing and informed buyer and a willing and informed seller under no compulsion to sell
(and assuming that, as of the date of determination, the Equipment is in at least the condition
required by Section 13 of the Lease). If the parties are unable to agree on the Fair Market Value
of the Equipment, then Lessor and Lessee shall at Lessees expense obtain appraisal values from
three independent appraisers (one to be
selected by Lessor, one by Lessee, and the other by the two selected by Lessor and Lessee;
each of whom must be associated with a professional organization of equipment or personal property
appraisers, such as the American Society of Appraisers) and the average Fair Market Value as
determined by such appraisers shall be binding on the parties hereto.
Notwithstanding any election of Lessee to purchase, the provisions of the Lease shall continue
in full force and effect until the passage of ownership of the Equipment upon the date of purchase.
On the date of purchase, Lessor shall deliver to Lessee a bill of sale transferring and assigning
to Lessee, without recourse or warranty, except (with respect to the status of title conveyed) in
respect of Lessors acts, all of Lessors right, title and interest in and to the Equipment.
Lessor shall not be required to make and may specifically disclaim any representation or warranty
as to the condition of the Equipment or any other matters.
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BB&T EQUIPMENT FINANCE CORPORATION
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ABF FREIGHT SYSTEM, INC.
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Lessor
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Lessee
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By:
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[SEAL]
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By:
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[SEAL]
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Name:
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Name:
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Title:
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Title:
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18
EXHIBIT NO. 1
CERTIFICATION BY LESSEE
This Certification is provided by the undersigned (Lessee) in connection with that certain
Master Lease Agreement dated as of December
_____, 2009 (the Lease), with BB&T EQUIPMENT FINANCE
CORPORATION. The parties intend and agree that the Lease constitute a qualified motor vehicle
operating agreement within the meaning of Section 7701(h) of the Internal Revenue Code of 1986, as
now or hereafter amended, and this Certification is required to be provided pursuant to that
Section.
Lessee hereby certifies, under penalty of perjury, that it intends that more than fifty (50)
percent of the use of the Equipment (as such term is defined in the Lease) is to be in a trade or
business of the Lessee.
Lessee acknowledges that it has been advised that it will not be treated as the owner of the
Equipment for Federal income tax purposes.
IN WITNESS WHEREOF, Lessee has caused this Certification to be duly executed, under seal, as
of the
_____
day of December, 2009.
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ABF FREIGHT SYSTEM, INC.
Lessee
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By:
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[SEAL]
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Name:
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Title:
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