UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
(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, 2003 |
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.
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
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 | The Nasdaq National Market | |
Preferred Stock Purchase Rights | 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
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 x No o
The aggregate market value of the 14,653,786 shares of Common 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 $310,806,801 based on the last sales price of the Common Stock on February 18, 2004, as reported on the Nasdaq National Market. The number of shares of Common Stock outstanding as of February 18, 2004 was 14,776,160.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement to be filed within 120 days of December 31, 2003, pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the Annual Meeting of Stockholders to be held April 21, 2004 have been incorporated by reference into Part III of this Form 10-K.
Page | ||||||||
|
||||||||
PART I.
|
||||||||
Item 1. |
Business
|
3 | ||||||
Executive Officers of the Registrant
|
8 | |||||||
Additional Information
|
9 | |||||||
Item 2. |
Properties
|
9 | ||||||
Item 3. |
Legal Proceedings
|
10 | ||||||
Item 4. |
Submission of Matters to a Vote of Security Holders
|
10 | ||||||
PART II.
|
||||||||
Item 5. |
Market for Registrants Common Equity and Related Stockholder Matters
|
11 | ||||||
Item 6. |
Selected Financial Data
|
12 | ||||||
Item 7. |
Managements Discussion and Analysis of Results of Operations and Financial Condition
|
13 | ||||||
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk
|
21 | ||||||
Item 8. |
Financial Statements and Supplementary Data
|
22 | ||||||
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
44 | ||||||
Item 9A. |
Controls and Procedures
|
44 | ||||||
PART III.
|
||||||||
Item 10. |
Directors and Executive Officers of the Registrant
|
45 | ||||||
Item 11. |
Executive Compensation
|
45 | ||||||
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
45 | ||||||
Item 13. |
Certain Relationships and Related Transactions
|
45 | ||||||
Item 14. |
Principal Accountant Fees and Services
|
45 | ||||||
PART IV.
|
||||||||
Item 15. |
Exhibits, Financial Statement Schedules and Reports on Form 8-K
|
45 | ||||||
EXHIBITS
|
||||||||
Exhibit Index
|
E-1 |
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, chemical 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 (LTL) services and selected truckload (TL) services across
the United States. None of our approximately 7,700 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. 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 2003, Saia generated
revenue of $521 million and operating income of $27.7 million. In 2002, Saia
generated revenue of $490 million and operating income of $21.9 million. In
2003, Jevic generated revenue of $307 million and operating income of $9.4
million. In 2002, Jevic generated revenue of $286 million and operating income
of $5.8 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. Saia primarily provides its customers
with solutions to handle shipments between 100 and 10,000 pounds, but also
provides selected truckload service.
Saia has invested substantially in technology to enhance its ability to monitor
and manage customer service, operations and profitability. These data
capabilities enable Saia to provide its trademarked Customer Service Indicators
® program, allowing customers to monitor service performance on a wide array of
attributes. 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.
As of December 31, 2003, Saia operated a network comprised of 112 service
facilities. The average Saia shipment weighs approximately 1,300 pounds and
travels an average distance of approximately 560 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 had
approximately 5,200 employees at December 31, 2003.
On February 16, 2004, we acquired Clark Bros. Transfer, Inc. (Clark Bros.), a
Midwestern less-than-truckload carrier operating in ten states with
approximately 600 employees. The operations of Clark Bros. are expected to be
integrated into Saia in May 2004 bringing the benefits of Saia transportation
service to major Midwestern markets including Chicago, Minneapolis, St. Louis
and Kansas City. The expanded Saia now serves 29 states with 127 service
facilities.
Jevic Transportation, Inc.
Founded in 1981, Jevic is a specialized LTL transportation services provider
that also offers selected TL services throughout the continental United States
and portions of Canada. Jevic specializes in offering its customers standard
and customized regional transportation solutions based on its non-traditional
Breakbulk-Free® operating model,
3
often eliminating the need to rehandle freight at interim and destination
service facilities. The average shipment weight is approximately 4,400 pounds,
and the average shipment distance is approximately 750 miles. Jevic has
approximately 2,500 employees.
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 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 service expectations while minimizing cost. In
addition to these items, Jevic has several initiatives in process to further
enhance its technology applications.
Industry
According to an American Trucking Associations report, in 2002 the trucking
industry accounted for 87 percent of total domestic freight revenue, or $585
billion, and 68 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
$58 billion of revenue in 2002, or 10 percent of total trucking revenue
according to the American Trucking Associations.
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
facilities. As a result, LTL carriers require expansive networks of pickup and
delivery operations around local service facilities and shipments are moved
between origin and destination often through an intermediate distribution or
breakbulk facility. Depending on the distance shipped, the LTL segment is
typically classified into three subgroups:
Over the last several years there has been a blurring of the above subgroups as
individual companies are increasingly attempting to serve multiple subgroups.
4
Saia operates as a traditional LTL carrier with a primary focus on regional and
interregional LTL 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).
The TL segment is the largest portion of the for-hire truck transportation
market. In 2002 the TL segment generated approximately $250 billion in revenue
or 43 percent of total trucking revenue according to the American Trucking
Associations. 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 18,000
shipments per day, each of which has a shipper and consignee, and occasionally
a third party, all of who need access to information in a timely manner. More
importantly, technology plays a key role in improving customer service,
operations efficiency, safety and yield management. 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 include:
Continue to focus on operating safely.
Our most valuable resource is our employees. It is a corporate priority to
continually emphasize the importance of safe operations and to reduce both the
frequency and severity of injuries and accidents. This emphasis is not only
appropriate to protect our employees and our communities, but with the
continued escalation of commercial insurance and health care costs, is
important to maintain and improve shareholder returns.
Continue focus on delivering best-in-class service.
The foundation of our growth and profitability strategy is consistently
delivering high-quality service. Commitment to service quality is valued by
customers and allows us to gain fair compensation for our services and
positions us to improve market share.
Prepare the organization for future growth.
Our primary focus within organizational development is maintaining sound
relationships with our current employees. We invest in thorough internal
communications programs and are committed to providing competitive wages and
benefits to our employees.
5
We believe it is also important to invest in the development of human
resources, technology capabilities and strategic real estate that positions our
Company for future growth and will allow the Company to meet the increasing
demands of the marketplace.
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. This improves margins, asset
turnover and return on capital. To support this initiative, sales staffing was
increased by approximately 15 percent during the first half of 2003. The
additional staffing was deployed in markets and towards customer segments that
provide the greatest opportunities for profitable growth.
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 2003
opening of three new service facilities in Colorado and California.
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
as the economy rebounds and we believe we will continue to see new
opportunities for cost savings.
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 2002 trends and should further benefit as the economy strengthens
as expected.
Expand geographic footprint.
When the time is right, we plan to pursue geographic expansion because we
believe it promotes earnings growth and improves our customer value
proposition. We increased our borrowing availability under our revolver and
increased cash balances during 2003. This increased financial capacity allows
us to be more opportunistic with growth initiatives. On February 16, 2004, we
acquired Clark Bros., a Midwestern less-than-truckload carrier operating in ten
states. The operations of Clark Bros. are expected to be integrated into Saia
in May 2004 bringing the benefits of Saia transportation service to major
Midwestern markets including Chicago, Minneapolis, St. Louis and Kansas City.
Management may 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 and weather effects. Generally, the first quarter is the
weakest while the third quarter is the strongest.
Labor
Most regional LTL companies, including Saia and Jevic, 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 work schedules, routes and other similar
items.
6
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, stronger future growth prospects,
as well as improved efficiencies and customer service capabilities.
Competition
Shippers have an increasingly wide range of choices. We believe that service
quality, variety of services offered, responsiveness and flexibility are the
important competitive differentiators.
SCST focuses primarily on regional and interregional 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 and two-day markets and a
large number of shorter-haul or regional transportation companies in the
two-day and overnight markets. Since 2000, Jevic has faced additional
competition in primarily Northeast markets from a recently 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. The larger the
service area, the greater the barriers to entry into the LTL trucking industry
due to the 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, driver background checking processes and border-crossing
procedures. Various measures are being implemented that could increase the
cost of operations or reduce productivity.
Department of Transportation.
Within the Department of Transportation, the Federal Motor Carrier Safety
Administration (the FMCSA) finalized rules on motor carrier driver hours of
service that require motor carriers to provide drivers with more opportunities
to sleep by limiting the maximum number of hours a driver may be on duty
between mandatory off-duty hours. This new regulation effects Jevics
operations and could increase its costs and decrease its productivity. In
addition, we believe this regulation could further tighten the market for
qualified drivers and put upward pressure on driver wages. However, the
Company does not believe these new regulations will materially impact our
operations. The new rules were made effective in January of 2004.
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
7
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 environmental
laws and regulations and that the cost of compliance has not materially
affected results of operations.
Food and Drug Administration.
The Food and Drug Administration has issued rules in support of the
Bioterrorism Preparedness and Response Act of 2002 to provide security of food
and foodstuffs throughout the supply chain. As transporters of food items, our
companies will be required to track and maintain records of these items
throughout their movement and provide access to government officials upon
request. We do not believe these regulations will have a material impact on
our 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.
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):
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.
8
Additional Information
SCST has an Internet website that is located at www.scstransportation.com.
SCST makes available free of charge through its Internet website all filings
with the Securities and Exchange Commission as soon as reasonably practicable
after making such filings with the Securities and Exchange Commission. SCST
has adopted a code of ethics that applies to its executive officers and is
available free of charge through its Internet website.
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, 2003 Saia owned 36
service facilities and the Houma, Louisiana general office and leased 76
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 53 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, 2003, Saia owned all of its
2,268 tractors and 7,765 trailers.
Top 20 Saia Service Facilities by Number of Doors at December 31, 2003
9
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 portions of Canada through ten
origination facilities. As of December 31, 2003, Jevic owned all of its 1,272
tractors and 2,564 trailers.
Jevic Facilities
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, results of operations or
cash flows.
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, 2003.
10
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 facilities, multiple distribution
facilities, and a relay network. To gain service and cost advantages,
they occasionally ship directly between service facilities, reducing
intermediate handling.
Name
Age
Positions Held
Herbert A. Trucksess, III
54
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
42
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
49
President and Chief Executive
Officer, Jevic Transportation,
Inc. since January 2000, having
served as President since March
1997.
James J. Bellinghausen
42
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
48
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.
David J. Letke
58
Vice President, Operations and
Planning, SCS Transportation,
Inc. since October 2002. Mr.
Letke served as a consultant to
the Yellow Regional
Transportation Group from
February 2000 through September
2002. From July 1998 until
January 2000, Mr. Letke served
as President and CEO of Preston
Trucking Company.
Location
Own/lease
Doors
Own
224
Own
174
Own
124
Own
108
Own
107
Own
86
Lease
80
Own
68
Own
64
Own
59
Own
55
Lease
54
Lease
52
Own
51
Own
51
Own
49
Own
48
Own
44
Lease
44
Lease
44
Lease
44
Location
Own/lease
Doors
Own
108
Own
100
Lease
100
Lease
83
Own
80
Lease
74
Lease
72
Lease
58
Lease
50
Lease
32
Lease
N/A
PART II.
Item 5. Market for Registrants Common Equity 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.
Stockholders
As of January 31, 2004, there were 2,029 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.
Equity Compensation Plan Information
(1) See note 8 to the consolidated financial statements for a description of the equity compensation plan for securities remaining
available for future issuance. No more than 68,500 of the amount remaining available may be issued in the form of restricted stock
under the SCS Transportation, Inc. 2003 Omnibus Incentive Plan.
11
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.
12
Item 7. Managements Discussion and Analysis of Results of Operations and
Financial Condition
Executive Overview
The Companys business is highly correlated to the industrial economy. The
Company is focused on increasing volume within existing geographies while
managing both the mix and yield of business to achieve increased profitability.
The Companys business is both labor intensive and capital intensive. The
Company looks for opportunities to leverage technology, improve safety and
achieve better asset utilization (primarily tractors and trailers) to improve
cost and productivity. The Company grew year over year revenue by 7 percent in
2003 despite a flat economy as measured by Blue Chip Economic Indicators, which
estimated 0.2 percent year over year growth in industrial production. Revenue
growth was primarily attributable to the Companys growth in
less-than-truckload (LTL) tonnage which management believes reflects market
share gains due to various sales initiatives. The LTL pricing environment
remained competitive and the Company saw only modest year over year improvement
in LTL revenue per hundredweight, one measure of yield.
Incremental margins from increased tonnage volume within its existing network,
along with cost and productivity improvements realized in 2003, more than
offset structural cost increases in wages, health insurance claims, public
company costs and other expense items. This resulted in an overall improvement
in the Companys operating ratio (operating expenses divided by operating
revenue) of 50 basis points to 96.0 percent in 2003.
The Company generated cash flows from operations of $58.3 million in 2003. The
Company improved its financial capacity to pursue opportunistic growth
strategies by increasing its cash balance to $30.9 million and availability
under its revolving credit facility to $35.2 million at December 31, 2003.
There was no significant change in the Companys outstanding indebtedness
during 2003.
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
LTL and selected truckload (TL) service solutions to more than 72,000 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).
Our business is highly correlated to the industrial economy and is impacted by
a number of other external factors including the weather, price and
availability of fuel and regulation. 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, claims and insurance expense, fuel and maintenance; and our
ability to match operating costs to shifting volume levels.
13
Results of Operations
SCS Transportation, Inc. and Subsidiaries
Year ended December 31, 2003 vs. year ended December 31, 2002
Revenue and volume
The 6.7 percent increase in consolidated revenue to $827.4 million was the
result of volume increases in both shipments and LTL tonnage while year over
year yield was relatively flat, as pricing remains very competitive. Fuel
surcharge revenue, which was 3.6 percent of total revenue in 2003, is intended
to reduce the Companys exposure to rising diesel prices and was higher by
approximately $14.7 million in 2003.
Saia had operating revenue of $520.7 million in 2003, an increase of 6.3
percent over 2002 operating revenue of $489.8 million. Saias operating
revenue excluding fuel surcharge was $502.3 million in 2003, up 4.6 percent
from $480.3 million in 2002. Saia LTL revenue per hundredweight excluding fuel
surcharge (a measure of yield) increased 0.2 percent to $9.54 per hundredweight
for 2003, while LTL tonnage was up 4.4 percent to 2.4 million
14
tons and LTL
shipments were up 3.4 percent to 4.5 million shipments. The flat yield is a
combination of freight mix and competitive pricing pressure in regional
markets. Management believes that Saia continues to grow volume by providing
high quality service for its customers and from sales initiatives in specific
market segments. Saia has approximately 70 percent of revenue that is subject
to individual customer price adjustment negotiations that occur intermittently
throughout the year. The remaining 30 percent of revenue is subject to the
annual general rate increase. On June 9, 2003, Saia implemented a 6.2 percent
general rate increase for this smaller group of customers. Competitive
factors, customer turnover and mix changes impact the extent to which customer
rate increases are retained over time.
Jevic had operating revenue of $306.7 million in 2003, a 7.4 percent increase
over $285.6 million in 2002. Jevics operating revenue excluding fuel
surcharge was $295.5 million in 2003, up 5.5 percent from $280.2 million in
2002. Jevic revenue per hundredweight excluding fuel surcharge increased 4.8
percent to $6.44 per hundredweight, while tonnage was down 1.2 percent to 2.2
million tons and shipments were up 4.3 percent to 1.0 million shipments.
Jevics revenue increase is due to increased LTL volume, improved yields and
increased brokerage revenue, partially offset by lower truckload volumes. The
increase in yield is primarily a result of a planned mix shift toward higher
yielding LTL business. Jevic 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 the annual general rate increase. On June 1, 2003, Jevic
implemented a 5.9 percent general rate increase on LTL business and a 3.0
percent increase on truckload business for this smaller group of customers.
Competitive factors, customer turnover and mix changes impact the extent to
which customer rate increases are retained over time.
Operating expenses and margin
The 20.8 percent increase in consolidated operating income reflects higher
margin contribution on year over year volume increases and cost and
productivity improvements partially offset by structural cost increases. The
2003 operating ratio (operating expenses divided by operating revenue) was 96.0
compared to 96.5 in 2002. Both Saia and Jevic continued initiatives to improve
productivity and control variable costs as monthly volumes fluctuated. These
costs and productivity initiatives were partially offset by structural cost
increases in wage rates, healthcare costs, casualty insurance premiums and
other operating expenses. Higher fuel prices (exclusive of taxes), in
conjunction with volume changes, caused $10.6 million of the increase in
operating expenses and supplies. These fuel price increases were more than
offset by increased revenues from the fuel surcharge program.
Saia had operating income of $27.7 million in 2003, compared to $21.9 million
in 2002. The operating ratio at Saia was 94.7 in 2003 compared to 95.5 in
2002. Despite the relatively flat yield discussed above, Saia improved its
operating income through continued strong cost controls and productivity
initiatives that improved performance metrics in pickup and delivery, linehaul
and dock areas of the Company. These improvements in labor productivity,
safety initiatives and other expense reductions offset higher healthcare costs,
a general wage increase in August 2003 and other wage adjustments during the
year. As of the end of 2003, Saias wage rates were 4.5 percent higher than
the end of 2002. Saias overall increase in wage expense was partially offset
by a decrease in purchased transportation, as Saia more efficiently utilized
purchased transportation in meeting its peak capacity needs.
Jevic operating income was $9.4 million in 2003, up from $5.8 million in 2002.
Jevics revenue and yield improvement offset structural cost increases in 2003.
The operating ratio at Jevic was 96.9 in 2003 compared to 98.0 in 2002. Jevic
reduced its frequency rate for workers compensation claims in 2003. Workers
compensation expense in 2002 included $2.7 million higher than anticipated
costs 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 1.0 percent average wage increase over 2002. Jevic increased its use
of purchased transportation to fill peak capacity needs during 2003 versus the
prior year, principally due to operational challenges related to a continuing
shortage of drivers throughout the year.
Holding company operating expenses for 2003 were $4.3 million in excess of
costs allocated to the operating companies. These holding company costs
included a $0.4 million charge related to the appreciation of SCST stock
accounted for in the Capital Accumulation Plan, a $0.9 million charge for the
estimated payout of our long-term incentive plan related to the appreciation of
SCST stock, $1.1 million related to reserve increases on older casualty claims
and $0.2 million for a consulting project. These older casualty claims were
incurred prior to our September 2002 spin-off, and had been subject to a
deductible buy-down program with our former parent. The increase in reserves
was appropriate to estimate the increased severity potential of these claims.
The holding company had $0.5
15
million in operating expenses in excess of costs
allocated to the operating companies in 2002, which was not indicative of post
spin-off operations.
Other
Substantially all SCST nonoperating expenses represent interest expense. The
increase in interest cost is a result of the Companys post spin-off capital
structure consisting of predominantly longer-term, higher fixed rate
instruments versus the principally shorter term floating rate structure with
the former parent company. The consolidated effective tax rate was 37.6
percent in 2003 compared to 42.5 percent in 2002. The decrease in the
effective tax rate is due to the tax benefit for previously unrecognized state
operating loss carryforwards of $1.0 million, due to changes in state tax laws
enacted in 2003, together with the reduced impact of nondeductible business
expenses on higher income before income taxes. The 2002 results include a
charge of $75.2 million recorded 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
The change in working capital is predominantly the result of a higher invested
cash balance and increases in accounts receivable, due to higher revenues in
December 2003 versus December 2002, offset by increases in wage and employee
benefits accruals, primarily related to increased accruals for profit sharing
and vacation. Restrictions on prepayment of long-term fixed rate debt resulted
in a higher cash and cash equivalent balance from operations in 2003 . The
2003 capital investments primarily represent replacement of revenue equipment
and investment in technology equipment and software.
Year ended December 31, 2002 vs. year ended December 31, 2001
Revenue and volume
Revenue of $775.4 million in 2002 reflected relatively flat year over year
growth resulting from 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 $489.8 million in 2002, an increase of 0.9
percent over 2001 operating revenue of $485.4 million. Saias operating
revenue excluding fuel surcharge was $480.3 million in 2002, up 1.6 percent
from $472.6 million in 2001. 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 had
approximately 60 percent of revenue that was subject to individual customer
price adjustment negotiations that occur intermittently throughout the year.
The remaining 40 percent of revenue was subject to the annual general rate
increase. On July 15, 2002, Saia implemented a 5.9 percent general rate
increase for this group of customers. Competitive factors, customer turnover
and mix changes impact the extent to which customer rate increases are retained
over time.
Jevic had operating revenue of $286 million in 2002, consistent with $286
million in 2001. Jevics operating revenue excluding fuel surcharge was $280.2
million in 2002, up 0.5 percent from $278.6 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 was due to some firming in the pricing environment. Jevic had
approximately 60 percent of revenue that was subject to individual customer
price adjustment negotiations that occur intermittently throughout the year.
The remaining 40 percent of revenue was subject to the annual general rate
increase. On August 1, 2002, Jevic implemented a 5.9 percent general rate
increase for this smaller group of customers. Competitive factors, customer
turnover and mix changes impact the extent to which customer rate increases are
retained over time.
Operating expenses and margin
The increase in 2002 operating income is a combination of cost management
efforts, a modest increase in shipping volumes and the elimination of prior
year integration charges and goodwill amortization. The operating income in
2001 included $6.7 million of costs for the integration of WestEx and Action
Express into Saia and goodwill
16
amortization of approximately $3.0 million that
was eliminated in 2002. Both Saia and Jevic continued initiatives to improve
productivity and control variable costs as volumes fluctuated. However, these
cost reduction and productivity initiatives were partially offset by increases
in wage rates (total employees increased by only 1.0 percent to 7,500 at year
end), casualty insurance premiums and other operating expenses. The Company
had a $3.5 million decrease in operating expense and supplies as a result of
declines in fuel prices and volume changes which reduced total year over year
fuel costs.
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 costs 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
were 4 percent higher than the end of 2001 reflecting some changes in wage
structure as well. 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
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 reflects 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. The 2002
results include 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
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 and 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. 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.
Outlook
Our business is highly correlated to the general economy, and in particular
industrial production. However, in 2003, we achieved revenue growth and
profitability improvement despite a relatively flat industrial economic
environment. For 2004, we anticipate an improving economy that will allow
continued growth in our existing geography and subsidiary-specific profit
improvement initiatives, focused on cost management, productivity and asset
utilization that will help offset anticipated structural cost increases in
wages and healthcare claims. We also believe an improving economy will provide
the opportunity for improved pricing and yield management.
Our priorities in 2004 include a continued focus on providing top quality
service, improving safety performance and investing in management and
infrastructure for future growth. Actual results for 2004 will depend upon a
number of factors, including the timing, speed and magnitude of the economic
recovery, our ability to match capacity with shifting volume levels,
competitive pricing pressures, insurance claims and integration risks.
17
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.
Effective January 1, 2003, the Company adopted the fair value method of
recording stock option expense under SFAS No. 123, Accounting for Stock-Based
Compensation as amended by SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment of FASB Statement No.
123. See Note 1 to the accompanying consolidated financial statements for
further discussion.
Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. See Notes 1 and 5 to the accompanying consolidated
financial statements for further discussion.
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, which has subsequently been increased to $75 million.
Proceeds from the Senior Notes and a portion of the Credit Agreement were used
for payments due Yellow discussed below. SCST had approximately $120.5 million
outstanding under 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 Companys long-term debt at December 31, 2003 includes $100 million in
Senior Notes that 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, 2003,
SCST was in compliance with these covenants. In addition, SCST has third party
borrowings of approximately $16.5 million in subordinated notes.
On November 14, 2003, the Credit Agreement was amended to $75 million to
increase the Companys capacity for letters of credit in support of
self-insured retentions for casualty and workers compensation claims without
diminishing its borrowing capacity. The amended $75 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 2006. The availability under the Credit Agreement is limited to
SCSTs qualified receivables (as defined in the Credit Agreement). At December
31, 2003, SCST had no borrowings under the Credit Agreement, $35.3 million in
letters of credit outstanding under the Credit Agreement and availability of
$35.2 million based on SCSTs qualified receivables. The available portion of
the Credit Agreement may be used 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 to EBITDAR, a minimum interest coverage
ratio and a minimum tangible net worth, among others. At December 31, 2003,
SCST was in compliance with these covenants.
At December 31, 2003 Yellow provided on behalf of SCST approximately $2.3
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, 2003, Yellow has
provided on behalf of SCST $3.3 million in outstanding letters of credit under
historical insurance programs, which Saia participated with other Yellow
affiliates. The collateral support by Yellow is expected to remain in place
until claims for these prior years are closed. Under the Master Separation and
Distribution Agreement entered into in connection with the Spin-off,
18
SCST pays
Yellows actual cost of the collateral through October 2005 after which time it
is cost plus 100 basis points through October 2007.
Projected net capital expenditures for 2004 are approximately $55 million, an
approximately $5 million increase from 2003 net capital expenditures.
Approximately $3 million of the 2004 capital budget was committed at December
31, 2003. 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 historically generated cash flows from operations that have
funded its capital expenditure requirements. Cash flows from operations were
$58.3 million for the year ended December 31, 2003, which were $8.4 million
more than 2003 net capital expenditures. The timing of capital expenditures
can largely be managed around the seasonal working capital requirements of the
Company. However, the Company has adequate sources of capital to meet
short-term liquidity needs through its cash ($30.9 million at December 31,
2003) and availability under its revolving credit facility ($35.2 million at
December 31, 2003). In addition to these sources of liquidity, the Company has
$25 million under its long-term debt facilities, which is available to fund
other longer-term strategic investments. The February 16, 2004 acquisition of
Clark Bros. Transfer, Inc. utilized approximately $25 million in cash. Future
operating cash flows are primarily dependent upon the Companys profitability
and its ability to manage its working capital requirements, primarily accounts
receivable, accounts payable and wage and benefit accruals. The Company has
the ability to adjust its capital expenditures in the event of a shortfall in
anticipated operating cash flows. The Company believes its current capital
structure and availability under its borrowing facilities along with
anticipated cash flows from future operations will be sufficient to fund
planned replacements of revenue equipment and investments in technology.
Additional sources of capital may be needed to fund future long-term strategic
growth initiatives.
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. In addition to the
principal amounts disclosed in the tables below, the Company has interest
obligations of approximately $8.6 million for 2004 and decreasing for each year
thereafter, based on borrowings outstanding at December 31, 2003.
Contractual Cash Obligations
The following tables set forth a summary of our contractual cash obligations
and other commercial commitments as of December 31, 2003 (in millions):
19
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:
20
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.
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. We use such forward-looking statements regarding our future
financial condition and results of operations and our business operations in
this Report. 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 that could cause actual results
to differ materially from those described in the forward-looking statements.
These factors and risks include, but are not limited to, general economic
conditions; labor relations; cost and availability of qualified drivers;
governmental regulations, including but not limited to Hours of Service, engine
emissions and Homeland Security; cost and availability of fuel; inclement
weather; integration risks; 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 the
Companys SEC filings.
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.
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 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, 2003 with comparative information for December
31, 2002. The table presents principal cash flows (in millions) and related
weighted average interest rates by contractual maturity dates. The fair value
of the fixed rate debt was estimated based upon the borrowing rates currently
available to the Company for debt with similar terms and remaining maturities.
21
Item 8. Financial Statements and Supplementary Data
FINANCIAL STATEMENTS
22
Independent Auditors Report
The Board of Directors and Shareholders
We have audited the accompanying consolidated balance sheets of SCS
Transportation, Inc. and subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, shareholders equity, and cash
flows for the two years 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
audits. The 2001 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 audits 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
audits provide a reasonable basis for our opinion.
In our opinion, the 2003 and 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, 2003 and 2002, and the
results of their operations and their cash flows for the two years then ended
in conformity with accounting principles generally accepted in the United
States of America.
As discussed above, the 2001 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 financial statement schedule information for valuation and
qualifying accounts. In our opinion, the disclosures for 2001 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 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 consolidated financial statements taken as a
whole.
/s/ KPMG LLP
Kansas City, Missouri
23
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 report refers to periods not presented
herein. 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,
24
SCS Transportation, Inc. and Subsidiaries
See accompanying notes to consolidated financial statements.
25
SCS Transportation, Inc. and
Subsidiaries
See accompanying notes to consolidated financial statements.
26
SCS Transportation, Inc. and Subsidiaries
See accompanying notes to consolidated financial statements.
27
SCS Transportation, Inc. and Subsidiaries
28
SCS Transportation, Inc. and Subsidiaries
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.
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.
29
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. 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):
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.
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
30
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 $7.4 million at December 31, 2003 and
2002. 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, 2003, 2002 and 2001, the Company capitalized $1.2
million, $1.7 million, and $1.5 million, respectively, of primarily
payroll-related costs.
Integration Charges:
Integration charges were $6.7 million in 2001 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,
2003, were as follows:
For the current policy year, the Company has an aggregate exposure limited to
an additional $2,000,000 above its $1,000,000 per claim deductible under its
auto liability program.
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 and
$1.8 million in 2001.
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 and $1.6 million in 2001.
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, 2003 and 2002 was approximately $4.7 million and $5.1
million, respectively. The Company has also recorded a receivable for amounts
previously paid to the former Parent toward settlement of these claims totaling
approximately $0.8 million and $2.4 million at December 31, 2003 and 2002,
respectively. The Company incurred additional pretax costs of $1.1 million in
2003 related to open claims under the former Parents self-insured retention.
Revenue Recognition:
Revenue is recognized on a percentage-of-completion basis
for shipments in transit while expenses are recognized as incurred.
Stock-Based Compensation:
For all stock option grants prior to January 1,
2003, 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
31
Board (FASB) Interpretation No. 44
Accounting for Certain Transactions involving Stock Compensation.
Accordingly, no stock-based compensation expense related to stock option awards
was recorded in the year ended December 31, 2002 or 2001.
Effective January 1, 2003, the Company adopted the fair value method of
recording stock option expense under SFAS No. 123, Accounting for Stock-Based
Compensation as amended by SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment of FASB Statement No.
123. Under SFAS No. 123 the Company will recognize stock option expense
prospectively for all stock awards granted after January 1, 2003. Stock option
grants after January 1, 2003 are expensed over the vesting period based on the
fair value at the date the options are granted.
In connection with the Spin-off effective October 1, 2002, all former parent
company stock options issued and outstanding to employees of SCST were replaced
with SCST stock options with equivalent vesting, contract terms and an
intrinsic value identical to the value of the former parent company options
being replaced.
There were no SCST stock options outstanding during the year ended December 31,
2001, and therefore, no comparative information is presented for 2001.
The following table illustrates the effect on net income and earnings per share
during the years ended December 31, 2003 and 2002 if the Company had applied
the fair value recognition provisions of SFAS No. 123 Accounting for
Stock-Based Compensation for all stock option grants prior to January 1, 2003,
the date the Company adopted SFAS No. 123 (in thousands, except per share
data):
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 3.0 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.
32
New Accounting Pronouncements
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities, which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through a means other than voting rights and accordingly
should consolidate the entity. The Company currently does not have any
variable interests in VIEs.
FASB Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (Statement No. 150) was issued
in May 2003. This Statement establishes standards for the classification and
measurement of certain financial instruments with characteristics of both
liabilities and equity. The Company currently does not have any financial
instruments that are within the scope of Statement No. 150.
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 and $3.1 million in 2001. 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 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 maintained $5.6 million and $18.6
million of letters of credit and surety bonds at December 31, 2003 and December
31, 2002, respectively, in connection with the Companys insurance programs for
which the Company pays quarterly the former Parents cost. The former Parent
also provided guarantees of approximately $5.9 million and $8.2 million for
Saia service facility leases at December 31, 2003 and 2002, respectively.
Total interest expense under the borrowing arrangements with the former Parent
was $1.8 million in 2002 and $9.1 million in 2001. Interest expense was
settled monthly through the Companys borrowing arrangement with its former
Parent.
At December 31, debt consisted of the following (in thousands):
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-
33
annual
principal payments begin with the final payment due December 2013. Under the
terms of the Senior Notes, 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,
2003 and 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. On November 14, 2003, the Company
amended the Credit Agreement to increase the availability to $75 million to
increase its capacity for letters of credit in support of self-insured
retentions for casualty and workers compensation claims without diminishing
its borrowing capacity. The amended $75 million Credit Agreement now expires
in September 2006. The availability under the Credit Agreement remains limited
to SCSTs qualified receivables (as defined in the Credit Agreement). At
December 31, 2003, SCST had no borrowings under the Credit Agreement, $35.3
million in letters of credit outstanding under the Credit Agreement and
remaining availability of $35.2 million. 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. The Amended $75 million Credit Agreement maintains the same financial
covenants as the original agreement. At December 31, 2003 and 2002, the
Company was in compliance with these covenants.
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 estimated fair value of total debt
at December 31, 2003 and 2002 is $127.6 million and $123.4 million,
respectively.
The principal maturities of long-term debt for the next five years (in
thousands) are as follows:
The Company leases certain service facilities and equipment. Rent expense was
$10.8 million, $10.8 million and $11.8 million for the years ended December 31,
2003, 2002 and 2001, respectively.
At December 31, 2003, the Company was committed under noncancellable lease
agreements requiring minimum annual rentals payable as follows (in thousands):
Management expects that in the normal course of business leases will be renewed
or replaced as they expire.
34
Capital expenditures of approximately $3 million were committed at December 31,
2003.
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.
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):
There were no changes to the net carrying amount of goodwill during 2003.
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, 2003 and
2002 and accumulated amortization of $1.3 million and $1.1 million at December
31, 2003 and 2002, respectively.
Amortization expense for intangible assets other than goodwill was $0.3 million
for 2003, $0.3 million for 2002 and $0.3 million for 2001. Estimated
amortization expense for the five succeeding years follows (in thousands):
35
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):
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):
36
Series A Junior Participating Preferred Stock
As of December 31, 2003 and 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, 2003 and 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.
Deferred Compensation Trust
On March 6, 2003, the SCST Executive Capital Accumulation Plan (the Capital
Accumulation Plan) was amended to allow for the plan participants to invest in
the Companys common stock. The Companys Rabbi Trust, which holds the
investments for the Capital Accumulation Plan, purchased 63,617 shares of the
Companys common stock at an aggregate purchase price of $760,000 during the
year ended December 31, 2003. The Rabbi Trust shares are recorded by the
Company in a manner similar to treasury stock at cost until either a change in
investment election by a plan participant or a participants withdrawal from
the Capital Accumulation Plan. Changes in the value of shares held in the
Rabbi Trust are recorded in net income and $0.4 million of expense was included
in the 2003 operating results.
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.
In April 2003, the shareholders of the Company approved the 2003 Omnibus
Incentive Plan (the 2003 Omnibus Plan) to allow the Company the ability to
attract and retain outstanding executive, managerial, supervisory or
professional employees and non-employee directors. The Company has reserved
274,000 shares of its common stock under the 2003 Omnibus Plan. The 2003
Omnibus Plan provides for the grant or award of stock options; stock
appreciation rights; restricted stock; and cash performance unit awards. In
addition, the 2003 Omnibus Plan provides for the grant of shares of common
stock to non-employee directors in lieu of at least 50 percent of annual cash
retainers and provides for an annual grant to each non-employee director of
options for 5,000 shares of common stock. During 2003, 7,407 shares were
issued to non-employee directors in lieu of at least 50 percent of their annual
cash retainers and 37,500 options were issued to non-employee directors in
accordance with the 2003 Omnibus Plan. The non-employee director stock options
issued under the 2003 Omnibus Plan expire ten years from the date of
37
grant;
became exercisable six months after the date of grant; have an exercise price
equal to the fair market value of
the Companys common stock on the date of grant. Operating results included
$0.1 million in 2003 for stock options issued after January 1, 2003.
The following table summarizes the activity of stock options for the years
ended December 31:
The following table summarizes information about stock options outstanding at
December 31, 2003:
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. The fair value of each option granted during 2003 was
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions, risk free interest rate of
3.92 percent, expected life of 3 years, expected volatility of 40 percent,
expected dividend rate of zero and expected forfeitures of zero.
Defined Contribution Plans
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, 2003, 2002, and 2001, were
$5.7 million, $5.7 million and $3.5 million, respectively.
38
Deferred Compensation Plan
The SCST Executive Capital Accumulation Plan (the Capital Accumulation Plan) is
a nonqualified deferred compensation plan. The plan participants in the
Capital Accumulation Plan are certain executives within the Company. On March
6, 2003, the Capital Accumulation Plan was amended to allow for the plan
participants to invest in the Companys common stock. At December 31, 2003,
the Companys Rabbi Trust, which holds the investments for the Capital
Accumulation Plan, held 63,617 shares of the Companys common stock, all of
which were purchased on the open market. The shares held by the Capital
Accumulation Plan were excluded from the calculation of basic shares
outstanding for purposes of calculating earnings per share.
Annual Incentive Awards
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 $5.9 million, $6.1 million and $4.6 million in 2003, 2002 and 2001,
respectively. Performance incentive awards for a year are primarily paid in
the first quarter of the following year.
Employee Stock Purchase Plan
In January 2003, the Company adopted the Employee Stock Purchase Plan of SCS
Transportation, Inc. (ESPP) allowing all eligible employees to purchase common
stock of the Company at current market prices through payroll deductions of up
to 10 percent of annual wages. The custodian uses the funds to purchase the
Companys common stock at current market prices. The custodian purchased 3,370
shares in the open market during 2003.
Performance Unit Awards
Under the 2003 Omnibus Plan, the Compensation Committee of the Board of
Directors approved performance unit awards to a total of 19 management and
executive employees. The performance period for these awards will be three
years from the date of issuance of these awards. The criteria for payout of
the awards is based on a comparison over the performance period of the total
shareholder return of the Companys common stock compared to the total
shareholder return of the companies in the peer group set forth by the
Compensation Committee. The Company accrues amounts for such payments over the
performance period and at each reporting date adjusts the accrual based upon
the performance criteria set forth in the plan through the reporting date.
Operating results include accruals for the performance unit awards of $0.9
million in 2003. The performance unit awards will be paid in the first quarter
of the year following the end of the performance period.
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.
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):
39
The Company has determined a valuation allowance related to deferred tax assets
was not necessary at December 31, 2003.
The income tax provision consists of the following (in thousands):
A reconciliation between income taxes at the federal statutory rate (35
percent) and the provision follows:
In 2003, the Company recorded a tax benefit for previously unrecognized state
operating loss carryforwards of approximately $1.0 million due to changes in
state tax laws enacted in 2003.
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.
40
The following table summarizes the Companys operations by business segment (in
thousands).
41
(Amounts in thousands, except per share data)
42
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands)
On February 16, 2004, the Company acquired 100 percent of the outstanding stock
of Clark Bros. Transfer, Inc. (Clark Bros.). The base consideration paid for
Clark Bros. was $27.7 million including the assumption of $6.0 million in debt.
The Company paid an additional $2.8 million to the Clark Bros. shareholders to
structure the transaction as an asset sale for tax purposes, allowing the
Company future deductibility of tax goodwill and basis step-up in deductible
assets. The transaction was financed from existing cash balances and capacity
under the Credit Agreement, as well as a $6.2 million seller note.
43
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 as independent auditors for SCSTs 2002 audit. The audit committee
of SCST also retained KPMG LLP as independent auditors for SCSTs 2003 audit.
Annual Controls Evaluation and Related CEO and CFO Certifications
As of the end of the period covered by this Annual Report on Form 10-K, the
Company conducted an evaluation of the effectiveness of the design and
operation of its disclosure controls and procedures (Disclosure Controls).
The controls evaluation was done under the supervision and with the
participation of management, including the Companys Chief Executive Officer
(CEO) and Chief Financial Officer (CFO).
Based upon the controls evaluation, the Companys CEO and CFO have concluded
that, subject to the limitations noted below, as of the end of the period
covered by this Annual Report on Form 10-K, the Companys Disclosure Controls
were effective to provide reasonable assurance that material information
relating to SCST and its consolidated subsidiaries is made known to management,
including the CEO and CFO, particularly during the period when SCSTs periodic
reports are being prepared.
During the period covered by this Annual Report, there have been no significant
changes in internal control over financial reporting or in other factors that
could significantly affect internal control over financial reporting, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Attached as Exhibits 31.1 and 31.2 to this Annual Report are certifications of
the CEO and the CFO, which are required in accord with Rule 13a-14 of the
Securities Exchange Act of 1934 (the Exchange Act). This Controls and
Procedures section includes the information concerning the controls evaluation
referred to in the certifications and it should be read in conjunction with the
certifications.
Definition of Disclosure Controls
Disclosure Controls are controls and procedures designed to ensure that
information required to be disclosed in the Companys reports filed under the
Exchange Act is recorded, processed, summarized and reported timely. Disclosure
Controls are also designed to ensure that such information is accumulated and
communicated to the Companys management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure. The
Companys Disclosure Controls include components of its internal control over
financial reporting, which consists of control processes designed to provide
reasonable assurance regarding the reliability of SCSTs financial reporting
and the preparation of financial statements in accordance with U.S. generally
accepted accounting principles.
Limitations on the Effectiveness of Controls
The Companys management, including the CEO and CFO, does not expect that its
Disclosure Controls or its internal control over financial reporting will
prevent all errors and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control systems objectives will be met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or
more people, or by management override of the controls. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
44
Low
High
$
9.76
$
12.64
$
10.15
$
13.40
$
12.55
$
17.30
$
13.49
$
18.79
$
6.64
$
10.30
Number of securities
Number of securities
remaining available for
to be issued upon
Weighted-average
future issuances under
exercise of
exercise price of
equity compensation plans
outstanding options,
outstanding options,
(excluding securities
Plan Category
warrants and rights
warrants and rights
reflected in column (a))
(a)
(b)
(c)
1,109,509
$
5.09
229,093
(1)
1,109,509
$
5.09
229,093
Year ended December 31
2003
2002
2001
2000
1999(1)
(In thousands except per share data and percentages)
$
827,359
$
775,436
$
771,582
$
789,009
$
594,510
32,882
27,230
15,743
21,661
28,678
14,933
12,058
771
1,698
9,789
14,933
(63,117
)
771
1,698
9,789
0.99
0.82
0.05
0.12
0.67
0.99
(4.30
)
0.05
0.12
0.67
58,270
50,439
68,718
69,521
40,951
(49,830
)
(24,792
)
(19,613
)
(59,033
)
(53,016
)
44,039
44,920
49,166
48,296
33,406
30,870
21,872
1,480
4,922
3,558
292,393
287,158
306,041
334,427
319,635
464,066
444,343
511,946
551,667
536,461
116,510
116,410
128,992
206,884
218,899
189,582
174,277
229,649
203,514
198,926
96.0
%
96.5
%
98.0
%
97.3
%
95.2
%
(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.
Selected Results of Operations and Operating Statistics
For the years ended December 31, 2003, 2002 and 2001
(in thousands, except ratios and revenue per hundredweight)
Percent Variance
2003
2002
2001
03 v. 02
02 v. 01
$
827,359
$
775,436
$
771,582
6.7
%
0.5
%
465,714
439,590
435,795
5.9
0.9
81,551
77,885
71,304
4.7
9.2
44,039
44,920
49,166
(2.0
)
(8.6
)
203,173
185,811
199,574
9.3
(6.9
)
32,882
27,230
15,743
20.8
73.0
8,970
6,271
10,939
43.0
(42.7
)
96.0
%
96.5
%
98.0
%
(0.5
)
(1.5
)
68,519
54,928
21,300
24.7
157.9
58,270
50,439
68,718
15.5
(26.6
)
49,830
24,792
19,613
101.0
26.4
2,422
2,319
2,229
4.4
4.0
1,053
995
994
5.8
0.2
2,977
2,861
2,790
4.0
2.6
2,209
2,235
2,252
(1.2
)
(0.8
)
4,504
4,356
4,181
3.4
4.2
877
833
815
5.3
2.2
4,575
4,423
4,245
3.4
4.2
1,012
971
954
4.3
1.7
9.54
9.52
9.72
0.2
(2.1
)
9.19
9.09
8.96
1.0
1.5
8.44
8.40
8.47
0.5
(0.9
)
6.44
6.15
6.08
4.8
1.2
Year ended
2003
2002
2001
$
1.3
$
6.7
$
3.3
(0.4
)
(1.8
)
42.5
12.6
8.6
6.4
7.3
7.7
$
49.8
$
24.8
$
19.6
Payments due by year
2004
2005
2006
2007
2008
Thereafter
Total
$
$
$
$
$
$
$
1.3
6.4
11.4
11.4
86.0
116.5
9.6
7.6
4.8
2.6
0.8
0.1
25.5
5.1
0.5
0.3
5.9
$
14.7
$
9.4
$
11.5
$
14.0
$
12.2
$
86.1
$
147.9
(1)
See Note 3 to the accompanying audited consolidated financial statements in
this Form 10-K.
(2)
Includes commitments of $2.6 million for capital expenditures.
Amount of commitment expiration by year
2004
2005
2006
2007
2008
Thereafter
Total
$
$
$
35.2
$
$
$
$
35.2
38.7
38.7
3.5
0.1
3.6
$
42.2
$
0.1
$
35.2
$
$
$
$
77.5
Claims and Insurance Accruals. SCST has self-insured retention limits
generally ranging from $250,000 to $2,000,000 per claim for medical,
workers compensation, auto liability, casualty and cargo claims. For
the current policy year, the Company has an aggregate exposure limited
to an additional $2,000,000 above its $1,000,000 per claim deductible
under its auto liability program. 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. 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 historical experience. However,
these estimated accruals could be significantly affected if the actual
costs of SCST differ from these assumptions. These estimates tend to
be historically accurate over time; however, assumptions regarding
severity of claims, medical cost inflation, as well as specific case
facts can create short-term volatility in estimates.
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 receivable include
estimates of shipments in transit and estimates of future adjustments
to revenue and accounts receivable for billing adjustments and
collectibility.
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.
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. Annually, SCST assesses 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 would be required.
Expected maturity date
2003
2002
2004
2005
2006
2007
2008
Thereafter
Total
Fair Value
Total
Fair Value
$
$
1.3
$
6.4
$
11.4
$
11.4
$
86.0
$
116.5
$
127.6
$
116.4
$
123.4
7.00
%
7.24
%
7.32
%
7.33
%
7.34
%
$
$
$
$
$
$
$
$
$
$
23
24
25
26
27
28
29
SCS Transportation, Inc.:
January 21, 2004,
except for Note 14, which is as of February 16, 2004
Yellow Corporation:
January 25, 2002
Consolidated Balance Sheets
December 31, 2003 and 2002
(in thousands, except share data)
2003
2002
$
30,870
$
21,872
93,283
86,908
10,824
9,724
15,714
16,681
3,823
4,304
154,514
139,489
519,715
487,803
227,322
200,645
292,393
287,158
15,420
15,683
1,739
2,013
$
464,066
$
444,343
$
7,844
$
5,495
19,701
20,514
30,779
27,870
10,757
12,277
16,914
18,405
85,995
84,561
116,510
116,410
53,504
54,087
18,475
15,008
188,489
185,505
15
15
201,743
200,611
(760
)
(11,416
)
(26,349
)
189,582
174,277
$
464,066
$
444,343
Consolidated Statements of Operations
For the
years ended December 31, 2003, 2002 and 2001
(in thousands, except share data)
2003
2002
2001
$
827,359
$
775,436
$
771,582
465,714
439,590
435,795
81,551
77,885
71,304
145,363
131,681
141,124
32,431
30,754
31,521
25,391
22,781
20,251
44,039
44,920
49,166
(12
)
595
(27
)
6,705
794,477
748,206
755,839
32,882
27,230
15,743
9,460
6,192
10,942
(217
)
(23
)
(6
)
(273
)
102
3
8,970
6,271
10,939
23,912
20,959
4,804
8,979
8,901
4,033
14,933
12,058
771
(75,175
)
$
14,933
$
(63,117
)
$
771
14,687
14,585
14,565
15,129
14,671
14,565
$
1.02
$
0.83
$
0.05
(5.16
)
$
1.02
$
(4.33
)
$
0.05
$
0.99
$
0.82
$
0.05
(5.12
)
$
0.99
$
(4.30
)
$
0.05
Consolidated Statements of Shareholders Equity
For the years ended December 31, 2003, 2002 and 2001
(in thousands)
Former
Additional
Deferred
Retained
Parent
Common
Paid-in
Compensation
Earnings
Company
Stock
Capital
Trust
(Deficit)
Equity
Total
$
$
$
$
$
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
89
89
143
143
900
900
(760
)
(760
)
14,933
14,933
$
15
$
201,743
$
(760
)
$
(11,416
)
$
$
189,582
Consolidated Statements of Cash Flows
For the years ended December 31, 2003, 2002 and 2001
(in thousands)
2003
2002
2001
$
14,933
$
(63,117
)
$
771
75,175
44,039
44,920
49,166
2,051
3,924
4,118
384
(3,918
)
(883
)
(12
)
595
52
143
89
(7,707
)
(6,903
)
6,103
3,286
(6,084
)
(509
)
(1,481
)
968
5,477
3,467
6,649
2,323
(922
)
(1,770
)
2,100
58,270
50,439
68,718
(55,548
)
(33,101
)
(25,161
)
5,718
8,309
5,548
(49,830
)
(24,792
)
(19,613
)
110,820
(33,245
)
(1,817
)
558
391
1,087
(83,221
)
(51,817
)
558
(5,255
)
(52,547
)
8,998
20,392
(3,442
)
21,872
1,480
4,922
$
30,870
$
21,872
$
1,480
$
$
$
16,311
(351
)
(6,936
)
(40,568
)
6,936
24,608
12,470
12,155
725
9,428
6,017
10,941
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
1.
Description of Business and Summary of Accounting Policies
Saia Motor Freight Line, Inc.
(Saia) is a multi-regional LTL
carrier providing overnight and second-day delivery in 21 states
across the South, Southwest, West and Pacific Northwest United
States. Saia employs approximately 5,200 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 regional and interregional delivery
across the continental United States and portions of Canada. Jevic
employs approximately 2,500 employees and is headquartered in
Delanco, New Jersey.
Years
20 to 25
5 to 13
3 to 8
3 to 15
2003
2002
$
23,534
$
23,018
86,134
86,156
342,275
316,080
39,251
34,989
28,521
27,560
$
519,715
$
487,803
$
250,000 to 2,000,000
1,000,000 to 2,000,000
250,000
250,000
2003
2002
$
14,933
$
(63,117
)
88
(1,059
)
(2,411
)
$
13,962
$
(65,528
)
$
1.02
$
(4.33
)
$
0.95
$
(4.49
)
$
0.99
$
(4.30
)
$
0.92
$
(4.47
)
2.
Related-Party Transactions
3.
Debt and Financing Arrangements
2003
2002
$
$
100,000
100,000
16,510
16,410
116,510
116,410
$
116,510
$
116,410
Amount
$
1,263
6,438
11,438
11,438
85,933
4.
Commitments, contingencies and uncertainties
Amount
$
9,545
7,637
4,819
2,579
826
126
5.
Goodwill and Other Intangible Assets
December 31,
Impairment
December 31,
2001
adjustment
2002
$
14,796
$
$
14,796
75,175
(75,175
)
$
89,971
$
(75,175
)
$
14,796
Amount
$
263
263
97
Year ended December 31,
2003
2002
2001
$
14,933
$
12,058
$
771
3,006
$
14,933
$
12,058
$
3,777
$
1.02
$
0.83
$
0.05
0.21
$
1.02
$
0.83
$
0.26
$
0.99
$
0.82
$
0.05
0.21
$
0.99
$
0.82
$
0.26
6.
Computation of Earnings Per Share
Year ended December 31,
2003
2002
2001
$
14,933
$
(63,117
)
$
771
14,687
14,585
14,565
442
86
15,129
14,671
14,565
$
1.02
$
0.83
$
0.05
(5.16
)
$
1.02
$
(4.33
)
$
0.05
$
0.99
$
0.82
$
0.05
(5.12
)
$
0.99
$
(4.30
)
$
0.05
7.
Shareholders Equity
8.
Stock Options
2003
2002
Weighted
Weighted
average
average
Options
exercise price
Options
exercise price
1,190,917
$
4.85
$
1,280,742
4.81
37,500
12.05
(113,450
)
4.92
(89,825
)
4.35
(5,458
)
4.36
1,109,509
$
5.09
1,190,917
$
4.85
913,031
$
5.24
636,505
$
5.22
$
4.52
$
3.79
Options Outstanding
Options Exercisable
Number of
Weighted
options
average
Weighted
Exercisable
Weighted
outstanding at
remaining
average
as of
average
December 31,
contractual
exercise
December 31,
exercise
Range of Exercise Prices
2003
life (years)
price
2003
price
887,811
6.00
$
4.48
691,333
$
4.51
2,274
4.30
5.43
2,274
5.43
181,924
3.50
6.61
181,924
6.61
37,500
9.30
12.05
37,500
12.05
1,109,509
5.70
$
5.09
913,031
$
5.24
9.
Employee Benefits
10.
Income Taxes
2003
2002
$
59,892
$
54,471
7,476
11,532
2,423
1,945
69,791
67,948
(1,947
)
(2,632
)
(5,666
)
(4,609
)
(15,552
)
(14,163
)
(7,020
)
(7,365
)
(1,816
)
(1,773
)
(32,001
)
(30,542
)
$
37,790
$
37,406
2003
2002
2001
$
7,348
$
11,626
$
4,182
1,247
1,193
734
8,595
12,819
4,916
354
(3,578
)
(756
)
30
(340
)
(127
)
384
(3,918
)
(883
)
$
8,979
$
8,901
$
4,033
2003
2002
2001
$
8,369
$
7,336
$
1,682
727
697
364
1,052
895
868
860
(956
)
(56
)
75
$
8,979
$
8,901
$
4,033
11.
Business Segments
Corporate
Saia*
Jevic
and Other
Consolidated
$
520,668
$
306,691
$
$
827,359
27,710
9,434
(4,262
)
32,882
286,899
146,895
30,272
464,066
31,506
18,227
97
49,830
23,946
20,053
40
44,039
$
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
*
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)
Three months ended, 2003
March 31
June 30
September 30
December 31
$
200,110
$
208,263
$
211,530
$
207,456
4,516
8,905
11,158
8,303
1,326
3,923
5,130
4,554
$
1,326
$
3,923
$
5,130
$
4,554
$
0.09
$
0.27
$
0.35
$
0.31
$
0.09
$
0.27
$
0.35
$
0.31
$
0.09
$
0.26
$
0.34
$
0.30
$
0.09
$
0.26
$
0.34
$
0.30
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
13.
Valuation and Qualifying Accounts
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
$
6,878
2,051
(3,811
)
$
5,118
$
6,809
3,924
(3,855
)
$
6,878
$
5,244
4,118
(2,553
)
$
6,809
(1)
Primarily uncollectible accounts
written off net of recoveries.
14.
Subsequent Event
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A.
Controls and Procedures
PART III.
Information regarding members of the Board of Directors will be presented in
SCSTs definitive proxy statement for its annual meeting of stockholders, which
will be held on April 21, 2004, 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.
Information regarding executive compensation will be presented in SCSTs
definitive proxy statement for its annual meeting of stockholders, which will
be held on April 21, 2004, and is incorporated herein by reference.
Information regarding security ownership of certain beneficial owners and
management and related stockholder matters will be presented in SCSTs
definitive proxy statement for its annual meeting of stockholders, which will
be held on April 21, 2004, and is incorporated herein by reference.
Information regarding certain relationships and related party transactions will
be presented in SCSTs definitive proxy statement for its annual meeting of
stockholders, which will be held on April 21, 2004, and is incorporated herein
by reference.
Information regarding accountant fees and services will be presented in SCSTs
definitive proxy statement for its annual meeting of stockholders, which will
be held on April 21, 2004, and is incorporated herein by reference.
PART IV.
45
Item 10.
Directors and Executive Officers of the Registrant
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions
Item 14.
Principal Accountant Fees and Services
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 II Valuation 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 10.12, 21, 23.1, 23.2, 31.1, 31.2,
32.1 and 32.2 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, 2003: (i) Current Report on Form 8-K
dated October 16, 2003 (announcing third quarter results); and (ii) Current
Report on Form 8-K dated November 14, 2003 (announcing terms of an
amendment to the Credit Agreement).
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
46
SCS TRANSPORTATION, INC.
Date: February 25, 2004
By:
/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.
February 25, 2004
/s/ James J. Bellinghausen
James J. Bellinghausen
Vice President and
Chief Financial
Officer, SCS
Transportation, Inc.
February 25, 2004
/s/ Klaus E. Agthe
Klaus E. Agthe
Director
February 25, 2004
/s/ Mark A. Ernst
Mark A. Ernst
Director
February 25, 2004
/s/ John J. Holland
John J. Holland
Director
February 25, 2004
/s/ James A. Olson
James A. Olson
Director
February 25, 2004
/s/ Douglas W. Rockel
Douglas W. Rockel
Director
February 25, 2004
EXHIBIT INDEX
E-1
EXHIBIT
INDEX (Continued)
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
Amendment One to Agented Revolving Credit Agreement dated as of November 14, 2003,
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 November 17, 2003).
10.3
Senior Notes Master Shelf Agreement dated as of September 20, 2002 (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).
10.4
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).
10.5
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).
10.6
Employment Agreement between SCS Transportation, Inc. and Herbert A. Trucksess, III
dated as of November 20, 2002 (incorporated herein by reference to Exhibit 10.5 of
SCS Transportation, Inc.s Form 10-K (File No. 0-49983) for the year ended December
31, 2002).
10.7
Employment Agreement between SCS Transportation, Inc., Saia Motor Freight Line,
Inc. and Richard D. ODell dated as of November 20, 2002 (incorporated herein by
reference to Exhibit 10.6 of SCS Transportation, Inc.s Form 10-K (File No.
0-49983) for the year ended December 31, 2002).
10.8
Employment Agreement between SCS Transportation, Inc., Jevic Transportation, Inc.
and Paul J. Karvois dated as of November 20, 2002 (incorporated herein by reference
to Exhibit 10.7 of SCS Transportation, Inc.s Form 10-K (File No. 0-49983) for the
year ended December 31, 2002).
10.9
Executive Severance Agreement between SCS Transportation, Inc. and Herbert A.
Trucksess, III dated as of September 28, 2002 (incorporated herein by reference to
Exhibit 10.8 of SCS Transportation, Inc.s Form 10-K (File No. 0-49983) for the
year ended December 31, 2002).
10.10
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 (incorporated herein by reference
to Exhibit 10.9 of SCS Transportation, Inc.s Form 10-K (File No. 0-49983) for the
year ended December 31, 2002).
10.11
Amendment to Employment Agreement between SCS Transportation, Inc. and Herbert A.
Trucksess, III dated as of December 4, 2003.
10.12
Stock Purchase Agreement dated February 16, 2004, by and among Saia Motor Freight
Line, Inc. and James D. Clark, Janice A. Clark, Amy L. Hunt, G.J. Deyonge, and
Stuart W. Kutler Trust Under Trust Agreement Dated
January 28,1998.
Exhibit
Number
Description of Exhibit
10.13
SCS Transportation,
Inc. 2003 Omnibus Incentive Plan (incorporated herein by reference to
Exhibit B of SCS Transportation, Inc.s Definitive Proxy
Statement on Schedule 14A (File No. 0-49983) Filed on March 14, 2003).
10.14
First Amendment to
the SCS Transportation, Inc. 2003 Omnibus Incentive Plan.
10.15
SCS Transportation,
Inc. Directors Deferred Fee Plan as adopted December 11, 2003.
21
Subsidiaries of Registrant.
23.1
Consent of KPMG LLP, Independent Auditors.
23.2
Information Regarding Consent of Arthur Andersen LLP.
31.1
Certification of Principal Executive Officer Pursuant to Exchange Act
Rule 13a-15(e).
31.2
Certification of Principal Financial Officer Pursuant to Exchange Act
Rule 13a-15(e).
32.1
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.
32.2
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-2
EXHIBIT 10.11
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT, made this 4th day of December, 2003, by and between SCS Transportation, Inc., a Delaware corporation ("SCST"), and Herbert A. Trucksess, III (the "Executive").
WITNESSETH:
WHEREAS, SCST and the Executive entered into an Employment Agreement on November 20, 2002 pursuant to which the Executive agreed to serve as President and Chief Executive Officer of SCST (the "Agreement"); and
WHEREAS, the parties retained the right to amend the Agreement pursuant to Section 24 thereof; and
WHEREAS, the parties desire to amend the Agreement to clarify the calculation of the Executive's Supplemental Retirement Benefit:
NOW, THEREFORE, effective as of November 20, 2002, the Agreement is amended as follows:
1. Section 4(d) is amended to read as follows:
(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 One twelfth of the excess of [Total Credited Service multiplied by Final Average Earnings multiplied by 1-3/7% (.0142857)] over [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 monthly 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.
2. The Phrase "SCS" is deleted from Section 4(g)(1) and replaced with "SCST".
IN WITNESS WHEREOF, the parties have executed this Amendment on the 4th day of December 2003.
EXECUTIVE SCS TRANSPORTATION, INC. /s/ Herbert A. Trucksess III By: /s/ James J. Bellinghausen --------------------------------- ---------------------------------- Herbert A. Trucksess, III ATTEST By: /s/ G. Drown ---------------------------------- |
EXHIBIT 10.12
STOCK PURCHASE AGREEMENT
AMONG
SAIA MOTOR FREIGHT LINE, INC.
AND
JAMES D. CLARK
JANICE A. CLARK
AMY L. HUNT
G. J. DEYONGE
AND
STUART W. KUTLER TRUST UNDER TRUST AGREEMENT DATED JANUARY 28, 1998
February 16, 2004
TABLE OF CONTENTS
1. Definitions....................................................................................... 1 2. Purchase and Sale of Company Shares............................................................... 8 (a) Purchase Price.............................................................................. 8 (b) Payment..................................................................................... 8 (c) The Closing................................................................................. 8 (d) Deliveries at the Closing................................................................... 8 3. Representations and Warranties Concerning the Transaction......................................... 8 (a) Representations and Warranties of the Sellers............................................... 8 (b) Representations and Warranties of the Buyer................................................. 9 4. Representations and Warranties Concerning the Company............................................. 10 (a) Organization, Qualification, and Corporate Power............................................ 11 (b) Capitalization.............................................................................. 11 (c) Noncontravention............................................................................ 11 (d) Brokers' Fees............................................................................... 12 (e) Title to Assets............................................................................. 12 (f) Subsidiaries................................................................................ 12 (g) Financial Statements........................................................................ 12 (h) Books and Records........................................................................... 12 (i) Events Subsequent to October 1, 2003........................................................ 13 (j) Undisclosed Liabilities..................................................................... 14 (k) Business Practices.......................................................................... 15 (l) Legal Compliance............................................................................ 15 (m) Tax Matters................................................................................. 15 (n) Real Property............................................................................... 17 (o) Intellectual Property....................................................................... 20 (p) Tangible Assets............................................................................. 22 (q) Inventory................................................................................... 22 (r) Contracts................................................................................... 22 (s) Notes and Accounts Receivable............................................................... 24 (t) Powers of Attorney.......................................................................... 24 (u) Insurance................................................................................... 24 (v) Litigation.................................................................................. 24 (w) Labor Matters............................................................................... 25 (x) Employee Benefits........................................................................... 25 (y) Guaranties.................................................................................. 28 (z) Environmental Matters....................................................................... 28 (aa) Certain Business Relationships With the Company............................................. 30 (bb) Contractors................................................................................. 30 (cc) Customer Relations.......................................................................... 30 (dd) Bank Accounts............................................................................... 31 (ee) No Additional Representations and Warranties................................................ 31 5. Post Closing Covenants............................................................................ 31 (a) General..................................................................................... 31 |
(b) Litigation Support.......................................................................... 32 (c) Transition.................................................................................. 32 (d) Confidentiality............................................................................. 32 (e) Miscellaneous............................................................................... 32 (f) Payment of Indebtedness..................................................................... 34 6. Deliveries at Closing............................................................................. 34 (a) Sellers' Deliveries at Closing.............................................................. 34 (b) Buyer's Deliveries at Closing............................................................... 36 7. Remedies for Breaches of this Agreement........................................................... 36 (a) Survival of Representations and Warranties.................................................. 37 (b) Time Limitations............................................................................ 37 (c) Indemnification Provisions for Benefit of the Buyer......................................... 37 (d) Indemnification Provisions for Benefit of the Sellers....................................... 39 (e) Calculation of Adverse Consequences; Limitations on Indemnity Obligations................... 40 (f) Right to Set off; Escrow.................................................................... 42 (g) Matters Involving Third Parties............................................................. 42 (h) Other Indemnification Provisions............................................................ 44 8. Tax Matters....................................................................................... 44 (a) Tax Filings................................................................................. 44 (b) Section 338(h)(10) Election................................................................. 45 (c) Allocation of Purchase Price................................................................ 46 (d) S Corporation Status........................................................................ 46 (e) Cooperation on Tax Matters.................................................................. 46 (f) Tax Sharing Agreements...................................................................... 47 (g) Certain Taxes and Fees...................................................................... 47 9. Miscellaneous..................................................................................... 47 (a) Nature of Certain Obligations............................................................... 47 (b) Press Releases and Public Announcements..................................................... 47 (c) No Third-Party Beneficiaries................................................................ 48 (d) Entire Agreement............................................................................ 48 (e) Succession and Assignment................................................................... 48 (f) Counterparts................................................................................ 48 (g) Headings.................................................................................... 48 (h) Notices..................................................................................... 48 (i) Governing Law............................................................................... 49 (j) Amendments and Waivers...................................................................... 49 (k) Equitable Modification...................................................................... 49 (l) Expenses.................................................................................... 49 (m) Construction................................................................................ 50 (n) Incorporation of Exhibits, Annexes, and Schedules........................................... 50 (o) Specific Performance........................................................................ 50 (p) Submission to Jurisdiction.................................................................. 50 (q) Arbitration................................................................................. 51 (r) Appointment of Sellers' Representative...................................................... 52 |
EXECUTION COPY
STOCK PURCHASE AGREEMENT
This Agreement (the "Agreement") entered into on February 16, 2004, by and among Saia Motor Freight Line, Inc., a Louisiana corporation (the "Buyer") and James D. Clark, Janice A. Clark, Amy L. Hunt, G. J. DeYonge and the Stuart W. Kutler Trust Under Trust Agreement dated January 28, 1998 (collectively the "Sellers"). The Buyer and the Sellers are referred to collectively herein as the "Parties".
The Sellers in the aggregate own all of the outstanding capital stock of Clark Bros. Transfer, Inc., a Nebraska corporation (the "Company").
This Agreement contemplates a transaction in which the Buyer will purchase from the Sellers, and the Sellers will sell to the Buyer, all of the outstanding capital stock of the Company in return for cash and a promissory note.
NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows.
1. Definitions.
"AAA" has the meaning set forth in Section 9(q) below.
"Accredited Investor" has the meaning set forth in Regulation D promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages (excluding, except as otherwise provided in this Agreement, incidental, consequential, special, enhanced and punitive damages) dues, diminution in value, penalties, fines, costs (including costs of investigation and defense, court costs and attorneys' fees, Costs and Fees and Arbitration Expenses), amounts paid in settlement, liabilities, obligations, Taxes, liens, losses, expenses and fees.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code Section 1504(a) or any similar group defined under a similar provision of state, local, or foreign law.
"Agreement" has the meaning set forth in the preface above.
"Arbitrable Dispute" has the meaning set forth in Section 9(q) below.
"Arbitration Expenses" has the meaning set forth in Section 9(q) below.
"Arbitrators" has the meaning set forth in Section 9(q) below.
"Basket" has the meaning set forth in Section 7(e) below.
"Buyer" has the meaning set forth in the preface above.
"Capitalized Lease" means a lease under which the obligations of the lessee should, in accordance with GAAP consistently applied, be included in determining total liabilities as shown on the liability side of a balance sheet of the lessee.
"Capitalized Lease Obligations" means the amount of the liability reflecting the aggregate discounted amount of future payments under all Capitalized Leases calculated in accordance with GAAP consistently applied and Statement of Financial Accounting Standards No. 13.
"Closing" has the meaning set forth in Section 2(c) below.
"Closing Date" has the meaning set forth in Section 2(c) below.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code Section 4980B and of any similar state law.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Retained Property" has the meaning set forth in
Section 5(g) below.
"Company Share" means any issued and outstanding share of the capital stock of the Company.
"Confidential Information" means any information concerning the businesses and affairs of the Company that is not generally available to the public (other than through a breach of a confidentiality obligation or similar obligation owed to the Company).
"Controlled Groups" has the meaning set forth in Code Section 1563.
"Conveyed Property" has the meaning set forth in Section 5(g) below.
"Costs and Fees" has the meaning set forth in Section 9(q) below.
"Covered Breach" has the meaning set forth in Section 7(e) below.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"EBITDA Claim Basket" has the meaning set forth in Section 7(e) below.
"EBITDA Reduction Claim" has the meaning set forth in Section 7(e) below.
"Employee Benefit Plan" means any "employee benefit plan" (as such term is defined in ERISA Section 3(3)) and any other employee benefit plan, program or arrangement of any
kind.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section 3(1).
"Employment Agreement" has the meaning set forth in Section 6(a) below.
"Environmental Law" means any applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and charges thereunder) as enacted and in effect on or prior to the Closing Date relating to the protection of health or the environment, including without limitation: the Clean Air Act, the Federal Water Pollution Control Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substance Control Act, any comparable state or foreign law, and the common law, including the law of nuisance and strict liability.
"Environmental Permits" means all permits, registrations, approvals, licenses, filings and submissions to any governmental body or other authority required by or made by or on behalf the Company under or pursuant to any Environmental Law.
"Environmental Property" means any assets or property currently or previously owned, leased, operated or used by the Company.
"EPA" means the United States Environmental Protection Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" means each entity which is treated as a single employer with the Company for purposes of Code Section 414.
"Escrow Agent" means Wells Fargo Bank, N.A.
"Escrow Agreement" means that certain Escrow Agreement dated as of the Closing Date among Buyer, certain of the Sellers and the Escrow Agent.
"Excepted Real Property" has the meaning set forth in Section 4(z) below.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statements" has the meaning set forth in Section 4(g) below.
"GAAP" means United States generally accepted accounting principles as in effect from time to time.
"Hazardous Materials" shall mean pollutants, contaminants, hazardous substances, hazardous chemicals, toxic substances, hazardous wastes, infectious wastes, radioactive materials, petroleum including crude oil or any fraction thereof, asbestos fibers, or
solid wastes or other hazardous materials, including without limitation those defined in any Environmental Law.
"HIPAA" means the Health Insurance Portability and Accountability Act of 1996, as amended.
"Improvements" has the meaning set forth in Section 4(n) below.
"Income Tax" means any federal, state, local, or foreign income tax, including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Income Taxes, including any schedule or attachment thereto, and including any amendment thereof.
"Indebtedness" means at a particular time, without duplication: (a) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, (b) any indebtedness evidenced by any note, bond, debenture or other debt instrument; (c) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise, (d) any commitment by which a Person assures a creditor against loss (including, without limitation, contingent reimbursement obligations with respect to letters of credit), (e) any obligations for which a Person is obligated pursuant to a guarantee, (f) any obligations under Capitalized Lease Obligations with respect to which a Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or with respect to which obligations a Person assures a creditor against loss; (g) any indebtedness secured by a Security Interest on a Person's assets, (h) any unsatisfied obligation for Withdrawal Liability to a Multiemployer Plan, (i) all indebtedness of a Person for which such Person may become liable as a fiduciary or otherwise and (j) all costs (including prepayment penalties) that would be due as a result of the payment of any such indebtedness at Closing; provided, however, that all current liabilities of a Person other than current liabilities attributable to the current portion of such Person's long term debt shall not be included in the definition of Indebtedness.
"Indemnified Persons" has the meaning set forth in Section 7(c) below.
"Independent Third Party" means a nationally recognized law firm or any of the following accounting firms or their successors: Ernst & Young LLP, KPMG LLP, Deloitte & Touche LLP and PricewaterhouseCoopers LLP.
"Intellectual Property" means all of the following in any jurisdiction throughout the world: (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations in part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade names, corporate names, Internet domain names, and rights in telephone numbers, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c)
all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including source code, executable code, data, databases and related documentation), (g) all material advertising and promotional materials, (h) all other proprietary rights, and (i) all copies and tangible embodiments thereof (in whatever form or medium).
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge after reasonable investigation. For purposes of determining whether any Seller has conducted a reasonable investigation, if such Seller has made inquiry of the officers and directors of the Company, the investigation shall be deemed to be reasonable without need for further verification.
"Lease Consents" has the meaning set forth in Section 6(a) below.
"Leased Real Property" means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in real property held by the Company.
"Leases" means all leases, subleases, licenses, concessions and other agreements (written or oral), including all amendments, extensions, renewals, guaranties and other agreements with respect thereto, pursuant to which the Company holds any Leased Real Property.
"Most Recent Balance Sheet" means the balance sheet contained within the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section 4(g) below.
"Most Recent Fiscal Period End" has the meaning set forth in
Section 4(g) below.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
"Non-Compete Agreements" has the meaning set forth in Section 6(a) below.
"Ordinary Course of Business" means, with respect to the
business of the Company, only the ordinary course of commercial operations
customarily engaged in by the Company consistent with industry norms and the
Company's prior practices, and specifically does not include (a) any activity
(i) involving the purchase or sale of the Company or of any product line or
business unit of the Company, (ii) involving modification or adoption of any
Employee Benefit Plan or (iii) which requires approval by the board of directors
or shareholders of the Company, or (b) the incurrence of any liability for any
tort or any breach or violation of or default under any contract or applicable
law.
"Owned Real Property" means all land, together with all buildings, structures, improvements and fixtures located thereon, and all easements and other rights and interests appurtenant thereto, owned by any of the Company.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" means with respect to each parcel of
Real Property: (a) real estate taxes, assessments and other governmental levies,
fees or charges imposed with respect to such Real Property which are not due and
payable as of the Closing Date, or which are being contested in good faith and
for which appropriate reserves have been established in accordance with GAAP;
(b) mechanics liens and similar liens for labor, materials or supplies provided
with respect to such Real Property incurred in the ordinary course of business
for amounts which are not due and payable and which would not, individually or
in the aggregate, have a material adverse effect on the business of the Company
as currently conducted thereon; (c) zoning, building codes and other land use
laws regulating the use or occupancy of such Real Property or the activities
conducted thereon which are imposed by any governmental authority having
jurisdiction over such Real Property which are not violated by the current use
or occupancy of such Real Property or the operation of the business of the
Company as currently conducted thereon; (d) easements, covenants, conditions,
restrictions and other similar matters of record affecting title to such Real
Property which do not or would not materially impair the use or occupancy of
such Real Property in the operation of the business of the Company as currently
conducted thereon; and (e) any Security Interests in existence on the Closing
Date securing the Indebtedness of the Company disclosed on the Most Recent
Balance Sheet; and (f) minor imperfections which do not materially detract from
the value, or interfere with the present use, of the property subject thereto or
affected thereby.
"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 2(a) below.
"Real Property" has the meaning set forth in Section 4(n) below.
"Real Property Laws" has the meaning set forth in Section 4(n) below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"S Corporation Sale" has the meaning set forth in Section 8(b) below.
"Section 338(h)(10) Election" has the meaning set forth in
Section 8(b) below.
"Section 338(h)(10) Gross-Up" has the meaning set forth in
Section 8(b) below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for taxes not yet due and payable,
(c) purchase money liens and liens securing rental payments under Capitalized
Leases, and (d) other liens arising in the Ordinary Course of Business and not
incurred in connection with the borrowing of money.
"Sellers" has the meaning set forth in the preface above.
"Subject Documents" has the meaning set forth in Section 9(r) below.
"Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which: (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control (or have the power to be or control) a managing director, manager or general partner of such limited liability company, partnership, association or other business entity.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
"WARN Act" has the meaning set forth in Section 4(w) below.
"Withdrawal Liability" means, at any time, the aggregate amount of the liabilities,
if any, pursuant to Section 4201 of ERISA, and any increase in contributions pursuant to Section 4243 of ERISA with respect to all Multiemployer Plans to which the Company makes, is making, or is obligated to make contributions on behalf of participants who are or were employed by any of them or to which such Person has any current or potential liability.
2. Purchase and Sale of Company Shares.(a) On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from each of the Sellers, and each of the Sellers agrees to sell to the Buyer, all of his or her Company Shares for the consideration specified below in this Section 2.
(a) Purchase Price. The purchase price for the Company Shares shall be an amount equal to $21,684,241 (the "Purchase Price").
(b) Payment. Subject to the terms and conditions of this Agreement, the Purchase Price shall be paid by Buyer as follows:
(i) $2,500,000 payable by wire transfer of immediately available funds on the day after the Closing Date to the Escrow Agent to be held pursuant to the terms of the Escrow Agreement;
(ii) $6,200,000 by the issuance by the Buyer on the Closing Date of its promissory note which shall be guaranteed by SCS Transportation, Inc., a Delaware corporation, substantially in the form attached hereto as Exhibit A; and
(iii) the balance on the day after the Closing Date by wire transfer of immediately available funds to an account designated by the Sellers.
(c) The Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the
offices of Koley Jessen P.C. in Omaha, Nebraska, commencing at 1:00
p.m. local time on February 16, 2004 or such other date as the Buyer
and the Sellers may mutually determine (the "Closing Date").
(d) Deliveries at the Closing. At the Closing,
(i) the Sellers will deliver to the Buyer the various certificates,
instruments, and documents referred to in Section 6(a) below, (ii) the
Buyer will deliver to the Sellers the various certificates,
instruments, and documents referred to in Section 6(b) below, (iii)
each of the Sellers will deliver to the Buyer stock certificates
representing all of such Sellers' Company Shares, endorsed in blank or
accompanied by duly executed assignment documents, and (iv) the Buyer
will deliver to the Sellers and the Escrow Agent the consideration
specified in Section 2(b) above.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Sellers. Each of the Sellers represents and warrants to the Buyer that the statements contained in this Section 3(a) are correct and complete as of the Closing Date with respect to such Seller, except as set forth in Annex I attached hereto. Nothing in Annex I shall be deemed adequate to disclose an exception to a representation or warranty made herein, however, unless Annex I identifies the exception with reasonable particularity and describes the relevant
facts in detail. Annex I will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 3(a).
(i) Authorization of Transaction. The Seller has full power and authority to execute and deliver this Agreement and to perform such Seller's obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms and conditions, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity. The Seller need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Seller is a party or by which such Seller is bound or to which any of his or her assets is subject (or result in the imposition of any Security Interest upon any of such Seller's assets, including, without limitation, any Company Shares).
(iii) Brokers' Fees. The Seller has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Buyer or the Company could become liable or obligated.
(iv) Company Shares. The Seller holds of record and owns beneficially the number of Company Shares set forth next to such Seller's name in Section 4(b) of the Disclosure Schedule, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. The Seller is not a party to any option, warrant, purchase right, or other contract or commitment that could require the Seller to sell, transfer, or otherwise dispose of any Company Shares (other than this Agreement). The Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any Company Shares.
(b) Representations and Warranties of the Buyer. The Buyer represents and warrants to the Sellers that the statements contained in this Section 3(b) are correct and
complete as of the Closing Date.
(i) Organization of the Buyer. The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity. The Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or bylaws or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which any Seller could become liable or obligated.
(v) Investment. The Buyer is not acquiring the Company Shares with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act.
(vi) No Additional Representations and Warranties. Notwithstanding anything in this Section 3(b) or any other provision of this Agreement, it is the explicit intent of each party to this Agreement that the Buyer is not making any representation or warranty whatsoever, express or implied, beyond those made in this Agreement or any other documents or instruments executed in connection with this Agreement or the transactions contemplated herein.
4. Representations and Warranties Concerning the Company. The Sellers represent and warrant to the Buyer that the statements contained in this Section 4 are correct and
complete as of the Closing Date, except as set forth in the disclosure schedule delivered by the Sellers to the Buyer on the date hereof (the "Disclosure Schedule"). Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein, however, unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in detail. The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 4.
(a) Organization, Qualification, and Corporate Power. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. The Company is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the failure to qualify has not had, or will not reasonably be expected to have, a material adverse effect on the business of the Company as currently conducted. The Company has full corporate power and authority to carry on the business in which it is engaged and to own and use the properties owned and used by it. Section 4(a) of the Disclosure Schedule lists the directors and officers of the Company.
(b) Capitalization. The equity capitalization of the Company is set forth in Section 4(b) of the Disclosure Schedule which lists the authorized and issued and outstanding capital stock of the Company and identifies the record owner of all shares of such capital stock. All of the Company Shares have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record by the respective Sellers as set forth in Section 4(b) of the Disclosure Schedule. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require the Company to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Company. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of the Company. All of the shares of the Company's capital stock subject to the pledge agreements listed on Section 4(b) of the Disclosure Schedule will be cancelled and shall no longer be issued and outstanding upon payment of all principal and accrued and unpaid interest under the promissory notes listed on Section 4(b) of the Disclosure Schedule. Upon the consummation of the transactions contemplated in this Agreement, Buyer will own all of the issued and outstanding capital stock of the Company, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands other than any security interests placed thereon by Buyer or otherwise applicable to Buyer or its assets.
(c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Company is subject or any provision of the articles of incorporation or bylaws of the Company or (ii) except as set forth in Section 4(c) of the Disclosure Schedule, conflict with, result in a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Company is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). The Company is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. The Company does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.
(e) Title to Assets. The Company has good and marketable title to, or a valid leasehold interest in, the properties and assets used by it, located on its premises, or shown on the Most Recent Balance Sheet or acquired after the date thereof, free and clear of all Security Interests, except for Permitted Encumbrances and properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Balance Sheet.
(f) Subsidiaries. The Company has no Subsidiaries.
(g) Financial Statements. Attached hereto as Exhibit B are the following financial statements (collectively the "Financial Statements"): (i) audited consolidated balance sheets and statements of income, changes in stockholders' equity, and cash flows as of and for the fiscal years ended December 31, 2000, December 31, 2001 and December 31, 2002 for the Company; and (ii) the unaudited consolidated balance sheet and statements of income, changes in stockholders' equity, cash flows and footnotes (the "Most Recent Financial Statements") as of and for the 12 months ended December 31, 2003 (the "Most Recent Fiscal Period End") for the Company. The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby except as otherwise disclosed in the notes to the Financial Statements and present fairly in all respects the financial condition of the Company as of such dates and the results of operations of the Company for such periods.
(h) Books and Records. To the Knowledge of the Sellers, the books of account, and other records of the Company, all of which have been made available to the Buyer, are complete and correct and have been maintained in accordance with sound business practices. The stock record books of the Company, all of which have been made available to the Buyer, are complete and correct and have been maintained in accordance with sound business practices. To the Knowledge of the Sellers, the minute book of the Company contains records of all meetings held of, and corporate action taken by, the stockholders, the board of directors, and committees of the board of directors of the Company, and no meeting of any such stockholders, board of directors, or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company.
(i) Events Subsequent to October 1, 2003. Since October 1, 2003, there has not been any adverse change in the business, financial condition, operations, results of operations, or future prospects of the Company and since such date the Company has not operated outside of the Ordinary Course of Business. Without limiting the generality of the foregoing, since that date, except as set forth in Section 4(i) of the Disclosure Schedule:
(i) the Company has not sold, leased, transferred, or assigned any assets, tangible or intangible, outside the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract, lease, or license outside the Ordinary Course of Business;
(iii) the Company has operated its business in the Ordinary Course of Business regarding the payment of Indebtedness, payables and other liabilities, as well as the recording of revenue, expenses, assets, liabilities and cash flows in its books and records consistent with its historical accounting policies;
(iv) the Company has applied cash receipts to notes and accounts receivable in the Ordinary Course of Business and the Company has not altered the method or timing of collecting accounts or notes receivable other than in the Ordinary Course of Business;
(v) no party (including the Company) has accelerated, terminated, made modifications to, or canceled any agreement, contract, lease, or license to which the Company is a party or by which it is bound;
(vi) the Company has not imposed any Security Interest (other than Permitted Encumbrances) upon any of its assets, tangible or intangible;
(vii) the Company has invested in assets, property and equipment consistent with its historical practices, but has not made any capital expenditures outside the Ordinary Course of Business;
(viii) the Company has not made any capital investment in, or any loan to, any other Person outside the Ordinary Course of Business;
(ix) the Company has not created, incurred, assumed or guaranteed more than $25,000 in aggregate Indebtedness other than routine increases in its revolving credit arrangement in the Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the articles of incorporation or bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed of any of its equity securities, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its equity securities;
(xiii) the Company has not declared, set aside or paid any dividend or made any distribution with respect to its equity securities (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its equity securities;
(xiv) the Company has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property;
(xv) the Company has not made any loan to, or entered into any other transaction with, any of its directors, officers, contractors, shareholders or employees or any of their respective Affiliates;
(xvi) the Company has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any such existing contract or agreement other than oral employment contracts entered into in the Ordinary Course of Business;
(xvii) the Company has not granted any increase in the base compensation of any of its directors, officers, contractors or employees other than increases to base compensation to its employees consistent with its historical practices;
(xviii) the Company has not adopted, amended, modified, or terminated any bonus, profit sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, contractors or employees (or taken any such action with respect to any other Employee Benefit Plan) and Section 4(i) of the Disclosure Schedule lists all payments and distributions, if any, made under any such bonus, profit sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors or officers, the Sellers or any of their respective Affiliates since October 1, 2003;
(xix) the Company has not made any other change in employment terms for any of its directors, officers, contractors or employees other than normal increases in compensation to its employees (other than officers) consistent with their historical practices; and
(xx) the Company has not committed to any of the foregoing.
(j) Undisclosed Liabilities. The Company does not have any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and
whether due or to become due, including any liability for Taxes), except for (i) liabilities set forth or reserved against on the Most Recent Balance Sheet or disclosed in any notes thereto, (ii) liabilities which have arisen after the Most Recent Fiscal Period End in the Ordinary Course of Business (none of which are material in amount) or (iii) liabilities set forth in Section 4(j) of the Disclosure Schedule.
(k) Business Practices. Since January 1, 2000, neither the Company nor any director, officer, agent, contractor or employee of the Company, or any other Person associated with or acting for or on behalf of the Company, has directly or indirectly (i) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (A) to obtain favorable treatment in securing business, (B) to pay for favorable treatment for business secured, (C) to obtain special concessions or for special concessions already obtained, for or in respect of the Company or any Affiliate of the Company or (D) in violation of any applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of any federal, state, local, or foreign governments (and all agencies thereof) or (ii) established or maintained any fund or asset that has not been recorded in the books and records of the Company.
(l) Legal Compliance. The Company has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of all federal, state, local, and foreign governments (and all agencies thereof) and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or, to the Knowledge of the Sellers, commenced against it alleging any failure so to comply.
(m) Tax Matters.
(i) The Company has filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all respects. All Taxes owed by the Company (whether or not shown on any Tax Return) have been paid. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return.
(ii) There is no dispute or claim concerning any Tax liability of the Company (A) claimed or raised by any authority in writing or (B) as to which any of the Sellers has Knowledge.
(iii) Section 4(m) of the Disclosure Schedule lists all federal, state, local, and foreign Income Tax Returns filed with respect to the Company for taxable periods ended on or after December 31, 2000, indicates all Tax Returns for taxable periods ended on or after December 31, 2000 that have been audited, and indicates all Tax Returns for taxable periods ended on or after December 31, 2000 that currently are the subject of audit. The Sellers have delivered to the Buyer correct and complete copies of all federal Income Tax Returns, examination reports, and statements of deficiencies assessed against, or
agreed to by the Company since December 31, 2000. The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.
(iv) The Company has not filed a consent
under Code Section 341(f) concerning collapsible corporations.
The Company has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that
under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G.
The Company has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section
897(c)(1)(A)(ii). The Company is not a party to any tax
allocation or sharing agreement. The Company (A) has not been
a member of an Affiliated Group filing a consolidated federal
Income Tax Return (other than a group the common parent of
which was the Company) or (B) has no liability for the Taxes
of any Person under Reg.Section 1.1502 6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(v) The unpaid Taxes of the Company (A) did not, as of the Most Recent Fiscal Period End, exceed the reserve for Tax liability (rather than any reserve for deferred taxes established to reflect timing differences between book and tax income) set forth on the Most Recent Balance Sheet and (B) will not exceed that reserve as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax Returns.
(vi) The Company will not be required to
include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date as a result of
any (A) change in method of accounting for a taxable period
ending on or prior to the Closing Date under Code Section
481(c) (or any corresponding or similar provision of state,
local or foreign income Tax law); (B) "closing agreement" as
described in Code Section 7121 (or any corresponding or
similar provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date; (C) deferred
intercompany gain or any excess loss account described in
Treasury Regulations under Code Section 1502 (or any
corresponding or similar provision of state, local or foreign
income Tax law); (D) installment sale or open transaction
disposition made on or prior to the Closing Date; or (E)
prepaid amount received on or prior to the Closing Date.
(vii) The Company (and any predecessor of the Company) has been a validly electing S corporation within the meaning of Code Sections 1361 and 1362 at all times since 1999 and, except as to any revocation of such status caused by the consummation of the transactions contemplated by this Agreement or any affirmative acts of the Buyer after the Closing, the Company will be an S corporation up to and including the Closing Date.
(viii) The Company has not, in the past 10 years, (A) acquired assets from another corporation in a transaction in which the Company's Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands of the transferor or (B) acquired the stock of any corporation which is a qualified subchapter S subsidiary.
(n) Real Property.
(i) Section 4(n)(i) of the Disclosure Schedule sets forth the address and legal description of each parcel of Owned Real Property. With respect to each parcel of Owned Real Property:
(A) The Company has good and marketable fee simple title, free and clear of all liens and encumbrances, except Permitted Encumbrances;
(B) except as set forth in Section 4(n)(i)(B) of the Disclosure Schedule, the Company has not leased or otherwise granted to any Person the right to use or occupy such Owned Real Property or any portion thereof; and
(C) there are no outstanding options, rights of first offer or rights of first refusal to purchase such Owned Real Property or any portion thereof or interest therein.
(ii) Section 4(n)(ii) of the Disclosure Schedule sets forth the address of each parcel of Leased Real Property, and a true and complete list of all Leases for each such Leased Real Property (including the date and name of the parties to such Lease document). The Sellers have delivered to the Buyer a true and complete copy of each such Lease document, and in the case of any oral Lease, a written summary of the terms of such Lease. Except as set forth in Section 4(n)(ii) of the Disclosure Schedule, with respect to each of the Leases, including the Leases executed and delivered pursuant to Section 6(a)(v) below:
(A) such Lease is legal, valid, binding, enforceable and in full force and effect, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity;
(B) the transactions contemplated by this Agreement do not require the consent of any other party to such Lease (except for those Leases for which Lease Consents (as hereinafter defined) are obtained), will not result in a breach of or default under such Lease, and will not otherwise cause such Lease to cease to be legal, valid, binding, enforceable and in full force and effect on identical terms following the
Closing;
(C) the Company's possession and quiet enjoyment of the Leased Real Property under such Lease has not been disturbed and, to the Knowledge of the Sellers, there are no disputes with respect to such Lease;
(D) Neither the Company nor, to the Knowledge of the Sellers, any other party to the Lease is in breach or default under such Lease, and, to the Knowledge of the Sellers, no event has occurred or circumstance exists which, with the delivery of notice, the passage of time or both, would constitute such a breach or default, or permit the termination, modification or acceleration of rent under such Lease;
(E) no security deposit or portion thereof deposited with respect to such Lease has been applied in respect of a breach or default under such Lease which has not been redeposited in full;
(F) the Company does not owe, and will not owe in the future, any brokerage commissions or finder's fees with respect to such Lease;
(G) the other party to such Lease is not an Affiliate of, and otherwise does not have any economic interest in, the Company;
(H) the Company has not subleased, licensed or otherwise granted any Person the right to use or occupy such Leased Real Property or any portion thereof; and
(I) the Company has not collaterally assigned or granted any other Security Interest, except for Permitted Encumbrances, in such Lease or any interest therein.
(iii) The Owned Real Property identified in Section 4(n)(i) of the Disclosure Schedule, and the Leased Real Property identified in Section 4(n)(ii)(collectively, the "Real Property") comprise all of the real property used or intended to be used in the business of the Company; and, except for purchase options granted under the leases described in Section 6(a)(v) below, the Company is not a party to any agreement or option to purchase any real property or interest therein.
(iv) All buildings, structures, fixtures, building systems, parking lots and equipment, and all components thereof, included in the Real Property (the "Improvements") are in condition and repair sufficient for the operation of the business of the Company consistent with past practices. To the Knowledge of the Sellers, there are no facts or conditions affecting any of the Improvements which would, individually or in the aggregate, interfere in any respect with the use or occupancy of the Improvements or any portion thereof in
the operation of the business of the Company as currently conducted thereon.
(v) The Company has not received written notice of any condemnation, expropriation or other proceeding in eminent domain, affecting any parcel of Real Property or any portion thereof or interest therein. There is no injunction, decree, order, writ or judgment outstanding, nor any claims, litigation, administrative actions or similar proceedings, pending or, to the Knowledge of the Sellers, threatened, relating to the ownership, lease, use or occupancy of the Real Property or any portion thereof, or the operation of the business of the Company as currently conducted thereon or proposed to be conducted.
(vi) The Real Property is in compliance with all applicable building, zoning, subdivision, health and safety and other land use Laws, including The Americans with Disabilities Act of 1990, as amended, and all insurance requirements affecting the Real Property (collectively, the "Real Property Laws"). The Company has not received any notice of violation of any Real Property Law and there is no basis for the issuance of any such notice or the taking of any action for such violation.
(vii) To the Knowledge of the Sellers, each parcel of Real Property has direct access to a public street adjoining the Real Property or has access to a public street via insurable easements benefiting such parcel of Real Property, and such access is not dependent on any land or other real property interest which is not included in the Real Property. To the Knowledge of the Sellers, none of the Improvements or any portion thereof is dependent for its access, use or operation on any land, building, improvement or other real property interest which is not included in the Real Property.
(viii) Except as set forth on Section 4(n)(viii) of the Disclosure Schedule, to the Knowledge of the Sellers, all water, oil, gas, electrical, steam, compressed air, telecommunications, sewer, storm and waste water systems and other utility services or systems for the Real Property have been installed and are operational and sufficient for the operation of the business of the Company as currently conducted thereon.
(ix) To the Knowledge of the Sellers, the Company's use or occupancy of the Real Property or any portion thereof and the operation of the business of the Company as currently conducted thereon is not dependent on a "permitted non-conforming use" or "permitted non-conforming structure" or similar variance, exemption or approval from any governmental authority.
(x) To the Knowledge of the Sellers, the current use and occupancy of the Real Property and the operation of the business of the Company as currently conducted thereon does not violate in any respect any easement, covenant, condition, restriction or similar provision in any instrument of record or other unrecorded agreement affecting such Real Property.
(xi) To the Knowledge of the Sellers, none of the Real Property or any portion thereof is located in a flood hazard area (as defined by the Federal Emergency Management Agency).
(xii) The terminations of the Leases set forth in Section 6(a)(iv) are effective to terminate those Leases and release the Company from all obligations and liabilities thereunder. The Leases executed and delivered pursuant to Section 6(a)(v) below are duly executed by the landlords, and valid and legally binding obligations of the landlords, enforceable in accordance with their respective terms and conditions, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity. Neither the execution and delivery of any such Lease by the landlords, nor the consummation of the performance of each landlord's obligations thereunder will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which any landlord is subject or any provision of the charter or operating agreement of any landlord or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which any landlord is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). No landlord under any of the Leases executed and delivered pursuant to Section 6(a)(v) below is required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for such landlord to execute, deliver and perform its obligations under each such Lease.
(o) Intellectual Property.
(i) To the Knowledge of the Sellers, the Company has not interfered with, infringed upon, misappropriated, or violated any Intellectual Property rights of third parties in any respect, and none of the Sellers or the directors and officers of the Company has ever received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that the Company must license or refrain from using any Intellectual Property rights of any third party). To the Knowledge of the Sellers, no third party has interfered with, infringed upon, misappropriated, or violated any Intellectual Property rights of the Company in any respect.
(ii) Section 4(o)(ii) of the Disclosure Schedule identifies each patent or registration which has been issued to the Company with respect to any of its Intellectual Property, identifies each pending patent application or application for registration which the Company has made with respect to any of its Intellectual Property, and identifies each license, sublicense, agreement, or
other permission which the Company has granted to any third party with respect to any of its Intellectual Property (together with any exceptions). Section 4(o)(ii) of the Disclosure Schedule also identifies each trade name or unregistered trademark, service mark, corporate name, Internet domain name, copyright and computer software item currently owned and used by the Company in connection with its business. With respect to each item of Intellectual Property required to be identified in Section 4(o)(ii) of the Disclosure Schedule:
(A) the Company possesses all right, title, and interest in and to the item, free and clear of any Security Interest (other than Permitted Encumbrances), license, or other restriction;
(B) the item is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the Knowledge of the Sellers, is threatened which challenges the legality, validity, enforceability, use, or ownership of the item; and
(D) the Company has not ever agreed to indemnify any Person for or against any interference, infringement, misappropriation, or other conflict with respect to the item.
(iii) Section 4(o)(iii) of the Disclosure Schedule identifies each item of Intellectual Property that any third party owns and that the Company uses pursuant to license, sublicense, agreement, or permission. The Sellers have delivered to the Buyer copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each item of Intellectual Property required to be identified in Section 4(o)(iii) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering the item is legal, valid, binding, enforceable, and in full force and effect in all respects, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity;
(B) to the Knowledge of the Sellers, no party to the license, sublicense, agreement, or permission is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration thereunder;
(C) to the Knowledge of the Sellers, no party to the license, sublicense, agreement, or permission has repudiated any provision thereof;
(D) the Company has not granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission; and
(E) to the Knowledge of the Sellers, no loss or expiration of the item is threatened, pending, or reasonably foreseeable, except for patents expiring at the end of their statutory terms (and not as a result of any act or omission by the Sellers or the Company, including without limitation, a failure by the Sellers or the Company to pay any required maintenance fees).
(p) Tangible Assets. To the Knowledge of the Sellers, the buildings, machinery, equipment, and other tangible assets that the Company owns and leases have been maintained in accordance with the past practices of the Company and are in operating condition and repair (subject to normal wear and tear) sufficient for the operation of the Company's business consistent with past practices. The Buyer acknowledges and agrees that the average age of the Company's fleet of tractors and trailers is older than that of its own fleet and shall not assert any breach of this representation or warranty or any similar representation or warranty contained in this Section 4 regarding the same subject matter arising from such fact or the Company's replacement of the Company's fleet of tractors and trailers due solely to the relative disparity in the age of the Buyer's and the Company's fleets.
(q) Inventory. The inventory of the Company consists of raw materials and supplies, manufactured and processed parts, work in process, and finished goods, all of which is merchantable and fit for the purpose for which it was procured or manufactured, and none of which is slow moving, obsolete, damaged, or defective, subject only to the reserve for inventory writedown set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of the Company.
(r) Contracts. Section 4(r) of the Disclosure Schedule lists the following contracts and other agreements to which the Company is a party:
(i) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $100,000 per annum;
(ii) any agreement (or group of related agreements) for the purchase or sale of raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one year or involve consideration in excess of $100,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any Indebtedness in excess of $25,000 or under which it has imposed a Security Interest (other than Permitted Encumbrances) on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Sellers and their Affiliates (other than the Company);
(vii) any profit sharing, equity option, equity purchase, equity appreciation, deferred compensation, severance, or other plan or arrangement for the benefit of its current or former directors, officers, contractors or employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full time, part time, consulting, or other basis (including, without limitation, any agreement for the lease of employees or similar arrangement) providing annual compensation in excess of $25,000 or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount to any of its directors, officers, contractors or employees;
(xi) any agreement under which the consequences of a default or termination could reasonably be expected to have an adverse effect on the business, financial condition, operations, results of operations, or future prospects of the Company;
(xii) any surety bonds; or
(xiii) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $100,000.
The Sellers have delivered to the Buyer a copy of each written agreement listed in Section 4(r) of the Disclosure Schedule (as amended to date) and a written summary setting forth the material terms and conditions of each oral agreement referred to in Section 4(r) of the Disclosure Schedule. With respect to each such agreement: (A) the agreement is legal, valid, binding, enforceable, and in full force and effect in all respects, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity; (B) none of the Company or, to the Knowledge of the Sellers, any other party thereto is in breach or default, and, to the Knowledge of the Sellers, no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration,
under the agreement; and (C) no party has repudiated any provision of the agreement.
(s) Notes and Accounts Receivable. All notes and accounts receivable of the Company are reflected properly on their books and records, are valid receivables subject to no set offs or counterclaims, are current and collectible, and will be collected in accordance with their terms at their recorded amounts, subject only to the reserve for bad debts set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of the Company.
(t) Powers of Attorney. To the Knowledge of the Sellers, there are no outstanding powers of attorney executed on behalf of the Company.
(u) Insurance. Section 4(u) of the Disclosure Schedule sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) with respect to which the Company is or was a party, a named insured, or otherwise the beneficiary of coverage within the 5 years prior to the date of this Agreement:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the name of each covered insured; and
(iii) the policy number.
With respect to each such insurance policy: (A) the policy is legal, valid, binding, enforceable, and in full force and effect in all respects, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity; (B) neither the Company nor, to the Knowledge of the Sellers, any other party to the policy is in breach or default (including with respect to the payment of premiums or the giving of notices), and, to the Knowledge of the Sellers, no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration, under the policy; and (C) no party to the policy has repudiated any provision thereof. Section 4(u) of the Disclosure Schedule describes any self insurance arrangements affecting the Company. The Sellers have delivered to the Buyer a correct and complete copy of each insurance policy listed in Section 4(u) of the Disclosure Schedule (as amended to date).
(v) Litigation. Section 4(v) of the Disclosure Schedule sets forth each instance in which the Company (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to the Knowledge of the Sellers, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator.
(w) Labor Matters. To the Knowledge of the Sellers, except as set forth in Section 4(w) of the Disclosure Schedule, no executive, key employee or contractor, or significant group of employees (including leased employees) or contractors (other than Sellers) plans to terminate employment or their relationship with the Company during the next 12 months. The Company is not a party to or bound by any collective bargaining agreement, nor has the Company experienced or been threatened with, any strike, labor dispute, work stoppage, work slowdown, "work-to-rule" action or similar action or grievance, claim of unfair labor practices, or other collective bargaining dispute within the past three years. The Company has not committed any unfair labor practice. None of the Sellers has any Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees (including leased employees) or contractors of the Company. The National Labor Relations Board has not issued a direction of election with respect to the Company. No petition seeking a determination of representation with respect to the Company has been filed with the National Labor Relations Board and no demand for recognition has been made regarding the Company or any of their respective facilities by any union, labor organization or other representative of the employees (including leased employees) or contractors of the Company. Since the enactment of the Worker Adjustment and Retraining Notification Act (the "WARN Act"), (i) the Company has not effected a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of the Company, (ii) there has not occurred a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of the Company, nor has the Company been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state, local or foreign law or regulation and (iii) none of the employees (including leased employees) or contractors of the Company has suffered any "employment loss" (as defined in the WARN Act) during the six-month period prior to the date of this Agreement.
(x) Employee Benefits.
(i) Section 4(x) of the Disclosure Schedule lists each Employee Benefit Plan that the Company maintains, or to which the Company contributes or has any obligation to contribute and each Employee Benefit Plan that at any time during the period commencing three calendar years prior to the calendar year in which the Closing occurs, the Company sponsored or maintained, or to which the Company contributed or had any obligation to contribute.
(A) Each such Employee Benefit Plan
(and each related trust, insurance contract, or fund)
has been maintained, funded and administered in
accordance with the terms of such Employee Benefit
Plan and complies in form and in operation with the
applicable requirements of ERISA, the Code and other
applicable laws.
(B) All required reports and notices (including annual reports (IRS Form 5500), summary annual reports, and summary plan descriptions) have been timely filed and/or distributed in accordance with
the applicable requirements of ERISA and the Code with respect to each such Employee Benefit Plan. The requirements of COBRA have been met with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan subject to COBRA.
(C) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been made within the time periods prescribed by ERISA and the Code to each such Employee Benefit Plan which is an Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date which are not yet due have been made to each such Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of the Company. All premiums or other payments for all periods ending on or before the Closing Date have been timely paid with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan and its related trust which are intended to qualify under Code Section 401(a) and Code Section 501(a) are so qualified, have received a determination from the Internal Revenue Service that they are so qualified, and the Sellers do not have any Knowledge of any facts or circumstances that could adversely affect the qualified status of any such Employee Benefit Plan.
(E) The market value of assets under each such Employee Benefit Plan which is an Employee Pension Benefit Plan equals or exceeds the present value of all vested and nonvested liabilities thereunder (determined in accordance with then current funding assumptions).
(F) With respect to each such Employee Benefit Plan, the Sellers have delivered to the Buyer correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service (if applicable), the three most recent annual reports (IRS Form 5500, with all applicable attachments), all related trust agreements, insurance contracts, and other funding arrangements, all related administrative service agreements, and all COBRA and HIPAA policies, procedures and notices.
(ii) With respect to each Employee Benefit Plan that the Company or any ERISA Affiliate maintains, to which any of them contributes, or has any obligation to contribute, or with respect to which any of them has any liability or potential liability, and with respect to each Employee Benefit Plan that during the period commencing three calendar years prior to the calendar year in which the Closing occurs, the Company or any ERISA Affiliate maintained, to which any of them contributed, or had any obligation to contribute, or with respect to which any of them has any liability or potential liability:
(A) No such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been completely or partially terminated or has been, or will be by virtue of the consummation of the transactions contemplated by this Agreement, the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has been instituted or, to the Knowledge of the Sellers, threatened.
(B) There have been no Prohibited Transactions with respect to any such Employee Benefit Plan. No fiduciary has any liability for breach of fiduciary duty or any act or failure to act or failure to comply with applicable law in connection with any such Employee Benefit Plan for any matter, including, without limitation, the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to any such Employee Benefit Plan, including the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of the Sellers, threatened and no facts exist that would give rise to any action, suit, proceeding, hearing or investigation, other than routine claims for benefits.
(C) The Company has not incurred any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) under applicable law with respect to any such Employee Benefit Plan other than routine liabilities for contributions and benefits payable in the Ordinary Course of Business in accordance with the terms of the plan.
(iii) The Company does not maintain, contribute to, or have an obligation to contribute to an Employee Pension Benefit Plan which is subject to Title IV of ERISA.
(iv) Neither the Company nor any of its ERISA Affiliates contributes to, has any obligation to contribute to, have ever had any obligation to contribute to, or has any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any withdrawal liability (as defined in ERISA Section 4201), under or with respect to any Multiemployer Plan.
(v) The Company does not maintain, contribute to or have any obligation to contribute to, or have any liability or potential liability with respect to, any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare type benefits for current or future retired or terminated employees (including leased employees) of the Company (or any spouse or other
dependent thereof) other than in accordance with COBRA. The Company has reserved the unqualified right to terminate retiree health insurance with respect to all employees and participants, including those in pay status with respect to such benefits.
(vi) The Company does not maintain, contribute to or have any obligation to contribute to, or have any liability or potential liability with respect to, any Employee Benefit Plan or other benefit arrangement covering any employee or former employee (including current and former leased employees) outside of the United States.
(vii) Consummation of the transactions contemplated by this Agreement, other than by reason of actions taken by the Buyer following the Closing, will not (A) entitle any current or former employee (including current and former leased employees) of the Company to severance pay, unemployment compensation or any other payment, (B) accelerate the time of payment or vesting, or increase the amount of any compensation due to any current or former employee (including current and former leased employees), or (C) give rise to the payment of any amount that would not be deductible pursuant to Code Section 280G.
(y) Guaranties. The Company is not a guarantor or otherwise is responsible for any liability or obligation (including Indebtedness) of any other Person. No Seller has personally guaranteed any liability or obligation (including Indebtedness) of the Company.
(z) Environmental Matters. The representations
and warranties in this Section 4(z), to the extent relating to the
Owned Real Property located at 4423 South 67th Street, Omaha, Nebraska
68117, 900 North First Street, Norfolk, Nebraska 68701 and 1534 North
Jackson, Kansas City, Missouri 64120 (the "Excepted Real Property"),
are made to the Knowledge of Sellers. All other representations in this
Section 4(z), except as expressly provided otherwise, are made without
such qualification.
(i) Except as set forth in Section 4(z) of the Disclosure Schedule, all Environmental Property and all current or previous conditions on and uses of the Environmental Property while owned, operated or occupied by the Company, and all current or previous ownership or operation by the Company of the Environmental Property (including without limitation transportation and disposal of Hazardous Materials by or for the Company) comply and have at all times complied with, and do not cause, have not caused, and will not cause liability to be incurred by the Company under any Environmental Law.
(ii) Except as set forth in Section 4(z) of the Disclosure Schedule, to the Knowledge of the Sellers, all conditions on and uses of the Environmental Property prior to the ownership, operation or occupancy of the Environmental Property by the Company complied with, and have not caused, and will not cause liability to be incurred by the Company under any Environmental Law.
(iii) Except as set forth in Section 4(z) of the Disclosure Schedule, the Company is not in violation of and has not violated any Environmental Law.
(iv) The Company has obtained and is in compliance with all necessary Environmental Permits, and no deficiencies have been asserted by any governmental body or authority with respect to such items.
(v) Except as set forth in Section 4(z) of the Disclosure Schedule, there has been no spill, discharge, leak, leaching, emission, migration, injection, disposal, escape, dumping, or release of any kind on, beneath, above, or into the Environmental Property or into the environment surrounding the Environmental Property of any Hazardous Materials, which has resulted in contamination in excess of applicable federal, state or local limits or could require remediation under any Environmental Law.
(vi) The Company is not a treatment storage disposal facility as defined under the Resource Conservation and Recovery Act. Except as set forth in Section 4(z) of the Disclosure Schedule, there are and have been no (A)Hazardous Materials stored, disposed of, generated, manufactured, refined, transported, produced or treated at, upon or from the Environmental Property and (B) asbestos fibers or materials or polychlorinated biphenyls or underground storage tanks on or beneath the Environmental Property.
(vii) No expenditure (except in the Ordinary Course of Business) will be required in order for the Company to comply with any Environmental Laws in effect at the time of the Closing in connection with the operation or continued operation of the business of the Company or the Environmental Property in a manner consistent with the current operation thereof by the Company.
(viii) Except as set forth on Section 4(z) of the Disclosure Schedule, there never has been pending or, to the Knowledge of any of the Sellers, threatened against the Company or, to the Knowledge of any of the Sellers, any other Person to the extent that such other Person from time to time has owned, leased, occupied or conducted operations on the Environmental Property, any civil, criminal or administrative action, suit, summons, citation, complaint, claim, notice, demand, request, judgment, order, lien, proceeding, hearing, study, inquiry or investigation based on or related to an Environmental Permit or any Environmental Law.
(ix) Except as set forth in Section 4(z) of the Disclosure Schedule, the Company has not transported or arranged for the transportation of any Hazardous Materials to any location which is: (A) listed on, or proposed for listing on, the EPA's National Priorities List published at 40 CFR Part 300 or on any similar state list; or (B) the subject of any regulatory action which may lead to claims against the Company for damages to natural resources, personal injury,
clean-up costs or clean-up work.
(x) Except as set forth in Section 4(z) of the Disclosure Schedule, neither the Company, nor, to the Knowledge of the Sellers, any other Person to the extent that such other Person from time to time has owned, leased, occupied or conducted operations on the Environmental Property, has ever received from any Person any notice of, or has any knowledge of, any past, present or anticipated future events, conditions, circumstances, activities, practices, incidents, actions, agreements or plans that could: (A) interfere with, prevent, or increase the costs of compliance or continued compliance with any Environmental Permits or any renewal or transfer thereof or any Environmental Law; (B) make more stringent any restriction, limitation, requirement or condition under any Environmental Law or any Environmental Permit in connection with the operations on the Environmental Property; or (C) give rise to any liability, loss or expense, or form the basis of any civil, criminal or administrative action, suit, summons, citation, complaint, claim, notice, demand, request, judgment, order, lien, proceeding, hearing, study, inquiry or investigation involving the Environmental Property or the Company, based on or related to an Environmental Permit or any Environmental Law or to the presence, manufacture, generation, refining, processing, distribution, use, sale, treatment, recycling, receipt, storage, disposal, transport, handling, emission, discharge, release or threatened release of any Hazardous Materials.
(aa) Certain Business Relationships With the Company. Except as set forth in Section 4(aa) of the Disclosure Schedule, none of the Sellers or their respective Affiliates have been involved in any business arrangement or relationship with the Company within the past 12 months, and none of the Sellers and their respective Affiliates own any asset, tangible or intangible, which is used in the business of the Company. No Seller or any of their respective Affiliates owes any Indebtedness to the Company.
(bb) Contractors. The Company utilizes, and has previously utilized, contractors or other individuals in their operations for whom the Company has adopted the position that said parties are not employees for tax reporting and withholding or any other purpose. The procedures adopted and implemented by the Company for the utilization of said parties complies in all respects with criteria set forth in all applicable federal or state statutes, rules, regulations, orders, opinions and other authority for the treatment by the Company of said parties as non-employees. Said parties have been properly considered for purposes of satisfying any coverage, participation and nondiscrimination requirements under the Code and ERISA which are applicable with respect to the Employee Benefit Plans described in Section 4(x)(i) and the Employee Benefit Plans of said parties' employer.
(cc) Customer Relations. To the Knowledge of the Sellers, the Company has not received any written or oral notice that any customer or account of the Company that accounts for more than 1% of the gross revenues of the Company, (i) has ceased or cancelled or threatened to cease or cancel or indicated its intention to cease or cancel or
otherwise adversely modify, its relationship with the Company, (ii) has reduced, threatened to reduce or will reduce the amount of business such customer conducts with the Company, (iii) has asserted, or threatened to assert, that any contract with the Company (or any provision thereof, including the rates set forth therein) is invalid or unenforceable, (iv) has asserted that it has a right of set off for any reason of any amount in excess of $5,000, including, in each case, after the consummation of the transactions contemplated in this Agreement or (v) requested or threatened to seek a renegotiation of the terms of any contract with the Company or asserted a right to renegotiate the same.
(dd) Bank Accounts. Section 4(dd) of the Disclosure Schedule lists each bank account of the Company setting forth the name of the bank at which such account is held, the account number, the purpose for which such account is maintained and each authorized signatory on each such account.
(ee) No Additional Representations and Warranties. Notwithstanding anything in this Section 4 or any other provision of this Agreement, it is the explicit intent of each party to this Agreement that the Sellers are not making any representation or warranty whatsoever, express or implied, beyond those expressly made in this Agreement or any other documents or instruments executed in connection with this Agreement or the transactions contemplated herein.
5. Post Closing Covenants. The Parties agree as follows with respect to the period following the Closing.
(a) General. In case at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 7 below). The Sellers acknowledge and agree that from and after the Closing the Buyer will be entitled to possession of all documents, books, records (including tax records), agreements, and financial data of any sort relating to the Company. From and after the Closing, the Buyer shall afford to the Sellers, and their counsel, accountants and other authorized agents and representatives, during normal business hours, reasonable access to the employees, books, records and other data relating to the Company in its possession with respect to periods prior to the Closing, and the right to make copies and extracts therefrom, to the extent that such access may be reasonably required (i) to facilitate the investigation, litigation and final disposition of any claims which may have been or may be made against such parties or their Affiliates (except to the extent related to the transactions contemplated in this Agreement), (ii) for the preparation of Tax returns and audits or (iii) for any other reasonable business purpose; provided, however, Buyer shall be entitled to reimbursement of its reasonable expenses with respect to such access and such access shall be subject to Sellers entering into reasonable agreements with respect to the protection of any Confidential Information.
(b) Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Company, each of the other Parties will cooperate with him or it and his or its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 7 below).
(c) Transition. For a period of five years from and after the Closing Date, none of the Sellers will take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of the Company from maintaining the same business relationships with the Company after the Closing as it maintained with the Company prior to the Closing.
(d) Confidentiality. Each of the Sellers will treat as confidential all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to the Buyer or destroy, at the request and option of the Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in his or its possession (including, without limitation, computer records and electronic files). In the event that any of the Sellers 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, that Seller will notify the Buyer promptly of the request or requirement so that the Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 5(d). If, in the absence of a protective order or the receipt of a waiver hereunder, any of the Sellers is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, that Seller may disclose the Confidential Information to the tribunal; provided, however, that the disclosing Seller shall use his or its reasonable best efforts to obtain, at the reasonable request and the sole cost and expense of the Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyer shall designate.
(e) Miscellaneous.
(i) The Buyer shall make available health insurance coverage for each of James Clark, G.J. DeYonge and Stuart Kutler and their spouses until such individual reaches the age of 65. Such insurance coverage shall be equivalent to the coverage provided by Buyer to its executive officers during such period. Messrs. Clark, DeYonge and Kutler shall be responsible for all of the costs, premiums and Taxes associated with such insurance (which premiums shall be 140% of the then current monthly COBRA rate applicable to the Buyer's health insurance coverage). In the event any such individual elects to
discontinue such coverage for any reason all obligations of the Buyer to offer coverage for such individual and his spouse shall permanently cease.
(ii) The Company shall transfer title to James Clark, G.J. DeYonge and Stuart Kutler for the three automobiles used by those individuals prior to Closing. Each of the transferees shall bear all cost and expense of these transfers, including without limitation all Taxes incurred in connection with these transfers. The vehicles will be valued at their basis reflected on the Company's books and records as of the Closing and these individuals shall report such amount as ordinary income on their 2004 Income Tax Returns and the Company will be entitled to a related deduction of the same amount on its Income Tax Return for the current fiscal year.
(iii) The Company shall pay to each of Stuart Kutler and G.J. DeYonge severance payments equal to one year of their respective current annual base salary. These payments shall be made in 12 equal monthly installments on the last day of each of the first 12 full calendar months following the Closing Date; provided, that, all obligations of the Company under this part (iii) shall cease immediately and automatically as to each such individual if such individual breaches or threatens to breach the terms of Section 5(d) or his Non-Compete Agreement or otherwise commits any act or omission involving material dishonesty or fraud or constituting gross negligence or willful misconduct, with respect to the Company or Buyer or any of their respective customers or suppliers.
(iv) For a period of 30 days following the Closing, each of James Clark, G.J. DeYonge and Stuart Kutler, will have the individual option, exercisable by written notice to the Company within such 30-day period, to purchase from the Company (A) in the case of James Clark, the life insurance policy issued by New York Life (Policy No. 43493338; cash surrender value of $118,755) and the life insurance policy issued by First Colony (Policy No. 2164193; cash surrender value of $63,408) both maintained by the Company, (B) in the case of G.J. DeYonge, the life insurance policy issued by New York Life (Policy No. 44619625; cash surrender value of $18,148) maintained by the Company and (C) in the case of Stuart Kutler, the life insurance policy issued by New York Life (Policy No. 44619606; cash surrender value of $23,727) maintained by the Company. The purchase price for each such policy shall be an amount equal to the cash surrender value of the policy (noted above) payable in cash immediately upon receipt of the written assignment of such policy. Each of the transferees shall bear all cost and expense of these transfers, including without limitation all Taxes incurred in connection with these transfers. Notwithstanding the aforementioned, neither the Company nor Buyer shall have any obligation to make any payments under or otherwise take any action or refrain from taking any action in order to maintain each such policy in full force and effect.
(v) The Buyer will conduct a monthly review with James Clark or G.J. DeYonge regarding cargo claims and bodily injury or property damage and workers' compensation claims that are outstanding at
Closing. Settlements in excess of $2,500 for cargo claims and $10,000 for bodily injury or property damage or workers' compensation claims require verbal approval from either of Messrs. Clark or DeYonge (which approval will not be unreasonably withheld). To the extent any such claims are the financial responsibility of an insurance carrier the procedures of the insurance carrier with respect to such claims shall govern.
(f) Payment of Indebtedness. The Buyer shall cause the Company to pay in full the Indebtedness of the Company listed on Schedule 5(f) within 30 days of the Closing Date.
(g) Norfolk Easement. On or about January 20, 2004, the Company filed in Cabinet 5 at Page 34B in the Office of the Register of Deeds of Madison County, Nebraska, a Lot Boundary Change between Lots 1 and 2, Clark Brothers' Addition to the City of Norfolk, Madison County, Nebraska, regarding real property known as 900 North First Street, Norfolk, Nebraska. Immediately thereafter, by Warranty Deed filed in Book M2004-1 at Page 1106, in the Office of the Register of Deeds of Madison County, Nebraska, the Sellers caused the Company to convey to James D. Clark and Janice A. Clark, husband and wife, being some of the Sellers, a portion of such property, being described as "Tract B of Lot 1, Clark Brothers' Addition to the City of Norfolk, Madison County, Nebraska, according to recorded plat thereof and according to that certain Lot Boundary Change between Lots 1 and 2, Clark Brothers' Addition to the City of Norfolk, Madison County, Nebraska, filed in Cabinet 5 at Page 34B in the Office of the Register of Deeds of Madison County, Nebraska" ("Conveyed Property").
Sellers hereby warrant and represent that such conveyance of said land to James D. Clark and Janice A. Clark does not adversely affect the trucking operations and ongoing use of Tract A of Lot 1, Clark Brothers' Addition to the City of Norfolk, Madison County, Nebraska, according to recorded plat thereof and according to that certain Lot Boundary Change between Lots 1 and 2, Clark Brothers' Addition to the City of Norfolk, Madison County, Nebraska, filed in Cabinet 5 at Page 34B in the Office of the Register of Deeds of Madison County, Nebraska ("Company Retained Property"), as a trucking terminal facility. Sellers, and James D. Clark and Janice A. Clark, in particular, hereby covenant and agree that, in the event that Buyer and/or Company hereafter determine that such conveyance did, in fact, adversely affect the trucking operations and use of the Company Retained Property as a trucking terminal facility, James D. Clark and Janice A. Clark will, within twenty-five (25) days of the date of a request therefor by the Company or Buyer, execute and deliver, free and clear of any liens or encumbrances, a perpetual and exclusive easement for pedestrian and vehicular ingress and egress over and across such of the Conveyed Property as is reasonably necessary to ameliorate the adverse conditions which resulted from the conveyance of the Conveyed Property.
6. Deliveries at Closing.
(a) Sellers' Deliveries at Closing. In addition to the items specified in Section 2 above, the Sellers shall deliver the following items to the Buyer at the Closing:
(i) all authorizations, consents, and approvals of governments and governmental agencies referred to in Section 3(a)(ii), and Section 4(c) above;
(ii) a release of liability from each Seller, Stuart Kutler and each fiduciary of the Clark Bros. Transfer, Inc. Employee Stock Ownership Plan & Trust, if other than a Seller, in form and substance reasonably satisfactory to Buyer;
(iii) the Escrow Agreement executed by Sellers and the Escrow Agent;
(iv) a termination, dated the Closing Date, for each of the following Leases executed by the Company and the applicable landlord:
(A) Lease, dated March 1, 2000, by and between J & J Wichita, L.L.C. and the Company re:
4525 South Palisade, Wichita, Kansas;
(B) Lease, dated June 1, 2002, by and between Clark Sioux Falls, L.L.C. and the Company re: 720 Amidon Street, Sioux Falls, South Dakota;
(C) Net Lease, dated July 1, 1998, by and between Clark-Grand Island, L.L.C. and the Company re: 2410 S. North Road, Grand Island, Nebraska;
(D) Lease, dated June 19, 1997, by and between J & J - I, L.L.C. and the Company re:
2205 County Club Drive, Carrollton, Texas; and
(v) lease agreements (with options to purchase) in form and substance reasonably satisfactory to Buyer, dated the Closing Date, executed by the Company and the applicable landlord of the following real estate: 4525 South Palisade, Wichita, Kansas; 720 Amidon Street, Sioux Falls, South Dakota; 2410 S. North Road, Grand Island, Nebraska; and 2205 County Club Drive, Carrollton, Texas;
(vi) an employment agreement between the Company and Reggie Hunt (the "Employment Agreement") executed by the Company and Reggie Hunt in form and substance reasonably satisfactory to the Buyer;
(vii) an opinion from counsel to the Sellers in form and substance reasonably satisfactory to the Buyer, addressed to the Buyer, and dated as of the Closing Date;
(viii) the resignations, effective as of the Closing, of each director and officer of the Company;
(ix) a written consent for the assignment of each of the Leases (other than the Leases terminated pursuant to Section 6(a)(iv) above) from the landlord or other party whose consent thereto is required under such Lease (the "Lease Consents");
(x) non-foreign affidavits dated as of the Closing Date and in form and substance required under the Treasury Regulations issued pursuant to Section 1445 of the Internal Revenue Code so that the Buyer is exempt from withholding any portion of the Purchase Price thereunder;
(xi) a certified copy of the Company's articles of incorporation which shall have been amended to delete Article XII thereof and the Company's 2000 Restated Bylaws (certified by the Secretary of the Company) which shall have been amended to delete the restriction on the ownership of the Company Shares contained in Article 1, Section 12 thereof;
(xii) a non-compete agreement executed by each Seller (other than the Stuart W. Kutler Trust Under Trust Agreement dated January 28, 1998) and Stuart Kutler (the "Non-Compete Agreements") in form and substance reasonably satisfactory to Buyer; and
(xiii) the 338(h)(10) Election executed by each of the Company and each Seller.
(b) Buyer's Deliveries at Closing. In addition to the items specified in Section 2 above, the Buyer shall deliver the following items to the Sellers at the Closing:
(i) all material authorizations, consents, and approvals of governments and governmental agencies referred to in Section 3(b)(iii);
(ii) the Escrow Agreement executed by the Buyer and the Escrow Agent;
(iii) the Non-Compete Agreements executed by the Buyer;
(iv) the Employment Agreement executed by the Company and Reggie Hunt in form and substance reasonably satisfactory to the Buyer;
(v) an opinion from counsel to the Buyer in form and substance reasonably satisfactory to the Sellers, addressed to the Sellers, and dated as of the Closing Date; and
(vi) the 338(h)(10) Election executed by each of the Buyer.
7. Remedies for Breaches of this Agreement.
(a) Survival of Representations and Warranties. All representations, warranties, covenants, and obligations in this Agreement, the Disclosure Schedule, Annex I and any other certificate or document delivered pursuant to this Agreement will survive the Closing. The right to indemnification, liability for Adverse Consequences or other remedy based on such representations, warranties, covenants, and obligations will not be affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation.
(b) Time Limitations. Sellers will have no
liability (for indemnification or otherwise) with respect to any
representation or warranty other than those in Sections 3(a)(iv)
(Company Shares), 4(b)(Capitalization), 4(m) (Tax Matters), 4(x)
(Employee Benefits) or 4(z) (Environmental Matters) unless on or before
the second anniversary of the Closing Date, Buyer notifies Sellers of a
claim specifying the factual basis of that claim in reasonable detail
to the extent then known by Buyer; a claim with respect to Sections
3(a)(iv) (Company Shares), 4(b) (Capitalization), 4(m) (Tax Matters),
4(x) (Employee Benefits) and 4(z) (Environmental Matters) may be made
up to 120 days following the expiration of the applicable statutes of
limitation; a claim based on fraud or a claim for indemnification or
reimbursement not based upon any representation or warranty may be made
at any time. Buyer will have no liability (for indemnification or
otherwise) with respect to any representation or warranty unless on or
before the second anniversary of the Closing Date Sellers notify Buyer
of a claim specifying the factual basis of that claim in reasonable
detail to the extent then known by Sellers.
(c) Indemnification Provisions for Benefit of the Buyer. Amy L. Hunt, G.J. DeYonge and the Stuart W. Kutler Trust Under Trust Agreement dated January 28, 1998, severally in proportion to their ownership of the Company Shares sold hereunder by Sellers but not jointly, and each of James Clark and Janice Clark, jointly and severally with each other and the other Sellers, will indemnify and hold harmless the Buyer, the Company, and their respective officers, directors, owners, controlling persons, employees, agents and Affiliates (collectively, the "Indemnified Persons") for, and will pay to the Indemnified Persons the amount of, any Adverse Consequences, arising, directly or indirectly, from or in connection with:
(i) any breach of any representation or warranty made by any Seller in this Agreement, the Disclosure Schedule or Annex I or any certificate or document delivered by Sellers pursuant to this Agreement;
(ii) any breach by any Seller of any covenant or obligation of such Seller in this Agreement;
(iii) any obligation or liability of the Company (A) for any Taxes of the Company with respect to any Tax year or portion thereof ending on or before the Closing Date (or for any Tax year beginning before and ending after the Closing Date to the extent allocable to the portion of such period
beginning before and ending on the Closing Date), to the extent such Taxes are not reflected in the reserve for any liability for Taxes (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) shown on the face of the Most Recent Balance Sheet (rather than in any notes thereto), as such reserve is adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax Returns and (B) for the unpaid taxes of any Person (other than the Company) under Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise;
(iv) the Clark Bros. Transfer, Inc.
Employee Stock Ownership Plan & Trust. Without limiting the
generality of the foregoing, indemnified losses shall include
those Adverse Consequences resulting from, arising out of, or
relating to the following with respect to the Clark Bros.
Transfer, Inc. Employee Stock Ownership Plan & Trust:
administration and termination; fiduciary obligations;
acquisition and disposition of employer securities;
disclosures and communications; loans, notes or other
extensions of credit; recapitalizations; valuation and
appraisal of employer securities; benefits; filing
obligations; taxes and excise taxes; penalties and fees;
(v) bodily injury or property damage
claims that arises, directly or indirectly, from any act,
omission or occurrence involving the Company on or prior to
the Closing Date to the extent not covered by insurance of the
Company in existence on the Closing Date (including, without
limitation, any matters set forth on Section 4(v) of the
Disclosure Schedule); provided, that, for purposes of
calculating the monetary amount of Adverse Consequences for
which an indemnification claim may be made under this Section
7(c)(v), such monetary amount shall be limited to the amount
of Adverse Consequences arising from these matters over the
aggregate amount of both the aggregate reserves for claims for
these matters recorded in the books and records of the Company
as of December 31, 2003 plus insurance proceeds actually
received by the Company (net of all costs of collection of
such proceeds) with respect to such matters;
(vi) any employment related claims involving the Company arising, directly or indirectly, from any act, omission or occurrence on or prior to the Closing Date, including any claims for workers' compensation, for breach of contract, or any claims in the nature of employment discrimination or harassment; provided, that, for purposes of calculating the monetary amount of Adverse Consequences for which an indemnification claim concerning workers' compensation matters may be made under this Section 7(c)(vi), such monetary amount shall be limited to the amount of Adverse Consequences arising from claims concerning workers' compensation matters over the aggregate amount of both the aggregate reserves for claims concerning workers' compensation matters recorded in the books and records of the Company as of December 31, 2003 plus insurance proceeds actually received by the Company (net of all costs of collection of such proceeds) with respect to claims concerning such workers' compensation matters; and
(vii) any liabilities arising, in whole
or in part, prior to the Closing Date under any Employee
Benefit Plan under which the Company provides health insurance
benefits; provided, that, for purposes of calculating the
monetary amount of Adverse Consequences for which an
indemnification claim may be made under this Section
7(c)(vii), such monetary amount shall be limited to the amount
of Adverse Consequences arising from these matters over the
aggregate amount of both the aggregate reserves for these
matters recorded in the books and records of the Company as of
the December 31, 2003 plus insurance proceeds actually
received by the Company (net of all costs of collection of
such proceeds) with respect to such matters.
The remedies provided in this Section 7 will be the exclusive remedy that may be available to Buyer or the other Indemnified Persons for indemnity claims. Sellers acknowledge and agree that the disclosure and exceptions made by Sellers, including those contained in Annex I attached hereto and the Disclosure Schedule and any other exhibit, schedule or attachment to this Agreement, only limit Sellers' liability for indemnification under Section 7(c)(i) above. Buyer and the Indemnified Persons have the right to rely fully upon the representations, warranties, covenants and agreements of Sellers contained in this Agreement, subject only to the restrictions on the Sellers' indemnification obligations contained in this Section 7, notwithstanding any such disclosure or the fact that Buyer has consummated the transactions contemplated in this Agreement.
(d) Indemnification Provisions for Benefit of the Sellers. Buyer will indemnify and hold harmless Sellers, and will pay to Sellers the amount of any Adverse Consequences arising, directly or indirectly, from or in connection with:
(i) any breach of any representation or warranty made by Buyer in this Agreement or any certificate or document delivered by Buyer pursuant to this Agreement;
(ii) any breach by Buyer of any covenant or obligation of Buyer in this Agreement;
(iii) any guarantee of any Seller of any Indebtedness of the Company for borrowed money as of the Closing; or
(iv) any on-site investigation or on-site remediation of the Excepted Real Property required under any Environmental Law; provided, that, Buyer shall have no indemnification obligation under this Section 7(d)(iv) if any Seller breaches any representation or warranty made by Sellers in Section 4(z) regarding Excepted Real Property. In no event shall Buyer have any indemnification obligation for any Adverse Consequences arising from any investigation on or remediation of, any real estate other than the Excepted Real Property (such as claims seeking investigation and remediation of adjoining properties) or for third party claims regarding any of the Excepted Real Property (including, without limitation, claims of adjoining landowners arising from environmental contamination emanating from the Excepted Real Property and claims seeking compensation for personal injury and death).
The remedies provided in this Section 7 will be exclusive remedy that may be available to Sellers or other Indemnified Persons for indemnity claims. Buyer acknowledges and agrees that the disclosure and exceptions made by Buyer, including those contained in any exhibit, schedule or attachment to this Agreement, only limit Sellers' liability for indemnification under Section 7(d)(i) above. Sellers have the right to rely fully upon the representations, warranties, covenants and agreements of Buyer contained in this Agreement, subject only to the restrictions on the Buyer's indemnification obligations contained in this Section 7, notwithstanding any such disclosure or the fact that Sellers have consummated the transactions contemplated in this Agreement.
(e) Calculation of Adverse Consequences; Limitations on Indemnity Obligations.
(i) For purposes of calculating the monetary amount of Adverse Consequences for which any indemnification claim may be made under this Section 7, such monetary amount may be decreased to the extent of any insurance proceeds actually received by the indemnified party (net of all costs of collection of such proceeds) with respect thereto under any insurance policies (and in the case of any claim made as a result of a breach of the representations and warranties contained in Section 4(z), any amounts actually received by the indemnified party (net of all costs of collection) from any claim made by the indemnified party against any prior owner or operator of the Environmental Property that is the subject of such claim); provided, that, if the indemnifying party shall have paid the same or all of the amount of a payment to the indemnified party prior to the recovery of such an amount by the indemnified party, the indemnified party shall promptly remit the amount of such recovery to the indemnifying party. At the request of the indemnifying party, the indemnified party shall promptly take all actions, at the sole cost and expense of the indemnifying party, including costs arising from any such claim, reasonably necessary to seek any such insurance proceeds (and in the case of any claim made as a result of a breach of the representations and warranties contained in Section 4(z), prosecute claims against prior owners or operators of Environmental Property that is the subject of such claim) to the extent reasonably available to the indemnified party.
(ii) The Sellers will have no liability
(for indemnification or otherwise) with respect to the matters
described in Section 7(c)(i) unless (A) the amount of Adverse
Consequences claimed by an Indemnified Person hereunder for
the particular matter described in Section 7(c)(i) exceeds
$5,000 (a "Covered Breach"), and (B) the total of all Adverse
Consequences with respect to all matters described in Section
7(c)(i), regardless of whether such Adverse Consequences arise
from a Covered Breach or not, exceeds $200,000 (the "Basket"),
in which case the Sellers shall be liable for all Adverse
Consequences in excess of the Basket. However, the limitations
on indemnity obligations contained in this Section 7(e)(ii)
will not apply to any breach of any representations and
warranties made in Sections 3(a)(iv) (Company Shares),
4(b)(Capitalization), 4(i)(xiii), (xv), (xvii) and (xviii)
(Events Subsequent to October 1, 2003), 4(m) (Tax Matters),
4(x) (Employee Benefits), 4(z) (Environmental Matters), the
last sentence of 4(aa) (Certain Business Relationships With
the Company), 5(g)
(Norfolk Easement) or 9(l) (Expenses).
(iii) If a breach or breaches of Section
4 would, had the subject matter of such breach or breaches
been properly reflected on the Most Recent Financial
Statements in accordance with GAAP (as applied by the Company
for its fiscal year ending December 31, 2003), cause the
amount of EBITDA (earnings before interest, taxes,
depreciation and amortization) of the Company for the 12
months ending December 31, 2003 to be less than the amount of
EBITDA as determined from the Most Recent Financial Statements
or if it is determined that the Most Recent Financial
Statements constitute a breach of Section 4(g) (in any such
case, an "EBITDA Reduction Claim"), and if the aggregate
reduction in EBITDA as a result of all EBITDA Reduction Claims
(after considering any increases in such EBITDA that are
previously identified) exceeds $250,000 (the "EBITDA Claim
Basket"), Sellers shall pay to Buyer an amount equal to the
amount by which the aggregate reduction in EBITDA as a result
of EBITDA Reduction Claims exceeds the EBITDA Claims Basket
multiplied by 4.2. Sellers liability shall be reduced by the
amounts previously paid to the Indemnified Persons under
Section 7(e)(ii) for any Adverse Consequences arising from the
subject matter of such breach. The determination of whether a
particular breach of Section 4 causes or would if accounted
for as provided above cause, a reduction in EBITDA for the
fiscal year ending December 31, 2003 shall be submitted to and
determined by Lutz & Co. for determination, in its sole and
absolute discretion (absent manifest error).
(iv) Buyer will have no liability (for
indemnification or otherwise) with respect to the matters
described in Section 7(d)(i) unless (A) such matter
constitutes a Covered Breach, and (B) the total of all Adverse
Consequences with respect to all matters described in Section
7(d)(i), regardless of whether such Adverse Consequences arise
from a Covered Breach or not, exceeds the Basket, in which
case the Buyer shall be liable for all Adverse Consequences in
excess of the Basket. However, the limitations on indemnity
obligations contained in this Section 7(e)(iv) will not apply
to any breach of any representations and warranties made in
Section 3(b)(ii) (Authorization of Transaction).
(v) In no event shall the obligation of
the Sellers to indemnify the Indemnified Persons under Section
7(c)(i) exceed the aggregate sum of $5,000,000, except this
restriction shall not apply to claims for any breach of
Sections 3(a)(iv) (Company Shares), 4(b)(Capitalization),
4(i)(xiii), (xv), (xvii) and (xviii) (Events Subsequent to
October 1, 2003), 4(m) (Tax Matters), 4(x) (Employee
Benefits), 4(z) (Environmental Matters), the last sentence of
4(aa) (Certain Business Relationships With the Company), 5(g)
(Norfolk Easement) or 9(l) (Expenses).
(vi) In no event shall the obligation of
the Buyer to indemnify the Sellers under Section 7(d)(i)
exceed the aggregate sum of $5,000,000, except this
restriction shall not apply to claims for any breach of
Section 3(b)(ii) (Authorization of Transaction).
(vii) In addition, to the extent an indemnification claim arises hereunder as a result of a third party claim against an indemnified party, the Adverse Consequences shall be deemed to include incidental, consequential, special, enhanced and punitive damages to the extent claimed by a third party against an indemnified party.
(f) Right to Set off; Escrow. Upon notice to
Sellers specifying in reasonable detail the basis for such set off,
Buyer may set off (or cause to be set off) any amount to which Buyer,
the Company or any other Indemnified Person may be entitled under
Section 7 against amounts otherwise payable under this Agreement, the
note described in Section 2(b)(ii) and any lease (or option to
purchase) between the Company (or the Buyer or any successor or assign
of the Company or Buyer) and any Affiliate of any of the Sellers
(including the lease agreements (with options to purchase) described in
Section 6(a)(v) above); provided, that, the set off right under the
note described in Section 2(b)(ii) shall be limited to amounts to which
Buyer, the Company or other Indemnified Persons may be entitled
pursuant to an indemnification claim made pursuant to Section 7(c)(iv).
Notwithstanding the preceding sentence, Buyer may only exercise the set
off rights pursuant to this Section 7(f) with respect to amounts
otherwise payable under this Agreement or any lease (or option to
purchase) between the Company (or the Buyer or any successor or assign
of the Company or Buyer) and any Affiliate of any of the Sellers
(including the lease agreements (with options to purchase) described in
Section 6(a)(v) above) if the amount sought, together with all other
claims previously made exceed the amount then held in escrow; provided,
in no event will the restriction in this sentence be deemed to apply to
set offs against the note referred to in Section 2(b)(ii). The exercise
of such right of set off by Buyer in good faith, whether or not
ultimately determined to be justified, will not constitute an event of
default under this Agreement or any other document contemplated herein.
Neither the exercise of nor the failure to exercise such right of set
off or to make a claim against the escrow will constitute an election
of remedies or limit Buyer, the Company and other Indemnified Persons
in any manner in the enforcement of any other remedies that may be
available to any of them. Sellers agree to execute all instructions to
the Escrow Agent and other documents required by the Escrow Agent in
order to release funds held by the Escrow Agent to satisfy Sellers'
indemnity obligations under Section 7 promptly after Sellers either
agree to the validity of such claim or a final nonappealable order is
issued by a court of competent jurisdiction or pursuant to binding
arbitration. Buyer's exercise of set off rights or rights to amounts
held under the Escrow Agreement may be made without regard to the
several nature of the liability of certain Sellers under this
Agreement.
(g) Matters Involving Third Parties.
(i) Promptly after receipt by an indemnified party under Sections 7(c) or 7(d) above of notice of the commencement of any matter which may give rise to a claim against an indemnified party, such indemnified party will, if a claim is to be made against an indemnifying party under such Section, give notice to the indemnifying party of the commencement of such claim, but the failure to notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party, except to the extent that
the indemnifying party demonstrates that the defense of the matter giving rise to the indemnified party's claim is prejudiced by the indemnifying party's failure to give such notice.
(ii) If any proceeding resulting from the matters referred to in Sections 7(c) or (d) above is brought against an indemnified party and it gives notice to the indemnifying party of the commencement of such proceeding, the indemnifying party will, unless the claim involves Taxes, be entitled to participate in such proceeding and, to the extent that it wishes (unless (A) the indemnifying party is also a party to such proceeding and the indemnified party determines in good faith that joint representation would be inappropriate, or (B) the indemnifying party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend such proceeding and provide indemnification with respect to such proceeding), to assume the defense of such proceeding with counsel reasonably satisfactory to the indemnified party (it being agreed that Koley Jessen P.C. and Bryan Cave LLP are each considered satisfactory for these purposes) and, after notice from the indemnifying party to the indemnified party of its election to assume the defense of such proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be liable to the indemnified party under Section 7 for any fees of other counsel or any other expenses with respect to the defense of such proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such proceeding, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a proceeding, no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified party's consent unless (1) there is no finding or admission of any violation of applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of any federal, state, local or foreign governments (and all agencies thereof) or any violation of the rights of any Person and no effect on any other claims that may be made against the indemnified party, (2) the sole relief provided is monetary damages that are paid in full by the indemnifying party and (3) the indemnified party will have no liability with respect to any compromise or settlement of such claims. If notice is given to an indemnifying party of the commencement of any proceeding and the indemnifying party does not, within 10 days after the indemnified party's notice is given, give notice to the indemnified party of its election to assume the defense of such proceeding, the indemnifying party will be bound by any determination made in such proceeding or any compromise or settlement effected by the indemnified party.
(iii) Notwithstanding the foregoing, if an indemnified party determines in good faith that there is a reasonable probability that a proceeding may adversely affect it or its Affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive right to defend, compromise, or settle such proceeding, but the indemnifying party will not be bound by any determination of a proceeding so
defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld).
(iv) Sellers and Buyer hereby consent to the non-exclusive jurisdiction of any court in which a proceeding is brought against any indemnified party for purposes of any claim that an indemnified party may have under this Agreement with respect to such proceeding or the matters alleged therein, and agree that process may be served on Sellers with respect to such a claim anywhere in the world.
(h) Other Indemnification Provisions. Each of the Sellers hereby agrees that he or it will not make any claim for indemnification against the Company by reason of the fact that he or it was a director, officer, employee, contractor or agent of the Company or was serving at the request of the Company as a partner, trustee, director, officer, employee, contractor, fiduciary or agent of another entity (whether such claim is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses, or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement, or otherwise). This prohibition shall not apply to any rights a Seller may have to seek indemnification from the Company under the articles of incorporation or bylaws of the Company, both as in effect on the date hereof, with respect to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the Company) not known as of the date hereof by any such Seller or the Company, against such Seller in his or her capacity as an officer, director or employee of the Company by reason of the fact that such Seller was an officer, director or employee of the Company if such Seller acted in good faith in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company; provided, that, no such Seller shall have any right to seek indemnification from the Company (or its successors) if the existence or assertion of such indemnification claim (or the matter giving rise to any such Seller's assertion of such indemnification claim) would constitute a breach of a representation or warranty made by any Seller in this Agreement or if such Seller is obligated to indemnify Buyer against such indemnification claim (or the matter giving rise to such Seller's assertion of such indemnification claim) pursuant to this Agreement.
8. Tax Matters. The following provisions shall govern the allocation of responsibility as between Buyer and Sellers for certain Tax matters following the Closing Date:
(a) Tax Filings. Sellers shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company for all periods ending on or prior to the Closing Date which are filed after the Closing Date. Sellers shall permit Buyer to review and comment on each such Tax Return described in the preceding sentence prior to filing and shall make such revisions to such Tax Returns as are reasonably requested by Buyer. To the extent permitted by applicable law, Sellers shall include any income, gain, loss, deduction or other tax items for such periods on their Tax Returns in a manner consistent with the Schedule K-1s prepared for such periods. Sellers shall be liable for and pay any Taxes of the Company with respect to such periods.
(b) Section 338(h)(10) Election. The Company and
each of the Sellers will join with the Buyer in making an election
under Section 338(h)(10) of the Code in connection with the purchase of
the Company Shares hereunder (and any corresponding elections under
state, local, or foreign tax law) (collectively a "Section 338(h)(10)
Election"). Buyer shall prepare or cause to be prepared and file or
cause to be filed the Section 338(h)(10)) Election. Buyer shall permit
Sellers to review and comment on the Section 338(h)(10) Election prior
to filing and shall make such revisions to the Section 338(h)(10)
Election as are reasonably requested by Sellers. Sellers will include
any income, gain, loss, deduction, or other tax item resulting from the
Section 338(h)(10) Election on their Tax Returns to the extent required
by applicable law.
(i) Section 338(h)(10) Gross-Up.
Notwithstanding any other provision of this Agreement, the
Buyer shall be responsible for an amount equal to: (i) the
excess of (A) the amount of Taxes actually payable by the
Sellers (net of any Tax benefits received by the Sellers) as a
result of the sale by the Sellers to the Buyer of the Company
Shares (the "S Corporation Sale") and the making by the Buyer
and the Sellers of the Section 338(h)(10) Election, over (B)
the amount of Taxes that would have been payable by the
Sellers as a result of the S Corporation Sale had the Section
338(h)(10) Election not been made; divided by (ii) 80.4%;
provided, however, that the Buyer shall not have any
obligation with respect to any portion of such excess that
results from the breach or inaccuracy of any representation or
warranty of the Sellers made in Sections 3(a) or 4 of this
Agreement or from the application of Section 1374 of the Code
to the extent the amount of built in gains exceeds $5,747,961
as of December 31, 2003. The amount for which the Buyer is
responsible shall be referred to as the "Section 338(h)(10)
Gross-Up". Buyer shall pay the Sellers $2,500,000 on the
Closing Date to be applied against the Section 338(h)(10)
Gross-Up.
(ii) Preparation of Tax Returns and
Section 338(h)(10) Gross-Up Computation. No later than April
1, 2004, Sellers shall deliver to Buyer (A) all Tax Returns
for the Company for all periods ending on or prior to the
Closing Date, (B) a detailed reconciliation showing (a) the
final computation of the Section 338(h)(10) Gross-Up, and (b)
the amount of cash that is to be exchanged between Buyer and
Sellers in settlement of the Section 338(h)(10) Gross-Up, and
(C) all supporting schedules.
(iii) Review of Section 338(h)(10) Gross-Up. Buyer shall have 30 days to review the final computation of the Section 338(h)(10) Gross-Up, and the amount of cash that is to be exchanged between Buyer and Sellers in settlement of the Section 338(h)(10) Gross-Up. If within 30 days of receiving the computation of the Section 338(h)(10) Gross-Up pursuant to Section 8(b)(ii) hereof, Buyer provides written notice to Sellers that it disagrees with any item reflected in the Section 338(h)(10) Gross-Up computation or the amount of cash that is to be exchanged between Buyer and Sellers in settlement of the Section 338(h)(10) Gross-Up, the parties shall in good faith confer with each other to resolve any such disagreement. The failure of Buyer to provide the notice described in the preceding sentence within the 30 day period specified shall be
deemed to indicate that Buyer agrees with the Section
338(h)(10) Gross-Up computation. If within 10 days of receipt
by Sellers of the notice from Buyer described in Section
8(b)(iii), any disputed item remains unresolved, the parties
will have another 10 days to retain an Independent Third Party
to resolve any such dispute whose decision will be binding on
both parties.
(iv) Payment Procedures. Once the
parties have agreed on, or the Independent Third Party has
resolved any disputed items with respect to, the Section
338(h)(10) Gross-Up described in Section 8(b)(i), any amount
required to be paid pursuant to the Section 338(h)(10)
Gross-Up, less all payments already made pursuant to Section
8(b)(i), shall be paid within 10 days of the agreement on or
resolution of such documents.
(c) Allocation of Purchase Price. (d) Buyer, the
Company and Sellers agree that the Purchase Price, the Section
338(h)(10) Gross-Up and the liabilities of the Company (plus other
relevant items) will be allocated to the assets of the Company for all
purposes (including Tax and financial accounting) as follows: the
Purchase Price, the Section 338(h)(10) Gross-Up and the liabilities of
the Company (plus other relevant items) will be allocated in a manner
consistent with Code Section 338 and the regulations thereunder; the
fair market value of the real property will be based on fair market
value appraisals performed by Burr & Tempkin dated August 23, 2003; the
fair market value of the revenue equipment and all other fixed assets
will be based on net book value of assets at January 31, 2004 adjusted
to the extent necessary for any purchases, sales and depreciation from
January 31, 2004 through the Closing Date; the allocation to all other
current assets and liabilities will be based on the applicable book
value of the current assets and liabilities at January 31, 2004,
adjusted to the extent necessary for any income or loss from January
31, 2004 through the Closing Date; and any remaining Purchase Price
including Section 338(h)(10) Gross-Up not allocable to tangible assets
of the Company will be allocated to any identifiable intangible assets
and goodwill. Buyer will provide to Sellers on or before March 22, 2004
the final allocation per the agreement set forth in the previous
sentence. Buyer, the Company and the Sellers will file all Tax Returns
(including amended returns and claims for refund) and information
reports in a manner consistent with such allocation.
(d) S Corporation Status. Other than entering into the transaction contemplated by this Agreement, the Company and Sellers will not revoke the Company's election to be taxed as an S corporation within the meaning of Code Sections 1361 and 1362. The Company and Sellers will not take or allow any action that would result in the termination of the Company's status as a validly elected S corporation within the meaning of Code Sections 1361 and 1362.
(e) Cooperation on Tax Matters.
(i) Buyer and Sellers shall, and Buyer shall cause the Company to, cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Section and any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Buyer shall cause the Company (A) to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Buyer or Sellers, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the Sellers reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the Sellers so request, the Buyer shall cause the Company to allow the Sellers to take possession of such books and records.
(ii) Buyer and Sellers further agree, upon request, to provide one another with all information that any of them may be required to report pursuant to Section 6043 of the Code and all Treasury Department Regulations promulgated thereunder.
(f) Tax Sharing Agreements. All tax sharing agreements or similar agreements with respect to or involving the Company shall be terminated as of the Closing Date and, after the Closing Date, the Company shall not be bound thereby or have any liability thereunder.
(g) Certain Taxes and Fees. All transfer, documentary, sales, use, stamp, registration and other such Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with the consummation of the transaction contemplated by this Agreement shall be the responsibility of the Sellers.
9. Miscellaneous.
(a) Nature of Certain Obligations. The representations, warranties, and covenants of Sellers in this Agreement are several and not joint obligations among each of the Sellers other than James Clark and Janice Clark. This means that each Seller other than James Clark and Janice Clark will be responsible to the extent provided in Section 7 above for only a proportionate amount of any Adverse Consequences the Buyer may suffer as a result of any breach thereof which proportionate amount shall be calculated on a pro rata basis with respect to the percentage of Company Shares owned by the Sellers. The representations, warranties, and covenants of Sellers in this Agreement are joint and several obligations with respect to James Clark and Janice Clark. This means that each of James Clark and Janice Clark will be responsible to the extent provided in Section 7 above for the entirety of any Adverse Consequences the Buyer may suffer as a result of any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the Buyer and the Sellers; provided, however, that Buyer may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly traded securities (or that of its parent) (in which case the Buyer will use its commercially reasonable best efforts to advise James D. Clark prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the Buyer and the Sellers; provided, however, that the Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates, (ii) designate one or more of its Affiliates to perform its obligations hereunder and (iii) assign any or all of its rights and interests hereunder to any of its lenders or otherwise in connection with a sale of substantially all of the assets of the Company (in any or all of which cases (i), (ii) and (iii) above, the Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below:
If to the Sellers: Copy to: James D. Clark Koley Jessen P.C. 2001 Prospect Avenue One Pacific Place, Suite 800 Norfolk, Nebraska 68701 1125 South 103 Street Omaha, Nebraska 68124 Attn: Paul C. Jessen If to the Buyer: Copy to: Saia Motor Freight Line, Inc. Bryan Cave LLP 11465 Johns Creek Parkway 3500 One Kansas City Place Duluth, Georgia 30097 1200 Main Street Attention: President Kansas City, Missouri 64105 Attention: Robert M. Barnes |
Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Nebraska without giving effect to any choice or conflict of law provision or rule (whether of the State of Nebraska or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Nebraska.
(j) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer and the Sellers. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.
(k) Equitable Modification. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid or unenforceable under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity or unenforceability, without invalidating the remainder of this Agreement, and shall be reformed and enforced to the maximum extent permitted under applicable law.
(l) Expenses. The Buyer will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. Sellers represent
and warrant that attached as Schedule 9(l) is a true and correct list
of all invoices for costs and expenses of the Sellers or the Company
(and their respective Affiliates) (including legal fees and expenses)
in connection with the transactions contemplated hereby that have on or
before the date hereof been paid by the Company or received by the
Company. Except with respect to the invoices listed on Schedule 9(l),
the Sellers will bear the cost and expenses of the Company and Sellers
(and their respective Affiliates) (including legal fees and expenses)
in connection with the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. Reference to any gender includes each other gender, the masculine, the feminine and neuter. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance, provided, however, in no event shall any Party incur duplicate liability for the same Adverse Consequences by reason of the facts that the same result from the breach of more than one representation, warranty or covenant. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits, Annexes, and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.
(o) Specific Performance. Each of the Parties
acknowledges and agrees that the other Parties would be damaged
irreparably in the event any of the provisions of this Agreement are
not performed in accordance with their specific terms or otherwise are
breached. Accordingly, each of the Parties agrees that the other
Parties shall be entitled to temporary, preliminary and permanent
injunctive relief to prevent any breach or threatened breach of the
provisions of this Agreement and to enforce specifically this Agreement
and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction
over the Parties and the matter (subject to the provisions set forth in
Section 9(p) below), in addition to any other remedy to which they may
be entitled, at law or in equity.
(p) Submission to Jurisdiction. Subject to Section 9(q), each of the Parties submits to the exclusive venue and jurisdiction of any federal court sitting in Omaha, Nebraska, in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard and determined exclusively in any such court. Each Party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on any other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 9(h) above. Nothing in this Section 9(p), however, shall affect the right of any Party to serve legal process in any other manner permitted by law or at equity.
(q) Arbitration. Except for disputes, controversies, or claims arising under Section 2, 5(b), 5(c), 5(d) or 9(p) above, any dispute, controversy, or claim arising under or relating to this Agreement or any breach or threatened breach thereof ("Arbitrable Dispute") shall be resolved by final and binding arbitration administered by the American Arbitration Association ("AAA") under its Commercial Arbitration Rules, subject to the following:
(i) Any Party may demand that any Arbitrable Dispute be submitted to binding arbitration. The demand for arbitration shall be in writing, shall be served on the other party in the manner prescribed herein for the giving of notices, and shall set forth a short statement of the factual basis for the claim, specifying the matter or matters to be arbitrated.
(ii) The arbitration shall be conducted by a panel of three arbitrators, one selected by Buyer, one selected by Sellers and the third to be selected jointly by the arbitrators selected by Buyer and Sellers (collectively, the "Arbitrators") who shall conduct such evidentiary or other hearings as they deem necessary or appropriate and thereafter shall make their determination as soon as practicable. Any arbitration pursuant hereto shall be conducted by the Arbitrators under the guidance of the Federal Rules of Civil Procedure and the Federal Rules of Evidence, but the Arbitrators shall not be required to comply strictly with such Rules in conducting any such arbitration. All such arbitration proceedings shall take place in Des Moines, Iowa.
(iii) Except as provided herein (including pursuant to Section 7 to the extent such items constitute Adverse Consequences):
(A) each party shall bear its own "Costs and Fees," which are defined as all reasonable pre-award expenses of the arbitration, including travel expenses, out-of-pocket expenses (including, but not limited to, copying and telephone) witness fees, and reasonable attorney's fees and expenses;
(B) the fees and expenses of the Arbitrators and all other costs and expenses incurred in connection with the arbitration ("Arbitration Expenses") shall be borne equally by the parties thereto; and
(C) notwithstanding the foregoing, the Arbitrators shall be empowered to require any one or more of the parties thereto to bear all or any portion of such Costs and Fees and/or the Arbitration Expenses in the event that the Arbitrators determine such party has acted unreasonably or in bad faith.
(iv) The Arbitrators shall have the authority to award any remedy or relief that a court of the State of Nebraska could order or grant, including, without limitation, specific performance of any obligation created under this Agreement, the awarding of amounts in respect of Adverse Consequences and punitive damages, the issuance of temporary, preliminary and permanent injunctive relief, or the imposition of sanctions for abuse or frustration of the arbitration process. The Arbitrators shall render their decision and award upon the concurrence of at least two of their number. Such decision and award shall be in writing and counterpart copies thereof shall be delivered to each party hereto. The decision and award of the Arbitrators shall be binding on all parties hereto. In rendering such decision and award, the Arbitrators shall not add to, subtract from or otherwise modify the provisions of this Agreement, except as provided in Section 9(k) above and shall make its determinations in accordance therewith. Any party to the arbitration may seek to have judgment upon the award rendered by the Arbitrators entered in any court described in Section 9(p) above having jurisdiction thereof.
(v) Each of the Parties agrees that it will not file any suit, motion, petition or otherwise commence any legal action or proceeding for any matter which is required to be submitted to arbitration as contemplated herein except in connection with the enforcement of an award rendered by the Arbitrators. Upon the entry of an order dismissing or staying any action or proceeding filed contrary to the preceding sentence, the Party which filed such action or proceeding shall promptly pay to the other Party the attorneys' fees, costs and expenses incurred by such other Party prior to the entry of such order and shall be liable for such fees, costs and expenses of any subsequent appeals.
(r) Appointment of Sellers' Representative.
(i) Sellers hereby appoint James D. Clark as their representative, to be their true and lawful attorney-in-fact for all matters in connection with this Agreement, the Escrow Agreement and the promissory note described in Section 2(b)(ii) (the "Subject Documents"), including without limitation the acceptance of any claim by Buyer, and the compromise of any disputes between Buyer and Sellers relating to any Subject Document. The power of attorney granted to the Sellers' representative appointed hereunder is coupled with an interest and will continue in full force and effect notwithstanding the subsequent death or incapacity of a Seller. The representative appointed hereunder will act on behalf of Sellers with respect to all matters requiring action by Sellers under the Subject Documents. Mr. Clark hereby accepts such appointment. In the event of the incapacity of Mr. Clark, a successor representative for Sellers will be
appointed by the holders or former holders of a majority of the Company Shares.
(ii) The Sellers' representative appointed hereunder shall take all actions required to be taken by Sellers under the Subject Documents and may take any action contemplated by the Subject Documents.
(iii) In the event that Buyer gives notice to the Sellers' representative appointed hereunder of a claim for which indemnification may be sought, the Sellers' representative shall have the authority to determine, in his or her sole judgment, whether to retain counsel (and to select that counsel) to protect Sellers' interests, whether to assume the defense of or otherwise to control the handling of the claim, whether to consent to indemnification and to make all other decisions required to be made by Sellers pursuant to the Subject Documents, including without limitation whether to consent or withhold his or her consent to any settlement or compromise of a claim.
(iv) The Sellers' representative appointed hereunder shall not be liable to any Seller for any act or omission taken pursuant to or in conjunction with the Subject Documents, except for his or her own gross negligence or willful misconduct. Sellers shall indemnify and hold the Sellers' representative, and each successor thereof, harmless from any and all liability and expenses (including, without limitation, counsel fees) which may arise out of any action taken or omitted by him or her as Sellers' representative in accordance with the Subject Documents, as the same may be amended, modified or supplemented, except such liability and expense as may result from the gross negligence or willful misconduct of the Sellers' representative.
(v) The Sellers' representative appointed hereunder agrees that within a reasonable time after receipt of notice of a claim, he or she shall give each Seller notice of same and shall from time to time keep Sellers apprised as to developments with respect to such claim. Such notices shall be sent to Sellers at his or her addresses as may be communicated to the Sellers' representative in writing by Sellers.
(vi) Any action taken by the Sellers' representative appointed hereunder may be considered by Buyer to be the action of Sellers for whom such action was taken for all purposes of the Subject Documents.
*****
EXECUTION COPY
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date first above written.
SAIA MOTOR FREIGHT LINE, INC.
By: /s/ Richard D. O'Dell ----------------------------------- Name: Richard D. O'Dell Title: President /s/ James D. Clark --------------------------------------- James D. Clark, an individual /s/ Janice A. Clark --------------------------------------- Janice A. Clark, an individual /s/ Amy L. Hunt --------------------------------------- Amy L. Hunt, an individual /s/ G.J. DeYonge --------------------------------------- G. J. DeYonge, an individual |
STUART W. KUTLER TRUST UNDER TRUST
AGREEMENT DATED JANUARY 28, 1998,
Shareholder
By: /s/ Stuart W. Kutler ----------------------------------- Stuart W. Kutler, Trustee By: /s/ Sandra A. Kutler ----------------------------------- Sandra A. Kutler, Trustee |
CLARK BROS. TRANSFER, INC.
(for purposes of the Section 338(h)(10)
election provisions and Section 5(e))
By: /s/ James D. Clark ----------------------------------- James D. Clark |
Signature Page for Stock Purchase Agreement
SPOUSAL CONSENT
The undersigned, spouses of Sellers, consent to and agree that his/her interest in any property (marital or otherwise) that is subject to this Agreement is subordinate and subject to the rights of Buyer.
/s/ Reggie Hunt ----------------------------------- Print Name: Reggie Hunt /s/ Joanne L. DeYonge ----------------------------------- Print Name: Joanne L. DeYonge |
Signature Page for Stock Purchase Agreement
EXHIBIT 10.14
FIRST AMENDMENT TO THE SCS TRANSPORTATION, INC.
2003 OMNIBUS INCENTIVE PLAN
WHEREAS, SCS Transportation, Inc. ("Company") adopted the SCS Transportation, Inc. 2003 Omnibus Incentive Plan ("Plan"); and
WHEREAS, the Company retained the right to amend the Plan pursuant to Section 20 thereof; and
WHEREAS, the Company desires to amend the Plan to permit Non-Employee Directors to defer their Mandatory and Discretionary Awards under Sections 10.1 and 10.2.
NOW, THEREFORE, effective December 11, 2003, the Plan is amended as follows:
1. A new Section 10.4 is added to read as follows:
10.4 Deferral of Awards. Notwithstanding Sections
10.1 and 10.2, each Non-Employee Director shall have the
right to defer all or a portion of his or her Mandatory
Awards under Section 10.1 and Discretionary Awards under
Section 10.2 under the SCS Transportation, Inc. Directors'
Deferred Fee Plan.
IN WITNESS WHEREOF, the foregoing amendment was adopted on the 11th day December, 2003.
EXHIBIT 10.15
SCS TRANSPORTATION, INC.
DIRECTORS' DEFERRED FEE PLAN
ARTICLE I
PURPOSE
The purpose of the SCS Transportation, Inc. Directors' Deferred Fee Plan is to allow non-employee Directors of the Company to defer receipt of certain compensation they earn as a Director. It is intended that the Plan will provide incentives to become and remain a Director of the Company and provide a mechanism to further align the interests of non-employee Directors with those of the Company's stockholders.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise:
2.1 BENEFICIARY. "Beneficiary" means the person, persons or entity designated by the Participant, or as otherwise provided in Article VIII, to receive any benefits distributable under the Plan in the event of the Participant's death. Any Participant Beneficiary designation shall be made in a written instrument filed with the Committee pursuant to Article VIII and shall become effective only when received in writing by the Company.
2.2 BOARD. "Board" means the Board of Directors of the Company.
2.3 CHANGE OF CONTROL. "Change of Control" means a transaction in which the Company is wholly or partly liquidated or is a party to a merger, consolidation, or reorganization in which it is not the surviving entity.
2.4 COMMITTEE. "Committee" means the Compensation Committee of the Board.
2.5 COMPANY. "Company" means SCS Transportation, Inc., a Delaware corporation.
2.6 COMPENSATION. "Compensation" means any annual retainers or annual fees (excluding any stock options) to which a Director would otherwise be entitled to, whether for service on the Board or on a Committee of the Board or for service as a committee chairperson.
2.7 DEFERRAL BENEFIT. "Deferral Benefit" means the benefit payable to a Participant or Participant's Beneficiary upon the Participant's death or Termination of Board service, provided in Article VII hereof.
2.8 DEFERRED BENEFIT ACCOUNT. "Deferred Benefit Account" means the accounts maintained on the books of account of the Company for each Participant pursuant to Article VI. Separate Deferred Benefit Accounts shall be maintained for each Participant. More than one Deferred Benefit Account may be maintained for each Participant as necessary to reflect separate deferral elections. A Participant's Deferred Benefit Account shall be utilized solely as a device for the measurement and determination of the amounts to be distributed to the Participant pursuant to this Plan. A Participant's Deferred Benefit Account shall not constitute or be treated as a trust fund of any kind or require the segregation of any assets of the Company.
2.9 DETERMINATION DATE. "Determination Date" means the date on which the amount of a Participant's Deferred Benefit Account is determined as provided in Article VI hereof. Each business day shall be a Determination Date.
2.10 DIRECTOR. "Director" means a member of the Board of Directors of the Company who is not an employee of the Company or any Subsidiary.
2.11 DISABILITY. "Disability" means a physical or mental condition of a Participant resulting in an inability of a Participant to continue services as a Director of the Company.
2.12 PARTICIPANT. "Participant" means each Director who elects to participate by filing a Participation Agreement as provided in Article IV.
2.13 PARTICIPATION AGREEMENT. "Participation Agreement" means the Director's election form filed by a Participant prior to the beginning of the first period for which any of the Participant's Compensation is to be deferred pursuant to the Plan. A form of such Participation Agreement is attached to this document.
2.14 PLAN. "Plan" means this SCS Transportation, Inc. Directors' Deferred Fee Plan.
2.15 PLAN YEAR. "Plan Year" means a twelve month period commencing on January 1 and ending the following December 31. The first Plan Year shall commence on January 1, 2004 and end on December 31, 2004.
2.16 SPOUSE. "Spouse" means a Participant's wife or husband who was lawfully married to the Participant at the time of the Participant's death or a determination of Participant's incompetency.
2.17 SUBSIDIARY. "Subsidiary" means a corporation more than 80% of the outstanding stock of which is owned directly or indirectly by the Company.
2.18 TERMINATION. "Termination" means a Participant's resignation as a Director, removal from office or any other termination from service as a Director for any reason.
2.19 UNIT. A "Unit" means the equivalent to the value of a single share of SCS Transportation, Inc. common stock.
ARTICLE III
ADMINISTRATION
3.1 COMMITTEE; DUTIES. The Plan shall be administered by the Committee. Members of the Committee may be Participants under the Plan. The Committee shall have the discretionary authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of the Plan and decide or resolve any and all questions, including interpretation of the Plan, as may arise in connection with the Plan. The Committee may delegate administrative duties to an employee or employees of the Company.
3.2 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated under the Plan shall be final, conclusive and binding upon all persons having any interest in the Plan, unless a written appeal is received by the Company within sixty days of the disputed decision or action. The appeal will be reviewed by the Committee and the decision of the Committee shall be final, conclusive and binding on the Participant and all persons claiming by, through or under the Participant, including but not limited to any Beneficiary of the Participant.
ARTICLE IV
PARTICIPATION
4.1 PARTICIPATION. Participation in the Plan shall be limited to each Director who is not an employee of the Company or a Subsidiary and who elects to participate in the Plan by filing a Participation Agreement with the Committee. A Participation Agreement must be filed prior to December 31 immediately preceding the Plan Year in which the Participant's participation in the Plan will commence. The election to participate shall be effective on the first day of the Plan Year following receipt by the Committee of a properly completed and executed Participation Agreement.
However, with respect to a Director who during a Plan Year becomes eligible to participate herein, an initial Participation Agreement may be filed within 30 days of the Committee's notification to Participant of eligibility to participate. Such election to participate shall be effective on the first day of the month following the Committee's receipt thereof.
4.2 MAXIMUM DEFERRAL AND LENGTH OF PARTICIPATION. A Participant may elect in a Participation Agreement to defer any portion or all of such Participant's Compensation which the Participant elects to be paid in common stock of the Company. The deferral percentage elected in each Participation Agreement shall be applied to the Participant's Compensation earned during the Plan Year to which the Participation Agreement applies. Deferrals shall commence with the Plan Year immediately following the year in which the respective Participation Agreement is filed with the Committee; however, an initial Participation Agreement which is effective other than on January 1 of a Plan Year shall apply to the remainder of that Plan Year.
A Participant's election to defer Compensation shall be irrevocable upon the filing of the Participation Agreement; however, the deferral of Compensation under any Participation Agreement may be suspended or amended as provided in paragraphs 4.3 and 9.1 or as provided below.
A Participant may amend a currently effective deferral election with respect to deferrals in subsequent Plan Years covered by a Participation Agreement by filing a new Participation Agreement with the Committee in the manner provided in paragraph 4.3. If a new Participation Agreement is not filed to change the amount to be deferred, it will be assumed that the deferral election from the prior Plan Year will continue during the subsequent Plan Year.
The form of benefit payment and the date benefits are to commence may not be amended without the consent of the Committee.
4.3 ADDITIONAL PARTICIPATION AGREEMENT. A Participant may enter into a new Participation Agreement by filing a Participation Agreement with the Committee prior to December 31 of any calendar year, stating the amount that the Participant elects to have deferred. The new Participation Agreement shall be effective as to Compensation earned in Plan Years beginning after the last day of the Plan Year in which the respective agreement is filed with the Committee. A new Participation Agreement is subject to all of the provisions and requirements set forth in paragraph 4.2.
ARTICLE V
DEFERRED COMPENSATION
5.1 DEFERRED COMPENSATION. The amount of Compensation that a Participant elects to defer in a Participation Agreement with respect to each Plan Year of participation in the Plan shall be converted into Units and credited by the Company to the
Participant's Deferred Benefit Account throughout the year as the Participant would be paid any nondeferred portion of Compensation for such Plan Year.
The price per share of Company common stock to be used for converting the Participant's deferral into Units shall be the closing price per share of the Company's common stock as listed on The Nasdaq Stock Market on the date Compensation would have been paid had there been no deferral. If no shares have been traded on such date, then the next preceding date on which such shares have been traded shall be used.
5.2 VESTING OF DEFERRED BENEFIT ACCOUNT. A Participant shall be 100% vested in the Participant's Deferred Benefit Account at all times.
ARTICLE VI
DEFERRED BENEFIT ACCOUNT
6.1 DETERMINATION OF ACCOUNT. The Participant's Deferred Benefit Account as of each Determination Date shall consist of the balance of the Participant's Deferred Benefit Account as of the immediately preceding Determination Date, plus the Participant's deferred Compensation withheld and converted into Units pursuant to paragraph 5.1 since such immediately preceding Determination Date. The Deferred Benefit Account of each Participant shall be reduced by the amount of all Benefit Payments, if any, made with respect to such Deferred Benefit Account since the preceding Determination Date.
6.2 CREDITING OF DIVIDENDS. As of each Determination Date, the Participant's Deferred Benefit Account shall be credited with additional Units equal in value to any dividends the Participant would have received had the Participant been the owner of shares of the Company's common stock equal to the number of Units in Participant's Account. Any common stock dividends declared and paid throughout the Plan Year shall be converted into Units as of the date the dividends are paid and credited to the Participant's Deferred Benefit Account. Units shall be credited based on the balance of the Deferred Benefit Account on the Determination Date but after the Deferred Benefit Account has been adjusted for any contributions or distributions to be credited or deducted for each such day.
6.3 STATEMENT OF ACCOUNTS. The Company shall submit to each Participant, within 60 days after the close of the Plan Year, a statement in such form as the Committee deems appropriate, setting forth the balance of each Participant's Deferred Benefit Account as of the last day of the preceding Plan Year.
6.4 ADJUSTMENT FOR CHANGES IN CAPITALIZATION. In the event of any change in the number of outstanding shares of the Company's common stock occurring through stock splits, stock dividends, mergers, recapitalizations and the like, the Committee shall make such adjustments in the amounts credited to each Participant's Deferred Benefit
Account as the Committee, in its discretion, may consider appropriate, and all such adjustments shall be conclusive upon all persons.
ARTICLE VII
BENEFITS
7.1 BENEFIT FOR TERMINATION. Subject to paragraph 7.4 below, upon a Participant's termination of Board service for any reason, other than death or Disability, the Participant shall be entitled to a Deferral Benefit equal to the amount of Participant's Deferred Benefit Account determined under paragraphs 6.1 and 6.2 hereof as of the Determination Date coincidental with or immediately following such event.
7.2 DEATH. Upon the death of a Participant, Participant's Beneficiary or Beneficiaries shall be entitled to receive a Deferral Benefit equal to the remaining balance in Participant's Deferred Benefit Account as of the Determination Date next following the date of death. The Deferral Benefit shall be distributed as provided for in paragraph 7.4. The Deferral Benefit provided for in this paragraph 7.2 shall be in lieu of all other benefits under this Plan in the event of a Participant's death.
7.3 DISABILITY. In the event of Disability, the disabled Participant shall be entitled to receive a Deferral Benefit equal to the amount of Participant's Deferred Benefit Account determined under paragraphs 6.1 and 6.2 as of the Determination Date next following such Disability. The Deferral Benefit shall be distributed as provided for in paragraph 7.4.
7.4 FORM OF BENEFIT.
(a) Upon the occurrence of an event described in paragraphs 7.1, 7.2 or 7.3 above, the Company shall distribute to the Participant or Participant's Beneficiary the Deferral Benefit specified in such paragraphs in one of the following forms (the "Benefit Payment" or "Benefit Payments") as elected in the Participation Agreement filed by the Participant:
(1) A single lump sum distribution, or
(2) Annual distributions over a period of 2 to 10 years. The annual distributions shall be calculated by multiplying the amount credited to a Participant's Deferred Benefit Account as of the last business day of December preceding the annual distribution by a fraction, the numerator of which is one, and the denominator of which is the remaining number of annual distributions due the Participant, rounded down to the next whole Unit. Any fractional Units will be carried over to the next distribution date.
(b) In the absence of a Participant's election under subparagraph 7.4(a), benefits shall be distributed in the form specified in subparagraph 7.4(a)(1).
(c) All Benefit distributions made under this paragraph 7.4 shall be made in common stock of the Company plus cash for any fractional Unit at the time of the final distribution.
7.5 WITHHOLDING; PAYROLL TAXES. To the extent required by the law in effect at the time distributions are made, the Company shall withhold from distributions made hereunder any taxes required to be withheld from a Participant's compensation for the federal or any state or local government.
7.6 COMMENCEMENT OF DISTRIBUTIONS. Distributions in the form of a lump sum as specified in subparagraph 7.4(a) (1), shall be made within 30 days following receipt of notice by the Committee of an event that entitles a Participant (or a Beneficiary) to distribution under the Plan. Annual distributions as specified in subparagraph 7.4(a) (2) shall begin within 30 days of the first day of the calendar year following termination. Subsequent annual distributions shall be made within 30 days of the first day of each calendar year as elected by the Participant until the Account Balance is distributed in full.
7.7 CHANGE OF CONTROL. Anything in this Plan to the contrary notwithstanding, upon a Change of Control, the Participant shall be entitled to receive a Deferral Benefit equal to the amount of Participant's Deferred Benefit Account determined under paragraphs 6.1 and 6.2 as of the Determination Date coincidental with or next following such Change of Control. The Deferral Benefit shall be distributed as provided in paragraph 7.4. However, if annual distributions are elected, such distributions shall not exceed 5 years.
ARTICLE VIII
BENEFICIARY DESIGNATION
8.1 BENEFICIARY DESIGNATION. Each Participant shall have the right, at any time, to designate in writing on a form prescribed by the Committee any person or persons as Beneficiary or Beneficiaries (both principal as well as contingent) to whom distribution under the Plan shall be made in the event of Participant's death prior to completion of Benefit Payments due to the Participant under the Plan.
8.2 AMENDMENTS. Any Beneficiary Designation may be changed by a Participant by filing such change with the Committee in writing on a form prescribed by the Committee. The filing of a new Beneficiary Designation form will cancel all Beneficiary Designations previously filed.
8.3 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant, then the Participant's designated Beneficiary shall be deemed to be the person or persons surviving Participant in the first of the following classes in which there is a survivor, share and share alike:
(a) The Participant's surviving Spouse;
(b) The Participant's living children in equal shares, except that if any of the children predecease the Participant but leave issue surviving, then such issue shall take by right of representation the share their parent would have taken if living;
(c) The personal representative (executor or administrator) of Participant's estate.
8.4 EFFECT OF DISTRIBUTION. The distribution to the deemed Beneficiary of the entire amount owed shall completely discharge the Company's obligations under this Plan.
AMENDMENT AND TERMINATION OF PLAN
9.1 AMENDMENT. The Company may amend the Plan at any time in whole or in part; however, no amendment shall decrease or restrict any Deferred Benefit Account except as otherwise provided in the Plan. In the event the Plan is amended, the Participation Agreement shall be subject to the provisions of such amendment as if such amendment were set forth in full therein, without further action or amendment to the Participation Agreement. The Company and each Participant and Beneficiary shall be bound by, and have the benefit of, each and every provision of the Plan, as amended from time to time.
9.2 COMPANY'S RIGHT TO TERMINATE. The Company may terminate the Plan at any time with respect to new elections or existing elections to defer if, in its reasonable business judgment, the continuance of the Plan, the tax, accounting, or other effects thereof, or potential distributions thereunder would not be in the best interests of the Company. The Company may also terminate the Plan in its entirety at any time, and upon any such termination, all Participants under the Plan shall receive a distribution of the balance in their Deferred Benefit Accounts in a lump sum, or over such period of time (not longer than the periods elected by the Participants in their respective Participant Agreements) as may be determined by the Company, taking into account relevant income tax considerations.
ARTICLE X
MISCELLANEOUS
10.1 UNSECURED GENERAL CREDITOR STATUS. Participants and their Beneficiaries shall have no legal or equitable rights, interests or claims in any property or assets of the Company. The Company's obligation under the Plan is and shall be merely an unfunded and unsecured promise of the Company to distribute benefits in the future.
10.2 NONASSIGNABILITY. Neither a Participant nor a Beneficiary nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the benefits, if any, distributable under the Plan, or any part thereof, which are, and all rights to which are, expressly declared to be nonassignable and non-transferable. No part of the benefits distributable shall, prior to actual distribution, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency.
10.3 NOT A CONTRACT OF CONTINUED SERVICE. The terms and conditions of this Plan shall not be deemed to constitute a contract of continued service as a Director of the Company and the Participant (or Participant's Beneficiary) shall have no rights against the Company except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right (i) to be retained in the service of the Company for any specific length of time, (ii) to interfere with the right of the Company to discipline or discharge the Participant at any time, (iii) to hold any particular position or responsibility with the Company, or (iv) to receive any particular Compensation from the Company.
10.4 PROTECTIVE PROVISIONS. Each Participant shall cooperate with the Company by furnishing any and all information requested by the Company in order to facilitate the distribution of benefits under the Plan, and by taking such other actions as reasonably may be requested by the Company.
10.5 INCOMPETENT. If the Committee reasonably determines that any Participant or Beneficiary to whom a benefit is distributable under this Plan is unable to care for his or her affairs because of illness or accident, then any distribution due such Participant or Beneficiary (unless prior claim therefor shall have been made by a duly authorized guardian or other legal representative) may be made, upon appropriate indemnification of the Company, to the person deemed by the Committee to have current responsibility for the handling of the affairs of such Participant or Beneficiary. Any such distribution shall be for the account of the Participant or Beneficiary and shall be a complete discharge of any liability of the Company therefor.
10.6 GOVERNING LAW. The provisions of this Plan shall be governed by and construed according to the laws of the State of Delaware, without regard to the principles of conflicts of law which might otherwise apply.
10.7 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns.
10.8 EFFECTIVE DATE. This Plan shall become effective as of December 11, 2003.
ADOPTED pursuant to resolution of the Board of Directors this 11th day of December, 2003.
SCS TRANSPORTATION, INC.
By /s/ Herbert A. Trucksess, III ----------------------------------------- President By /s/ James J. Bellinghausen ----------------------------------------- Secretary |
EXHIBIT 21
LIST OF SUBSIDIARIES
SCS Transportation, Inc.
Saia Motor Freight Line, Inc.
Clark Bros. Transfer, Inc.
Houma Investments, Inc.
Jevic Transportation, Inc.
Creek Road Properties, Inc.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
SCS Transportation, Inc.:
We consent to the incorporation by reference in this Registration Statement on Form S-8 (No. 333-103661 and 333-100649) of SCS Transportation, Inc. of our report dated January 21, 2004 (except for Note 14, which is as of February 16, 2004) with respect to the consolidated balance sheets of SCS Transportation, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 2003 and 2002, which report appears in the December 31, 2003 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 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 consolidated financials statements other than with respect to such disclosures.
KPMG LLP
Kansas City, Missouri
February 23, 2004
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 31.1
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 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in 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 report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 25, 2004 /s/ Herbert A. Trucksess, III --------------------------------------- Herbert A. Trucksess, III Chairman, President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, James J. Bellinghausen, Vice President of Finance and Chief Financial 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 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in 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 report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 25, 2004 /s/ James J. Bellinghausen --------------------------------------- James J. Bellinghausen Vice President of Finance and Chief Financial Officer |
EXHIBIT 32.1
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, 2003 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. of the Company.
/s/ Herbert A. Trucksess, III --------------------------------------- Herbert A. Trucksess, III Chairman, President and Chief Executive Officer SCS Transportation, Inc. February 25, 2004 |
EXHIBIT 32.2
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, 2003 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. of the Company.
/s/ James J. Bellinghausen --------------------------------------- James J. Bellinghausen Vice President of Finance and Chief Financial Officer SCS Transportation, Inc. February 25, 2004 |