UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to
Commission file number: 0-49983
SCS Transportation, Inc.
(Exact name of registrant as specified in its charter)
Delaware
48-1229851
(State or Other Jurisdiction of Incorporation or Organization)
I.R.S. Employer Identification No.)
4435 Main Street, Suite 930
Kansas City, Missouri
64111
(Address of Principal Executive Offices)
(Zip Code)
(816) 960-3664 |
|
(Registrants telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Names of each exchange on which registered
Common Stock, par value $.001 per share
Preferred Stock Purchase Rights
The Nasdaq National Market
The Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o (Registrant has not been subject to filing requirements for past 90 days)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the 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. x
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No x
The aggregate market value of the 14,595,193 shares of voting stock of the registrant held by non-affiliates of the registrant (excluding, for this purpose, shares held by officers, directors or 10 percent stockholders) was $172,223,277 based on the last sales price of the Common Stock on February 18, 2003, as reported on the Nasdaq National Market. The number of shares of Common Stock outstanding as of February 18, 2003 was 14,704,410.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement to be filed within 120 days of December 31, 2002, pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the Annual Meeting of Stockholders to be held April 23, 2003.
2
PART I.
Item 1. Business
Overview
SCS Transportation, Inc. (SCST or the Company) is a leading transportation company that provides a variety of trucking transportation and supply chain solutions to a broad range of industries, including the retail, petrochemical and manufacturing industries. Through our operating subsidiaries, Saia Motor Freight Line, Inc. (Saia) and Jevic Transportation, Inc. (Jevic), we serve a wide variety of customers by offering regional, interregional and national less-than-truckload, or LTL, services and selected truckload, or TL, services across the United States, with a focus on regional transportation solutions. None of our approximately 7,500 employees is represented by a union.
We were organized in 2000 as a wholly owned subsidiary of Yellow Corporation (Yellow) to better manage its regional transportation business. Our business consists of (1) Saia, which was acquired by Yellow in 1993 (including WestEx and Action Express, two western regional subsidiaries acquired in 1994 and 1998, respectively, and merged into Saia in 2001), and (2) Jevic, which was acquired by Yellow in 1999. We became an independent public company on September 30, 2002 as a result of a 100 percent tax-free distribution of shares to Yellow shareholders (the Spin-off). Each Yellow shareholder received one share of SCST stock for every two shares of Yellow stock held as of the September 3, 2002 record date. As a result of the Spin-off, Yellow does not own any shares of our capital stock.
We operate two business segments, Saia and Jevic. In 2002, Saia generated revenue of $490 million and operating income of $21.9 million. In 2001, Saia generated revenue of $485 million and operating income of $9.7 million. In 2002, Jevic generated revenue of $286 million and operating income of $5.8 million. In 2001, Jevic generated revenue of $286 million and operating income of $6.0 million. Information regarding revenues and operating income of Saia and Jevic are contained in the notes to our audited financial statements contained in this annual report.
Operating Subsidiaries
Saia Motor Freight Line, Inc.
Founded in 1924, Saia is a leading multi-regional LTL carrier that serves the South, Southwest, Pacific Northwest and the West. Saia specializes in offering its customers a range of regional and interregional LTL services including time-definite and expedited options. Within these service options, Saia provides its customers with the flexibility to handle shipments between 100 and 10,000 pounds.
Saia has invested substantially in technology to enhance its ability to monitor and manage service operations and profitability. These data capabilities enable Saia to provide its trademarked Customer Service Indicators program, allowing customers to monitor service performance. Customers can access the information via the Internet to help manage their shipments. The Customer Service Indicators measure the following: on-time pickup; on-time delivery; claims settled within 30 days; claim free shipments; proof of delivery request turnaround; and invoicing accuracy. The index provides both Saia and the customer with a report card of overall service levels.
Saia operates a network comprised of 109 service facilities. The average Saia shipment weighs approximately 1,300 pounds and travels an average distance of approximately 530 miles. In March 2001, Saia successfully integrated its WestEx and Action Express affiliates into its operations and expanded its geographic reach to 21 states. Saia has approximately 5,100 employees.
Jevic Transportation, Inc.
Founded in 1981, Jevic is a specialized LTL ground transportation services provider that also offers selected TL services throughout the continental United States and Canada. Jevic specializes in offering its customers standard and customized regional transportation solutions based on its non-traditional Breakbulk-Free® operating model, often eliminating the need to rehandle freight at interim and destination service facilities. In 2002, the average shipment weight was approximately 4,600 pounds, and the average shipment distance was approximately 735 miles. Jevic has approximately 2,400 employees.
3
The Jevic approach offers customers a broad line of LTL and TL services that can accommodate a wider range of shipment sizes and trip lengths than traditional regional carriers. Jevic develops integrated solutions for customers designed to lower their overall supply chain costs, which can include direct-to-customer deliveries, multi-shipper order consolidation for their inbound supplies, and express and time-definite deliveries. Approximately half of the Jevic trailers are heated and service customers with temperature-sensitive requirements. Jevic is a partner with the American Chemical Council Responsible Care Program and derives over 50 percent of its revenue from the chemical and chemical-related sectors.
The technology employed by Jevic is crucial to its Breakbulk-Free® LTL operating model. Jevic uses the Qualcomm OmniTRACS satellite-based communications system, facilitating the load planning and capacity management processes critical to its operating structure. To leverage this information, Jevic has developed a proprietary suite of programs called PreSys® (predictive systems) providing information to effectively anticipate volumes, optimize load planning and meet customer services expectations while minimizing cost.
Industry
According to an American Trucking Association report, in 2001 the trucking industry accounted for 87.3 percent of total domestic freight revenue, or $610 billion, and 67.4 percent of domestic freight volume. Trucks provide transportation services to virtually every industry operating in the United States and generally offer higher levels of reliability, shipment integrity and speed than other surface transportation options.
The trucking industry consists of three segments, including private fleets and two for-hire carrier groups. The private carrier segment consists of fleets owned and operated by shippers who move their own goods. The two for-hire groups, TL and LTL, are based on the typical shipment sizes handled by transportation service companies: TL refers to providers generally transporting shipments greater than 10,000 pounds and LTL refers to providers generally transporting shipments less than 10,000 pounds.
SCST is primarily an LTL carrier. The LTL segment accounted for approximately $63 billion of revenue in 2001, or 10.3 percent of total trucking revenue according to the American Trucking Association.
LTL transportation providers consolidate numerous orders generally ranging from 100 to 10,000 pounds from businesses in different locations. Orders are consolidated at individual locations within a certain radius from service centers. As a result, LTL carriers require expansive networks of pickup and delivery operations around local service centers and shipments are moved between origin and destination often through an intermediate distribution or breakbulk center. Depending on the distance shipped, the LTL segment is typically classified into three subgroups:
| Regional Average distance is typically less than 500 miles with a focus on one- and two-day markets. Regional transportation companies can move shipments directly to their respective destination centers, which increase service reliability and avoid costs associated with intermediate handling. | |
| Interregional Average distance is usually between 500 and 1,000 miles with a focus on serving two- and three-day markets. | |
| National Average distance is typically in excess of 1,000 miles with focus on service in two- to five-day markets. National providers rely on intermediate shipment handling through hub and spoke networks, which require numerous satellite service centers, multiple distribution centers, and a relay network. To gain service and cost advantages, they occasionally ship directly between service centers, reducing intermediate handling. |
Over the last several years there has been a blurring of the above subgroups as individual companies are increasingly attempting to serve multiple subgroups.
Saia operates as a traditional LTL carrier with a primary focus on regional LTL one- and two-day lanes. Although Jevic focuses on the LTL sector, its non-traditional operating model allows it to provide high quality service across sector boundaries of weight (LTL and TL) and distance (regional, interregional and national).
4
The TL segment is the largest portion of the for-hire truck transportation market. In 2001 the TL segment generated approximately $274 billion in revenue or 45 percent of total trucking revenue according to the American Trucking Association. TL carriers primarily transport large shipments from origin to destination with no intermediate handling. Although a full truckload can weigh over 40,000 pounds, it is common for carriers to haul two or three shipments exceeding 10,000 pounds at one time, making multiple delivery stops.
Because TL carriers do not require an expansive network to provide point-to-point service, the overall cost structure of industry participants is typically low relative to LTL service providers. The segment is comprised of several major carriers and numerous small entrepreneurial players. At the most basic level, a TL company can be started with capital for rolling stock (a tractor and a trailer), insurance, a driver and little else. As size becomes a factor, capital is needed for technology infrastructure and some limited facilities. While Saia does not compete extensively in the TL sector, Jevic derives approximately one-third of its revenues from TL services.
Capital requirements are significantly different in the traditional LTL segment versus the TL segment. In the LTL sector, substantial amounts of capital are required for a network of service facilities, shipment handling equipment and revenue equipment (both for city pick-up, delivery and linehaul). In addition, investment in effective technology has become increasingly important in the LTL segment, largely due to the number of transactions and number of customers served on a daily basis. Saia, for example, picks up approximately 17,000 shipments per day, each of which has a shipper and consignee, and occasionally a third party, all of whom need access to information in a timely manner. More importantly, technology plays a key role in improving operations, maximizing loads and effectively managing yields. Due to the significant infrastructure spending required, the cost structure is relatively prohibitive to new startup or small entrepreneurial operations. As a result, the LTL segment is more concentrated than the TL segment, with a few large national carriers and several large regional carriers.
Business Strategy
Saia has grown over the last decade through a combination of organic growth and the integration in 2001 with WestEx and Action Express, regional LTL companies which had been acquired by Yellow in 1994 and 1998, respectively. WestEx operated in California and the Southwest, and Action Express operated in the Pacific Northwest and Rocky Mountain states. Saia has successfully integrated these two companies, which had contiguous regional coverage with minimal overlap. All historical segment data for Saia has been restated to give effect to this integration.
Yellow recognized Jevic as an opportunity to acquire a complementary business that would offer additional growth potential to its more traditional LTL network service. Jevic was acquired by Yellow in July 1999.
Key elements of our business strategy to increase growth and profitability include:
Continue focus on delivering best-in-class service.
The foundation of our growth and profitability strategy is a continuing commitment to delivering high-quality service. Commitment to service quality is valued by customers and allows us to gain fair compensation for our services and to maintain and gain market share.
Increase density in existing geographies.
We gain operating leverage by growing volume and density within existing geography. We estimate the potential incremental profitability on growth in current markets can be as much as 15 percent to 20 percent. This improves margins, asset turnover and return on capital. To further support this initiative, sales staffing is being increased by approximately 15 percent by the end of the first quarter of 2003. The additional staffing is being deployed in markets and towards customer segments that provide the greatest opportunities for profitable growth.
Continue focus on improving operating efficiencies.
As a result of aggressive management initiatives and ongoing establishment of comprehensive operating best practices, both Saia and Jevic continue to improve operating efficiency. This success helps offset a variety of structural cost increases like casualty insurance, wage rates and health care benefits. We believe our companies are well positioned to manage costs and asset utilization should the economy remain soft and we continue to see new opportunities for cost savings.
5
Manage yields and business mix.
This strategy involves managing both the pricing process and the mix of customers, in ways that allow our networks to operate more profitably. While regional pricing remains highly competitive, it appears to have improved relative to the first half of 2002 trends.
During 2002, Saia reduced business levels in the retail customer segment by eliminating selected business with costly handling characteristics. The reduction in business was offset by targeted growth with lower yielding but more profitable industrial customers.
Expand geographic footprint.
When the time is right, we plan to pursue geographic expansion as it promotes earnings growth and improves our customer value proposition. We have increased our financial capacity during 2002, which allows us to be more opportunistic with growth initiatives.
We actively monitor opportunities to add service facilities where we have sufficient density and we see potential for future volume growth. Both Saia and Jevic have added modest facility capacity, including Jevics expansion to Los Angeles and capacity expansion in Houston in 2002, and in Saias 2001 opening of three new service facilities in Oregon, North Carolina and Washington.
Management may also consider acquisitions from time to time to help expand geographic reach while gaining built-in customer volume. Management believes integration of acquisitions is a core competency and it has developed a repeatable blueprint from its successful experience in 2001 integrating WestEx and Action Express into Saia.
Seasonality
Our revenues are subject to seasonal variations. Customers tend to reduce shipments after the winter holiday season, and operating expenses tend to be higher as a percent of revenue in the winter months primarily due to lower capacity utilization. Generally, the first quarter is the weakest while the third quarter is the strongest.
Labor
Most regional LTL companies and virtually all TL companies are not subject to collective bargaining agreements. By contrast, the vast majority of employees in the national LTL sector are subject to collective bargaining agreements with the International Brotherhood of Teamsters.
In recent years, due to competition for quality employees, the compensation divide between union and non-union carriers has closed dramatically. However, there are still significant differences in benefit costs and work rule flexibility. Benefit costs for union carriers remain significantly above those paid by non-union carriers. In addition, non-union carriers have more work rule flexibility with respect to hours driven, routes and other similar items. Work rule flexibility is a major issue in the regional LTL sector, as flexibility is required to meet the service levels required by customers.
Our employees are not represented by a collective bargaining unit allowing for better communications and employee relations, as well as improved efficiencies and customer service capabilities.
Competition
Shippers have an increasingly wide range of choices. We believe that service quality, performance, service variety, responsiveness and flexibility are the important competitive differentiators.
SCST focuses primarily on regional business and operates in a highly competitive environment against a wide range of transportation service providers. These competitors include a small number of large, national transportation service providers in the national market and two-day markets and a large number of shorter-haul or regional transportation companies in the two-day and overnight market. Since 2000, Jevic has faced additional competition in primarily Northeast markets from a newly established company that employs numerous former Jevic employees and that actively solicits business from Jevic customers. SCST also competes in and against several modes of transportation, including LTL, truckload and private fleets. Entry into the LTL trucking industry on a small scale with a limited service area is relatively easy. The larger the service area, the greater the barriers to entry due to the
6
need for broader geographic coverage and additional equipment and facility requirements associated with this coverage. The level of technology applications required and the ability to generate shipment densities that provide adequate labor and equipment utilization also make larger-scale entry into the market difficult.
Regulation
The trucking industry has been substantially deregulated and rates and services are now largely free of regulatory controls, although states retain the right to require compliance with safety and insurance requirements. The trucking industry remains subject to regulatory and legislative changes that can have a material adverse effect on our operations.
Key areas of regulatory activity include:
Department of Homeland Security
The trucking industry is working closely with government agencies to define and implement improved security processes. The Transportation Security Administration is currently focusing on trailer security, driver identification and driver background checking processes.
Department of Transportation
Within the Department of Transportation, the Federal Motor Carrier Safety Administration (the FMCSA) is finalizing rules on motor carrier driver hours of service that could impact our operations and productivity. The proposed rules are currently being reviewed by the Office of Management and Budget and are expected to be released this year.
The FMCSA is also considering regulations on background checks for drivers transporting hazardous materials and biometric identification programs.
Environmental Protection Agency
The Environmental Protection Agency is implementing regulations to reduce the amount of certain gases and particulate matter emissions from diesel trucks. The 2004 emission standards were advanced to October 1, 2002 under a consent decree. New engines purchased after this date must conform to the new standards. A more significant reduction in emissions is scheduled for 2006 and 2007, which includes both reductions in sulfur content of diesel fuel and further reductions in engine emissions. These regulations have the potential to increase the cost of replacing and maintaining trucks, increase fuel costs, reduce availability of fuel and reduce productivity.
Our motor carrier operations are also subject to environmental laws and regulations, including laws and regulations dealing with underground fuel storage tanks, the transportation of hazardous materials and other environmental matters. We maintain bulk fuel storage and fuel islands at several of our facilities. Our operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others. We have established programs to monitor and control environmental risks and to comply with all applicable environmental regulations. As part of our safety and risk management program, we periodically perform internal environmental reviews to maintain environmental compliance and avoid environmental risk. We believe that we are currently in substantial compliance with applicable laws and regulations and that the cost of compliance has not materially affected results of operations.
Trademarks and Patents
We have registered several service marks and trademarks in the United States Patent and Trademark office, including Saia Guaranteed Select® and Jevics Breakbulk-Free®. We believe that these service marks and trademarks are important components of our marketing strategy.
7
Executive Officers of the Registrant
Information regarding executive officers of SCST is as follows (included herein
pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General
Instruction G (3) of Form 10-K):
Name
Age
Positions Held
Herbert A. Trucksess, III
53
Chairman, President and Chief
Executive Officer, SCS
Transportation, Inc. Mr.
Trucksess was named President
and Chief Executive Officer of
the Yellow Regional
Transportation Group (now SCS
Transportation, Inc.) in
February 2000. Mr. Trucksess
had been Senior Vice President
and Chief Financial Officer of
Yellow Corporation since June
1994.
Richard D. ODell
41
President and Chief Executive
Officer, Saia Motor Freight
Line, Inc. since November 1999.
Mr. ODell joined Saia in 1997
as Vice President of Finance
and Administration.
Paul J. Karvois
48
President and Chief Executive
Officer, Jevic Transportation,
Inc. since January 2000, having
served as President since March
1997.
James J. Bellinghausen
41
Vice President and Chief
Financial Officer of SCS
Transportation, Inc. (formerly
Yellow Regional Transportation
Group) since April 2000. Mr.
Bellinghausen joined Yellow
Corporation in August 1998 as
Director of Corporate
Accounting. Prior to joining
Yellow Corporation, Mr.
Bellinghausen had 14 years of
experience in public
accounting.
John P. Burton
47
Vice President, Marketing and
External Affairs, SCS
Transportation, Inc. since
January 2002 having previously
served as Vice President of the
Yellow Regional Transportation
Group from November 2000 to
December 2001. Mr. Burton was
Senior Director of Sales
Administration at Yellow
Freight from 1997 to 1999 and
was promoted to Vice President
of Channel Marketing in July
1999.
Officers are elected by, and serve at the discretion of, the Board of Directors. There are no family relationships between any executive officer and any other executive officer or director of SCST or of any of its subsidiaries.
Item 2. Properties
SCST is the corporate holding company for Saia and Jevic and has eight employees. SCST leases its corporate office space in Kansas City, Missouri.
Saia is headquartered in Duluth, Georgia. At December 31, 2002 Saia owned 35 service facilities and the Houma, Louisiana general office and leased 74 service facilities, the Duluth, Georgia corporate office and the Boise, Idaho general office. Although Saia owns only 32 percent of its service facility locations, these locations account for 55 percent of its door capacity. This follows the Saia strategy of owning strategically located facilities that are integral to its operations and leasing service facilities in smaller markets to allow for more flexibility. As of December 31, 2002, Saia owned 2,252 tractors and 7,677 trailers.
8
Top 20 Saia Service Facilities by Number of Doors
Location
Own/lease
Doors
Atlanta, GA
Dallas, TX
Memphis, TN
Houston, TX
Charlotte, NC
New Orleans, LA
Los Angeles, CA
Miami, FL
Jacksonville, FL
Phoenix, AZ
Oklahoma City, OK
Tyler, TX
Birmingham, AL
Tampa, FL
Greensboro, NC
Lafayette, LA
Little Rock, AR
Nashville, TN
Sacramento, CA
Seattle, WA
Own
Own
Own
Own
Own
Own
Lease
Own
Own
Own
Own
Lease
Own
Own
Own
Own
Own
Lease
Lease
Lease
224
174
124
108
107
86
80
68
66
59
55
52
51
51
49
48
44
44
44
44
Jevic is headquartered in Delanco, New Jersey and originates shipments
primarily east of the Mississippi River, but provides services to customers
throughout the continental United States and Canada through ten origination
facilities. As of December 31, 2002, Jevic owned 1,219 tractors and 2,539
trailers.
Jevic Facilities
Location
Own/lease
Doors
Delanco, NJ
Chicago, IL
Charlotte, NC
Cleveland, OH
Oxford, MA
Atlanta, GA
Cincinnati, OH
Newark, NJ
Houston, TX
Los Angeles, CA
Willingboro, NJ (maintenance facility)
Own
Own
Lease
Lease
Own
Lease
Lease
Lease
Lease
Lease
Lease
108
100
100
83
80
74
72
58
50
32
13
Item 3. Legal Proceedings
Saia and Jevic are both subject to ordinary-course litigation arising out of personal injury, property damage, freight and employment claims. None of these legal actions separately or in the aggregate are viewed by management to be excessive compared to historical trends, nor are they expected to have a material adverse effect on our financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2002.
9
PART II.
Item 5. Market for Registrants Common Stock and Related Stockholder Matters
Stock Price Information
SCSTs common stock is listed on the NASDAQ National Market (NASDAQ) under the symbol SCST. The following table sets forth, for the periods indicated, the high and low sale prices per share for the common stock as reported on NASDAQ. SCST was spun-off from Yellow Corporation on September 30, 2002 and began regular trading on NASDAQ on October 1, 2002; therefore no additional historical quarterly information is available.
Low | High | ||||||||
|
|
||||||||
Year Ended December 31, 2002
|
|||||||||
Fourth Quarter
|
$ | 6.64 | $ | 10.30 |
Stockholders
As of January 31, 2003, there were 2,072 holders of record of our common stock.
Dividends
We do not pay a dividend on our common stock. Any payment of dividends in the future is dependent upon our financial condition, capital requirements, earnings, cash flow and other factors.
Dividends are prohibited under our current debt agreements, which have been previously filed with the Securities and Exchange Commission and are incorporated by reference herein. However, there are no material restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. See Note 3 of the accompanying audited financial statements.
10
Item 6. Selected Financial Data
The following table shows summary historical financial data of SCST, which includes its wholly owned subsidiaries Saia and Jevic, and has been derived from, and should be read together with, the financial statements and accompanying notes and in conjunction with Managements Discussion and Analysis of Results of Operations and Financial Condition. The summary financial information may not be indicative of the future performance of SCST.
(In thousands except per share data | |||||||||||||||||||||
and percentages) | Year ended December 31 | ||||||||||||||||||||
|
|||||||||||||||||||||
2002 | 2001 | 2000 | 1999(1) | 1998 | |||||||||||||||||
|
|
|
|
|
|
||||||||||||||||
Statement of Operations:
|
|||||||||||||||||||||
Operating revenue
|
$ | 775,436 | $ | 771,582 | $ | 789,009 | $ | 594,510 | $ | 407,960 | |||||||||||
Operating income (2)
|
27,230 | 15,743 | 21,661 | 28,678 | 22,096 | ||||||||||||||||
Income before cumulative effect
of accounting change
|
12,058 | 771 | 1,698 | 9,789 | 9,187 | ||||||||||||||||
Net income (loss) (3)
|
(63,117 | ) | 771 | 1,698 | 9,789 | 9,187 | |||||||||||||||
Diluted earnings per share before
cumulative effect of accounting
change (4)
|
0.82 | 0.05 | 0.12 | 0.67 | 0.63 | ||||||||||||||||
Diluted earnings (loss) per share (4)
|
(4.30 | ) | 0.05 | 0.12 | 0.67 | 0.63 | |||||||||||||||
Other financial data:
|
|||||||||||||||||||||
Net cash provided by operating
activities
|
50,439 | 68,718 | 69,521 | 40,951 | 20,622 | ||||||||||||||||
Net cash used in investing
activities (1)
|
(24,792 | ) | (19,613 | ) | (59,033 | ) | (53,016 | ) | (46,164 | ) | |||||||||||
Depreciation and amortization
|
44,920 | 49,166 | 48,296 | 33,406 | 19,876 | ||||||||||||||||
Balance sheet data:
|
|||||||||||||||||||||
Cash and cash equivalents
|
21,872 | 1,480 | 4,922 | 3,558 | 4,322 | ||||||||||||||||
Net property and equipment
|
287,158 | 306,041 | 334,427 | 319,635 | 167,213 | ||||||||||||||||
Total assets
|
444,343 | 511,946 | 551,667 | 536,461 | 257,143 | ||||||||||||||||
Total debt
|
116,410 | 128,992 | 206,884 | 218,899 | 106,666 | ||||||||||||||||
Total shareholders equity
|
174,277 | 229,649 | 203,514 | 198,926 | 79,939 | ||||||||||||||||
Measurements:
|
|||||||||||||||||||||
Operating ratio (5)
|
96.5 | % | 98.0 | % | 97.3 | % | 95.2 | % | 94.6 | % |
(1) | On July 9, 1999, Jevic was acquired. The results of operations include the results of operations of Jevic from the date of the acquisition. Net cash used in investing activities in 1999 excludes $164.5 million relating to the acquisition of Jevic. | |
(2) | Operating expenses in 2001 and 2000 include integration charges of $6.7 million and $2.7 million, respectively, relating to the integration of WestEx and Action Express into Saia. | |
(3) | Net loss for the year ended December 31, 2002 includes a non-cash charge of $75.2 million recorded as a cumulative effect of change in accounting principle to reflect the impairment of goodwill at Jevic under new accounting standards adopted January 1, 2002. | |
(4) | Earnings per share amounts for periods presented prior to the spin-off are based on 14,565,478 shares of common stock outstanding at the September 30, 2002 Spin-off date. | |
(5) | The operating ratio is the calculation of operating expenses divided by operating revenue. |
11
Item 7. Managements Discussion and Analysis of Results of Operations and Financial Condition
General
The following managements discussion and analysis describes the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies, of SCS Transportation, Inc. (also referred to as SCST). This discussion should be read in conjunction with the accompanying audited consolidated financial statements, which include additional information about our significant accounting policies, practices and the transactions that underlie our financial results.
SCST is a leading transportation company providing regional and interregional less-than-truckload (LTL) and selected truckload (TL) service solutions to more than 71,000 customers across the United States. Our operating subsidiaries are Saia Motor Freight Line, Inc. (Saia), based in Duluth, Georgia, and Jevic Transportation, Inc. (Jevic), based in Delanco, New Jersey. On September 30, 2002, Yellow Corporation (Yellow) completed a tax-free distribution to its shareholders of 100 percent of the outstanding common stock of SCST (the Spin-off).
The key factors that affect our operating results are the volumes of shipments transported through our networks, as measured by our average daily shipments and tonnage; the prices we obtain for our services, as measured by revenue per hundredweight (yield) and revenue per shipment; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits, purchased transportation, insurance claims and expense, fuel and maintenance; and our ability to match operating costs to shifting volume levels.
Critical Accounting Policies And Estimates
SCST makes estimates and assumptions in preparing the consolidated financial statements that affect reported amounts and disclosures therein. In the opinion of management, the accounting policies that generally have the most significant impact on the financial position and results of operations of SCST include:
| Claims and Insurance Accruals. SCST has self-insured retention limits generally ranging from $250,000 to $2,000,000 for medical, workers compensation, auto liability, casualty and cargo claims. The liabilities associated with the risk retained by SCST are estimated in part based on historical experience, third-party actuarial analysis, demographics, nature and severity, past experience and other assumptions. However, these estimated accruals could be significantly affected if the actual costs of SCST differ from these assumptions. | |
| Depreciation and Capitalization of Assets. Under the SCST accounting policy for property and equipment, management establishes appropriate depreciable lives and salvage values for SCSTs revenue equipment (tractors and trailers) based on their estimated useful lives and estimated fair values to be received when the equipment is sold or traded in. These estimates are continuously evaluated and updated when circumstances warrant. However, actual depreciation and salvage values could differ from these assumptions based on market conditions and other factors. | |
| Recovery of Goodwill. On January 1, 2002, SCST adopted Financial Accounting Standards Board Statement No. 142, Goodwill and Other Intangible Assets. The statement requires that, upon adoption and at least annually thereafter, SCST assess goodwill impairment by applying a fair value based test. This fair value based test involves assumptions regarding the long-term future performance of the operating subsidiaries of SCST, fair value of the assets and liabilities of SCST, cost of capital rates and other assumptions. However, actual recovery of remaining goodwill could differ from these assumptions based on market conditions and other factors. In the event remaining goodwill is determined to be impaired a charge to earnings may be required. | |
| Revenue Recognition and Related Allowances. Revenue is recognized on a percentage-of-completion basis for shipments in transit while expenses are recognized as incurred. In addition, estimates included in the recognition of revenue and accounts receivables include estimates of shipments in transit and estimates of future adjustments to revenue and accounts receivable for billing adjustments and collectibility. |
12
Revenue is recognized in a systematic process whereby estimates of shipments in transit are based upon actual shipments picked up, scheduled day of delivery and current trend in average rates charged to customers. Since the cycle for pick up and delivery of shipments is generally 1-3 days, typically less than 5 percent of a total months revenue is in transit at the end of any month. Estimates for credit losses and billing adjustments are based upon historical experience of credit losses, adjustments processed and trends of collections. Billing adjustments are primarily made for discounts and billing corrections. These estimates are continuously evaluated and updated; however changes in economic conditions, pricing arrangements and other factors can significantly impact these estimates. |
These accounting policies, and others, are described in further detail in the notes to our audited consolidated financial statements included in this Form 10-K.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to adopt
accounting policies and make significant judgments and estimates to develop
amounts reflected and disclosed in the financial statements. In many cases,
there are alternative policies or estimation techniques that could be used. We
maintain a thorough process to review the application of our accounting
policies and to evaluate the appropriateness of the many estimates that are
required to prepare the financial statements. However, even under optimal
circumstances, estimates routinely require adjustment based on changing
circumstances and the receipt of new or better information.
Results of Operations
Year ended December 31, 2002 vs. year ended December 31, 2001
Revenue and volume
Operating revenue for SCST totaled $775 million in 2002, up slightly from 2001
revenue of $772 million. The relatively flat revenue was the result of small
volume increases and competitive pricing pressures brought on by the sluggish
economy. In addition, fuel surcharge revenue was lower by approximately $5.4
million in 2002.
Saia had operating revenue of $490 million in 2002, an increase of 0.9 percent
over 2001 operating revenue of $485 million. Saia LTL revenue per
hundredweight excluding fuel surcharge (a measure of yield) decreased 2.1
percent to $9.52 per hundredweight for 2002, while LTL tonnage was up 4.0
percent to 2.3 million tons and LTL shipments were up 4.2 percent to 4.4
million shipments. The decrease in yield is a combination of freight mix and
competitive pricing pressure. Saia has approximately 60 percent of revenue
that is subject to individual customer price adjustment negotiations that occur
intermittently throughout the year. The remaining 40 percent of revenue is
subject to general rate increases. On July 15, 2002, Saia implemented a 5.9
percent general rate increase for this group of customers.
Jevic had operating revenue of $286 million in 2002, consistent with $286
million in 2001. Jevic yield excluding fuel surcharge increased 1.1 percent to
$6.15 per hundredweight, while tonnage was down 0.8 percent to 2.2 million tons
and shipments were up 1.7 percent to 971,000 shipments. Jevic experienced
improved quarter over quarter volume comparisons in the second half of 2002
after several quarters of declining trends due to the economic downturn and
competition. The increase in yield is due to some firming in the pricing
environment. Jevic has approximately 60 percent of business that is subject to
individual customer price adjustment negotiations that occur intermittently
throughout the year. The remaining 40 percent of revenue is subject to general
rate increases. On August 1, 2002, Jevic implemented a 5.9 percent general
rate increase for this group of customers.
Operating income
Operating income for SCST in 2002 was $27.2 million, up from $15.7 million in
2001. The increase in operating income is primarily due to a combination of
cost management efforts and a modest increase in shipping volumes. The
operating income in 2001 included $6.7 million of costs for the integration of
WestEx and Action Express into Saia. SCSTs profitability benefited from the
elimination of goodwill amortization of approximately $3.0 million that was
included in 2001. The 2002 operating ratio (operating expenses divided by
operating revenue) was 96.5 compared to 98.0 in 2001. Both Saia and Jevic
continued initiatives to improve productivity and control variable
13
costs as
volumes fluctuated. However, these costs and productivity initiatives were
partially offset by increases in wage rates, casualty insurance premiums and
other operating expenses.
Saia had operating income of $21.9 million in 2002, compared to $9.7 million in
2001 (including integration charges of $6.7 million). The operating ratio at
Saia was 95.5 in 2002 compared to 98.0 in 2001. Despite the decrease in yield
discussed above, Saia improved its operating income due to strong cost controls
and improved operating efficiencies. Improvements in productivity offset
higher workers compensation and pay increases. Saia implemented a wage
increase in August 2002, which was substantially offset by labor productivity
gains and other expense reductions. As of the end of 2002, Saias wage rates
are 4 percent higher than the end of 2001. Saia increased its use of purchased
transportation to fill peak capacity needs during 2002 versus the prior year.
Jevic operating income was $5.8 million in 2002, down from $6.0 million in
2001. The operating ratio at Jevic was 98.0 in 2002 compared to 97.9 in 2001.
Jevics profitability benefited from the elimination of goodwill amortization
of approximately $2.0 million that was included in 2001. However, Jevic
results for 2002 also include $2.7 million higher than anticipated workers
compensation expense relating to unfavorable development in the severity of
open claims and the implementation of a more conservative, actuarial estimate
for establishing workers compensation reserves. This level of profitability
was obtained despite a 2.6 percent average wage increase over 2001. The wage
increase was offset by a reduction in purchased transportation as Jevic more
efficiently utilized purchased transportation in meeting its peak capacity
needs.
Other
SCST interest expense was $6.2 million in 2002 compared to $10.9 million in
2001. Borrowings for the first nine months of 2002 and full year 2001 reflect
lower rate, shorter-term financing with Yellow, the former parent. However,
the 2001 interest expense of $10.9 million is due to higher average debt
balances. The consolidated effective tax rate was 42.5 percent in 2002
compared to 84.0 percent in 2001. The decrease in effective tax rate is due to
the lessened impact of nondeductible business expenses on higher income before
income taxes along with the elimination of nondeductible goodwill amortization
in 2002. SCST had a net loss in 2002 of $63.1 million compared to net income
of $0.8 million in 2001. The net loss resulted from a charge of $75.2 million
in the first quarter of 2002 from the cumulative effect of a change in
accounting for goodwill. The notes to the consolidated financial statements
provide an analysis of the income tax provision and the effective tax rate and
additional discussion on the charge for the cumulative effect of a change in
accounting for goodwill.
Working capital/capital expenditures
SCST working capital increased from $21.3 million at year-end 2001 to $54.9
million at year-end 2002. The change in working capital is a result of
increases in accounts receivable due to higher revenues in December 2002 versus
December 2001. Working capital was further increased by a reduction of current
maturities of long-term debt and a substantial increase in cash equivalents in
2002. Cash from operations in 2002 was used to pay down short-term variable
rate debt; however, restrictions on prepayment of long-term fixed rate debt
resulted in a higher cash and cash equivalent balance. Net capital
expenditures in 2002 increased to $24.8 million from $19.6 million in 2001.
The 2002 capital investments primarily represent replacement of revenue
equipment and the purchase of three service facilities for Saia, net of
proceeds from the sale of an existing Saia service facility.
Year ended December 31, 2001 vs. year ended December 31, 2000
Revenue and volume
Operating revenue for SCST totaled $772 million in 2001, a 2.2 percent decline
from 2000 revenue of $789 million. The decrease in 2001 revenue was the result
of a continuing weak economy, increased competition at Jevic, lower fuel
surcharge revenue by both Saia and Jevic in the second half of 2001 and
competitive pricing pressures.
Saia had operating revenue of $485 million in 2001, an increase of 0.7 percent
over 2000 operating revenue of $482 million. Saia increased revenue primarily
due to improved pricing as LTL yield (measured by revenue per hundredweight)
grew 4.7 percent to $10.01 per hundredweight over the prior period, mostly
offset by a 6.4 percent decrease in total tonnage as a result of weakening
economic conditions. Yield benefited from a 5.9 percent general rate increase
on August 1, 2001 for the portion of revenue subject to general rate increases.
The remaining revenue is subject to individual account negotiations scheduled
throughout the year. Saia year-over-year LTL tonnage was
14
down 2.8 percent to
2.2 million tons in 2001, and LTL shipments were down 2.1 percent to 4.2
million shipments in 2001.
Jevic had operating revenue of $286 million in 2001, down 6.8 percent from $307
million in 2000. The revenue decrease was primarily due to a 7.7 percent
reduction in tonnage as a result of a manufacturing recession, weakness in the
truckload market and increased competition. The tonnage decline was partially
offset by improved yield as a result of favorable LTL and TL mix changes.
Jevic yield (measured by total revenue per hundredweight) increased 0.9 percent
over the prior year to $6.35 per hundredweight.
Operating income
Operating income for SCST in 2001 was $15.7 million (including integration
charges of $6.7 million and an allocation for claims cost in excess of premiums
paid to Yellow of $1.7 million), down from $21.7 million in 2000 (including
integration charges of $2.7 million). The integration charges in 2001 and 2000
consisted of costs in connection with the integration of WestEx and Action into
Saia. The 2001 operating ratio was 98.0 compared to 97.3 in 2000.
Saia had operating income of $9.7 million in 2001 (including integration
charges of $6.7 million and an allocation for claims cost in excess of premiums
paid to Yellow of $1.7 million), compared to $7.4 million in 2000 (including
the combined operating loss of WestEx and Action Express of $4.7 million and
integration charges of $2.7 million). The operating ratio at Saia was 98.0 in
2001 compared to 98.5 in 2000. Operating expenses at Saia excluding
integration charges decreased slightly from 2000 as a result of effective cost
management, improved productivity and lower business volume. Salaries, wages
and benefits expense decreased 1.4 percent from 2000 primarily due to
reductions in administration and management functions as a result of the
integration of WestEx and Action Express and lower business volumes in 2001.
Improvements in productivity offset higher workers compensation and health
care costs as well as pay increases. Reductions in fuel cost and vehicle
maintenance costs were mostly offset by higher purchased transportation costs
to reduce empty miles.
Jevic operating income was $6.0 million in 2001, down from $14.3 million in
2000. The revenue decline due to economic weakness and increased competition
significantly impacted the profitability of Jevic. The operating ratio at
Jevic was 97.9 in 2001 compared to 95.3 in 2000. Cost reduction efforts and
lower business volume allowed Jevic to reduce total operating expenses by 4.3
percent from 2000. Salaries, wages and benefits expense was down 2.1 percent
from 2000 as a result of lower employee levels and productivity improvements,
partially offset by higher group health insurance and other fringe cost
increases. The remaining operating expenses were reduced a similar percent of
revenue due to effective variable and discretionary cost controls as well as
lower fuel prices.
Other
SCST interest expense was $10.9 million in 2001 compared to $15.4 million in
2000 due to lower average debt levels and lower interest rates on SCST variable
rate debt. The consolidated effective tax rate was 84.0 percent in 2001
compared to 73.3 percent in 2000. The increase in effective tax rate is due to
the impact of nondeductible business expenses and goodwill amortization on
lower income before income
taxes. SCST had net income in 2001 of $0.8 million compared to $1.7 million in
2000. The notes to the consolidated financial statements provide an analysis
of the income tax provision and the effective tax rate.
Working capital/capital expenditures
SCST working capital decreased from $41.3 million at year-end 2000 to $21.3
million at year-end 2001. The change in working capital is a result of
decreases in accounts receivable due to lower revenues in December 2001 versus
December 2000. Working capital was further decreased by increases in other
accrued liabilities, and current maturities of long-term debt. Net capital
expenditures in 2001 decreased to $19.6 million from $59.0 million in 2000.
Both Saia and Jevic made capital expenditure investments in 2000 based on
forecasted revenue growth that did not materialize due to slowing economic
conditions. SCST 2001 capital investments were substantially less than 2000
capital expenditures and primarily represent capital for the replacement of
revenue equipment.
15
Year ended December 31, 2000 vs. year ended December 31, 1999
Revenue and volume
Operating revenue for SCST totaled $789 million in 2000, a 32.7 percent
increase over 1999 revenue of $595 million. The increase in 2000 operating
revenue was a result of improved yield management and the inclusion of a full
year of Jevic operating results versus partial inclusion since its acquisition
in July 1999.
Including the results of WestEx and Action Express, Saia operating revenue grew
5.6 percent to $482 million, up from $457 million in 1999. Year-over-year LTL
tonnage increased 3.5 percent from 2.2 million tons in 1999 and LTL shipments
increased 1.4 percent from 4.3 million shipments in 1999. LTL yield (measured
by revenue per hundredweight) grew 1.9 percent to $9.47. Saia initiated a 5.9
percent price increase on September 1, 2000 for the portion of revenue that is
not subject to individual account negotiations. Additionally, Saia revenue
increased as a result of a fuel surcharge program.
Jevic, which was acquired on July 9, 1999, had operating revenue of $307
million in 2000 and $138 million for the partial year of 1999. On a pro forma
full year over year basis, Jevic revenue increased 10.4 percent, tonnage
increased 3.3 percent to 2.4 million tons and shipments increased 8.5 percent
to 1.0 million shipments. Jevic yield (measured by total revenue per
hundredweight) grew 6.8 percent over the prior year to $6.29 per hundredweight,
which was supported by a 5.9 percent general rate increase on a portion of its
revenue not subject to individual account negotiations initiated on September
1, 2000.
Operating income
Operating income for 2000 was $21.7 million (including integration charges of
$2.7 million, which consisted primarily of severance and costs associated with
the disposition of duplicate facilities related to the integration of WestEx
and Action Express into Saia), down from $28.7 million in 1999. The 2000
operating ratio was 97.3 compared to 95.2 in 1999.
Saia had operating income of $7.4 million in 2000 compared to $18.6 million in
1999. The year-over-year decline in operating income was due substantially to
the combined operating loss of $4.7 million of WestEx and Action Express, which
were integrated with Saia, and integration charges of $2.7 million in 2000. The
two Western subsidiaries had infrastructures that were too large for their
actual demand volume. The operating ratio rose to 98.5 in 2000 compared to
95.9 in 1999. Saia cost per ton increased 5.2 percent, primarily due to
increased claims and insurance costs (40 percent higher than 1999), fuel costs
(30 percent higher than 1999) and health care costs. In addition, due to
competitive market conditions, wage rates increased in excess of five percent,
reflecting a move to a market-based compensation system. However, strong
variable expense controls and productivity gains in other areas offset
increased fuel prices, casualty claims and higher wage and benefit rates.
Jevic operating income was $14.3 million in 2000, as compared to $10.1 million
for the partial year of 1999. On a year-over-year basis, Jevic operating
income declined 31 percent in 2000 as operating ratios increased to 95.3
percent compared to 92.7 percent for the partial year of 1999. The full year
pro forma operating ratio for 1999 was 92.5. Jevics cost per ton increased
approximately 10 percent. Jevic experienced increased competition, higher fuel
prices, unusually severe northeast winter weather and a
second-half beginning of an economic slowdown. Because Jevic is a hybrid LTL
and TL carrier, fuel is a more significant component of operating expense, more
than 7 percent of revenue in 2000. Average fuel cost increased more than 30
percent over 1999. Although Jevic had a fuel surcharge program to partially
mitigate its risk to rising fuel prices, the program was not fully implemented
until 2001. Additionally, cost increases were due in a large part to costs
associated with expanding capacity ahead of realized volume growth. In
addition, revenue rate increases and fuel surcharge programs were not
sufficient to offset the increases in wages, fuel and other costs Jevic
experienced in 2000.
Other
Interest expense was $15.4 million in 2000, up from $10.6 million in 1999 due
to higher average debt levels associated with the July 1999 Jevic acquisition
and increased interest rates on SCST variable rate debt. The consolidated
effective tax rate was 73.3 percent in 2000 compared to 45.6 percent in 1999.
The increase in effective rate is due to the impact of nondeductible business
expenses and goodwill on lower income before income taxes. SCST had net income
of $1.7 million in 2000 compared to $9.8 million in 1999. The notes to the
consolidated financial statements provide an analysis of the income tax
provision and the effective tax rate.
16
Working capital/capital expenditures
SCST working capital decreased from $50.8 million at year-end 1999 to $41.3
million at year-end 2000. The change in working capital is a result of
decreases in accounts receivable and increases in accounts payable and accrued
salaries and wages and benefits. Net capital expenditures increased to $59.0
million, up from $53.0 million in 1999. Both Saia and Jevic made capital
expenditure investments in 2000 based on forecasted revenue growth.
Outlook
Our business is highly correlated to the general economy. However, in 2002, we
achieved profitability improvement despite a soft economic environment. For
2003, we expect continued benefit from profit improvement initiatives.
In the short-term, we will continue to focus on cost management efforts, while
further improving productivity and positioning the Company for longer-term
growth. Actual results for 2003 will depend upon a number of factors,
including the timing, speed and magnitude of the economic recovery or downturn,
our ability to match capacity with shifting volume levels, competitive pricing
pressures and insurance claims.
See Forward-Looking Statements for a more complete discussion of potential
risks and uncertainties that could materially affect our future performance.
New Accounting Pronouncements
See Note 1 to the accompanying consolidated financial statements for further
discussion of recent accounting pronouncements.
Financial Condition
SCST liquidity needs arise primarily from capital investment in new equipment,
land and structures and information technology, as well as funding working
capital requirements.
In connection with the Spin-off, SCST issued $100 million in Senior Notes under
a $125 million Master Shelf Agreement with Prudential Investment Management,
Inc. and certain of its affiliates. SCST also entered into a $50 million
Agented Revolving Credit Agreement (the Credit Agreement) with Bank of
Oklahoma, N.A., as agent. Proceeds from the Senior Notes and a portion of the
Credit Agreement were used for payments due Yellow discussed below. In
addition, SCST has third party borrowings of approximately $16.4 million in
subordinated notes. SCST had approximately $120.5 million outstanding under
the line-of-credit agreements with Yellow immediately prior to the Spin-off, of
which $113.6 million
was repaid to Yellow under the terms of the Spin-off. The remaining $6.9
million reduction in the line-of-credit with Yellow was a capital contribution
to SCST from Yellow.
The $100 million Senior Notes are unsecured with a fixed interest rate of 7.38
percent and an average maturity of eight years. Payments due under the Senior
Notes are interest only until June 30, 2006 and at that time semi-annual
principal payments begin, with the final payment due December 2013. Under the
terms of the Senior Notes, SCST must maintain several financial covenants
including a maximum ratio of total indebtedness to earnings before interest,
taxes, depreciation, amortization and rent (EBITDAR), a minimum interest
coverage ratio and a minimum tangible net worth, among others. At December 31,
2002, SCST was in compliance with these covenants.
The $50 million Credit Agreement is unsecured with an interest rate based on
LIBOR or prime at the Companys option, plus an applicable spread, in certain
instances, and matures in September 2005. The availability under the Credit
Agreement is limited to SCSTs qualified receivables (as defined in the Credit
Agreement). At December 31, 2002, SCST had no borrowings under the Credit
Agreement, $15.0 million in letters of credit outstanding under the Credit
Agreement and availability of $35.0 million. The remaining portion of the
Credit Agreement is available for future capital expenditures, working capital
and letter of credit requirements as needed. Under the terms of the Credit
Agreement, SCST must maintain several financial covenants including a maximum
ratio of total indebtedness
17
to EBITDAR, a minimum interest coverage ratio and a
minimum tangible net worth, among others. At December 31, 2002, SCST was in
compliance with these covenants.
At December 31, 2002 Yellow provided on behalf of SCST approximately $4.6
million in outstanding surety bonds. These bonds, issued by insurance
companies, serve as collateral support primarily for workers compensation
programs in states where SCST is self-insured. The price and availability of
surety bonds fluctuates over time with general conditions in the insurance
market. A lack of availability of surety bonds could result in the need for
Yellow to issue additional letters of credit. At December 31, 2002, Yellow has
provided on behalf of SCST $14.0 million in outstanding letters of credit.
Under the terms of the Master Separation and Distribution Agreement, Yellow
will continue to provide SCST with this amount of collateral to support SCSTs
various insurance programs. The collateral support by Yellow is expected to
remain in place for at least four years from the Spin-off date, but the
agreement is not limited to any length of time. However, the agreement does
provide for significant increases in the cost to SCST for the collateral
support by Yellow after the end of the fourth year.
Projected net capital expenditures for 2003 are approximately $50 million of
which approximately $3 million was committed at December 31, 2002, an increase
from 2002 net capital expenditures of $24.8 million. Net capital expenditures
pertain primarily to replacement of revenue equipment at both subsidiaries and
additional investments in information technology, land and structures.
The Company has adequate sources of capital to meet short-term and longer-term
liquidity and capital expenditure requirements through cash balances, future
operating cash flows and availability under its long-term debt facilities.
Future operating cash flows are primarily dependent upon the Companys
profitability and working capital requirements. The Company has the ability to
adjust its capital expenditures in the event of a shortfall in anticipated
operating cash flows.
Actual net capital expenditures are summarized in the following table (in
millions):
In accordance with accounting principles generally accepted in the United
States, our operating leases are not recorded in our balance sheet; however,
the minimum lease payments related to these leases are disclosed in the notes
to our audited consolidated financial statements included in this Form 10-K,
and in Contractual Cash Obligations table below.
18
Contractual Cash Obligations
The following tables set forth a summary of our contractual cash obligations
and other commercial commitments as of December 31, 2002 (in millions):
(1) See Note 3 to the accompanying audited consolidated financial statements in
this Form 10-K.
Forward-Looking Statements
Certain statements in this Report, including those contained in Item 1,
Outlook and Item 7, Financial Condition are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations, plans, objectives,
future performance and business of SCST. Words such as anticipate,
estimate, expect, project, intend, plan, predict, believe and
similar words or expressions are intended to identify forward-looking
statements. The Company uses such forward-looking statements regarding its
future financial condition, results of operations and business operations in
this report. Actual results may differ materially from those contemplated by
such forward-looking statements, because of, among other things, potential
risks and uncertainties. All forward-looking statements reflect the present
expectation of future events of our management and are subject to a number of
important factors, risks, uncertainties and assumptions, including industry and
economic conditions; labor relations; governmental regulations; cost and
availability of fuel; inclement weather; competitive initiatives and pricing
pressures; self insurance claims and other expense volatility; and other
financial, operational and legal risks and uncertainties detailed from time to
time in other filings with the Securities and Exchange Commission.
As a result of these and other factors, no assurance can be given as to our
future results and achievements. Accordingly, a forward-looking statement is
neither a prediction nor a guarantee of future events or circumstances, and
those future events or circumstances may not occur. You should not place undue
reliance on the forward-looking statements, which speak only as of the date of
this Report. We are under no obligation, and we expressly disclaim any
obligation, to update or alter any forward-looking statements, whether as a
result of new information, future events or otherwise.
19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
SCST is exposed to a variety of market risks, including the effects of interest
rates and fuel prices. The detail of SCSTs debt structure is more fully
described in the notes to the consolidated financial statements. To mitigate
our risk to rising fuel prices, Saia and Jevic each have implemented effective
fuel surcharge programs. These programs are well established within the
industry and customer acceptance of fuel surcharges remains high. Since the
amount of fuel surcharge is based on average national diesel fuel prices and is
reset weekly, exposure of SCST to fuel price volatility is significantly
reduced.
The following table provides information about SCST third-party financial
instruments as of December 31, 2002. The table presents principal cash flows
(in millions) and related weighted average interest rates by contractual
maturity dates.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
21
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Year Ended
2002
2001
2000
$
6.7
$
3.3
$
11.1
(1.8
)
(0.4
)
12.6
8.6
38.9
7.3
7.7
9.4
$
24.8
$
19.6
$
59.0
Table of Contents
Payments due by year
2003
2004
2005
2006
2007
Thereafter
Total
$
$
$
$
$
$
$
1.3
6.4
11.4
97.3
116.4
8.4
6.8
4.6
2.4
1.3
0.7
24.2
$
8.4
$
6.8
$
5.9
$
8.8
$
12.7
$
98.0
$
140.6
Amount of commitment expiration by year
2003
2004
2005
2006
2007
THEREAFTER
TOTAL
$
$
$
35.0
$
$
$
$
35.0
29.0
29.0
5.9
0.1
6.0
$
34.9
$
0.1
$
35.0
$
$
$
$
70.0
Table of Contents
Expected maturity date
2002
2001
2003
2004
2005
2006
2007
Thereafter
Total
Fair Value
Total
Fair Value
$
$
$
1.3
$
6.4
$
11.4
$
97.3
$
116.4
$
123.4
$
28.0
$
28.7
7.00
%
7.24
%
7.32
%
7.34
%
$
$
$
$
$
$
$
$
$
10.8
$
10.8
Table of Contents
Report of KPMG LLP, Independent Auditors
22
Report of Arthur Andersen LLP, Independent Public Accountants
23
Consolidated Balance SheetsDecember 31, 2002 and 2001
24
Consolidated Statements of OperationsYears ended December 31, 2002, 2001 and 2000
25
Consolidated Statements of Shareholders EquityYears ended December 31, 2002,
2001 and 2000
26
Consolidated Statements of Cash FlowsYears ended December 31, 2002, 2001 and 2000
27
Notes to Consolidated Financial Statements
28
Table of Contents
Independent Auditors Report
The Board of Directors and Shareholders
We have audited the accompanying consolidated balance sheet of SCS
Transportation, Inc. and subsidiaries as of December 31, 2002, and the related
consolidated statements of operations, shareholders equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. The
2001 and 2000 consolidated financial statements of SCS Transportation, Inc.
were audited by other auditors who have ceased operations. Those auditors
report dated January 25, 2002, on those consolidated financial statements was
unqualified and included an explanatory paragraph that described the
relationship of SCS Transportation, Inc. and Yellow Corporation, before the
revisions described in Notes 5 and 13.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SCS
Transportation, Inc. and subsidiaries as of December 31, 2002, and the results
of their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.
As discussed above, the 2001 and 2000 consolidated financial statements of SCS
Transportation, Inc. were audited by other auditors who have ceased operations.
As described in Note 5, effective January 1, 2002, the Company changed its
method of accounting for goodwill as required by Statement of Financial
Accounting Standards No. 142 (SFAS No. 142),
Goodwill and Other Intangible
Assets
, and these consolidated financial statements have been revised to
include the required transitional disclosures. Additionally, as described in
Note 13, these consolidated financial statements have been revised to include
the required 2001 and 2000 financial statement schedule information for
valuation and qualifying accounts. In our opinion, the disclosures for 2001
and 2000 in Notes 5 and 13 are appropriate and have been properly applied.
However, we were not engaged to audit, review, or apply any procedures to the
2001 and 2000 consolidated financial statements of SCS Transportation, Inc.
other than with respect to such disclosures and, accordingly, we do not express
an opinion or any other form of assurance on the 2001 and 2000 consolidated
financial statements taken as a whole.
/s/ KPMG LLP
Kansas City, Missouri
22
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with SCS Transportation, Inc.s 2001 consolidated financial
statements previously filed on Form 10 and before certain limited revisions
described in Notes 5 and 13. This audit report has not been reissued by Arthur
Andersen LLP in connection with this filing on Form 10-K.
Report of independent public
accountants
To the Board of Directors of
We have audited the accompanying consolidated balance sheets of SCS
Transportation, Inc. and Subsidiaries (formerly Yellow Corporations Regional
Transportation Group as identified in Note 1) as of December 31, 2001 and 2000,
and the related consolidated statements of income, the Parent company equity
and cash flows for each of the three years in the period ended December 31,
2001. These financial statements 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SCS Transportation,
Inc. and Subsidiaries as of December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
SCS Transportation, Inc., is wholly owned by Yellow Corporation. As indicated
in Note 1, SCS Transportation, Inc., relies on Yellow Corporation for
administrative, cash management and other services. The financial position,
results of operations and cash flows of SCS Transportation, Inc., could differ
from those that would have resulted had SCS Transportation, Inc., operated
autonomously or as an entity independent of Yellow Corporation.
/s/ Arthur Andersen LLP
Kansas City, Missouri,
23
SCS Transportation, Inc.:
January 22, 2003
Table of Contents
Yellow Corporation:
January 25, 2002
Table of Contents
SCS Transportation, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2002 and 2001
(in thousands, except share data)
2002
2001
Assets
$
21,872
$
1,480
86,908
83,387
9,724
8,442
16,681
16,835
4,304
3,312
139,489
113,456
487,803
477,108
200,645
171,067
287,158
306,041
15,683
91,122
2,013
1,327
$
444,343
$
511,946
$
5,495
$
9,332
20,514
21,483
27,870
26,816
12,277
11,124
18,405
16,912
6,489
84,561
92,156
116,410
32,346
90,157
54,087
58,949
15,008
8,689
185,505
190,141
15
200,611
(26,349
)
229,649
174,277
229,649
$
444,343
$
511,946
See accompanying notes to consolidated financial statements.
24
SCS Transportation, Inc. and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31, 2002, 2001 and 2000
(in thousands, except share data)
2002
2001
2000
$
775,436
$
771,582
$
789,009
439,590
435,795
442,579
77,885
71,304
67,733
131,681
141,124
156,379
30,754
31,521
31,070
22,781
20,251
19,084
44,920
49,166
48,296
595
(27
)
(505
)
6,705
2,712
748,206
755,839
767,348
27,230
15,743
21,661
6,192
10,942
15,444
(23
)
(6
)
(137
)
102
3
(4
)
6,271
10,939
15,303
20,959
4,804
6,358
8,901
4,033
4,660
12,058
771
1,698
(75,175
)
$
(63,117
)
$
771
$
1,698
14,585
14,565
14,565
14,671
14,565
14,565
$
0.83
$
0.05
$
0.12
(5.16
)
$
(4.33
)
$
0.05
$
0.12
$
0.82
$
0.05
$
0.12
(5.12
)
$
(4.30
)
$
0.05
$
0.12
See accompanying notes to consolidated financial statements.
25
SCS Transportation, Inc. and Subsidiaries
Consolidated Statements of Shareholders Equity
For the years ended December 31, 2002, 2001 and 2000
(in thousands)
Additional
Retained
Former Parent
Common
Paid-In
Earnings
Company
Stock
Capital
(Deficit)
Equity
Total
$
$
$
$
198,926
$
198,926
2,890
2,890
1,698
1,698
203,514
203,514
25,695
25,695
771
771
(331
)
(331
)
440
229,649
229,649
6,936
6,936
15
200,133
36,437
(236,585
)
478
478
(63,117
)
(63,117
)
331
331
(62,786
)
$
15
$
200,611
$
(26,349
)
$
$
174,277
See accompanying notes to consolidated financial statements.
26
SCS Transportation, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2002, 2001 and 2000
(in thousands)
2002
2001
2000
$
(63,117
)
$
771
$
1,698
75,175
44,920
49,166
48,296
(3,918
)
(883
)
2,219
595
52
(505
)
(2,979
)
10,221
2,021
(6,084
)
(509
)
3,726
968
5,477
7,727
6,649
2,323
458
(1,770
)
2,100
3,881
50,439
68,718
69,521
(33,101
)
(25,161
)
(64,226
)
8,309
5,548
5,193
(24,792
)
(19,613
)
(59,033
)
110,820
(33,245
)
(1,817
)
(1,666
)
391
1,087
2,890
(83,221
)
(51,817
)
(10,348
)
(5,255
)
(52,547
)
(9,124
)
20,392
(3,442
)
1,364
1,480
4,922
3,558
$
21,872
$
1,480
$
4,922
$
$
16,311
$
(351
)
(6,936
)
(40,568
)
6,936
24,608
12,155
725
2,847
6,017
10,941
15,444
See accompanying notes to consolidated financial statements.
27
SCS Transportation, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
1. Description of Business and Summary of Accounting Policies
Description of Business
SCS Transportation, Inc. (SCST or the Company), headquartered in Kansas City, Missouri, is a leading transportation company providing regional and interregional less than truckload (LTL) and selected truckload (TL) service solutions to customers across the United States through its two wholly-owned regional transportation subsidiaries, Saia Motor Freight Line, Inc. and Jevic Transportation, Inc.
| Saia Motor Freight Line, Inc. (Saia) is a LTL carrier providing overnight and second-day delivery in 21 states across the South, Southwest, West and Pacific Northwest United States. Saia employs approximately 5,100 employees and is headquartered in Duluth, Georgia. On March 5, 2001, Saia integrated two of its sister companies, WestEx and Action Express, into Saia, which was accounted for at historical cost as a combination between entities under common control. This expanded Saias territory to include the West and the Pacific Northwest. The consolidated financial statements include the financial position and results of operations of WestEx and Action Express for all of the periods presented. | ||
| Jevic Transportation, Inc. (Jevic) is a hybrid LTL and selected TL carrier providing overnight and second-day delivery across the continental United States and Canada. Jevic employs approximately 2,400 employees and is headquartered in Delanco, New Jersey. |
Basis of Presentation
The accompanying consolidated financial statements include the accounts of SCST and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. In 2001, Yellow Corporation (Yellow), the former Parent, established SCST as a holding company for its two regional transportation subsidiaries, Saia and Jevic (the Regional Companies). In connection with the transfer of subsidiaries under SCST, the Company assumed a $16.3 million subordinated debenture obligation from the former Parent and received a noncash equity contribution of $24.6 million.
The Spin-off
On July 19, 2002, the Yellow Board of Directors approved the spin-off of its 100 percent interest in SCST to Yellow shareholders (the Spin-off). On August 6, 2002, Yellow received a tax ruling from the Internal Revenue Service (IRS) which states that for United States federal income tax purposes the Spin-off qualifies as a tax-free distribution under Section 355 of the Internal Revenue Code. SCST common stock is listed on the NASDAQ under the symbol SCST. On September 30, 2002 the Spin-off was consummated and SCST paid $110.6 million of $113.6 million due in satisfaction of intercompany indebtedness to Yellow with the remaining $3.0 million paid prior to December 31, 2002. These payments, in addition to the $16.4 million in subordinated notes assumed by the Company, comprised the $130 million dividend due Yellow under the Master Separation and Distribution Agreement. The remaining $6.9 million reduction in the intercompany indebtedness to Yellow was a capital contribution from Yellow to SCST at the separation date. Immediately prior to the distribution, SCST and Yellow entered into the Master Separation and Distribution Agreement and the Tax Indemnification and Allocation Agreement to define their ongoing relationship after the distribution, the allocation of tax, employee benefits (including the adjustment of certain stock options outstanding under Yellow stock option plans), the satisfaction of intercompany debt and certain other liabilities and obligations arising from periods prior to the distribution date. SCST shares were distributed to Yellow shareholders on the basis of one SCST share for every two Yellow shares held on the record date of September 3, 2002. The total number of SCST shares distributed was 14,565,478. At the Spin-off, SCSTs assets and liabilities have been presented at historical cost. Substantially all transaction costs associated with the Spin-off (including legal, accounting, investment banking and certain financing costs) were paid for by the former Parent under the terms of the Master Separation and Distribution Agreement.
28
Use of Estimates
Management makes estimates and assumptions when preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States. These estimates and assumptions affect the amounts reported in the consolidated financial statements and footnotes. Actual results could differ from those estimates.
Summary of accounting policies
Major accounting policies and practices used in the preparation of the accompanying consolidated financial statements not covered in other notes to the consolidated financial statements are as follows:
Cash Equivalents: Cash equivalents in excess of current operating requirements are invested in short-term interest bearing instruments purchased with original maturities of three months or less and are stated at cost, which approximates market. Prior to the Spin-off, the Company participated in the former Parents cash management program. Cash balances in excess of daily operating needs were transferred to and invested by the former Parent.
Fuel: Fuel is carried at average cost. To mitigate the Companys risk to rising fuel prices, the Companys operating subsidiaries each have implemented fuel surcharge programs. Since the amount of fuel surcharge billed to customers is based on average national diesel fuel prices and is reset weekly, exposure of SCST to fuel price volatility is significantly reduced.
Interest Rate Swap: The Company utilized interest rate swap contracts to hedge a portion of its LIBOR-based variable rate debt through September 30, 2002 at which time these obligations were settled by the former Parent in connection with the Spin-off. The Company had interest rate contracts with a notional amount totaling $10.8 million and $12.3 million at December 31, 2001 and 2000, respectively. The differentials to be received or paid under contracts designated as hedges were recognized as adjustments to interest expense over the life of the contract. At December 31, 2001, the Company recorded $0.3 million in unrealized loss on the interest rate contracts as a decrease to accumulated other comprehensive income included in parent company equity. The $0.3 million unrealized loss was reversed in 2002 as a result of the settlement.
Property and Equipment Including Repairs and Maintenance:
Property and
equipment are carried at cost less accumulated depreciation. Depreciation is
computed using the straight-line method based on the following service lives:
At December 31, property and equipment consisted of the following (in
thousands):
Years
20 to 25
5 to 13
3 to 8
3 to 15
2002
2001
$
23,018
$
22,568
86,156
81,542
316,080
313,521
34,989
32,209
27,560
27,268
$
487,803
$
477,108
Maintenance and repairs are charged to operations currently; replacements and improvements that extend the assets life are capitalized. The Companys investment in technology equipment and software consists primarily of advanced customer service and freight management communications equipment and related software.
29
Goodwill: Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. Prior to the adoption of Statement of Financial Accounting Standards No. (SFAS) 142, Goodwill and Other Intangible Assets in January 2002, goodwill was amortized over the estimated period of benefit on a straight-line basis over periods generally ranging from 20 to 40 years, and was periodically reviewed for impairment based on undiscounted cash flows. Since adoption of SFAS 142 in January 2002, amortization of goodwill was discontinued and goodwill is reviewed at least annually for impairment based on fair value. Accumulated amortization of goodwill was $13.3 million at December 31, 2002 and 2001. See also Note 5.
Computer Software Developed or Obtained for Internal Use: The Company capitalizes certain costs associated with developing or obtaining internal-use software. Capitalizable costs include external direct costs of materials and services utilized in developing or obtaining the software and payroll and payroll-related costs for employees directly associated with the project. For the years ended December 31, 2002, 2001 and 2000, the Company capitalized $1.7 million, $1.5 million, and $1.3 million, respectively, of primarily payroll-related costs.
Integration Charges: Integration charges were $6.7 million in 2001 and $2.7 million in 2000 associated with the integration of WestEx and Action Express into Saia. Integration charges consisted of severance, costs associated with disposition of duplicate facilities, costs of relogoing the WestEx and Action Express fleet and losses on the liquidation of receivables of the merged entities.
Claims and Insurance Accruals: Claims and insurance accruals, both current and long-term, reflect the estimated cost of claims for workers compensation (discounted to present value), cargo loss and damage, and bodily injury and property damage not covered by insurance. These costs are included in claims and insurance expense, except for workers compensation, which is included in employees benefits expense. The liabilities for self-funded retention are included in claims and insurance reserves based on claims incurred, with liabilities for unsettled claims and claims incurred but not yet reported being actuarially determined with respect to workers compensation claims and with respect to all other liabilities, estimated based on managements evaluation of the nature and severity of individual claims and past experience. The former Parent provides guarantees for claims in certain self-insured states that arose prior to the Spin-off date.
Risk retention amounts per occurrence during the three years ended December 31,
2002, were as follows:
$250,000 to 2,000,000
1,000,000 to 2,000,000
250,000
250,000
The former Parent provided an intermediate layer of self-insurance behind the specific retention levels for bodily injury and property damage claims for the Company up to $1.0 million per occurrence through September 30, 2002. The Company was assessed a premium from the former Parent. Premiums paid to the former Parent under these insurance arrangements were $0.9 million in 2002, $1.8 million in 2001 and $1.4 million in 2000.
Included in the consolidated financial statements are costs incurred by the former Parent in excess of premiums received from the Company for the intermediate layer of self-insurance described above. The additional pretax costs were $1.2 million in 2002, $1.6 million in 2001 and $1.7 million in 2000.
The Company assumed all open self-insurance claims of its operating subsidiaries from the former Parent in connection with the Spin-off. The estimated liability for open claims under the former Parents self-insured retention at December 31, 2002, was approximately $5.1 million. The Company has also recorded a receivable for amounts previously paid to the former Parent toward settlement of these claims totaling approximately $2.4 million at December 31, 2002.
Revenue Recognition: Revenue is recognized on a percentage-of-completion basis for shipments in transit while expenses are recognized as incurred.
30
Stock-Based Compensation: Stock-based compensation to employees is accounted for based on the intrinsic value method under Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees and related interpretations, including Financial Accounting Standards Board (FASB) Interpretation No. 44 Accounting for Certain Transactions involving Stock Compensation.
The following table illustrates the effect on net income (loss) and earnings
(loss) per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 Accounting for Stock-Based Compensation for the
year ended December 31, 2002 (in thousands, except per share data).
$
(63,117
)
(65,530
)
$
(4.30
)
(4.47
)
See Note 8 for further discussion of the pro forma effects of SFAS No. 123.
Credit Risk: The Company routinely grants credit to its customers. The risk of significant loss in trade receivables is substantially mitigated by the Companys credit evaluation process, short collection terms, low revenue per transaction and services performed for a large number of customers with no single customer representing more than 2.5 percent of consolidated revenue. Allowances for potential credit losses are based on historical experience, current economic environment, expected trends and customer specific factors.
Impairment of Long-Lived Assets: If facts and circumstances indicate that the carrying value of identifiable intangibles and long-lived assets may be impaired, the Company would perform an evaluation of recoverability. If an evaluation were required, the Company would compare the estimated future undiscounted cash flows associated with the asset to the assets carrying amount to determine if a write-down is required.
Reclassifications: Certain inconsequential reclassifications have been made to the prior year consolidated financial statements to conform with current presentation.
New Accounting Pronouncements
On January 1, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations (Statement No. 143). Statement No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. We do not expect adoption of Statement No. 143 to have a material impact on our financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The statement changes the measurement and timing of recognition for exit costs, including restructuring charges, and is effective for any such activities initiated after December 31, 2002. It has no effect on charges recorded for exit activities begun prior to this date. The adoption of this statement is not anticipated to have a material effect on our financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based Compensation Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The Company has not adopted the fair value based method of accounting for stock based compensation and therefore the adoption of SFAS No. 148 is not anticipated to have a material effect on our financial position or results of operations.
31
2. Related-Party Transactions
The Company has transactions with the former Parent as well as other affiliated companies. Through September 30, 2002, the former Parent provided services including legal, tax, internal audit, insurance administration, treasury and management for which the Company was assessed a management fee. The management fee consisted of direct charges incurred on behalf of the subsidiaries and an allocation of corporate services costs based on each subsidiarys revenue. The management fee was $1.7 million in 2002, $3.1 million in 2001, and $3.0 million in 2000. Until November 2001, Yellow Technologies, Inc., an affiliated company of the former Parent, provided information technology support, limited purchasing and security services to the Company. The service fee paid by the Company to Yellow Technologies was $0.3 million in 2001 and $1.6 million in 2000, and is included in operating expenses and supplies in the accompanying consolidated statements of operations.
The Company had working capital line-of-credit agreements with the former Parent totaling $225 million through September 30, 2002. These line-of-credit agreements had interest cost of 50 basis points over the LIBOR rate, adjusted quarterly. The Company had borrowings under these agreements of $90.2 million at December 31, 2001. The former Parent maintains $18.6 million of letters of credit and surety bonds in connection with the Companys insurance programs for which the Company pays quarterly the former Parents cost. The former Parent also provides guarantees of approximately $8.2 million for Saia service facility leases.
Total interest expense under the borrowing arrangements with the former Parent was $1.8 million in 2002, $9.1 million in 2001 and $13.5 million in 2000. Interest expense was settled monthly through the Companys borrowing arrangement with its former Parent.
3. Debt and Financing Arrangements
At December 31, debt consisted of the following (in thousands):
2002
2001
$
$
90,157
100,000
16,410
16,311
11,590
5,889
5,045
116,410
128,992
6,489
$
116,410
$
122,503
On September 20, 2002, SCST issued $100 million in Senior Notes under a $125 million Master Shelf Agreement with Prudential Investment Management, Inc. and certain of its affiliates and entered into a $50 million Agented Revolving Credit Agreement (the Credit Agreement) with Bank of Oklahoma, N.A., as agent. Proceeds from the Senior Notes and a portion of the Credit Agreement were used for payments due Yellow in connection with the completion of the Spin-off on September 30, 2002.
The $100 million Senior Notes are unsecured, have a fixed interest rate of 7.38 percent and have an average maturity of eight years. Payments due under the Senior Notes are interest only until June 30, 2006 and at that time semi-annual principal payments begin with the final payment due December 2013. Under the terms of the Senior Notes,
32
SCST must maintain certain financial covenants including a maximum ratio of total indebtedness to earnings before interest, taxes, depreciation, amortization and rent (EBITDAR), a minimum interest coverage ratio and a minimum tangible net worth, among others. At December 31, 2002, the Company was in compliance with these covenants.
The $50 million Credit Agreement is unsecured with an interest rate based on LIBOR or prime at the Companys option, plus an applicable spread, in certain instances, and matures in September 2005. The availability under the Credit Agreement is limited to SCSTs qualified receivables (as defined in the Credit Agreement). At December 31, 2002, SCST had no borrowings under the Credit Agreement, $15.0 million in letters of credit outstanding under the Credit Agreement and remaining availability of $35.0 million. Under the terms of the Credit Agreement, SCST must maintain certain financial covenants including a maximum ratio of total indebtedness to EBITDAR, a minimum interest coverage ratio and a minimum tangible net worth, among others. At December 31, 2002, the Company was in compliance with these covenants.
The fixed rate mortgage notes, variable rate term notes and variable rate mortgage note were paid off in connection with the Spin-off.
Certain of SCSTs long-term debt is guaranteed by its subsidiaries. The guarantees are full and unconditional, joint and several, and any subsidiaries that are not guarantors are minor as defined by Securities and Exchange Commission regulations. SCST, as the parent company issuer of this debt, has no independent assets or operations. There are no significant restrictions on the Companys ability or the ability of any guarantor to obtain funds from its subsidiaries by such means as a dividend or loan.
Based on the borrowing rates currently available to the Company for debt with similar terms and remaining maturities, the fair value of total debt at December 31, 2002 is $123.4 million. The fair value of total third party debt at December 31, 2001 approximates carrying value.
The principal maturities of long-term debt for the next five years (in
thousands) are as follows:
Amount
$
1,263
6,438
11,438
97,271
4. Commitments, contingencies and uncertainties
The Company leases certain service facilities and equipment. Rent expense was $10.8 million, $11.8 million and $13.5 million for the years ended December 31, 2002, 2001 and 2000, respectively.
At December 31, 2002, the Company was committed under noncancellable lease
agreements requiring minimum annual rentals payable as follows (in thousands):
Amount
$
8,396
6,774
4,578
2,425
1,266
656
Capital expenditures of approximately $3 million were committed at December 31, 2002.
The Company is subject to legal proceedings that arise in the ordinary course of its business. In the opinion of management, the aggregate liability, if any, with respect to these actions will not materially adversely affect our financial position, results of operations or cash flows.
33
5. Goodwill and Other Intangible Assets
On June 30, 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company on January 1, 2002. SFAS No. 142 requires that upon adoption and at least annually thereafter, the Company assess goodwill impairment by applying a fair value based test. With the adoption of Statement No. 142, goodwill is no longer subject to amortization, resulting in an increase in annualized operating income and net income of $3.0 million effective January 1, 2002.
At December 31, 2001 the Company had $90 million of goodwill on its consolidated balance sheet, consisting primarily of $75.2 million remaining from the acquisition of Jevic. In valuing the goodwill of Jevic, the Company used an estimate of Jevics discounted cash flows in measuring whether goodwill was recoverable. Based on this estimate, the Company determined that 100 percent of the Jevic goodwill was impaired due to lower business volumes, compounded by a weak economy, and an increasingly competitive business environment. As a result, the Company recorded a non-cash charge of $75.2 million in the first quarter 2002, which was reflected as a cumulative effect of a change in accounting principle.
The net carrying amount of goodwill attributed to each reportable operating
segment with goodwill balances and adjustments follows (in thousands):
December 31,
Impairment
December 31,
2001
adjustment
2002
$
14,796
$
$
14,796
75,175
(75,175
)
$
89,971
$
(75,175
)
$
14,796
In connection with adopting SFAS No. 142, the Company also reassessed the useful lives and the classification of its identifiable intangible assets other than goodwill and determined that they continue to be appropriate. The Companys intangible assets subject to amortization consist of contract based assets totaling $1.9 million in gross carrying amount at December 31, 2002 and 2001 and accumulated amortization of $1.1 million and $0.8 million at December 31, 2002 and 2001, respectively.
Amortization expense for intangible assets other than goodwill was $0.3 million
for 2002, $0.3 million for 2001 and $0.3 million for 2000. Estimated
amortization expense for the five succeeding years follows (in thousands):
Amount
$
263
263
263
97
34
Actual results of operations before cumulative effect of accounting change had
the Company applied the nonamortization provisions of SFAS No. 142 in those
periods follow (in thousands, except per share amounts):
Year ended December 31,
2002
2001
2000
$
12,058
$
771
$
1,698
3,006
3,041
$
12,058
$
3,777
$
4,739
$
0.83
$
0.05
$
0.12
0.21
0.21
$
0.83
$
0.26
$
0.33
$
0.82
$
0.05
$
0.12
0.21
0.21
$
0.82
$
0.26
$
0.33
6. Computation of Earnings Per Share
The calculation of basic and diluted earnings per share for the year ended December 31, 2001 and all prior periods was based upon the shares outstanding as of the date of the Spin-off from Yellow, which was September 30, 2002. Effective October 1, 2002, diluted earnings per share includes the dilutive impact of outstanding stock options as shown below.
The calculation of basic earnings per common share and diluted earnings per
common share was as follows (in thousands except per share amounts):
Year ended December 31,
2002
2001
2000
$
(63,117
)
$
771
$
1,698
14,585
14,565
14,565
86
14,671
14,565
14,565
$
0.83
$
0.05
$
0.12
(5.16
)
$
(4.33
)
$
0.05
$
0.12
$
0.82
$
0.05
$
0.12
(5.12
)
$
(4.30
)
$
0.05
$
0.12
35
7. Shareholders Equity
Series A Junior Participating Preferred Stock
As of December 31, 2002, the Company has 5,000 shares of preferred stock that are designated Series A Junior Participating Preferred Stock and are reserved for issuance upon exercise of the preferred stock rights under the rights agreement described below. Series A Junior Participating Preferred Stock is nonredeemable and subordinate to any other series of the Companys preferred stock, unless otherwise provided for in the terms of the preferred stock; has a preferential dividend in an amount equal to 10,000 times any dividend declared on each share of common stock; has 10,000 votes per share, voting together with the Companys common stock; and in the event of liquidation, entitles its holder to receive a preferred liquidation payment equal to the greater of $10,000 or 10,000 times the payment made per share of common stock. As of December 31, 2002, none of these shares have been issued.
Preferred Stock Rights
Each issued and outstanding share of common stock has associated with it one right to purchase shares of SCS Transportation, Inc. Series A Junior Participating Preferred Stock, no par value, pursuant to a Rights Agreement dated September 30, 2002 between the Company and Mellon Investor Services LLC. The Company will issue one right to purchase one one-ten-thousandth share of its Series A Junior Participating Preferred Stock as a dividend on each share of common stock. The rights initially are attached to and trade with the shares of common stock. Value attributable to these rights, if any, is reflected in the market price of the common stock. The rights are not currently exercisable, but could become exercisable if certain events occur, including the acquisition of 15 percent or more of the outstanding common stock of the Company by an acquiring person in a non-permitted transaction. Under certain conditions, the rights will entitle holders, other than an acquirer in a non-permitted 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 2012 unless extended.
8. Stock Options
The Company has reserved and made stock option grants for 1,280,742 shares of its common stock to certain management personnel of the Company and its operating subsidiaries under the 2002 Substitute Stock Option Plan. As a result of the Spin-off, on October 1, 2002, all Yellow stock options (Old Yellow Options) issued and outstanding to employees of SCST were replaced with SCST stock options (New SCST Options) with an intrinsic value identical to the value of the Old Yellow Options being replaced. The number of New SCST Options and their exercise price was determined based on the relationship of the SCST stock price immediately after the Spin-off and the Yellow stock price immediately prior to the Spin-off. The New SCST Options expire ten years from the date the Old Yellow Options were originally issued by Yellow. The New SCST Options continue to vest ratably over the original four-year vesting period of the Old Yellow Options.
The following table summarizes the activity of the New SCST Options for the
year ended December 31, 2002:
Weighted
average
Options
exercise price
$
1,280,742
4.81
(89,825
)
4.35
1,190,917
$
4.85
636,505
$
5.22
$
4.52
36
The following table summarizes information about stock options outstanding at
December 31, 2002:
Number of
Weighted
options
average
outstanding at
remaining
December 31,
contractual
Range of Exercise Prices
2002
life (years)
217,126
7.40
771,401
6.90
2,274
5.30
200,116
4.60
1,190,917
6.60
As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, the
Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, in accounting for its stock option plan. Had
compensation cost for the New SCST Options been recorded consistent with SFAS
No. 123, the Companys net income (loss) and earnings per share amounts would
have been changed to the following pro forma amounts for the year ended
December 31, 2002 (in thousands, except per share data):
$
(63,117
)
(65,530
)
$
(4.30
)
(4.47
)
Under the Master Separation and Distribution Agreement, SCST replaced existing Old Yellow Options with New SCST Options of identical intrinsic value. All options awarded at October 1, 2002 were in the money and substantially vested at the date of grant. This resulted in a significant amount of SFAS No. 123 pro forma compensation expense for 2002 as the option exercise price was less than the market price of the underlying stock. The fair value of each option converted from an Old Yellow Option was estimated on the date of conversion from the Old Yellow Option using the Black-Scholes option pricing model with the following weighted average assumptions used for conversions in 2002, risk free interest rate of 4.06 percent, expected life of 4 years, expected volatility of 40 percent, expected dividend rate of zero and expected forfeitures of zero.
9. Employee Benefits
The Company sponsors defined contribution plans. The plans principally consist of contributory 401(k) savings plans and noncontributory profit sharing plans. The Companys contributions to the 401(k) savings plans consist of a fixed matching percentage. The nondiscretionary Company match was increased from 25 to 50 percent of the first six percent of an eligible employees contributions in 2001. The Companys total contributions for the years ended December 31, 2002, 2001, and 2000, were $5.7 million, $3.5 million and $2.5 million, respectively.
The Company provides annual cash performance incentive awards to employees, which are based primarily on actual operating results achieved compared to targeted operating results. Operating results include performance incentive accruals for substantially all salaried employees and certain hourly employees of $6.1 million, $4.6 million and $4.1 million in 2002, 2001 and 2000, respectively. Performance incentive awards for a year are primarily paid in the first quarter of the following year.
10. Income Taxes
The Company accounts for income taxes in accordance with the liability method and under the Tax Indemnification and Allocation Agreement with the former Parent. The Companys income taxes are determined in accordance with the pro rata method. The Company is included through September 30, 2002 in the consolidated federal income tax return filed by the former Parent.
37
Deferred income taxes are determined based upon the difference between the book and the tax basis of the Companys assets and liabilities. Deferred taxes are provided at the enacted tax rates expected to be in effect when these differences reverse.
Deferred tax liabilities (assets) are comprised of the following at December
31, (in thousands):
2002
2001
$
54,471
$
59,447
11,532
2,242
1,945
841
67,948
62,530
(2,632
)
(2,476
)
(4,609
)
(4,071
)
(14,163
)
(10,273
)
(7,365
)
(648
)
(1,773
)
(2,948
)
(30,542
)
(20,416
)
$
37,406
$
42,114
The income tax provision consists of the following (in thousands):
2002
2001
2000
$
11,626
$
4,182
$
1,836
1,193
734
605
12,819
4,916
2,441
(3,578
)
(756
)
1,965
(340
)
(127
)
254
(3,918
)
(883
)
2,219
$
8,901
$
4,033
$
4,660
A reconciliation between income taxes at the federal statutory rate (35
percent) and the provision follows:
2002
2001
2000
$
7,336
$
1,682
$
2,225
697
364
558
1,052
1,053
868
860
933
75
(109
)
$
8,901
$
4,033
$
4,660
11. Business Segments
The Company has two operating subsidiaries (Saia and Jevic) that are reportable segments. Each of these segments is a strategic business unit offering different products and services.
The segments are managed separately because each requires different operating, technology and marketing strategies. The segments performance is evaluated primarily on operating income and return on capital.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Interest and intersegment transactions are recorded at current market rates. Management fees and other corporate services are charged to the segments based on direct benefit received or allocated based on revenue.
38
The following table summarizes the Companys operations by business segment (in
thousands).
Corporate
Saia*
Jevic
and Other
Consolidated
$
489,832
$
285,604
$
$
775,436
21,922
5,793
(485
)
27,230
274,403
148,851
21,089
444,343
23,108
1,484
200
24,792
23,716
21,189
15
44,920
$
485,379
$
286,203
$
$
771,582
9,731
6,012
15,743
280,427
231,519
511,946
13,578
6,035
19,613
25,269
23,897
49,166
$
481,990
$
307,019
$
$
789,009
7,352
14,309
21,661
297,295
254,372
551,667
35,025
24,008
59,033
24,674
23,622
48,296
* | Saia data represents the combined financial results of Saia, WestEx and Action Express due to the integration of these companies. |
12. Summary of Quarterly Operating Results (unaudited)
(Amounts in thousands, except per share data)
Three months ended, 2002
March 31
June 30
September 30
December 31
$
183,538
$
196,487
$
201,155
$
194,255
4,885
6,763
8,096
7,486
1,927
3,094
4,005
3,032
(75,175
)
$
(73,248
)
$
3,094
$
4,005
$
3,032
$
0.13
$
0.21
$
0.27
$
0.21
(5.16
)
$
(5.03
)
$
0.21
$
0.27
$
0.21
$
0.13
$
0.21
$
0.27
$
0.20
(5.16
)
$
(5.03
)
$
0.21
$
0.27
$
0.20
39
Three months ended, 2001
March 31
June 30
September 30
December 31
$
195,977
$
195,635
$
195,152
$
184,818
(268
)
5,086
5,561
5,364
(3,017
)
562
1,423
1,803
$
(3,017
)
$
562
$
1,423
$
1,803
$
(0.21
)
$
0.04
$
0.10
$
0.12
$
(0.21
)
$
0.04
$
0.10
$
0.12
$
(0.21
)
$
0.04
$
0.10
$
0.12
$
(0.21
)
$
0.04
$
0.10
$
0.12
* Includes integration charges of $5.4 million in the quarter and $1.3 million in the second quarter.
13. Valuation and Qualifying Accounts
For the Years Ended December 31, 2002, 2001 and 2000 (in thousands)
Col. A
Col. B
Col. C
Col. D
Col. E
Additions
-1-
-2-
Balance,
Charged to
Charged to
Balance,
beginning
costs and
other
Deductions-
end of
Description
of period
expenses
accounts
describe (1)
period
$
6,809
1,961
(1,892
)
$
6,878
$
5,244
3,549
(1,984
)
$
6,809
$
3,846
3,995
(2,597
)
$
5,244
(1) Primarily uncollectible accounts written net of recoveries.
40
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On May 17, 2002, SCSTs former Parent, Yellow Corporation, dismissed its independent auditors, Arthur Andersen LLP, and engaged the services of KPMG LLP as its new independent auditors. The change in auditors became effective on May 17, 2002. Following the October 1, 2002 Spin-off of SCST, the audit committee of SCST recommended and the Board of Directors approved the retention of KPMG LLP for SCSTs 2002 audit.
41
PART III.
Item 10. Directors and Executive Officers of the Registrant
Information regarding members of the Board of Directors will be presented in SCSTs definitive proxy statement for its 2002 annual meeting of stockholders, which will be held on April 23, 2003, and is incorporated herein by reference. Information regarding executive officers of SCST is included above in Part I of this Form 10-K under the caption Executive Officers of the Registrant pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G (3) of Form 10-K.
Item 11. Executive Compensation
Information regarding executive compensation will be presented in SCSTs definitive proxy statement for its annual meeting of stockholders, which will be held on April 23, 2003, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management and related stockholder matters will be presented in SCSTs definitive proxy statement for its 2002 annual meeting of stockholders, which will be held on April 23, 2003, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related party transactions will be presented in SCSTs definitive proxy statement for its 2002 annual meeting of stockholders, which will be held on April 23, 2003, and is incorporated herein by reference.
Item 14. Controls and Procedures
We maintain a rigorous set of disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Our principal executive and financial officers have evaluated our disclosure controls and procedures within 90 days prior to the filing of this Annual Report on Form 10-K and have determined that such disclosure controls and procedures are effective.
Subsequent to our evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
42
PART IV.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) | 1. Financial Statements | |
The consolidated financial statements required by this item are included in Item 8, Financial Statements and Supplementary Data herein. | ||
2. Financial Statement Schedules | ||
The Schedule IIValuation and Qualifying Accounts financial statement schedule is included in Note 13 to the consolidated financial statements contained herein. All other financial statement schedules have been omitted because they are not applicable. | ||
3. Exhibits | ||
Exhibits 3.1, 3.2, 4.1, 10.1 through 10.9, 21, 23.1, 23.2, 99.1 and 99.2 are being filed in connection with this Report or incorporated herein by reference. | ||
The Exhibit Index on page E-1 is incorporated herein by reference. | ||
(b) | Reports on Form 8-K | |
The following Current Reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 2002: (i) Current Report on Form 8-K dated October 2, 2002 (announcing terms of debt agreements entered into in connection with the Spin-off); and (ii) Current Report on Form 8-K dated October 18, 2002 (detailing quarterly financial information for 2001 and the first three quarters of 2002). |
43
SIGNATURE
Pursuant to the requirements 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.
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
44
Date:
March 14, 2003
SCS TRANSPORTATION, INC.
/s/ James J. Bellinghausen
James J. Bellinghausen
Vice President of Finance and
Chief Financial Officer
Signature
Title
Date
/s/ Herbert A. Trucksess, III
Herbert A. Trucksess, III
Chairman, President and
Chief Executive
Officer, SCS
Transportation, Inc.
March 14, 2003
/s/ James J. Bellinghausen
James J. Bellinghausen
Vice President and
Chief Financial
Officer, SCS
Transportation, Inc.
March 14, 2003
/s/ Klaus E. Agthe
Klaus E. Agthe
Director
March 14, 2003
/s/ Mark A. Ernst
Mark A. Ernst
Director
March 14, 2003
/s/ John J. Holland
John J. Holland
Director
March 14, 2003
/s/ James A. Olson
James A. Olson
Director
March 14, 2003
/s/ Douglas W. Rockel
Douglas W. Rockel
Director
March 14, 2003
Table of Contents
CERTIFICATION
I, Herbert A. Trucksess, III, Chairman, President and Chief Executive Officer of SCS Transportation, Inc. (registrant), certify that:
1. | I have reviewed this annual report on Form 10-K of the registrant; | |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | ||
b) | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and | ||
c) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and | ||
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and |
6. | The registrants other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: | March 14, 2003 | |||
/s/ Herbert A. Trucksess, III | ||||
|
||||
Herbert A. Trucksess, III
Chairman, President and Chief Executive Officer |
45
CERTIFICATION
I, James J. Bellinghausen, Vice President of Finance and Chief Financial
Officer of SCS Transportation, Inc. (registrant) certify that:
46
EXHIBIT INDEX
1.
I have reviewed this annual report on Form 10-K of the registrant;
2.
Based on my knowledge, this
annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4.
The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a)
designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b)
evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and
c)
presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5.
The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
a)
all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
b)
any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and
6.
The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date:
March 14, 2003
/s/ James J. Bellinghausen
James J. Bellinghausen
Vice President of Finance and
Chief Financial Officer
Table of Contents
Exhibit
Number
Description of Exhibit
3.1
Amended and Restated Certificate of Incorporation of SCS
Transportation, Inc. (incorporated herein by reference to Exhibit
3.1 of SCS Transportation, Inc.s Form 10-Q (File No. 0-49983) for
the quarter ended September 30, 2002).
3.2
Amended and Restated By-laws of SCS Transportation, Inc.
(incorporated herein by reference to Exhibit 3.2 of SCS
Transportation, Inc.s Form 10-Q (File No. 0-49983) for the
quarter ended September 30, 2002).
4.1
Rights Agreement between SCS Transportation, Inc. and Mellon
Investor Services LLC dated as of September 30, 2002 (incorporated
herein by reference to Exhibit 4.1 of SCS Transportation, Inc.s
Form 10-Q (File No. 0-49983) for the quarter ended September 30,
2002).
10.1
Agented Revolving Credit Agreement dated as of September 20, 2002,
among SCS Transportation, Inc. and Bank of Oklahoma, N.A., U.S.
Bank National Association, Bank One, NA, and Harris Trust and
Savings Bank, and Bank of Oklahoma, N.A., as agent for the Banks
(incorporated herein by reference to Exhibit 10.1 of SCS
Transportation, Inc.s Form 8-K (File No. 0-49983) filed on
October 2, 2002).
10.2
Senior Notes Master Shelf Agreement dated as of September 20,
(incorporated herein by reference to Exhibit 10.2 of SCS
Transportation, Inc.s Form 8-K (File No. 0-49983) filed on
October 2, 2002).
10.3
Master Separation and Distribution Agreement between Yellow
Corporation and SCS Transportation, Inc. (incorporated herein by
reference to Exhibit 10.3 of SCS Transportation, Inc.s Form 10-Q
(File No. 0-49983) for the quarter ended September 30, 2002).
10.4
Tax Indemnification and Allocation Agreement between Yellow
Corporation and SCS Transportation, Inc. (incorporated herein by
reference to Exhibit 10.4 of SCS Transportation, Inc.s Form 10-Q
(File No. 0-49983) for the quarter ended September 30, 2002).
10.5
Employment Agreement between SCS Transportation, Inc. and Herbert
A. Trucksess, III dated as of November 20, 2002.
10.6
Employment Agreement between SCS Transportation, Inc., Saia Motor
Freight Line, Inc. and Richard D. ODell dated as of November 20,
2002.
10.7
Employment Agreement between SCS Transportation, Inc., Jevic
Transportation, Inc. and Paul J. Karvois dated as of November 20,
2002.
10.8
Executive Severance Agreement between SCS Transportation, Inc. and
Herbert A. Trucksess, III dated as of September 28, 2002.
10.9
Form of Executive Severance Agreement dated as of September 28,
2002 entered into between SCS Transportation, Inc. and Richard D.
ODell, Paul J. Karvois, James J. Bellinghausen, John P. Burton
and David J. Letke.
21
Subsidiaries of Registrant (incorporated herein by reference to
Exhibit 21 of SCS Transportation, Inc.s Information Statement on
Form 10 (File No. 0-49983)).
23.1
Consent of KPMG LLP, Independent Auditors.
23.2
Information Regarding Consent of Arthur Andersen LLP.
99.1
Certification of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2
Certification of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
E-1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT, made this 20th day of November, 2002, by and between SCS Transportation, Inc., a Delaware corporation ("SCST"), and Herbert A. Trucksess, III (the "Executive").
WITNESSETH
WHEREAS, the Board of Directors of SCST has approved the employment of the Executive on the terms and conditions set forth in this Agreement; and
WHEREAS, the Executive is willing, for the consideration provided, to enter into employment with SCST on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:
1. Employment. SCST hereby agrees to employ the Executive, and the Executive hereby accepts such employment, upon the terms and conditions set forth in this Agreement.
2. Term. The term of this Agreement shall be for three years from the date hereof (the "Effective Date"), with said term renewing daily, and ending on the date of termination of the Executive's employment determined pursuant to Section 5, 6 or 7, whichever shall be applicable.
3. Position and Duties. The Executive shall serve as President and Chief Executive Officer, and shall have such responsibilities and authority as commensurate with such offices and as may from time to time be prescribed by or pursuant to SCST's bylaws. The Executive shall devote substantially all of his working time and efforts to the business and affairs of SCST.
4. Compensation. During the period of the Executive's employment, SCST shall provide the Executive with the following compensation and other benefits:
(a) Base Salary. SCST shall pay to the Executive base salary at the rate of $450,000.00 per annum which shall be payable in accordance with the standard payroll practices of SCST. Such base salary rate shall be reviewed annually in accordance with SCST's normal policies beginning in calendar year 2003; provided, however, that at no time during the term of this Agreement shall the Executive's base salary be decreased from the rate then in effect.
(b) Annual Bonus. The Executive shall participate in a
bonus program established and maintained by SCST. The
criteria for establishment of the parameters for
payments shall be determined annually by the
Compensation Committee of the Board of Directors of
SCST.
(c) Stock Options. The Compensation Committee of the Board of Directors of SCST shall determine the number of stock options, if any, to be granted to the Executive and the terms and conditions of any such options.
(d) Supplemental Retirement Benefit. SCST shall provide the Executive with a Supplemental Retirement Benefit following his termination of employment. The Supplemental Retirement Benefit shall be paid in monthly installments for life commencing on the first day of the month coincident with or next following the later of (a) the
Executive's termination of employment or (b) the
Executive's attainment of age 65. The amount of the
monthly Supplemental Retirement Benefit shall equal
(i) minus (ii) minus (iii) below, where.
(i) is [Total Credited Service multiplied by Final Average Earnings multiplied by 1-3/7% (.0142857)] less [Primary Social Security multiplied by Total Credited Service multiplied by 1-3/7% (.0142857)];
(ii) is the sum of (a) the monthly normal retirement benefit payable from the qualified Yellow Freight Office, Clerical, Sales and Supervisory Personnel Pension Plan, and (b) the monthly Supplemental Retirement Benefit payable under the Executive's Employment Agreement with Yellow Corporation; and
(iii) is the benefit payable at age 65 that is the Actuarial Equivalent of the portion of SCST's non-qualified Deferred Compensation Plan attributable to SCST contributions at date of termination.
(e) Adjustment for Early Retirement. The Executive may commence his Supplemental Retirement Benefit on or after age 55 so long as he has terminated employment. The Supplemental Retirement Benefit shall be actuarially reduced for early commencement on the Early Retirement Actuarial Equivalence Basis.
(f) Death Benefits.
i. If at the time of the Executive's death, the Supplemental Retirement Benefit payments had already commenced, the Supplemental Retirement Benefit shall continue to the Eligible Spouse (if any) for her life.
ii. If at the time of the Executive's death,
the Supplemental Retirement Benefit had not yet
commenced, the Supplemental Retirement Benefit shall
be payable to the Eligible Spouse (if any) for her
life, commencing on or after the first day of the
month coincident with or next following the later of
(a) the date the Executive would have attained age 55
or (b) the date of the Executive's death. Death
benefits under this paragraph (f)(ii) commencing
prior to what would have been the Executive's 65th
birthday shall be actuarially reduced for early
commencement on the Early Retirement Actuarial
Equivalence Basis.
iii.If at the time of his death the Executive has no Eligible Spouse, no further Supplemental Retirement Benefit shall be payable following his death.
(g) Definitions. The following terms used in Sections 4(d) through (f) shall have the meanings assigned to such terms below:
i. "Total Credited Service" means the sum of
(a), (b), and (c) below, where (a) is the Executive's
actual years and months of service with Yellow and
SCST, from June 1, 1994 through the date of
termination; (b) is
16 years; and (c) is 1/3 of [the sum of (a) and (b), minus 1/2 of the sum of the Executive's projected credited service to age 65 and (b)].
ii. "Final Average Earnings" means the highest 5 complete consecutive years of base pay and incentive compensation during the last ten calendar years prior to the Executive's termination of employment. Incentive compensation will be included in the year in which it is paid and will only be included if it is part of an annual ongoing incentive program.
iii."Primary Social Security" means the annual amount payable at age 65 under the Social Security law in effect at retirement. If the Executive terminates employment prior to age 65, the Primary Social Security benefit is estimated assuming that the Social Security Law does not change and earnings are constant until age 65 at the level during the last full calendar year of employment.
iv. "Actuarial Equivalent" is based on the Applicable Mortality Table and Applicable Interest rate specified in IRC Section 417(e)(3)(A).
v. "Early Retirement Actuarial Equivalence Basis" is the same basis as specified in the Yellow Freight Office, Clerical, Sales and Supervisory Personnel Pension Plan.
vi. "Eligible Spouse" means the spouse married to the Executive on the date hereof.
(h) Other Benefits. In addition to the compensation and benefits otherwise specified in this Agreement, the Executive (and, if provided for under the applicable plan or program, his spouse) shall be entitled to participate in, and to receive benefits under, SCST's employee benefit plans and programs that are or may be available to senior executives generally and on terms and conditions that are no less favorable than those generally applicable to other senior executives of SCST. At no time during the term of this Agreement shall the Executive's participation in or benefits received under such plans and programs be decreased.
(i) Expenses. The Executive shall be entitled to prompt reimbursement of all reasonable expenses incurred by him in performing services hereunder, provided he properly accounts therefore in accordance with SCST's policies.
(j) Office and Services Furnished. SCST shall furnish the Executive with office space, secretarial assistance and such other facilities and services as shall be suitable to the Executive's position and adequate for the performance of his duties hereunder.
5. Termination of Employment by SCST.
(a) Cause. SCST may terminate the Executive's employment for "Cause" if the Executive willfully engages in conduct which is materially and demonstrably injurious to SCST or willfully engages in an act or acts of dishonesty resulting in material personal gain to the Executive at the expense of SCST. SCST shall exercise its right to terminate the Executive's employment for
Cause by (i) giving him written notice of termination
at least 30 days before the date of such termination
specifying in reasonable detail the circumstances
constituting such Cause; and (ii) delivering to the
Executive a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the
entire membership of the Board of Directors after
reasonable notice to the Executive and an opportunity
for the Executive and his counsel to be heard before
the Board of Directors, finding that the Executive
has engaged in the conduct set forth in this
subsection (a). In the event of such termination of
the Executive's employment for Cause, the Executive
shall be entitled to receive (i) his base salary
pursuant to Section 4(a) and any other compensation
and benefits to the extent actually earned pursuant
to this Agreement or any benefit plan or program of
SCST as of the date of such termination at the normal
time for payment of such salary, compensation or
benefits, but not including the Supplemental
Retirement Benefits described in Sections 4(d)
through 4(f), and (ii) any amounts owing under
Section 4(i). In addition, in the event of such
termination of the Executive's employment for Cause,
all outstanding options held by the Executive at the
effective date of such termination which had not
already been exercised shall be forfeited. Except as
provided in Section 9, the Executive shall receive no
other compensation or benefits from SCST.
(b) Disability. If the Executive incurs a Permanent and Total Disability, as defined below, SCST may terminate the Executive's employment by giving him written notice of termination at least 30 days before the date of such termination. In the event of such termination of the Executive's
employment because of Permanent and Total Disability,
(i) the Executive shall be entitled to receive his
base salary pursuant to Section 4(a) and any other
compensation and benefits to the extent actually
earned by the Executive pursuant to this Agreement or
any benefit plan or program of SCST as of the date of
such termination of employment at the normal time for
payment of such salary, compensation or benefits,
including specifically the Supplemental Retirement
Benefits described in Sections 4(d) through 4(f) and
any amounts owing under Section 4(i), and (ii) all
outstanding stock options held by the Executive at
the time of his termination of employment shall
become immediately exercisable at that time, and the
Executive shall have one year from the date of such
termination of employment to exercise any or all of
such outstanding options (but not beyond the term of
such option). For purposes of this Agreement, the
Executive shall be considered to have incurred a
"Permanent and Total Disability" if he is unable to
engage in any substantial gainful employment by
reason of any materially determinable physical or
mental impairment which can be expected to result in
death or which has lasted or can be expected to last
for a continuous period of not less than 12 months.
The existence of such Permanent and Total Disability
shall be evidenced by such medical certification as
the Secretary of SCST shall require and shall be
subject to the approval of the Compensation Committee
of the Board of Directors of SCST.
(c) Without Cause. SCST may terminate the Executive's employment at any time and for any reason, other than for Cause or because of Permanent and
Total Disability, by giving him a written notice of termination to that effect at least 30 days before the date of termination. In the event of such termination of the Executive's employment without Cause, the Executive shall be entitled to the benefits described in Section 8.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate his
employment for Good Reason by giving SCST a written
notice of termination at least 30 days before the
date of such termination specifying in reasonable
detail the circumstances constituting such Good
Reason. In the event of the Executive's termination
of his employment for Good Reason, the Executive
shall be entitled to the benefits described in
Section 8. For purposes of this Agreement, "Good
Reason" shall mean (i) the failure of SCST in any
material way either to pay or provide to the
Executive the compensation and benefits that he is
entitled to receive pursuant to this Agreement by the
later of (A) 60 days after the applicable due date or
(B) 30 days after the Executive's written demand for
payment, or (ii) the failure to maintain the titles,
positions and duties of the Executive commensurate
with those titles and positions and as required by
this Agreement except with the Executive's written
consent, or (iii) Executive's receipt of notice from
SCST of the cut-off of the automatic renewal of the
term of this Agreement as described in Section 2
above or (iv) a transfer of the Executive to a
location which is more than 50 miles away from the
location where the Executive is employed on the date
hereof or any other location to which the Executive
is transferred with his consent.
(b) Other. The Executive may terminate his employment at
any time and for any reason, other than pursuant to
subsection (a) above, by giving SCST a written notice
of termination to that effect at least 30 days before
the date of termination. In the event of the
Executive's termination of his employment pursuant to
this subsection (b), the Executive shall be entitled
to receive (i) his base salary pursuant to Section
4(a) and any other compensation and benefits to the
extent actually earned by the Executive pursuant to
this Agreement or any benefit plan or program of SCST
as of the date of such termination at the normal time
for payment of such salary, compensation or benefits,
including specifically the Supplemental Retirement
Benefits described in Sections 4(d) through 4(f), and
(ii) any amounts owing under Section 4(i). In the
event of the Executive's termination of his
employment pursuant to this subsection (b), all
outstanding options held by the Executive not
previously exercised by the date of termination shall
be forfeited. Except as provided in Section 9, the
Executive shall receive no other compensation or
benefits from SCST.
7. Termination of Employment By Death. In the event of the death of the Executive during the course of his employment hereunder, (i) the Executive's estate shall be entitled to receive his base salary pursuant to Section 4(a) and any other compensation and benefits to the extent actually earned by the Executive pursuant to this Agreement or any other benefit plan or program of SCST as of the date of
such termination at the normal time for payment of such salary, compensation or benefits, including specifically the Supplemental Retirement Benefits described in Section 4(f) and any amounts owing under Section 4(i) and (ii) all outstanding stock options held by the Executive at the time of his death shall become immediately exercisable upon his death, and the Executive's spouse or, if predeceased, the Executive's estate, shall have one year from the date of his death to exercise any or all of such outstanding options (but not beyond the term of such option).
8. Benefits Upon Termination Without Cause or Good Reason. If the Executive's employment with SCST shall terminate (i) because of termination by SCST pursuant to Section 5(c) and not for Cause or because of Permanent and Total Disability, or (ii) because of termination by the Executive for Good Reason pursuant to Section 6(a), the Executive shall be entitled to the following:
(a) SCST shall pay to the Executive his base salary pursuant to Section 4(a) and, subject to the further provisions of this Section 8, any other compensation and benefits to the extent actually earned by the Executive under this Agreement or any benefit plan or program of SCST as of the date of such termination at the normal time for payment of such salary, compensation or benefits.
(b) SCST shall pay the Executive any amounts owing under
Section 4(i).
(c) SCST shall pay to the Executive as a severance benefit an amount equal to three times his annual rate of base salary immediately preceding his
termination of employment. Such severance benefit shall be paid in a lump sum within 30 days after the date of such termination of employment.
(d) SCST shall pay to the Executive a pro rated target bonus based on the actual portion of the fiscal year elapsed prior to the termination of Executive's employment under SCST's target bonus plan for the fiscal year in which his termination of employment occurs as if the target had been exactly met. Such payment shall be made in a lump sum within 30 days after the date of such termination of employment, and the Executive shall have no right to any further bonuses under said program.
(e) The Executive shall become eligible for payment of the Supplement Retirement Benefits pursuant to Sections 4(d) through 4(f), and SCST's nonqualified defined contribution plans. Payment of benefits under such plans shall be made at the time and in the manner determined under the applicable plan.
(f) During the period of 36 months beginning on the date of the Executive's termination of employment, the Executive (and, if applicable under the applicable program, his spouse) shall remain covered by the employee benefit plans and programs that covered him immediately prior to his termination of employment as if he had remained in employment for such period; provided, however, that there shall be excluded for this purpose any plan or program providing payment for time not worked (including without limitation holiday, vacation, and long- and short-term disability). In the event that the Executive's participation in any such employee benefit plan
or program is barred, SCST shall arrange to provide the Executive with substantially similar benefits. Any medical insurance coverage for such three-year period pursuant to this subsection (f) shall become secondary upon the earlier of (i) the date on which the Executive begins to be covered by comparable medical coverage provided by a new employer, or (ii) the earliest date upon which the Executive becomes eligible for Medicare or a comparable Government insurance program.
(g) All outstanding stock options held by the Executive at the time of termination of his employment shall become fully exercisable upon such termination of employment and the Executive shall have three years from the date of such termination of employment to exercise any or all of such outstanding options (but not beyond the term of such option).
(h) If any payment or benefit received by or in respect of the Executive under this Agreement or any other plan, arrangement or agreement with SCST (determined without regard to any additional payments required under this subsection (h) and Exhibit A of this Agreement) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the "Excise Tax"), SCST shall pay to the Executive with respect to such Payment at the time specified in Exhibit A an additional amount (the
"Gross-up Payment") such that the net amount retained by the Executive from the Payment and the Gross-up Payment, after reduction for any Excise Tax upon the payment and any federal, state and local income and employment tax and Excise Tax upon the Gross-up Payment, shall be equal to the Payment. The calculation and payment of the Gross-up Payment shall be subject to the provisions of Exhibit A.
9. Entitlement To Other Benefits. Except as provided in this Agreement, this Agreement shall not be construed as limiting in any way any rights to benefits that the Executive may have pursuant to any other plan or program of SCST.
10. Termination or Resignation Following a Change of Control. In
the event that Executive resigns his employment with SCST or
suffers a "Termination" of such employment within two years
after a "Change of Control" of SCST under the circumstances
described and the definitions set forth in paragraphs 3 and 1
(e) of the Executive Severance Agreement entered into between
Executive and SCST on September 28, 2002 (the "Executive
Severance Agreement"), the provisions of which are hereby
incorporated by reference, the Executive shall be entitled to
the greater of each benefit described in Section 8 or each
benefit provided for under the Executive Severance Agreement.
11. Non-Competition, Non-Solicitation and Confidentiality. The Executive acknowledges that in the course of his employment with SCST he has become, and in the course of his employment with SCST he will continue to become, familiar with SCST's trade secrets and those of any person or entity controlling, controlled
by or under common control with such person or entity, including, without limitation, for SCST, each of Saia Motor Freight Line, Inc. and Jevic Transportation, Inc. (an "affiliate") and with other confidential information concerning SCST and its affiliates and that his services will be of special, unique and extraordinary value to SCST. Therefore, the Executive agrees that:
(a) so long as the Executive is employed by SCST or an affiliate of SCST and for a period of two years after the date the Executive ceases to be employed by SCST or an affiliate of SCST (the "Non-Compete Period"), the Executive shall not, and shall not allow any of his affiliates to, engage (whether as an owner, operator, manager, employee, officer, director, consultant, advisor, representative or otherwise), directly or indirectly in any endeavor, activity or business in (x) any country in the world where SCST or any of its affiliates is doing business during the term of such Non-Compete Period or (y) any state in the United States or any province in Canada, that engages, in whole or in part, in or that otherwise competes, in whole or in part, with the business of providing trucking transportation, including, but not limited to, offering regional, interregional or national less-than-truckload services or truckload services, freight brokerage, transportation logistics or any other business of SCST and its affiliates or any of them (collectively, the "Business") as conducted or as proposed to be conducted at any time during the term of the Executive's employment with SCST or any of its affiliates; provided that this paragraph shall not be construed to prohibit the ownership of less than 3% of the outstanding stock of any publicly-traded corporation.
(b) The Executive agrees that so long as the Executive is employed by SCST or an affiliate of SCST and for a period of two years after the date the Executive ceases to be employed by SCST or an affiliate of SCST (the "Non-Solicitation Period"), he shall not, and shall not permit any of his affiliates to, directly or indirectly,
(i) contact, approach or solicit for the purpose of offering employment to or hiring (whether as an employee, consultant, agent, independent contractor, salesperson, distributor, supplier, vendor, manufacturer, representative, agent, jobber or otherwise) or actually hire any person employed by SCST or any of its affiliates during the Non-Solicitation Period, without the prior written consent of SCST, or otherwise induce any person or entity transacting business with SCST or any of its affiliates to terminate any relationship, association or arrangement with SCST or any of its affiliates, or to represent, distribute or sell services or products of SCST or its affiliates; or
(ii) divert or attempt to divert from SCST or any of its affiliates any business with any customer or account the identity of which was learned by the Executive, as a result of his operation of the Business or employment with SCST or any of its affiliates.
12. Confidentiality. The Executive shall treat and hold as confidential any information concerning the Business, SCST or any of its affiliates that is not already generally
available to the public (the "Confidential Information"),
refrain from using any of the Confidential Information except
in connection with his employment with SCST or any of its
affiliates, and deliver promptly to SCST, at the request and
option of SCST, all tangible embodiments (and all copies) of
the Confidential Information which are in his possession or
under his control. In the event that the Executive is
requested or required (by oral question or request for
information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the
Executive shall notify SCST promptly of the request or
requirement so that SCST may seek an appropriate protective
order or waive compliance with the provisions of this Section
12. If, in the absence of a protective order or the receipt of
a waiver hereunder, the Executive is, on the advice of
counsel, compelled to disclose any Confidential Information to
any tribunal or else stand liable for contempt, the Executive
may disclose the Confidential Information to the tribunal;
provided, that the Executive shall use his best efforts to
obtain, at the request of and at the cost of SCST, an order or
other assurance that confidential treatment shall be accorded
to such portion of the Confidential Information required to be
disclosed as SCST shall designate.
13. Use of Information of Prior Employers. During the term of this Agreement, the Executive will not improperly use or disclose any confidential information or trade secrets, if any, of any former employers or any other person to whom the Executive has an obligation of confidentiality, and will not bring onto the premises of SCST or any of its affiliates any unpublished documents or any property belonging to any former employer or any other person to whom the Executive has an obligation of confidentiality unless consented to in writing by the former employer or person.
14. Remedy for Breach. The Executive acknowledges and agrees that in the event of a breach by the Executive of any of the provisions of Sections 11, 12 or 13 monetary damages shall not constitute a sufficient remedy. Consequently, in the event of any such breach, SCST and/or its respective successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of law or equity of competentjurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof, in each case without the requirement of posting a bond or proving actual damages.
15. Enforcement. If the final judgment of a court of competent jurisdiction declares that any term or provision of Sections 11, 12, 13 or 14 is invalid or unenforceable, each of the Executive and SCST agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and the terms provided herein shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.
16. Acknowledgment. The Executive acknowledges and agrees that (i) the restrictions contained in Sections 11, 12, 13, 14 or 15 are reasonable in all respects (including, without limitation, with respect to subject matter, time period and geographical area)
and are necessary to protect SCST's interest in, and value of, the Business (including, without limitation, the goodwill inherent therein) and (ii) Executive is responsible for the creation of such value.
17. Arbitration.
(a) Arbitration of Disputes. Except as otherwise expressly provided herein, any dispute between the parties hereto arising out of, in connection with, or relating to this Agreement or the breach thereof shall be settled by arbitration in Kansas City, Missouri, in accordance with the rules then in effect of the American Arbitration Association ("AAA"). Arbitration shall be the exclusive remedy for any such dispute except only as to failure to abide by an arbitration award rendered hereunder. Regardless of whether or not both parties hereto participate in the arbitration proceeding, any arbitration award rendered hereunder shall be final and binding on each party hereto and judgment upon the award rendered may be entered in any court having jurisdiction thereof. The party seeking arbitration shall notify the other party in writing and request the AAA to submit a list of 5 or 7 potential arbitrators. In the event the parties do not agree upon an arbitrator, each party shall, in turn, strike one arbitrator from the list, SCST having the first strike, until only one arbitrator remains, who shall arbitrate the dispute. The parties shall have the opportunity to conduct reasonable discovery as determined by the arbitrator, and the arbitration hearing shall be conducted within 30 to 60 days of the selection of an arbitrator or at the earliest date thereafter that the arbitrator is available or as otherwise set by the arbitrator.
(b) Indemnification. If arbitration occurs as provided for herein and the Executive is awarded more than SCST has asserted is due him or otherwise substantially prevails therein, SCST shall reimburse the Executive for his reasonable attorneys' fees, costs and disbursements incurred in such arbitration and hereby agrees to pay interest on any money award obtained by the Executive from the date payment should have been made until the date payment is made, calculated at the prime interest rate of Bank of America, N.A., Kansas City, Missouri in effect from time to time from the date that payment(s) to him should have been made under this Agreement. If the Executive enforces the arbitration award in court, SCST shall reimburse the Executive for his reasonable attorneys' fees, costs and disbursements incurred in such enforcement.
18. Indemnification under Charter and Bylaws. SCST shall provide the Executive with rights to indemnification by SCST that are no less favorable to the Executive than those set forth in SCST's governing documents as in effect as of the Effective Date.
19. Successors. This Agreement shall be binding upon and inure to the benefit of the Executive and his estate and SCST and any successor of SCST, but neither this Agreement nor any rights arising hereunder may be assigned or pledged by the Executive.
20. Severability. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting 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.
21. Survival. The parties agree that the obligations contained in this Agreement which by their terms survive the expiration, termination or cancellation of this Agreement shall survive any expiration, termination or cancellation of this Agreement and continue to be enforceable.
22. Notices. All notices required or permitted to be given under
this Agreement shall be given in writing and shall be deemed
sufficiently given if delivered by hand or mailed by
registered mail, return receipt requested, to his residence in
the case of the Executive and to its principal executive
offices in the case of SCST. Either party may by giving
written notice to the other party in accordance with this
Section 22 change the address at which it is to receive
notices hereunder.
23. Controlling Law. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of Missouri.
24. Changes to Agreement. This Agreement may not be changed orally but only in a writing, signed by the party against whom enforcement is sought.
25. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 20th of November, 2002.
EXECUTIVE SCS TRANSPORTATION, INC. /s/ Herbert A. Trucksess III By: /s/ James J. Bellinghausen ---------------------------- --------------------------- Herbert A Trucksess III ATTEST By: /s/ G. Drown --------------------------- |
EXHIBIT A
GROSS-UP PAYMENTS
The following provisions shall be applicable with respect to the Gross-Up Payments described in Section 8 (h) of this Agreement.
(a) For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Payments received or to be received shall be treated as "parachute payments" within the meaning of Section 280G(b) (2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b) (1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of tax counsel selected by SCST, the Payments (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b) (4) (A) of the Code, or excess parachute payments (as determined after application of Section 280G(b) (4) (B) of the Code), and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by independent auditors selected by SCST in accordance with the principles of Sections 280G(d) (3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation to which such payment could be subject based upon the state and locality of the Executive's residence or employment, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. In addition, for purposes of determining the amount of the Gross-Up Payment, SCST shall make a determination of the amount of any employment taxes required to be paid on the Gross-Up Payment. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-Up Payment is made (including by reason of any payments the existence or amount of which cannot be determined at the time of the Gross-Up Payment), SCST shall make an additional gross-up payment in respect of such excess (plus any interest, penalties or additions payable with respect to such excess) at the time that the amount of such excess is finally determined. Notwithstanding the foregoing, SCST shall withhold from any payment due to the Executive the amount required by law to be so withheld under Federal, state or local wage or employment tax withholding requirements or otherwise (including without limitation Section 4999 of the Code), and shall pay over to the appropriate government authorities the amount so withheld.
(b) The Gross-Up Payment with respect to a Payment shall be paid not later than the thirtieth day following the date of the Payment; provided, however, that if the amount of such Gross-Up Payment or portion thereof cannot be finally determined on or before such day, SCST shall pay to the Executive on such date an estimate, as determined in good faith by SCST, of the amount of such payments and shall pay the remainder of such payments (together with interest at the Federal short-term rate provided in Section 1274(d) (1) (C) (i) of the Code) as soon as the amount thereof can be determined. At the time that payments are made under Section 8(h) and this
Exhibit A, SCST shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations, including, without limitation, any opinions or other advice SCST has received from outside counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
AGREEMENT, made this 20th day of November, 2002, by and among SCS Transportation, Inc., a Delaware corporation ("SCST"), Saia Motor Freight Line, Inc., a Louisiana corporation ("Saia") and Richard D. O'Dell (the "Executive").
WITNESSETH
WHEREAS, the Board of Directors of Saia has approved the employment of the Executive on the terms and conditions set forth in this Agreement; and
WHEREAS, the Executive is willing, for the consideration provided, to enter into employment with Saia on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:
1. Employment. Saia hereby agrees to employ the Executive, and the Executive hereby accepts such employment, upon the terms and conditions set forth in this Agreement.
2. Term. The term of this Agreement shall be for two years from the date hereof (the "Effective Date"), with said term renewing daily, and ending on the date of termination of the Executive's employment determined pursuant to Section 5, 6 or 7, whichever shall be applicable.
3. Position and Duties. The Executive shall serve as Chief Executive Officer, and shall have such responsibilities and authority as commensurate with such offices and as may from time to time be prescribed by or pursuant to Saia's bylaws. The Executive shall devote substantially all of his working time and efforts to the business and affairs of Saia.
4. Compensation. During the period of the Executive's employment, Saia shall provide the Executive with the following compensation and other benefits:
(a) Base Salary. Saia shall pay to the Executive base salary at the rate of $300,000.00 per annum which shall be payable in accordance with the standard payroll practices of Saia. Such base salary rate shall be reviewed annually in accordance with SCST's normal policies beginning in calendar year 2003; provided, however, that at no time during the term of this Agreement shall the Executive's base salary be decreased from the rate then in effect.
(b) Annual Bonus. The Executive shall participate in a bonus program established and maintained by SCST, which shall be paid by Saia. The criteria for establishment of the parameters for payments shall be determined annually by the Compensation Committee of the Board of Directors of SCST.
(c) Stock Options. The Compensation Committee of the Board of Directors of SCST shall determine the number of stock options to purchase common stock of SCST, if any, to be granted to the Executive and the terms and conditions of any such options.
(d) Other Benefits. In addition to the compensation and benefits otherwise specified in this Agreement, the Executive (and, if provided for under the applicable plan or program, his spouse) shall be entitled to participate in, and to receive benefits under, Saia's employee benefit plans and programs
that are or may be available to senior executives generally and on terms and conditions that are no less favorable than those generally applicable to other senior executives of Saia. At no time during the term of this Agreement shall the Executive's participation in or benefits received under such plans and programs be decreased.
(e) Expenses. The Executive shall be entitled to prompt reimbursement of all reasonable expenses incurred by him in performing services hereunder, provided he properly accounts therefore in accordance with Saia's policies.
(f) Office and Services Furnished. Saia shall furnish the Executive with office space, secretarial assistance and such other facilities and services as shall be suitable to the Executive's position and adequate for the performance of his duties hereunder.
5. Termination of Employment by Saia.
(a) Cause. Saia may terminate the Executive's employment for "Cause" if the Executive willfully engages in conduct which is materially and demonstrably injurious to Saia or any of its affiliates (as defined below) or willfully engages in an act or acts of dishonesty resulting in material personal gain to the Executive at the expense of Saia or any of its affiliates. Saia shall exercise its right to terminate the Executive's employment for Cause by (i) giving him written notice of termination at least 30 days before the date of such termination specifying in reasonable detail the circumstances constituting such Cause; and (ii) delivering to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority
of the entire membership of the Board of Directors after reasonable notice to the Executive and an opportunity for the Executive and his counsel to be heard before the Board of Directors, finding that the Executive has engaged in the conduct set forth in this subsection (a). In the event of such termination of the Executive's employment for Cause, the Executive shall be entitled to receive (i) his base salary pursuant to Section 4(a) and any other compensation and benefits to the extent actually earned pursuant to this Agreement or any benefit plan or program of Saia as of the date of such termination at the normal time for payment of such salary, compensation or benefits, and (ii) any amounts owing under Section 4(e). In addition, in the event of such termination of the Executive's employment for Cause, all outstanding options to purchase common stock of SCST held by the Executive at the effective date of such termination which had not already been exercised shall be forfeited. Except as provided in Section 9, the Executive shall receive no other compensation or benefits from Saia or any of its affiliates.
(b) Disability. If the Executive incurs a Permanent and Total Disability, as defined below, Saia may terminate the Executive's employment by giving him written notice of termination at least 30 days before the date of such termination. In the event of such termination of the Executive's employment because of Permanent and Total Disability, (i) the Executive shall be entitled to receive his base salary pursuant to Section 4(a) and any other compensation and benefits to the extent actually earned by the Executive pursuant to this Agreement or any benefit plan or program of
Saia as of the date of such termination of employment
at the normal time for payment of such salary,
compensation or benefits and any amounts owing under
Section 4(e), and (ii) all outstanding stock options
to purchase common stock of SCST held by the
Executive at the time of his termination of
employment shall become immediately exercisable at
that time, and the Executive shall have one year from
the date of such termination of employment to
exercise any or all of such outstanding options (but
not beyond the term of such option). For purposes of
this Agreement, the Executive shall be considered to
have incurred a "Permanent and Total Disability" if
he is unable to engage in any substantial gainful
employment by reason of any materially determinable
physical or mental impairment which can be expected
to result in death or which has lasted or can be
expected to last for a continuous period of not less
than 12 months. The existence of such Permanent and
Total Disability shall be evidenced by such medical
certification as the Secretary of Saia shall require
and shall be subject to the approval of the
Compensation Committee of the Board of Directors of
SCST.
(c) Without Cause. Saia may terminate the Executive's employment at any time and for any reason, other than for Cause or because of Permanent and Total Disability, by giving him a written notice of termination to that effect at least 30 days before the date of termination. In the event of such termination of the Executive's employment without Cause, the Executive shall be entitled to the benefits described in Section 8.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate his
employment for Good Reason by giving Saia a written
notice of termination at least 30 days before the
date of such termination specifying in reasonable
detail the circumstances constituting such Good
Reason. In the event of the Executive's termination
of his employment for Good Reason, the Executive
shall be entitled to the benefits described in
Section 8. For purposes of this Agreement, "Good
Reason" shall mean (i) the failure of Saia in any
material way either to pay or provide to the
Executive the compensation and benefits that he is
entitled to receive pursuant to this Agreement by the
later of (A) 60 days after the applicable due date or
(B) 30 days after the Executive's written demand for
payment, or (ii) the assignment to the Executive of
any duties that are materially inconsistent with
those of a Chief Executive Officer of a company that
results in a diminution in the Executive's normal
duties, responsibilities and authority as described
in Section 3; provided, that, the transfer of the
Executive to a comparable position with another
subsidiary of SCST or a transfer of the Executive to
a position with SCST shall not be deemed to give rise
to Executive's right to terminate his employment for
"Good Reason", or (iii) Executive's receipt of notice
from Saia of the cut-off of the automatic renewal of
the term of this Agreement as described in Section 2
above.
(b) Other. The Executive may terminate his employment at any time and for any reason, other than pursuant to subsection (a) above, by giving Saia a written notice of termination to that effect at least 30 days before the date of termination. In the event of the Executive's termination of his employment pursuant to this subsection (b), the Executive shall be entitled to receive (i) his base salary pursuant to Section 4(a) and any other compensation and benefits to the extent actually earned by the Executive pursuant to this Agreement or any benefit plan or program of Saia as of the date of such termination at the normal time for payment of such salary, compensation or benefits, and (ii) any amounts owing under Section 4(e). In the event of the Executive's termination of his employment pursuant to this subsection (b), all outstanding options to purchase common stock of SCST held by the Executive not previously exercised by the date of termination shall be forfeited. Except as provided in Section 9, the Executive shall receive no other compensation or benefits from Saia or any of its affiliates.
7. Termination of Employment By Death. In the event of the death of the Executive during the course of his employment hereunder, (i) the Executive's estate shall be entitled to receive his base salary pursuant to Section 4(a) and any other compensation and benefits to the extent actually earned by the Executive pursuant to this Agreement or any other benefit plan or program of Saia as of the date of such termination at the normal time for payment of such salary, compensation or
benefits, and (ii) all outstanding stock options to purchase common stock of SCST held by the Executive at the time of his death shall become immediately exercisable upon his death, and the Executive's spouse or, if predeceased, the Executive's estate, shall have one year from the date of his death to exercise any or all of such outstanding options (but not beyond the term of such option).
8. Benefits Upon Termination Without Cause or Good Reason. If the Executive's employment with Saia shall terminate (i) because of termination by Saia pursuant to Section 5(c) and not for Cause or because of Permanent and Total Disability, or (ii) because of termination by the Executive for Good Reason pursuant to Section 6(a), the Executive shall be entitled to the following:
(a) Saia shall pay to the Executive his base salary pursuant to Section 4(a) and, subject to the further provisions of this Section 8, any other compensation and benefits to the extent actually earned by the Executive under this Agreement or any benefit plan or program of Saia as of the date of such termination at the normal time for payment of such salary, compensation or benefits.
(b) Saia shall pay the Executive any amounts owing under
Section 4(e).
(c) Saia shall pay to the Executive as a severance benefit an amount equal to two times his annual rate of base salary immediately preceding his termination of employment. Such severance benefit shall be paid in a lump sum within 30 days after the date of such termination of employment.
(d) Saia shall pay to the Executive a pro rated target bonus based on the actual portion of the fiscal year elapsed prior to the termination of Executive's employment under Saia's target bonus plan for the fiscal year in which his termination of employment occurs as if the target had been exactly met. Such payment shall be made in a lump sum within 30 days after the date of such termination of employment, and the Executive shall have no right to any further bonuses under said program.
(e) The Executive shall become eligible for payment of the retirement benefits pursuant to Saia's nonqualified defined contribution plans, if any. Payment of benefits under such plans shall be made at the time and in the manner determined under the applicable plan.
(f) During the period of 24 months beginning on the date of the Executive's termination of employment, the Executive (and, if applicable under the applicable program, his spouse) shall remain covered by the employee benefit plans and programs that covered him immediately prior to his termination of employment as if he had remained in employment for such period; provided, however, that there shall be excluded for this purpose any plan or program providing payment for time not worked (including without limitation holiday, vacation, and long- and short-term disability). In the event that the Executive's participation in any such employee benefit plan or program is barred, Saia shall arrange to provide the Executive with substantially similar benefits. Any medical insurance coverage for such two-year period pursuant to this subsection (f) shall become secondary
upon the earlier of (i) the date on which the Executive begins to be covered by comparable medical coverage provided by a new employer, or (ii) the earliest date upon which the Executive becomes eligible for Medicare or a comparable Government insurance program.
(g) All outstanding stock options to purchase common stock of SCST held by the Executive at the time of termination of his employment shall become fully exercisable upon such termination of employment and the Executive shall have two years from the date of such termination of employment to exercise any or all of such outstanding options (but not beyond the term of such option).
(h) If any payment or benefit received by or in respect of the Executive under this Agreement or any other plan, arrangement or agreement with Saia (determined without regard to any additional payments required under this subsection (h) and Exhibit A of this Agreement) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the "Excise Tax"), Saia shall pay to the Executive with respect to such Payment at the time specified in Exhibit A an additional amount (the "Gross-up Payment") such that the net amount retained by the Executive from the Payment and the Gross-up Payment, after reduction for any Excise Tax
upon the payment and any federal, state and local income and employment tax and Excise Tax upon the Gross-up Payment, shall be equal to the Payment. The calculation and payment of the Gross-up Payment shall be subject to the provisions of Exhibit A.
9. Entitlement To Other Benefits. Except as provided in this Agreement, this Agreement shall not be construed as limiting in any way any rights to benefits that the Executive may have pursuant to any other plan or program of Saia.
10. Termination or Resignation Following a Change of Control. In the event that Executive resigns his employment with Saia and its affiliates or suffers a "Termination" of such employment within two years after a "Change of Control" of SCST under the circumstances described and the definitions set forth in paragraphs 3 and 1 (e) of the Executive Severance Agreement entered into between Executive and SCST on September 28, 2002 (the "Executive Severance Agreement"), the provisions of which are hereby incorporated by reference, the Executive shall be entitled to the greater of each benefit described in Section 8 or each benefit provided for under the Executive Severance Agreement.
11. Non-Competition, Non-Solicitation and Confidentiality. The Executive acknowledges that in the course of his employment with Saia he has become, and in the course of his employment with Saia he will continue to become, familiar with Saia's trade secrets and those of any person or entity controlling, controlled by or under common control with such person or entity, including, without limitation, for Saia, each of SCST and Jevic Transportation, Inc. (an "affiliate") and with other
confidential information concerning Saia and its affiliates and that his services will be of special, unique and extraordinary value to Saia. Therefore, the Executive agrees that:
(a) so long as the Executive is employed by Saia or an affiliate of Saia and for a period of two years after the date the Executive ceases to be employed by Saia or an affiliate of Saia (the "Non-Compete Period"), the Executive shall not, and shall not allow any of his affiliates to, engage (whether as an owner, operator, manager, employee, officer, director, consultant, advisor, representative or otherwise), directly or indirectly in any endeavor, activity or business in (x) any country in the world where Saia or any of its affiliates is doing business during the term of such Non-Compete Period or (y) any state in the United States or any province in Canada, that engages, in whole or in part, in or that otherwise competes, in whole or in part, with the business of providing trucking transportation, including, but not limited to, offering regional, interregional or national less-than-truckload services or truckload services, freight brokerage, transportation logistics or any other business of Saia and its affiliates or any of them (collectively, the "Business") as conducted or as proposed to be conducted at any time during the term of the Executive's employment with Saia or any of its affiliates; provided that this paragraph shall not be construed to prohibit the ownership of less than 3% of the outstanding stock of any publicly-traded corporation.
(b) The Executive agrees that so long as the Executive is employed by Saia or an affiliate of Saia and for a period of two years after the date the
Executive ceases to be employed by Saia or an affiliate of Saia (the "Non-Solicitation Period"), he shall not, and shall not permit any of his affiliates to, directly or indirectly,
(i) contact, approach or solicit for the purpose of offering employment to or hiring (whether as an employee, consultant, agent, independent contractor, salesperson, distributor, supplier, vendor, manufacturer, representative, agent, jobber or otherwise) or actually hire any person employed by Saia or any of its affiliates during the Non-Solicitation Period, without the prior written consent of Saia, or otherwise induce any person or entity transacting business with Saia or any of its affiliates to terminate any relationship, association or arrangement with Saia or any of its affiliates, or to represent, distribute or sell services or products of Saia or its affiliates; or
(ii) divert or attempt to divert from Saia or any of its affiliates any business with any customer or account the identity of which was learned by the Executive, as a result of his operation of the Business or employment with Saia or any of its affiliates.
12. Confidentiality. The Executive shall treat and hold as confidential any information concerning the Business, Saia or any of its affiliates that is not already generally available to the public (the "Confidential Information"), refrain from using any of the Confidential Information except in connection with his employment with Saia
or any of its affiliates, and deliver promptly to Saia, at the
request and option of Saia, all tangible embodiments (and all
copies) of the Confidential Information which are in his
possession or under his control. In the event that the
Executive is requested or required (by oral question or
request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the
Executive shall notify Saia promptly of the request or
requirement so that Saia may seek an appropriate protective
order or waive compliance with the provisions of this Section
12. If, in the absence of a protective order or the receipt of
a waiver hereunder, the Executive is, on the advice of
counsel, compelled to disclose any Confidential Information to
any tribunal or else stand liable for contempt, the Executive
may disclose the Confidential Information to the tribunal;
provided, that the Executive shall use his best efforts to
obtain, at the request of and at the cost of Saia, an order or
other assurance that confidential treatment shall be accorded
to such portion of the Confidential Information required to be
disclosed as Saia shall designate.
13. Use of Information of Prior Employers. During the term of this Agreement, the Executive will not improperly use or disclose any confidential information or trade secrets, if any, of any former employers or any other person to whom the Executive has an obligation of confidentiality, and will not bring onto the premises of Saia or any of its affiliates any unpublished documents or any property belonging to any former employer or any other person to whom the Executive has an obligation of confidentiality unless consented to in writing by the former employer or person.
14. Remedy for Breach. The Executive acknowledges and agrees that in the event of a breach by the Executive of any of the provisions of Sections 11, 12 or 13 monetary damages shall not constitute a sufficient remedy. Consequently, in the event of any such breach, Saia and/or its respective successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof, in each case without the requirement of posting a bond or proving actual damages.
15. Enforcement. If the final judgment of a court of competent jurisdiction declares that any term or provision of Sections 11, 12, 13 or 14 is invalid or unenforceable, each of the Executive and Saia agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and the terms provided herein shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.
16. Acknowledgment. The Executive acknowledges and agrees that (i) the restrictions contained in Sections 11, 12, 13, 14 or 15 are reasonable in all respects (including, without limitation, with respect to subject matter, time period and geographical area)
and are necessary to protect Saia's interest in, and value of, the Business (including, without limitation, the goodwill inherent therein) and (ii) Executive is responsible for the creation of such value.
17. Arbitration.
(a) Arbitration of Disputes. Except as otherwise expressly provided herein, any dispute between the parties hereto arising out of, in connection with, or relating to this Agreement or the breach thereof shall be settled by arbitration in Kansas City, Missouri, in accordance with the rules then in effect of the American Arbitration Association ("AAA"). Arbitration shall be the exclusive remedy for any such dispute except only as to failure to abide by an arbitration award rendered hereunder. Regardless of whether or not both parties hereto participate in the arbitration proceeding, any arbitration award rendered hereunder shall be final and binding on each party hereto and judgment upon the award rendered may be entered in any court having jurisdiction thereof. The party seeking arbitration shall notify the other party in writing and request the AAA to submit a list of 5 or 7 potential arbitrators. In the event the parties do not agree upon an arbitrator, each party shall, in turn, strike one arbitrator from the list, Saia having the first strike, until only one arbitrator remains, who shall arbitrate the dispute. The parties shall have the opportunity to conduct reasonable discovery as determined by the arbitrator, and the arbitration hearing shall be conducted within 30 to 60 days of the selection of an arbitrator or at the earliest date thereafter that the arbitrator is available or as otherwise set by the arbitrator.
(b) Indemnification. If arbitration occurs as provided for herein and the Executive is awarded more than Saia has asserted is due him or otherwise substantially prevails therein, Saia shall reimburse the Executive for his reasonable attorneys' fees, costs and disbursements incurred in such arbitration and hereby agrees to pay interest on any money award obtained by the Executive from the date payment should have been made until the date payment is made, calculated at the prime interest rate of Bank of America, N.A., Kansas City, Missouri in effect from time to time from the date that payment(s) to him should have been made under this Agreement. If the Executive enforces the arbitration award in court, Saia shall reimburse the Executive for his reasonable attorneys' fees, costs and disbursements incurred in such enforcement.
18. Indemnification under Charter and Bylaws. Saia shall provide the Executive with rights to indemnification by Saia that are no less favorable to the Executive than those set forth in Saia's governing documents as in effect as of the Effective Date.
19. Successors. This Agreement shall be binding upon and inure to the benefit of the Executive and his estate and Saia and any successor or assign of Saia, but neither this Agreement nor any rights arising hereunder may be assigned or pledged by the Executive.
20. Severability. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of
such prohibition or unenforceability without invalidating or affecting 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.
21. Survival. The parties agree that the obligations contained in this Agreement which by their terms survive the expiration, termination or cancellation of this Agreement shall survive any expiration, termination or cancellation of this Agreement and continue to be enforceable.
22. Notices. All notices required or permitted to be given under this Agreement shall be given in writing and shall be deemed sufficiently given if delivered by hand or mailed by registered mail, return receipt requested, to his residence in the case of the Executive and to its principal executive offices in the case of Saia and SCST. Either party may by giving written notice to the other party in accordance with this Section 22 change the address at which it is to receive notices hereunder.
23. Controlling Law. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of Missouri.
24. Changes to Agreement. This Agreement may not be changed orally but only in a writing, signed by the party against whom enforcement is sought.
25. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
20th of November, 2002.
EXECUTIVE SAIA MOTOR FREIGHT LINE, INC. /s/ Richard D. O'Dell /s/ Anthony D. Albanese ---------------------------- ------------------------------------ Richard D. O'Dell By: Anthony D. Albanese Senior Vice President, Operations and Sales ATTEST /s/ James A. Darby -------------------------------------------- By: James A. Darby Secretary SCS TRANSPORTATION, INC., for the sole purpose of binding itself to the provisions in this Agreement regarding stock options to purchase shares of SCST granted to the Executive and for no other purpose shall SCST be bound or obligated hereunder /s/ Herbert A. Trucksess -------------------------------------------- By: Herbert A. Trucksess Chairman, President and CEO ATTEST /s/ James J. Bellinghausen -------------------------------------------- By: James J. Bellinghausen Secretary |
EXHIBIT A
GROSS-UP PAYMENTS
The following provisions shall be applicable with respect to the Gross-Up Payments described in Section 8 (h) of this Agreement.
(a) For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Payments received or to be received shall be treated as "parachute payments" within the meaning of Section 280G(b) (2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b) (1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of tax counsel selected by Saia, the Payments (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b) (4) (A) of the Code, or excess parachute payments (as determined after application of Section 280G(b) (4) (B) of the Code), and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by independent auditors selected by Saia in accordance with the principles of Sections 280G(d) (3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation to which such payment could be subject based upon the state and locality of the Executive's residence or employment, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. In addition, for purposes of determining the amount of the Gross-Up Payment, Saia shall make a determination of the amount of any employment taxes required to be paid on the Gross-Up Payment. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-Up Payment is made (including by reason of any payments the existence or amount of which cannot be determined at the time of the Gross-Up Payment), Saia shall make an additional gross-up payment in respect of such excess (plus any interest, penalties or additions payable with respect to such excess) at the time that the amount of such excess is finally determined. Notwithstanding the foregoing, Saia shall withhold from any payment due to the Executive the amount required by law to be so withheld under Federal, state or local wage or employment tax withholding requirements or otherwise (including without limitation Section 4999 of the Code), and shall pay over to the appropriate government authorities the amount so withheld.
(b) The Gross-Up Payment with respect to a Payment shall be paid not later than the thirtieth day following the date of the Payment; provided, however, that if the amount of such Gross-Up Payment or portion thereof cannot be finally determined on or before such day, Saia shall pay to the Executive on such date an estimate, as determined in good faith by Saia, of the amount of such payments and shall pay the remainder of such payments (together with interest at the Federal short-term rate provided in Section 1274(d) (1) (C) (i) of the Code) as soon as the amount thereof can be determined. At the time that payments are made under Section 8(h) and this Exhibit
A, Saia shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations, including, without limitation, any opinions or other advice Saia has received from outside counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT, made this 20th day of November, 2002, by and among SCS Transportation, Inc., a Delaware corporation ("SCST"), Jevic Transportation, Inc., a New Jersey corporation ("Jevic") and Paul J. Karvois (the "Executive").
WITNESSETH
WHEREAS, the Board of Directors of Jevic has approved the employment of the Executive on the terms and conditions set forth in this Agreement; and
WHEREAS, the Executive is willing, for the consideration provided, to enter into employment with Jevic on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:
1. Employment. Jevic hereby agrees to employ the Executive, and the Executive hereby accepts such employment, upon the terms and conditions set forth in this Agreement.
2. Term. The term of this Agreement shall be for two years from the date hereof (the "Effective Date"), with said term renewing daily, and ending on the date of termination of the Executive's employment determined pursuant to Section 5, 6 or 7, whichever shall be applicable.
3. Position and Duties. The Executive shall serve as Chief Executive Officer, and shall have such responsibilities and authority as commensurate with such offices and as may from time to time be prescribed by or pursuant to Jevic's bylaws. The Executive shall devote substantially all of his working time and efforts to the business and affairs of Jevic.
4. Compensation. During the period of the Executive's employment, Jevic shall provide the Executive with the following compensation and other benefits:
(a) Base Salary. Jevic shall pay to the Executive base salary at the rate of $300,000.00 per annum which shall be payable in accordance with the standard payroll practices of Jevic. Such base salary rate shall be reviewed annually in accordance with SCST's normal policies beginning in calendar year 2003; provided, however, that at no time during the term of this Agreement shall the Executive's base salary be decreased from the rate then in effect.
(b) Annual Bonus. The Executive shall participate in a bonus program established and maintained by SCST, which shall be paid by Jevic. The criteria for establishment of the parameters for payments shall be determined annually by the Compensation Committee of the Board of Directors of SCST.
(c) Stock Options. The Compensation Committee of the Board of Directors of SCST shall determine the number of stock options to purchase common stock of SCST, if any, to be granted to the Executive and the terms and conditions of any such options.
(d) Other Benefits. In addition to the compensation and benefits otherwise specified in this Agreement, the Executive (and, if provided for under the applicable plan or program, his spouse) shall be entitled to participate in, and to receive benefits under,
Jevic's employee benefit plans and programs that are or may be available to senior executives generally and on terms and conditions that are no less favorable than those generally applicable to other senior executives of Jevic. At no time during the term of this Agreement shall the Executive's participation in or benefits received under such plans and programs be decreased.
(e) Expenses. The Executive shall be entitled to prompt reimbursement of all reasonable expenses incurred by him in performing services hereunder, provided he properly accounts therefore in accordance with Jevic's policies.
(f) Office and Services Furnished. Jevic shall furnish the Executive with office space, secretarial assistance and such other facilities and services as shall be suitable to the Executive's position and adequate for the performance of his duties hereunder.
5. Termination of Employment by Jevic.
(a) Cause. Jevic may terminate the Executive's employment for "Cause" if the Executive willfully engages in conduct which is materially and demonstrably injurious to Jevic or any of its affiliates (as defined below) or willfully engages in an act or acts of dishonesty resulting in material personal gain to the Executive at the expense of Jevic or any of its affiliates. Jevic shall exercise its right to terminate the Executive's employment for Cause by (i) giving him written notice of termination at least 30 days before the date of such termination specifying in reasonable detail the
circumstances constituting such Cause; and (ii) delivering to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors after reasonable notice to the Executive and an opportunity for the Executive and his counsel to be heard before the Board of Directors, finding that the Executive has engaged in the conduct set forth in this subsection (a). In the event of such termination of the Executive's employment for Cause, the Executive shall be entitled to receive (i) his base salary pursuant to Section 4(a) and any other compensation and benefits to the extent actually earned pursuant to this Agreement or any benefit plan or program of Jevic as of the date of such termination at the normal time for payment of such salary, compensation or benefits, and (ii) any amounts owing under Section 4(e). In addition, in the event of such termination of the Executive's employment for Cause, all outstanding options to purchase common stock of SCST held by the Executive at the effective date of such termination which had not already been exercised shall be forfeited. Except as provided in Section 9, the Executive shall receive no other compensation or benefits from Jevic or any of its affiliates.
(b) Disability. If the Executive incurs a Permanent and Total Disability, as defined below, Jevic may terminate the Executive's employment by giving him written notice of termination at least 30 days before the date of such termination. In the event of such
termination of the Executive's employment because of Permanent and Total Disability, (i) the Executive shall be entitled to receive his base salary pursuant to Section 4(a) and any other compensation and benefits to the extent actually earned by the Executive pursuant to this Agreement or any benefit plan or program of Jevic as of the date of such termination of employment at the normal time for payment of such salary, compensation or benefits and any amounts owing under Section 4(e), and (ii) all outstanding stock options to purchase common stock of SCST held by the Executive at the time of his termination of employment shall become immediately exercisable at that time, and the Executive shall have one year from the date of such termination of employment to exercise any or all of such outstanding options (but not beyond the term of such option). For purposes of this Agreement, the Executive shall be considered to have incurred a "Permanent and Total Disability" if he is unable to engage in any substantial gainful employment by reason of any materially determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. The existence of such Permanent and Total Disability shall be evidenced by such medical certification as the Secretary of Jevic shall require and shall be subject to the approval of the Compensation Committee of the Board of Directors of SCST.
(c) Without Cause. Jevic may terminate the Executive's employment at any time and for any reason, other than for Cause or because of Permanent and Total Disability, by giving him a written notice of termination to that effect at least 30 days before the date of termination. In the event of such termination of the Executive's employment without Cause, the Executive shall be entitled to the benefits described in Section 8.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate his
employment for Good Reason by giving Jevic a written
notice of termination at least 30 days before the
date of such termination specifying in reasonable
detail the circumstances constituting such Good
Reason. In the event of the Executive's termination
of his employment for Good Reason, the Executive
shall be entitled to the benefits described in
Section 8. For purposes of this Agreement, "Good
Reason" shall mean (i) the failure of Jevic in any
material way either to pay or provide to the
Executive the compensation and benefits that he is
entitled to receive pursuant to this Agreement by the
later of (A) 60 days after the applicable due date or
(B) 30 days after the Executive's written demand for
payment, or (ii) the assignment to the Executive of
any duties that are materially inconsistent with
those of a Chief Executive Officer of a company that
results in a diminution in the Executive's normal
duties, responsibilities and authority as described
in
Section 3; provided, that, the transfer of the Executive to a comparable position with another subsidiary of SCST or a transfer of the Executive to a position with SCST shall not be deemed to give rise to Executive's right to terminate his employment for "Good Reason", or (iii) Executive's receipt of notice from Jevic of the cut-off of the automatic renewal of the term of this Agreement as described in Section 2 above.
(b) Other. The Executive may terminate his employment at
any time and for any reason, other than pursuant to
subsection (a) above, by giving Jevic a written
notice of termination to that effect at least 30 days
before the date of termination. In the event of the
Executive's termination of his employment pursuant to
this subsection (b), the Executive shall be entitled
to receive (i) his base salary pursuant to Section
4(a) and any other compensation and benefits to the
extent actually earned by the Executive pursuant to
this Agreement or any benefit plan or program of
Jevic as of the date of such termination at the
normal time for payment of such salary, compensation
or benefits, and (ii) any amounts owing under Section
4(e). In the event of the Executive's termination of
his employment pursuant to this subsection (b), all
outstanding options to purchase common stock of SCST
held by the Executive not previously exercised by the
date of termination shall be forfeited. Except as
provided in
Section 9, the Executive shall receive no other compensation or benefits from Jevic or any of its affiliates.
7. Termination of Employment By Death. In the event of the death of the Executive during the course of his employment hereunder, (i) the Executive's estate shall be entitled to receive his base salary pursuant to Section 4(a) and any other compensation and benefits to the extent actually earned by the Executive pursuant to this Agreement or any other benefit plan or program of Jevic as of the date of such termination at the normal time for payment of such salary, compensation or benefits, and (ii) all outstanding stock options to purchase common stock of SCST held by the Executive at the time of his death shall become immediately exercisable upon his death, and the Executive's spouse or, if predeceased, the Executive's estate, shall have one year from the date of his death to exercise any or all of such outstanding options (but not beyond the term of such option).
8. Benefits Upon Termination Without Cause or Good Reason. If the Executive's employment with Jevic shall terminate (i) because of termination by Jevic pursuant to Section 5(c) and not for Cause or because of Permanent and Total Disability, or (ii) because of termination by the Executive for Good Reason pursuant to Section 6(a), the Executive shall be entitled to the following:
(a) Jevic shall pay to the Executive his base salary pursuant to Section 4(a) and, subject to the further provisions of this Section 8, any other compensation and benefits to the extent actually
earned by the Executive under this Agreement or any benefit plan or program of Jevic as of the date of such termination at the normal time for payment of such salary, compensation or benefits.
(b) Jevic shall pay the Executive any amounts owing under
Section 4(e).
(c) Jevic shall pay to the Executive as a severance benefit an amount equal to two times his annual rate of base salary immediately preceding his termination of employment. Such severance benefit shall be paid in a lump sum within 30 days after the date of such termination of employment.
(d) Jevic shall pay to the Executive a pro rated target bonus based on the actual portion of the fiscal year elapsed prior to the termination of Executive's employment under Jevic's target bonus plan for the fiscal year in which his termination of employment occurs as if the target had been exactly met. Such payment shall be made in a lump sum within 30 days after the date of such termination of employment, and the Executive shall have no right to any further bonuses under said program.
(e) The Executive shall become eligible for payment of the retirement benefits pursuant to Jevic's nonqualified defined contribution plans, if any. Payment of benefits under such plans shall be made at the time and in the manner determined under the applicable plan.
(f) During the period of 24 months beginning on the date of the Executive's termination of employment, the Executive (and, if applicable under the applicable program, his spouse) shall remain covered by the employee benefit plans and programs that covered him immediately prior to his termination of employment as if he had remained in employment for such period; provided, however, that there shall be excluded for this purpose any plan or program providing payment for time not worked (including without limitation holiday, vacation, and long- and short-term disability). In the event that the Executive's participation in any such employee benefit plan or program is barred, Jevic shall arrange to provide the Executive with substantially similar benefits. Any medical insurance coverage for such two-year period pursuant to this subsection (f) shall become secondary upon the earlier of (i) the date on which the Executive begins to be covered by comparable medical coverage provided by a new employer, or (ii) the earliest date upon which the Executive becomes eligible for Medicare or a comparable Government insurance program.
(g) All outstanding stock options to purchase common stock of SCST held by the Executive at the time of termination of his employment shall become fully exercisable upon such termination of employment and the Executive shall have two years from the date of such termination of employment to exercise any or all of
such outstanding options (but not beyond the term of such option).
(h) If any payment or benefit received by or in respect
of the Executive under this Agreement or any other
plan, arrangement or agreement with Jevic (determined
without regard to any additional payments required
under this subsection (h) and Exhibit A of this
Agreement) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") (or any
similar tax that may hereafter be imposed) or any
interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax,
together with any such interest and penalties, being
hereinafter collectively referred to as the "Excise
Tax"), Jevic shall pay to the Executive with respect
to such Payment at the time specified in Exhibit A an
additional amount (the "Gross-up Payment") such that
the net amount retained by the Executive from the
Payment and the Gross-up Payment, after reduction for
any Excise Tax upon the payment and any federal,
state and local income and employment tax and Excise
Tax upon the Gross-up Payment, shall be equal to the
Payment. The calculation and payment of the Gross-up
Payment shall be subject to the provisions of Exhibit
A.
9. Entitlement To Other Benefits. Except as provided in this Agreement, this Agreement shall not be construed as limiting in any way any rights to
benefits that the Executive may have pursuant to any other plan or program of Jevic.
10. Termination or Resignation Following a Change of Control. In the event that Executive resigns his employment with Jevic and its affiliates or suffers a "Termination" of such employment within two years after a "Change of Control" of SCST under the circumstances described and the definitions set forth in paragraphs 3 and 1 (e) of the Executive Severance Agreement entered into between Executive and SCST on September 28, 2002 (the "Executive Severance Agreement"), the provisions of which are hereby incorporated by reference, the Executive shall be entitled to the greater of each benefit described in Section 8 or each benefit provided for under the Executive Severance Agreement.
11. Non-Competition, Non-Solicitation and Confidentiality. The Executive acknowledges that in the course of his employment with Jevic he has become, and in the course of his employment with Jevic he will continue to become, familiar with Jevic's trade secrets and those of any person or entity controlling, controlled by or under common control with such person or entity, including, without limitation, for Jevic, each of SCST and Saia Motor Freight Line, Inc. (an "affiliate") and with other confidential information concerning Jevic and its affiliates and that his services will be of special, unique and extraordinary value to Jevic. Therefore, the Executive agrees that:
(a) so long as the Executive is employed by Jevic or an affiliate of Jevic and for a period of two years after the date the
Executive ceases to be employed by Jevic or an
affiliate of Jevic (the "Non-Compete Period"), the
Executive shall not, and shall not allow any of his
affiliates to, engage (whether as an owner, operator,
manager, employee, officer, director, consultant,
advisor, representative or otherwise), directly or
indirectly in any endeavor, activity or business in
(x) any country in the world where Jevic or any of
its affiliates is doing business during the term of
such Non-Compete Period or (y) any state in the
United States or any province in Canada, that
engages, in whole or in part, in or that otherwise
competes, in whole or in part, with the business of
providing trucking transportation, including, but not
limited to, offering regional, interregional or
national less-than-truckload services or truckload
services, freight brokerage, transportation logistics
or any other business of Jevic and its affiliates or
any of them (collectively, the "Business") as
conducted or as proposed to be conducted at any time
during the term of the Executive's employment with
Jevic or any of its affiliates; provided that this
paragraph shall not be construed to prohibit the
ownership of less than 3% of the outstanding stock of
any publicly-traded corporation.
(b) The Executive agrees that so long as the Executive is employed by Jevic or an affiliate of Jevic and for a period of two years after the date the Executive ceases to be employed by Jevic
or an affiliate of Jevic (the "Non-Solicitation Period"), he shall not, and shall not permit any of his affiliates to, directly or indirectly,
(i) contact, approach or solicit for the purpose of offering employment to or hiring (whether as an employee, consultant, agent, independent contractor, salesperson, distributor, supplier, vendor, manufacturer, representative, agent, jobber or otherwise) or actually hire any person employed by Jevic or any of its affiliates during the Non-Solicitation Period, without the prior written consent of Jevic, or otherwise induce any person or entity transacting business with Jevic or any of its affiliates to terminate any relationship, association or arrangement with Jevic or any of its affiliates, or to represent, distribute or sell services or products of Jevic or its affiliates; or
(ii) divert or attempt to divert from Jevic or any of its affiliates any business with any customer or account the identity of which was learned by the Executive, as a result of his operation of the Business or employment with Jevic or any of its affiliates.
12. Confidentiality. The Executive shall treat and hold as confidential any information concerning the Business, Jevic or any of its affiliates that is not already generally available to the public (the "Confidential Information"), refrain from using any of the Confidential Information except in connection with his employment with Jevic or any of its
affiliates, and deliver promptly to Jevic, at the request and
option of Jevic, all tangible embodiments (and all copies) of
the Confidential Information which are in his possession or
under his control. In the event that the Executive is
requested or required (by oral question or request for
information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the
Executive shall notify Jevic promptly of the request or
requirement so that Jevic may seek an appropriate protective
order or waive compliance with the provisions of this Section
12. If, in the absence of a protective order or the receipt of
a waiver hereunder, the Executive is, on the advice of
counsel, compelled to disclose any Confidential Information to
any tribunal or else stand liable for contempt, the Executive
may disclose the Confidential Information to the tribunal;
provided, that the Executive shall use his best efforts to
obtain, at the request of and at the cost of Jevic, an order
or other assurance that confidential treatment shall be
accorded to such portion of the Confidential Information
required to be disclosed as Jevic shall designate.
13. Use of Information of Prior Employers. During the term of this Agreement, the Executive will not improperly use or disclose any confidential information or trade secrets, if any, of any former employers or any other person to whom the Executive has an obligation of confidentiality, and will not bring onto the premises of Jevic or any of its affiliates any unpublished documents or any property belonging to any
former employer or any other person to whom the Executive has an obligation of confidentiality unless consented to in writing by the former employer or person.
14. Remedy for Breach. The Executive acknowledges and agrees that in the event of a breach by the Executive of any of the provisions of Sections 11, 12 or 13 monetary damages shall not constitute a sufficient remedy. Consequently, in the event of any such breach, Jevic and/or its respective successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof, in each case without the requirement of posting a bond or proving actual damages.
15. Enforcement. If the final judgment of a court of competent jurisdiction declares that any term or provision of Sections 11, 12, 13 or 14 is invalid or unenforceable, each of the Executive and Jevic agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and the terms provided herein shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.
16. Acknowledgment. The Executive acknowledges and agrees that (i) the restrictions contained in Sections 11, 12, 13, 14 or 15 are reasonable in all respects (including, without limitation, with respect to subject matter, time period and geographical area) and are necessary to protect Jevic's interest in, and value of, the Business (including, without limitation, the goodwill inherent therein) and (ii) Executive is responsible for the creation of such value.
17. Arbitration.
(a) Arbitration of Disputes. Except as otherwise expressly provided herein, any dispute between the parties hereto arising out of, in connection with, or relating to this Agreement or the breach thereof shall be settled by arbitration in Kansas City, Missouri, in accordance with the rules then in effect of the American Arbitration Association ("AAA"). Arbitration shall be the exclusive remedy for any such dispute except only as to failure to abide by an arbitration award rendered hereunder. Regardless of whether or not both parties hereto participate in the arbitration proceeding, any arbitration award rendered hereunder shall be final and binding on each party hereto and judgment upon the award rendered may be entered in any court having jurisdiction thereof. The party seeking arbitration shall notify the other party in writing and request the AAA to submit a list of 5 or 7 potential arbitrators. In the event the parties do not agree upon an arbitrator, each party shall, in turn, strike one arbitrator from the
list, Jevic having the first strike, until only one arbitrator remains, who shall arbitrate the dispute. The parties shall have the opportunity to conduct reasonable discovery as determined by the arbitrator, and the arbitration hearing shall be conducted within 30 to 60 days of the selection of an arbitrator or at the earliest date thereafter that the arbitrator is available or as otherwise set by the arbitrator.
(b) Indemnification. If arbitration occurs as provided for herein and the Executive is awarded more than Jevic has asserted is due him or otherwise substantially prevails therein, Jevic shall reimburse the Executive for his reasonable attorneys' fees, costs and disbursements incurred in such arbitration and hereby agrees to pay interest on any money award obtained by the Executive from the date payment should have been made until the date payment is made, calculated at the prime interest rate of Bank of America, N.A., Kansas City, Missouri in effect from time to time from the date that payment(s) to him should have been made under this Agreement. If the Executive enforces the arbitration award in court, Jevic shall reimburse the Executive for his reasonable attorneys' fees, costs and disbursements incurred in such enforcement.
18. Indemnification under Charter and Bylaws. Jevic shall provide the Executive with rights to indemnification by Jevic that are no less favorable
to the Executive than those set forth in Jevic's governing documents as in effect as of the Effective Date.
19. Successors. This Agreement shall be binding upon and inure to the benefit of the Executive and his estate and Jevic and any successor or assign of Jevic, but neither this Agreement nor any rights arising hereunder may be assigned or pledged by the Executive.
20. Severability. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting 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.
21. Survival. The parties agree that the obligations contained in this Agreement which by their terms survive the expiration, termination or cancellation of this Agreement shall survive any expiration, termination or cancellation of this Agreement and continue to be enforceable.
22. Notices. All notices required or permitted to be given under this Agreement shall be given in writing and shall be deemed sufficiently given if delivered by hand or mailed by registered mail, return receipt requested, to his residence in the case of the Executive and to its principal executive offices in the case of Jevic and SCST. Either party may by giving written notice to the other party in accordance with this Section 22 change the address at which it is to receive notices hereunder.
23. Controlling Law. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of Missouri.
24. Changes to Agreement. This Agreement may not be changed orally but only in a writing, signed by the party against whom enforcement is sought.
25. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 20th of November, 2002.
EXECUTIVE JEVIC TRANSPORTATION, INC. /s/ Paul J. Karvois /s/ Gerald A. Paulson --------------------------------- ----------------------------------- Paul J. Karvois By: Gerald A. Paulson Senior Vice President, Finance ATTEST /s/ Raymond M. Conlin ----------------------------------- By: Raymond M. Conlin Secretary SCS TRANSPORTATION, INC., for the sole purpose of binding itself to the provisions in this Agreement regarding stock options to purchase shares of SCST granted to the Executive and for no other purpose shall SCST be bound or obligated hereunder /s/ Herbert A. Trucksess ----------------------------------- By: Herbert A. Trucksess Chairman, President and CEO |
ATTEST
/s/ James J. Bellinghausen ---------------------------------------- By: James J. Bellinghausen Secretary |
EXHIBIT A
GROSS-UP PAYMENTS
The following provisions shall be applicable with respect to the Gross-Up Payments described in Section 8 (h) of this Agreement.
(a) For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Payments received or to be received shall be treated as "parachute payments" within the meaning of Section 280G(b) (2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b) (1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of tax counsel selected by Saia, the Payments (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b) (4) (A) of the Code, or excess parachute payments (as determined after application of Section 280G(b) (4) (B) of the Code), and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by independent auditors selected by Saia in accordance with the principles of Sections 280G(d) (3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation to which such payment could be subject based upon the state and locality of the Executive's residence or employment, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. In addition, for purposes of determining the amount of the Gross-Up Payment, Saia shall make a determination of the amount of any employment taxes required to be paid on the Gross-Up Payment. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-Up Payment is made (including by reason of any payments the existence or amount of which cannot be determined at the time of the Gross-Up Payment), Saia shall make an additional gross-up payment in respect of such excess (plus any interest, penalties or additions payable with respect to such excess) at the time that the amount of such excess is finally determined. Notwithstanding the foregoing, Saia shall withhold from any payment due to the Executive the amount required by law to be so withheld under Federal, state or local wage or employment tax withholding requirements or otherwise (including without limitation Section 4999 of the Code), and shall pay over to the appropriate government authorities the amount so withheld.
(b) The Gross-Up Payment with respect to a Payment shall be paid not later than the thirtieth day following the date of the Payment; provided, however, that if the amount of such Gross-Up Payment or portion thereof cannot be finally determined on or before such day, Saia shall pay to the Executive on such date an estimate, as determined in good faith by Saia, of the amount of such payments and shall pay the remainder of such payments (together with interest at the Federal short-term rate provided in Section 1274(d) (1) (C) (i) of the Code) as soon as the amount
thereof can be determined. In the event that the amount of the estimated exceed the amount subsequently determined to have been due, such excess shall constitute a loan by Saia to the Executive, payable on the fifth day after demand by Saia (together with interest at the Federal short-term rate provided in Section 1274(d) (1) (C) (i) of the Code.) At the time that payments are made under Section 8(h) and this Exhibit A, Saia shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations, including, without limitation, any opinions or other advice Saia has received from outside counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
EXHIBIT 10.8
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT between SCS Transportation, Inc., a Delaware corporation ("SCST"), and Herbert A. Trucksess, III (the "Executive"),
WITNESSETH:
WHEREAS, the Compensation Committee of the Board of Directors (the "Board") of SCST has recommended, and the Board has approved, SCST entering into severance agreements with key executives of SCST and its Subsidiaries (hereinafter sometimes collectively referred to as the "Corporation"); and
WHEREAS, the Executive is a key executive of SCST or one of its Subsidiaries and has been selected by the Board as a key executive; and
WHEREAS, should SCST receive any proposal from a third person concerning a possible Business Combination with, or acquisition of equity securities of, SCST, the Board believes it important that the Corporation and the Board be able to rely upon the Executive to continue in his position, and that SCST have the benefit of the Executive performing his duties without his being distracted by the personal uncertainties and risks created by such a proposal;
NOW, THEREFORE, the parties agree as follows:
1. Definitions.
(a) "Affiliate" and "Associates" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date hereof.
(b) "Beneficial Owner" of shares shall include any Voting Shares:
(i) which such person or any of its Affiliates or Associates beneficially own, directly or indirectly, or
(ii) which such person or any of its Affiliates or Associates has (1) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, or options, or otherwise, or (2) the right to vote pursuant to any agreement, arrangement or understanding, or
(iii) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of SCST.
(c) "Business Combination" means:
(i) any merger or consolidation of SCST with or into
(1) any Substantial Stockholder (as hereinafter defined) or (2) any
other corporation (whether or not itself a Substantial Stockholder)
which, after such merger or consolidation, would be an Affiliate of a
Substantial Stockholder, or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with (1) any Substantial Stockholder or (2) an Affiliate of a Substantial Stockholder of any assets of the SCST or any Subsidiary having an aggregate fair market value of $5,000,000 or more, or
(iii) the issuance or transfer by SCST (in one
transaction or a series of related transactions) of any securities of
the Corporation or any Subsidiary to (1) any Substantial Stockholder or
(2) any other corporation (whether or not itself a Substantial
Stockholder ) which, after such issuance or transfer, would be an
Affiliate of a Substantial Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an aggregate fair
market value of $5,000,000 or more, or
(iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of a Substantial Stockholder or an Affiliate of a Substantial Stockholder, or
(v) any reclassification of securities (including any reverse stock split), recapitalization, reorganization, merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving a Substantial Stockholder or an Affiliate of a Substantial Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Substantial Stockholder or by an Affiliate of a Substantial Stockholder.
(d) "Cause" means conviction of a felony involving moral turpitude by a court of competent jurisdiction, which is no longer subject to direct appeal, or an adjudication by a court of competent jurisdiction, which is no longer subject to direct appeal, that the Executive is mentally incompetent or that he is liable for willful misconduct in the performance of his duty to the Corporation which is demonstrably and materially injurious to the Corporation.
(e) "Change of Control," for the purposes of this Agreement, shall be deemed to have taken place if: (i) a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, purchases or otherwise acquires shares of the Corporation after the date hereof and as a result thereof becomes the beneficial owner of shares of the Corporation having 20% or more of the total number of votes that may be cast for election of directors of SCST; or (ii) as the result of, or in connection with any cash tender or exchange offer, merger or other Business Combination, or contested election, or any combination of the foregoing transactions, the directors then serving on the Board of Directors of SCST shall cease to constitute a majority of the Board of Directors of SCST or any successor to SCST.
(f) "Corporation" means SCST and its Subsidiaries.
(g) "Normal Retirement Age" means the last day of the calendar month in which the Executive's 65th birthday occurs.
(h) "Permanent Disability" means a physical or mental condition which permanently renders the Executive incapable of exercising the duties and responsibilities of the position he held immediately prior to any Change of Control.
(i) "Potential Change of Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) SCST enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (ii) SCST or any person or "group" as defined in Section 3(d)(3) of the Securities Exchange Act of 1934, as amended, publicly announces an intention to take or consider taking actions which, if consummated would constitute a Change in Control; (iii) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(j) "Subsidiary" means any domestic or foreign corporation, a majority of whose shares normally entitled to vote in electing directors is owned directly or indirectly by SCST or by other Subsidiaries.
(k) "Substantial Stockholder" means, in respect of any Business Combination, any person (other than SCST) who or which is on the record date for the determination of stockholders entitled to notice of and to vote on such Business Combination, or as of the time of the vote on such Business Combination, or immediately prior to the consummation of any such transaction,
(i) is the Beneficial Owner, directly or indirectly, of not less than 10% of the Voting Shares, or
(ii) is an Affiliate of SCST and at any time within five years prior thereto was the Beneficial Owner, directly or indirectly, of not less than 10% of the then outstanding Voting Shares, or
(iii) is an assignee of or has otherwise succeeded to any shares of capital stock of SCST which were at any time within five years prior thereto beneficially owned by any Substantial Stockholder, and such assignment or succession shall have occurred in the course of a transaction or a series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.
(m) "Voting Shares" means the outstanding shares of capital stock of SCST entitled to vote generally in the election of the directors.
2. Services During Certain Events. In the event a third person begins a tender or exchange offer or takes other steps seeking to effect a Change of Control, the Executive agrees that he will not voluntarily leave the employ of the Corporation without the consent of the Corporation, and will render the services contemplated in the recitals of this Agreement, until the third person has abandoned or terminated his or its efforts to effect a Change of Control or until 90 days after a Change of Control has occurred. In the event the Executive fails to comply with the
provisions of this paragraph, the Corporation will suffer damages which are difficult, if not impossible, to ascertain. Accordingly, should the Executive fail to comply with the provisions of this paragraph, the Corporation shall retain the amounts which would otherwise be payable to the Executive hereunder as fixed, agreed and liquidated damages but shall have no other recourse against the Executive.
3. Termination After Change of Control. "Termination" shall include (a) termination by the Corporation of the employment of Executive with the Corporation within two years after a Change of Control for any reason other than death, Permanent Disability, retirement at or after his Normal Retirement Age, or Cause or (b) resignation of the Executive after the occurrence of any of the following events within two years after a Change of Control of SCST:
(a) An adverse change of the Executive's title or a reduction or adverse change in the nature or scope of the Executive's authority or duties from those being exercised and performed by the Executive immediately prior to the Change of Control.
(b) A transfer of the Executive to a location which is more than 50 miles away from the location where the Executive was employed immediately prior to the Change of Control.
(c) Any reduction in the rate of Executive's annual salary below his rate of annual salary immediately prior to the Change of Control.
(d) Any reduction in the level of Executive's fringe benefits or bonus below a level consistent with the Corporation's practice prior to the Change of Control.
4. Termination Payment. In the event of a Termination, as defined in Paragraph 3, SCST shall provide the Executive the following benefits:
(a) SCST shall pay to the Executive on or before the Executive's last day of employment with the Corporation, as additional compensation for services rendered to the Corporation, a lump sum cash amount (subject to the minimum applicable federal, state or local lump sum withholding requirements, if any, unless the Executive requests that a greater amount be withheld) equal to three times the highest base salary and bonuses paid or payable to the Executive by the Corporation (or by Yellow Corporation or a combination of the Corporation and Yellow Corporation as the case may be) with respect to any 12 consecutive month period during the three years ending with the date of the Executive's Termination.
(b) During the three years following the Executive's Termination, the Executive shall be deemed to remain an employee of the Corporation for purposes of the applicable medical, life insurance and long-term disability plans and programs covering key executives of the Corporation and shall be entitled to receive the benefits available to key executives thereunder, provided; however, that in the event the Executive's participation in any such employee benefit plan or program is barred, the Corporation shall arrange to provide the Executive with substantially similar benefits.
(c) The Executive shall be entitled to the Gross-Up Payment, if any, described in Paragraph 6.
(d) The Corporation shall pay the Executive the Termination
Payment set forth in this paragraph upon termination of the Executive's
employment following a Potential Change in Control but before a Change in
Control and during the term of this Agreement if: (i) the termination is
initiated, caused or directed by any person or group which has initiated a
transaction, the consummation of which would result in a Change of Control; and
(ii) the termination would have been by the Executive for any of the reasons
enumerated in paragraph 3(a)-3(d) or by the Corporation without Cause if a
Change of Control had occurred on the date of the Potential Change in Control.
5. Stock-Out of Options. In the event of a Change of Control, the Executive's non-qualified stock options and incentive stock options granted by the Corporation which are outstanding on the date of the Change of Control, shall immediately vest and Executive shall have [12] months from the date of the Change of Control to exercise said options.
6. Additional Payments by SCST.
(a) Gross-Up Payment. In the event it shall be determined that any payment or benefit of any type by the Corporation to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (determined without regard to any additional payments required under this Paragraph 6) (the "Total Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed) or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. Payment of the Gross-Up Payment shall be made promptly following the determination by the Accounting Firm as described in subparagraph (b) of this Paragraph 6 or in accordance with subparagraph (c) of this Paragraph 6.
(b) Determination by Accountant. All determinations required to be made under this Paragraph 6, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by an independent accounting firm retained by SCST (the "Accounting Firm"), which shall provide detailed supporting calculations both to SCST and the Executive within 15 business days of the date of Termination, if applicable, or such earlier time as is requested by SCST. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon SCST and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by SCST should have been made ("Underpayment") consistent with the calculations required to be made hereunder. In the event that SCST exhausts its remedies pursuant to subparagraph (c) of this Paragraph 6 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by SCST to or for the benefit of the Executive. SCST shall promptly pay all expenses of the Accounting Firm pursuant to this Paragraph 6.
(c) Notification Required. The Executive shall notify SCST in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by SCST of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows of such claim and shall apprise SCST of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which it gives such notice to SCST (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If SCST notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
(i) give SCST any information reasonably requested by SCST relating to such claim;
(ii) take such action in connection with contesting such claim as SCST shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by SCST;
(iii) cooperate with SCST in good faith in order to effectively contest such claim; and
(iv) permit SCST to participate in any proceeding relating to such claim; provided, however, that SCST shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this subparagraph (c), SCST shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at it sole option, either direct the Executive to pay the tax claimed and sue for a refund, or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as SCST shall determine; provided, however, that if SCST directs the Executive to pay such claim and sue for a refund, SCST shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any excise tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, SCST's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) Repayment. If, after the receipt by Executive of an amount paid or advanced by SCST pursuant to this Paragraph 6, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to SCST's complying with the requirements of this Paragraph 6), promptly pay to SCST the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount paid or advanced by SCST pursuant to this Paragraph 6, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and SCST does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such payment or advance shall be forgiven and shall not be required to be repaid and the amount of such payment or advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid.
7. General.
(a) Arbitration. Any dispute between the parties hereto arising out of, in connection with, or relating to this Agreement or the breach thereof shall be settled by arbitration in Kansas City, Missouri, in accordance with the rules then in effect of the American Arbitration Association ("AAA"). Arbitration shall be the exclusive remedy for any such dispute except only as to failure to abide by an arbitration award rendered hereunder. Regardless of whether or not both parties hereto participate in the arbitration proceeding, any arbitration award rendered hereunder shall be final and binding on each party hereto and judgment upon the award rendered may be entered in any court having jurisdiction thereof.
The party seeking arbitration shall notify the other party in writing and request the AAA to submit a list of 5 or 7 potential arbitrators. In the event the parties do not agree upon an arbitrator, each party shall, in turn, strike one arbitrator from the list, the Corporation having the first strike, until only one arbitrator remains, who shall arbitrate the dispute. The arbitration hearing shall be conducted within 30 days of the selection of an arbitrator or at the earliest date thereafter that the arbitrator is available.
(b) Indemnification. If arbitration occurs as provided for herein, the Corporation shall reimburse the Executive for his reasonable attorneys' fees, costs and disbursements incurred in such arbitration and hereby agrees to pay interest on any money award obtained by the Executive from the date payment should have been made until the date payment is made, calculated at the prime interest rate of Bank of America, N.A., in effect from time to time, plus 2%, from the date that payment(s) to him should have been made under this Agreement. If the Executive enforces the arbitration award in court, the Corporation shall reimburse the Executive for his reasonable attorneys' fees, costs and disbursements incurred in such enforcement.
(c) Payment Obligations Absolute. SCST's obligation to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Corporation may have against him or anyone else, except as provided in paragraph 2 hereof. All amounts payable by SCST hereunder shall be paid without notice or demand. Each and every payment made hereunder by SCST shall be final and SCST will not seek to recover all or any part of such payment from the Executive or from whosoever may be entitled thereto, for any reason whatsoever. The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such other employment shall in no event affect any reduction of SCST's obligation to make the payments required to be made under this Agreement.
(d) Continuing Obligations. The Executive shall retain in confidence any confidential information known to him concerning the Corporation and its respective businesses until such information is publicly disclosed.
(e) Successors. This Agreement shall be binding upon and inure to the benefit of the Executive and his estate and the Corporation and any successor of the Corporation, but neither this Agreement nor any rights arising hereunder may be assigned or pledged by the Executive.
(f) Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting 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.
(g) Controlling Law. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of Delaware.
(h) Termination. This Agreement shall terminate if a majority of the Board of Directors of SCST determines that the Executive is no longer a key executive and so notifies the Executive; except that such determination shall not be made, and if made shall have no effect, (i) within two years after the Change of Control in question or (ii) during any period of time when SCST has knowledge that any third person has taken steps reasonably calculated to effect a Change of Control until, in the opinion of a majority of the Board of Directors of SCST the third person has abandoned or terminated his efforts to effect a Change of Control.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties have executed this Agreement on the 28th day of September, 2002.
EXECUTIVE: SCS TRANSPORTATION, INC. /s/ Herbert A. Trucksess, III By: /s/ James J. Bellinghausen ------------------------------- ----------------------------------------- Herbert A. Trucksess, III James J. Bellinghausen Vice President, Secretary and Treasurer |
ATTEST:
By: /s/ John P. Burton ----------------------------------------- |
EXHIBIT 10.9
FORM OF EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT between SCS Transportation, Inc., a Delaware corporation ("SCST"), and _______________ (the "Executive"),
WITNESSETH:
WHEREAS, the Compensation Committee of the Board of Directors (the "Board") of SCST has recommended, and the Board has approved, SCST entering into severance agreements with key executives of SCST and its Subsidiaries (hereinafter sometimes collectively referred to as the "Corporation"); and
WHEREAS, the Executive is a key executive of SCST or one of its Subsidiaries and has been selected by the Board as a key executive; and
WHEREAS, should SCST receive any proposal from a third person concerning a possible Business Combination with, or acquisition of equity securities of, SCST, the Board believes it important that the Corporation and the Board be able to rely upon the Executive to continue in his position, and that SCST have the benefit of the Executive performing his duties without his being distracted by the personal uncertainties and risks created by such a proposal;
NOW, THEREFORE, the parties agree as follows:
1. Definitions.
(a) "Affiliate" and "Associates" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date hereof.
(b) "Beneficial Owner" of shares shall include any Voting Shares:
(i) which such person or any of its Affiliates or Associates beneficially own, directly or indirectly, or
(ii) which such person or any of its Affiliates or Associates has (1) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, or options, or otherwise, or (2) the right to vote pursuant to any agreement, arrangement or understanding, or
(iii) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of SCST.
(c) "Business Combination" means:
(i) any merger or consolidation of SCST with or into
(1) any Substantial Stockholder (as hereinafter defined) or (2) any
other corporation (whether or not itself a Substantial Stockholder)
which, after such merger or consolidation, would be an Affiliate of a
Substantial Stockholder, or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with (1) any Substantial Stockholder or (2) an Affiliate of a Substantial Stockholder of any assets of the SCST or any Subsidiary having an aggregate fair market value of $5,000,000 or more, or
(iii) the issuance or transfer by SCST (in one
transaction or a series of related transactions) of any securities of
the Corporation or any Subsidiary to (1) any Substantial Stockholder or
(2) any other corporation (whether or not itself a Substantial
Stockholder ) which, after such issuance or transfer, would be an
Affiliate of a Substantial Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an aggregate fair
market value of $5,000,000 or more, or
(iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of a Substantial Stockholder or an Affiliate of a Substantial Stockholder, or
(v) any reclassification of securities (including any reverse stock split), recapitalization, reorganization, merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving a Substantial Stockholder or an Affiliate of a Substantial Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Substantial Stockholder or by an Affiliate of a Substantial Stockholder.
(d) "Cause" means conviction of a felony involving moral turpitude by a court of competent jurisdiction, which is no longer subject to direct appeal, or an adjudication by a court of competent jurisdiction, which is no longer subject to direct appeal, that the Executive is mentally incompetent or that he is liable for willful misconduct in the performance of his duty to the Corporation which is demonstrably and materially injurious to the Corporation.
(e) "Change of Control," for the purposes of this Agreement, shall be deemed to have taken place if: (i) a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, purchases or otherwise acquires shares of the Corporation after the date hereof and as a result thereof becomes the beneficial owner of shares of the Corporation having 20% or more of the total number of votes that may be cast for election of directors of SCST; or (ii) as the result of, or in connection with any cash tender or exchange offer, merger or other Business Combination, or contested election, or any combination of the foregoing transactions, the directors then serving on the Board of Directors of SCST shall cease to constitute a majority of the Board of Directors of SCST or any successor to SCST.
(f) "Corporation" means SCST and its Subsidiaries.
(g) "Normal Retirement Age" means the last day of the calendar month in which the Executive's 65th birthday occurs.
(h) "Permanent Disability" means a physical or mental condition which permanently renders the Executive incapable of exercising the duties and responsibilities of the position he held immediately prior to any Change of Control.
(i) "Potential Change of Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) SCST enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (ii) SCST or any person or "group" as defined in Section 3(d)(3) of the Securities Exchange Act of 1934, as amended, publicly announces an intention to take or consider taking actions which, if consummated would constitute a Change in Control; (iii) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(j) "Subsidiary" means any domestic or foreign corporation, a majority of whose shares normally entitled to vote in electing directors is owned directly or indirectly by SCST or by other Subsidiaries.
(k) "Substantial Stockholder" means, in respect of any Business Combination, any person (other than SCST) who or which is on the record date for the determination of stockholders entitled to notice of and to vote on such Business Combination, or as of the time of the vote on such Business Combination, or immediately prior to the consummation of any such transaction,
(i) is the Beneficial Owner, directly or indirectly, of not less than 10% of the Voting Shares, or
(ii) is an Affiliate of SCST and at any time within five years prior thereto was the Beneficial Owner, directly or indirectly, of not less than 10% of the then outstanding Voting Shares, or
(iii) is an assignee of or has otherwise succeeded to any shares of capital stock of SCST which were at any time within five years prior thereto beneficially owned by any Substantial Stockholder, and such assignment or succession shall have occurred in the course of a transaction or a series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.
(m) "Voting Shares" means the outstanding shares of capital stock of SCST entitled to vote generally in the election of the directors.
2. Services During Certain Events. In the event a third person begins a tender or exchange offer or takes other steps seeking to effect a Change of Control, the Executive agrees that he will not voluntarily leave the employ of the Corporation without the consent of the Corporation, and will render the services contemplated in the recitals of this Agreement, until the third person has abandoned or terminated his or its efforts to effect a Change of Control or until 90 days after a Change of Control has occurred. In the event the Executive fails to comply with the
provisions of this paragraph, the Corporation will suffer damages which are difficult, if not impossible, to ascertain. Accordingly, should the Executive fail to comply with the provisions of this paragraph, the Corporation shall retain the amounts which would otherwise be payable to the Executive hereunder as fixed, agreed and liquidated damages but shall have no other recourse against the Executive.
3. Termination After Change of Control. "Termination" shall include (a) termination by the Corporation of the employment of Executive with the Corporation within two years after a Change of Control for any reason other than death, Permanent Disability, retirement at or after his Normal Retirement Age, or Cause or (b) resignation of the Executive after the occurrence of any of the following events within two years after a Change of Control of SCST:
(a) An adverse change of the Executive's title or a reduction or adverse change in the nature or scope of the Executive's authority or duties from those being exercised and performed by the Executive immediately prior to the Change of Control.
(b) A transfer of the Executive to a location which is more than 50 miles away from the location where the Executive was employed immediately prior to the Change of Control.
(c) Any reduction in the rate of Executive's annual salary below his rate of annual salary immediately prior to the Change of Control.
(d) Any reduction in the level of Executive's fringe benefits or bonus below a level consistent with the Corporation's practice prior to the Change of Control.
4. Termination Payment. In the event of a Termination, as defined in Paragraph 3, SCST shall provide the Executive the following benefits:
(a) SCST shall pay to the Executive on or before the Executive's last day of employment with the Corporation, as additional compensation for services rendered to the Corporation, a lump sum cash amount (subject to the minimum applicable federal, state or local lump sum withholding requirements, if any, unless the Executive requests that a greater amount be withheld) equal to two times the highest base salary and bonuses paid or payable to the Executive by the Corporation (or by Yellow Corporation or a combination of the Corporation and Yellow Corporation as the case may be) with respect to any 12 consecutive month period during the three years ending with the date of the Executive's Termination.
(b) During the two years following the Executive's Termination, the Executive shall be deemed to remain an employee of the Corporation for purposes of the applicable medical, life insurance and long-term disability plans and programs covering key executives of the Corporation and shall be entitled to receive the benefits available to key executives thereunder, provided; however, that in the event the Executive's participation in any such employee benefit plan or program is barred, the Corporation shall arrange to provide the Executive with substantially similar benefits.
(c) The Executive shall be entitled to the Gross-Up Payment, if any, described in Paragraph 6.
(d) The Corporation shall pay the Executive the Termination
Payment set forth in this paragraph upon termination of the Executive's
employment following a Potential Change in Control but before a Change in
Control and during the term of this Agreement if: (i) the termination is
initiated, caused or directed by any person or group which has initiated a
transaction, the consummation of which would result in a Change of Control; and
(ii) the termination would have been by the Executive for any of the reasons
enumerated in paragraph 3(a)-3(d) or by the Corporation without Cause if a
Change of Control had occurred on the date of the Potential Change in Control.
5. Stock-Out of Options. In the event of a Change of Control, the Executive's non-qualified stock options and incentive stock options granted by the Corporation which are outstanding on the date of the Change of Control, shall immediately vest and Executive shall have [12] months from the date of the Change of Control to exercise said options.
6. Additional Payments by SCST.
(a) Gross-Up Payment. In the event it shall be determined that any payment or benefit of any type by the Corporation to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (determined without regard to any additional payments required under this Paragraph 6) (the "Total Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed) or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. Payment of the Gross-Up Payment shall be made promptly following the determination by the Accounting Firm as described in subparagraph (b) of this Paragraph 6 or in accordance with subparagraph (c) of this Paragraph 6.
(b) Determination by Accountant. All determinations required to be made under this Paragraph 6, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by an independent accounting firm retained by SCST (the "Accounting Firm"), which shall provide detailed supporting calculations both to SCST and the Executive within 15 business days of the date of Termination, if applicable, or such earlier time as is requested by SCST. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon SCST and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by SCST should have been made ("Underpayment") consistent with the calculations required to be made hereunder. In the event that SCST exhausts its remedies pursuant to subparagraph (c) of this Paragraph 6 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by SCST to or for the benefit of the Executive. SCST shall promptly pay all expenses of the Accounting Firm pursuant to this Paragraph 6.
(c) Notification Required. The Executive shall notify SCST in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by SCST of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows of such claim and shall apprise SCST of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which it gives such notice to SCST (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If SCST notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
(i) give SCST any information reasonably requested by SCST relating to such claim;
(ii) take such action in connection with contesting such claim as SCST shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by SCST;
(iii) cooperate with SCST in good faith in order to effectively contest such claim; and
(iv) permit SCST to participate in any proceeding relating to such claim; provided, however, that SCST shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this subparagraph (c), SCST shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at it sole option, either direct the Executive to pay the tax claimed and sue for a refund, or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as SCST shall determine; provided, however, that if SCST directs the Executive to pay such claim and sue for a refund, SCST shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any excise tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, SCST's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) Repayment. If, after the receipt by Executive of an amount paid or advanced by SCST pursuant to this Paragraph 6, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to SCST's complying with the requirements of this Paragraph 6), promptly pay to SCST the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount paid or advanced by SCST pursuant to this Paragraph 6, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and SCST does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such payment or advance shall be forgiven and shall not be required to be repaid and the amount of such payment or advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid.
7. General.
(a) Arbitration. Any dispute between the parties hereto arising out of, in connection with, or relating to this Agreement or the breach thereof shall be settled by arbitration in Kansas City, Missouri, in accordance with the rules then in effect of the American Arbitration Association ("AAA"). Arbitration shall be the exclusive remedy for any such dispute except only as to failure to abide by an arbitration award rendered hereunder. Regardless of whether or not both parties hereto participate in the arbitration proceeding, any arbitration award rendered hereunder shall be final and binding on each party hereto and judgment upon the award rendered may be entered in any court having jurisdiction thereof.
The party seeking arbitration shall notify the other party in writing and request the AAA to submit a list of 5 or 7 potential arbitrators. In the event the parties do not agree upon an arbitrator, each party shall, in turn, strike one arbitrator from the list, the Corporation having the first strike, until only one arbitrator remains, who shall arbitrate the dispute. The arbitration hearing shall be conducted within 30 days of the selection of an arbitrator or at the earliest date thereafter that the arbitrator is available.
(b) Indemnification. If arbitration occurs as provided for herein, the Corporation shall reimburse the Executive for his reasonable attorneys' fees, costs and disbursements incurred in such arbitration and hereby agrees to pay interest on any money award obtained by the Executive from the date payment should have been made until the date payment is made, calculated at the prime interest rate of Bank of America, N.A., in effect from time to time, plus 2%, from the date that payment(s) to him should have been made under this Agreement. If the Executive enforces the arbitration award in court, the Corporation shall reimburse the Executive for his reasonable attorneys' fees, costs and disbursements incurred in such enforcement.
(c) Payment Obligations Absolute. SCST's obligation to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Corporation may have against him or anyone else, except as provided in paragraph 2 hereof. All amounts payable by SCST hereunder shall be paid without notice or demand. Each and every payment made hereunder by SCST shall be final and SCST will not seek to recover all or any part of such payment from the Executive or from whosoever may be entitled thereto, for any reason whatsoever. The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such other employment shall in no event affect any reduction of SCST's obligation to make the payments required to be made under this Agreement.
(d) Continuing Obligations. The Executive shall retain in confidence any confidential information known to him concerning the Corporation and its respective businesses until such information is publicly disclosed.
(e) Successors. This Agreement shall be binding upon and inure to the benefit of the Executive and his estate and the Corporation and any successor of the Corporation, but neither this Agreement nor any rights arising hereunder may be assigned or pledged by the Executive.
(f) Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting 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.
(g) Controlling Law. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of Delaware.
(h) Termination. This Agreement shall terminate if a majority of the Board of Directors of SCST determines that the Executive is no longer a key executive and so notifies the Executive; except that such determination shall not be made, and if made shall have no effect, (i) within two years after the Change of Control in question or (ii) during any period of time when SCST has knowledge that any third person has taken steps reasonably calculated to effect a Change of Control until, in the opinion of a majority of the Board of Directors of SCST the third person has abandoned or terminated his efforts to effect a Change of Control.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties have executed this Agreement on the ______ day of _________________, 2002.
EXECUTIVE: SCS TRANSPORTATION, INC. By: ----------------------------------- ------------------------------------- Executive Title: ---------------------------------- ATTEST: By: ------------------------------------- |
SCHEDULE 1
NAME OF OFFICER DATE OF EXECUTIVE SEVERANCE AGREEMENT --------------------------------- --------------------------------------- James J. Bellinghausen September 28, 2002 John P. Burton September 28, 2002 Paul J. Karvois September 28, 2002 David J. Letke October 24, 2002 Richard D. O'Dell September 28, 2002 |
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors and Shareholders
SCS Transportation, Inc.:
We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-100649 and 333-103661) of SCS Transportation, Inc. of our report dated January 22, 2003 with respect to the consolidated balance sheet of SCS Transportation, Inc. as of December 31, 2002, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 2002, which report appears in the December 31, 2002, annual report on Form 10-K of SCS Transportation, Inc.
Our report refers to a change in the Company's method of accounting for goodwill. Our report also refers to our audit of the disclosures added to revise the 2001 and 2000 consolidated financial statements, as more fully described in Notes 5 and 13 to the consolidated financial statements. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 consolidated financials statements other than with respect to such disclosures.
KPMG LLP
Kansas City, Missouri
March 14, 2003
EXHIBIT 23.2
INFORMATION REGARDING CONSENT OF ARTHUR ANDERSEN LLP
The audited consolidated financial statements including the Company's Balance Sheets as of December 31, 2001 and 2000; Statements of Income for years ending December 31, 2001, 2000, and 1999; Statements of Parent Company Equity for the years ending December 31, 2001, 2000, and 1999; and Statements of Cash Flows for the years ending December 31, 2001, 2000, and 1999 (the "Audited Financial Statements") of the Registrant included in the Registrant's Registration Statement on Form 10 dated September 6, 2002, and incorporated by reference into SCST's registration statement (Form S-8 No. 333-100649 and 333-103661), were audited by Registrant's former independent auditors, Arthur Andersen LLP, as indicated in their report with respect thereto dated January 25, 2002 (the "Audit Report"), and are included in reliance upon the authority of said firm as experts in accounting and auditing. The Registrant would ordinarily be required to obtain the consent of Arthur Andersen LLP to the incorporation of the Audit Report into SCST's registration statement (Form S-8 No. 333-100649 and 333-103661). After reasonable efforts, the Registrant has been unable to obtain Arthur Andersen LLP's consent to the incorporation by reference into SCST's registration statement (Form S-8 No. 333-100649). Under these circumstances, Rule 437a of the Securities Act of 1933 permits the Registrant to file this Registration Statement without a written consent from Arthur Andersen LLP. Because Arthur Andersen LLP has not consented to the incorporation by reference of their report into this Registration Statement, investors may not be able to recover against Arthur Andersen LLP under Section 11(a) of the Securities Act of 1933, as amended.
Section 11(a) provides that if any part of a registration statement, at the time such registration statement becomes effective, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless such person knows of such untruth or omission) may sue, among others, every accountant who has consented to be named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation that is used in connection with the registration statement, with respect to the statement in such registration statement, report or valuation that purports to have been prepared or certified by the accountant. Under these circumstances, Rule 437a under the Securities Act permits the Registrant to file this Annual Report on Form 10-K, which is incorporated by reference into the Registration Statement, without a written consent from Arthur Andersen LLP. Because the Registrant is unable to obtain Arthur Andersen LLP's written consent to the incorporation by reference of their report on such financial statements, Arthur Andersen LLP does not become subject to liability under Section 11(a), as discussed above. Consequently, investors would be unable to sue Arthur Andersen LLP under Section 11(a) in connection with the purchase or sale of securities. In addition, other persons who are subject to liability under Section 11, including the Registrant's officers and directors, may still rely on Arthur Andersen LLP's Audit Report as being made by an expert for purposes of establishing a due diligence defense under Section 11(b) of the Securities Act.
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of SCS Transportation, Inc. (the
"Company") on Form 10-K for the period ending December 31, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Herbert A. Trucksess, III, Chairman, President and Chief Executive Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Herbert A. Trucksess, III --------------------------------------- Herbert A. Trucksess, III Chairman, President and Chief Executive Officer SCS Transportation, Inc. March __, 2003 |
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of SCS Transportation, Inc. (the
"Company") on Form 10-K for the period ending December 31, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
James J. Bellinghausen, Vice President of Finance and Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ James J. Bellinghausen ------------------------------------ James J. Bellinghausen Vice President of Finance and Chief Financial Officer SCS Transportation, Inc. March __, 2003 |