sv1za
As filed with the Securities and Exchange Commission on
May 10, 2010
Registration
No. 333-152504
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
AMENDMENT NO. 8
TO
Form S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Roadrunner Transportation
Systems, Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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4731
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20-2454942
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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4900 S. Pennsylvania Ave.
Cudahy, Wisconsin 53110
(414) 615-1500
(Address, Including Zip Code,
and Telephone Number, Including Area Code,
of Registrants Principal
Executive Offices)
Mark A. DiBlasi
President and Chief Executive Officer
Roadrunner Transportation Systems, Inc.
4900 S. Pennsylvania Ave.
Cudahy, Wisconsin 53110
(414) 615-1500
(Name, Address, Including Zip
Code, and Telephone Number,
Including Area Code, of Agent
for Service)
Copies to:
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Bruce E. Macdonough, Esq.
Brandon F. Lombardi, Esq.
Greenberg Traurig, LLP
2375 East Camelback Road, Suite 700
Phoenix, Arizona 85016
(602) 445-8000
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Jay O. Rothman, Esq.
Jessica Lochmann Allen, Esq.
Foley & Lardner LLP
777 East Wisconsin Ave.
Milwaukee, Wisconsin 53202
(414) 271-2400
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Approximate Date of Commencement
of Proposed Sale to the Public:
As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large Accelerated
Filer o
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Accelerated
Filer o
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Non-Accelerated
Filer þ
(Do not check if a smaller reporting company)
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Smaller Reporting
Company o
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Proposed Maximum Aggregate
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Amount of
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Title of Each Class of Securities to be Registered
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Offering Price(1)
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Registration Fee(2)
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Common Stock, $.01 par value per share, offered by the
registrant
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$
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170,000,000.00
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$
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7,961.00
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Common Stock, $.01 par value per share, offered by the
selling stockholders
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$
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26,000,000.00
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$
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1,213.80
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Total
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$
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196,000,000.00
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$
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9,174.80
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(1)
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Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(o) under the Securities Act of
1933.
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(2)
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Previously paid.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted.
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Subject to Completion, Dated
May 10, 2010
Roadrunner Transportation
Systems, Inc.
10,600,644 Shares of Common
Stock
We are selling 9,000,000 shares of our common stock and the
selling stockholders identified in this prospectus are selling
an aggregate of 1,600,644 shares. We will not receive any
proceeds from the shares of our common stock sold by the selling
stockholders.
Prior to this offering, there has been no public market for our
common stock. We currently expect the initial public offering
price of our common stock will be between $14.00 and $16.00 per
share. Our common stock has been approved for listing on the New
York Stock Exchange under the symbol RRTS.
Investing in our common stock involves risks. See
Risk Factors beginning on page 9 for a
description of various risks you should consider in evaluating
an investment in our common stock.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting
discount(1)
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$
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$
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Proceeds, before expenses, to us
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$
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$
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Proceeds, before expenses, to selling stockholders
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$
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$
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(1)
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For a description of additional
compensation to be paid to Robert W. Baird & Co.
Incorporated and BB&T Capital Markets, please see
Underwriting.
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We have granted the underwriters a
30-day
option to purchase up to an additional 1,590,096 shares of our
common stock to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares of our common
stock to purchasers on or
about
, 2010.
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Baird |
BB&T Capital Markets |
Stifel Nicolaus |
,
2010
Table
of Contents
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page
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1
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9
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F-1
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EX-23.1 |
No dealer, salesperson, or other person is authorized to give
any information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered hereby and only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of the date of
this prospectus.
Through and
including ,
2010 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
Market and
Industry Data and Forecasts
This prospectus includes estimates of market share and industry
data and forecasts that we obtained from industry publications
and surveys. Industry publications and surveys and forecasts
generally state that the information contained therein has been
obtained from sources believed to be reliable, but there can be
no assurance as to the accuracy or completeness of included
information. We have not independently verified any of the data
from third-party sources, nor have we ascertained the underlying
economic assumptions relied upon therein.
Prospectus
Summary
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all the
information that you should consider before investing in our
common stock. You should read this entire prospectus carefully,
including Risk Factors and our financial statements
and related notes.
Unless otherwise stated in this prospectus, the terms
RRTS, we, us, or
our refer to Roadrunner Transportation Systems, Inc.
and its subsidiaries; GTS means Group Transportation
Services Holdings, Inc. and its subsidiaries; and GTS
merger means the merger of GTS with and into a wholly
owned subsidiary of RRTS, which will occur simultaneously with
the consummation of this offering and add third-party logistics
and transportation management solutions to RRTS suite of
services.
Our
Business
We are a leading non-asset based transportation and logistics
services provider offering a full suite of solutions, including
customized and expedited
less-than-truckload,
truckload and intermodal brokerage, and domestic and
international air. Following the GTS merger, third-party
logistics and transportation management solutions will be added
to our services. We utilize a proprietary web-enabled technology
system and a broad third-party network of transportation
providers to serve a diverse customer base in terms of end
market focus and annual freight expenditures. Our third-party
transportation providers consist of individuals or small teams
that own or lease their own
over-the-road
transportation equipment and provide us with dedicated freight
capacity (which we refer to as independent contractors), and
asset-based,
over-the-road
transportation companies that provide us with freight capacity
under non-exclusive contractual arrangements (which we refer to
as purchased power). Across all transportation modes, from
pickup to delivery, we leverage relationships with a diverse
group of over 9,000 third-party carriers to provide scalable
capacity and reliable, customized service to our more than
35,000 customers in North America. Although we service large
national accounts, we primarily focus on small to mid-size
shippers, which we believe represent an expansive and
underserved market. Our customized transportation and logistics
solutions are designed to allow our customers to reduce
operating costs, redirect resources to core competencies,
improve supply chain efficiency, and enhance customer service.
As a
non-asset
based transportation provider, we do not own any tractors or
other power equipment used to transport our customers
freight. As a result, our business model requires minimal
investment in transportation equipment and facilities, thereby
enhancing free cash flow generation and returns on our invested
capital and assets. In 2009, our capital expenditures as a
percentage of revenues were 0.5%, as discussed in
Summary Consolidated Financial and Other
Data. Further, our business model is highly scalable
and flexible, featuring a variable cost structure that helped
contribute to the growth of our operating income and our
improvement from a net loss of approximately $3.8 million in
2008 to net income of approximately $0.2 million in 2009
despite the recent economic downturn.
Less-than-truckload
services involve the transport of consolidated freight of
several shippers to multiple destinations on one vehicle. Based
on our research, we believe that we are the largest non-asset
based provider of
less-than-truckload
services in North America in terms of revenue. Our
less-than-truckload
business generated revenues of $316.1 million for the year
ended December 31, 2009. Within our
less-than-truckload
business, we operate 17 service centers throughout the
United States and complement our service center network
with over 200 delivery agents, which are independent companies
that de-consolidate and deliver a portion of our
less-than-truckload
freight. Our
point-to-point
less-than-truckload
model enables more direct transportation of freight from shipper
to end user than does the traditional hub and spoke model
employed by many other
less-than-truckload
service providers. With fewer handlings, consolidations, and
de-consolidations per
less-than-truckload
shipment, we believe we are positioned to deliver freight more
cost-efficiently, faster, and with fewer damage or lost goods
claims than many of our competitors. We recently completed the
complementary acquisition of certain assets and related
operations of Bullet Freight Systems, Inc., a provider of
non-asset based
less-than-truckload
logistics services with operations in California, Oregon,
Washington, and Illinois. We refer to this acquisition as the
Bullet acquisition. We believe the Bullet acquisition is an
example of our ability to identify, execute, and integrate
acquisition targets that enhance our service capabilities and
financial profile.
Truckload brokerage involves the sale and management of
transportation services related to the transport of a single
shippers freight to a single destination. This includes
locating a qualified truckload carrier that can move the freight
on schedule, negotiating favorable rates for our customers, and
managing the entire shipping process from pickup through
delivery. We are a leading truckload brokerage operation in
North America in terms of revenue. Our truckload brokerage
business generated revenues of $134.8 million for the year
ended December 31, 2009. Within our truckload brokerage
business, we operate nine company dispatch offices and
augment our dispatch office network with an additional 42
brokerage agents, which are exclusive third parties that
originate a portion of our truckload brokerage revenues and
receive a percentage of the net margin generated.
The GTS merger will add third-party logistics and transportation
management solutions to our existing suite of services, which
will allow us to offer our customers a one-stop
transportation and logistics solution, including access to the
most
cost-effective
and
time-sensitive
modes of transportation within our broad network. Third-party
logistics providers, such as GTS, offer customized
transportation management solutions, which include pricing,
contract management, transportation mode and carrier selection,
freight tracking, freight bill payment and audit, cost reporting
and analysis, and dispatch. The U.S. third-party logistics
sector increased from $45.3 billion in 1999 to
$127.0 billion in 2008 (and did not experience a decline in
any year during such period), according to
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Armstrong & Associates, a leading supply chain market
research firm. Although we believe, based on our industry
knowledge, that the U.S. 3PL sector declined in 2009, we also
believe that the market penetration of third-party logistics
will expand in the future. Since February 2008, we and GTS have
been under common control and the management teams of both
companies have developed a strong working relationship and are
implementing a cohesive plan to enhance our collective growth
initiatives. With minimal integration requirements and a similar
focus on small to mid-size shippers, we believe that we are
well-positioned to realize synergies with GTS as a combined
entity.
According to the American Trucking Associations, or the ATA,
beginning in October 2006, the
over-the-road
freight sector experienced
year-over-year
declines in tonnage, primarily reflecting a weakening freight
environment in the U.S. construction, manufacturing, and
retail sectors. During 2009, our
less-than-truckload
tonnage decreased 4.6% from 2008, while
less-than-truckload
tonnage in the
U.S. over-the-road
freight sector declined 23.2% during the same period. Throughout
this downturn, we actively managed our
less-than-truckload
business by adding new customers and streamlining our cost
structure to enhance our operating efficiency and improve
margins. We believe our variable cost, non-asset based operating
model serves as a competitive advantage and allows us to provide
our customers with cost-effective transportation solutions
regardless of broader economic conditions. We believe we are
well-positioned for continued growth, profitability, and market
share expansion as an anticipated rebound occurs in the
over-the-road
freight sector.
Recent
Developments
We are in the process of compiling our results for the first
quarter of 2010, which includes the full quarter impact of our
December 2009 Bullet acquisition described in this prospectus.
We expect to report the following results:
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Quarter Ended March 31,
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2009(1)
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2010(2)
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(in millions)
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Revenues
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$
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104.4
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$
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127.2
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Operating income
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2.1
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6.5
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Net income (loss)
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(0.6
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1.7
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Net income (loss) available to common stockholders
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(1.1
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1.2
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(1)
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Our results for the first quarter
of 2009 do not reflect the impact of the December 2009 Bullet
acquisition.
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(2)
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Our results for the first quarter
of 2010 do not reflect the impact of this offering.
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Our Competitive
Strengths
We consider the following to be our principal competitive
strengths, which collectively helped us improve from a net loss
of approximately $3.8 million in 2008 to net income of
approximately $0.2 million in 2009 notwithstanding an
industry-wide decline in less-than-truckload tonnage from 2008
to 2009 and the related increased pressures on pricing during
that period. Adverse general economic conditions and negative
industry trends required us to close and consolidate several of
our terminals, reduce our hourly and salaried headcount, and
pursue additional less-than-truckload customers to help offset
the adverse impact of the 23.2% decline in less-than-truckload
tonnage in the U.S. over-the-road freight sector from 2008 to
2009 and the adverse impact of the competitive pricing
environment. In addition, we increased our recruitment efforts
to expand our truckload brokerage agent network to help address
the reduction in our truckload brokerage revenues that also
resulted from market tonnage declines and a competitive pricing
environment.
Comprehensive Logistics and Transportation Management
Solutions. Our broad offering of transportation
and logistics services allows us to manage a shippers
freight from dispatch through final delivery utilizing a wide
range of transportation modes. Following the GTS merger, we will
have the ability to provide third-party logistics and
transportation management solutions to shippers seeking to
redirect resources to core competencies, improve service, reduce
costs, and utilize the most appropriate modes of transportation.
We leverage our scalable, proprietary technology systems to
manage our multi-modal nationwide network of service centers,
delivery agents, dispatch offices, brokerage agents, independent
contractors, and purchased power. As a result of our integrated
offering of services and solutions, we believe we have a
competitive advantage in terms of service, delivery time, and
customized solutions. The key attributes of our service
offerings include the following:
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Leading Non-Asset Based, Customized
Less-than-Truckload
Services. Based on our research, we believe we are the
largest non-asset based provider of customized
less-than-truckload
services in North America in terms of revenue. We believe our
point-to-point
less-than-truckload
model allows us to offer faster transit times with lower
incidence of damage, providing us with a distinct competitive
advantage over asset-based
less-than-truckload
carriers employing the traditional hub and spoke model. In
addition, we believe our variable cost structure and the
utilization of our dedicated independent
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contractor base positions us to maintain consistent operating
margins during periods of economic decline or tightening
industry capacity.
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Leading Truckload Freight Brokerage Services. We
are a leading truckload brokerage operation in North America in
terms of revenue, offering temperature-controlled, dry van, and
flatbed services. While we serve a diverse customer base and
provide a comprehensive truckload solution, we specialize in the
transport of refrigerated foods, poultry, and beverages. Similar
to our
less-than-truckload
services, we utilize our network of purchased power and
dedicated independent contractor base in an effort to maintain
consistent operating margins, even during periods of economic
decline.
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Comprehensive Outsourced Transportation Management
Solutions. After giving effect to the GTS merger,
we will offer third-party logistics and transportation
management solutions, which include pricing, contract
management, transportation mode and carrier selection, freight
tracking, freight bill payment and audit, cost reporting and
analysis, and dispatch, resulting in the control of the
transportation of freight and related information through the
most efficient means from
pickup
through delivery. With a flexible operating model, scalable
technology system, and access to a dynamic multi-modal carrier
network, we believe we can tailor our services to each
customers individual needs and desired level of
outsourcing.
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Flexible Operating Model. Because we utilize a
broad network of purchased power, independent contractors, and
other third-party transportation providers to transport our
customers freight, our business is not characterized by
the high level of fixed costs and required concentration on
asset utilization that is common among many asset-based
transportation providers. As a result, we are able to focus
solely on providing quality service and specialized
transportation and logistics solutions to our customers, which
we believe provides a significant competitive advantage. Our
flexibility to scale our independent contractor base to react to
contractions in freight capacity or increases in purchased
transportation costs allows us to maintain attractive margins on
our freight and continue to meet customer demand. Furthermore,
our operating model requires minimal investment in
transportation equipment and facilities, which enhances our
returns on invested capital and assets.
Well-Positioned to Capitalize on Acquisition
Opportunities. The domestic transportation and
logistics industry is large and highly fragmented, thereby
providing significant opportunities to make strategic
acquisitions. Our scalable platform, experienced management
team, and ability to identify, execute, and integrate
acquisitions provide us with a competitive advantage when
seeking potential acquisition candidates. Furthermore, our
ability to leverage our substantial infrastructure and
technology capacity allows us to maximize the benefits of
acquisitions. As a result of our extensive strategic planning
and execution throughout the recent downturn, we are uniquely
positioned to take advantage of continuing consolidation
opportunities given our improved capital position following this
offering. We believe that this offering will also improve our
ability to capitalize on acquisition opportunities by
deleveraging our business and reducing our significant
historical interest expense.
Focus on Serving a Diverse, Underserved Customer
Landscape. We serve over 35,000 customers, with
no single customer accounting for more than 3.0% of our 2009
revenue. In addition, we serve a diverse mix of end markets,
with no industry sector accounting for more than 18.0% of our
2009 revenue. We concentrate primarily on small to mid-size
shippers with annual transportation expenditures of less than
$25 million, which we believe represents an underserved
market. Our services are designed to satisfy these
customers unique needs and desired level of integration.
Furthermore, we believe our target customer base presents
attractive growth opportunities for each of our service
offerings given that many small to mid-size shippers have not
yet capitalized on the benefits of third-party transportation
management.
Scalable Technology Systems. Our web-enabled
technology is designed to serve our customers distinct
logistics needs and provide them with cost-effective solutions
and consistent service on a
shipment-by-shipment
basis. In addition to managing the physical movement of freight,
we offer real-time shipment tracking, order processing, and
automated data exchange. Our technology also enables us to more
efficiently manage our multi-modal capabilities and broad
carrier network, and provides the scalability necessary to
accommodate significant growth.
Experienced and Motivated Management Team. We
have assembled an experienced and motivated management team, led
by our chief executive officer, Mark A. DiBlasi.
Mr. DiBlasi has over 30 years of industry experience
and previously managed a $1.2 billion-revenue division of
FedEx Ground, Inc., a division of FedEx Corporation. Although
our senior management team has limited experience managing a
public company, its members have an average of 25 years of
industry experience leading high-growth logistics operations and
draw on substantial knowledge gained from previous leadership
positions at FedEx Ground, Inc., FedEx Global Logistics, Inc.,
and YRC Worldwide, Inc. Our executives experience is also
expected to help our company address and mitigate negative
industry trends and the various risks inherent in our business,
including significant competition, reliance on independent
contractors, a prolonged economic downturn, the integration of
recently acquired companies, and fluctuations in fuel prices.
Our Growth
Strategies
We believe our business model has positioned us well for
continued growth and profitability, which we intend to pursue
through the following initiatives:
Continue Expanding Customer Base. In 2009, we
expanded our customer base by over 10,000 customers (over 4,000
of which were added through the Bullet acquisition), and we
intend to continue to pursue greater market share in the
less-than-truckload,
3
truckload brokerage, and transportation management solutions
markets. The GTS merger will further expand our customer base,
enhance our geographic coverage, and create a broader menu of
services for existing and future customers. Our expanded reach
and broader service offering will provide us with the ability to
gain new customers seeking a one-stop
transportation and logistics solution. We also expect to expand
our customer base as GTS utilizes our
less-than-truckload
sales force of over 100 people to expand the market reach
of our transportation management solutions offering following
the GTS merger. Based on our research, we also believe the pool
of potential new customers will grow as the benefits of
third-party logistics and transportation management solutions
continue to be embraced by shippers.
Increase Penetration with Existing
Customers. With a more comprehensive service
offering and an expanded network resulting from the Bullet
acquisition and the GTS merger, we believe we will have
substantial cross-selling opportunities and the potential to
capture a greater share of each customers annual
transportation and logistics expenditures. Along with our
planned cross-selling initiatives, we believe that macroeconomic
factors will provide us with additional opportunities to further
penetrate existing customers. During the recent economic
downturn, existing customers generally reduced their number of
shipments and pounds per shipment. We believe an economic
rebound will result in increased revenue through greater
shipment volume, improved load density, and the addition of new
customers, and will allow us to increase profits at a rate
exceeding our revenue growth.
Continue Generating Operating
Improvements. Over the last 18 months, we
have completed a number of operating improvements, such as
headcount reductions, terminal consolidations, and carrier and
delivery agent rate reductions. These improvements streamlined
our cost structure, improved operating efficiency, and enhanced
our margins. In order to continue to capitalize on these
improvements and enhance our competitive position, as well as
accelerate earnings growth, we are implementing additional
initiatives designed to:
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improve routing efficiency and lane density throughout our
network;
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increase utilization of our flexible independent contractor base;
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reduce
per-mile
costs;
|
|
|
n
|
reduce dock handling costs; and
|
|
|
n
|
enhance our real-time metric reporting to further reduce
operating expenses.
|
Pursue Selective Acquisitions. The
transportation and logistics industry is highly fragmented,
consisting of many smaller, regional service providers covering
particular shipping lanes and providing niche services. We built
our
less-than-truckload,
truckload brokerage, and transportation management solutions
(assuming completion of the GTS merger) platforms in part by
successfully completing and integrating a number of accretive
acquisitions. We intend to continue to pursue acquisitions that
will complement our existing suite of services and extend our
geographic reach. With a scalable, non-asset based business
model, we believe we can execute our acquisition strategy with
minimal investment in additional infrastructure and overhead.
Our
History
Our principal strategy has been to evolve into a full-service
transportation and logistics provider under a non-asset based
structure through the acquisition, integration, and internal
growth of complementary businesses. In March 2005, we acquired
Dawes Transport, Inc., which we refer to as Dawes Transport, a
non-asset based
less-than-truckload
provider primarily using a blend of purchased power and
independent contractors. In June 2005, we acquired Roadrunner
Freight Systems, Inc., which we refer to as Roadrunner Freight,
a provider of
less-than-truckload
services.
In January 2006, Mark A. DiBlasi joined us as chief executive
officer to lead the final integration of our two
less-than-truckload
businesses, the expansion of our current management team and the
transformation of our company into a full-service transportation
and logistics provider. In March 2007, we expanded our service
offering through the acquisition of Sargent Transportation
Group, Inc. and related entities, providers of truckload
brokerage services, which we collectively refer to as Sargent.
In December 2009, we acquired certain assets and related
operations of Bullet Freight Systems, Inc. through our wholly
owned subsidiary, Bullet Transportation Services, Inc., which we
refer to as Bullet. Bullet is a non-asset based transportation
and logistics company that provides a variety of services
throughout the United States and into Canada. Bullet provides
less-than-truckload services as well as truckload and intermodal
(transporting a shipment by more than one mode, primary via rail
and truck) brokerage and air freight forwarding. Bullet has
operations in California, Oregon, Washington and Illinois and
utilizes independent contractors and an extensive network of
third-party purchased power providers to deliver its freight.
Bullet provides its services to a broad range of industries and
serves over 4,000 customers, including leading manufacturers,
retailers and wholesalers. The Bullet acquisition increased our
market share across all of our service offerings by providing
greater less-than-truckload coverage throughout North America
and geographically expanding our truckload brokerage operation.
In addition, the integration of shipments from Bullets
customer base into our operations increased the freight density
and balance in our less-than-truckload network. We believe this
additional density and greater balance will result in higher
operating margins and improved levels of customer service
through reduced transit times and fewer claims. The operations
we acquired in the Bullet acquisition had aggregate revenues of
approximately $48 million for the period from January 1,
2009 to the acquisition date of December 11, 2009. The
impact of Bullet on our net income during that period would not
have been material.
4
GTS
Merger
One of our key strategic objectives has been to acquire a
third-party logistics and transportation management solutions
operation with a scalable technology system and management
infrastructure capable of assimilating and enhancing our
collective growth initiatives. To address this objective,
simultaneous with the consummation of this offering, we will
acquire GTS, a provider of third-party logistics and
transportation management solutions based in Hudson, Ohio. With
the addition of GTS service offering, we will be able to
provide shippers with a one-stop transportation and
logistics solution, including access to the most cost-effective
and time-sensitive modes of transportation within our broad
network of third-party carriers. In 2009, GTS had revenues of
approximately $35 million and a net loss of approximately
$0.2 million.
As a result of the GTS merger, the stockholders of GTS will
become stockholders of our company and each share of GTS
outstanding common stock will be exchanged for
141.848 shares of our common stock, or an aggregate of
3,230,324 shares. The GTS merger is conditioned upon the
consummation of this offering, the approval of the GTS merger by
our and GTS creditors, and upon other conditions set forth
in the merger agreement, which is filed as an exhibit to the
registration statement of which this prospectus forms a part.
The GTS merger is more fully described on page 66 of this
prospectus under Certain Relationships and Related
Transactions.
The following chart represents our business segments immediately
following the consummation of the GTS merger.
Risk
Factors
There are a number of risks and uncertainties that may affect
our financial and operating performance. You should carefully
consider the risks discussed in Risk Factors
beginning on page 9 of this prospectus before investing in
our common stock, which include but are not limited to the
following:
|
|
|
|
n
|
the competitive nature of the transportation industry;
|
|
|
n
|
our ability to maintain the level of service that we currently
provide to our customers;
|
|
|
n
|
the ability of our carriers to meet our needs and expectations,
and those of our customers;
|
|
|
n
|
our reliance on independent contractors to provide
transportation services to our customers;
|
|
|
n
|
general economic, political, and other risks that are out of our
control, including any prolonged delay in a recovery of the
U.S. over-the-road
freight sector;
|
|
|
n
|
the limited experience of our senior management in managing a
public company; and
|
|
|
n
|
seasonal fluctuations in our business.
|
Our
Offices
We maintain our principal executive offices at
4900 S. Pennsylvania Ave., Cudahy, Wisconsin 53110.
Our telephone number is
(414) 615-1500.
Our website is located at www.rrts.com. The information
contained on our website or that can be accessed through our
website does not constitute part of this prospectus.
5
The
Offering
Common stock offered:
|
|
|
By us |
|
9,000,000 shares |
|
By the selling stockholders |
|
1,600,644 shares |
|
Total common stock offered |
|
10,600,644 shares |
|
Common stock to be outstanding after this offering |
|
29,535,460 shares |
|
Use of proceeds |
|
We estimate that our net proceeds from this offering will be
$123.5 million, assuming an initial public offering price
of $15.00 per share of common stock, the midpoint of the range
set forth on the cover of this prospectus, and after deducting
the underwriting discounts and estimated offering expenses. We
intend to use all of such net proceeds to reduce outstanding
indebtedness. See Use of Proceeds. We will
not receive any proceeds from sales by the selling stockholders
in this offering. |
|
New York Stock Exchange symbol |
|
RRTS |
As of December 31, 2009, and after giving retroactive
effect to the conversion of each share of our Class A
common stock, Class B common stock and Series B
preferred stock (including accrued but unpaid dividends) into a
single class of new common stock on a 149.314-for-one basis, we
would have had 17,192,595 shares of outstanding common
stock, consisting of the following:
|
|
|
|
n
|
14,827,327 shares issuable upon conversion of our
Class A common stock, 259,806 of which are shares of
redeemable common stock;
|
|
|
n
|
282,502 shares issuable upon conversion of our Class B
common stock; and
|
|
|
n
|
2,082,766 shares issuable upon conversion of our
Series B preferred stock, 290,998 of which are attributable
to the conversion of accrued but unpaid dividends as of
December 31, 2009.
|
The 29,535,460 shares of common stock to be outstanding
after this offering includes the 17,192,595 shares
described in the preceding paragraph, the 9,000,000 shares
to be sold by us in this offering, and the following:
|
|
|
|
n
|
3,230,324 shares of our common stock to be issued in connection
with the GTS merger, which includes 138,809 shares that are
attributable to an acquisition-related increase in outstanding
GTS shares subsequent to December 31, 2009; and
|
|
|
n
|
112,541 shares of our common stock to be issued upon the
offering-related conversion of dividends that accrue on our
Series B preferred stock from December 31, 2009 through an
assumed offering date of May 10, 2010.
|
The 29,535,460 shares of common stock to be outstanding
after this offering excludes the following:
|
|
|
|
n
|
1,542,264 shares of our common stock issuable upon the exercise
of options with a weighted average exercise price of $11.37 per
share;
|
|
|
n
|
516,498 shares of our common stock issuable upon the exercise of
GTS options with a weighted average exercise price of $9.79 per
share, which will be converted into options to purchase shares
of our common stock upon consummation of the GTS merger; and
|
|
|
n
|
4,016,248 shares of our common stock issuable upon the exercise
of warrants with a weighted average exercise price of $11.21 per
share.
|
Unless otherwise noted, all share information in this prospectus
assumes no exercise of the underwriters over-allotment
option and reflects (i) a 149.314-for-one stock split of all
outstanding shares of our Class A common stock,
Class B common stock, and Series B preferred stock
effective May 7, 2010, and (ii) the conversion of all
outstanding shares of our Class A common stock,
Class B common stock, and Series B preferred stock
(including accrued but unpaid dividends) into a single class of
new common stock on a one-for-one basis, which will be effected
in connection with the consummation of this offering, all of
which is generally referred to herein as the conversion.
6
Summary
Consolidated Financial and Other Data
The following table summarizes selected consolidated financial
and other data as of and for the periods indicated. You should
read the following information together with the more detailed
information contained in Capitalization,
Selected Consolidated Financial and Other
Data, Managements Discussion and
Analysis of Financial Condition and Results of
Operations, and the consolidated financial statements
and the related notes included elsewhere in this prospectus.
The consolidated statement of operations data for the years
ended December 31, 2007, 2008, and 2009 and the
consolidated balance sheet data as of December 31, 2009 are
derived from our audited consolidated financial statements
included in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share and per share data)
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Consolidated Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
538,007
|
|
|
$
|
537,378
|
|
|
$
|
450,351
|
|
Operating income
|
|
|
17,934
|
|
|
|
7,280
|
|
|
|
13,202
|
|
Net income (loss)
|
|
|
935
|
|
|
|
(3,834
|
)
|
|
|
167
|
|
Net income (loss) available to common stockholders
|
|
|
935
|
|
|
|
(3,834
|
)
|
|
|
(1,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,113,563
|
|
|
|
15,112,667
|
|
|
|
15,109,830
|
|
Diluted
|
|
|
15,133,571
|
|
|
|
15,112,667
|
|
|
|
15,109,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
(0.25
|
)
|
|
$
|
(0.12
|
)
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
(0.25
|
)
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per
share(a)
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per share (as
adjusted)(b)
|
|
|
|
|
|
|
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (end of period)
|
|
$
|
15,539
|
|
|
$
|
13,467
|
|
|
$
|
19,453
|
|
Capital expenditures
|
|
|
1,867
|
|
|
|
1,098
|
|
|
|
2,246
|
|
Capital expenditures as a percentage of
revenues(c)
|
|
|
0.3
|
%
|
|
|
0.2
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
(In thousands)
|
|
Actual
|
|
|
As
Adjusted(d)
|
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
667
|
|
|
$
|
667
|
|
Total current assets
|
|
|
63,765
|
|
|
|
63,765
|
|
Property and equipment, net
|
|
|
5,292
|
|
|
|
5,292
|
|
Total assets
|
|
|
290,835
|
|
|
|
288,575
|
(e)
|
Total current liabilities
|
|
|
44,312
|
|
|
|
36,912
|
|
Current maturities of long-term debt
|
|
|
7,400
|
|
|
|
|
|
Total debt (including current maturities)
|
|
|
128,060
|
(f)
|
|
|
17,380
|
|
Series A preferred stock subject to mandatory redemption
|
|
|
5,000
|
|
|
|
5,000
|
|
Redeemable common stock
|
|
|
1,740
|
|
|
|
3,897
|
(g)
|
Total stockholders investment
|
|
|
117,201
|
|
|
|
223,464
|
(h)
|
|
|
|
(a)
|
|
Pro forma diluted earnings per
share is computed by dividing net income by the pro forma number
of weighted average shares outstanding used in the calculation
of diluted earnings per share, but after assuming conversion of
our Series B preferred stock (including accrued but unpaid
dividends) into shares of our common stock and the exercise of
any dilutive stock options and warrants.
|
|
(b)
|
|
Pro forma diluted earnings per
share (as adjusted) is computed by dividing net income, adjusted
for the elimination of approximately $10.7 million in
interest expense and the related tax benefit of approximately
$4.1 million, assuming the retirement of approximately
$123.5 million of our outstanding debt (including accrued
interest and prepayment penalties), by the pro forma number of
weighted average shares outstanding used in the calculation of
diluted earnings per share, but after assuming conversion of our
Series B preferred stock (including accrued but unpaid
dividends) into shares of our common stock, the exercise of any
dilutive stock options and warrants, and the issuance of shares
in this offering (all of the proceeds of which issuance will be
used to retire our outstanding indebtedness).
|
|
(c)
|
|
Our management uses capital
expenditures as a percentage of revenues to evaluate our
operating performance and measure the effectiveness of our
non-asset based structure. We believe this financial measure is
useful in evaluating the efficiency of our operating model
compared to other companies in our industry.
|
|
(d)
|
|
The as adjusted column is unaudited
and gives effect to:
|
|
|
|
|
n
|
The conversion of all outstanding
shares of our Series B preferred stock (including accrued
but unpaid dividends) into shares of our common stock on a
149.314-for-one basis upon the completion of this
offering; and
|
7
|
|
|
|
n
|
The sale by us of
9,000,000 shares of our common stock in this offering at an
assumed initial public offering price of $15.00 per share (the
mid-point of the range shown on the cover page of this
prospectus) and the application of the estimated net proceeds of
$123.5 million as set forth in Use of
Proceeds.
|
|
|
|
(e)
|
|
Reflects a
non-cash
write-off of approximately $2.3 million of debt issuance
costs as a result of the retirement of our outstanding debt in
connection with this offering.
|
|
(f)
|
|
The actual total debt amount does
not include (i) approximately $9.8 million of
prepayment penalties we would have incurred as of
December 31, 2009 from the repayment of our junior
subordinated notes in connection with this offering, or
(ii) approximately $3.0 million of unaccreted discount
on our junior subordinated notes.
|
|
(g)
|
|
In connection with this offering,
the approximately $1.7 million carrying value of these
shares will be adjusted to their fair value, using the assumed
public offering price of $15.00 per share.
|
|
(h)
|
|
Reflects a charge of approximately
$15.1 million that would have been incurred as of
December 31, 2009 in connection with the repayment of our
existing indebtedness in connection with this offering,
including (i) approximately $9.8 million of prepayment
penalties, (ii) the payment of approximately
$3.0 million of unaccreted discount on our junior
subordinated notes, and (iii) a
non-cash
write-off of approximately $2.3 million of debt issuance
costs in connection with the repayment of our existing
indebtedness included in total assets.
|
8
Risk
Factors
You should carefully consider the following risks and other
information set forth in this prospectus before deciding to
invest in shares of our common stock. If any of the events or
developments described below actually occurs, our business,
financial condition, and results of operations may suffer. In
that case, the trading price of our common stock may decline and
you could lose all or part of your investment.
Risks Related to
Our Business
We operate in
a highly competitive industry and, if we are unable to
adequately address factors that may adversely affect our revenue
and costs, our business could suffer.
Competition in the transportation services industry is intense.
Increased competition may lead to revenue reductions, reduced
profit margins, or a loss of market share, any one of which
could harm our business. There are many factors that could
impair our ability to maintain our current profitability,
including the following:
|
|
|
|
n
|
competition with other transportation services companies, some
of which have a broader coverage network, a wider range of
services, and greater capital resources than we do;
|
|
|
n
|
reduction by our competitors of their freight rates to gain
business, especially during times of declining growth rates in
the economy, which reductions may limit our ability to maintain
or increase freight rates, maintain our operating margins, or
maintain significant growth in our business;
|
|
|
n
|
solicitation by shippers of bids from multiple carriers for
their shipping needs and the resulting depression of freight
rates or loss of business to competitors;
|
|
|
n
|
development of a technology system similar to ours by a
competitor with sufficient financial resources and comparable
experience in the transportation services industry; and
|
|
|
n
|
establishment by our competitors of cooperative relationships to
increase their ability to address shipper needs.
|
If we are
unable to maintain the level of service we currently provide to
our customers, our reputation may be damaged, resulting in a
loss of business.
We compete with other transportation providers based on
reliability, delivery time, security, visibility, and
personalized service. Our reputation is based on the level of
customer service that we currently provide. If this level of
service deteriorates, or if we are prevented from delivering on
our services in a timely, reliable, safe, and secure manner, our
reputation and business may suffer.
Our
third-party carriers must meet our needs and expectations, and
those of our customers, and their inability to do so could
adversely affect our results of operations.
Our business depends to a large extent on our ability to provide
consistent, high quality, technology-enabled transportation and
logistics solutions. We do not own or control the transportation
assets that deliver our customers freight, and we do not
employ the people directly involved in delivering the freight.
We rely on third parties to provide
less-than-truckload,
truckload and intermodal brokerage, and domestic and
international air services and to report certain information to
us, including information relating to delivery status and
freight claims. This reliance could cause delays in providing
our customers with timely delivery of freight, important service
data, and in the financial reporting of certain events,
including recognizing revenue and recording claims. If we are
unable to secure sufficient transportation services to meet our
customer commitments, or if any of the third parties we rely on
do not meet our needs or expectations, or those of our
customers, our results of operations could be adversely
affected, and our customers could switch to our competitors
temporarily or permanently.
Our reliance
on independent contractors to provide transportation services to
our customers could limit our expansion.
Our transportation services are conducted in part by independent
contractors, who are generally responsible for paying for their
own equipment, fuel, and other operating costs. Our independent
contractors are responsible for providing the tractors and
trailers they use related to our business. Certain factors such
as increases in fuel costs, insurance costs, and the cost of new
and used tractors, or reduced financing sources available to
independent contractors for the purchase of equipment, could
create a difficult operating environment for independent
contractors. Turnover and bankruptcy among independent
contractors in the
over-the-road
freight sector often limits the pool of qualified independent
contractors and increases the competition among carriers for
their services. If we are required to increase the amounts paid
to independent contractors in order to obtain their services,
our results of operations could be adversely affected to the
extent increased expenses are not offset by higher freight
rates. Additionally, our agreements with our independent
contractors are terminable
9
by either party upon short notice and without penalty.
Consequently, we regularly need to recruit qualified independent
contractors to replace those who have left our pool. If we are
unable to retain our existing independent contractors or recruit
new independent contractors, our results of operations and
ability to expand could be adversely affected.
A decrease in
levels of capacity in the
over-the-road
freight sector could have an adverse impact on our
business.
Based on our research, we believe the
over-the-road
freight sector has experienced levels of excess capacity. The
current operating environment in the
over-the-road
freight sector resulting from an economic recession, fluctuating
fuel costs, and other economic factors is beginning to cause a
reduction in capacity in the sector generally, and in our
carrier network specifically, which could have an adverse impact
on our ability to execute our business strategy and on our
business.
If we are
unable to expand the number of our sales representatives and
brokerage agents, or if a significant number of our existing
sales representatives and brokerage agents leave us, our ability
to increase our revenue could be negatively
impacted.
Our ability to expand our business will depend, in part, on our
ability to attract additional sales representatives and
brokerage agents. Competition for qualified sales
representatives and brokerage agents can be intense, and we may
be unable to attract such persons. Any difficulties we
experience in expanding the number of our sales representatives
and brokerage agents could have a negative impact on our ability
to expand our customer base, increase our revenue, and continue
our growth.
In addition, we must retain our current sales representatives
and brokerage agents and properly incentivize them to obtain new
customers and maintain existing customer relationships. If a
significant number of our sales representatives and brokerage
agents leave us, our revenue could be negatively impacted. A
significant increase in the turnover rate among our current
sales representatives and brokerage agents could also increase
our recruiting costs and decrease our operating efficiency.
We may not be
able to successfully execute our acquisition strategy, and any
acquisitions that we undertake could be difficult to integrate,
disrupt our business, dilute stockholder value, and adversely
affect our results of operations.
We plan to increase our revenue and expand our service
offerings in the market regions that we serve through the
acquisition of complementary businesses. In the future, suitable
acquisition candidates may not be available at purchase prices
that are attractive to us. In pursuing acquisition
opportunities, we will compete with other companies, some of
which have greater financial and other resources than we do. We
may not have available funds or common stock with a sufficient
market price to complete a desired acquisition, or acquisition
candidates may not be willing to receive our common stock in
exchange for their businesses. If we are unable to secure
sufficient funding for potential acquisitions, we may not be
able to complete strategic acquisitions that we otherwise find
advantageous. Further, if we make any future acquisitions, we
could incur additional debt or assume contingent liabilities.
Strategic acquisitions involve numerous risks, including the
following:
|
|
|
|
n
|
failure of the acquired company to achieve anticipated revenues,
earnings, or cash flows;
|
|
|
n
|
assumption of liabilities that were not disclosed to us or that
exceed our estimates;
|
|
|
n
|
problems integrating the purchased operations with our own,
which could result in substantial costs and delays or other
operational, technical, or financial problems;
|
|
|
n
|
potential compliance issues with regard to acquired companies
that did not have adequate internal controls;
|
|
|
n
|
diversion of managements attention or other resources from
our existing business;
|
|
|
n
|
risks associated with entering markets in which we have limited
prior experience; and
|
|
|
n
|
potential loss of key employees and customers of the acquired
company.
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The risks
associated with the Bullet acquisition and a failure to
successfully integrate the acquired operations could have an
adverse affect on our business.
A portion of our growth is expected to come from our December
2009 Bullet acquisition. Our ability to successfully integrate
the acquired Bullet operations will depend upon a number of
factors and involve risks, some of which are beyond our control.
Some of these risks include:
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unexpected losses of key Bullet employees and customers;
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difficulties in integrating information technology systems, and
processes and procedures of the acquired operations with those
of our existing operations; and
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challenges in managing the increased lanes and services added by
Bullet.
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One or more
significant claims, our failure to adequately reserve for such
claims, or the cost of maintaining our insurance for such
claims, could have an adverse effect on our results of
operations.
We use the services of thousands of transportation companies and
their drivers in connection with our transportation operations.
From time to time, these drivers are involved in accidents, and
goods carried by these drivers are lost or damaged, and the
carriers may not have adequate insurance coverage. Such
accidents usually result in equipment damage and, unfortunately,
can also result in injuries or death. Although these drivers are
not our employees and all of these drivers are independent
contractors or work for third-party carriers, from time to time
claims may be asserted against us for their actions or for our
actions in retaining them. Claims against us may exceed the
amount of our insurance coverage, or may not be covered by
insurance at all. A material increase in the frequency or
severity of accidents, claims for lost or damaged goods,
liability claims, or workers compensation claims, or
unfavorable resolutions of any such claims, could adversely
affect our results of operations to the extent claims are not
covered by our insurance or such losses exceed our reserves.
Significant increases in insurance costs or the inability to
purchase insurance as a result of these claims could also reduce
our profitability and have an adverse effect on our results of
operations.
A significant
or prolonged economic downturn, particularly the current
downturn in the
over-the-road
freight sector, or a substantial downturn in our customers
business, could adversely affect our revenue and results of
operations.
The
over-the-road
freight sector has historically experienced cyclical
fluctuations in financial results due to, among other things,
economic recession, downturns in business cycles, increasing
costs and taxes, fluctuations in energy prices, price increases
by carriers, changes in regulatory standards, license and
registration fees, interest rate fluctuations, and other
economic factors beyond our control. All of these factors could
increase the operating costs of a vehicle and impact capacity
levels in the
over-the-road
freight sector. Carriers may charge higher prices to cover
higher operating expenses, and our operating income may decrease
if we are unable to pass through to our customers the full
amount of higher purchased transportation costs. Additionally,
economic conditions may adversely affect our customers, their
need for our services, or their ability to pay for our services.
If the current economic downturn causes a reduction in the
volume of freight shipped by our customers, our results of
operations could be adversely affected. During 2009,
less-than-truckload tonnage in the U.S. over-the-road freight
sector decreased 23.2% from 2008.
Fluctuations
in the price or availability of fuel, a prolonged continuation
in the upward trend of fuel prices, and limitations on our
ability to collect
less-than-truckload
fuel surcharges may adversely affect our results of
operations.
We are subject to risks associated with fuel charges from our
independent contractors and purchased power in our
less-than-truckload
and truckload businesses. The tractors operated by our
independent contractors and purchased power require large
amounts of diesel fuel, and the availability and price of diesel
fuel are subject to political, economic, and market factors that
are outside of our control. Since 2007, the weekly per-gallon
price of diesel fuel has ranged from a high of $4.76 in 2008 to
a low of $2.02 in 2009, according to the U.S. Energy
Information Administration. The weekly per-gallon price of
diesel fuel had risen to $2.94 per gallon by the end of
March 2010, reflecting an upward trend from 2009 prices.
Our independent contractors and purchased power pass along the
cost of diesel fuel to us, and we in turn attempt to pass along
some or all of these costs to our customers through fuel
surcharge revenue programs. There can be no assurance that our
fuel surcharge revenue programs will be effective in the future.
Market pressures may limit our ability to assess our fuel
surcharges. At the request of our customers, we have at times
temporarily capped the fuel surcharges at a fixed percentage
pursuant to contractual arrangements that vary by customer.
Currently, less than 1% of our customers have contractual
arrangements with varying levels of capped fuel surcharges. If
fuel surcharge revenue programs, base freight rate increases, or
other cost-recovery mechanisms do not offset our exposure to
fluctuating fuel costs, our results of operations could be
adversely affected.
Our executive
officers and key personnel are important to our business, and
these officers and personnel may not remain with us in the
future.
We depend substantially on the efforts and abilities of our
senior management. Our success will depend, in part, on our
ability to retain our current management and to attract and
retain qualified personnel in the future. Competition for senior
management is intense, and we may not be able to retain our
management team or attract additional qualified personnel. The
loss of a member of senior management would require our
remaining executive officers to divert immediate and substantial
attention to fulfilling the duties of the departing executive
and to seeking a replacement. The inability to adequately fill
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vacancies in our senior executive positions on a timely basis
could negatively affect our ability to implement our business
strategy, which could adversely impact our results of operations.
Seasonal sales
fluctuations and weather conditions could have an adverse impact
on our results of operations.
The transportation industry is subject to seasonal sales
fluctuations as shipments generally are lower during and after
the winter holiday season. The productivity of our carriers
historically decreases during the winter season because
companies have the tendency to reduce their shipments during
that time and inclement weather can impede operations. At the
same time, our operating expenses could increase because harsh
weather can lead to increased accident frequency rates and
increased claims. If we were to experience
lower-than-expected
revenue during any such period, our expenses may not be offset,
which could have an adverse impact on our results of operations.
The cost of
compliance with, liability for violations of, or modifications
to existing or future governmental regulations could adversely
affect our business and results of operations.
Our operations are subject to certain federal, state, and local
regulatory requirements. These regulations and requirements are
subject to change based on new legislation and regulatory
initiatives, which could affect the economics of the
transportation industry by requiring changes in operating
practices or influencing the demand for, and the cost of
providing, transportation services. The U.S. Department of
Transportation, or the DOT, and its agencies, such as the
Federal Motor Carrier Safety Administration, and various state
and local agencies exercise broad powers over our business,
generally governing such activities as engaging in motor carrier
operations, freight forwarding, and freight brokerage
operations, as well as regulating safety. As a motor carrier
authorized by the DOT, we must comply with the safety and
fitness regulations promulgated by the DOT, including those
relating to drug and alcohol testing, driver qualification, and
hours-of service. There also are regulations specifically
relating to the trucking industry, including testing and
specifications of equipment, product handling requirements, and
hazardous material requirements. In addition, we must comply
with certain safety, insurance, and bonding requirements
promulgated by the DOT and various state agencies. Compliance
with existing, new, or more stringent measures could disrupt or
impede the timing of our deliveries and our ability to satisfy
the needs of our customers. In addition, we may experience an
increase in operating costs, such as security costs, as a result
of governmental regulations that have been and will be adopted
in response to terrorist activities and potential terrorist
activities. The cost of compliance with existing or future
measures could adversely affect our results of operations.
Further, we could become subject to liabilities as a result of a
failure to comply with applicable regulations.
Our operations
are subject to various environmental laws and regulations, the
violation of which could result in substantial fines or
penalties.
From time to time, we arrange for the movement of hazardous
materials at the request of our customers. As a result, we are
subject to various environmental laws and regulations relating
to the handling, transport, and disposal of hazardous materials.
If our customers or carriers are involved in an accident
involving hazardous materials, or if we are found to be in
violation of applicable laws or regulations, we could be subject
to substantial fines or penalties, remediation costs, or civil
and criminal liability, any of which could have an adverse
effect on our business and results of operations. In addition,
current and future laws and regulations relating to carbon
emissions and the effects of global warming can be expected to
have a significant impact on the transportation sector generally
and the operations and profitability of some of our carriers in
particular, which could adversely affect our business and
results of operations.
If our
independent contractors are deemed by regulators to be
employees, our business and results of operations could be
adversely affected.
Tax and other regulatory authorities have in the past sought to
assert that independent contractors in the trucking industry are
employees rather than independent contractors. There can be no
assurance that these authorities will not successfully assert
this position or that tax laws and other laws that currently
consider these persons independent contractors will not change.
If our independent contractors are determined to be our
employees, we would incur additional exposure under federal and
state tax, workers compensation, unemployment benefits,
labor, employment, and tort laws, including for prior periods,
as well as potential liability for employee benefits and tax
withholdings. Our business model relies on the fact that our
independent contractors are independent contractors and not
deemed to be our employees, and exposure to any of the above
factors could have an adverse effect on our business and results
of operations.
If, following
the GTS merger, we are unable to maintain and enhance our
proprietary technology systems, demand for our services and our
revenue could decrease.
Our transportation management services business will rely
heavily on our proprietary technology systems to track and store
externally and internally generated market data, analyze the
capabilities of our carrier network, and recommend cost-
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effective carriers in the appropriate transportation mode. To
keep pace with changing technologies and customer demands in the
future, we must correctly interpret and address market trends
and enhance the features and functionality of our proprietary
technology systems in response to these trends. We may be unable
to implement the appropriate features and functionality of our
technology systems in a timely and cost-effective manner, which
could result in decreased demand for our services and a
corresponding decrease in our revenue.
Following the
GTS merger, we may be required to incur substantial expenses and
resources in defending intellectual property litigation against
us.
Following the GTS merger, our use of our proprietary technology
systems could be challenged by claims that such use infringes,
misappropriates, or otherwise violates the intellectual property
rights of third parties. GTS does not currently have any patent
protection with respect to its technology systems and we cannot
be certain that these technologies do not and will not infringe
issued patents or other proprietary rights of others. Any claim,
with or without merit, could result in significant litigation
costs and diversion of resources, and could require us to enter
into royalty and licensing agreements, all of which could have
an adverse effect on our business following the GTS merger. We
may not be able to obtain such licenses on commercially
reasonable terms, or at all, and the terms of any offered
licenses may not be acceptable to us. If forced to cease using
such intellectual property, we may not be able to develop or
obtain alternative technologies. Accordingly, an adverse
determination in a judicial or administrative proceeding or
failure to obtain necessary licenses could prevent us from
offering the affected services to our customers, which could
have an adverse effect on our business and results of operations.
Terrorist
attacks, anti-terrorism measures, and war could have broad
detrimental effects on our business operations.
As a result of the potential for terrorist attacks, federal,
state, and municipal authorities have implemented and continue
to follow various security measures, including checkpoints and
travel restrictions on large trucks. Such measures may reduce
the productivity of our independent contractors or increase the
costs associated with their operations, which we could be forced
to bear. For example, security measures imposed at bridges,
tunnels, border crossings, and other points on key trucking
routes may cause delays and increase the non-driving time of our
independent contractors, which could have an adverse effect on
our results of operations. War, risk of war, or a terrorist
attack also may have an adverse effect on the economy. A decline
in economic activity could adversely affect our revenues or
restrict our future growth. Instability in the financial markets
as a result of terrorism or war also could impact our ability to
raise capital. In addition, the insurance premiums charged for
some or all of the coverage currently maintained by us could
increase dramatically or such coverage could be unavailable in
the future.
Our senior
management has limited experience managing a public company, and
regulatory compliance may divert their attention from the
day-to-day
management of our business.
Our senior management has limited experience managing a publicly
traded company and limited experience complying with the
increasingly complex laws pertaining to public companies.
Obligations associated with being a public company will require
substantial attention from our senior management and partially
divert their attention away from the
day-to-day
management of our business, which could adversely impact our
operations.
We will incur
increased costs as a result of being a public
company.
As a public company, we will incur significant legal,
accounting, and other administrative expenses that we did not
incur as a private company. In addition, the Sarbanes-Oxley Act
of 2002, or Sarbanes-Oxley, as well as rules of the Securities
and Exchange Commission and the New York Stock Exchange, impose
significant corporate governance practices on public companies.
We expect these rules and regulations to increase our legal and
financial compliance costs and to make some activities more time
consuming and costly. In addition, we will incur additional
costs associated with our public company reporting requirements.
We also expect these rules and regulations to make it more
difficult and more expensive for us to obtain director and
officer liability insurance, and we may be required to accept
reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. As a result, it
may be more difficult for us to attract and retain qualified
persons to serve on our board of directors or as executive
officers.
If we fail to
maintain adequate internal control over financial reporting in
accordance with Section 404 of Sarbanes-Oxley, it could
result in inaccurate financial reporting, sanctions, or
securities litigation, or could otherwise harm our
business.
As a public company, we will be required to comply with the
standards adopted by the Public Company Accounting Oversight
Board in compliance with the requirements of Section 404 of
Sarbanes-Oxley regarding internal control over financial
reporting. Prior to becoming a public company, we are not
required to be compliant with the requirements of
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Section 404. The process of becoming compliant with
Section 404 may divert internal resources and will take a
significant amount of time and effort to complete. We may
experience higher than anticipated operating expenses, as well
as increased independent auditor fees during the implementation
of these changes and thereafter. We are required to be fully
compliant under Section 404 by the end of fiscal 2011, and
at that time our management will be required to deliver a report
that assesses the effectiveness of our internal control over
financial reporting, and we will be required to deliver an
attestation report of our auditors on our managements
assessment of our internal controls. Completing documentation of
our internal control system and financial processes, remediation
of control deficiencies, and management testing of internal
controls will require substantial effort by us. We cannot assure
you that we will be able to complete the required management
assessment by our reporting deadline. Failure to implement these
changes in a timely, effective or efficient manner could harm
our operations, financial reporting or financial results, and
could result in our being unable to obtain an unqualified report
on internal controls from our independent auditors.
Our ability to
raise capital in the future may be limited, and our failure to
raise capital when needed could prevent us from achieving our
growth objectives.
We may in the future be required to raise capital through public
or private financing or other arrangements. Such financing may
not be available on acceptable terms, or at all, and our failure
to raise capital when needed could harm our business. Additional
equity financing may dilute the interests of our stockholders,
and debt financing, if available, may involve restrictive
covenants and could reduce our profitability. If we cannot raise
funds on acceptable terms, we may not be able to grow our
business or respond to competitive pressures.
The expected
results from our 2009 Bullet acquisition and the GTS merger may
vary significantly from our expectations.
The expected results from the acquired Bullet operations and
GTS actual 2010 financial results might vary materially
from those anticipated by us and disclosed in this prospectus.
These expectations are inherently subject to uncertainties and
contingencies as well as our assumptions about, among other
things, the integration of the Bullet acquisition, purchased
transportation costs, new customer growth and existing customer
shipping demand, over-the-road freight tonnage levels, the
growth in the third-party logistics sector and overall economic
conditions. These assumptions may be impacted by factors that
are beyond our control. Although we believe that the assumptions
underlying our expectations are reasonable, actual results could
be materially different.
Risks Related to
this Offering
None of the
proceeds from this offering will be available to us in the
operation of our business.
All of the net proceeds we receive from this offering will be
used to reduce our outstanding indebtedness. Accordingly, none
of the proceeds will be available to us for acquisitions,
capital expenditures, working capital, or other general
corporate purposes. We may find it necessary to obtain
additional equity or debt financing as we continue to execute
our business strategy. In the event additional financing is
required, we may not be able to raise it on acceptable terms or
at all.
The market
price for our common stock may be volatile, and you may not be
able to sell our stock at a favorable price or at
all.
Before this offering, there has been no public market for our
common stock. An active public market for our common stock may
not develop or be sustained after this offering. The price of
our common stock in any such market may be higher or lower than
the price you pay in this offering. If you purchase shares of
common stock in this offering, you will pay a price that was not
established in a competitive market. Rather, you will pay the
price that we negotiated with the representatives of the
underwriters. Many factors could cause the market price of our
common stock to rise and fall, including the following:
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the gain or loss of customers;
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introductions of new pricing policies by us or by our
competitors;
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variations in our quarterly results;
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announcements of technological innovations by us or by our
competitors;
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acquisitions or strategic alliances by us or by our competitors;
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recruitment or departure of key personnel;
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changes in the estimates of our operating performance or changes
in recommendations by any securities analysts that follow our
stock; and
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market conditions in our industry, the industries our customers
serve, and the economy as a whole.
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In addition, public announcements by our competitors concerning,
among other things, their performance, accounting practices, or
legal problems could cause the market price of our common stock
to decline regardless of our actual operating performance.
Our current
principal stockholders will continue to have significant
influence over us after this offering, and they could delay,
deter, or prevent a change of control or other business
combination or otherwise cause us to take action with which you
might not agree.
Upon the closing of this offering and the consummation of the
GTS merger, investment funds affiliated with
Thayer | Hidden Creek Partners, L.L.C., which funds
are collectively referred to in this prospectus as
Thayer | Hidden Creek, will together beneficially own
approximately 52% of our outstanding common stock (49.5% if the
underwriters over-allotment option is exercised) and Eos
Partners, L.P. and affiliated investment funds, referred to in
this prospectus as Eos, will together beneficially own
approximately 13% of our outstanding common stock (12.3% if the
underwriters over-allotment option is exercised). In
addition, four of our directors immediately following this
offering will be affiliated with Thayer | Hidden
Creek. As a result, these stockholders will have significant
influence over the election of our board of directors and our
decision to enter into any corporate transaction and may have
the ability to prevent any transaction that requires the
approval of stockholders, regardless of whether or not other
stockholders believe that such a transaction is in their own
best interests. Such concentration of voting power could have
the effect of delaying, deterring, or preventing a change of
control or other business combination that might otherwise be
beneficial to our stockholders or could limit the price that
some investors might be willing to pay in the future for shares
of our common stock. The interests of these stockholders may not
always coincide with our interests as a company or the interests
of our other stockholders. Accordingly, these stockholders could
cause us to enter into transactions or agreements that you would
not approve or make decisions with which you may disagree.
We could be
considered a controlled company within the meaning
of the rules of the New York Stock Exchange.
Upon the closing of this offering and the consummation of the
GTS merger (but assuming no exercise of the underwriters
over-allotment option), Thayer | Hidden Creek will
beneficially own more than 50% of our outstanding common stock.
As a result, we could be considered a controlled
company for purposes of Section 303A of the New York
Stock Exchange Listed Company Manual and we would be exempt from
certain governance requirements otherwise required by the New
York Stock Exchange. Under Section 303A, a company of which
more than 50% of the voting power is held by an individual, a
group, or another company is a controlled company
and is exempt from certain corporate governance requirements,
including, among others, the requirement that a majority of the
board of directors consist of independent directors. Although we
initially expect and intend that a majority of our board of
directors will consist of independent directors, we cannot
provide assurances that we will not rely on the exemption from
this requirement in the future.
The large
number of shares eligible for public sale could depress the
market price for our common stock.
The market price for our common stock could decline as a result
of sales of a large number of shares of our common stock in the
market after this offering, and the perception that these sales
could occur may depress the market price. We will have
outstanding approximately 29.5 million shares of common
stock after this offering. Of these shares, the common stock
sold in this offering will be freely tradable, except for any
shares purchased by our affiliates as defined in
Rule 144 under the Securities Act of 1933, as amended, or
the Securities Act. Substantially all of the remaining
approximately 18.9 million shares of common stock will be
subject to
180-day
lock-up
agreements with the underwriters. After the
180-day
lock-up
period, these shares may be sold in the public market, subject
to prior registration or qualification for an exemption from
registration, including, in the case of shares held by
affiliates, compliance with volume restrictions.
Any time after we are eligible to register our common stock on a
Form S-3
registration statement under the Securities Act or if we propose
to file a registration statement under the Securities Act for
any underwritten sale of shares of any of our equity securities,
certain of our stockholders will be entitled to require us to
register our securities owned by them for public sale. Sales of
common stock as restrictions end or pursuant to registration
rights may make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem
appropriate.
You will incur
immediate and substantial dilution in your investment because
our earlier investors paid substantially less than the initial
public offering price when they purchased their
shares.
If you purchase shares in this offering, you will incur
immediate and substantial dilution in net tangible book value
per share because the price that you pay will be substantially
greater than the net tangible book value per share of the shares
acquired. This dilution arises because our earlier investors
paid substantially less than the initial public offering price
when they purchased their shares of common stock. In addition,
there will be options and warrants to purchase shares of common
stock outstanding upon the completion of this offering that have
exercise prices below the initial public offering price. To the
extent such options or warrants are exercised in the future,
there may be further dilution to new investors.
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Provisions in
our certificate of incorporation, our bylaws, and Delaware law
could make it more difficult for a third party to acquire us,
discourage a takeover, and adversely affect existing
stockholders.
Our certificate of incorporation, our bylaws, and the Delaware
General Corporation Law contain provisions that may make it more
difficult or delay attempts by others to obtain control of our
company, even when these attempts may be in the best interests
of stockholders. These include provisions limiting the
stockholders powers to remove directors or take action by
written consent instead of at a stockholders meeting. Our
certificate of incorporation also authorizes our board of
directors, without stockholder approval, to issue one or more
series of preferred stock, which could have voting and
conversion rights that adversely affect or dilute the voting
power of the holders of common stock. In addition, our
certificate of incorporation provides for our board to be
divided into three classes, serving staggered terms. The
classified board provision could have the effect of discouraging
a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us. Delaware law also imposes
conditions on the voting of control shares and on
certain business combination transactions with interested
stockholders.
These provisions and others that could be adopted in the future
could deter unsolicited takeovers or delay or prevent changes in
our control or management, including transactions in which
stockholders might otherwise receive a premium for their shares
over then current market prices. These provisions may also limit
the ability of stockholders to approve transactions that they
may deem to be in their best interests.
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Special
Note Regarding Forward-Looking Statements
The statements and information contained in this prospectus that
are not purely historical are forward-looking statements.
Forward-looking statements include statements regarding our
expectations, anticipation,
intentions, beliefs, or
strategies regarding the future. Forward-looking
statements also include statements regarding revenue, margins,
expenses, and earnings analysis for 2010 and thereafter;
potential acquisitions or strategic alliances; and liquidity and
anticipated cash needs and availability. All forward-looking
statements included in this prospectus are based on information
available to us as of the date of this prospectus, and we assume
no obligation to update any such forward-looking statements. Our
actual results could differ materially from the forward-looking
statements. Among the factors that could cause actual results to
differ materially are the factors discussed under Risk
Factors, which include, but are not limited to, the
following:
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the competitive nature of the transportation industry;
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our ability to maintain the level of service that we currently
provide to our customers;
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the ability of our carriers to meet our needs and expectations,
and those of our customers;
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our reliance on ICs to provide transportation services to our
customers;
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fluctuations in the levels of capacity in the
over-the-road
freight sector;
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our ability to attract and retain sales representatives and
brokerage agents;
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our ability to successfully execute our acquisition strategy;
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the effects of auto liability, general liability, and
workers compensation claims;
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general economic, political, and other risks that are out of our
control, including any prolonged delay in a recovery of the
U.S. over-the-road
freight sector;
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fluctuations in the price or availability of fuel;
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our reliance on our executive officers and key personnel;
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seasonal fluctuations in our business;
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the costs associated with being a public company and our ability
to comply with the internal controls and financial reporting
obligations of the SEC and Sarbanes-Oxley;
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the effects of governmental and environmental
regulations; and
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our ability to maintain, enhance, or protect our proprietary
technology systems.
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See Risk Factors for a more complete
discussion of these risks and uncertainties and for other risks
and uncertainties. These factors and the other risk factors
described in this prospectus are not necessarily all of the
important factors that could cause actual results to differ
materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors also could
harm our results. Consequently, there can be no assurance that
the actual results or developments anticipated by us will be
realized or, even if substantially realized, that they will have
the expected consequences to, or effects on, us.
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Use
of Proceeds
Assuming an initial public offering price of $15.00 per share,
which is the midpoint of the range indicated on the cover of
this prospectus, we estimate that we will receive net proceeds
of $123.5 million after deducting underwriting discounts
and commissions and estimated offering expenses payable by us. A
$1.00 increase (decrease) in the assumed initial public offering
price of $15.00 per share would increase (decrease) the net
proceeds to us from this offering by approximately
$8.4 million, assuming the number of shares offered by us,
as set forth on the cover page of this prospectus, remains the
same, and after deducting underwriting discounts and estimated
offering expenses payable by us.
We intend to use all of the net proceeds of this offering to
prepay approximately $49.6 million of the outstanding debt
under our credit facility, approximately $42.2 million to
retire our senior subordinated notes and accrued interest, and
approximately $31.7 million to retire our junior
subordinated notes, including prepayment penalties and accrued
interest. In addition, we intend to use approximately
$33.7 million of borrowings under an anticipated new credit
facility, which we anticipate entering into in connection with
the consummation of this offering, together with approximately
$4.1 million of restricted cash, to retire the
approximately $21.4 million remaining balance of existing
indebtedness and an aggregate of approximately
$11.9 million of outstanding debt under GTS credit
facility, to pay approximately $1.0 million of refinancing
fees, and to pay an aggregate of $3.5 million of
transaction fees to terminate management and consulting
agreements with certain affiliates concurrent with this
offering. See Certain Relationships and Related
Transactions.
Our current credit facility includes a $50.0 million
revolving credit facility, a $40.0 million term note, and a
$9.0 million incremental term loan. Our credit facility
matures in 2012. Availability under the revolving credit
facility is subject to a borrowing base of eligible accounts
receivable, as defined in the credit agreement. Interest is
payable quarterly at LIBOR plus an applicable margin or, at our
option, prime plus an applicable margin. At December 31,
2009, the weighted average interest rate on our credit facility
was 5.4%. Principal is payable in quarterly installments ranging
from $1.9 million per quarter in 2010 increasing to
$2.4 million per quarter through December 31, 2011. A
final payment of the outstanding principal balance is due in
2012. The revolving credit facility also provides for the
issuance of up to $6.0 million in letters of credit. As of
December 31, 2009, we had outstanding letters of credit
totaling approximately $4.4 million. As of
December 31, 2009, approximately $34.5 million was
outstanding under the term loans and $35.7 million was
outstanding under the revolving credit facility.
Our senior subordinated notes were issued in an aggregate
principal amount at maturity of approximately $36.4 million
and will mature on August 31, 2012. Each senior
subordinated note includes cash interest of 12% plus a deferred
margin, payable quarterly, that is treated as deferred interest
and is added to the principal balance of the note each quarter.
The deferred interest ranges from 3.5% to 7.5% depending on our
total leverage calculation, payable at maturity in 2012. As of
December 31, 2009, there was $41.1 million in
aggregate principal amount of senior subordinated notes
outstanding.
Our junior subordinated notes were issued in an aggregate face
amount of $19.5 million and will mature February 28,
2013. Our junior subordinated notes include interest of 20%
accrued quarterly that is deferred and is added to the principal
balance of the note each quarter and is payable at maturity on
February 28, 2013. In addition, the junior subordinated
notes agreement requires us to pay a premium upon repayment of
the junior subordinated notes. The applicable premium is based
on the timing of the repayment and begins at 50% of the
aggregate principal amount and decreases to 10% over the life of
the note. Assuming an offering date of May 10, 2010, we
anticipate the prepayment penalty will be approximately
$10.6 million and that accrued and unpaid interest will
total approximately $1.6 million. As of December 31,
2009, there was $16.8 million in aggregate principal amount
of junior subordinated notes outstanding, net of an unaccreted
discount of $3.0 million.
GTS credit facility consists of a term loan facility of
$10.3 million, of which approximately $9.9 million was
outstanding as of December 31, 2009, and a five-year
revolving credit facility of up to $4.0 million, of which
approximately $1.0 million was outstanding as of
December 31, 2009. As of December 31, 2009, the
weighted average interest rate on GTS credit facility was
4.1%.
We will not receive any of the net proceeds from the sale of
shares of common stock by the selling stockholders, which are
estimated to be approximately $22.3 million. See
Principal and Selling Stockholders.
Dividend
Policy
Historically, we have not paid dividends on our common stock,
and we currently do not intend to pay any dividends on our
common stock after the completion of this offering. We currently
plan to retain any earnings to finance the growth of our
business rather than to pay cash dividends. Payments of any cash
dividends in the future will depend on our financial condition,
results of operations, and capital requirements as well as other
factors deemed relevant by our board of directors. Our current
debt agreements prohibit us from paying dividends without the
consent of our lenders.
18
Capitalization
The following table sets forth our capitalization as of
December 31, 2009:
|
|
|
|
n
|
on an actual basis, taking into account the 149.314-for-one
stock split of all of our outstanding shares of Class A
common stock, Class B common stock, and Series B
preferred stock;
|
|
|
|
|
n
|
as adjusted to reflect the sale of 9,000,000 shares of
common stock offered by us at an assumed public offering price
of $15.00 per share, which is the midpoint of the range
indicated on the cover of this prospectus, the deduction of
underwriting discounts and estimated offering expenses, the
application of the net proceeds we will receive from the
offering in the manner described in Use of
Proceeds; and the conversion of our Class A
common stock, Class B common stock and Series B
preferred stock (including accrued but unpaid dividends) into a
single class of newly authorized common stock; and
|
|
|
|
|
n
|
as further adjusted to reflect the GTS merger that will occur
simultaneous with the consummation of this offering.
|
See Prospectus Summary The
Offering for information relating to the expected
number of shares to be outstanding after this offering, which
assumes an offering date of May 10, 2010 and reflects
(i) an additional 138,809 shares that are attributable
to an acquisition-related increase in outstanding GTS shares
subsequent to December 31, 2009, and (ii) an
additional 112,541 shares that are attributable to the
offering-related conversion of dividends that accrue on our
Series B preferred stock subsequent to December 31,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
As Adjusted for
|
|
(In thousands, except share data)
|
|
|
|
|
|
|
|
Offering and
|
|
|
|
Actual
|
|
|
Offering
|
|
|
GTS
Merger(a)
|
|
|
Cash and cash equivalents
|
|
$
|
667
|
|
|
$
|
667
|
|
|
$
|
2,176
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
$
|
4,066
|
(c)
|
|
$
|
4,066
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facility
|
|
$
|
70,160
|
|
|
$
|
17,380
|
|
|
$
|
|
|
Senior subordinated notes
|
|
|
41,134
|
|
|
|
|
|
|
|
|
|
Junior subordinated notes
|
|
|
16,766
|
(d)
|
|
|
|
|
|
|
|
|
New credit facility
|
|
|
|
|
|
|
|
|
|
|
28,689
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
128,060
|
|
|
|
17,380
|
|
|
|
28,689
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock subject to mandatory redemption,
$.01 par value; 5,000 shares authorized;
5,000 shares issued and outstanding, actual and as adjusted
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable common
stock(f):
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, $.01 par value;
259,806 shares issued and outstanding, actual; no shares
issued and outstanding, as adjusted
|
|
|
1,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newly issued common stock, $.01 par value; no shares issued
and outstanding, actual; 259,806 shares issued and
outstanding, as adjusted
|
|
|
|
|
|
|
3,897
|
|
|
|
3,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
investment(g):
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B convertible preferred stock, $.01 par value;
1,791,768 shares issued and outstanding, actual; no shares
issued and outstanding, as
adjusted(h)
|
|
|
13,950
|
|
|
|
|
|
|
|
|
|
Class A common stock, $.01 par value;
14,567,521 shares issued and outstanding, actual; no shares
issued and outstanding, as adjusted
|
|
|
147
|
|
|
|
|
|
|
|
|
|
Class B common stock, $.01 par value;
298,628 shares authorized; 282,502 shares issued and
outstanding, actual; no shares issued and outstanding, as
adjusted
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Newly issued common stock, $.01 par value;
100,000,000 shares authorized; no shares issued and
outstanding, actual; 25,932,789 shares issued and
outstanding, as adjusted for the offering;
29,024,304 shares issued and outstanding, as adjusted for
the offering and GTS merger
|
|
|
|
|
|
|
259
|
|
|
|
290
|
(i)
|
Additional paid-in capital
|
|
|
103,698
|
|
|
|
238,882
|
(j)
|
|
|
257,487
|
(k)
|
Retained deficit
|
|
|
(597
|
)
|
|
|
(15,677
|
)(l)
|
|
|
(15,560
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders investment
|
|
|
117,201
|
|
|
|
223,464
|
|
|
|
242,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
252,001
|
|
|
$
|
249,741
|
|
|
$
|
279,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The GTS merger is conditioned upon
the completion of this offering.
|
|
(b)
|
|
Reflects the addition of
$1.5 million of cash and cash equivalents held by GTS as of
December 31, 2009.
|
|
(c)
|
|
See Note 1 of the notes to our
consolidated financial statements included elsewhere in this
prospectus. We intend to use this restricted cash, which is
reflected in other noncurrent assets in our consolidated balance
sheet, together with borrowings under our anticipated new credit
facility, to pay $3.5 million of transaction fees, to pay
approximately $1.0 million of refinancing fees, and to
retire the remaining balance of our outstanding debt and all of
GTS outstanding debt.
|
19
|
|
|
(d)
|
|
We would have been required to pay
approximately $29.6 million to retire our junior
subordinated notes as of December 31, 2009. The $16.8
million amount shown does not reflect an unaccreted discount of
approximately $3.0 million or prepayment penalties of
approximately $9.8 million. Assuming an offering date of
May 10, 2010, we expect to use approximately
$31.7 million of the net proceeds to retire our junior
subordinated notes, which amount includes accrued interest
subsequent to December 31, 2009.
|
|
(e)
|
|
Reflects the remaining
$17.4 million balance of our outstanding debt following
application of the net proceeds of this offering, plus (i)
approximately $10.9 million, inclusive of accrued and
unpaid interest, outstanding under the GTS credit facility as of
December 31, 2009, (ii) $3.5 million of transaction
fees payable in connection with this offering, and (iii)
$1.0 million of financing fees, partially offset by the
application of $4.1 million of restricted cash. The
aggregate net amount of $28.7 million will be retired with
borrowings under our anticipated new credit facility.
|
|
(f)
|
|
As indicated in the notes to our
consolidated financial statements, certain of our shares of
Class A common stock have been classified as redeemable
because they must be redeemed if certain employees
employment with us is terminated due to death or disability.
These contractual redemption requirements will continue to be
applicable to all of the shares of our newly authorized common
stock issued upon the automatic conversion of the redeemable
Class A common stock in connection with this offering. In
connection with this offering, the approximately
$1.7 million carrying value of these shares will be
adjusted to their fair value, using the assumed public offering
price of $15.00 per share.
|
|
(g)
|
|
Excludes
(i) 2,058,762 shares issuable upon exercise of options
outstanding at December 31, 2009 with a weighted average
exercise price of $10.98 per share (includes GTS options to be
converted into options to acquire shares of our common stock in
connection with the GTS merger), and
(ii) 4,016,248 shares issuable upon exercise of
warrants outstanding at December 31, 2009 with a weighted
average exercise price of $11.21 per share.
|
|
(h)
|
|
The 1,791,768 shares shown as
outstanding at December 31, 2009 does not include
290,998 shares issuable upon conversion of Series B
preferred stock accrued dividends as of December 31, 2009.
|
|
(i)
|
|
Reflects the issuance of
3,091,515 shares of our newly authorized common stock
pursuant to the GTS merger based on the outstanding shares of
GTS common stock as of December 31, 2009. In connection
with an acquisition by GTS subsequent to December 31, 2009,
GTS outstanding shares increased. Accordingly, we will
issue an additional 138,809 shares, for an aggregate of
3,230,324 shares, of our common stock pursuant to the
GTS merger.
|
|
|
|
(j)
|
|
Reflects the addition of the
$123.5 million of estimated net proceeds from our sale of
9,000,000 shares in this offering, plus $14.1 million
attributable to the conversion of our Class A common stock,
Class B common stock, and Series B preferred stock
into shares of our newly authorized common stock in connection
with this offering, partially offset by the approximately
$2.2 million adjustment of the carrying value of our
redeemable common stock from approximately $1.7 million to
approximately $3.9 million as described in
footnote (f) and the $0.3 million par value of the
shares issued in this offering and upon conversion of our
currently outstanding securities.
|
|
|
|
(k)
|
|
Reflects the net addition of
approximately $22.1 million attributable to the GTS merger,
partially offset by the $3.5 million of transaction fees to
be paid to certain affiliates to terminate certain management
and consulting agreements in connection with this offering.
|
|
(l)
|
|
Reflects a charge of approximately
$15.1 million that would have been incurred as of
December 31, 2009 in connection with the repayment of our
existing indebtedness in connection with this offering,
including (i) approximately $9.8 million of prepayment
penalties, (ii) the payment of approximately
$3.0 million of unaccreted discount on our junior
subordinated notes, and (iii) a
non-cash
write-off of approximately $2.3 million of debt issuance
costs in connection with repayment of our existing indebtedness.
|
|
(m)
|
|
Reflects the addition of
approximately $0.3 million attributable to GTS retained
earnings, partially offset by a non-cash write-off of
approximately $0.2 million of debt issuance costs in
connection with the repayment of GTS debt in connection with
this offering.
|
Please read the capitalization table together with the sections
of this prospectus entitled Selected Consolidated
Financial and Other Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and our financial
statements and related notes included elsewhere in this
prospectus.
20
Dilution
At December 31, 2009, our net tangible book deficit (our
total assets reduced by approximately $210.8 million of
goodwill, $1.4 million of other intangible assets, and all
liabilities) was approximately $93.3 million, or $5.43 per
share. At December 31, 2009, GTS had a net tangible book
deficit of approximately $15.5 million. Our pro forma net
tangible book deficit as of December 31, 2009 was
approximately $108.8 million, or $5.37 per share. Pro forma
net tangible book deficit per share represents the amount of our
total tangible assets less total liabilities, after giving
effect to the GTS merger, divided by the pro forma aggregate
number of shares of our common stock outstanding. Pro forma
outstanding shares of common stock as of December 31, 2009
gives retroactive effect to (1) the proposed modification
of our capital structure in connection with this offering to,
among other things, convert our Class A common stock,
Class B common stock, and Series B preferred stock
(including accrued but unpaid dividends) into a single class of
new common stock on a
149.314-for-one
basis; and (2) the GTS merger.
Dilution in net tangible book deficit per share represents the
difference between the amount per share paid by purchasers of
shares of our common stock in this offering and the pro forma
net tangible book value per share of our common stock
immediately after completion of this offering. After giving
effect to our sale of 9,000,000 shares at an assumed
initial public offering price of $15.00 per share, and after
deducting estimated underwriting discounts and our estimated
offering expenses, our adjusted pro forma net tangible book
deficit at December 31, 2009 would have been approximately
$0.4 million, or $0.01 per share. This represents an
immediate increase in net tangible book value of $5.36 per share
to existing stockholders and an immediate dilution in net
tangible book value of $15.01 per share to purchasers of shares
in this offering. The following table illustrates this per share
dilution:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
15.00
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book deficit per share as of
December 31, 2009
|
|
$
|
(5.37
|
)
|
|
|
|
|
Increase per share attributable to new investors
|
|
|
5.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted pro forma net tangible book value per share after the
offering
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$
|
15.01
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes on a pro forma basis as of
December 31, 2009, the differences between the number of
shares purchased from us, the total consideration paid to us,
and the average price per share paid by existing stockholders
and by the new investors at an assumed initial public offering
price of $15.00 per share, before deducting the estimated
underwriting discounts and estimated expenses of this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share data)
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Per Share
|
|
|
Existing
stockholders(1)
|
|
|
18,683,466
|
|
|
|
63.8
|
%
|
|
$
|
124,270
|
|
|
|
43.9
|
%
|
|
$
|
6.65
|
|
New investors
|
|
|
10,600,644
|
|
|
|
36.2
|
%
|
|
|
159,010
|
|
|
|
56.1
|
%
|
|
$
|
15.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
29,284,110
|
|
|
|
100.0
|
%
|
|
$
|
283,279
|
|
|
|
100.0
|
%
|
|
$
|
9.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents the shares of our common
stock held by our stockholders and to be held by GTS
stockholders upon completion of the GTS merger, reduced by the
number of shares to be sold by selling stockholders in this
offering.
|
If the underwriters over-allotment option is exercised in
full, the number of shares held by new investors will increase
to 12,190,740 shares, or 39.2% of the total number of
shares of common stock to be outstanding after this offering.
The discussion and tables above exclude the following:
|
|
|
|
n
|
138,809 shares of our common stock that we will issue in
connection with the GTS merger attributable to an
acquisition-related
increase in GTS outstanding shares subsequent to
December 31, 2009;
|
|
|
n
|
112,541 shares to be issued upon the
offering-related
conversion of dividends that accrue on our Series B
preferred stock from December 31, 2009 through an assumed
offering date of May 10, 2010;
|
|
|
n
|
1,542,264 shares of our common stock issuable upon the exercise
of options with a weighted average exercise price of $11.37 per
share;
|
|
|
n
|
516,498 shares of our common stock issuable upon the exercise of
GTS options with a weighted average exercise price of $9.79 per
share, which will be converted into options to purchase shares
of our common stock upon consummation of the GTS merger; and
|
|
|
n
|
4,016,248 shares of our common stock issuable upon the exercise
of warrants with a weighted average exercise price of $11.21 per
share.
|
The issuance of such shares of common stock will result in
further dilution to new investors.
21
Selected Consolidated Financial and Other Data
The following table sets forth selected consolidated financial
and other data as of and for the periods indicated. You should
read the following information together with the more detailed
information contained in Managements Discussion
and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements
and the related notes included elsewhere in this prospectus. The
consolidated statements of operations for the years ended
December 31, 2007, 2008, and 2009, and the consolidated
balance sheet data as of December 31, 2008 and 2009, are
derived from our audited consolidated financial statements
included in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feb. 22, 2005-
|
|
|
Years Ended December 31,
|
|
|
|
Dec. 31,
2005(a)
|
|
|
2006(b)
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
250,950
|
|
|
$
|
399,441
|
|
|
$
|
538,007
|
|
|
$
|
537,378
|
|
|
$
|
450,351
|
|
Purchased transportation costs
|
|
|
180,920
|
|
|
|
302,296
|
|
|
|
425,568
|
|
|
|
432,139
|
|
|
|
354,069
|
|
Personnel and related benefits
|
|
|
33,138
|
|
|
|
49,716
|
|
|
|
55,354
|
|
|
|
55,000
|
|
|
|
48,255
|
|
Other operating expenses
|
|
|
22,280
|
|
|
|
33,033
|
|
|
|
37,311
|
|
|
|
37,539
|
|
|
|
32,079
|
|
Depreciation and amortization
|
|
|
556
|
|
|
|
1,072
|
|
|
|
1,840
|
|
|
|
2,004
|
|
|
|
2,372
|
|
Acquisition transaction expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
374
|
|
Restructuring and IPO expenses
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
13,410
|
|
|
|
13,324
|
|
|
|
17,934
|
|
|
|
7,280
|
|
|
|
13,202
|
|
Interest expense on long-term debt
|
|
|
7,529
|
|
|
|
11,457
|
|
|
|
13,937
|
|
|
|
12,352
|
|
|
|
12,531
|
|
Dividends on preferred stock subject to mandatory redemption
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
200
|
|
|
|
200
|
|
Loss on early extinguishment of debt
|
|
|
3,239
|
|
|
|
|
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for (benefit from) income taxes
|
|
|
2,642
|
|
|
|
1,867
|
|
|
|
2,229
|
|
|
|
(5,272
|
)
|
|
|
471
|
|
Provision for (benefit from) income taxes
|
|
|
1,190
|
|
|
|
1,184
|
|
|
|
1,294
|
|
|
|
(1,438
|
)
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,452
|
|
|
|
683
|
|
|
|
935
|
|
|
|
(3,834
|
)
|
|
|
167
|
|
Accretion of Series B preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
1,452
|
|
|
$
|
683
|
|
|
$
|
935
|
|
|
$
|
(3,834
|
)
|
|
$
|
(1,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,589,410
|
|
|
|
13,204,882
|
|
|
|
15,113,563
|
|
|
|
15,112,667
|
|
|
|
15,109,830
|
|
Diluted
|
|
|
12,589,410
|
|
|
|
13,204,882
|
|
|
|
15,133,571
|
|
|
|
15,112,667
|
|
|
|
15,109,830
|
|
Earnings (loss) per share available to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|
|
$
|
(0.25
|
)
|
|
$
|
(0.12
|
)
|
Diluted
|
|
|
0.12
|
|
|
|
0.05
|
|
|
|
0.06
|
|
|
|
(0.25
|
)
|
|
|
(0.12
|
)
|
Pro forma diluted earnings per
share(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
Pro forma diluted earnings per share (as
adjusted)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.26
|
|
Consolidated Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
206,066
|
|
|
$
|
259,711
|
|
|
$
|
255,880
|
|
|
$
|
255,881
|
|
|
$
|
290,835
|
|
Total debt (including current maturities)
|
|
|
93,122
|
|
|
|
116,306
|
|
|
|
102,420
|
|
|
|
98,854
|
|
|
|
128,060
|
(e)
|
Series A preferred stock subject to mandatory redemption
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Redeemable common stock
|
|
|
2,150
|
|
|
|
1,865
|
|
|
|
1,765
|
|
|
|
1,740
|
|
|
|
1,740
|
|
Total stockholders investment
|
|
|
84,036
|
|
|
|
102,317
|
|
|
|
103,870
|
|
|
|
112,724
|
|
|
|
117,201
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(e)
|
|
$
|
10,727
|
|
|
$
|
14,396
|
|
|
$
|
18,166
|
|
|
$
|
9,284
|
|
|
$
|
15,574
|
|
Capital expenditures
|
|
|
1,531
|
|
|
|
1,052
|
|
|
|
1,867
|
|
|
|
1,098
|
|
|
|
2,246
|
|
Working capital (end of period)
|
|
|
7,171
|
|
|
|
19,946
|
|
|
|
15,539
|
|
|
|
13,467
|
|
|
|
19,453
|
|
Net cash provided by (used in) operating activities
|
|
|
9,119
|
|
|
|
9,516
|
|
|
|
12,470
|
|
|
|
(116
|
)
|
|
|
(56
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(179,638
|
)
|
|
|
(41,857
|
)
|
|
|
(3,187
|
)
|
|
|
(6,534
|
)
|
|
|
(25,418
|
)
|
Net cash provided by (used in) financing activities
|
|
|
171,627
|
|
|
|
34,285
|
|
|
|
(11,535
|
)
|
|
|
6,346
|
|
|
|
25,645
|
|
|
|
|
(a)
|
|
We were formed on February 22,
2005 and acquired all outstanding shares of Dawes Transport at
the close of business on March 31, 2005. All outstanding
shares of Roadrunner Freight were acquired at the close of
business on April 29, 2005 by our controlling stockholder
through Thayer LTL Holding Corp., referred to as THC. On
June 3, 2005, THC was merged into our company. As such,
because we were under common control with Roadrunner Freight as
of April 29, 2005, the consolidated statement of
operations, consolidated balance sheet, and other data for the
periods presented include the results of Roadrunner Freight
subsequent to the close of business on April 29, 2005.
|
|
(b)
|
|
On October 4, 2006, our
controlling stockholder, through Sargent Transportation Group,
Inc., referred to as STG, acquired all of the outstanding
capital stock of a group of companies collectively referred to
as Sargent. On March 14, 2007, STG was merged into our
company. As such, because we were under common control with
Sargent as of October 4, 2006, the consolidated statements
of operations, consolidated balance sheet, and other data for
the periods presented include the results of Sargent from
October 4, 2006.
|
|
(c)
|
|
Pro forma diluted earnings per
share is computed by dividing net income by the pro forma number
of weighted average shares outstanding used in the calculation
of diluted earnings per share, but after assuming conversion of
our Series B preferred stock (including accrued but unpaid
dividends) into shares of our common stock and exercise of any
dilutive stock options and warrants.
|
|
(d)
|
|
Pro forma diluted earnings per
share (as adjusted) is computed by dividing net income, adjusted
for the elimination of approximately $10.7 million in
interest expense and the related tax benefit of approximately
$4.1 million, assuming the retirement of approximately
$123.5 million of our outstanding debt (including accrued
interest and prepayment penalties), by the pro forma number of
weighted average shares outstanding used in the calculation of
diluted earnings per share, but after assuming conversion of our
Series B preferred stock (including accrued but unpaid
dividends) into shares of our
|
22
|
|
|
|
|
common stock, the exercise of any
dilutive stock options and warrants, and the issuance of shares
in this offering (all of the proceeds of which issuance will be
used to retire our outstanding indebtedness).
|
|
(e)
|
|
The total debt amount does not
include (i) approximately $9.8 million of prepayment
penalties we would have incurred as of December 31, 2009
from the repayment of our junior subordinated notes in
connection with this offering, or (ii) approximately
$3.0 million of unaccreted discount on our junior
subordinated notes.
|
|
(f)
|
|
EBITDA represents earnings before
interest, taxes, depreciation, and amortization. Our management
uses EBITDA as a supplemental measure in evaluating our
operating performance and when determining executive incentive
compensation. Our management believes that EBITDA is useful to
investors in evaluating our operating performance compared to
other companies in our industry because it assists in analyzing
and benchmarking the performance and value of our business. The
calculation of EBITDA eliminates the effects of financing,
income taxes, and the accounting effects of capital spending.
These items may vary for different companies for reasons
unrelated to the overall operating performance of a
companys business. EBITDA is not a financial measure
presented in accordance with U.S. generally accepted accounting
principles, or GAAP. Although our management uses EBITDA as a
financial measure to assess the performance of our business
compared to that of others in our industry, EBITDA has
limitations as an analytical tool, and you should not consider
it in isolation, or as a substitute for analysis of our results
as reported under GAAP. Some of these limitations are:
|
|
|
|
|
n
|
EBITDA does not reflect our cash expenditures, future
requirements for capital expenditures, or contractual
commitments;
|
|
|
n
|
EBITDA does not reflect changes in, or cash requirements for,
our working capital needs;
|
|
|
n
|
EBITDA does not reflect the significant interest expense or the
cash requirements necessary to service interest or principal
payments on our debts;
|
|
|
n
|
although depreciation and amortization are noncash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and EBITDA does not reflect any cash
requirements for such replacements; and
|
|
|
n
|
other companies in our industry may calculate EBITDA differently
than we do, limiting its usefulness as a comparative measure.
|
Because of these limitations, EBITDA should not be considered a
measure of discretionary cash available to us to invest in the
growth of our business. We compensate for these limitations by
relying primarily on our GAAP results and using EBITDA only
supplementally. See the consolidated statements of cash flows
included in our consolidated financial statements included
elsewhere in this prospectus. The following is a reconciliation
of EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feb. 22, 2005-
|
|
|
Years Ended December 31,
|
|
|
|
Dec. 31, 2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Net income (loss)
|
|
$
|
1,452
|
|
|
$
|
683
|
|
|
$
|
935
|
|
|
$
|
(3,834
|
)
|
|
$
|
167
|
|
Plus: Provision (benefit) for income taxes
|
|
|
1,190
|
|
|
|
1,184
|
|
|
|
1,294
|
|
|
|
(1,438
|
)
|
|
|
304
|
|
Plus: Total interest expense
|
|
|
7,529
|
|
|
|
11,457
|
|
|
|
14,097
|
|
|
|
12,552
|
|
|
|
12,731
|
|
Plus: Depreciation and amortization
|
|
|
556
|
|
|
|
1,072
|
|
|
|
1,840
|
|
|
|
2,004
|
|
|
|
2,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
10,727
|
|
|
$
|
14,396
|
|
|
$
|
18,166
|
|
|
$
|
9,284
|
|
|
$
|
15,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following expenses have not been added to net income (loss)
in the calculation of EBITDA above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feb. 22, 2005-
|
|
|
Years Ended December 31,
|
|
|
|
Dec. 31, 2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Loss on early extinguishment of debt
|
|
$
|
3,239
|
|
|
$
|
|
|
|
$
|
1,608
|
|
|
$
|
|
|
|
$
|
|
|
Restructuring and IPO expenses
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
3,416
|
|
|
|
|
|
Acquisition transaction expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
374
|
|
23
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
You should read the following discussion and analysis in
conjunction with the information set forth under Selected
Consolidated Financial and Other Data and our consolidated
financial statements and the notes to those statements included
elsewhere in this prospectus. The statements in this discussion
regarding industry outlook, our expectations regarding our
future performance, liquidity and capital resources, and other
non-historical statements in this discussion are forward-looking
statements. See Special Note Regarding Forward-Looking
Statements. These forward-looking statements are subject
to numerous risks and uncertainties, including, but not limited
to, the risks and uncertainties described under Risk
Factors. Our actual results may differ materially from
those contained in or implied by any forward-looking
statements.
Company
Overview
We are a leading non-asset based transportation and logistics
services provider offering a full suite of solutions, including
customized and expedited
less-than-truckload
(LTL), truckload (TL) and intermodal brokerage, and domestic and
international air. Following the GTS merger, third-party
logistics (3PL) and transportation management solutions (TMS)
will be added to our service offering. We utilize a proprietary
web-enabled technology system and a broad third-party network of
transportation providers, comprised of independent contractors
(ICs) and purchased power, to serve a diverse customer base in
terms of end market focus and annual freight expenditures.
Although we service large national accounts, we primarily focus
on small to mid-size shippers, which we believe represent an
expansive and underserved market. Our customized transportation
and logistics solutions are designed to allow our customers to
reduce operating costs, redirect resources to core competencies,
improve supply chain efficiency, and enhance customer service.
Our business model is highly scalable and flexible, featuring a
variable cost structure that requires minimal investment in
transportation equipment and facilities, thereby enhancing free
cash flow generation and returns on our invested capital and
assets.
Because the GTS merger will not occur until the consummation of
this offering, our discussion and analysis of financial
condition and results of operations includes only a discussion
of our LTL and TL brokerage businesses, which constitute our two
reportable operating segments as of December 31, 2009. Segment
operating income is the primary profitability measure used by
our chief executive officer in assessing segment performance and
allocating resources.
Our LTL business, which accounted for approximately 70% of our
2009 revenues, involves the pickup, consolidation, linehaul,
deconsolidation, and delivery of LTL shipments throughout the
United States and into Mexico, Puerto Rico, and Canada. With a
network of 17 leased service centers and over 200 third-party
delivery agents, we employ a
point-to-point
LTL model that we believe represents a competitive advantage
over the traditional hub and spoke LTL model in terms of faster
transit times, lower incidence of damage, and reduced fuel
consumption.
Within our TL brokerage business, which accounted for
approximately 30% of our 2009 revenues, we arrange the pickup
and delivery of TL freight through our network of
nine company dispatch offices and 42 independent brokerage
agents primarily located throughout the Eastern United States
and Canada. We offer temperature-controlled, dry van, and
flatbed services and specialize in the transport of refrigerated
foods, poultry, and beverages. We believe this specialization
provides consistent shipping volume
year-over-year.
Our success principally depends on our ability to generate
revenues through our network of sales personnel and independent
brokerage agents and to deliver freight safely, on time, and
cost-effectively. Customer shipping demand and
over-the-road
freight tonnage levels, which are subject to overall economic
conditions, ultimately drive increases or decreases in revenues.
Our ability to operate profitably and generate cash is also
impacted by
over-the-road
freight capacity, pricing dynamics, customer mix, and our
ability to manage costs effectively. Within our LTL business, we
typically generate revenues by charging our customers a rate
based on shipment weight, distance hauled, and commodity type.
This amount is typically comprised of a base rate and fuel
surcharge. Within our TL brokerage business, we typically charge
a flat rate negotiated on each load.
We incur costs that are directly related to the transportation
of freight, including purchased transportation costs and
commissions paid to our brokerage agents. We also incur indirect
costs associated with the transportation of freight that include
other operating costs, such as insurance and claims. In
addition, we incur personnel-related costs and other operating
expenses, collectively discussed herein as other operating
expenses, essential to administering our operations. We
continually monitor all components of our cost structure and
establish annual budgets, which are generally used to benchmark
costs incurred on a monthly basis.
Purchased transportation costs within our LTL business represent
amounts we pay to ICs or purchased power providers and are
generally contractually
agreed-upon
rates. Purchased transportation costs within our TL brokerage
business are typically based on negotiated rates for each load
hauled. We pay commissions to each brokerage agent based on a
percentage of margin generated. Purchased transportation costs
are the largest component of our cost structure and are
generally higher as a percentage of revenues within our TL
brokerage business than within our LTL business. Our purchased
transportation costs typically increase or decrease in
proportion to revenues.
Our ability to maintain or grow existing tonnage levels is
impacted by overall economic conditions, shipping demand, and
over-the-road
freight capacity in North America, as well as by our ability to
offer a competitive solution in terms of pricing,
24
safety, and on-time delivery. We have experienced significant
fluctuations in
year-over-year
tonnage levels in recent years. According to the ATA, beginning
in October 2006, the
over-the-road
freight sector experienced
year-over-year
declines in tonnage, primarily reflecting a weakening freight
environment in the U.S. construction, manufacturing, and
retail sectors. During 2009, our LTL tonnage decreased 4.6% from
2008, while LTL tonnage in the
U.S. over-the-road
freight sector declined 23.2% during the same period.
The industry pricing environment also impacts our operating
performance. Our LTL pricing is typically measured by billed
revenue per hundredweight and is dictated primarily by factors
such as average shipment size, shipment frequency and
consistency, average length of haul, freight density, and
customer and geographic mix. Pricing within our TL brokerage
business generally has fewer influential factors than pricing
within our LTL business, but is also typically driven by
shipment frequency and consistency, average length of haul, and
customer and geographic mix. The pricing environment for both
our LTL and TL operations generally becomes more competitive
during periods of lower industry tonnage levels and increased
capacity within the
over-the-road
freight sector.
The transportation industry is dependent upon the availability
of adequate fuel supplies. We experienced significantly higher
average fuel prices during 2008 compared to 2009. Our LTL
business typically charges a fuel surcharge based on changes in
diesel fuel prices compared to a national index. Although
revenues from fuel surcharges generally more than offset
increases in fuel costs, other operating costs have been, and
may continue to be, impacted by fluctuating fuel prices. The
total impact of higher energy prices on other nonfuel-related
expenses is difficult to ascertain. We cannot predict future
fuel price fluctuations, the impact of higher energy prices on
other cost elements, recoverability of higher fuel costs through
fuel surcharges, and the effect of fuel surcharges on our
overall rate structure or the total price that we will receive
from our customers. Depending on the changes in the fuel rates
and the impact on costs in other fuel- and energy-related areas,
operating margins could be impacted. Whether fuel prices
fluctuate or remain constant, our operating income may be
adversely affected if competitive pressures limit our ability to
recover fuel surcharges. The operating income of our TL
brokerage business is not impacted directly by changes in fuel
rates as we are able to pass through fuel costs to our customers.
Recent
Developments and Outlook
We are in the process of compiling our results for the first
quarter of 2010, which includes the full quarter impact of our
December 2009 Bullet acquisition described in this prospectus.
We expect to report the following results:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31,
|
|
|
|
2009(1)
|
|
|
2010(2)
|
|
|
|
(in millions)
|
|
|
Revenues
|
|
$
|
104.4
|
|
|
$
|
127.2
|
|
Operating income
|
|
|
2.1
|
|
|
|
6.5
|
|
Net income (loss)
|
|
|
(0.6
|
)
|
|
|
1.7
|
|
Net income (loss) available to common stockholders
|
|
|
(1.1
|
)
|
|
|
1.2
|
|
|
|
|
(1)
|
|
Our results for the first quarter
of 2009 do not reflect the impact of the December 2009
Bullet acquisition.
|
|
(2)
|
|
Our results for the first quarter
of 2010 do not reflect the impact of this offering.
|
In December 2009, we acquired certain assets and related
operations of Bullet Freight Systems, Inc. The acquired
operations had aggregate revenues of approximately
$48 million for the period from January 1, 2009 to the
acquisition date of December 11, 2009. The impact of Bullet
on our net income during that period would have been immaterial.
Given identified operating efficiencies and synergies associated
with the Bullet integration, we expect the acquired operations
to generate approximately $50 million in revenues and
contribute over $9 million to our operating income in 2010.
These expectations are based upon certain assumptions, which
include, but are not limited to, the elimination of corporate
overhead costs and operating headquarters that were not acquired
or assumed in the Bullet acquisition, the integration of certain
of the acquired terminal operations into our existing terminal
operations, and revenue growth of approximately 6% resulting
primarily from anticipated new customer growth and higher
estimated average fuel prices in 2010 as compared with 2009.
In addition, concurrent with the consummation of this offering,
we will acquire GTS through the GTS merger. In 2009, GTS had
revenues of approximately $35 million. GTS is in the
process of compiling its financial results for the first quarter
of 2010 and expects to report approximately $14.2 million
in revenues and approximately $0.8 million of operating
income, as compared with approximately $6.4 million in
revenues and approximately break-even operating income from the
first quarter of 2009. The first quarter 2010 results reflect
GTS acquisitions of two businesses in 2009 and an
additional business in mid-February 2010. Based upon the outlook
for GTS for 2010, including the full year impact of GTS
recent acquisitions, we expect GTS to generate approximately
$60 million in revenues and approximately $5 million
in operating income for 2010. These expectations are based upon
certain assumptions, which include but are not limited to
inclusion for the full year of operating results for the
acquisitions completed by GTS, combined revenue growth of
approximately 12% primarily due to new customer growth, and
purchased transportation costs as a percentage of revenues
consistent with historical levels attained in
25
the final three fiscal quarters of 2009. As a result of the
common control of both GTS and our company, following the GTS
merger our results of operations will include the results of GTS
from February 29, 2008.
THE FORWARD-LOOKING EXPECTATIONS SET FORTH ABOVE ARE BASED ON
ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO UNCERTAINTIES AND
CONTINGENCIES, SOME OF WHICH ARE BEYOND OUR CONTROL. ALTHOUGH
OUR EXPECTATIONS REFLECT THE MOST RELEVANT AND UP-TO-DATE
INFORMATION AVAILABLE TO US, THERE MAY BE MATERIAL DIFFERENCES
BETWEEN ACTUAL AND EXPECTED RESULTS AND THIS INFORMATION SHOULD
NOT BE RELIED UPON AS BEING NECESSARILY INDICATIVE OF FUTURE
RESULTS. NEITHER OUR MANAGEMENT NOR ANY OF OUR REPRESENTATIVES
INTENDS TO UPDATE OR OTHERWISE REVISE THESE EXPECTATIONS TO
REFLECT NEW CIRCUMSTANCES, AND WE WILL NOT REFER BACK TO THESE
EXPECTATIONS IN OUR FUTURE PERIODIC REPORTS FILED WITH THE SEC.
NEITHER OUR INDEPENDENT AUDITORS, NOR ANY OTHER INDEPENDENT
ACCOUNTANTS, HAVE COMPILED, EXAMINED, OR PERFORMED ANY
PROCEDURES WITH RESPECT TO THE PROSPECTIVE EXPECTATIONS SET
FORTH ABOVE, NOR HAVE THEY EXPRESSED ANY OPINION OR ANY OTHER
FORM OF ASSURANCE ON SUCH INFORMATION OR ITS ACHIEVABILITY, AND
ASSUME NO RESPONSIBILITY FOR, AND DISCLAIM ANY ASSOCIATION WITH,
SUCH EXPECTATIONS. SEE RISK FACTOR THE EXPECTED RESULTS
FROM OUR 2009 BULLET ACQUISITION AND THE GTS MERGER MAY VARY
SIGNIFICANTLY FROM OUR EXPECTATIONS IN RISK
FACTORS.
Following this offering we expect to incur reduced interest
expense primarily attributable to the reduction of approximately
$123.5 million of our outstanding indebtedness. This
reduction in interest expense is expected to be partially offset
by the incurrence of additional indebtedness in connection with
the GTS merger. In addition, in connection with the refinancing,
we will incur a
one-time
charge, expected to be recognized in the second quarter of 2010
when this offering is completed, of approximately
$15.2 million. This charge consists of
(i) approximately $10.6 million of prepayment
penalties, (ii) the payment of approximately
$2.6 million of unaccreted discount on our junior
subordinated notes, and (iii) the
non-cash
write-off of
approximately $2.0 million of deferred debt issuance costs.
We are a private company and are not currently required to
prepare or file periodic and other reports with the SEC under
the applicable U.S. federal securities laws or to comply
with the requirements of U.S. federal securities laws
applicable to public companies, such as Section 404 of the
Sarbanes-Oxley
Act of 2002. Following this offering we will be required to
implement additional corporate governance practices and to
adhere to a variety of reporting requirements and accounting
rules. Compliance with these and other
Sarbanes-Oxley
Act obligations will require significant time and resources from
management and will increase our legal, insurance, and financial
compliance costs. We anticipate that we will incur approximately
$1.0 million in additional annual legal, insurance, and
financial compliance costs related to
Sarbanes-Oxley
Act compliance and other public company expenses.
Results of
Operations
The following table sets forth, for the periods indicated, our
consolidated statement of operations data and such statement of
operations data expressed as a percentage of total revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Revenues
|
|
$
|
538,007
|
|
|
|
100.0
|
%
|
|
$
|
537,378
|
|
|
|
100.0
|
%
|
|
$
|
450,351
|
|
|
|
100.0
|
%
|
Purchased transportation costs
|
|
|
425,568
|
|
|
|
79.1
|
%
|
|
|
432,139
|
|
|
|
80.4
|
%
|
|
|
354,069
|
|
|
|
78.6
|
%
|
Personnel and related benefits
|
|
|
55,354
|
|
|
|
10.3
|
%
|
|
|
55,000
|
|
|
|
10.2
|
%
|
|
|
48,255
|
|
|
|
10.7
|
%
|
Other operating expenses
|
|
|
37,311
|
|
|
|
6.9
|
%
|
|
|
37,539
|
|
|
|
7.0
|
%
|
|
|
32,079
|
|
|
|
7.1
|
%
|
Depreciation and amortization
|
|
|
1,840
|
|
|
|
0.3
|
%
|
|
|
2,004
|
|
|
|
0.4
|
%
|
|
|
2,372
|
|
|
|
0.5
|
%
|
Acquisition transaction expenses
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
374
|
|
|
|
0.1
|
%
|
Restructuring and IPO expenses
|
|
|
|
|
|
|
0.0
|
%
|
|
|
3,416
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
17,934
|
|
|
|
3.3
|
%
|
|
|
7,280
|
|
|
|
1.4
|
%
|
|
|
13,202
|
|
|
|
2.9
|
%
|
Interest expense
|
|
|
14,097
|
|
|
|
2.6
|
%
|
|
|
12,552
|
|
|
|
2.3
|
%
|
|
|
12,731
|
|
|
|
2.8
|
%
|
Loss on early extinguishment of debt
|
|
|
1,608
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
2,229
|
|
|
|
0.4
|
%
|
|
|
(5,272
|
)
|
|
|
(1.0
|
)%
|
|
|
471
|
|
|
|
0.1
|
%
|
Provision (benefit) for income taxes
|
|
|
1,294
|
|
|
|
0.2
|
%
|
|
|
(1,438
|
)
|
|
|
(0.3
|
)%
|
|
|
304
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
935
|
|
|
|
0.2
|
%
|
|
$
|
(3,834
|
)
|
|
|
(0.7
|
)%
|
|
$
|
167
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Year Ended
December 31, 2009 Compared to Year Ended December 31,
2008
Revenues
Revenues decreased by $87.0 million, or 16.2%, to
$450.4 million during 2009 from $537.4 million during
2008. Despite adding over 6,000 new LTL customers in 2009
(excluding customers added in connection with the Bullet
acquisition), LTL revenues decreased by $50.4 million, or
13.8%, to $316.1 million during 2009 from
$366.5 million during 2008. This was primarily a result of
declines in
over-the-road
freight tonnage, a competitive pricing environment, and declines
in diesel fuel prices. During 2009, our LTL tonnage decreased
4.6% from 2008, while LTL tonnage in the
U.S. over-the-road
freight sector declined 23.2% during the same period. Our LTL
tonnage decline compared to prior-year levels abated in each of
the first three quarters of 2009 and we experienced tonnage
growth of 0.6% during October 2009, 14.0% during November 2009,
and 24.6% during December 2009 over prior-year levels. This
trend resulted primarily from a 19% increase in our monthly
average number of LTL customers during 2009 compared to 2008. We
believe that this trend will continue and favorably impact our
results in 2010. In that regard, our monthly average number of
LTL customers increased 25% during the first quarter of 2010
over to the same period in 2009. In 2009, our LTL revenue per
hundredweight, including fuel surcharges, decreased 9.7% from
2008, while LTL revenue per hundredweight in the
U.S. over-the-road
freight sector declined 12.1% during the same period. TL
brokerage revenues declined by $36.6 million, or 21.4%, to
$134.8 million during 2009 from $171.4 million during
2008, primarily due to market tonnage declines, a competitive
pricing environment, and declines in diesel fuel prices from
historic highs experienced in 2008. We partially offset these
market factors by continuing to expand our TL brokerage agent
network from 24 agents as of June 30, 2008 to 42 agents as of
December 31, 2009. We believe this will enhance our TL brokerage
revenue growth in the future.
Purchased
Transportation Costs
Purchased transportation costs decreased by $78.0 million,
or 18.1%, to $354.1 million during 2009 from
$432.1 million during 2008. LTL purchased transportation
costs decreased by $43.7 million, or 15.6%, to
$235.6 million during 2009 from $279.3 million during
2008, and decreased as a percentage of LTL revenues to 74.5%
from 76.2%. Lower freight density and lower revenue per
hundredweight were more than offset by our cost reduction
initiatives, such as terminal consolidations and targeted rate
negotiations with our third-party transportation network. TL
brokerage purchased transportation costs decreased by
$34.3 million, or 22.4%, to $119.1 million during 2009
from $153.4 million during 2008. As a percentage of TL
brokerage revenues, this decrease represents a modest
improvement to 88.3% from 89.5%.
Other Operating
Expenses
Other operating expenses (which, in this paragraph, reflects the
sum of the personnel and related benefits, other operating
expenses, acquisition transaction expenses, and restructuring
and IPO expenses line items from the Results of
Operations table above) decreased by
$15.3 million, or 15.9%, to $80.7 million during 2009
from $96.0 million during 2008. Within our LTL business,
other operating expenses decreased by $11.1 million, or
13.7%, to $69.4 million during 2009 from $80.5 million
during 2008. Due to our scalable operating model and targeted
cost reduction initiatives, LTL other operating expenses as a
percentage of LTL revenues in 2009 remained consistent with 2008
at 22.0%, despite $0.4 million of non-recurring expenses
related to the Bullet acquisition in 2009. Within our TL
brokerage business, other operating expenses declined
$1.0 million, or 8.6%, to $10.8 million during 2009
from $11.8 million during 2008. As a percentage of TL
brokerage revenues, this represents an increase to 8.0% from
6.9% and is primarily due to revenue declines resulting from
declines in TL industry tonnage and pricing, including fuel
costs, as well as increased investment in our TL brokerage agent
recruitment efforts. Other operating expenses that were not
allocated to our LTL or TL brokerage businesses declined by
$3.2 million to $0.5 million during 2009 from
$3.7 million during 2008. The $0.5 million incurred
during 2009 represents stock-based compensation expense. Of the
$3.7 million incurred during 2008, $0.4 million
represents management fees that were subsequently waived,
$0.7 million represents stock-based compensation expense,
and the remaining $2.6 million represents expenses incurred
in 2008 as a result of our postponed IPO efforts.
Depreciation and
Amortization
Depreciation and amortization increased to $2.4 million
during 2009 from $2.0 million during 2008. Within our LTL
business, depreciation and amortization increased by
$0.3 million to $1.7 million during 2009 from
$1.4 million during 2008, primarily as a result of our
decision to replace high cost leased trailers with used
trailers. While we do not own the tractors and other powered
transportation equipment used to transport our customers
freight, we own approximately 900 trailers for use in local city
pickup and delivery. The depreciation related to these trailers
was $0.4 million during 2009. Depreciation and amortization
within our TL brokerage business increased by $0.1 million
to $0.7 million during 2009 from $0.6 million during
2008.
27
Operating
Income
Operating income increased by $5.9 million, or 81.3%, to $13.2
million during 2009 from $7.3 million in 2008. As a percentage
of revenues, operating income increased to 2.9% during 2009 from
1.4% during 2008. Within our LTL business, operating income
increased by $4.0 million, or 75.0%, to $9.4 million during 2009
from $5.4 million during 2008, which represents an increase as a
percentage of LTL revenues to 3.0% during 2009 from 1.5% during
2008. Operating income within our TL brokerage business
decreased by $1.3 million, or 22.9%, to $4.3 million during 2009
from $5.6 million during 2008. This represents a slight decline
as a percentage of TL brokerage revenues to 3.2% during 2009
from 3.3% during 2008. As discussed above, other operating
expenses that were not allocated to our LTL or TL brokerage
businesses declined by $3.2 million to $0.5 million during 2009
from $3.7 million during 2008. This positively impacted our
operating income by $3.2 million during 2009.
Interest
Expense
Interest expense was relatively flat from 2008 to 2009,
increasing modestly to $12.7 million during 2009 from
$12.6 million during 2008.
Income
Tax
Income tax provision was $0.3 million during 2009 compared
to a benefit of $1.4 million during 2008. The effective tax
rate was 64.5% during 2009 compared to a benefit of 27.3% during
2008. The effective income tax rate in each year varies from the
federal statutory rate of 35.0% primarily due to state and
Canadian income taxes as well as the impact of items causing
permanent differences, the largest of which are meals and
entertainment.
Net Income (Loss)
Available to Common Stockholders
Net loss available to common stockholders decreased by
$2.1 million to $1.8 million during 2009 from a net
loss of $3.8 million during 2008. Net loss available to
common stockholders in 2009 was impacted by $2.0 million of
accretion of Series B preferred stock dividends. Upon
completion of this offering, the shares of Series B
preferred stock will be converted into shares of our common
stock and such accretion will be eliminated as of the date of
conversion.
Year Ended
December 31, 2008 Compared to Year Ended December 31,
2007
Revenues
Revenues decreased by $0.6 million, or 0.1%, to
$537.4 million during 2008 from $538.0 million during
2007. Despite declines in
over-the-road
freight tonnage and a competitive pricing environment, LTL
revenues increased by $4.7 million, or 1.3%, to
$366.5 million from $361.8 million in 2007. This
increase was primarily due to net new business awards and fuel
price increases that more than offset industry declines in
pricing and tonnage. TL brokerage revenues declined
$4.9 million, or 2.8%, to $171.4 million during 2008
from $176.3 million during 2007. This was primarily due to
market tonnage declines and a competitive pricing environment,
partially offset by higher fuel prices.
Purchased
Transportation Costs
Purchased transportation costs increased by $6.5 million,
or 1.5%, to $432.1 million during 2008 from
$425.6 million during 2007. LTL purchased transportation
costs increased by $10.3 million, or 3.8%, to
$279.3 million during 2008 from $269.0 million during
2007 and increased as a percentage of LTL revenues to 76.2% in
2008 from 74.3% in 2007. Increases in fuel costs paid to
carriers and lower freight density were partially offset by
targeted cost reduction initiatives implemented during 2007 to
streamline our cost structure and enhance our position in the
event of a market rebound. These initiatives included increasing
our recruitment and utilization of ICs where more
cost-effective, improving carrier selection tools within our
technology system, renegotiating more favorable contracts with
delivery agents, and increasing the number of deliveries direct
to end users and through our service centers. TL brokerage
purchased transportation costs decreased by $3.3 million,
or 2.1%, to $153.4 million during 2008 from
$156.7 million during 2007. As a percentage of TL brokerage
revenues, this represented a modest increase to 89.5% during
2008 from 88.9% during 2007.
Other Operating
Expenses
Other operating expenses (which, in this paragraph, reflects the
sum of personnel and related benefits, other operating expenses,
acquisition transaction expenses, and restructuring and IPO
expenses line items from the Results of
Operations table above) increased by
$3.3 million, or 3.6%, to $96.0 million during 2008
from $92.7 million during 2007. Other operating expenses
within our LTL business increased modestly by $0.1 million
to $80.5 million during 2008 from $80.4 million in
2007. This was primarily as a result of non-recurring
restructuring expenses related to the implementation of cost
reduction initiatives, partially offset by increased operating
efficiency and savings under a consolidated insurance program.
Within our
28
TL brokerage business, other operating expenses increased by
$0.6 million to $11.8 million during 2008 from
$11.2 million during 2007, primarily as a result of further
investment in TL brokerage agent recruitment efforts. Other
operating expenses that were not allocated to our LTL or TL
brokerage businesses increased by $2.6 million to $3.7 million
during 2008 from $1.1 million during 2007. Of the $1.1
million incurred during 2007, $0.4 million represents management
fees that were subsequently waived and $0.7 million represents
stock-based compensation expense. Of the $3.7 million incurred
during 2008, $0.4 million represents management fees that were
subsequently waived, $0.7 million represents stock-based
compensation expense, and the remaining $2.6 million represents
expenses incurred in 2008 as a result of our postponed IPO
efforts.
Depreciation and
Amortization
Depreciation and amortization increased by $0.2 million to
$2.0 million during 2008 from $1.8 million during
2007. Within our LTL business, depreciation and amortization
increased modestly to $1.4 million during 2008 from
$1.2 million during 2007. TL brokerage depreciation and
amortization was $0.6 million in both years.
Operating
Income
Operating income decreased by $10.6 million, or 59.4%, to $7.3
million in 2008 from $17.9 million during 2007. As a percentage
of revenues, operating income decreased to 1.4% during 2008 from
3.3% during 2007. Within our LTL business, operating income
decreased by $5.8 million to $5.4 million during 2008 from $11.2
million during 2007, which represents a decline as a percentage
of LTL revenues to 1.5% during 2008 from 3.1% during 2007.
Operating income within our TL brokerage business decreased by
$2.2 million to $5.6 million during 2008 from $7.8 million
during 2007. This represents a decline as a percentage of TL
brokerage revenues to 3.3% during 2008 from 4.4% during 2007. As
discussed above, other operating expenses that were not
allocated to our LTL or TL brokerage businesses increased by
$2.6 million to $3.7 million during 2008 from $1.1 million
during 2007. This negatively impacted our operating income by
$2.6 million during 2008.
Interest Expense
and Loss on Early Extinguishment of Debt
Interest expense decreased by $1.5 million, or 11.0%, to
$12.6 million during 2008 from $14.1 million during
2007.
Loss on early extinguishment of debt of $1.6 million during
2007 relates to the refinancing on March 14, 2007 in
conjunction with our merger with Sargent.
Income
Tax
Income tax benefit was $1.4 million during 2008 compared to
a provision of $1.3 million during 2007. The effective tax
rate was a benefit of 27.3% during 2008 compared to 58.1% during
2007. The effective income tax rate in each year varies from the
federal statutory rate of 35.0% primarily due to state and
Canadian income taxes and due to the impact of items causing
permanent differences , the largest of which are meals and
entertainment.
Net Income
Available to Common Stockholders
Net income decreased by $4.7 million to a net loss of
$3.8 million during 2008 from net income of
$0.9 million during 2007.
Liquidity and
Capital Resources
Historically, our primary sources of cash have been borrowings
under our revolving credit facility, sales of subordinated
notes, equity contributions, and cash flow from operations. Our
primary cash needs are to fund normal working capital
requirements, to finance capital expenditures and to repay our
indebtedness. As of December 31, 2009, we had
$0.7 million in cash and cash equivalents,
$19.5 million in working capital, and $4.4 million of
availability under our credit facility.
We intend to use all of the net proceeds of this offering to
prepay approximately $49.6 million of the outstanding debt
under our existing credit facility described below,
approximately $42.2 million to retire our senior
subordinated notes and accrued interest, and approximately
$31.7 million to retire our junior subordinated notes,
including prepayment penalties and accrued interest. In
addition, we intend to use approximately $33.7 million of
borrowings under an anticipated new credit facility described
below, which we anticipate entering into in connection with the
consummation of this offering, together with approximately
$4.1 million of restricted cash, to retire the
approximately $21.4 million remaining balance of our
existing indebtedness and an aggregate of approximately
$11.9 million of outstanding debt under GTS credit
facility, to pay approximately $1.0 million of refinancing
fees, and to pay an aggregate of $3.5 million of
transaction fees to terminate management and consulting
agreements with certain affiliates concurrent with this
offering. See Certain Relationships and Related
Transactions. As a result, immediately following this
offering and the GTS merger, we will not have any outstanding
debt except for the approximately $33.7 million of
estimated borrowings under the new credit facility.
29
In addition to the contractual obligations described below, we
expect that our and GTS 2010 capital expenditures will
total approximately $2.0 million. We may also be required to pay
up to $3.5 million in contingent cash consideration pursuant to
the agreement governing the February 2008 acquisition of the
operating subsidiaries of GTS. Moreover, we may be required to
make aggregate contingent payments of $3.0 million to former
owners of businesses that were recently acquired by GTS. Such
contingent payments would be paid using funds from our
operations or borrowings under our new credit facility.
Although we can provide no assurances, the net proceeds from
this offering, together with amounts available under our
anticipated new credit facility, net cash provided by operating
activities, and available cash and cash equivalents should be
adequate to finance working capital and planned capital
expenditures for at least the next twelve months. Thereafter, we
may find it necessary to obtain additional equity or debt
financing as we continue to execute our business strategy. In
the event additional financing is required, we may not be able
to raise it on acceptable terms or at all.
Cash
Flow
A summary of operating, investing and financing activities are
shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
12,470
|
|
|
$
|
(116
|
)
|
|
$
|
(56
|
)
|
Investing activities
|
|
|
(3,187
|
)
|
|
|
(6,534
|
)
|
|
|
(25,418
|
)
|
Financing activities
|
|
|
(11,535
|
)
|
|
|
6,346
|
|
|
|
25,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(2,252
|
)
|
|
$
|
(304
|
)
|
|
$
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from
Operating Activities
Cash provided by (used in) our operating activities primarily
consists of net income (loss) adjusted for certain non-cash
items, including depreciation and amortization, loss on early
extinguishment of debt, deferred interest, share-based
compensation, provision for bad debts, deferred taxes and the
effect of changes in working capital and other activities.
Cash used in operating activities was $0.1 million during
the year ended December 31, 2009 and consisted of
$0.2 million of net income plus $7.4 million of
non-cash items, consisting primarily of depreciation and
amortization, deferred interest and deferred taxes, less
$7.7 million of net cash used for working capital purposes
and other activities. Cash used for working capital and other
activities during 2009 reflected a $4.7 million increase in
accounts receivable, a $1.4 million increase in prepaid
expenses and other assets, a $2.1 million decrease in
accounts payable and accrued expenses, and a $0.5 million
increase in other liabilities.
Cash Flows from
Investing Activities
Cash used in investing activities was $25.4 million during
2009 compared to cash used of $6.5 million during 2008. Our
2009 cash used in investing activities reflects our December
2009 acquisition of certain assets of Bullet Freight Systems,
Inc. for $24.2 million, the release of $0.9 million of
restricted assets for covenant compliance purposes as well as
$2.2 million of capital expenditures used to support our
operations.
Cash Flows from
Financing Activities
Cash provided by financing activities was $25.6 million
during 2009 compared to cash provided of $6.3 million
during 2008. Our 2009 cash provided by financing activities
reflects our net borrowings of $25.5 million for the Bullet
acquisition and $0.1 million for working capital and
general corporate purposes.
Existing Credit
Facility
On March 14, 2007, we entered into an amended and restated
credit agreement, which has been amended since that time and is
collectively referred to as our credit facility. Our credit
facility is secured by all of our assets and includes a
$50.0 million revolving credit facility, a
$40.0 million term note, and a $9.0 million
incremental term loan. Our credit facility matures in 2012.
Availability under the revolving credit facility is subject to a
borrowing base of eligible accounts receivable, as defined in
the credit agreement. Interest is payable quarterly at LIBOR
plus an applicable margin or, at our option, prime plus an
applicable margin. Principal is payable in quarterly
installments ranging from $1.9 million per quarter in 2010
increasing to $2.4 million per quarter through
December 31, 2011. A final payment of the outstanding
principal balance is due in 2012. The revolving credit facility
also provides for the issuance of up to $6.0 million in
letters of credit. As of December 31, 2009, we had
outstanding letters of credit totaling approximately
$4.4 million. As of December 31, 2009,
30
approximately $34.5 million was outstanding under the term
loans and $35.7 million was outstanding under the revolving
credit facility. In addition, we had approximately
$4.4 million available under the revolving credit facility
as of December 31, 2009. Our credit facility also includes
covenants that require us to, among other things, maintain a
specified fixed charge coverage ratio and maximum total leverage
levels. We were in compliance with all debt covenants as of
December 31, 2009.
New Credit
Facility
In April 2010, we and U.S. Bank National Association signed a
commitment letter with respect to a new five-year
$55 million revolving credit facility effective upon the
consummation of this offering. We currently expect to use
approximately $33.7 million of borrowings under the new
facility, together with the net proceeds from this offering and
our restricted cash, to retire all of our and GTS
outstanding debt, as well as pay approximately $4.5 million
of transaction expenses. Borrowings under the credit facility
will be subject to a borrowing base equal to 85% of eligible
accounts receivable. We anticipate that our new revolving credit
facility will be (i) jointly and severally guaranteed by
each of our subsidiaries; (ii) secured by a first priority
lien on substantially all of our subsidiaries tangible and
intangible personal property; and (iii) secured by a
pledge of all of the capital stock of our subsidiaries.
We also expect that our new revolving credit facility will
require us to meet financial tests, including a minimum fixed
charge coverage ratio and a maximum cash flow leverage ratio. In
addition, our new revolving credit facility will contain
negative covenants limiting, among other things, additional
indebtedness, capital expenditures, transactions with
affiliates, additional liens, sales of assets, dividends,
investments and advances, prepayments of debt, mergers and
acquisitions, and other matters customarily restricted in such
agreements. Our new revolving credit facility will contain
customary events of default, including payment defaults,
breaches of representations and warranties, covenant defaults,
events of bankruptcy and insolvency, failure of any guaranty or
security document supporting the new revolving credit facility
to be in full force and effect, and a change of control of our
business.
Our borrowings under the new revolving credit facility will bear
interest at LIBOR plus the applicable LIBOR margin of
2.5% - 3.0%, or the stated base rate plus the applicable
base rate margin of 1.5% - 2.0%. The applicable margins
with respect to the revolving credit facility will vary from
time to time in accordance with agreed upon pricing grids based
on our total cash flow leverage ratio.
Subordinated
Debt
Our senior subordinated notes were issued in an aggregate
principal amount at maturity of approximately $36.4 million
and will mature on August 31, 2012. Each senior
subordinated note includes cash interest of 12% plus a deferred
margin, payable quarterly, that is treated as deferred interest
and is added to the principal balance of the note each quarter.
The deferred interest ranges from 3.5% to 7.5% depending on our
total leverage calculation, payable at maturity in 2012. As of
December 31, 2009, there was $41.1 million in
aggregate principal amount of senior subordinated notes
outstanding.
Our junior subordinated notes were issued in an aggregate face
amount of $19.5 million and will mature February 28,
2013. Our junior subordinated notes include interest of 20%
accrued quarterly that is deferred and is added to the principal
balance of the note each quarter and is payable at maturity on
February 28, 2013. In addition, the junior subordinated
notes agreement requires us to pay a premium upon repayment of
the junior subordinated notes. The applicable premium is based
on the timing of the repayment and begins at 50% of the
aggregate principal amount and decreases to 10% over the life of
the note. As of December 31, 2009, there was
$16.8 million in aggregate principal amount of junior
subordinated notes outstanding, net of an unaccreted discount of
$3.0 million.
Contractual
Obligations
As of December 31, 2009, we had the following contractual
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Long-term
debt(a)
|
|
$
|
180,597
|
|
|
$
|
16,061
|
|
|
$
|
124,291
|
|
|
$
|
40,245
|
|
|
$
|
|
|
Capital leases
|
|
|
960
|
|
|
|
427
|
|
|
|
427
|
|
|
|
106
|
|
|
|
|
|
Operating leases
|
|
|
29,980
|
|
|
|
6,274
|
|
|
|
9,867
|
|
|
|
7,225
|
|
|
|
6,614
|
|
Preferred stock subject to mandatory redemption
|
|
|
5,583
|
|
|
|
200
|
|
|
|
5,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
217,120
|
|
|
$
|
22,962
|
|
|
$
|
139,968
|
|
|
$
|
47,576
|
|
|
$
|
6,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
We expect to retire all of our
existing indebtedness and enter into a new revolving credit
facility in connection with this offering. We expect that our
outstanding indebtedness under our new revolving credit facility
will total approximately $33.7 million immediately after
this offering, all of which will be due and payable on the fifth
anniversary of this offering.
|
31
Contractual obligations for long-term debt include required
principal and interest payments on our credit facility, senior
subordinated notes, and junior subordinated notes. The interest
rates on these long-term debt obligations are variable and the
amounts in the table represent payments on the credit facility,
senior subordinated notes, and junior subordinated notes
assuming rates of 5.4%, 18.5%, and 20.0% respectively, as were
in effect on December 31, 2009.
Borrowings under the credit facility bear interest at a floating
rate and may be maintained as alternate base rate loans or as
LIBOR rate loans. Alternate base rate loans bear interest at
(1) the Federal Funds Rate plus 0.5%, (2) the prime
rate plus the applicable base rate margin, which margin is 1% to
3.5%, and (3) the LIBOR rate for a
30-day
interest period plus 1%. LIBOR rate loans bear interest at the
LIBOR rate, as described in the credit facility, plus the
applicable LIBOR rate margin, which margin is 2.5% to 5%. At
December 31, 2009, the weighted average interest rate on
our credit facility was 5.4%. Our senior subordinated notes
include cash interest of 12% plus a deferred margin that is
treated as payment of deferred interest and is added to the
principal balance of the notes each quarter. The deferred
interest ranges from 3.5% to 7.5% depending on our total
leverage calculation. Our junior subordinated notes include
interest of 20% accrued quarterly that is deferred and is added
to the principal balance of the note each quarter and is payable
at maturity on February 2013.
The table does not reflect our planned use of proceeds from this
offering to reduce outstanding indebtedness or to pay
transaction fees of $3.5 million to certain of our
affiliates in connection with this offering. See Use of
Proceeds.
Off-Balance Sheet
Arrangements
We do not have any off-balance sheet arrangements, other than
operating leases as disclosed in the table of Contractual
Obligations.
Seasonality
The transportation industry is subject to seasonal sales
fluctuations as shipments generally are lower during and
immediately after the winter holiday season because shippers
generally tend to reduce the number of shipments during that
time. This is because merchandise to be sold or used during the
holiday season is generally manufactured, shipped, and delivered
before the holiday season. In addition, inclement weather can
impede operations and increase operating expenses because harsh
weather can lead to increased accident frequency and increased
claims. For these reasons, transportation sales have
historically been higher in the third quarter of the calendar
year than in the fourth quarter.
Effects of
Inflation
Based on our analysis of the periods presented, we believe that
inflation has not had a material effect on our operating results
as inflationary increases in fuel and labor costs have generally
been offset through fuel surcharges and price increases.
Quantitative and
Qualitative Disclosures about Market Risk
Commodity
Risk
In our LTL and TL businesses, our primary market risk centers on
fluctuations in fuel prices, which can affect our profitability.
Diesel fuel prices fluctuate significantly due to economic,
political, and other factors beyond our control. Our ICs and
purchased power pass along the cost of diesel fuel to us, and we
in turn attempt to pass along some or all of these costs to our
customers through fuel surcharge revenue programs. There can be
no assurance that our fuel surcharge revenue programs will be
effective in the future. Market pressures may limit our ability
to pass along our fuel surcharges.
Interest Rate
Risk
We have exposure to changes in interest rates on our revolving
credit facility and term notes. The interest rate on these
credit facilities fluctuates based on the prime rate or LIBOR
plus an applicable margin. Assuming the $50.0 million
revolving credit facility was fully drawn, a 1.0% increase in
the borrowing rate would increase our annual interest expense by
$0.5 million. We do not use derivative financial
instruments for speculative trading purposes and are not engaged
in any interest rate swap agreements.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires that we make estimates and assumptions. In certain
circumstances, those estimates and assumptions can affect
amounts reported in the accompanying financial statements and
related footnotes. In preparing our financial statements, we
have made our best estimates and judgments of certain amounts
included in the financial statements, giving due consideration
to materiality. We base our estimates on historical experience
and on various other assumptions that we believe
32
to be reasonable. Application of the accounting policies
described below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual
results could differ from these estimates. The following is a
brief discussion of our critical accounting policies and
estimates.
Goodwill and
Other Intangibles
Goodwill represents the excess of purchase price over the
estimated fair value assigned to the net tangible and
identifiable intangible assets of a business acquired. Goodwill
is tested for impairment at least annually in our second quarter
using a two-step process that begins with an estimation of the
fair value at the reporting unit level. Our
reporting units are our operating segments as this is the lowest
level for which discrete financial information is prepared and
regularly reviewed by management. The impairment test for
goodwill involves comparing the fair value of a reporting unit
to its carrying amount, including goodwill. If the carrying
amount of the reporting unit exceeds its fair value, a second
step is required to measure the goodwill impairment loss. The
second step includes hypothetically valuing all the tangible and
intangible assets of the reporting unit as if the reporting unit
had been acquired in a business combination. Then, the implied
fair value of the reporting units goodwill is compared to
the carrying amount of that goodwill. If the carrying amount of
the reporting units goodwill exceeds the implied fair
value of the goodwill, we recognize an impairment loss in an
amount equal to the excess, not to exceed the carrying amount.
For purposes of our impairment test, the fair value of our
reporting units are calculated based upon an average of an
income fair value approach and market fair value approach. Based
on these tests, we have concluded that the fair value for all
reporting units is substantially in excess of the respective
reporting units carrying value. Accordingly, no goodwill
impairments were identified in 2009, 2008, or 2007.
Other intangible assets recorded consist of two definite lived
customer lists. We evaluate our other intangible assets for
impairment when current facts or circumstances indicate that the
carrying value of the assets to be held and used may not be
recoverable. No indicators of impairment were identified in
2009, 2008, or 2007.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial reporting basis and the tax
basis of assets and liabilities at enacted tax rates expected to
be in effect when such amounts are recovered or settled. The use
of estimates by management is required to determine income tax
expense, deferred tax assets and any related valuation allowance
and deferred tax liabilities. The determination of a valuation
allowance is based on estimates of future taxable income by
jurisdiction in which the deferred tax assets will be
recoverable. In making such a determination, all available
positive and negative evidence, scheduled reversals of deferred
tax liabilities, projected future taxable income, tax planning
strategies and recent financial operations, is considered. When
evaluating the need for a valuation allowance as of
December 31, 2009 and 2008, we considered that we achieved
cumulative net income before provision for income taxes for the
most recent three years, after considering the impact of
offering expenses. Further, we expect to achieve cost savings
from the restructuring and synergies related to the Bullet
acquisition that will further increase our ability to realize
the benefits of the net operating loss carry forwards. The tax
deductibility of the goodwill related to our acquisitions will
reduce taxable income in future years; however, under our
current structure, we estimate that we will generate taxable
income in 2010 and will utilize all existing net operating
losses carry forwards before their expiration. These estimates
can be affected by a number of factors, including possible tax
audits or general economic conditions or competitive pressures
that could affect future taxable income. Although management
believes that the estimates are reasonable, the deferred tax
asset and any related valuation allowance will need to be
adjusted if managements estimates of future taxable income
differ from actual taxable income. An adjustment to the deferred
tax asset and any related valuation allowance could materially
impact the consolidated results of operations. At
December 31, 2009 and 2008, there was no valuation
allowance recorded.
At December 31, 2009, we had $37.1 million of gross
federal net operating losses which are available to reduce
federal income taxes in future years and expire in the years
2025 through 2029. We are subject to federal and state tax
examinations for all tax years subsequent to December 31,
2005. Although the pre-2006 years are no longer subject to
examinations by the Internal Revenue Service and various state
taxing authorities, NOL carryforwards generated in those years
may still be adjusted upon examination by the IRS or state
taxing authorities if they have been or will be used in the
future.
As of December 31, 2009, we had no unrecognized tax
benefits recorded and no income tax related interest or
penalties accrued. It is our policy to recognize interest and
penalties related to unrecognized tax benefits as a component of
our income tax expense.
Revenue
Recognition
LTL revenue is recorded when all of the following have occurred:
an agreement of sale exists; pricing is fixed or determinable;
and collection of revenue is reasonably assured. We use a
percentage of completion method to recognize revenue, which
results in an allocation of revenue between reporting periods
based on the distinctive phases of each LTL
33
transaction completed in each reporting period, with expenses
recognized as incurred. In accordance with ASC
605-20-25-13,
management believes that this is the most appropriate method for
LTL revenue recognition based on the multiple distinct phases of
a typical LTL transaction, which is in contrast to the single
phase of a typical TL transaction.
TL revenue is recorded when all of the following have occurred:
an agreement of sale exists; pricing is fixed or determinable;
delivery has occurred; and our obligation to fulfill a
transaction is complete and collection of revenue is reasonable
assured. This occurs when we complete the delivery of a shipment.
We recognize revenue on a gross basis, as opposed to a net
basis, because we bear the risks and benefits associated with
revenue-generated activities by, among other things,
(1) acting as a principal in the transaction,
(2) establishing prices, (3) managing all aspects of
the shipping process and (4) taking the risk of loss for
collection, delivery and returns.
Recent Accounting
Pronouncements
The issuance by the Financial Accounting Standards Board (FASB)
of the Accounting Standards Codification (the Codification) on
July 1, 2009 (effective for our fiscal year
2009) changes the way that accounting principles generally
accepted in the United States (GAAP) are referenced. Beginning
on that date, the Codification officially became the single
source of authoritative nongovernmental GAAP. The change affects
the way we refer to GAAP in our financial statements and
accounting policies. All existing standards that were used to
create the Codification were superseded.
In December 2007, the FASB issued authoritative accounting
guidance which significantly changes the accounting for business
combinations in a number of areas, including the treatment of
contingent consideration, pre-acquisition contingencies,
transaction costs, in-process research and development, and
restructuring costs. We adopted this accounting pronouncement in
fiscal year 2009 and are applying the accounting treatment for
business combinations on a prospective basis.
34
Business
Introduction
We are a leading non-asset based transportation and logistics
services provider offering a full suite of solutions, including
customized and expedited LTL, TL and intermodal brokerage, and
domestic and international air. Following the GTS merger,
third-party logistics and transportation management solutions
will be added to our services. We utilize a proprietary
web-enabled technology system and a broad third-party network of
transportation providers, comprised of ICs and purchased power,
to serve a diverse customer base in terms of end market focus
and annual freight expenditures. Although we service large
national accounts, we primarily focus on small to mid-size
shippers, which we believe represent an expansive and
underserved market. Our customized transportation and logistics
solutions are designed to allow our customers to reduce
operating costs, redirect resources to core competencies,
improve supply chain efficiency, and enhance customer service.
Our business model requires minimal investment in transportation
equipment and facilities, thereby enhancing free cash flow
generation and returns on our invested capital and assets.
Further, our business model is highly scalable and flexible,
featuring a variable cost structure that helped contribute to
the growth of our operating income and our improvement from a
net loss of approximately $3.8 million in 2008 to net
income of approximately $0.2 million in 2009 despite the
recent economic downturn.
According to the ATA, beginning in October 2006, the
over-the-road
freight sector experienced
year-over-year
declines in tonnage, primarily reflecting a weakening freight
environment in the U.S. construction, manufacturing, and
retail sectors. During 2009, our
less-than-truckload
tonnage decreased 4.6% from 2008, while
less-than-truckload
tonnage in the
U.S. over-the-road
freight sector declined 23.2% during the same period. Throughout
this downturn, we have actively managed our
less-than-truckload
business by adding new customers and streamlining our cost
structure to enhance our operating efficiency and improve
margins. We believe our variable cost, non-asset based operating
model serves as a competitive advantage and allows us to provide
our customers with cost-effective transportation solutions
regardless of broader economic conditions. We believe we are
well-positioned for continued growth, profitability, and market
share expansion as an anticipated rebound occurs in the
over-the-road
freight sector.
Our
History
We were formed in February 2005 for the purpose of acquiring
Dawes Transport. Dawes Transport was established in Milwaukee,
Wisconsin in 1981 to provide LTL service primarily between the
Midwest and West Coast using a blend of purchased power and ICs.
Shortly thereafter, Roadrunner Freight, a provider of LTL
services similar to Dawes Transport in scale and customer mix,
but utilizing primarily purchased power, was acquired by a
company sponsored by Thayer | Hidden Creek and other
stockholders. In June 2005, the parent holding company of
Roadrunner Freight was merged with and into us. As a result,
Dawes Transport and Roadrunner Freight became our wholly owned
subsidiaries as of the merger date, resulting in our current
corporate structure. Based on our research, we believe we are
the largest non-asset based provider of LTL services in North
America in terms of revenue.
In January 2006, Mark A. DiBlasi joined us as chief executive
officer to lead the final integration of the two LTL businesses,
the expansion of the current management team and the
transformation of our company into a full-service transportation
and logistics provider. Our strategy throughout the
transformation was to develop a comprehensive suite of services
while maintaining a non-union, non-asset based structure. In
October 2006, Sargent was acquired by a company sponsored by
Thayer | Hidden Creek. In March 2007, we expanded our
service offerings through our merger with Sargent, a TL
brokerage operation serving primarily the Eastern United States
and Canada.
In December 2009, we acquired certain assets of Bullet Freight
Systems, Inc. through our wholly owned subsidiary, Bullet
Transportation Systems, Inc. Bullet is a non-asset based
transportation and logistics company that provides a variety of
services throughout the United States and into Canada. Bullet
provides LTL services as well as third-party logistics services
such as truckload and intermodal brokerage and air freight
forwarding. Bullet has operations in California, Oregon,
Washington, and Illinois and utilizes independent contractors
and an extensive third-party network of purchased power
providers to deliver its freight. Bullet provides services to a
broad range of industries and serves over 4,000 customers,
including leading manufacturers, retailers, and wholesalers.
The addition of Bullet increased our market share across all of
our service offerings by providing greater LTL coverage
throughout North America and geographically expanding our TL
brokerage operation. In addition, the integration of shipments
from Bullets customer base into our operations has
increased the freight density and balance in our
less-than-truckload
network. We believe this additional density and greater balance
in our network will result in higher operating margins and
improved levels of customer service through reduced transit
times and fewer claims.
35
GTS
Merger
One of our key strategic objectives has been to acquire a
third-party logistics and transportation management solutions
operation with a scalable technology system and management
infrastructure capable of assimilating and enhancing our
collective growth initiatives. We believe the proposed GTS
merger, occurring simultaneous with this offering, will satisfy
this strategic objective. In February 2008, GTS acquired
Group Transport Services, Inc. and GTS Direct, LLC, which
collectively provide transportation management solutions. GTS is
based in Hudson, Ohio and is led by former executives of FedEx
Global Logistics, Inc. Since 2009, GTS has made several
complementary acquisitions that have expanded its geographical
reach and sales force and enhanced its service offering.
The GTS merger will provide us with a number of competitive
advantages as well as significant growth opportunities. The
addition of a TMS offering will enable us to provide shippers
with a comprehensive one-stop, multi-modal
transportation and logistics solution that meets all of their
transportation needs. Through the use of a coordinated sales
effort, we believe that we will be able to capitalize on
substantial cross-selling opportunities with existing and new
customers. The increased geographic coverage and enhanced scale
provided by the GTS merger will allow us to service customers
outside of our existing terminal network and more effectively
compete with larger integrated transportation providers.
Incremental LTL volume anticipated from GTS customers will
increase freight density within our existing LTL network and
allow us to more cost-effectively grow our regional LTL market
share as well as expand our terminal network to other regional
locations. Our broad network of third-party carriers will
provide GTS access to a stable source of cost-effective
transportation capacity, which we believe is a competitive
advantage, particularly during periods of tightened supply. Our
management team and the management team of GTS have developed a
strong working relationship and are implementing a cohesive plan
to enhance our collective growth initiatives.
Our Market
Opportunity
The transportation and logistics industry involves the physical
movement of goods using a variety of transportation modes and
the exchange of information related to the flow, transportation,
and storage of goods between points of origin and destination.
The domestic transportation and logistics industry is an
integral part of the U.S. supply chain and the broader
economy, representing estimated annual spending of approximately
$1.3 trillion in 2008, according to Armstrong &
Associates.
Within the industry, transportation and logistics providers are
generally categorized as asset-based or
non-asset based depending on their ownership of
transportation equipment and facilities. Many large
transportation and logistics providers are asset-based and have
significant capital expenditure and infrastructure requirements.
As a result of their significant fixed cost bases, these
companies are focused on maintaining high asset utilization in
order to maximize returns on invested capital. Conversely,
non-asset based providers maintain greater operational
flexibility to adapt to changes in freight volumes because they
own minimal transportation equipment and facilities and
therefore have minimal capital expenditure and infrastructure
requirements.
The U.S. domestic
over-the-road
freight sector has been experiencing a downturn that began in
late 2006 and has continued through 2009. We believe our
variable cost, non-asset based operating model serves as a
competitive advantage in this market environment, as we were
able to streamline our cost structure and improve efficiencies
in response to market conditions. As a result of the freight
downturn, many of our competitors across all the LTL, TL, and
third-party logistics areas have experienced financial and
operational difficulty. Through organic growth and strategic
acquisitions, we believe we are well-positioned for market share
expansion and earnings growth as an anticipated rebound occurs
in the
over-the-road
freight sector.
Industry
Sectors
Third-Party
Logistics
Third-party logistics providers offer transportation management
and distribution services including the movement, storage, and
assembly of inventory. The U.S. 3PL sector increased from
$45.3 billion in 1999 to $127.0 billion in 2008 (and
did not experience a decline in any year during such period),
according to Armstrong & Associates. Only 16.1% of
logistics expenditures by U.S. businesses were outsourced
in 2008, according to Armstrong & Associates. Although
we believe, based on our industry knowledge, that the U.S. 3PL
sector declined in 2009, we also believe that the market
penetration of third-party logistics will expand in the future
as companies increasingly redirect their resources to core
competencies and outsource their transportation and logistics
requirements as they realize the cost-effectiveness of
third-party logistics providers.
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Over-the-Road
Freight
According to the ATA, the
U.S. over-the-road
freight sector represented approximately $660 billion in
revenue in 2008 and accounted for approximately 83% of domestic
spending on freight transportation. The ATA estimates that
U.S. over-the-road
freight transportation will increase to over $1.1 trillion by
2020. The
over-the-road
freight sector includes both private fleets and
for-hire carriers (ICs and purchased power). Private
fleets consist of tractors and trailers owned and operated by
shippers that move their own goods and, according to the ATA,
accounted for approximately $290 billion of revenue in
2008. For-hire carriers transport freight belonging to others,
including LTL and TL, and accounted for approximately
$375 billion in revenue in 2008, according to the ATA.
LTL carriers specialize in consolidating shipments from multiple
shippers into truckload quantities for delivery to multiple
destinations. LTL carriers are traditionally divided into two
segments national and regional. National carriers
typically focus on
two-day or
longer service across distances greater than 1,000 miles
and often operate without time-definite delivery, while regional
carriers typically offer time-definite delivery in less than two
days. According to the ATA, the U.S. LTL market generated
$51.8 billion of revenue in 2008.
TL carriers dedicate an entire trailer to one shipper from
origin to destination and are categorized by the type of
equipment they use to haul a shippers freight, such as
temperature-controlled, dry van, tank, or flatbed trailers.
According to the ATA, excluding private fleets, revenues in the
U.S. TL segment were approximately $320.4 billion in
2008.
Industry
Trends
We believe the following trends will continue to drive growth in
the transportation and logistics industry:
Growing Demand
for One-Stop Transportation and Logistics Service
Providers
We believe that shippers are increasingly seeking
one-stop transportation and logistics providers that
can offer a comprehensive suite of services to meet all of their
shipping needs. We believe shippers will continue to consolidate
their vendor base to increase outsourcing efficiencies and focus
on core competencies. As a result, we believe that
transportation and logistics providers that offer broad
geographic coverage and multiple modes of transportation in
conjunction with technology-enabled solutions are positioned to
gain market share from smaller providers that typically lack the
scale, resources, and expertise to remain competitive.
Recognition of
Outsourcing Efficiencies
We believe that companies are increasingly recognizing the
potential cost savings, improved service, and increased
financial returns gained from outsourcing repetitive and
non-core activities to specialized third-party providers. By
utilizing third-party transportation and logistics providers,
companies can benefit from the specialists technology,
achieve greater operational flexibility, and redeploy resources
to core operations.
Consolidation in
the Highly Fragmented 3PL, LTL, and TL Sectors
The transportation and logistics industry is highly fragmented
and, based on our research, no single third-party transportation
and logistics provider accounts for more than 5% of the overall
U.S. market. Given the large number of small industry
participants, we believe there is a significant opportunity for
growth and consolidation, especially during periods of economic
uncertainty. We believe we are well positioned to take advantage
of the continuing consolidation of the transportation and
logistics industry due to our quality of service, breadth of
service offerings, scalable operating and technology platforms,
experienced management team, and financial stability. We also
believe better-capitalized companies with scalable operating
models, like us, will have significant opportunities to improve
profit margins and gain market share as smaller, less flexible
competitors exit our industry over time.
Increasing Demand
for Customized Transportation and Logistics Solutions
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Complexity of Supply Chains. Companies are facing
increasingly complex supply chains. Rapidly changing freight
patterns, the proliferation of outsourced manufacturing and
just-in-time
inventory systems, increasingly demanding shipper fulfillment
requirements, and pressures to reduce costs continue to support
the demand for third-party transportation management.
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Demand for More Frequent, Smaller
Deliveries. Companies are increasingly employing lean
inventory management practices to reduce inventory carrying
costs. As a result, they are demanding more frequent, smaller
deliveries. We believe that by outsourcing transportation
management to a specialized 3PL provider, companies are better
positioned to maximize efficiency under a lean inventory system.
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Demand for Improved Customer Service. Shippers and
end users are increasingly demanding total supply chain
visibility and real-time transaction processing. By providing
information regarding the status and location of goods in
transit and verifying safe delivery, successful
technology-enabled transportation and logistics providers allow
clients to improve customer service.
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Our Competitive
Strengths
We consider the following to be our principal competitive
strengths, which collectively helped us increase our operating
income and reduce our net losses from 2008 to 2009
notwithstanding industry-wide declines in LTL tonnage and the
related increasing pressures on pricing during that period:
Comprehensive Logistics and Transportation Management
Solutions. Our broad offering of transportation and
logistics services allows us to manage a shippers freight
from dispatch through final delivery utilizing a wide range of
transportation modes. Following the GTS merger, we will have the
ability to provide third-party logistics and transportation
management solutions to shippers seeking to redirect resources
to core competencies, improve service, reduce costs, and utilize
the most appropriate modes of transportation. We can accommodate
the diverse needs and preferred means of communication of
shippers of varying sizes with any combination of services we
offer. We leverage our scalable, proprietary technology systems
to manage our multi-modal nationwide network of service centers,
delivery agents, dispatch offices, brokerage agents, ICs, and
purchased power. As a result of our integrated offering of
services and solutions, we believe we have a competitive
advantage in terms of service, delivery time, and customized
solutions.
Flexible Operating Model. Because we utilize a broad
network of purchased power, ICs, and other third-party
transportation providers to transport our customers
freight, our business is not characterized by the high level of
fixed costs and required concentration on asset utilization that
is common among many asset-based transportation providers. As a
result, we are able to focus solely on providing quality service
and specialized transportation and logistics solutions to our
customers, which we believe provides a significant competitive
advantage. Our flexibility to scale our independent contractor
base to react to contractions in freight capacity or increases
in purchased transportation costs allows us to maintain
attractive margins on our freight and continue to meet customer
demand. Furthermore, our operating model requires minimal
investment in transportation equipment and facilities, which
enhances our returns on our invested capital and assets. For
example, we do not own any tractors or other powered
transportation equipment used to transport our customers
freight. Although we own or lease approximately
1,000 trailers for use in local city pickup and delivery,
the book value of our approximately 900 owned trailers and the
lease costs for the approximately 100 leased trailers is
immaterial to our operations as of December 31, 2009. As a
result of our flexible operating model and execution of our
strategic plan, we have continued to grow through the economic
downturn, with growth in operating income of 81.3% from 2008 to
2009 and our improvement from a net loss of approximately
$3.8 million in 2008 to net income of approximately
$0.2 million in 2009.
Well-Positioned to Capitalize on Acquisition
Opportunities. The domestic transportation and
logistics industry is large and highly fragmented, thereby
providing significant opportunities to make strategic
acquisitions. Our scalable platform, experienced and motivated
management team, and proven ability to identify, execute and
integrate acquisitions enable us to be an attractive partner for
potential acquisition candidates. Furthermore, our ability to
leverage our substantial infrastructure and technology capacity
allows us to maximize the benefits of acquisitions. As a result
of our extensive strategic planning and execution throughout the
recent downturn, we are uniquely positioned to take advantage of
continuing consolidation opportunities given our improved
capital position following this offering. We believe that this
offering will also improve our ability to capitalize on
acquisition opportunities by deleveraging our business and
reducing our significant historical interest expense.
Focus on Serving a Diverse, Underserved Customer
Landscape. We serve over 35,000 customers, with no
single customer accounting for more than 3.0% of our 2009
revenue. In addition, we serve a diverse mix of end markets,
with no industry sector accounting for more than 18.0% of our
2009 revenue. We concentrate primarily on small to mid-size
shippers with annual transportation expenditures of less than
$25 million, which we believe represents an underserved
market. Our services are designed to satisfy these
customers unique needs and desired level of integration.
Furthermore, we believe our target customer base presents
attractive growth opportunities for each of our current and
future service offerings given that many small to mid-size
shippers have not yet capitalized on the benefits of third-party
transportation management.
Scalable Technology Systems. We have invested
significant resources to develop and continually enhance our
scalable, proprietary technology systems. Our web-enabled
technology is designed to serve our customers distinct
logistics needs and provide them with cost-effective solutions
and consistent service on a
shipment-by-shipment
basis. In addition to managing the physical movement of freight,
we offer real-time shipment tracking, order processing, and
automated data exchange. Our technology also enables us to more
efficiently manage our multi-modal capabilities and broad
carrier network, and provides the scalability necessary to
accommodate significant growth.
Experienced and Motivated Management Team. We have
been successful in attracting a knowledgeable and talented
senior management team with an average of 25 years of
industry experience and a complementary mix of operational and
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technical capabilities, sales and marketing experience, and
financial management skills. Our management team is led by our
chief executive officer, Mark A. DiBlasi. Mr. DiBlasi has
over 30 years of industry experience and previously managed
a $1.2 billion-revenue business unit of FedEx Ground, Inc.,
a division of FedEx Corporation. Our executives have experience
leading high-growth logistics companies
and/or
business units such as FedEx Ground, Inc., FedEx Global
Logistics, Inc., and YRC Worldwide, Inc. Additionally, several
members of our management team founded and ran their own
transportation and logistics companies prior to joining us or
being acquired by us. We believe this provides us with an
entrepreneurial culture and a team capable of executing our
growth strategies. Our executives experience is also
expected to help our company address and mitigate negative
industry trends and the various risks inherent in our business,
including significant competition, reliance on independent
contractors, a prolonged economic downturn, the integration of
recently acquired companies, and fluctuations in fuel prices.
Our Growth
Strategies
We believe our business model has positioned us well for
continued growth and profitability, which we intend to pursue
through the following initiatives:
Continue Expanding Customer Base. In 2009, we
expanded our customer base by over 10,000 customers (over 4,000
of which were added through the Bullet acquisition), and we
intend to continue to pursue greater market share in the LTL, TL
brokerage and TMS markets. The GTS merger will further expand
our customer base, enhance our geographic coverage and create a
broader menu of services for existing and future customers. Our
expanded reach and broader service offering will provide us with
the ability to add new customers seeking a one-stop
transportation and logistics solution. We expect to establish
additional customer relationships in connection with the GTS
merger by utilizing our LTL sales force of over 100 people
to expand the market reach of our TMS offering, which will be
added to our suite of services through the GTS merger. Based on
our research, we also believe the pool of potential new
customers will grow as the benefits of third-party
transportation management solutions continue to be embraced by
shippers.
Increase Penetration with Existing Customers. With a
more comprehensive service offering and an expanded network
resulting from the Bullet acquisition and the GTS merger, we
will have substantial cross-selling opportunities and the
potential to capture a greater share of each customers
annual transportation and logistics expenditures. Along with our
planned cross-selling initiatives, we believe that macroeconomic
factors will provide us with additional opportunities to further
penetrate existing customers. During the recent economic
downturn, existing customers generally reduced their number of
shipments and pounds per shipment. We believe an economic
rebound will result in increased revenue through greater
shipment volume, improved load density, and the addition of new
customers, and will allow us to increase profits at a rate
exceeding our revenue growth.
Continue Generating Operating Improvements. Over the
last 18 months, we have completed a number of operating
improvements, such as headcount reductions, terminal
consolidations, and carrier and delivery agent rate reductions.
These improvements streamlined our cost structure, improved
operating efficiency, and enhanced our margins. We believe that
we would have generated approximately $5.3 million of
additional cost savings if we had implemented these headcount
reductions, terminal consolidations and other improvements at
the beginning of 2009. As a result of our improvement efforts
with respect to purchased transportation costs, our linehaul
cost per mile, excluding fuel surcharges, decreased from $1.24
at the beginning of 2009 to $1.16 by year-end. By contrast,
according to statistics provided in ITS Trans4cast Letter, an
industry publication by Internet Truckstop (an Internet-based
provider of transportation industry and load data),
industry-wide linehaul cost per mile increased from
approximately $1.39 to $1.42 during the same period. In order to
continue to capitalize on these improvements and enhance our
competitive position, as well as accelerate earnings growth, we
are implementing additional initiatives designed to:
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improve routing efficiency and lane density throughout our
network;
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increase utilization of our flexible IC base;
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reduce
per-mile
costs;
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reduce dock handling costs; and
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enhance our real-time metric reporting to further reduce
operating expenses.
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Pursue Selective Acquisitions. The transportation
and logistics industry is highly fragmented, consisting of many
smaller, regional service providers covering particular shipping
lanes and providing niche services. We built our LTL, TL
brokerage, and TMS (assuming completion of the GTS merger)
platforms in part by successfully completing and integrating a
number of accretive acquisitions. According to a recent article
in The Journal of Commerce, one in four transportation companies
are looking to complete a sale transaction in the next
18 months. We intend to continue to pursue acquisitions
that will complement our existing suite of services and extend
our geographic reach. Our LTL delivery agents also present an
opportunity for growth via acquisition. If we decide to offer
outbound LTL service from a new strategic location, we could
39
potentially acquire one of our delivery agents and train them to
manage local pickup, consolidation, and linehaul dispatch using
our technology systems. With a scalable, non-asset based
business model, we believe we can execute our acquisition
strategy with minimal investment in additional infrastructure
and overhead.
Our
Services
We are a leading non-asset based transportation services
provider offering a full suite of customized transportation
solutions with a primary focus on serving the specialized needs
of small to mid-size shippers. Because we do not own the
transportation equipment used to transport our customers
freight, we are able to focus solely on providing quality
service rather than on asset utilization. Our customers
generally communicate their freight needs to one of our
transportation specialists on a
shipment-by-shipment
basis via telephone, fax, Internet,
e-mail, or
electronic data interchange. We leverage our proprietary
technology systems and a diverse group of over 9,000 third-party
carriers to provide scalable capacity and reliable service to
more than 35,000 customers in North America.
Less-than-Truckload
Based on our industry knowledge, we believe we are the largest
non-asset based provider of LTL transportation services in North
America in terms of revenue. We provide LTL service originating
from points within approximately 150 miles of our service
centers to most destinations throughout the United States and
into Mexico, Puerto Rico, and Canada. Through GTS network
relationships, we expect to substantially expand our coverage
area and service points beyond those historically served by our
service center locations. Within the United States, we offer
national, long-haul service (1,000 miles or greater),
inter-regional service (between 500 and 1,000 miles), and
regional service (500 miles or less). We serve a diverse
group of customers within a variety of industries, including
retail, industrial, paper goods, manufacturing, food and
beverage, health care, chemicals, computer hardware, and general
commodities.
As the diagram below illustrates, we utilize a
point-to-point
LTL model that is differentiated from the traditional,
asset-based hub and spoke LTL model. Our model does not require
intermediate handling at a break-bulk hub (a large terminal
where freight is offloaded, sorted, and reloaded), which we
believe represents a competitive advantage in terms of
timeliness, lower incidence of damage, and reduced fuel
consumption. For example, we can transport LTL freight from
Cleveland, Ohio to Los Angeles, California without stopping at a
break-bulk hub, while the same shipment traveling through a
traditional hub and spoke LTL model would likely be unloaded and
reloaded at break-bulk hubs in, for example, Akron, Ohio and
Adelanto, California prior to reaching its destination.
Representative
Asset-Based National Hub and Spoke LTL Model
versus Non-Asset Based National
Point-to-Point
LTL Model
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Asset-based national hub and spoke LTL model
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Non-asset based national point-to-point LTL model
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We believe our model allows us to offer LTL average transit
times more comparable to that of deferred air freight service
than to standard national LTL service, yet more cost-effective.
Our LTL claims ratio (the ratio of claims to revenues including
fuel surcharge) was 0.8% during 2009. Key aspects of our LTL
service offering include the following:
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Pickup. In order to stay as close as possible to our
customers, we prefer to handle customer pickups whenever
cost-effective. We generally pick up freight within
150 miles of one of our service centers, utilizing
primarily city ICs. Although we do not own the tractors or other
powered transportation equipment used to transport our
customers freight, we own or lease approximately
1,000 trailers for use in local city pickup and delivery
(not for linehaul or our other LTL operations). We do not
separately reflect the use of these trailers as a component of
our pricing. In 2009, we picked up approximately 82% of our
customers LTL shipments. The remainder was handled by
agents with whom we generally have long-standing relationships.
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Consolidation at Service Centers. Key to our model
is a network of 17 service centers, as illustrated by the map
below, that we lease in strategic markets throughout the United
States. At these service centers, numerous smaller LTL shipments
are unloaded, consolidated into truckload shipments, and loaded
onto a linehaul unit scheduled for a destination city. In order
to continually emphasize optimal load building and enhance
operating margins, dock managers review every load before it is
dispatched from one of our service centers.
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Linehaul. Linehaul is the longest leg of the LTL
shipment process. In dispatching a load, a linehaul coordinator
at one of our service centers uses our proprietary technology to
optimize cost-efficiency and service by assigning the load to
the appropriate third-party transportation provider, either an
IC or purchased power provider. In 2009, ICs handled
approximately 48% of our linehaul shipments. As industry-wide
freight capacity tightens with an anticipated market rebound, we
believe our recruitment and retention efforts will allow us to
increase IC utilization in order to maintain service and cost
stability.
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De-consolidation and Delivery. Within our unique
model, linehaul shipments are transported to service centers,
delivery agents, or direct to end users without stopping at a
break-bulk hub, as is often necessary under the traditional,
asset-based hub and spoke LTL model. This generally reduces
physical handling and damage claims, and reduces delivery times
by one to three days on average. In 2009, we delivered
approximately 21% of LTL shipments through our service centers,
77% through our delivery agents, and 2% direct to end users.
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Benefits of a Delivery Agent Network. While many
national asset-based LTL providers are encumbered by the fixed
overhead associated with owning or leasing most or all of their
de-consolidation and delivery facilities, we maintain our
variable cost structure through the extensive use of delivery
agents. As illustrated on the map below, we use over 200
delivery agents to complement our service center footprint and
to provide cost-effective full state, national, and North
American delivery coverage. Delivery agents also enhance our
ability to handle special needs of the final consignee, such as
scheduled deliveries and specialized delivery equipment.
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LTL Service
Center and Delivery Agent Network
As illustrated by the graph below, our change in LTL tonnage
during 2009 outperformed the average for publicly traded LTL
providers as well as the broader ATA LTL tonnage index.
Change in LTL
Tonnage
(1)
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Reflects change relative to the
comparable quarter of the prior year.
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(2)
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Source: Publicly available
information. Represents a weighted average for the following
group of publicly traded LTL providers, which we believe to be
representative of the LTL industry: ABF Freight System, Inc. (a
division of Arkansas Best Corporation); Con-Way Freight Inc. (a
division of Con-way Inc.); FedEx Freight Corporation (a division
of FedEx Corporation); Old Dominion Freight Line, Inc.; Saia,
Inc.; UPS Freight (a division of United Parcel Service, Inc.);
Vitran Corporation Inc., and YRC National Transportation, Inc.
and YRC Regional Transportation, Inc. (both divisions of YRC
Worldwide Inc.).
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As illustrated by the graph below, our 2009 change in pricing,
or revenue per hundredweight (including fuel surcharges), also
outperformed the average for the publicly traded LTL providers
set forth above.
Change in LTL
Revenue per Hundredweight, Including Fuel Surcharges
(1)
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(1)
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Reflects change relative to the
comparable quarter of the prior year.
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(2)
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Source: Publicly available
information. Represents a weighted average for the same industry
group set forth in the prior table.
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We believe a rebound in the
over-the-road
freight sector would provide greater freight density and
increased shipping volumes, thereby allowing us to build full
trailer loads more quickly and deliver freight faster under our
point-to-point
model. We believe this will further distinguish our LTL service
offering as even more comparable in speed to deferred air
freight service, leading to enhanced market share and improved
operating margins.
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Truckload
Brokerage
We are a leading TL brokerage operation in North America in
terms of revenue. We provide a comprehensive range of TL
solutions for our customers by leveraging our broad base of over
7,000 third-party carriers who operate temperature-controlled,
dry van,
and/or
flatbed capacity. Although we specialize in the transport of
refrigerated foods, poultry and beverages, we also provide a
variety of TL transportation solutions for dry goods ranging
from paper products to steel, as well as flatbed service for
larger industrial load requirements. We arrange the pickup and
delivery of TL freight either through our nine company dispatch
offices (operated by our employees) or through our network of 42
independent brokerage agents. Our dispatch offices and brokerage
agents are located primarily throughout the Eastern United
States and Canada, as illustrated on the map below.
TL Dispatcher and
Agent Network
Company Dispatchers. Our 39 company brokers, whom we
refer to as dispatchers, not only engage in the routing and
selection of our transportation providers, but also serve as our
internal TL sales force, responsible for managing existing
customer relationships and generating new customer
relationships. Because the performance of these individuals is
essential to our success, we offer attractive incentive-based
compensation packages that we believe keep our dispatchers
motivated, focused, and service-oriented.
We typically earn a margin ranging from
10-20% of
the cost of a standard TL shipment. On shipments generated by
one of our dispatchers, we retain 100% of this margin. This
differs for shipments generated by our brokerage agents, to whom
we pay commissions as described below.
Dispatch Office Expansion. We have traditionally
expanded our dispatch operations based upon the needs of our
customers. Going forward, we plan to open new dispatch offices,
particularly in geographic areas where we lack coverage of the
local freight market. Importantly, opening a new dispatch office
requires only a modest amount of capital it usually
involves leasing a small amount of office space and purchasing
communication and information technology equipment. Typically
the largest investment required is in working capital as we
generate revenue growth from new customers. While the majority
of growth within our dispatch operations has been organic, we
will continue to evaluate selective acquisitions that would
allow us to quickly penetrate new customers and geographic
markets.
Independent Brokerage Agents. In addition to our
dispatchers, we also maintain a network of independent brokerage
agents that have partnered with us for a number of years.
Brokerage agents complement our network of dispatch offices by
bringing pre-existing customer relationships, new customer
prospects,
and/or
access to new geographic markets. Furthermore, they typically
provide immediate revenue and do not require us to invest in
incremental overhead. Brokerage agents own or lease their own
office space and pay for their own communications equipment,
insurance, and any other costs associated with running their
operation. We only invest in the working capital required to
execute our quick pay strategy and generally pay a commission to
our brokerage agents ranging from
40-70% of
the margin we earn on a TL shipment. Similar to our
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dispatchers, our brokerage agents engage in the routing and
selection of transportation providers for our customer base and
perform sales and customer service functions on our behalf.
Brokerage Agent Expansion. We believe we offer
brokerage agents a very attractive partnership opportunity. We
offer access to our reliable network of over 175 ICs (operating
over 300 power units) and over 7,000 purchased power providers
and invest in the working capital required to pay these carriers
promptly and assume collection responsibility. We believe this
has contributed to our reputation for quality and reliable
service, as well as to the consistent growth of our brokerage
agent network. Since June 30, 2008, we have expanded our TL
brokerage agent network from 24 agents to 42 agents.
Additionally, 16 of our brokerage agents each generated more
than $1 million in revenue in 2009. We believe our
increased development efforts and attractive value proposition
will allow us to further expand our brokerage agent network and
enhance the growth of our TL brokerage business.
Transportation
Management Solutions
GTS TMS offering, which will be added to our suite of
services through the GTS merger, is designed to provide
comprehensive or à la carte third-party logistics services.
GTS provides the necessary operational expertise, information
technology capabilities, and relationships with third-party
transportation providers to meet the unique needs of its
customers. For customers that use the most comprehensive service
plans, GTS complements their internal logistics and
transportation management personnel and operations, enabling
them to redirect resources to core competencies, reduce internal
transportation management personnel costs and, in many cases,
achieve substantial annual freight savings. Following the GTS
merger, key aspects of our TMS capabilities will include the
following:
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Procurement. After an in-depth consultation and
analysis with our customer to identify cost savings
opportunities, we will develop an estimate of our
customers potential savings and cultivate a plan for
implementation. If necessary, we will manage a targeted bid
process based on a customers traffic lanes, shipment
volumes, and product characteristics, and negotiate rates with
reputable carriers. In addition to a cost-efficient rate, the
customer will receive a summary of projected savings as well as
our carrier recommendation.
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Shipment Planning. Utilizing GTS proprietary
technology systems and an expansive multi-modal network of
third-party transportation providers, we will determine the
appropriate mode of transportation and select the ideal
provider. In addition, we will provide load optimization
services based on freight patterns and consolidation
opportunities. We will also provide rating and routing services,
either
on-site with
one of our transportation specialists, off-site through our
centralized call center, or online through our website. Finally,
we will offer
merge-in-transit
coordination to synchronize the arrival and pre-consolidation of
high-value components integral to a customers production
process, enabling them to achieve reduced cycle times, lower
inventory holding costs, and improved supply chain visibility.
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n
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Shipment Execution. GTS transportation
specialists are adept at managing time-critical shipments. Its
proprietary technology system will prompt a specialist to hold
less time-sensitive shipments until other complementary freight
can be found to complete the shipping process in the most
cost-effective manner. We will maintain constant communication
with third-party transportation providers from dispatch through
final delivery. As a result, our expedited services will be
capable of meeting virtually any customer transit or delivery
requirement. Finally, we will provide the ability to track and
trace shipments either online or by phone through one of our
transportation specialists.
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n
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Audit and Payment Services. We will capture and
consolidate our customers entire shipping activity and
offer weekly electronic billing. We will also provide freight
bill audit and payment services designed to eliminate excessive
or incorrect charges from our customers bills.
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n
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Performance Reporting and Improvement
Analysis. Customers utilizing our web reporting system
will have the ability to query freight bills, develop customized
reports online, and access data to assist in financial and
operational reporting and planning. GTS specialists are
also actively driving process improvement, continually using its
proprietary technology to identify incremental savings
opportunities and efficiencies for our customers.
|
With a broad TMS offering, we believe we can accommodate a
shippers unique needs with any combination of services
along our entire spectrum, and cater to their preferred means of
shipment processing and communication.
We believe GTS comprehensive service approach and focus on
building long-term customer relationships lead to greater
retention of existing business compared to a more short-term
gain sharing model employed by many 3PLs. We believe GTS
approach is more sustainable as industry freight capacity
tightens and it becomes more difficult for 3PLs employing the
gain sharing model to generate substantial incremental savings
for shippers after the first year of implementation. Before
becoming fully operational with a customer, GTS conducts
thorough feasibility and cost savings analyses and collaborates
with the customer to create a project scope and timeline with
measurable milestones. We believe this approach enables GTS to
45
identify any potential issues, ensure a smooth integration
process, and set the stage for long-term customer satisfaction.
Within its TMS operation, GTS has consistently met customer
implementation deadlines and achieved anticipated levels of
freight savings.
Capacity
We offer scalable capacity and reliable service to our more than
35,000 customers in North America through a diverse third-party
network of over 9,000 transportation providers. Our various
transportation modes include LTL, TL and intermodal brokerage,
and domestic and international air. No single carrier accounted
for more than 4.0% of our 2009 purchased transportation costs.
We ensure that each carrier is properly licensed and regularly
monitor their capacity, reliability, and pricing trends. With
enhanced visibility provided by our proprietary technology
systems, we leverage the competitive dynamics within our network
to renegotiate freight rates that we believe are out of market.
This enables us to provide our customers with more
cost-effective transportation solutions while enhancing our
operating margins.
We continually focus on building and enhancing our relationships
with reliable transportation providers to ensure that we not
only secure competitive rates, but that we also gain access to
consistent capacity, especially during peak shipping seasons.
Because we do not own any transportation equipment used to
deliver our customers freight, these relationships are
critical to our success. We typically pay our third-party
carriers either a contracted per mile rate or the cost of a
shipment less our contractually agreed upon commission, and
generally pay within seven to ten days from the delivery of a
shipment. We pay our third-party carriers promptly in order to
drive loyalty and reliable capacity.
Our third-party network of transportation providers can be
divided into the following groups:
Independent Contractors. Independent contractors are
individuals or small teams that own or lease their own
over-the-road
transportation equipment and provide us with dedicated freight
capacity. ICs are a key part of our long-term strategy to
maintain service and provide cost stability. In selecting our
ICs, we adhere to specific screening guidelines in terms of
safety records, length of driving experience, and personnel
evaluations. In the event of a rebound in the transportation
sector, freight capacity would likely tighten and purchased
power providers would likely reduce fleet sizes to eliminate
under-utilized assets. Should this occur, we believe we are well
positioned to increase our utilization of ICs as a more
cost-effective and reliable solution.
To enhance our relationship with our ICs, we offer per mile
rates that, based on our research, we believe are highly
competitive and often above prevailing market rates. In
addition, we focus on keeping our ICs fully utilized in order to
limit the number of empty miles they drive. We
regularly communicate with our ICs and seek new ways to enhance
their quality of life. As a result of our efforts, we have
experienced increased IC retention. In our opinion, this
ultimately leads to better service for our customers.
Purchased Power. In addition to our large base of
ICs, we have access to approximately 8,000 unrelated asset-based
over-the-road
transportation companies that provide us with freight capacity
under non-exclusive contractual arrangements. We have
established relationships with carriers of all sizes, including
large national trucking companies and small to mid-size regional
fleets. With the exception of safety incentives, purchased power
providers are generally paid under a similar structure as ICs
within our LTL and TL brokerage businesses. In contrast to
contracts established with our ICs, however, we do not cover the
cost of liability insurance for our purchased power providers.
Delivery Agents. For the de-consolidation and
delivery stages of our LTL shipment process, our network of 17
service centers is complemented by over 200 delivery agents. The
use of delivery agents is also a key part of our long-term
strategy to maintain a variable cost, scalable operating model
with minimal overhead.
Intermodal Brokerage. We maintain intermodal
capability through relationships with third-party carriers who
rent capacity on Class 1 railroads throughout North
America. Intermodal transportation rates are typically
negotiated between us and the capacity provider on a
customer-specific basis.
Domestic/International Air Carriers. For our
customers domestic/international air freight needs, we
operate under an exclusive arrangement with FreightCo Logistics,
a third-party provider, to provide such services to our
customers. Under our arrangement, FreightCo Logistics is
responsible for all services, and we receive a commission based
on a percentage of the total bill. In 2009, our
domestic/international air freight services represented less
than 1% of our LTL revenues.
Customers
Our goal is to establish long-term customer relationships and
achieve
year-over-year
growth in recurring business by providing reliable, timely, and
cost-effective transportation and logistics solutions. While we
possess the scale, operational expertise, and capabilities to
serve shippers of all sizes, we focus primarily on small to
mid-size shippers, which we believe represent a large and
underserved market. We serve over 35,000 customers within a
variety of end markets, with no customer accounting for more
than 3.0% of 2009 revenue and no industry sector accounting for
more than 18.0% of 2009
46
revenue. Additionally, we added over 10,000 customers in 2009,
both through organic growth and through the Bullet acquisition.
Our organic growth was driven by our new sales team initiative
and a focus on shippers seeking to reduce their exposure to
asset-based logistics providers. We believe this reduces our
exposure to a decline in shipping demand from any customer and a
cyclical downturn within any end market.
Sales and
Marketing
In addition to our 42 TL brokerage agents, we currently market
and sell our transportation and logistics solutions through over
100 sales personnel located throughout the United States and
into Canada. We are focused on actively expanding our sales
force to new geographic markets where we lack a strong presence.
Our objective is to leverage our collective, national sales
force to sell our full suite of transportation services. In
addition to expanding our sales force, we intend to leverage a
broader service offering and capitalize on substantial
cross-selling opportunities with existing and new customers. We
believe this will allow us to capture a greater share of a
shippers annual transportation and logistics expenditures.
Our sales force can be categorized by primary service offering:
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n
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Less-than-Truckload. Our
LTL sales force of over 100 people consists of corporate
account executives, account executives, sales managers, inside
sales representatives, and commission sales representatives. In
March 2007, we hired a vice president of sales and marketing to
lead the implementation of a detailed strategy to drive positive
new business trends with significant growth in new account
shipments and revenue. Under his leadership, we significantly
upgraded a large portion of our sales force by replacing
underperforming personnel.
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n
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Truckload Brokerage. We have 39 dispatchers and 42
independent brokerage agents located primarily in the Eastern
United States and Canada. We believe that this decentralized
structure enables our salespeople to better serve our customers
by developing an understanding of local and regional market
conditions, as well as the specific transportation and logistics
issues facing individual customers. Our dispatchers and
brokerage agents seek additional business from existing
customers and pursue new customers based on this knowledge and
an understanding of the value proposition we can provide.
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n
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Transportation Management Solutions. The GTS sales
force has grown from approximately 10 to over 50
salespeople and agents from 2007 to 2009. We will also utilize
our LTL sales force to enhance the market reach and penetration
of GTS TMS offering and to capitalize on the opportunity
to cross-sell a broader menu of services to new and existing
customers.
|
Competition
We compete in the North American transportation and logistics
services sector. Our marketplace is extremely competitive and
highly fragmented. We compete with a large number of other
non-asset based logistics companies, asset-based carriers,
integrated logistics companies, and third-party freight brokers,
many of whom have larger customer bases and more resources than
we do. According to Transport Topics, a transportation industry
publication, we are one of the 20 largest LTL providers in North
America. Based on our industry knowledge, we believe that we are
the largest non-asset based provider of LTL services in North
America in terms of revenue. In addition, according to Transport
Topics, we are one of the 25 largest TL brokerage providers in
North America. We believe that GTS TMS business competes
primarily with internal shipping departments at companies that
have complex multi-modal transportation requirements, many of
which represent potential sales opportunities for us.
Active participants in our markets include:
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n
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global asset-based integrated logistics companies such as FedEx
Corporation and United Parcel Service, Inc., against whom we
compete in all of our service lines;
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n
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asset-based freight haulers, such as Arkansas Best Corporation,
Con-Way, Inc., Old Dominion Freight Line Inc., and YRC
Worldwide, Inc., against whom we compete in our core LTL and TL
service offerings;
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n
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non-asset based freight brokerage companies, such as C.H.
Robinson Worldwide, Inc. and Landstar System, Inc., against whom
we compete in our core LTL and TL service offerings;
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n
|
third-party logistics providers that offer comprehensive
transportation management solutions, such as Echo Global
Logistics, Inc., Schneider Logistics, Inc., and Transplace,
Inc., against whom GTS competes in its TMS offering; and
|
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n
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smaller, niche transportation and logistics companies that
provide services within a specific geographic region or end
market.
|
47
We believe we effectively compete with various market
participants by offering shippers attractive transportation and
logistics solutions designed to deliver the optimal combination
of cost and service. To that end, we believe our most
significant competitive advantages include:
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n
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our comprehensive suite of transportation and logistics
services, which, following the GTS merger, will allow us to
offer a one-stop value proposition to shippers of
varying sizes and accommodate their diverse needs and preferred
means of processing and communication;
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n
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our non-asset based, variable cost business model, which allows
us to focus greater attention on providing optimal customer
service than on maintaining high levels of asset utilization;
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n
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our focus on an expansive market of small to mid-size shippers
who often lack the internal resources necessary to manage
complex transportation and logistics requirements and whose
freight volumes may not garner the same level of attention and
customer service from many of our larger competitors;
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n
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our proprietary technology systems, which allow us to provide
scalable capacity and high levels of customer service across a
variety of transportation modes; and
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n
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our knowledgeable management team with experience leading
high-growth logistics companies
and/or
business units, which allows us to benefit from a collective
entrepreneurial culture focused on growth.
|
Seasonality
Our operations are subject to seasonal trends that have been
common in the North American
over-the-road
freight sector for many years. Our results of operations for the
quarter ending in March are on average lower than the quarters
ending in June, September, and December. Typically, this pattern
has been the result of factors such as inclement weather,
national holidays, customer demand, and economic conditions.
Technology
We believe the continued development and innovation of our
technology systems is essential not only to improving our
internal operations and financial performance, but also to
providing our customers with the most cost-effective, timely,
and reliable transportation and logistics solutions. We
regularly evaluate our technology systems and personnel to
ensure that we maintain a competitive advantage and that all
critical applications are scalable and operational as we grow.
Through ongoing investment of time and financial resources, we
have developed numerous proprietary, customized applications
that allow us to track, query, manipulate, and interpret a range
of different variables related to our operations, our network of
third-party transportation providers, and our customers. Our
objective is to allow our customers and vendors to easily do
business with us via the Internet. Our customers have the
ability, through a paperless process, to receive immediate
pricing, place orders, track shipments, process remittance,
receive updates on arising issues, and review historical
shipping data through a variety of reports over the Internet.
Our LTL operation utilizes a combination of an IBM
Series I5 computer system and web-based servers with
customized software applications to improve every aspect of our
LTL model and manage our broad carrier base from pickup through
final delivery. Our corporate headquarters and service centers
are completely integrated, allowing real-time data to flow
between locations. Additionally, we make extensive use of
electronic data interchange, or EDI, to allow our service
centers to communicate electronically with our carriers
and customers internal systems. We offer our EDI-capable
customers a paperless process, including document imaging and
shipment tracking and tracing. As part of our ongoing initiative
to enhance our information technology capabilities, our LTL
operation has developed a proprietary carrier selection tool
used to characterize carriers based on total cost to maximize
usage of the lowest available linehaul rates.
Our TL brokerage operation uses a customized OMNI technology
system to broker our customers freight. Our software
enhances our ability to track our third-party drivers, tractors,
and trailers, which provides customers with visibility into
their supply chains. Additionally, our systems allow us to
operate as a paperless operation through electronic order entry,
resource planning and dispatch.
GTS continually enhances its proprietary TMS technology system,
which we will add through the GTS merger, and has integrated
other proven transportation management software packages with
the goal of providing customers with broad-based, highly
competitive solutions. Through an extensive use of database
configuration and integration techniques, hardware and software
applications, communication mediums, and security devices, GTS
is able to design a customized solution to address each
customers unique shipping needs and preferred method of
processing. GTS web-based technology will allow us to
process and service customer orders, track shipments in real
time, select optimal modes of transportation, execute customer
billing, provide carrier rates, establish customer specific
profiles, and retain critical information for analysis. We will
use this system to maximize supply chain efficiency through
mode, carrier, and route optimization.
48
All of our operations have multiple levels of contingency and
disaster recovery plans focused on ensuring continuous service
to our customers. We do not currently have registered
intellectual property rights, such as patents, with respect to
our technology systems. We maintain trade secret protection over
our technology systems and keep strictly confidential our
proprietary, customized applications.
Facilities
Our corporate headquarters are located in Cudahy, Wisconsin,
where we lease 28,824 square feet of space. The primary
functions performed at our corporate headquarters are
accounting, treasury, marketing, human resources, linehaul
support, claims, safety and information technology support. We
lease 5,170 square feet of space in Mars Hill, Maine, which
houses our TL brokerage operation headquarters. GTS leases
approximately 24,000 square feet of space in Hudson, Ohio,
which will house our TMS operation following the GTS merger.
We lease 17 service centers for our LTL operation, each of which
is interactively connected. Each service center manages and is
responsible for the freight that originates in its service area.
The Bullet acquisition provided us the opportunity to
consolidate and optimize certain service centers where there was
overlapping coverage. The typical service center is configured
to perform cross-dock and limited short-term warehouse
operations. In addition, our TL brokerage operation leases eight
of its nine company dispatch offices throughout the Eastern
United States and Canada. We believe that our current facilities
are capable of supporting our operations for the foreseeable
future; however, we will continue to evaluate leasing additional
space as needed to accommodate growth.
Employees
As of December 31, 2009, we employed approximately 925
personnel, which included approximately ten management
personnel, approximately 145 sales and marketing personnel,
approximately 255 operations and other personnel, approximately
205 accounting and administrative personnel, approximately ten
information technology personnel, and approximately 300 LTL dock
personnel. None of our employees are covered by a collective
bargaining agreement and we consider relations with our
employees to be good.
Regulation
The federal government has substantially deregulated the
provision of ground transportation and logistics services via
the enactment of the Motor Carrier Act of 1980, the Trucking
Industry Regulatory Reform Act of 1994, the Federal Aviation
Administration Authorization Act of 1994, and the ICC
Termination Act of 1995. Prices and services are now largely
free of regulatory controls, although states have the right to
require compliance with safety and insurance requirements, and
interstate motor carriers remain subject to regulatory controls
imposed by the DOT and its agencies, such as the Federal Motor
Carrier Safety Administration. Motor carrier, freight
forwarding, and freight brokerage operations are subject to
safety, insurance, and bonding requirements prescribed by the
DOT and various state agencies. Any air freight business is
subject to commercial standards set forth by the International
Air Transport Association and federal regulations issued by the
Transportation Security Administration.
We are also subject to various environmental and safety
requirements, including those governing the handling, disposal
and release of hazardous materials, which we may be asked to
transport in the course of our operations. If hazardous
materials are released into the environment while being
transported, we may be required to participate in, or may have
liability for response costs and the remediation of such a
release. In such case, we also may be subject to claims for
personal injury, property damage, and damage to natural
resources.
Our business is also subject to changes in legislation and
regulations, which can affect our operations and those of our
competitors. For example, new laws and initiatives to reduce and
mitigate the effects of greenhouse gas emissions could
significantly impact the transportation industry. Future
environmental laws in this area could adversely affect our
ICs costs and practices and our operations.
We are also subject to regulations to combat terrorism that the
Department of Homeland Security (including Customs and Border
Protection agencies) and other agencies impose.
We believe that we are in substantial compliance with current
laws and regulations. Our failure to continue in compliance
could result in substantial fines or revocation of our permits
or licenses.
Insurance
We insure our ICs against third-party claims for accidents or
damaged shipments and we bear the risk of such claims. We
maintain insurance for vehicle liability, general liability, and
cargo damage claims. In our LTL and TL operations, we maintain
an aggregate of $20.0 million of vehicle liability and
general liability insurance. The vehicle liability insurance has
a
49
$500,000 deductible. In our LTL and TL operations, we carry
aggregate insurance against the first $1.0 million of cargo
claims, with a $100,000 deductible. Because we maintain
insurance for our ICs, if our insurance does not cover all or
any portion of the claim amount, we may be forced to bear the
financial loss. We attempt to mitigate this risk by carefully
selecting carriers with quality control procedures and safety
ratings.
In addition to vehicle liability, general liability, and cargo
claim coverage, our insurance policies also cover other standard
industry risks related to workers compensation and other
property and casualty risks. We believe our insurance coverage
is comparable in terms and amount of coverage to other companies
in our industry. We establish insurance reserves for anticipated
losses and expenses and periodically evaluate and adjust the
reserves to reflect our experience.
50
Management
Directors and
Executive Officers
The following table sets forth certain information regarding our
directors and executive officers:
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Name
|
|
Age
|
|
Position
|
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Mark A. DiBlasi
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|
|
54
|
|
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President, Chief Executive Officer, and Director
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Peter R. Armbruster
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|
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51
|
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Vice President Finance, Chief Financial Officer,
Treasurer, and Secretary
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Brian J. van Helden
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41
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Vice President Operations
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Scott L. Dobak
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|
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47
|
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Vice President Sales and Marketing
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Scott D. Rued
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53
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Chairman of the Board
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Judith A. Vijums
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44
|
|
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Vice President and Director
|
Ivor J. Evans
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|
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67
|
|
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Director
|
James J. Forese
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|
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74
|
|
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Director
|
Samuel B. Levine
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|
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43
|
|
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Director
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Brian D. Young
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|
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55
|
|
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Director
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Pankaj Gupta
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34
|
|
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Director
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William S. Urkiel
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64
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Director Nominee
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Chad M. Utrup
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37
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Director Nominee
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James L. Welch
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|
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55
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Director Nominee
|
Our board of directors believes that its members encompass a
range of talent, skill, and experience sufficient to provide
sound and prudent guidance with respect to our operations and
interests, and reflect the diversity of our companys
stockholders, employees, and customers. The information below
with respect to our directors includes each directors
experience, qualifications, attributes, and skills that led our
board of directions to the conclusion that he or she should
serve as a director.
Mark A. DiBlasi has served as our President and Chief
Executive Officer since January 2006. Mr. DiBlasi has
served as a director of our company since July 2006. Prior to
joining our company, Mr. DiBlasi served as Vice
President Southern Division for FedEx Ground, Inc.,
a division of FedEx Corporation, from July 2002 to January 2006.
Mr. DiBlasi was responsible for all operational matters of
the $1.2 billion-revenue Southern Division, which
represented one-fourth of FedEx Ground, Inc.s total
operations. From February 1995 to June 2002, Mr. DiBlasi
served as the Managing Director of two different regions within
the FedEx Ground, Inc. operation network. From August 1979 to
January 1995, Mr. DiBlasi held various positions in
operations, sales, and terminal management at Roadway Express
before culminating as the Chicago Breakbulk Manager. We believe
Mr. DiBlasis qualifications to serve as a director of
our company include his over 30 years of experience in the
transportation industry, including as our President and Chief
Executive Officer.
Peter R. Armbruster has served as our Vice
President Finance, Chief Financial Officer,
Treasurer, and Secretary since December 2005. From March 2005 to
December 2005, Mr. Armbruster served as our Vice
President Finance. Mr. Armbruster held various
executive positions at Dawes Transport from August 1990 to March
2005. Prior to joining Dawes Transport, Mr. Armbruster was
with Ernst & Young LLP from June 1981 to July 1990,
where he most recently served as Senior Manager.
Brian J. van Helden has served as our Vice
President Operations since April 2007. Prior to
joining our company, Mr. van Helden served as a Managing
Director for FedEx Ground, Inc., a division of FedEx
Corporation, from July 2003 to April 2007, where he was
responsible for operational matters in the Midwest and New
England.
Scott L. Dobak has served as our Vice
President Sales and Marketing since January 2007.
Prior to joining our company, Mr. Dobak served as Vice
President Corporate Sales for Yellow Transportation,
Inc. where he was responsible for the $1.5 billion-revenue
Corporate Sales Division from December 2000 to January 2007.
Mr. Dobak was the Regional Vice President of Sales and
Marketing Chicago from July 1997 to December 2000
with Yellow Transportation, Inc. Prior to that, Mr. Dobak
served as an Area General Manager for Yellow Transportation,
Inc. from January 1995 to July 1997.
Scott D. Rued has served as our Chairman of the Board
since March 2010 and has been a director of our company
since March 2005. Mr. Rued also served as our Chairman of
the Board from March 2005 to July 2008. Mr. Rued has been a
Managing Partner of Thayer | Hidden Creek since 2003.
Mr. Rued also serves as a director of Commercial Vehicle
Group, Inc., a publicly traded supplier of integrated system
solutions for the global commercial vehicle market. From 1989 to
2003, Mr. Rued held various executive positions at Hidden
Creek Industries. We believe Mr. Rueds qualifications
to serve as a director of our company include his experience in
the transportation industry, including as our Chairman of the
Board for over three years, his expertise in corporate strategy
and development, his demonstrated business acumen, and his
experience on other public company boards of directors.
51
Judith A. Vijums has served as a director of our company
since March 2005 and as our Vice President since
March 2007. Ms. Vijums has served as a Managing
Director of Thayer | Hidden Creek since 2003. From
1993 to 2003, Ms. Vijums held various leadership positions
at Hidden Creek Industries and actively participated in the
management of several Hidden Creek Industries portfolio
companies, including Commercial Vehicle Group, Inc., Dura
Automotive Systems, Inc., Tower Automotive, Inc. and Automotive
Industries Holdings, Inc. We believe Ms. Vijums
qualifications to serve as a director of our company include her
expertise in the management and corporate development of various
transportation companies, and her experience with public and
financial accounting matters.
Ivor (Ike) J. Evans has served as a director
of our company since March 2005 and served as our Chairman of
the Board from July 2008 to March 2010. Mr. Evans
has served as Operating Partner of Thayer | Hidden
Creek since March 2005. Mr. Evans served as a director of
both Union Pacific Corporation and Union Pacific Railroad from
1999 until February 2005, and as Vice Chairman of Union Pacific
Railroad from January 2004 until his retirement in February
2005. From 1998 until his election as Vice Chairman,
Mr. Evans served as the President and Chief Operating
Officer of Union Pacific Railroad. From 1990 to 1998,
Mr. Evans served in various executive positions at Emerson
Electric Company. Mr. Evans also serves on the board of
directors of Arvin Meritor, Inc., Textron Inc., Cooper
Industries, Ltd., and Spirit AeroSystems Holdings, Inc. We
believe Mr. Evans qualifications to serve as a
director of our company include his experience in the
transportation industry, including his service at Union Pacific
Railroad, and his corporate governance expertise.
James J. Forese has served as a director of our company
since March 2005. Mr. Forese has served as an Operating
Partner of Thayer | Hidden Creek since 2003. Prior to
joining Thayer | Hidden Creek, Mr. Forese served
as President and Chief Executive Officer of IKON Office
Solutions, Inc. (formerly Alcoa Standard Corporation) from 1998
to 2002 and retired as Chairman in February 2003. Prior to
joining IKON, Mr. Forese served as Controller and Vice
President of Finance for IBM Corporation and Chairman of IBM
Credit Corporation. Since 2003, Mr. Forese has served on
the board of directors of SFN Group (formerly Spherion
Corporation), and has been Chairman since May 2007. Since
January 2005, Mr. Forese has served on the board of
directors of IESI-BFC Ltd., and has been Chairman since January
2010. Mr Forese has served as a member of the board of
directors of various IBM subsidiaries, Lexmark International,
Inc., NUI Corporation, Southeast Bank Corporation, Unisource
Worldwide, Inc., IKON Office Solutions, Inc. and American
Management Systems, Incorporated. Mr. Forese was also a member
of the board of directors of Anheuser-Busch Companies, Inc. from
April 2003 to November 2008. We believe
Mr. Foreses qualifications to serve as a director of
our company include his business experience in senior management
positions at complex organizations and his experience on other
public company boards of directors.
Samuel B. Levine has served as a director of our company
since June 2005. Mr. Levine has served as Managing Director
of Eos Management, L.P., an affiliate of Eos Partners, L.P.,
since 1999. We believe Mr. Levines qualifications to
serve as a director of our company include his experience in
business, corporate strategy, and investment matters.
Brian D. Young has served as a director of our company
since June 2005. Mr. Young has served as General Partner of
Eos Partners, L.P. since 1994. We believe Mr. Youngs
qualifications to serve as a director of our company include his
experience in business, corporate strategy, and investment
matters.
Pankaj Gupta has served as a director of our company
since July 2009. Mr. Gupta joined American Capital, Ltd. in
August 2006, and has been a Managing Director since January
2010. Prior to joining American Capital, Mr. Gupta served
as Senior Vice President at Audax Group, a Boston and New
York-based private equity and mezzanine firm with
$4 billion under management, since March 2001. At Audax
Group, Mr. Gupta was responsible for the origination,
structuring, execution, and monitoring of mezzanine investments.
Prior to joining Audax Group, Mr. Gupta was an Associate in
the Private Equity Group of Whitney & Co. Prior to
Whitney, Mr. Gupta was an Analyst in the High Yield and
Merchant Banking Group of CIBC World Markets. Mr. Gupta
serves on the board of directors of SMG, a leading provider of
entertainment and conference venue management services
worldwide. We believe Mr. Guptas qualifications to
serve as a director of our company include his financial
expertise and experience in corporate strategy and investment
matters.
William S. Urkiel will become a director of our company
effective upon the consummation of this offering. Since August
2006, Mr. Urkiel has served as a director of Suntron
Corporation. Mr. Urkiel has been a member of the board of
directors of Crown Holdings, Inc. since December 2004. From
May 1999 until January 2005, Mr. Urkiel served as
Senior Vice President and Chief Financial Officer of IKON Office
Solutions. From February 1995 until April 1999,
Mr. Urkiel served as the Corporate Controller and Chief
Financial Officer at AMP Incorporated. Prior to 1999, Mr.
Urkiel held various financial management positions at IBM
Corporation. Mr. Urkiel was nominated to our board of directors
because of his expertise with accounting and audit matters and
because of his experience with corporate finance, investor
relations, and corporate governance matters.
Chad M. Utrup will become a director of our company
effective upon the consummation of this offering. Since January
2003, Mr. Utrup has served as the Chief Financial Officer
of Commercial Vehicle Group, Inc. and as an Executive Vice
President since January 2009. Mr. Utrup served as the
Vice President of Finance at Trim Systems from 2000 to 2002.
Prior to joining Commercial Vehicle Group, Inc. in
February 1998, Mr. Utrup served as a project
management group member at Electronic Data Systems. While with
Electronic Data Systems, Mr. Utrups responsibilities
included financial support and implementing cost recovery and
efficiency programs at various Delphi Automotive Systems
locations. Mr. Utrup was
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nominated to our board of directors because of his executive and
operational experience as the chief financial officer of a
public company and his broad experience with accounting and
audit matters for publicly traded companies.
James L. Welch will become a director of our company
effective upon the consummation of this offering. Since
November 2008, Mr. Welch has served as the President,
Chief Executive Officer, and a director of Dynamex Inc.
Mr. Welch was a consultant working in Interim Chief
Executive Officer roles for private equity companies from
August 2007 until October 2008. Mr. Welch served
as President and Chief Executive Officer of Yellow
Transportation, Inc. from June 2000 until his retirement in
February 2007. During his 29 years at Yellow
Transportation, Inc., Mr. Welch held positions of
increasing responsibility in operations, sales, and general
management. Mr. Welch is also a member of the board of
directors of SkyWest, Inc. (NASDAQ: SKYW) and Spirit
AeroSystems, Inc. (NYSE: SPR). Mr. Welch was nominated to
our board of directors because of his extensive experience in
the transportation and logistics sector, his demonstrated depth
of experience as chief executive officer of a leading
asset-based
freight hauler, and his experience with corporate governance
matters as a director of other public companies.
Key
Employees
After the proposed GTS merger, our TMS operations will be
managed by a senior management team lead by Michael P. Valentine
and W. Paul Kithcart.
Michael P. Valentine has served as Chief Executive
Officer of GTS since February 2008. Mr. Valentine founded
Group Transportation Services in January 1995 and served in
various officer positions, including President and Chief
Executive Officer, until February 2008. Mr. Valentine
founded GTS Direct in October 1999 and served as its President
until February 2008. Prior to founding Group Transportation
Services, Mr. Valentine was an independent sales agent with
Roberts Express, Inc. from 1988 to 1995.
W. Paul Kithcart has served as President of GTS,
Group Transportation Services, and GTS Direct since February
2008. Prior to that, Mr. Kithcart served as Vice President
of Group Transportation Services from August 2000 to January
2008. Prior to joining Group Transportation Services,
Mr. Kithcart held various positions with FedEx Global
Logistics, Inc. from 1994 to 2000.
There are no family relationships among any of our directors,
officers, or key employees.
Board of
Directors and Committees
Our board of directors currently consists of eight members. In
connection with this offering, Messrs. Levine, Young, and
Gupta will resign from our board of directors. In order to fill
the vacancies created by the resignations of
Messrs. Levine, Young, and Gupta, effective upon the
consummation of this offering Messrs. William S. Urkiel,
Chad M. Utrup, and James L. Welch will join our board of
directors, all of whom meet the independence standards of the
New York Stock Exchange. In compliance with the transitional
rules of the SEC and the New York Stock Exchange, we expect
that a majority of our directors will be independent within one
year from the closing of this offering.
Our amended and restated certificate of incorporation provides
for a board of directors consisting of three classes serving
three-year staggered terms. Effective upon the consummation of
this offering, Messrs. Evans and Forese will serve as
Class I directors, each with an initial term expiring at
the annual meeting of stockholders in 2011. Effective upon the
consummation of this offering, Ms. Vijums and
Messrs. Urkiel and Utrup will serve as Class II
directors, each with an initial term expiring at the annual
meeting of stockholders in 2012. Effective upon the consummation
of this offering, Messrs. DiBlasi, Rued, and Welch will
serve as Class III directors, each with an initial term
expiring at the annual meeting of stockholders in 2013.
Our amended and restated bylaws authorize our board of directors
to appoint among its members one or more committees, each
consisting of one or more directors. Upon completion of this
offering, our board of directors will have three standing
committees: an audit committee, a compensation committee, and a
nominating/corporate governance committee. Each of our audit,
compensation, and nominating/corporate governance committees
will consist of all independent directors. We plan to adopt
charters for the audit, compensation, and nominating/corporate
governance committees describing the authority and
responsibilities delegated to each committee by our board of
directors substantially as set forth below. Until the
establishment of the audit, compensation, and
nominating/corporate governance committees, these functions will
continue to be performed by our board of directors.
We also plan to adopt a Code of Business Conduct and Ethics and
a Code of Ethics for the CEO and Senior Financial Officers. We
will post on our website, at www.rrts.com, the charters of our
audit, compensation, and nominating/corporate governance
committees; our Code of Business Conduct and Ethics; and our
Code of Ethics for the CEO and Senior Financial Officers, and
any amendments or waivers thereto; and any other corporate
governance materials contemplated by SEC or New York Stock
Exchange regulations.
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Audit
Committee
The primary responsibilities of the audit committee, which will
be set forth in more detail in its charter, will be to assist
our board of directors in the oversight of:
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the integrity of our financial statements;
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our compliance with legal regulatory requirements;
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our independent auditors qualifications and independence;
and
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the performance of our internal audit function and our
independent auditors.
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Additionally, the audit committee will be responsible for
preparing the disclosure required by Item 407(d)(3)(i) of
Regulation S-K.
In compliance with the rules of the SEC and the New York
Stock Exchange, our audit committee will consist entirely of
independent directors, as defined under the New York Stock
Exchange listing standards and SEC rules. Effective upon the
consummation of this offering, Messrs. Urkiel, Utrup, and
Welch will serve as members of our audit committee, with
Mr. Utrup initially serving as chairman. Mr. Utrup
will serve as the audit committee member who qualifies as an
audit committee financial expert in accordance with
applicable rules and regulations of the SEC.
Compensation
Committee
The primary responsibilities of the compensation committee,
which will be set forth in more detail in its charter, will be
to:
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review and approve corporate goals and objectives relevant to
the compensation of our executive officers;
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evaluate the performance of our chief executive officer and
other executive officers in light of those goals and objectives;
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determine and approve the compensation level of our chief
executive officer and other executive officers based on this
evaluation;
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make recommendations to our board of directors with respect to
incentive-compensation and equity-based plans that are subject
to approval by our board of directors; and
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prepare the disclosure required by Item 407(e)(5) of
Regulation S-K.
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In compliance with the rules of the SEC and the New York
Stock Exchange, our compensation committee will consist entirely
of independent directors, as defined under New York Stock
Exchange listing standards and SEC rules. Effective upon the
consummation of this offering, Messrs. Urkiel, Utrup, and
Welch will serve as members of our compensation committee, with
Mr. Urkiel initially serving as chairman.
Nominating/Corporate
Governance Committee
The principal responsibilities of our nominating/corporate
governance committee, which will be set forth in more detail in
its charter, will be to:
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identify candidates qualified to become members of our board of
directors, consistent with criteria approved by our board of
directors;
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select, or recommend that our board of directors select, the
director nominees for the next annual meeting of stockholders;
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develop and recommend to our board of directors a set of
corporate governance guidelines applicable to our company; and
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oversee the evaluation of our board of directors and management.
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The nominating/corporate governance committee will consider
persons recommended by stockholders for inclusion as nominees
for election to our board of directors if the names,
biographical data, and qualifications of such persons are
submitted in writing in a timely manner addressed and delivered
to our companys secretary at the address listed herein.
The nominating/corporate governance committee will identify and
evaluate nominees for our board of directors, including nominees
recommended by stockholders, based on numerous factors it
considers appropriate, some of which may include strength of
character, mature judgment, career specialization, relevant
technical skills, diversity, and the extent to which the nominee
would fill a present need on our board of directors. Our
nominating/corporate governance committee will strive to seek
director nominees who represent diverse viewpoints. In
evaluating the diversity of nominees for our board of directors,
the nominating/corporate governance committee will consider
nominees with a broad diversity of experience, professions,
skills, geographic representation and backgrounds. The committee
will not assign specific weights to particular criteria and
expects that no particular criterion will necessarily be
applicable to all prospective nominees. Our board of directors
believes that the backgrounds and qualifications of the
directors, considered as a group, should provide a significant
composite mix of experiences, knowledge, and abilities that will
allow our board of directors to fulfill its responsibilities.
Nominees will not be
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discriminated against on the basis of race, religion, national
origin, sexual orientation, disability, or any other basis
proscribed by law.
In compliance with the rules of the SEC and the New York
Stock Exchange, our nominating/corporate governance committee
will consist entirely of independent directors, as defined under
New York Stock Exchange listing standards and SEC rules.
Effective upon the consummation of this offering,
Messrs. Urkiel, Utrup, and Welch will serve as members of
our nominating/corporate governance committee, with
Mr. Welch initially serving as chairman.
Board
Leadership Structure
We separate the roles of chief executive officer and chairman of
the board in recognition of the differences between the two
roles. Our chief executive officer is responsible for setting
the strategic direction for our company and the day to day
leadership and performance of our company, while the chairman of
the board provides guidance to the chief executive officer and
sets the agenda for meetings of our board of directors and
presides at such meetings. The board believes that separating
these roles is in the best interests of our stockholders because
it provides the appropriate balance between strategy
development, flow of information between management and the
board, and oversight of management. Going forward, we will seek
independent directors to bring experience, oversight, and
expertise from outside of our company and industry. Our board of
directors reserves the right to reconsider its leadership
structure given the needs of our company at any given time.
Board
of Directors Role in Risk Oversight
The role of our board of directors in our companys risk
oversight process includes receiving reports from members of
senior management on areas of material risk to our company,
including operational, financial, legal and regulatory, and
strategic and reputational risks. The board of directors
receives these reports from the appropriate executive within the
organization to enable it to understand our risk identification,
risk management and risk mitigation strategies. This direct
communication from management enables our board of directors to
coordinate the risk oversight role, particularly with respect to
risk interrelationships within our organization.
Compensation
Committee Interlocks and Insider Participation
We do not currently have a compensation committee. Compensation
decisions for our executive officers were made by our board of
directors as a whole. Mr. DiBlasi participated in
discussions with the board of directors concerning executive
officer compensation other than his own. Following the closing
of this offering, our compensation committee is expected to be
comprised of directors who have not, at any time, had any
contractual or other relationship with our company.
Director
Compensation
Following this offering, we intend to use a combination of cash
and stock-based incentive compensation to attract and retain
qualified candidates to serve on our board of directors. In
setting director compensation, we will consider the amount of
time that directors spend fulfilling their duties as a director,
including committee assignments.
Prior to the closing of this offering, we did not pay our
directors any compensation. Following completion of this
offering, we will seek to provide director compensation packages
that are customary for boards of directors for similarly
situated companies. Initially, we will pay each independent
director an annual retainer fee of $30,000, payable quarterly.
The chairman of the audit committee will receive an extra $5,000
per year over the standard independent director compensation.
The chairman of the compensation committee will receive an extra
$5,000 per year over the standard independent director
compensation. The chairman of the nominations committee will
receive an extra $3,000 per year over the standard independent
director compensation. Although we anticipate that we will also
make equity-based awards to our directors, we have not made any
determinations with respect to such awards as of the date of
this prospectus. We will also reimburse each director for travel
and related expenses incurred in connection with attendance at
board and committee meetings.
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Compensation
Discussion and Analysis
This section discusses the principles underlying our executive
compensation policies and decisions and the most important
factors relevant to an analysis of these policies and decisions.
It provides qualitative information regarding the manner and
context in which compensation is awarded to and earned by our
executive officers and places in perspective the data presented
in the narrative and tables that follow.
Overview
The objectives of our compensation program for our executive
officers seek to promote the creation of long-term stockholder
value by:
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tying a portion of those executives total compensation to
company and individual performance measures that are expected to
position our company for long-term success; and
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attracting, motivating, and retaining high-caliber executives
with the skills necessary to achieve our business objectives in
a competitive market for talent.
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We use a mix of five components in pursuing these objectives:
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base salary;
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annual cash bonuses;
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equity awards in the form of stock options;
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benefits and perquisites; and
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arrangements regarding compensation upon termination of
employment.
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Our practice has been and will continue to be to combine the
components of our executive compensation program to align
compensation with measures that correlate with the creation of
long-term stockholder value and to achieve a total compensation
level appropriate for our size and corporate performance. In
pursuing this, we offer an opportunity for income in the event
of successful corporate financial performance, matched with the
prospect of less compensation in the absence of successful
corporate financial performance. Our philosophy is to make a
greater percentage of an employees compensation based on
our companys performance as he or she becomes more senior,
with a significant portion of the compensation of our executive
officers based on the achievement of company performance goals
because the performance of these officers is more likely to have
a direct impact on our achievement of strategic and financial
goals that are most likely to affect stockholder value. At the
same time, our board of directors believes that we must attract
and retain high-caliber executives, and therefore must offer a
mixture of fixed and incentive compensation at levels that are
attractive in light of the competitive market for senior
executive talent.
Historically, our board of directors has reviewed the total
compensation of our executive officers and the mix of components
used to compensate those officers on an annual basis. In
determining the total amount and mix of compensation components,
our board of directors strives to create incentives and rewards
for performance consistent with our short-term and long-term
company objectives. Our board of directors relies on its
judgment about each individual rather than employing a formulaic
approach to compensation decisions. Our board of directors has
not assigned a fixed weighting among each of the compensation
components. Our board of directors assesses each executive
officers overall contribution to our business, scope of
responsibilities, and historical compensation and performance to
determine his annual compensation. In making compensation
decisions, our board takes into account input from our board
members and our chief executive officer based on their
experiences with other companies. We have not engaged
third-party consultants to benchmark our compensation packages
against our peers. However, going forward, we anticipate that
our compensation committee may, from time to time as it sees
fit, retain third-party executive compensation specialists in
connection with determining cash and equity compensation and
related compensation policies in the future.
The GTS merger is not currently anticipated to impact our
compensation policies or practices relating to our executive
officers for 2010. As we evaluate the impact of the GTS merger
on our executive officers responsibilities on a go-forward
basis, we will adjust our compensation practices accordingly.
Role of Our
Compensation Committee
Historically, our board of directors determined and administered
the compensation of our chief executive officer, and our chief
executive officer, subject to the approval of our board of
directors, determined the compensation of our other executive
officers. Following this offering, our newly established
compensation committee will make the ultimate decisions
regarding executive officer compensation. We do not anticipate
that this shift in our compensation determination processes and
procedures will affect our executive officers 2010
compensation. Our chief executive officer and other executive
officers may
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from time to time attend meetings of our compensation committee
or our board of directors, but will have no final decision
authority with respect to executive officer compensation.
Annually, our compensation committee will evaluate the
performance of our chief executive officer and determine our
chief executive officers compensation in light of the
goals and objectives of our compensation program. The decisions
relating to our chief executive officers compensation will
be made by the compensation committee, which will review its
determinations with our board of directors without the presence
of management prior to its final determination. Decisions
regarding the other executive officers will be made by our
compensation committee after considering recommendations from
our chief executive officer. As noted above, in the future we
may engage an independent compensation consultant to assist the
compensation committee in making its compensation determinations.
Specific
Components of Our Compensation Program
Base Salary. Base salary provides fixed compensation
to an executive officer that reflects his or her job
responsibilities, experience, value to our company, and
demonstrated performance. In setting base salaries, our board of
directors considers a variety of factors, including:
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the nature and responsibility of each executives position;
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the impact, contribution, length of service, expertise, and
experience of the executive;
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competitive market information regarding salaries to the extent
available and relevant;
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the importance of retaining the individual along with the
competitiveness of the market for the individual
executives talent and services; and
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recommendations of our chief executive officer (except in the
case of his own compensation).
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Our board of directors annually reviews, and adjusts from time
to time, the base salaries for our executive officers.
Incentive Compensation. We utilize cash bonuses to
align the interests of senior management with stockholders by
tying a portion of their compensation to company and individual
performance goals. At the end of each fiscal year, our board of
directors receives recommended performance measures and ranges
from senior management, and then sets performance measures and
ranges that it deems appropriate for the subsequent fiscal year.
The cash bonus portion of annual compensation is based on our
LTL business management incentive plan, which pays a cash bonus
based on the achievement of annual company and personal
performance goals in order to emphasize pay for company
performance and individual performance. At maximum performance
levels, cash incentive compensation can equal up to 100% of our
chief executive officers base salary and 75% of the base
salary of our other executive officers.
Our board of directors believes that the bulk of cash incentive
bonuses should be based on objective measures of financial
performance, but believes that more subjective elements are also
important in recognizing achievement and motivating executives.
Therefore, at the same time that company-wide performance
objectives are set, individual performance objectives based on
the recommendations of our chief executive officer (except with
respect to himself) are set in order to reward performance
objectives beyond purely financial measures. Our cash incentive
plan is comprised of two targets: (1) financial performance
related to the achievement of targeted levels of earnings before
interest, taxes, depreciation, and amortization, or EBITDA, and
(2) individual performance objectives. A description of
these targets and the percentage of the maximum annual incentive
compensation tied to each follows:
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EBITDA 90% of the maximum annual incentive
compensation payable to our executive officers (100% in the case
of our chief executive officer) is based on achieving specific
EBITDA goals. In order for any bonus to be paid based on the
individual performance criterion discussed below, a minimum
EBITDA goal within our LTL business must be achieved. If the
minimum EBITDA threshold is met, an executive officer is
eligible to receive a bonus equal to 30% (38% in the case of our
chief executive officer) of his base salary. If the minimum
EBITDA goal is exceeded by 25%, an executive officer is eligible
to receive a bonus equal to 55% (75% in the case of our chief
executive officer) of his base salary. If the minimum EBITDA
goal is exceeded by 40%, an executive officer was eligible to
receive a bonus equal to 75% (100% in the case of our chief
executive officer) of his base salary. After the end of the
fiscal year, our board of directors reviews our companys
actual performance against each of the financial performance
objectives established at the end of the previous year and, in
determining whether the performance ranges are met, exercises
its judgment whether to reflect or exclude the impact of changes
in accounting principles and extraordinary, unusual or
infrequently occurring events.
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Individual Performance Ten percent of the maximum
annual incentive compensation payable to our executive officers
(other than our chief executive officer) is based on individual
performance. Our chief executive officer (subject to the review
of our board of directors) makes this determination based on
performance metrics designed for each of our other executive
officers position and level of responsibility related to
our overall corporate objectives based our chief executive
officers industry experience. If the minimum EBITDA
threshold is met, and an executive
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officers individual performance meets the standards for a
bonus, then that executive will receive up to 10% of the maximum
bonus he was eligible to receive under the EBITDA criterion. For
example, in the case of an executive officer (other than our
chief executive officer), if the minimum EBITDA threshold is
met, that executive officer is entitled to receive up to 30% of
his base salary as a bonus. However, 10% of such 30% is
comprised of the individual performance criterion. Therefore, if
the EBITDA threshold is met, but the individual performance
criterion is not, the executive officer will receive 27% of his
base salary as a bonus.
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At the end of 2008, in light of the economic downturn and its
impact on our LTL business and the transportation industry
generally, our board of directors suspended our traditional cash
incentive plan described above and implemented a temporary cash
incentive plan for 2009 based on quarterly EBITDA targets for
our LTL operations. There was no individual performance
component of our 2009 incentive compensation plan. Under the
2009 cash incentive plan, each of our executive officers was
eligible to receive a bonus equal to approximately 5% of his
base salary for each fiscal quarter that we met a minimum
quarterly EBITDA threshold, or an aggregate of 20% of his base
salary if all quarterly EBITDA goals were met. The quarterly
EBITDA targets were approximately $1.2 million,
$3.2 million, $3.4 million, and $3.2 million for
the first, second, third, and fourth fiscal quarters of 2009,
respectively. The first and second quarterly EBITDA targets were
met in 2009 and bonuses of $30,700, $19,449, $18,900, and
$27,525 were paid to Messrs. DiBlasi, Armbruster, van
Helden, and Dobak, respectively, pursuant to our 2009 cash
incentive plan, or approximately 10% of their 2009 base salary.
The third and fourth quarter EBITDA targets were not met.
The 2009 cash incentive plan was terminated at the end of 2009.
Going forward, our cash incentive plan will again be comprised
of annual EBITDA targets and individual performance objectives.
Equity Compensation. We grant stock options to align
the interests of our executive officers with the interests of
our stockholders and to reward our executive officers for
superior corporate performance. Historically, we have granted
stock options to our executive officers upon their joining our
company. All of our stock options vest over a four-year period,
with 25% vesting on the first anniversary of the grant date and
6.25% at the end of each subsequent three-month period
thereafter. The stock options were all granted with an exercise
price per share equal to the fair market value of our stock on
the grant date, as determined by our board of directors because
there has not been a public market for our stock. Our executives
will realize value from stock options only if and to the extent
the market price of our common stock when the executive
exercises the option exceeds the price on the date of grant. The
exercise price per share and the number of shares issuable upon
exercise of these options will be adjusted in connection with
the 149.314-for-one split of our Class A common stock. In
2009, we did not grant any equity awards to our executive
officers.
Benefits and Perquisites. Our executive officers
participate in the employee benefits that are available to all
employees. In addition, historically we provided each of our
executive officers with the use of a company car, which program
was discontinued in July 2009. We also provide term life
insurance policies on all of our executive officers similar to
our other employees.
Severance Payments. We provide our executive
officers with severance arrangements that are intended to
attract and retain qualified executives who have alternatives
that may appear to them to be less risky absent these
arrangements. These arrangements are also intended to mitigate a
potential disincentive for the executive officers to pursue and
execute an acquisition of us, particularly where the services of
these executive officers may not be required by the acquirer.
For quantification of these severance benefits, please see the
discussion under Compensation Discussion and
Analysis Potential Payments Upon Termination or
Change in Control in this prospectus.
2010
Compensation
In 2010, our compensation program will consist of the same
components described above. In setting 2010 base salaries, our
board of directors considered each individual officers
contribution to our business, scope of responsibilities,
individual performance, and length of service and gave modest
base salary increases of 10% for each executive officer.
Mr. DiBlasis base salary for 2010 is $345,400,
Mr. Armbrusters base salary for 2010 is $220,800, Mr.
van Heldens base salary for 2010 is $214,775, and
Mr. Dobaks base salary for 2010 is $309,925. We
anticipate that the annual cash incentive plan will be
reinstated, although the threshold, target, and maximum payments
have not yet been determined. However, we expect that the
financial performance targets for our cash incentive plan will
be expanded to include other financial measurements applicable
to the financial performance of the entire organization rather
than just our LTL operations, including net income, in addition
to EBITDA.
In the future, we plan to grant equity awards annually to our
executive officers and key employees. The equity-based grant
program may include the award of stock options,
performance-based vesting restricted stock units,
and/or
time-based vesting restricted stock units. Equity will be
awarded to executive officers and key employees based upon
performance and potential to contribute to our companys
success. In the future, we may, in our discretion, weigh awards
slightly more toward
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restricted stock units because these awards reflect both
increases and decreases in stock price from the grant-date
market price and thus tie compensation more closely to changes
in stockholder value at all levels compared to options, whose
intrinsic value changes with stockholder value only when the
market price of shares is above the exercise price. In addition,
the weighing toward restricted stock units would allow us to
deliver equivalent value to option grants with use of fewer
authorized shares.
Tax
Considerations
Section 162(m) of the Internal Revenue Code
(Section 162(m)) imposes a $1 million limit on the
amount that a public company may deduct for compensation paid to
the companys chief executive officer or any of the
companys four other most highly compensated executive
officers who are employed as of the end of the year. This
limitation does not apply to compensation that meets the
requirements under Section 162(m) for qualifying
performance-based compensation (i.e., compensation paid
only if the individuals performance meets preestablished
objective goals based on performance criteria approved by the
stockholders). Prior to this offering, we were not subject to
Section 162(m). Going forward, we will seek to maximize the
compensation deduction of our executive officers and to
structure the performance-based portion of the compensation of
our executive officers in a manner that complies with
Section 162(m). However, because we will compensate our
executive officers in a manner designed to promote our varying
corporate objectives, our compensation committee may not adopt a
policy requiring all compensation to be deductible. For 2009,
cash compensation paid to our executive officers did not exceed
the $1 million limit for any covered officer.
59
Summary
Compensation Table
The following table sets forth, for the periods indicated, the
total compensation for services in all capacities to us received
by our chief executive officer, our chief financial officer, and
our two other executive officers for the fiscal year ended
December 31, 2009.
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Name and
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All Other
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Principal Position
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Year
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Salary(1)
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Bonus(2)
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Compensation(3)
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Total
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Mark A. DiBlasi
President, Chief Executive Officer, and Director
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2009
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$
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302,169
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$
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30,700
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$
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26,215
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$
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359,084
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Peter R. Armbruster
Chief Financial Officer
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2009
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$
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191,397
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$
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19,449
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$
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24,581
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$
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235,427
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Brian J. van Helden
Vice President Operations
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2009
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$
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185,996
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$
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18,900
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$
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22,895
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$
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227,791
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Scott L. Dobak
Vice President Sales and Marketing
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2009
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$
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270,915
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$
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27,525
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$
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26,907
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$
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325,347
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(1)
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Beginning in January 2009, the base
salary for each of Messrs. DiBlasi, Armbruster, van Helden,
and Dobak was $300,000, $188,235, $182,750, and $268,750,
respectively. Such amounts were increased in July 2009 to
$314,000, $200,735, $195,250, and $281,250 as a result of our
discontinuation of our automobile usage benefits. As part of our
overall cost reduction and savings initiatives, effective
November 2009 our executive officers base salaries were
reduced along with our other employees. The base salary of each
of Messrs. DiBlasi, Armbruster, van Helden, and Dobak was
reduced by $4,831, $3,088, $3,004, and $4,335, respectively.
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(2)
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Amounts shown reflect bonuses
earned based on company performance criteria under our 2009 cash
incentive program for the first and second quarters of 2009.
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(3)
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Amounts represent matching
contributions to our 401(k) plan of $9,800, $8,434, $8,196, and
$9,800 on behalf of Messrs. DiBlasi, Armbruster, van
Helden, and Dobak, respectively. We also paid premiums on term
life insurance policies on behalf of the executive officers. The
taxable portion of the premiums paid for the term life insurance
policies is computed based on Internal Revenue Service
guidelines and totaled $414, $414, $180, and $270 on behalf of
Messrs. DiBlasi, Armbruster, van Helden, and Dobak,
respectively. In addition, each of our executive officers also
received the benefit of the use of a company issued automobile
through July 2009 (when such program was discontinued), the
taxable value of which did not exceed $10,000 for any executive
officer. In addition, the amounts also include medical and
disability insurance benefits paid on behalf of our executive
officers.
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Employment and
Other Agreements
We have no written employment contracts with any of our
executive officers. We have, however, provided employment letter
agreements to our named executive officers setting forth their
title, base salary, health benefits, and severance benefits in
the event of termination. As part of the compensation package
provided to our named executive officers, we provide them with
(i) the right to participate in our LTL business management
incentive plan and to receive awards under our 2010 incentive
compensation plan, (ii) the right to participate in all
medical, group life insurance, retirement, and other fringe
benefit plans as may from time to time be provided to our
executives, and (iii) severance benefits. If we terminate
the executives employment for any reason other than for
cause, or if he terminates his employment
voluntarily for good reason (as such terms are
defined in the employment letters), he is entitled to receive
his current base salary for a period of 12 months in
accordance with our normal payroll practices and will be
eligible to receive all benefits under welfare benefit plans,
practices, policies, and programs provided by us (including
medical and group life plans and programs) for the same period.
If, during the one-year period following a change of
control (as defined in the employment letters), the
executives employment is terminated without cause, he is
entitled to receive his current base salary for a period of
12 months in accordance with our normal payroll practices
and will be eligible to receive all benefits under welfare
benefit plans, practices, policies, and programs provided by us
(including medical and group life plans and programs) for the
same period. See Compensation Discussion and
Analysis Potential Payments Upon Termination or
Change of Control in this prospectus.
Grants of
Plan-Based Awards and 2009 Option Exercises
During 2009, no plan-based incentive awards were made to our
named executive officers and none of our named executive
officers exercised any stock options.
60
Outstanding
Equity Awards at December 31, 2009
The following table provides information with respect to
outstanding vested and unvested option awards held by our named
executive officers as of December 31, 2009.
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Option
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Number of Securities Underlying Unexercised Options
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Exercise
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Option
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Name
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Exercisable(1)
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Unexercisable(1)
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Price(1)
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Expiration Date
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Mark A. DiBlasi
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111,985
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7,466
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$
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6.70
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1/16/16
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Mark A. DiBlasi
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111,985
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7,466
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$
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13.39
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1/16/16
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Mark A. DiBlasi
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69,990
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4,667
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$
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20.09
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1/16/16
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Mark A. DiBlasi
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41,061
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18,665
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$
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6.70
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3/15/17
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Mark A. DiBlasi
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41,061
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18,665
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$
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13.39
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3/15/17
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Peter R. Armbruster
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63,234
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$
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6.70
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3/31/15
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Peter R. Armbruster
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63,309
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$
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13.39
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3/31/15
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Peter R. Armbruster
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63,309
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$
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20.09
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3/31/15
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Brian J. van Helden
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39,521
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23,713
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$
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6.70
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4/9/17
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Brian J. van Helden
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39,521
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23,713
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$
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13.39
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4/9/17
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Brian J. van Helden
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39,521
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23,713
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$
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20.09
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4/9/17
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Scott L. Dobak
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43,473
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19,761
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$
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6.70
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1/29/17
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Scott L. Dobak
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43,473
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19,761
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$
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13.39
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1/29/17
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Scott L. Dobak
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43,473
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19,761
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$
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20.09
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1/29/17
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(1)
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All share numbers and exercise
prices reflect the conversion of our Class A common stock
into our new common stock on a 149.314-for-one basis, as
described in Description of Capital Stock.
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Post-Employment
Compensation
Pension
Benefits
We do not offer any defined benefit pension plans for any of our
employees. We do have a 401(k) plan in which our employees may
participate. In 2009, we made matching contributions to our
401(k) plan of $9,800, $8,434, $8,196, and $9,800, on behalf of
Messrs. DiBlasi, Armbruster, van Helden, and Dobak,
respectively.
Potential
Payments Upon Termination or Change in Control
The tables below reflect the amount of compensation to certain
of our executive officers in the event of termination of such
executives employment or a change in control. Other than
as set forth below, no amounts will be paid to our named
executive officers in the event of termination.
Severance
Arrangements Upon Termination
We have employment letter agreements with our named executive
officers. The arrangements reflected in these letter agreements
are designed to encourage the officers full attention and
dedication to our company currently and, in the event of any
proposed change of control, provide these officers with
individual financial security. Pursuant to the employment
letters, if the executive is terminated for any reason other
than for cause, or if he terminates his employment
voluntarily for good reason (as such terms are
defined in the employment letters), he is entitled to receive
his current base salary for a period of 12 months in
accordance with our normal payroll practices and will be
eligible to receive all benefits under welfare benefit plans,
practices, policies, and programs provided by us (including
medical and group life plans and programs) for the same period.
61
Assuming these agreements were in place on December 31,
2009, if our named executive officers were terminated without
cause or for good reason (as those terms are defined in the
employment letters) on December 31, 2009, they would
receive the following salaries over a
12-month
period pursuant to their letter agreements:
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Name
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Salary
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Mark A. DiBlasi
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$
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314,000
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Peter R. Armbruster
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$
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200,735
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Brian J. van Helden
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$
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195,250
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Scott L. Dobak
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$
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281,750
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|
Severance
Arrangements Upon Change of Control
Pursuant to the employment letters with our named executive
officers, if, during the one-year period following a
change of control (as defined in the employment
letters), the executives employment is terminated without
cause, he is entitled to receive his current base salary for a
period of 12 months in accordance with our normal payroll
practices and will be eligible to receive all benefits under
welfare benefit plans, practices, policies, and programs
provided by us (including medical and group life plans and
programs) for the same period.
Assuming those letter agreements were in place on
December 31, 2009 and a change in control of our company
occurred on December 31, 2009 and each of the executive
officers listed below was terminated as a result of the change
of control, our named executive officers would receive the
following salaries over a
12-month
period pursuant to their employment letter agreements:
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Name
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Salary
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Mark A. DiBlasi
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$
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314,000
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Peter R. Armbruster
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$
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200,735
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Brian J. van Helden
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$
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195,250
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Scott L. Dobak
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$
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281,750
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Nonqualified
Deferred Compensation
We do not offer any deferred compensation plans for any of our
named executive officers.
2010 Incentive
Compensation Plan
Our board of directors has adopted, subject to approval by our
stockholders, a 2010 incentive compensation plan. The incentive
plan will terminate no later than (1) March 31, 2020, or
(2) 10 years after the board approves an increase in
the number of shares subject to the plan (so long as such
increase is also approved by the stockholders). The incentive
plan provides for the grant of nonstatutory stock options,
restricted stock awards, stock appreciation rights, phantom
stock, dividend equivalents, other stock-related awards and
performance awards. Awards may be granted to employees,
including executive officers, non-employee directors, and
consultants.
Share
Reserve
An aggregate of 2,500,000 shares of common stock have been
reserved for issuance under the incentive compensation plan. As
of the date hereof, no shares of common stock have been issued
under the incentive compensation plan.
Certain types of shares issued under the incentive compensation
plan may again become available for the grant of awards under
the incentive compensation plan, including restricted stock that
is repurchased or forfeited prior to it becoming fully vested;
shares withheld for taxes; shares that are not issued in
connection with an award, such as upon the exercise of a stock
appreciation right; and shares used to pay the exercise price of
an option in a net exercise.
In addition, shares subject to stock awards that have expired or
otherwise terminated without having been exercised in full may
be subject to new equity awards. Shares issued under the
incentive compensation plan may be previously unissued shares or
reacquired shares bought on the market or otherwise.
Administration
Our board of directors has the authority to administer the
incentive compensation plan as the plan administrator. However,
our board of directors has the authority to delegate its
authority as plan administrator to one or more committees,
including its compensation committee. Subject to the terms of
the incentive compensation plan, the plan administrator
determines recipients, grant dates, the numbers and types of
equity awards to be granted, and the terms and conditions of
62
the equity awards, including the period of their exercisability
and vesting. Subject to the limitations set forth below, the
plan administrator also determines the exercise price of options
granted, the purchase price for rights to purchase restricted
stock and, if applicable, phantom stock and the strike price for
stock appreciation rights.
Grant
Limits
To the extent that Section 162(m) applies to the incentive
compensation plan, no participant will receive an award for more
than 2,000,000 shares in any calendar year. In addition, no
participant will receive a performance bonus for more than
$5,000,000 per twelve-month period (as adjusted on a
straight-line basis for the actual length of the performance
period).
Stock
Options
Each stock option granted pursuant to the incentive compensation
plan must be set forth in a stock option agreement. The plan
administrator determines the terms of the stock options granted
under the incentive compensation plan, including the exercise
price, vesting schedule, the maximum term of the option and the
period of time the option remains exercisable after the
optionees termination of service. The exercise price of a
stock option, however, may not be less than the fair market
value of the stock on its grant date and the maximum term of a
stock option may not be more than ten years. All options granted
under the incentive compensation plan will be nonstatutory stock
options.
Acceptable consideration for the purchase of common stock issued
under the incentive compensation plan is determined by the plan
administrator and may include cash, common stock, a deferred
payment arrangement, a broker assisted exercise, the net
exercise of the option, and other legal consideration approved
by the board of directors.
Generally, an optionee may not transfer a stock option other
than by will or the laws of descent and distribution unless the
stock option agreement provides otherwise. However, an optionee
may designate a beneficiary who may exercise the option
following the optionees death.
Restricted Stock
Awards
Restricted stock awards must be granted pursuant to a restricted
stock award agreement. The plan administrator determines the
terms of the restricted stock award, including the purchase
price, if any, for the restricted stock, and the vesting
schedule, if any, for the restricted stock award. The plan
administrator may grant shares fully vested as a bonus for the
recipients past services performed for us. The purchase
price for a restricted stock award may be payable in cash, the
recipients past services performed for us, or any other
form of legal consideration acceptable to our board of
directors. Shares under a restricted stock award may not be
transferred other than by will or by the laws of descent and
distribution until they are fully vested or unless otherwise
provided for in the restricted stock award agreement.
Stock
Appreciation Rights
Each stock appreciation right granted pursuant to the incentive
compensation plan must be set forth in a stock appreciation
rights agreement. The plan administrator determines the terms of
the stock appreciation rights granted under the incentive
compensation plan, including the strike price, vesting schedule,
the maximum term of the right and the period of time the right
remains exercisable after the recipients termination of
service.
Generally, the recipient of a stock appreciation right may not
transfer the right other than by will or the laws of descent and
distribution unless the stock appreciation rights agreement
provides otherwise. However, the recipient of a stock
appreciation right may designate a beneficiary who may exercise
the right following the recipients death.
Stock
Units
Stock unit awards must be granted pursuant to stock unit award
agreements. The plan administrator determines the terms of the
stock unit award, including any performance or service
requirements. A stock unit award may require the payment of at
least par value. Payment of any purchase price may be made in
cash, the recipients past services performed for us, or
any other form of legal consideration acceptable to the board of
directors. Rights to acquire shares under a stock unit award
agreement may not be transferred other than by will or by the
laws of descent and distribution unless otherwise provided in
the stock unit award agreement.
Dividend
Equivalents
Dividend equivalents must be granted pursuant to a dividend
equivalent award agreement. Dividend equivalents may be granted
either alone or in connection with another award. The plan
administrator determines the terms of the dividend equivalent
award.
63
Bonus
Stock
The plan administrator may grant stock as a bonus or in lieu of
our obligations to pay cash or deliver other property under a
compensatory arrangement with one of our service providers.
Other Stock-Based
Awards
The plan administrator may grant other awards based in whole or
in part by reference to our common stock. The plan administrator
will set the number of shares under the award, the purchase
price, if any, the timing of exercise and vesting, and any
repurchase rights associated with such awards. Unless otherwise
specifically provided for in the award agreement, such awards
may not be transferred other than by will or by the laws of
descent and distribution.
Performance
Awards
The right of a participant to exercise or receive a grant or
settlement of an award, and the timing thereof, may be subject
to such performance conditions, including subjective individual
goals, as may be specified by the plan administrator. In
addition, the incentive compensation plan authorizes specific
performance awards to be granted to persons whom the plan
administrator expects will, for the year in which a deduction
arises, be covered employees (as defined below) so
that such awards should qualify as performance-based
compensation not subject to the limitation on tax deductibility
by us under Section 162(m). For purposes of
Section 162(m), the term covered employee means
our chief executive officer and our four highest compensated
officers as of the end of a taxable year determined in
accordance with federal securities laws. If, and to the extent
required under Section 162(m), any power or authority
relating to a performance award intended to qualify under
Section 162(m) will be exercised by a committee that
qualifies under Section 162(m), rather than by our board of
directors. We believe that our compensation committee qualifies
for this role under Section 162(m).
Subject to the requirements of the incentive compensation plan,
our compensation committee will determine performance award
terms, including the required levels of performance with respect
to specified business criteria, the corresponding amounts
payable upon achievement of such levels of performance,
termination and forfeiture provisions, and the form of
settlement. One or more of the following business criteria based
on our consolidated financial statements or those of our
subsidiaries, divisions or business or geographical units will
be used by our compensation committee in establishing
performance goals for performance awards designed to comply with
the performance-based compensation exception to
Section 162(m): (1) earnings per share;
(2) revenues or margins; (3) cash flows;
(4) operating margin; (5) return on net assets,
investment, capital, or equity; (6) economic value added;
(7) direct contribution; (8) net income; pretax
earnings; earnings before interest and taxes; earnings before
interest, taxes, depreciation, and amortization; earnings after
interest expense and before extraordinary or special items;
operating income; income before interest income or expense,
unusual items and income taxes, local, state, or federal and
excluding budgeted and actual bonuses which might be paid under
any of our ongoing bonus plans; (9) working capital;
(10) management of fixed costs or variable costs;
(11) identification or consummation of investment
opportunities or completion of specified projects in accordance
with corporate business plans, including strategic mergers,
acquisitions or divestitures; (12) total stockholder
return; and (13) debt reduction. Any of the above goals may
be determined on an absolute or relative basis or as compared to
the performance of a published or special index deemed
applicable by our compensation committee including, but not
limited to, the Standard & Poors 500 Stock Index
or a group of companies that are comparable to us. Our
compensation committee shall exclude the impact of an event or
occurrence which our compensation committee determines should
appropriately be excluded, including without limitation
(1) restructurings, discontinued operations, extraordinary
items, and other unusual or non-recurring charges, (2) an
event either not directly related to our operations or not
within the reasonable control of our management, or (3) a
change in accounting standards required by generally accepted
accounting principles.
Changes in
Control
In the event of certain corporate transactions, all outstanding
options and stock appreciation rights under the incentive
compensation plan either will be assumed, continued, or
substituted by any surviving or acquiring entity. If the awards
are not assumed, continued, or substituted for, then such awards
shall become fully vested and, if applicable, fully exercisable
and will terminate if not exercised prior to the effective date
of the corporate transaction. In addition, at the time of the
transaction, the plan administrator may accelerate the vesting
of such equity awards or make a cash payment for the value of
such equity awards in connection with the termination of such
awards. Other forms of equity awards such as restricted stock
awards may have their repurchase or forfeiture rights assigned
to the surviving or acquiring entity. If such repurchase or
forfeiture rights are not assigned, then such equity awards may
become fully vested. The vesting and exercisability of certain
equity awards may be accelerated on or following a change in
control transaction if specifically provided in the respective
award agreement.
64
Adjustments
In the event that certain corporate transactions or events (such
as a stock split or merger) affects our common stock, our other
securities or any other issuer such that the plan administrator
determines an adjustment to be appropriate under the incentive
compensation plan, then the plan administrator shall, in an
equitable manner, substitute, exchange, or adjust (1) the
number and kind of shares reserved under the incentive
compensation plan, (2) the number and kind of shares for
the annual per person limitations, (3) the number and kind
of shares subject to outstanding awards, (4) the exercise
price, grant price, or purchase price relating to any award
and/or make
provision for payment of cash or other property in respect of
any outstanding award, and (5) any other aspect of any
award that the plan administrator determines to be appropriate.
401(k)
Plan
We maintain a defined contribution profit sharing plan for our
full-time employees, which is intended to qualify as a tax
qualified plan under Section 401 of the Internal Revenue
Code. The plan provides that each participant may contribute up
to 100% of his or her pre-tax compensation, up to the statutory
limit. Additionally, we match 100% of each participants
contributions up to 4% of his or her pre-tax compensation, up to
the statutory limit. Under the plan, each employee is fully
vested in his or her deferred salary contributions. The plan
also permits us to make discretionary contributions of up to an
additional 50% of each participants contributions up to 4%
of his or her pre-tax compensation, up to the statutory limit,
which generally vest over three years. In 2009, we made
approximately $0.8 million of matching contributions to the
plan on behalf of participating employees.
Risk Management
Considerations
Our board of directors believes that our executive compensation
program creates incentives to create long-term value while
minimizing behavior that leads to excessive risk. The EBITDA
financial metric used to determine the amount of an
executives company-based performance bonus has ranges that
encourage success without encouraging excessive risk taking to
achieve short-term results. In addition, at maximum performance
levels, cash incentive compensation cannot exceed 100% of our
chief executive officers base salary and 75% of the base
salary of our other executive officers. The stock options
granted to our executives become exercisable over a four-year
period and remain exercisable for up to ten years from the date
of grant, encouraging executives to look to long-term
appreciation in equity values.
65
Certain
Relationships and Related Transactions
GTS
Merger
Simultaneous with the consummation of this offering, GTS
Transportation Logistics, Inc., our wholly owned subsidiary,
will merge with and into GTS, and GTS will be the surviving
corporation and a wholly owned subsidiary of our company. As a
result of the GTS merger, the stockholders of GTS will become
stockholders of our company. The merger agreement provides that
each issued and outstanding share of GTS common stock will be
converted into 141.848 shares of our common stock, or a total of
3,230,324 shares. Assuming the exercise of all dilutive stock
options and warrants, and disregarding this offering, the
combined company would be owned approximately 14.2% by the
stockholders of GTS and approximately 85.8% by our current
stockholders.
Upon consummation of the GTS merger, we will assume all
outstanding options to purchase GTS common stock issued by GTS
to its employees. Each such option outstanding immediately prior
to the effective time of the merger will become an option to
purchase our common stock, with the number of shares subject to
such option and the option price to be adjusted in accordance
with the GTS merger exchange ratio.
The obligations of the parties to complete the merger depend on
(1) the consummation of this offering; (2) the
approval of the GTS merger by our creditors; (3) the
termination of our management agreement and the GTS management
agreement (described below); (4) the satisfaction of our
senior subordinated notes and junior subordinated notes, and the
GTS credit facility; (5) no GTS stockholder having
exercised its appraisal rights pursuant to Delaware law;
(6) the representations and warranties of the other party
being true and correct in all material respects upon completion
of the merger; (7) the other party having performed, in all
material respects, all of its agreements and covenants under the
merger agreement on or prior to the completion of the merger;
(8) the other party having obtained all required corporate
approvals of its board of directors and stockholders;
(9) the receipt of all required consents to the
transactions contemplated by the merger agreement from
governmental, quasi-governmental and private third parties;
(10) no suit, action or other proceeding by any
governmental agency having been pending or threatened that would
restrain or prohibit or seeking damages with respect to the
merger; and (11) no proceeding in which any party is
involved under any U.S. or state bankruptcy or insolvency
law.
As of April 15, 2010, Thayer | Hidden Creek was
the beneficial owner of approximately 71% of our outstanding
common stock (not giving effect to the GTS merger) and
approximately 79% of GTS outstanding common stock. As of
April 15, 2010, Eos was the beneficial owner of
approximately 22% of our outstanding common stock. Upon
consummation of the GTS merger, assuming our sale of
9,000,000 shares in this offering,
Thayer | Hidden Creek will be the beneficial owner of
approximately 52% of our common stock and Eos will be the
beneficial owner of approximately 13% of our common stock.
We have attached the Agreement and Plan of Merger, or merger
agreement, which is the legal document that governs the merger,
as an exhibit to the registration statement of which this
prospectus forms a part. The foregoing description of the merger
agreement and the transactions contemplated thereby is qualified
in its entirety by reference to the full text of the merger
agreement.
Management and
Consulting Agreements
In April 2005, Dawes Transport entered into a Management and
Consulting Agreement with Thayer | Hidden Creek
Management, L.P., an affiliate of Thayer | Hidden
Creek. In May 2005, Roadrunner Freight entered into a management
and consulting agreement with Thayer | Hidden Creek
Management, L.P. as well. In June 2005, each of such agreements
was superseded by an amended and restated management and
consulting agreement between Dawes Transport, Roadrunner
Freight, Thayer | Hidden Creek Management, and Eos
Management, Inc., an affiliate of Eos. In March 2007, the
amended and restated management and consulting agreement was
further amended and restated and superseded by an amended and
restated management and consulting agreement among
Thayer | Hidden Creek Management, Eos Management, our
company, Roadrunner Freight, and Sargent, pursuant to which
Thayer | Hidden Creek Management and Eos Management
provide financial, management, and operations consulting
services to these companies. These services include general
executive and management, marketing, and human resource
services, advice in connection with the negotiation and
consummation of agreements, support, and analysis of
acquisitions and financing alternatives, and assistance with
monitoring compliance with financing arrangements. In exchange
for such services, Thayer | Hidden Creek Management
and Eos Management are paid aggregate annual management fees,
subject to increase upon certain events, of $0.4 million,
and are reimbursed for their expenses. Each of
Thayer | Hidden Creek Management and Eos Management
are also entitled to additional fees for assisting with
acquisitions, dispositions, and financings, including this
offering. In connection with our acquisitions of Dawes Transport
and Roadrunner Freight, we paid Thayer | Hidden Creek
Management and Eos Management aggregate transaction fees of
$2.8 million. In October 2009, the parties agreed to waive
payment of $0.8 million of the management fees owed to them
for 2007 and 2008 and to terminate our obligation to pay the
2009 management fee. Four of our current directors are
affiliated with Thayer | Hidden Creek Management, and
two of our current
66
directors are affiliated with Eos Management. We expect each of
the directors who are affiliated with Eos Management to resign
from our board of directors prior to the effectiveness of the
registration statement of which this prospectus forms a part.
In February 2008, GTS entered into a management and consulting
agreement with Thayer | Hidden Creek Management, pursuant to
which Thayer | Hidden Creek Management provides financial,
management, and operations consulting services to GTS. These
services include general executive and management, marketing,
and human resource services, advice in connection with the
negotiation and consummation of agreements, support, and
analysis of acquisitions and financing alternatives, and
assistance with monitoring compliance with financing
arrangements. In exchange for such services, Thayer | Hidden
Creek Management is paid an annual management fee, subject to
increase upon certain events, of $0.25 million, and is
reimbursed for its expenses. Thayer | Hidden Creek Management is
also entitled to additional fees for assisting with
acquisitions, dispositions, and financings, including the GTS
merger. In 2008 and 2009, GTS paid Thayer | Hidden Creek
Management fees of $0.6 million and $0.5 million,
respectively, which amounts include transaction fees.
Upon consummation of this offering, we will pay
Thayer | Hidden Creek Management and Eos Management an
aggregate transaction fee of $3.5 million to terminate the
management and consulting agreements.
Following the consummation of this offering, we will enter into
an advisory agreement with Thayer | Hidden Creek Management,
pursuant to which Thayer | Hidden Creek Management will continue
to provide advisory services to us. These services will include
identification, support, negotiation, and analysis of
acquisitions and dispositions and support, negotiation, and
analysis of financing alternatives. In exchange for such
services, Thayer | Hidden Creek Management will be reimbursed
for its expenses and paid a transaction fee in connection with
the consummation of each acquisition or divestiture by us or our
subsidiaries, excluding certain specified transactions, and in
connection with any public or private debt offering by us or our
subsidiaries negotiated by Thayer | Hidden Creek Management. The
amount of any such fee will be determined through good faith
negotiations between our board of directors and
Thayer | Hidden Creek Management.
Stockholders
Agreements
We are party to agreements with each of our stockholders,
including Thayer | Hidden Creek, Eos, and our
executive officers, providing for piggyback
registration rights. Such agreements provide that if, at any
time after the consummation of this offering, we propose to file
a registration statement under the Securities Act for any
underwritten sale of shares of any of our equity securities, the
stockholders may request that we include in such registration
the shares of common stock held by them on the same terms and
conditions as the securities otherwise being sold in such
registration.
In addition to the piggyback registration rights discussed
above, Thayer | Hidden Creek, Eos, and certain of our
other stockholders have demand registration rights. In March
2007, we entered into a second amended and restated
stockholders agreement, pursuant to which
Thayer | Hidden Creek, Eos, and certain other of our
stockholders were granted
Form S-3
registration rights. The amended and restated stockholders
agreement provides that, any time after we are eligible to
register our common stock on a
Form S-3
registration statement under the Securities Act,
Thayer | Hidden Creek, Eos, and certain other of our
stockholders may request registration under the Securities Act
of all or any portion of their shares of common stock subject to
certain limitations. These stockholders are each limited to a
total of two of such registrations. In addition, if, at any time
after the consummation of this offering, we propose to file a
registration statement under the Securities Act for any
underwritten sale of shares of any of our equity securities,
Thayer | Hidden Creek and the other stockholders party
to the amended and restated stockholders agreement may
request that we include in such registration the shares of
common stock held by them on the same terms and conditions as
the securities otherwise being sold in such registration.
Transactions with
Management
Between June 2005 and April 2007, certain of our executive
officers were granted options to purchase an aggregate of
1,002,267 shares of our common stock at a weighted average
exercise price of $12.70, adjusted to reflect the conversion of
our Class A common stock into new common stock on a
149.314-for-one basis. The stock options vest over a four-year
period, with 25% vesting on the first anniversary of the grant
date and 6.25% at the end of each subsequent three month period
thereafter, and are included in the principal and selling
stockholders table included in this prospectus.
Sargent
Merger
In March 2007, we acquired Sargent by way of a merger. At that
time, Sargent was owned by affiliates of
Thayer | Hidden Creek, our largest stockholder. By
virtue of the merger, each share of Sargent Transportation
Group, Inc. that was not otherwise cancelled pursuant to the
terms of the merger agreement was converted into the right to
receive two-tenths of a share of our common stock. In addition,
we issued warrants to purchase an aggregate of
2,269,274 shares of our common stock at a per share
purchase price of $13.39, which expire in 2017. Of such
warrants, 2,245,772 were issued to affiliates of
Thayer | Hidden Creek.
67
Senior
Subordinated Notes
In March 2007, we issued an aggregate principal amount at
maturity of approximately $36.4 million of our senior
subordinated notes in connection with the merger of Sargent into
us. One of the purchasers of our senior subordinated notes was
American Capital, Ltd., one of our 5% stockholders included in
the principal and selling stockholders table included in this
prospectus. As of December 31, 2009, the aggregate
principal amount of outstanding senior subordinated notes was
$41.1 million. This amount includes $20.5 million owed
to American Capital, Ltd., which we intend to pay from the net
proceeds of this offering.
Junior
Subordinated Notes
In December 2009, we issued an aggregate face amount at maturity
of approximately $19.5 million of our junior subordinated
notes in connection with our acquisition of Bullet Freight
Systems, Inc. The purchasers of junior subordinated notes and
the accompanying warrants to purchase an aggregate of 1,746,974
shares of our common stock at a per share exercise price of
$8.37 included Eos, one of our largest stockholders, several
officers of an affiliate of Thayer | Hidden Creek
(including Messrs. Rued, Evans, and Forese, directors of
our company), and Baird Financial Corporation, an affiliate of
Robert W. Baird & Co., Incorporated that we refer to as the
Baird Affiliate. Each of Messrs. Rued, Evans, and Forese
purchased, for an aggregate purchase price of $400,000,
(i) $400,000 aggregate face amount of our junior
subordinated notes, and (ii) warrants to purchase 35,835
shares of our common stock at a per share purchase price of
$8.37. As of December 31, 2009, the aggregate principal
amount of our outstanding junior subordinated notes was
$19.8 million. For additional information with respect to
the junior subordinated notes and warrants, see Notes 6 and
7 to our consolidated financial statements appearing elsewhere
in this prospectus. Assuming an offering date of May 10,
2010, we expect to use approximately $31.7 million of the
net proceeds from this offering to prepay the junior
subordinated notes (including principal, interest, and
prepayment penalties), of which Eos will receive aggregate
payments of $10.2 million, the Thayer | Hidden
Creek affiliates will receive aggregate payments of
$4.9 million, and the Baird Affiliate will receive a
payment of $1.6 million.
Series B
Convertible Preferred Stock
In December 2008, we sold an aggregate of 1,791,768 shares of
our Series B convertible preferred stock to nine of our
stockholders for a aggregate purchase price of
$12.0 million, of which approximately $9.5 million was
purchased by Thayer Equity Investors V, L.P., an affiliate of
Thayer | Hidden Creek, and $2.0 million was
purchased by Eos. For additional information, see the section
entitled Description of Capital Stock
Preferred Stock.
Directed Share
Program
All members of our board of directors, our executive officers,
our full-time employees, and certain other individuals,
including members of the immediate family of our board of
directors and executive officers, will be eligible to
participate in the directed share program described under
Underwriting at levels that may exceed
$120,000. The aggregate number of shares subject to our directed
share program is 50,000.
Other than as set forth above, there has not been, nor is there
currently proposed, any transaction or series of similar
transactions to which we were or are to be a party in which the
amount involved exceeds $120,000, and in which any director,
executive officer, or holder of more than 5% of any class of our
voting securities and members of such persons immediate
family had or will have a direct or indirect material interest.
In the future, our audit committee will be responsible for
reviewing, approving, and ratifying any such transaction or
series of similar transactions.
68
Principal
and Selling Stockholders
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of May 10, 2010
by the following:
|
|
|
|
n
|
each person known by us to own more than 5% of our common stock;
|
|
|
n
|
each stockholder selling shares in this offering;
|
|
|
n
|
each of our directors and executive officers; and
|
|
|
n
|
all of our directors and executive officers as a group.
|
Except as otherwise indicated, each person named in the table
has sole voting and investment power with respect to all common
stock beneficially owned, subject to applicable community
property laws. Except as otherwise indicated, each person may be
reached as follows:
c/o Roadrunner
Transportation Systems, Inc., 4900 S. Pennsylvania
Ave., Cudahy, Wisconsin 53110.
The table assumes (i) the recapitalization of all
outstanding shares of our Class A common stock,
Class B common stock, and Series B preferred stock
(including accrued but unpaid dividends) into
17,305,136 shares of our common stock on a 149.314-for-one
basis, and (ii) the issuance of 3,230,324 shares of
our new common stock pursuant to the GTS merger. In calculating
the percentage of ownership, all shares of common stock that the
identified person or group had the right to acquire within
60 days of May 10, 2010 upon the exercise of options
or warrants are deemed to be outstanding for the purpose of
computing the percentage of the shares of common stock owned by
that person or group, but are not deemed to be outstanding for
the purpose of computing the percentage of the shares of common
stock owned by any other person or group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
|
|
|
|
|
|
Shares
|
|
|
|
Owned Prior to
|
|
|
|
|
|
Beneficially
|
|
|
|
the Offering
|
|
|
Shares Offered
|
|
|
Owned after the Offering
|
|
Name of Beneficial Owner
|
|
Number
|
|
|
Percent
|
|
|
for Sale
|
|
|
Number
|
|
|
Percent
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thayer | Hidden Creek
Entities(1)
|
|
|
16,576,375
|
|
|
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72.5
|
%
|
|
|
|
|
|
|
16,576,375
|
|
|
|
52.0
|
%
|
Eos
Funds(2)
|
|
|
3,912,106
|
|
|
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18.5
|
%
|
|
|
|
|
|
|
3,912,106
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|
|
|
13.0
|
%
|
American Capital
Entities(3)
|
|
|
1,493,138
|
|
|
|
7.3
|
%
|
|
|
1,493,138
|
|
|
|
|
|
|
|
*
|
|
Other Selling Stockholders:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Sankaty Credit Opportunities, L.P.
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|
|
281,152
|
|
|
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1.4
|
%
|
|
|
107,506
|
|
|
|
173,646
|
|
|
|
*
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Mark A.
DiBlasi(4)
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414,345
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|
|
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2.0
|
%
|
|
|
|
|
|
|
414,345
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|
|
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1.4
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%
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Peter R.
Armbruster(5)
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238,379
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|
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1.2
|
%
|
|
|
|
|
|
|
238,379
|
|
|
|
*
|
|
Brian J. van
Helden(6)
|
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154,132
|
|
|
|
*
|
|
|
|
|
|
|
|
154,132
|
|
|
|
*
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|
Scott L.
Dobak(7)
|
|
|
154,132
|
|
|
|
*
|
|
|
|
|
|
|
|
154,132
|
|
|
|
*
|
|
Ivor J.
Evans(8)
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|
|
35,835
|
|
|
|
*
|
|
|
|
|
|
|
|
35,835
|
|
|
|
*
|
|
Scott D.
Rued(8)
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|
|
35,835
|
|
|
|
*
|
|
|
|
|
|
|
|
35,835
|
|
|
|
*
|
|
Judith A.
Vijums(8)
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
James F.
Forese(8)
|
|
|
35,835
|
|
|
|
*
|
|
|
|
|
|
|
|
35,835
|
|
|
|
*
|
|
Samuel B.
Levine(9)
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Brian D.
Young(9)
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Pankaj
Gupta(10)
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
All directors and executive officers as a group (11 persons)
|
|
|
1,068,493
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
1,068,493
|
|
|
|
3.5
|
%
|
|
|
|
*
|
|
Less than one percent.
|
(1)
|
|
Represents shares held by Thayer
Equity Investors V, L.P., TC Roadrunner-Dawes Holdings,
L.L.C., TC Sargent Holdings, L.L.C., Thayer | Hidden
Creek Partners II, L.P., and THC Co-investors II, L.P., all of
which are affiliates and referred to collectively as the
Thayer | Hidden Creek Entities. Includes shares
issuable upon exercise of outstanding warrants. Mr. Scott
Rued exercises shared voting and dispositive power over all
shares held by the Thayer | Hidden Creek Entities. The
address of each of the Thayer | Hidden Creek Entities
is 1455 Pennsylvania Avenue, N.W., Suite 350,
Washington, D.C. 20004.
|
(2)
|
|
Represents shares held by Eos
Capital Partners III, L.P. and Eos Partners, L.P., which are
affiliates and referred to as the Eos Funds. As a General
Partner of Eos Partners, L.P., Mr. Young has voting and
investment control over and may be considered the beneficial
owner of stock owned by the Eos Funds. As a Managing Director of
Eos Management, L.P., Mr. Levine has voting and investment
control over and may be considered the beneficial owner of stock
owned by the Eos Funds. Mr. Levine disclaims any beneficial
ownership of the stock owned by the Eos Funds. The address of
each of the Eos Funds is 320 Park Avenue, New York, NY 10022.
|
(3)
|
|
Represents shares held by American
Capital, Ltd. and American Capital Equity I, LLC.
Mr. Gupta is an officer of each of the American Capital
Entities and exercises sole voting and dispositive power over
all shares held by the American Capital Entities. Mr. Gupta
disclaims beneficial ownership of any such shares. The address
of each of the American Capital Entities is 2 Bethesda Metro
Center, 14th Floor, Bethesda, MD 20814.
|
(4)
|
|
Includes 3,732 shares of
common stock and 410,613 shares of common stock issuable
upon exercise of vested stock options.
|
(5)
|
|
Includes 48,527 shares of
common stock and 189,852 shares of common stock issuable
upon exercise of vested stock options.
|
(6)
|
|
Includes 154,132 shares of
common stock issuable upon exercise of vested stock options.
|
69
|
|
|
(7)
|
|
Includes 154,132 shares of
common stock issuable upon exercise of vested stock options.
|
(8)
|
|
Represents shares held by the
Thayer | Hidden Creek Entities, as described in note 1. Messrs.
Evans, Rued, and Forese, and Ms. Vijums, are each officers of
certain of the Thayer | Hidden Creek Entities or their
affiliates. Accordingly, Messrs. Evans, Rued, and Forese, and
Ms. Vijums may be deemed to beneficially own the shares owned by
the Thayer | Hidden Creek Entities. Each of Messrs. Evans, Rued,
and Forese, and Ms. Vijums disclaims beneficial ownership of any
such shares in which he or she does not have a pecuniary
interest. The address of each of Messrs. Evans, Rued, and
Forese, and Ms. Vijums is c/o Thayer | Hidden Creek, 80 South
8th Street, Suite 4508, Minneapolis, Minnesota 55402.
|
(9)
|
|
Represents shares held by the Eos
Funds, as described in note 2. As a General Partner of Eos
Partners, L.P., Mr. Young has voting and investment control over
and may be considered the beneficial owner of stock owned by the
Eos Funds. As a Managing Director of Eos Management, L.P., Mr.
Levine has voting and investment control over and may be
considered the beneficial owner of stock owned by the Eos Funds.
Mr. Levine disclaims any beneficial ownership of the shares of
stock owned by the Eos Funds. We expect that Messrs. Young and
Levine will resign from our board of directors prior to
effectiveness of the registration statement of which this
prospectus forms a part. The address of Messrs. Young and Levine
is
c/o Eos,
320 Park Avenue, New York, NY 10022.
|
(10)
|
|
Represents shares held by the
American Capital Entities, as described in note 3. As an officer
of each of the American Capital Entities, Mr. Gupta may be
deemed to beneficially own the shares owned by the American
Capital Entities. Mr. Gupta disclaims beneficial ownership of
any such shares in which he does not have a pecuniary interest.
|
70
Description
of Capital Stock
Upon the filing of our amended and restated certificate of
incorporation, we will be authorized to issue shares of common
stock, $.01 par value, and shares of undesignated preferred
stock, $.01 par value. The following description of our
capital stock reflects our capital stock authorized under the
amendment to our certificate of incorporation and bylaws
discussed elsewhere in this prospectus and (i) a
149.314-for-one stock split of each share of Class A common
stock, Class B common stock, and Series B preferred stock
effective May 7, 2010, and (ii) the conversion of all
of our outstanding Class A common stock, Class B common stock,
and Series B preferred stock (including accrued but unpaid
dividends) into a single class of newly authorized common stock
on a
one-for-one
basis immediately prior to the consummation of this offering.
The description is intended to be a summary and does not
describe all provisions of our amended and restated certificate
of incorporation or our amended and restated bylaws or Delaware
law applicable to us. For a more thorough understanding of the
terms of our capital stock, you should refer to our amended and
restated certificate of incorporation and amended and restated
bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part.
Common
Stock
Pursuant to our amended and restated certificate of
incorporation, the holders of our common stock are entitled to
one vote per share on all matters to be voted upon by
stockholders. There is no cumulative voting. Subject to
preferences that may be applicable to any outstanding preferred
stock, holders of our common stock are entitled to receive
ratably such dividends as may be declared by the board of
directors out of funds legally available for that purpose. In
the event of the liquidation, dissolution, or winding up of our
company, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of liabilities and
the liquidation preferences of any outstanding preferred stock.
The common stock has no preemptive or conversion rights, other
subscription rights, or redemption or sinking fund provisions.
Our certificate of incorporation previously authorized the
issuance of Class A and Class B common stock. Each
holder of record of Class A common stock was entitled to
one vote for each share of Class A common stock. The
holders of Class B common stock did not have voting rights.
Our certificate of incorporation previously provided that each
share of Class B common stock would automatically convert
into one share of Class A common stock immediately prior to
the closing of our initial public offering. The holders of
Class A and Class B common stock were entitled to
dividends if and when such dividends were declared by our board
of directors.
Certain shares of our previously authorized Class A common
stock were classified by us as redeemable Class A common
stock. See Note 8 to our financial statements included in
this prospectus. Such shares were issued to certain of our
employees and were subject to mandatory redemption by us at a
per share price equal to the closing price of our common stock
on any securities exchange on which our stock is then listed, in
the event such employees employment with us is terminated
due to such employees death or disability within seven
years of the date of issuance. We issued the redeemable
Class A common stock only to employees in order to provide
them with liquidity in the event of their death or disability.
Following the conversion of our Class A common stock into a
new class of common stock, 259,806 shares of such new
common stock will be subject to the same mandatory redemption
provisions as the previous shares of Class A common stock.
Preferred
Stock
Our amended and restated certificate of incorporation authorizes
our board of directors, without any vote or action by the
holders of our common stock, to issue preferred stock from time
to time in one or more series. Our board of directors is
authorized to determine the number of shares and to fix the
designations, powers, preferences, and the relative
participating, optional, or other rights of any series of
preferred stock. Issuances of preferred stock would be subject
to the applicable rules of the New York Stock Exchange or
other organizations on which our securities are then quoted or
listed. Depending upon the terms of preferred stock established
by our board of directors, any or all series of preferred stock
could have preference over the common stock with respect to
dividends and other distributions and upon our liquidation. If
any shares of preferred stock are issued with voting powers, the
voting power of the outstanding common stock would be diluted.
Our certificate of incorporation authorizes the issuance of
5,000 shares of Series A preferred stock, all of which
are currently outstanding. Except with respect to approval of
amendments to our certificate of incorporation previously in
effect, the holders of our Series A preferred stock do not
have voting rights. We, at our option and at any time, are
entitled to redeem the Series A preferred stock for an
amount equal to $1,000 per share, subject to adjustment to
reflect stock splits, reorganizations, and other similar
changes. We are obligated to redeem the Series A preferred
stock for such amount on November 30, 2012 if such shares
are not earlier redeemed. The holders of Series A preferred
stock are entitled to annual dividends equal to $40.00 per
share, subject to adjustment to reflect stock splits,
reorganizations, and other similar changes. In addition, the
holders of Series A preferred stock are entitled to receive
an amount equal to $1,000 per share in the event of our
liquidation or dissolution, subject to adjustment to reflect
stock splits, reorganizations, and other similar changes. All of
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the shares of our Series A preferred stock will remain
outstanding following this offering and such shares and the
rights and preferences thereof will not be impacted by the
reclassification of our capital stock discussed in this
prospectus.
Our certificate of incorporation previously authorized the
issuance of Series B preferred stock. The holders of our
Series B preferred stock had the right to one vote for each
share of Class A common stock into which such Series B
preferred stock could then be converted. With respect to such
vote, such holder had full voting rights and powers equal to the
voting rights and powers of the holders of Class A common
stock, and were entitled to vote, together with holders of
Class A common stock, with respect to any question upon
which holders of Class A common stock had the right to
vote. The holders of our Series B preferred stock were
entitled, in their sole discretion, to redeem the Series B
preferred stock upon the occurrence of, among other things,
qualified public offering or sale of our company. The holders of
Series B preferred stock were entitled to annual dividends
at the rate of 15% per annum, compounding quarterly, on each
March 31, June 30, September 30, and
December 31, subject to adjustment to reflect stock splits,
reorganizations, and other similar changes. In addition, in the
event of our liquidation or dissolution, the holders of
Series B preferred stock were entitled to receive an amount
equal to the greater of (i) $1,000 per share plus the
aggregate amount of all accrued but unpaid Series B
dividends, or (ii) the amount such holders would have
received assuming full conversion of all of their Series B
preferred stock at the then effective Series B conversion
price, subject to adjustment to reflect stock splits,
reorganizations, and other similar changes.
Each share of Series B preferred stock was convertible at
the option of the holder thereof, at any time after the issuance
date of such shares, into shares of Class A common stock.
In addition, all outstanding shares of Series B preferred
stock were subject to automatic conversion (without any further
action by the holders thereof) into shares of Class A
common stock immediately prior to a firm commitment underwritten
public offering in which the public offering price per share is
not less than the Series B preferred stock liquidation
value as set forth in our certificate of incorporation and the
aggregate proceeds to us are at least $50 million. All of
the shares of Series B preferred stock (plus accrued but
unpaid dividends) will be converted into an aggregate of
approximately 2.2 million shares of new common stock
in connection with this offering.
Registration
Rights
Form S-3
Registration Rights
Upon receipt of a written request from certain of our
stockholders party to our amended and restated
stockholders agreement, we must use our best efforts to
file and effect a registration statement with respect to any of
the shares of our common stock held by those stockholders. We
are not, however, required to effect any such registration if
(1) we are not eligible to file a registration statement on
Form S-3,
(2) the aggregate offering price of the common stock to be
registered is less than $1.0 million, or (3) the
amount of shares to be registered does not equal or exceed 1% of
our then-outstanding common stock. Additionally, we are not
required to effect more than two
Form S-3
registrations on behalf of each such stockholder. A
Form S-3
registration will not be deemed to have been effected for
purposes of our stockholders agreement unless the
registration statement or preliminary or final prospectus, as
the case may be, relating thereto (i) has become effective
under the Securities Act and remained effective for a period of
at least 90 days, and (ii) at least 75% of the common
stock requested to be included in such registration is so
included.
Incidental
Registration Rights
All of our common stockholders are, pursuant to
stockholders agreements, entitled to include all or part
of their shares of our common stock in any of our registration
statements under the Securities Act relating to an underwritten
offering, excluding registration statements relating to our
employee benefit plans or a corporate reorganization. The
underwriters of any underwritten offering will have the right to
limit the number of securities included in such offering due to
marketing reasons. However, if the underwriter reduces the
number of securities included in the offering, the reduction in
the number of securities held by those stockholders cannot
represent a greater percentage of the shares requested to be
registered by such stockholders than the lowest percentage
reduction imposed upon any other stockholder.
Registration
Expenses
We will pay all expenses incurred in connection with the
registrations described above, except for underwriting discounts
and commissions and the expenses of counsel representing the
holders of registration rights.
Indemnification
In connection with all of the registrations described above, we
have agreed to indemnify the selling stockholders against
certain liabilities, including liabilities arising under the
Securities Act.
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Anti-Takeover
Effects
General
Our certificate of incorporation, our bylaws, and the Delaware
General Corporation Law contain certain provisions that could
delay or make more difficult an acquisition of control of our
company not approved by our board of directors, whether by means
of a tender offer, open market purchases, a proxy context, or
otherwise. These provisions have been implemented to enable us,
particularly but not exclusively in the initial years of our
existence as a publicly owned company, to develop our business
in a manner that will foster our long-term growth without
disruption caused by the threat of a takeover not deemed by our
board of directors to be in the best interests of our company
and our stockholders. These provisions could have the effect of
discouraging third parties from making proposals involving an
acquisition or change of control of our company even if such a
proposal, if made, might be considered desirable by a majority
of our stockholders. These provisions may also have the effect
of making it more difficult for third parties to cause the
replacement of our current management without the concurrence of
our board of directors.
There is set forth below a description of the provisions
contained in our certificate of incorporation and bylaws and the
Delaware General Corporation Law that could impede or delay an
acquisition of control of our company that our board of
directors has not approved. This description is intended as a
summary only and is qualified in its entirety by reference to
our certificate of incorporation and bylaws, which are included
as exhibits to the registration statement of which this
prospectus forms a part, as well as the Delaware General
Corporation Law.
Authorized but
Unissued Preferred Stock
Our certificate of incorporation authorizes our board of
directors to issue one or more series of preferred stock and to
determine, with respect to any series of preferred stock, the
terms and rights of such series without any further vote or
action by our stockholders. The existence of authorized but
unissued shares of preferred stock may enable our board of
directors to render more difficult or discourage an attempt to
obtain control of our company by means of a proxy contest,
tender offer, or other extraordinary transaction. Any issuance
of preferred stock with voting and conversion rights may
adversely affect the voting power of the holders of common
stock, including the loss of voting control to others. The
existence of authorized but unissued shares of preferred stock
will also enable our board of directors, without stockholder
approval, to adopt a poison pill takeover defense
mechanism. We have no present plans to issue any additional
shares of preferred stock.
Number of
Directors; Removal; Filling Vacancies
Our certificate of incorporation and bylaws provide that the
number of directors shall be fixed only by resolution of our
board of directors from time to time. Our certificate of
incorporation provides that directors may be removed by
stockholders only both for cause and by the affirmative vote of
at least
662/3%
of the shares entitled to vote. Our certificate of incorporation
and bylaws provide that vacancies on the board of directors may
be filled only by a majority vote of the remaining directors or
by the sole remaining director.
Classified
Board
Our certificate of incorporation provides for our board to be
divided into three classes, as nearly equal in number as
possible, serving staggered terms. Approximately one-third of
our board will be elected each year. See
Management Board of Directors and
Committees. The provision for a classified board could
prevent a party who acquires control of a majority of our
outstanding common stock from obtaining control of the board
until our second annual stockholders meeting following the date
the acquirer obtains the controlling share interest. The
classified board provision could have the effect of discouraging
a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us and could increase the
likelihood that incumbent directors will retain their positions.
Stockholder
Action
Our certificate of incorporation provides that stockholder
action may be taken only at an annual or special meeting of
stockholders. This provision prohibits stockholder action by
written consent in lieu of a meeting. Our certificate of
incorporation and bylaws further provide that special meetings
of stockholders may be called only by the chairman of the board
of directors or a majority of the board of directors.
Stockholders are not permitted to call a special meeting or to
require our board of directors to call a special meeting of
stockholders.
The provisions of our certificate of incorporation and bylaws
prohibiting stockholder action by written consent may have the
effect of delaying consideration of a stockholder proposal until
the next annual meeting unless a special meeting is called as
provided above. These provisions would also prevent the holders
of a majority of the voting power of our stock from unilaterally
using the written consent procedure to take stockholder action.
Moreover, a stockholder could not force stockholder
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consideration of a proposal over the opposition of the board of
directors by calling a special meeting of stockholders prior to
the time our chairman or a majority of the whole board believes
such consideration to be appropriate.
Advance Notice
for Stockholder Proposals and Director Nominations
Our bylaws establish an advance notice procedure for stockholder
proposals to be brought before any annual or special meeting of
stockholders and for nominations by stockholders of candidates
for election as directors at an annual meeting or a special
meeting at which directors are to be elected. Subject to any
other applicable requirements, including, without limitation,
Rule 14a-8
under the Exchange Act of 1934, as amended, or the Exchange Act,
only such business may be conducted at a meeting of stockholders
as has been brought before the meeting by, or at the direction
of, our board of directors, or by a stockholder who has given
our Secretary timely written notice, in proper form, of the
stockholders intention to bring that business before the
meeting. The presiding officer at such meeting has the authority
to make such determinations. Only persons who are nominated by,
or at the direction of, our board of directors, or who are
nominated by a stockholder that has given timely written notice,
in proper form, to our Secretary prior to a meeting at which
directors are to be elected, will be eligible for election as
directors.
Amendments to
Bylaws
Our certificate of incorporation provides that only our board of
directors or the holders of at least
662/3%
of the shares entitled to vote at an annual or special meeting
of stockholders have the power to amend or repeal our bylaws.
Amendments to
Certificate of Incorporation
Any proposal to amend, alter, change, or repeal any provision of
our certificate of incorporation requires approval by the
affirmative vote of a majority of the voting power of all of the
shares of our capital stock entitled to vote on such matters,
with the exception of certain provisions of our certificate of
incorporation that require a vote of at least
662/3%
of such voting power. The requirement of a super-majority vote
to approve amendments to the certificate of incorporation or
bylaws could enable a minority of our stockholders to exercise
veto power over an amendment.
Limitation of
Liability and Indemnification of Officers and
Directors
Our certificate of incorporation and bylaws limit the liability
of directors to the fullest extent permitted by the Delaware
General Corporation Law. In addition, our certificate of
incorporation and bylaws provide that we will indemnify our
directors and officers to the fullest extent permitted by law.
In connection with this offering, we are entering into
indemnification agreements with our current directors and
executive officers and expect to enter into a similar agreement
with any new directors or executive officers.
Indemnification
for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted for directors, officers, or
controlling persons pursuant to the provisions described in the
preceding paragraph, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Transfer Agent
and Registrar
The transfer agent and registrar for our common stock is
American Stock Transfer & Trust Company. The
transfer agents address is 59 Maiden Lane, New York, New
York 10038 and its telephone number is
(877) 777-0800.
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Shares Eligible
for Future Sale
Prior to this offering, there has been no public market for our
common stock. We cannot predict the effect, if any, that market
sales of shares, or the availability of shares for sale, will
have on the market price of our common stock prevailing from
time to time. Sales of our common stock in the public market
after the restrictions lapse as described below, or the
perception that those sales may occur, could cause the
prevailing market price to decline or to be lower than it might
be in the absence of those sales or perceptions.
Sale of
Restricted Shares
Upon completion of this offering, we will have approximately
29.5 million shares of common stock outstanding. Of these
shares, the 10,600,644 shares sold in this offering, plus
any shares sold upon exercise of the underwriters
overallotment option, will be freely tradable without
restriction under the Securities Act, except for any shares
purchased by our affiliates as that term is defined
in Rule 144 under the Securities Act. In general,
affiliates include executive officers, directors, and 10%
stockholders. Shares purchased by affiliates will remain subject
to the resale limitations of Rule 144.
The remaining shares outstanding prior to this offering are
restricted securities within the meaning of Rule 144.
Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration
under Rules 144 or 701 promulgated under the Securities
Act, which are summarized below.
Taking into account the
lock-up
agreements, and assuming Robert W. Baird & Co.
Incorporated does not release shares from these agreements,
approximately 18.9 million of our shares will be eligible
for sale in the public market subject to volume, manner of sale,
and other limitations under Rule 144 beginning 180 days
after the effective date of the registration statement of which
this prospectus forms a part (unless the
lock-up
period is extended as described below and in
Underwriting).
Lock-Up
Agreements
Our directors, executive officers, and certain stockholders have
entered into
lock-up
agreements in connection with this offering, generally providing
that they will not offer, pledge, sell, contract to sell, or
grant any option to purchase or otherwise dispose of our common
stock or any securities exercisable for or convertible into our
common stock owned by them for a period of 180 days after
the date of this prospectus without the prior written consent of
Robert W. Baird & Co. Incorporated. The
180-day
restricted period described in the preceding sentence will be
extended if:
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during the last 17 days of the
180-day
restricted period we issue an earnings release or announce
material news or material event; or
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prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, in which case the restrictions described in the
preceding sentence will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event. Despite
possible earlier eligibility for sale under the provisions of
Rules 144 and 701, shares subject to
lock-up
agreements will not be salable until these agreements expire or
are waived by Robert W. Baird & Co. Incorporated.
These agreements are more fully described in
Underwriting.
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We have been advised by the underwriters that they may at their
discretion waive the
lock-up
agreements; however, they have no current intention of releasing
any shares subject to a
lock-up
agreement. The release of any
lock-up
would be considered on a
case-by-case
basis. In considering any request to release shares covered by a
lock-up
agreement, Robert W. Baird & Co. Incorporated may
consider, among other factors, the particular circumstances
surrounding the request, including but not limited to the number
of shares requested to be released, market conditions, the
possible impact on the market for our common stock, the trading
price of our common stock, historical trading volumes of our
common stock, the reasons for the request and whether the person
seeking the release is one of our officers or directors. No
agreement has been made between the representatives and us or
any of our stockholders pursuant to which Robert W.
Baird & Co. Incorporated will waive the
lock-up
restrictions.
Rule 144
In general, under Rule 144 as currently in effect, a person
who has beneficially owned restricted securities of an issuer
that has been subject to the reporting requirements of the
Exchange Act for at least six months, and who is not affiliated
with such issuer, would be entitled to sell an unlimited number
of shares of common stock so long as the issuer has met its
public information disclosure requirements. In addition, an
affiliated person who has beneficially owned restricted
securities for at
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least six months would be entitled to sell, within any
three-month period, a number of shares that does not exceed the
greater of the following:
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1% of the number of shares of common stock then outstanding; or
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the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to such sale.
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Sales under Rule 144 are also subject to requirements with
respect to manner of sale, notice, and the availability of
current public information about us.
Rule 701
Under Rule 701 as currently in effect, each of our
employees, officers, directors, and consultants who purchased
shares pursuant to a written compensatory plan or contract is
eligible to resell these shares 90 days after the effective
date of this offering in reliance upon Rule 144, but
without compliance with specific restrictions. Rule 701
provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying
with the holding period requirement and that non-affiliates may
sell their shares in reliance on Rule 144 without complying
with the holding period, public information, volume limitation,
or notice requirements of Rule 144.
Stock
Options
We intend to file registration statements under the Securities
Act as soon as practicable after the completion of this offering
for shares issued upon the exercise of options and shares to be
issued under our employee benefit plans. As a result, any
options or shares issued under any benefit plan after the
effectiveness of the registration statements will also be freely
tradable in the public market. However, such shares held by
affiliates will still be subject to the volume limitation,
manner of sale, notice, and public information requirements of
Rule 144 unless otherwise resalable under Rule 701.
Registration
Rights
After the completion of this offering, holders of restricted
shares will be entitled to registration rights on these shares
for sale in the public market. See Description of
Capital Stock Registration Rights.
Registration of these shares under the Securities Act would
result in their becoming freely tradable without restriction
under the Securities Act immediately upon effectiveness of the
related registration statement.
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Material
U.S. Federal Income Tax Considerations For
Non-U.S.
Holders of Our Common Stock
The following discussion describes the material
U.S. federal income tax consequences to
non-U.S. holders
(as defined below) of the acquisition, ownership, and
disposition of our common stock issued pursuant to this
offering. This discussion is not a complete analysis of all the
potential U.S. federal income tax consequences relating
thereto, nor does it address any tax consequences arising under
any state, local, or foreign tax laws or any other
U.S. federal tax laws. This discussion is based on the
Internal Revenue Code of 1986, as amended, or the Code, Treasury
Regulations promulgated thereunder, judicial decisions, and
published rulings and administrative pronouncements of the
Internal Revenue Service, or the IRS, all as in effect as of the
date of this prospectus. These authorities may change, possibly
retroactively, resulting in U.S. federal income tax
consequences different from those discussed below. No ruling
from the IRS has been or will be sought with respect to the
matters discussed below, and there can be no assurance that the
IRS will not take a contrary position regarding the tax
consequences of the acquisition, ownership, or disposition of
our common stock, or that any such contrary position would not
be sustained by a court.
This discussion is limited to
non-U.S. holders
who purchase our common stock issued pursuant to this offering
and who hold our common stock as a capital asset within the
meaning of Section 1221 of the Code (generally, property
held for investment). This discussion does not address all
U.S. federal income tax considerations that may be relevant
to a particular holder in light of that holders particular
circumstances. This discussion also does not consider any
specific facts or circumstances that may be relevant to holders
subject to special rules under the U.S. federal income tax
laws, including, without limitation, U.S. expatriates;
partnerships and other pass-through entities; controlled
foreign corporations; passive foreign investment
companies; corporations that accumulate earnings to avoid
U.S. federal income tax; financial institutions; insurance
companies; brokers, dealers or traders in securities,
commodities or currencies; tax-exempt organizations; tax
qualified retirement plans; persons subject to the alternative
minimum tax; persons holding our common stock as part of a
hedge, straddle, or other risk reduction strategy or as part of
a conversion transaction or other integrated investment; real
estate investment companies; regulated investment companies;
grantor trusts; persons that received our common stock as
compensation for performance of services; persons that have a
functional currency other than the U.S. dollar; and certain
former citizens or residents of the U.S.
For the purposes of this discussion, a
non-U.S. holder
is any beneficial owner of our common stock that is not a
U.S. person for U.S. federal income tax
purposes. A U.S. person is any of the following:
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an individual who is a citizen or resident of the United States;
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a corporation or partnership (or other entity treated as a
corporation or a partnership for U.S. federal income tax
purposes) created or organized under the laws of the United
States, any state thereof or the District of Columbia;
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an estate, the income of which is subject to U.S. federal
income tax, regardless of its source; or
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a trust that (1) is subject to the primary supervision of a
U.S. court and the control of one or more
U.S. persons, or (2) has validly elected to be treated
as a U.S. person for U.S. federal income tax purposes.
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If a partnership (or other entity taxed as a partnership for
U.S. federal income tax purposes) holds our common stock,
the tax treatment of a partner in the partnership generally will
depend on the status of the partner and upon the activities of
the partnership. Accordingly, partnerships that hold our common
stock and partners in such partnerships are urged to consult
their tax advisors regarding the specific U.S. federal
income tax consequences to them.
Distributions on
our Common Stock
We have not declared or paid distributions on our common stock
since inception and do not intend to pay any distribution on our
common stock in the foreseeable future. In the event we do pay
distributions on our common stock, however, these payments will
constitute dividends for U.S. federal income tax purposes
to the extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax
principles. Amounts not treated as dividends for
U.S. federal income tax purposes will constitute a tax-free
return of capital and will first be applied against and reduce a
holders adjusted tax basis in the common stock, but not
below zero. Any excess will be treated as capital gain.
Dividends paid to a
non-U.S. holder
of our common stock that are not effectively connected with a
U.S. trade or business conducted by such holder generally
will be subject to U.S. federal withholding tax at a rate
of 30% of the gross amount of the dividends, or such lower rate
specified by an applicable tax treaty. To receive the benefit of
a reduced treaty rate, a
non-U.S. holder
must furnish to us or our paying agent a valid IRS
Form W-8BEN
(or applicable successor form) certifying such holders
qualification for the reduced rate. This certification must be
provided to us or our paying agent prior to the payment of
dividends and must be updated periodically.
Non-U.S. holders
that do not timely provide us or our paying agent with the
required certification, but which qualify for a reduced treaty
rate, may obtain a refund of any excess amounts withheld by
timely filing an appropriate claim for refund with the IRS.
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If a
non-U.S. holder
holds our common stock in connection with the conduct of a trade
or business in the United States, and dividends paid on the
common stock are effectively connected with such holders
U.S. trade or business, the
non-U.S. holder
will be exempt from U.S. federal withholding tax. To claim
the exemption, the
non-U.S. holder
must furnish to us or our paying agent a properly executed IRS
Form W-8ECI
(or applicable successor form).
Any dividends paid on our common stock that are effectively
connected with a
non-U.S. holders
U.S. trade or business (or if required by an applicable tax
treaty, attributable to a permanent establishment maintained by
the
non-U.S. holder
in the United States) generally will be subject to
U.S. federal income tax on a net income basis in the same
manner as if such holder were a resident of the United States,
unless an applicable tax treaty provides otherwise. A
non-U.S. holder
that is a foreign corporation also may be subject to a branch
profits tax equal to 30% (or such lower rate specified by an
applicable tax treaty) of a portion of its effectively connected
earnings and profits for the taxable year.
Non-U.S. holders
are urged to consult any applicable tax treaties that may
provide for different rules.
Gain on
Disposition of our Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax on
any gain realized upon the sale or other disposition of our
common stock unless:
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the gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States, or if
required by an applicable tax treaty, attributable to a
permanent establishment maintained by the
non-U.S. holder
in the United States;
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the
non-U.S. holder
is a nonresident alien individual present in the United States
for 183 days or more during the taxable year of the
disposition and certain other requirements are met; or
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our common stock constitutes a U.S. real property interest
by reason of our status as a United States real property
holding corporation for U.S. federal income tax
purposes (referred to as a USRPHC) at any time
within the shorter of the five-year period preceding the
disposition or your holding period for our common stock.
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Unless an applicable tax treaty provides otherwise, gain
described in the first bullet point above will be subject to
U.S. federal income tax on a net income basis in the same
manner as if such holder were a resident of the United States.
Non-U.S. holders
that are foreign corporations also may be subject to a branch
profits tax equal to 30% (or such lower rate specified by an
applicable tax treaty) of a portion of its effectively connected
earnings and profits for the taxable year.
Non-U.S. holders
are urged to consult any applicable tax treaties that may
provide for different rules.
Gain described in the second bullet point above will be subject
to U.S. federal income tax at a flat 30% rate, but may be
offset by U.S. source capital losses.
We believe that we are not currently and will not become a
USRPHC. However, because the determination of whether we are a
USRPHC depends on the fair market value of our United States
real property relative to the fair market value of our other
business assets, there can be no assurance that we will not
become a USRPHC in the future. Even if we become a USRPHC,
however, as long as our common stock is regularly traded on an
established securities market, such common stock will be treated
as U.S. real property interests with respect to a
non-U.S. holder
only if the
non-U.S. holder
actually or constructively holds more than five percent of such
regularly traded common stock at any time during the five-year
period ending on the date of the disposition. Furthermore, no
assurances can be provided that our stock will be regularly
traded on an established securities market.
Information
Reporting and Backup Withholding
We must report annually to the IRS and to each
non-U.S. holder
the amount of dividends on our common stock paid to such holder
and the amount of any tax withheld with respect to those
dividends, together with other information. These information
reporting requirements apply even if no withholding was required
because the dividends were effectively connected with the
holders conduct of a U.S. trade or business, or
withholding was reduced or eliminated by an applicable tax
treaty. This information also may be made available under a
specific treaty or agreement with the tax authorities in the
country in which the
non-U.S. holder
resides or is established. Backup withholding, however,
generally will not apply to payments of dividends to a
non-U.S. holder
of our common stock provided the
non-U.S. holder
furnishes to us or our paying agent the required certification
as to its
non-U.S. status,
such as by providing a valid IRS
Form W-8BEN
or W-8ECI.
Payment of the proceeds from a disposition by a
non-U.S. holder
of our common stock generally will be subject to information
reporting and backup withholding unless the
non-U.S. holder
certifies as to its
non-U.S. holder
status under penalties of perjury, such as by providing a valid
IRS
Form W-8BEN
or W-8ECI,
or otherwise establishes an exemption from information reporting
and backup withholding. Notwithstanding the foregoing,
information reporting and backup withholding may apply if either
we or our paying agent has actual knowledge, or reason to know,
that you are a U.S. person.
78
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules may be allowed as a
refund or a credit against a
non-U.S. holders
U.S. federal income tax liability, provided the required
information is timely furnished to the IRS.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE PARTICULAR U.S. FEDERAL INCOME TAX
CONSEQUENCES TO THEM OF ACQUIRING, OWNING, AND DISPOSING OF OUR
COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY
STATE, LOCAL OR FOREIGN TAX LAWS AND ANY OTHER U.S. FEDERAL
TAX LAWS.
79
Underwriting
We, the underwriters and the selling stockholders, which selling
stockholders may be deemed to be underwriters, named below have
entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each
underwriter has severally agreed to purchase the number of
shares indicated in the following table. Robert W.
Baird & Co. Incorporated, BB&T Capital Markets, a
division of Scott & Stringfellow, LLC, and Stifel,
Nicolaus & Company, Incorporated are representatives
of the underwriters.
|
|
|
|
|
|
|
Number of
|
|
Underwriters
|
|
Shares
|
|
|
Robert W. Baird & Co. Incorporated
|
|
|
|
|
BB&T Capital Markets, a division of Scott &
Stringfellow, LLC
|
|
|
|
|
Stifel, Nicolaus & Company, Incorporated
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,600,644
|
|
|
|
|
|
|
The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an
additional shares
from us to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this
option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table
above.
The following tables show the per share and total underwriting
discounts and commissions to be paid to the underwriters by us
and the selling stockholders. Such amounts are shown assuming
both no exercise and full exercise of the underwriters
option to purchase additional shares from us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total
|
|
|
Without Over-
|
|
With Over-
|
|
Without Over-
|
|
With Over-
|
|
|
Allotment
|
|
Allotment
|
|
Allotment
|
|
Allotment
|
|
Underwriting discounts and commissions paid by us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting and commissions paid by selling stockholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$ per share from the initial
public offering price. Any such securities dealers may resell
any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to
$ per share from the initial
public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change
the offering price and the other selling terms.
We and our executive officers and directors and holders of
substantially all of our common stock have agreed with the
underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares
of common stock during the period from the date of this
prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent
of Robert W. Baird & Co. Incorporated or in other
limited circumstances. Our agreement does not apply to any
shares of common stock or securities convertible into or
exchangeable for shares of common stock issued pursuant to any
existing employee benefit plans. See
Shares Eligible for Future Sale for a
discussion of certain transfer restrictions.
The 180-day
restricted period described in the preceding paragraph will be
extended if:
|
|
|
|
n
|
during the last 17 days of the
180-day
restricted period, we issue an earnings release or announce
material news or a material event; or
|
|
|
n
|
prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the 16-day period beginning on the last day of
the 180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the 18-day period beginning on the issuance of the earnings
release or the announcement of the material news or material
event.
|
The underwriters have reserved for sale at the initial public
offering price up to 50,000 shares of the common stock for
employees and directors who have expressed an interest in
purchasing common stock in the offering. The maximum number of
shares that a participant may purchase in this directed share
program is limited to the participants pro rata allocation
of the shares based on the number of shares for which the
participant subscribed. The number of shares available for sale
to the general public in the offering will be reduced to the
extent these persons purchase the reserved shares. Any reserved
shares not so purchased will be offered by the underwriters to
the general public on the same terms as the other shares.
80
Prior to the offering, there has been no public market for the
shares. The initial public offering price will be negotiated
among us, the selling stockholders and the representatives of
the underwriters. Among the factors to be considered in
determining the initial public offering price of the shares, in
addition to prevailing market conditions, will be our historical
performance, estimates of our business potential and earnings
prospects, an assessment of our management and the consideration
of the above factors in relation to market valuation of
companies in related businesses.
Application has been made to list the common stock on the New
York Stock Exchange under the symbol RRTS. In order
to meet one of the requirements for listing the common stock on
the New York Stock Exchange, the underwriters have undertaken to
sell lots of 100 or more shares to a minimum of 2,000 beneficial
holders.
The underwriters may in the future perform investment banking
and advisory services for us from time to time for which they
may in the future receive customary fees and expenses.
We and the selling stockholders have agreed or will agree to
indemnify the underwriters against certain liabilities under the
Securities Act or contribute to payments that the underwriters
may be required to make in that respect.
In connection with this offering, the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions, and penalty bids in accordance with
Regulation M under the Exchange Act.
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number
of shares that they may purchase in the over-allotment option.
In a naked short position, the number of shares involved is
greater than the number of shares in the over-allotment option.
The underwriters may close out any covered short position by
either exercising their over-allotment option
and/or
purchasing shares in the open market.
Syndicate-covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in the offering.
Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions. Stabilization and syndicate covering
transactions may cause the price of the shares to be higher than
it would be in the absence of these transactions. The imposition
of a penalty bid might also have an effect on the price of the
shares if it discourages presale of the shares.
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result
the price of our common stock may be higher than the price that
might otherwise exist in the open market.
These transactions may be effected on the New York Stock
Exchange or otherwise and, if commenced, may be discontinued at
any time.
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of securities
described in this prospectus may not be made to the public in
that relevant member state prior to the publication of a
prospectus in relation to the securities that has been approved
by the competent authority in that relevant member state or,
where appropriate, approved in another relevant member state and
notified to the competent authority in that relevant member
state, all in accordance with the Prospectus Directive, except
that, with effect from and including the relevant implementation
date, an offer of securities may be offered to the public in
that relevant member state at any time:
|
|
|
|
n
|
to any legal entity that is authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
|
81
|
|
|
|
n
|
to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts; or
|
|
|
n
|
in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive.
|
Each purchaser of securities described in this prospectus
located within a relevant member state will be deemed to have
represented, acknowledged and agreed that it is a
qualified investor within the meaning of
Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an offer of
securities to the public in any relevant member state
means the communication in any form and by any means of
sufficient information on the terms of the offer and the
securities to be offered so as to enable an investor to decide
to purchase or subscribe the securities, as the expression may
be varied in that member state by any measure implementing the
Prospectus Directive in that member state, and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each relevant
member state.
The sellers of the securities have not authorized and do not
authorize the making of any offer of securities through any
financial intermediary on their behalf, other than offers made
by the underwriters with a view to the final placement of the
securities as contemplated in this prospectus. Accordingly, no
purchaser of the securities, other than the underwriters, is
authorized to make any further offer of the securities on behalf
of the sellers or the underwriters.
This prospectus is only being distributed to, and is only
directed at, persons in the United Kingdom that are
(i) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(ii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This prospectus and its contents are confidential and should not
be distributed, published or reproduced (in whole or in part) or
disclosed by recipients to any other persons in the United
Kingdom. Any person in the United Kingdom that is not a relevant
person should not act or rely on this document or any of its
contents.
Our board of directors received an opinion, dated March 1,
2010, from BB&T Capital Markets relating to the fairness of
the exchange ratio for each share of GTS common stock to be
exchanged for shares of our common stock in connection with the
GTS merger. BB&T Capital Markets fairness opinion
refers to the fairness to our existing stockholders (prior to
the GTS merger), from a financial point of view, of the GTS
merger. The fairness opinion is subject to further due diligence
and the issuance of a bring-down opinion by BB&T Capital
Markets at the time of the consummation of the GTS merger.
BB&T Capital Markets expresses no opinion and makes no
recommendations as to the purchase by any person of shares of
our common stock or as to the fairness of the exchange ratio or
the GTS merger to the holders of GTS common stock. As
compensation for its services, upon completion of the GTS
merger, we have agreed to pay BB&T Capital Markets a
fairness opinion fee of $150,000.
In December 2009, Baird Financial Corporation, an affiliate of
Robert W. Baird & Co. Incorporated that we refer to as
the Baird Affiliate, purchased (i) $1.0 million
aggregate face amount of our junior subordinated notes and
(ii) warrants to purchase 600 shares of our
Class A common stock at an exercise price of $1,250 per
share for a total purchase price of $1.0 million (the
Class A common stock was split on a 149.314-for-one basis
effective May 7, 2010 and will be converted into shares of
our common stock on a one-for-one basis at the time of the
consummation of this offering, resulting in warrants to purchase
89,588 shares of common stock at an exercise price of
$8.37 per share). As a result of the anticipated prepayment
of the junior subordinated notes with the proceeds of this
offering, the Baird Affiliate will receive a payment equal to
the face amount of the junior subordinated notes it purchased
plus approximately $0.6 million, which includes prepayment
penalties and accrued interest. Based on our fair value estimate
of the warrants at the date of issuance, the value associated
with the warrants purchased by the Baird Affiliate is
approximately $154,000.
82
Legal
Matters
The validity of the common stock in this offering will be passed
upon for us by Greenberg Traurig, LLP, Phoenix, Arizona. Certain
legal matters in connection with this offering will be passed
upon for the underwriters by Foley & Lardner LLP,
Milwaukee, Wisconsin.
Experts
The financial statements as of December 31, 2009 and 2008 and
for each of the three years in the period ended December 31,
2009 included in this prospectus have been audited by Deloitte
& Touche LLP, an independent registered public accounting
firm, as stated in their report appearing herein. Such financial
statements have been so included in reliance upon the report of
such firm given upon their authority as experts in auditing and
accounting.
Where
You Can Find Additional Information
We have filed a registration statement on
Form S-1
with the Securities and Exchange Commission relating to the
common stock offered by this prospectus. This prospectus does
not contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration
statement. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not
necessarily complete and in each instance we refer you to the
copy of the contract or other document filed as an exhibit to
the registration statement, each such statement being qualified
in all respects by such reference. For further information with
respect to our company and the common stock offered by this
prospectus, we refer you to the registration statement,
exhibits, and schedules. Anyone may inspect a copy of the
registration statement without charge at the public reference
facility maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. Copies of all or any part of
the registration statement may be obtained from that facility
upon payment of the prescribed fees. The public may obtain
information on the operation of the public reference room by
calling the SEC at
1-800-SEC-0330.
The SEC maintains a website at
http://www.sec.gov
that contains reports, proxy and information statements, and
other information regarding registrants that file electronically
with the SEC.
We intend to make available free of charge on our website at
www.rrts.com our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
amendments to such reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, proxy
statements, and other information as soon as reasonably
practicable after such material is electronically filed with, or
furnished to, the SEC. The information contained on, or
connected to, or that can be accessed via our website is not
part of this prospectus.
83
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Roadrunner Transportation Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Roadrunner Transportation Systems, Inc. and subsidiaries (the
Company) as of December 31, 2009 and 2008, and
the related consolidated statements of operations,
stockholders investment, and cash flows for each of the
three years in the period ended December 31, 2009. 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 the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for expressing an
opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, 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 Companys consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position as of
December 31, 2009 and 2008, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ DELOITTE
& TOUCHE LLP
Minneapolis, MN
March 3, 2010 (April 2, 2010 as to Note 16)
(except for the first and fifth paragraphs of Note 16, as
to which the date is May 7, 2010)
F-2
ROADRUNNER
TRANSPORTATION SYSTEMS, INC.
(Dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
Note 16 (unaudited)
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
667
|
|
|
$
|
496
|
|
Accounts receivable, net
|
|
|
|
|
|
|
53,080
|
|
|
|
45,506
|
|
Deferred income taxes
|
|
|
|
|
|
|
1,578
|
|
|
|
2,055
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
8,440
|
|
|
|
7,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
63,765
|
|
|
|
55,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
|
|
|
|
5,292
|
|
|
|
4,951
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
210,834
|
|
|
|
185,115
|
|
Other noncurrent assets
|
|
|
|
|
|
|
10,944
|
|
|
|
10,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
|
|
|
|
221,778
|
|
|
|
195,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
$
|
290,835
|
|
|
$
|
255,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS
INVESTMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
|
|
|
$
|
7,400
|
|
|
$
|
5,500
|
|
Accounts payable
|
|
|
|
|
|
|
26,914
|
|
|
|
24,018
|
|
Accrued expenses and other liabilities
|
|
|
|
|
|
|
8,520
|
|
|
|
9,362
|
|
Accrued interest
|
|
|
|
|
|
|
1,478
|
|
|
|
2,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
44,312
|
|
|
|
41,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, net of current maturities
|
|
|
|
|
|
|
120,660
|
|
|
|
93,354
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
|
|
|
|
1,922
|
|
|
|
1,393
|
|
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
|
|
|
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
171,894
|
|
|
|
141,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
REDEEMABLE COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock $.01 par value;
259,806 shares issued and outstanding
|
|
|
|
|
|
|
1,740
|
|
|
|
1,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS INVESTMENT:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B convertible preferred stock; 1,791,768 shares
issues and outstanding
|
|
|
|
|
|
|
13,950
|
|
|
|
12,000
|
|
Class A common stock $.01 par value;
14,567,521 shares issued and outstanding
|
|
|
147
|
|
|
|
147
|
|
|
|
147
|
|
Class B common stock $.01 par value;
298,628 shares authorized; 282,502 shares issued and
outstanding
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Additional paid-in capital
|
|
|
117,649
|
|
|
|
103,698
|
|
|
|
101,338
|
|
Retained deficit
|
|
|
(597
|
)
|
|
|
(597
|
)
|
|
|
(764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders investment
|
|
|
117,201
|
|
|
|
117,201
|
|
|
|
112,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES, MEZZANINE EQUITY, AND
STOCKHOLDERS INVESTMENT
|
|
|
|
|
|
$
|
290,835
|
|
|
$
|
255,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
ROADRUNNER
TRANSPORTATION SYSTEMS, INC.
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
450,351
|
|
|
$
|
537,378
|
|
|
$
|
538,007
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased transportation costs
|
|
|
354,069
|
|
|
|
432,139
|
|
|
|
425,568
|
|
Personnel and related benefits
|
|
|
48,255
|
|
|
|
55,000
|
|
|
|
55,354
|
|
Other operating expenses
|
|
|
32,079
|
|
|
|
37,539
|
|
|
|
37,311
|
|
Depreciation and amortization
|
|
|
2,372
|
|
|
|
2,004
|
|
|
|
1,840
|
|
Acquisition transaction expenses
|
|
|
374
|
|
|
|
|
|
|
|
|
|
Restructuring and IPO expenses
|
|
|
|
|
|
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
437,149
|
|
|
|
530,098
|
|
|
|
520,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
13,202
|
|
|
|
7,280
|
|
|
|
17,934
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
12,531
|
|
|
|
12,352
|
|
|
|
13,937
|
|
Dividends on preferred stock subject to mandatory redemption
|
|
|
200
|
|
|
|
200
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
12,731
|
|
|
|
12,552
|
|
|
|
14,097
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
471
|
|
|
|
(5,272
|
)
|
|
|
2,229
|
|
Provision (benefit) for income taxes
|
|
|
304
|
|
|
|
(1,438
|
)
|
|
|
1,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
167
|
|
|
|
(3,834
|
)
|
|
|
935
|
|
Accretion of Series B preferred stock
|
|
|
(1,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(1,783
|
)
|
|
$
|
(3,834
|
)
|
|
$
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share available to common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.12
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share available to common stockholders
(Note 16 - unaudited):
|
Basic
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,109,830
|
|
|
|
15,112,667
|
|
|
|
15,113,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
15,109,830
|
|
|
|
15,112,667
|
|
|
|
15,133,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average common stock outstanding:
|
Basic
|
|
|
17,047,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
17,172,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
ROADRUNNER
TRANSPORTATION SYSTEMS, INC.
(Dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Series B Convertible Preferred Stock
|
|
|
Class A Common Stock
|
|
|
Class B Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Investment
|
|
|
BALANCE, January 1, 2007
|
|
|
|
|
|
$
|
|
|
|
|
14,567,521
|
|
|
$
|
147
|
|
|
|
282,502
|
|
|
$
|
3
|
|
|
$
|
100,019
|
|
|
$
|
2,135
|
|
|
$
|
13
|
|
|
$
|
102,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
655
|
|
|
|
|
|
|
|
|
|
|
|
655
|
|
Purchase and cancellation of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains and losses (net of tax of $1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
935
|
|
|
|
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
14,567,521
|
|
|
$
|
147
|
|
|
|
282,502
|
|
|
$
|
3
|
|
|
$
|
100,649
|
|
|
$
|
3,070
|
|
|
$
|
1
|
|
|
$
|
103,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B preferred stock
|
|
|
1,791,768
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
698
|
|
Purchase and cancellation of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains and losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,834
|
)
|
|
|
|
|
|
|
(3,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2008
|
|
|
1,791,768
|
|
|
$
|
12,000
|
|
|
|
14,567,521
|
|
|
$
|
147
|
|
|
|
282,502
|
|
|
$
|
3
|
|
|
$
|
101,338
|
|
|
$
|
(764
|
)
|
|
$
|
|
|
|
$
|
112,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series B preferred stock (15% per annum)
|
|
|
|
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
510
|
|
Forgiveness of payable to affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2009
|
|
|
1,791,768
|
|
|
$
|
13,950
|
|
|
|
14,567,521
|
|
|
$
|
147
|
|
|
|
282,502
|
|
|
$
|
3
|
|
|
$
|
103,698
|
|
|
$
|
(597
|
)
|
|
$
|
|
|
|
$
|
117,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
ROADRUNNER
TRANSPORTATION SYSTEMS, INC.
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
167
|
|
|
$
|
(3,834
|
)
|
|
$
|
935
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,086
|
|
|
|
2,439
|
|
|
|
2,290
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
1,608
|
|
Deferred interest
|
|
|
2,771
|
|
|
|
1,163
|
|
|
|
1,261
|
|
(Gain) loss on disposal of buildings and equipment
|
|
|
(35
|
)
|
|
|
|
|
|
|
165
|
|
Share-based compensation
|
|
|
510
|
|
|
|
698
|
|
|
|
655
|
|
Provision for bad debts and freight bill adjustments
|
|
|
1,186
|
|
|
|
737
|
|
|
|
349
|
|
Deferred tax provision (benefit)
|
|
|
(113
|
)
|
|
|
(1,721
|
)
|
|
|
1,054
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,671
|
)
|
|
|
6,273
|
|
|
|
1,090
|
|
Prepaid expenses and other assets
|
|
|
(1,409
|
)
|
|
|
(848
|
)
|
|
|
530
|
|
Accounts payable
|
|
|
(330
|
)
|
|
|
(6,314
|
)
|
|
|
1,810
|
|
Accrued expenses
|
|
|
(1,747
|
)
|
|
|
1,502
|
|
|
|
1,907
|
|
Other liabilities
|
|
|
529
|
|
|
|
(211
|
)
|
|
|
(1,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(56
|
)
|
|
|
(116
|
)
|
|
|
12,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted assets
|
|
|
934
|
|
|
|
(5,000
|
)
|
|
|
|
|
Additional purchase price for acquisition earnouts
|
|
|
|
|
|
|
(499
|
)
|
|
|
(1,349
|
)
|
Acquisition of business, net of cash acquired
|
|
|
(24,205
|
)
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,246
|
)
|
|
|
(1,098
|
)
|
|
|
(1,867
|
)
|
Proceeds from sale of buildings and equipment
|
|
|
99
|
|
|
|
63
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(25,418
|
)
|
|
|
(6,534
|
)
|
|
|
(3,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of preferred stock
|
|
|
|
|
|
|
12,000
|
|
|
|
|
|
Repurchase and retirement of stock
|
|
|
|
|
|
|
(34
|
)
|
|
|
(125
|
)
|
Borrowings under revolving credit facilities
|
|
|
71,625
|
|
|
|
137,025
|
|
|
|
151,715
|
|
Payments under revolving credit facilities
|
|
|
(65,215
|
)
|
|
|
(136,775
|
)
|
|
|
(135,390
|
)
|
Long-term debt borrowings
|
|
|
25,500
|
|
|
|
|
|
|
|
40,000
|
|
Long-term debt payments
|
|
|
(5,500
|
)
|
|
|
(5,000
|
)
|
|
|
(66,490
|
)
|
Payment of debt financing fees
|
|
|
(765
|
)
|
|
|
(870
|
)
|
|
|
(1,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
25,645
|
|
|
|
6,346
|
|
|
|
(11,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
171
|
|
|
|
(304
|
)
|
|
|
(2,252
|
)
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
496
|
|
|
|
800
|
|
|
|
3,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
667
|
|
|
$
|
496
|
|
|
$
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
10,342
|
|
|
$
|
10,641
|
|
|
$
|
9,964
|
|
Cash paid for income taxes (net of refunds)
|
|
$
|
470
|
|
|
$
|
(71
|
)
|
|
$
|
118
|
|
Noncash Series B convertible preferred stock dividend
|
|
$
|
1,950
|
|
|
$
|
|
|
|
$
|
|
|
Noncash forgiveness of payable to affiliates
|
|
$
|
800
|
|
|
$
|
|
|
|
$
|
|
|
Noncash conversion of notes payable to preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,000
|
|
Noncash notes and warrants issued for acquisition of business
(face amount)
|
|
$
|
3,000
|
|
|
$
|
|
|
|
$
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
Roadrunner
Transportation Systems, Inc. and Subsidiaries
|
|
1.
|
Organization,
Nature of Business and Significant Accounting Policies
|
Organization and
Nature of Business
On October 4, 2006, the controlling shareholder of
Roadrunner Dawes, Inc. (RDS) through Sargent
Transportation Group, Inc. (STG) acquired all of the
outstanding capital stock of Big Rock Transportation, Inc.,
Midwest Carriers, Inc., Sargent Trucking, Inc., B&J
Transportation, Inc., and Smith Truck Brokers, Inc.
(collectively, Sargent). On March 14, 2007, STG
merged with RDS and are collectively referred to herein as the
Company. At the time of the merger, each STG share
was converted into two-tenths of a share of the Companys
Class A common stock. In addition,
10-year
warrants to purchase 2,269,274 shares of the Companys
Class A common stock at a purchase price of $13.39 per
share were issued to the existing shareholders of STG.
Additionally, the Company converted $5.0 million of
subordinated notes payable to the former owners of Sargent into
$5.0 million of Series A Redeemable Preferred Stock.
The Company is headquartered in Cudahy, Wisconsin. RDS operates
as a common and contract motor carrier pursuant to
U.S. Department of Transportation authority and is engaged
primarily in transportation of
less-than-truckload
shipments. RDS has 17 service centers and operates throughout
the United States. Sargent operates as a transportation and
brokerage business from nine offices throughout the continental
United States and into Canada.
On June 13, 2008, the Company changed its name to
Roadrunner Transportation Services Holdings, Inc. to reflect the
Companys comprehensive service offerings. On
March 25, 2010, the Company changed its name to Roadrunner
Transportation Systems, Inc. (RRTS). Refer to
Note 16.
Accounting
Standards Codification
The issuance by the Financial Accounting Standards Board
(FASB) of the Accounting Standards Codification (the
Codification or ASC) on July 1,
2009 (effective for the Companys fiscal year
2009) changes the way that accounting principles generally
accepted in the United States (GAAP) are referenced.
Beginning on that date, the Codification officially became the
single source of authoritative nongovernmental GAAP. The change
affects the way the Company refers to GAAP in its financial
statements and accounting policies. All existing standards that
were used to create the Codification were superseded. The
Company adopted and applied the provisions of the ASC and has
eliminated references to pre-ASC accounting standards throughout
its financial statements.
Principles of
Consolidation
Transfers of net assets or exchanges of equity interests between
entities under common control do not constitute business
combinations. Because RDS and STG had the same controlling
stockholder immediately before and after the March 14, 2007
merger (the STG Merger), the STG Merger has been
accounted for as a combination of entities under common control
on a historical cost basis in a manner similar to a pooling of
interests. The accompanying consolidated financial statements of
the Company have been prepared as if the STG Merger had occurred
on October 4, 2006, the date of common control.
Accordingly, the accompanying consolidated financial statements
include the results of operations of STG for all periods
presented. All intercompany balances and transactions have been
eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
Segment
Reporting
The Companys chief operating decision maker, the chief
executive officer, assesses performance and makes resource
allocation decisions of the two reportable segments: a less-than
truckload segment (LTL) and a truck brokerage
segment (TL).
Cash and Cash
Equivalents
Cash equivalents are defined as short-term investments that have
an original maturity of three months or less at the date of
purchase and are readily convertible into cash. The Company
maintains cash in several banks and, at times, the balances may
exceed federally insured limits. The Company does not believe it
is exposed to any material credit risk on cash. As of
December 31, 2009 and 2008, approximately $9.7 million
and $7.5 million, respectively, of checks drawn in
F-7
excess of book balances were classified as accounts payable in
the accompanying consolidated balance sheets. Cash equivalents
consist of overnight investments in an interest bearing sweep
account.
Restricted
Cash
In December 2008, the Company deposited $5.0 million into a
restricted cash account pursuant to the terms of the Keep Well
Agreement (see Note 6) entered into in conjunction
with the issuance of its Series B Convertible Preferred
Stock (see Note 9). The restricted cash may be released for
payment of principal, compliance with restrictive covenants or
ordinary course liquidity needs, as defined in the Keep Well
Agreement. The Keep Well Agreement states that once funds are
drawn from the restricted cash account, they cannot be replaced,
and the agreement terminates when all funds are used or all
senior debt obligations have been paid in full. As of
December 31, 2009, restricted cash of $4.1 million is
included in other noncurrent assets in the accompanying
consolidated balance sheets. During 2009, the Company used
approximately $0.9 million for compliance with restrictive
covenants.
Accounts
Receivable
Accounts receivable represent trade receivables from customers
and are stated net of an allowance for doubtful accounts and
pricing allowances of approximately $1.1 million and
$0.9 million as of December 31, 2009 and 2008,
respectively. Management estimates the portion of accounts
receivable that will not be collected and accounts are written
off when they are determined to be uncollectible. Accounts
receivable are uncollateralized and are generally due
30 days from the invoice date.
Valuation and
Qualifying Accounts
The Company provides reserves for accounts receivable. The
rollforward of the allowance for doubtful accounts is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
889
|
|
|
$
|
1,437
|
|
|
$
|
1,703
|
|
Provision, charged to expense
|
|
|
1,186
|
|
|
|
737
|
|
|
|
349
|
|
Write-offs, less recoveries
|
|
|
(953
|
)
|
|
|
(1,285
|
)
|
|
|
(615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,122
|
|
|
$
|
889
|
|
|
$
|
1,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and
Equipment
Property and equipment are stated at cost. Maintenance and
repair costs are charged to expense as incurred. For financial
reporting purposes, depreciation is calculated using the
straight-line method over the following estimated useful lives:
|
|
|
|
|
Buildings and leasehold improvements
|
|
5-15 years
|
|
|
Furniture and fixtures
|
|
5 years
|
|
|
Equipment
|
|
5 years
|
|
|
Accelerated depreciation methods are used for tax reporting
purposes.
Property and equipment and other long-lived assets are reviewed
periodically for possible impairment. The Company evaluates
whether current facts or circumstances indicate that the
carrying value of the assets to be held and used may not be
recoverable. If such circumstances are determined to exist, an
estimate of undiscounted future cash flows produced by the
long-lived asset, or the appropriate grouping of assets, is
compared to the carrying value to determine whether impairment
exists. If an asset is determined to be impaired, the loss is
measured based on quoted market prices in active markets, if
available. If quoted market prices are not available, the
estimate of fair value is based on various valuation techniques,
including discounted value of estimated future cash flows. The
Company reports an asset to be disposed of at the lower of its
carrying value or its estimated net realizable value.
Goodwill and
Other Intangibles
Goodwill and other intangible assets result from business
acquisitions. The Company accounts for business acquisitions by
assigning the purchase price to tangible and intangible assets
and liabilities. Assets acquired and liabilities assumed are
recorded at their fair values and the excess of the purchase
price over amounts assigned is recorded as goodwill.
F-8
Goodwill is tested for impairment at least annually using a
two-step process that begins with an estimation of the fair
value at the reporting unit level. The
Companys reporting units are its operating segments as
this is the lowest level for which discrete financial
information is prepared and regularly reviewed by management.
The impairment test for goodwill involves comparing the fair
value of a reporting unit to its carrying amount, including
goodwill. If the carrying amount of the reporting unit exceeds
its fair value, a second step is required to measure the
goodwill impairment loss. The second step includes
hypothetically valuing all the tangible and intangible assets of
the reporting unit as if the reporting unit had been acquired in
a business combination. Then, the implied fair value of the
reporting units goodwill is compared to the carrying
amount of that goodwill. If the carrying amount of the reporting
units goodwill exceeds the implied fair value of the
goodwill, the Company recognizes an impairment loss in an amount
equal to the excess, not to exceed the carrying amount. For
purposes of the Companys impairment test, the fair value
of its reporting units are calculated based upon an average of
an income fair value approach and market fair value approach.
Based on these tests, the Company concluded that the fair value
for all reporting units is substantially in excess of the
respective reporting units carrying value. Accordingly, no
goodwill impairments were identified in 2009, 2008 or 2007.
Other intangible assets recorded consist of two definite lived
customer relationships. The Company evaluates its other
intangible assets for impairment when current facts or
circumstances indicate that the carrying value of the assets to
be held and used may not be recoverable. No indicators of
impairment were identified in 2009, 2008 or 2007.
Debt Issue
Costs
Debt issue costs represent costs incurred in connection with the
financing agreements described in Note 6. The debt issue
costs aggregate to $2.3 million and $2.2 million at
December 31, 2009 and 2008, respectively, and have been
classified in the consolidated balance sheets as other
noncurrent assets. Such costs are being amortized over the
expected maturity of the financing agreements using the
effective interest rate method.
Stock-Based
Compensation
The Companys share based payment awards are comprised of
stock options. Cost for the Companys stock options is
measured at fair value and recognized over the vesting period of
the award.
Income
Taxes
Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. The provision (benefit) for income
taxes is the tax payable or refundable for the period plus or
minus the change during the period in deferred tax assets and
liabilities.
Fair Value of
Financial Instruments
Fair values of cash, accounts receivable, junior subordinated
debt and accounts payable approximate cost. The estimated fair
value of long-term debt has been determined using market
information and valuation methodologies, primarily discounted
cash flow analysis. These estimates require considerable
judgment in interpreting market data, and changes in assumptions
or estimation methods could significantly affect the fair value
estimates. Based on the borrowing rates currently available to
the Company for loans with similar terms and average maturities,
the estimated fair value of the subordinated debt was
$40.5 million and $35.9 million and the estimated fair
value of the preferred stock subject to mandatory redemption was
$4.7 million and $4.3 million at December 31,
2009 and 2008, respectively. The estimated fair value of the
senior debt approximates its carrying value at December 31,
2009 and 2008, respectively.
Revenue
Recognition
LTL revenue is recorded when all of the following have occurred:
an agreement of sale exists; pricing is fixed or determinable;
and collection of revenue is reasonably assured. The Company
uses a percentage of completion method to recognize revenue,
which results in an allocation of revenue between reporting
periods based on the distinctive phases of each LTL transaction
completed in each reporting period, with expenses recognized as
incurred.
TL revenue is recorded when all of the following have occurred:
an agreement of sale exists; pricing is fixed or determinable;
delivery has occurred; and the Companys obligation to
fulfill a transaction is complete and collection of revenue is
reasonable assured. This occurs when the Company completes the
delivery of a shipment.
The Company recognizes revenue on a gross basis, as opposed to a
net basis, because it bears the risks and benefits associated
with revenue-generated activities by, among other things,
(1) acting as a principal in the transaction,
F-9
(2) establishing prices, (3) managing all aspects of
the shipping process, and (4) taking the risk of loss for
collection, delivery and returns.
Insurance
The Company uses a combination of purchased insurance and
self-insurance programs to provide for the cost of vehicle
liability, cargo damage and workers compensation claims.
The portion of self-insurance accruals, which are included in
accrued expenses and other liabilities, relates primarily to
vehicle liability and cargo damage claims. The Company
periodically evaluates the level of insurance coverage and
adjusts insurance levels based on risk tolerance and premium
expense.
The measurement and classification of self-insured costs
requires the consideration of historical cost experience,
demographic and severity factors, and judgments about the
current and expected levels of cost per claim and retention
levels. These methods provide estimates of the liability
associated with claims incurred as of the balance sheet date,
including claims not reported. The Company believes these
methods are appropriate for measuring these highly judgmental
self-insurance accruals. However, the use of any estimation
method is sensitive to the assumptions and factors described
above, based on the magnitude of claims and the length of time
from incurrence of the claims to ultimate settlement.
Accordingly, changes in these assumptions and factors can
materially affect actual costs paid to settle the claims and
those amounts may be different than estimates.
Derivative
Financial Instruments
The Company reports all derivative financial instruments on its
balance sheet at fair value and has established criteria for
designation and evaluation of effectiveness of transactions
entered into for hedging purposes. The Company employs, from
time to time, derivative financial instruments to manage its
exposure to interest rate changes and to limit the volatility
and impact of interest rate changes on earnings and cash flows.
The Company does not enter into other derivative financial
instruments for trading or speculative purposes. The Company
faces credit risk if the counterparties to these transactions
are unable to perform their obligations; however, the Company
seeks to minimize this risk by entering into transactions with
counterparties that are major financial institutions with high
credit ratings.
The Company may, at its discretion, terminate or de-designate
any such hedging instrument agreements prior to maturity. At
that time, any gains or losses previously reported in
accumulated other comprehensive income on termination would be
amortized into interest expense or interest income to correspond
to the recognition of interest expense or interest income on the
hedged debt. If such debt instrument is also terminated, the
gain or loss associated with the terminated derivative included
in accumulated other comprehensive income at the time of
termination of the debt would be recognized in the consolidated
statements of operations.
New Accounting
Pronouncements
In December 2007, the FASB issued authoritative accounting
guidance which significantly changed the accounting for business
combinations in a number of areas, including the treatment of
contingent consideration, pre-acquisition contingencies,
transaction costs, in-process research and development, and
restructuring costs. The Company adopted this accounting
pronouncement in fiscal year 2009 and is applying the accounting
treatment for business combinations on a prospective basis.
On December 11, 2009, the Company acquired certain assets
of Bullet Freight Systems, Inc. (Bullet) for
purposes of expanding its current market presence and service
offerings. Bullet operates as a common and contract motor
carrier pursuant to U.S. Department of Transportation
authority and is engaged primarily in transportation of
less-than-truckload
shipments. Bullet has operations based out of four service
centers and operates throughout the United States. Total
consideration was $27.2 million. The acquisition price and
related financing fees of approximately $1.1 million were
financed with borrowings under credit facilities of
$9.0 million and the issuance of $19.5 million face
value of junior subordinated notes, including $3.0 million
issued to the selling shareholders. In conjunction with the
issuance of the junior subordinated notes, the Company issued
warrants with a fair value of $3.0 million (see
Note 7). The Company incurred $0.4 million of
transaction expenses related to this acquisition which are
included as acquisition transaction expenses in the accompanying
consolidated statements of operations for the year ended
December 31, 2009.
The Bullet assets and liabilities were recorded at their
estimated fair market values as of the acquisition date with the
excess purchase price over the estimated fair value of net
assets being recorded as goodwill. Acquired uncollectible
F-10
accounts receivable was not material. The following is a summary
of the allocation of purchase price paid to the fair value of
the net assets of Bullet as of the acquisition date (in
thousands):
|
|
|
|
|
Accounts receivable
|
|
$
|
4,089
|
|
Property and equipment
|
|
|
170
|
|
Goodwill
|
|
|
25,719
|
|
Customer relationship intangible asset
|
|
|
800
|
|
Other noncurrent assets
|
|
|
46
|
|
Accounts payable and other liabilities
|
|
|
(3,619
|
)
|
|
|
|
|
|
Total
|
|
$
|
27,205
|
|
|
|
|
|
|
The Bullet acquisition goodwill is a result of acquiring and
retaining the existing Bullet workforce and expected synergies
from integrating Bullets operations into the Company. The
recorded goodwill is included in the LTL segment.
On a pro forma basis, assuming the acquisition had closed on
January 1, 2008, Bullet would have contributed revenues to
the Company of $72.9 million for the year ended
December 31, 2008 and $48.0 million for the period
ended December 10, 2009. The impact of Bullet to the
Companys net income during these periods would not have
been material.
|
|
3.
|
Property and
Equipment
|
Property and equipment consisted of the following at December 31
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land and improvements
|
|
$
|
47
|
|
|
$
|
47
|
|
Buildings and leasehold improvements
|
|
|
1,198
|
|
|
|
1,166
|
|
Furniture and fixtures
|
|
|
5,020
|
|
|
|
4,552
|
|
Equipment
|
|
|
5,323
|
|
|
|
3,617
|
|
|
|
|
|
|
|
|
|
|
Gross property and equipment
|
|
|
11,588
|
|
|
|
9,382
|
|
Less: Accumulated depreciation
|
|
|
(6,296
|
)
|
|
|
(4,431
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
5,292
|
|
|
$
|
4,951
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2009,
2008 and 2007 was $2.0 million, $1.6 million and
$1.4 million, respectively.
Capital
Lease
Effective January 29, 2009, the Company leased certain
equipment under a capital lease. The recorded value of the
equipment is included in property and equipment, net as of
December 31, 2009 as follows (in thousands):
|
|
|
|
|
Equipment
|
|
$
|
1,100
|
|
Less: Accumulated amortization
|
|
|
(175
|
)
|
|
|
|
|
|
Total
|
|
$
|
925
|
|
|
|
|
|
|
F-11
The following is a schedule of future minimum lease payments
under the capital lease with the present value of the net
minimum lease payments as of December 31, 2009 (in
thousands):
|
|
|
|
|
Year Ending
|
|
Amount
|
|
|
2010
|
|
$
|
427
|
|
2011
|
|
|
427
|
|
2012
|
|
|
106
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
960
|
|
Less: Amount representing interest
|
|
|
(110
|
)
|
|
|
|
|
|
Present value of net minimum lease payments(1)
|
|
$
|
850
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflected in the consolidated balance sheets as current other
liabilities and noncurrent capital lease obligations of
$0.4 million and $0.5 million, respectively. |
|
|
4.
|
Goodwill and
Intangible Assets
|
Goodwill represents the excess of the purchase price of RDS,
Sargent and Bullet over the estimated fair value of the net
assets acquired. The Company performs an annual goodwill
impairment test on July 1 to determine if there is an impairment
in the amount of the recorded goodwill. In 2007, the Company
changed the measurement date from December 31 to July 1.
The Company concluded there was no impairment as of July 1,
2009, 2008 and 2007.
The following is a rollforward of the goodwill balance from
December 31, 2007 to December 31, 2009 by reportable
segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
|
TL
|
|
|
Goodwill balance as of December 31, 2007
|
|
$
|
159,339
|
|
|
$
|
25,507
|
|
Sargent earnout contingency
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance as of December 31, 2008
|
|
|
159,339
|
|
|
|
25,776
|
|
Acquisition of Bullet
|
|
|
25,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance as of December 31, 2009
|
|
$
|
185,058
|
|
|
$
|
25,776
|
|
|
|
|
|
|
|
|
|
|
Approximately $95 million of the goodwill and all of the
intangibles are deductible for income tax purposes.
The customer relationship intangible asset of $1.8 million
related to the Sargent acquisition is being amortized over its
5-year
useful life and has a net book value of $0.6 million as
December 31, 2009. Amortization expense related to the
Sargent customer relationship intangible asset of
$0.4 million, $0.4 million and $0.5 million is
included in depreciation and amortization in the consolidated
statements of operations for the years ended December 31,
2009, 2008 and 2007. Estimated amortization expense related to
the Sargent customer relationship intangible asset is
$0.4 million in 2010 and $0.3 million in 2011, the
final year of amortization.
The customer relationship intangible asset of $0.8 million
related to the Bullet acquisition is being amortized over its
5-year
useful life and has a net book value of $0.8 million as of
December 31, 2009. No amortization expense related to the
Bullet customer relationship intangible asset was recorded for
the year ended December 31, 2009. Estimated amortization
expense related to the Bullet customer relationship intangible
asset is $0.2 million per year through 2014, the final year
of amortization.
|
|
5.
|
Restructuring and
IPO Expenses
|
Beginning September 1, 2008, the Company announced and
initiated restructuring initiatives aimed at reducing its fixed
cost structure and rationalizing its footprint. These
initiatives included the announcement of the closure of certain
terminals as well as the reduction in hourly and salaried
headcount of approximately 100 employees. Restructuring
activities were completed in 2008. In addition, due to
deterioration in economic conditions and the significant
downturn in the public equity markets, the Company postponed its
pursuit of an initial public offering (IPO) during
the fourth quarter of 2008. Restructuring and IPO related costs
included in operating expenses in the consolidated statements of
operations include costs for severance and related benefits,
write-off of IPO costs and other restructuring costs. In the
segment reporting (see Note 15), all of these costs except
for the IPO costs are reflected in the LTL segment.
F-12
Restructuring and IPO expenses for the years ended December 31,
2009 and 2008, respectively, are summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Severance and related costs
|
|
$
|
|
|
|
$
|
220
|
|
Other restructuring costs
|
|
|
|
|
|
|
589
|
|
IPO expenses
|
|
|
|
|
|
|
2,607
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and IPO expenses
|
|
$
|
|
|
|
$
|
3,416
|
|
|
|
|
|
|
|
|
|
|
Restructuring accrual activity is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Beginning accrual balance
|
|
$
|
467
|
|
|
$
|
|
|
LTL segment costs incurred
|
|
|
|
|
|
|
809
|
|
LTL segment severance and related cost payments
|
|
|
|
|
|
|
(220
|
)
|
LTL segment other restructuring cost payments
|
|
|
(401
|
)
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
Ending accrual balance
|
|
$
|
66
|
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Long-Term Debt
and Interest Rate Caps
|
Long-Term
Debt
Long- term debt consisted of the following at December 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Senior debt:
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
35,660
|
|
|
$
|
29,250
|
|
Term loans
|
|
|
34,500
|
|
|
|
31,000
|
|
Subordinated notes (Note 14)
|
|
|
41,134
|
|
|
|
38,604
|
|
Junior subordinated notes, net of unaccreted
|
|
|
|
|
|
|
|
|
discount of $3.0 million and $0, respectively (Notes 7
& 14)
|
|
|
16,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
128,060
|
|
|
|
98,854
|
|
Less: Current maturities
|
|
|
(7,400
|
)
|
|
|
(5,500
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net of current maturities
|
|
$
|
120,660
|
|
|
$
|
93,354
|
|
|
|
|
|
|
|
|
|
|
The Companys senior credit agreement (the
Agreement) is secured by all assets of the Company
and includes a $50.0 million revolving credit facility and
a $40.0 million term loan. On December 11, 2009, in
connection with the acquisition of Bullet, the Company entered
into a consent and third amendment to the Agreement which
includes a $9.0 million incremental term loan which matures
in 2012. The revolving credit facility and the term loan also
mature in 2012. Availability under the revolving credit facility
is subject to a borrowing base of eligible accounts receivable,
as defined in the Agreement. Interest is payable quarterly at
LIBOR plus an applicable margin or, at the Companys
option, prime plus an applicable margin. Principal on the term
loan and incremental term loan is payable in quarterly
installments ranging from $1.9 million per quarter in 2010
increasing to $2.4 million per quarter through
December 31, 2011 and a final payment of $17.6 million
due in 2012. The revolving credit facility also provides for the
issuance of up to $6.0 million in letters of credit. As of
December 31, 2009, the Company had outstanding letters of
credit totaling $4.4 million. Total availability under the
revolving credit facility was $4.4 million as of
December 31, 2009. At December 31, 2009, the interest
rate on the revolving credit facility and term notes was LIBOR
(0.2% at December 31, 2009) plus 5%.
The Agreement contains certain restrictive covenants that
require the Company to maintain certain leverage and fixed
charge coverage ratios. The Agreement also prohibits dividend
payments, restricts management fee payments to related parties
(see Note 14) and restricts the incurrence of
additional debt. Dividend restrictions apply if certain
financial ratios are not met and no event of default exists. The
Company entered into a consent, waiver and second amendment to
the Agreement effective December 23, 2008 which made
certain changes to the Agreement including modification of the
restrictive covenants and a consent to enter into the Keep Well
Agreement. The Company was in compliance with all covenants, as
defined in the second amendment to the Agreement, as of
December 31, 2009.
F-13
Effective December 23, 2008, the Company entered into a
consent, waiver and amendment to the subordinated notes
agreement. Changes included, among other items, amendment of
certain covenants and a consent to enter into the Keep Well
Agreement. Effective December 11, 2009, the Company entered
into a consent and second amendment to the subordinated notes
agreement to allow for the acquisition of Bullet. The
subordinated notes include cash interest of 12% plus a deferred
margin, accrued quarterly, that is treated as deferred interest
and is added to the principal balance of the note each quarter.
The deferred interest ranges from 3.5% to 7.5% depending on the
Companys total leverage calculation, as defined, payable
at maturity on August 31, 2012. Upon redemption of the
subordinated notes, the portion of the principal balance that
represents interest incurred but not paid will be reflected in
the Companys statement of cash flows as an operating
outflow. The subordinated notes are held by American Capital,
Ltd. (American Capital), Sankaty Credit
Opportunities, L.P., Sankaty Credit Opportunities II, L.P.
(collectively Sankaty), and RGIP, LLC.
(RGIP), who are also stockholders of the Company
(see Note 14).
On December 11, 2009, in connection with the Bullet
acquisition, the Company entered into a $16.5 million face
amount junior subordinated notes agreement. The junior
subordinated notes include interest of 20% accrued quarterly
that is deferred and is added to the principal balance of the
note each quarter and is payable at maturity on
February 28, 2013. The majority ($15.5 million) of the
junior subordinated notes are held by Eos Capital Partners III,
L.P., Eos Partners, L.P. (collectively, Eos),
Sankaty, RGIP, and certain individuals associated with Thayer I
Hidden Creek Partners, L.L.C. (THCP), who are also
stockholders of the Company (see Note 14). Also in
connection with the Bullet acquisition, the former Bullet owners
were issued $3.0 million face amount of junior subordinated
notes in form identical in all material respects as described
above.
In addition, the junior subordinated notes agreement requires
the Company to pay a premium upon repayment of the junior
subordinated notes. The applicable premium begins at 50% and
decreases to 10% over the life of the note. At maturity, the
premium is equal to 10% of the outstanding balance. Accordingly,
this amount is accreted to interest expense and the outstanding
note balance over the life of the debt. For the years ended
December 31, 2009 and 2008, $29,000 and $0, respectively,
was recorded in interest expense related to this premium and
added to the outstanding junior subordinated notes balance.
As discussed in Note 7, the Company issued warrants to the
holders of the junior subordinated notes. The value of these
warrants is accreted to interest expense over the life of the
related debt. The unaccreted portion totaling $3.0 million
as of December 31, 2009 has been included in the
accompanying consolidated balance sheets as a reduction in
long-term debt.
At December 31, 2009, aggregate maturities of long-term
debt were as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
7,400
|
|
2011
|
|
|
9,500
|
|
2012
|
|
|
94,394
|
|
2013
|
|
|
16,766
|
|
|
|
|
|
|
Total
|
|
$
|
128,060
|
|
|
|
|
|
|
Interest Rate
Caps
The Company entered into two interest cap agreements and
designated them as cash flow hedges on July 26, 2005 and
March 15, 2007 (the Rate Cap Agreements),
respectively, with a commercial bank as a means of managing
exposure to variable cash flows on a portion of the
Companys senior debt.
The Rate Cap Agreements are indexed to LIBOR and cap rates at
either 5.5% or 6.25%, respectively. The Company effectively pays
the lower of the three month LIBOR or 5.5% or 6.25%, reset
quarterly, on the notional value of the Rate Cap Agreements. The
notional value of the Rate Cap Agreements decline in conjunction
with the scheduled repayment of the Companys floating rate
debt through March 31, 2010. The notional value of the Rate
Cap Agreements was approximately $30.0 million at
December 31, 2009 and 2008. The 5.5% interest rate cap
agreement terminated on June 30, 2008. The fair value of
the Rate Cap Agreement was not material at December 31,
2009 and 2008, respectively. Effective January 1, 2008 the
Company de-designated these Rate Cap Agreements as cash flow
hedges. Upon de-designation, the cumulative gain (loss) recorded
as a component of accumulated other comprehensive income was not
material.
F-14
|
|
7.
|
Stockholders
Investment
|
Common
Stock
Class A common stock has voting rights and Class B
common stock does not have voting rights. Class A and
Class B common stock participate equally in earnings and
dividends. All common stock is subject to a Shareholders
Agreement which includes restrictions on transferability and
piggyback registration rights. Such agreement
provides that if, at any time after an initial public offering,
the Company files a registration statement under the Securities
Act of 1933, as amended, for any underwritten sale of shares of
any of the Companys equity securities, the stockholders
may request that the Company include in such registration the
shares of common stock held by them on the same terms and
conditions as the securities otherwise being sold in such
registration.
In addition to piggyback registration rights discussed above,
certain of the Companys stockholders have demand
registration rights. In March 2007, in connection with the STG
Merger, the Company entered into a second amended and restated
stockholders agreement, pursuant to which certain of the
Companys stockholders were granted
Form S-3
registration rights. The amended and restated stockholders
agreement provides that, any time after the Company is eligible
to register its common stock on a
Form S-3
registration statement under the Securities Act, certain of the
Companys stockholders may request registration under the
Securities Act of all or any portion of their shares of common
stock. These stockholders are limited to a total of two of such
registrations. In addition, if the Company proposes to file a
registration statement under the Securities Act for any
underwritten sale of shares of any of its securities,
stockholders party to the amended and restated
stockholders agreement may request that the Company
include in such registration the shares of common stock held by
them on the same terms and conditions as the securities
otherwise being sold in such registration.
The Shareholders Agreement defines certain circumstances,
including a change in control, whereby all stockholders are
obligated to sell their common stock on the same terms as Thayer
Equity Investors V, L.P. (Thayer V), the
majority shareholder of the Company and an affiliate of THCP.
See Note 8 regarding Class A common stock that may be
subject to redemption.
On March 14, 2007, the Company increased the total number
of authorized shares of capital stock from 29,121,230 to
44,799,200, of which 44,495,572 are designated Class A
common stock (voting), 298,628 are designated Class B
common stock (non-voting), and 5,000 shares are designated
as mandatory redeemable preferred stock.
Warrants to
Acquire Common Stock
On March 14, 2007, in connection with the STG Merger, the
Company issued to existing STG stockholders warrants to acquire
2,269,274 shares of Class A common stock at an
exercise price of $13.39 per share. The warrants are exercisable
at the option of the holder any time prior to March 13,
2017.
On December 11, 2009, in connection with the issuance of
the junior subordinated notes discussed in Note 6, the
Company issued warrants to acquire 1,746,974 shares of
Class A common stock at an exercise price of $8.37 per
share. The warrants are exercisable at the option of the holder
any time prior to December 11, 2017. The $3.0 million
fair value of the warrants at the date of issuance has been
reflected as a component of additional paid-in capital in
stockholders investment in the accompanying consolidated
balance sheets.
No warrants were exercised during the year ended
December 31, 2009.
|
|
8.
|
Redeemable Common
Stock
|
Certain shares of the Companys outstanding Class A
common stock were issued in 2006 and classified as mezzanine
equity. These shares, held by current and former employees of
the Company, are subject to redemption at fair value by the
Company in the event of death or disability of the holder, as
defined, during a seven-year period from the date of original
issuance. The Company has determined that redemption of these
shares of Class A common stock is not probable and, as
such, has not adjusted the carrying value of such shares to fair
value as of December 31, 2009 and 2008, respectively.
Series A
Redeemable Preferred Stock
In March 2007, the Company issued and had outstanding
5,000 shares of non-voting Series A Preferred Stock
(Series A Preferred Stock), which are
mandatorily redeemable by the Company at $1,000 per share, in
cash, on November 30, 2012. The Series A Preferred
Stock receives cash dividends annually on April 30 at an annual
rate equal to $40 per share and if such dividends are not paid
when due such annual dividend rate shall increase to $60 per
share
F-15
and continue to accrue without interest until such delinquent
payments are made. At both December 31, 2009 and 2008,
$142,000 is recorded as a current liability. The holders of the
Series A Preferred Stock are restricted from transferring
such shares and the Company has a first refusal right and may
elect to repurchase the shares prior to the mandatory
November 30, 2012 redemption. Upon liquidation and certain
transactions treated as liquidations, as defined in the
Companys Certificate of Incorporation, the Series A
Preferred Stock has liquidation preferences over the
Companys Series B Convertible Preferred Stock and
Class A common stock. The number of issued and outstanding
shares of Series A Preferred Stock, the $1,000 per share
repurchase price and the annual cash dividends are all subject
to equitable adjustment whenever there is a stock split, stock
dividend, combination, recapitalization, reclassification or
other similar event. As long as there is Series A Preferred
Stock outstanding, no dividends may be declared or paid on
common stock of the Company. The holders of Series A
Preferred Stock are entitled to one vote per share for all
matters subject to vote.
Series B
Convertible Preferred Stock
In December 2008, the Company issued and had outstanding
1,791,768 shares of Series B Convertible Preferred
Stock (Series B Preferred Stock), which are
convertible, at the option of the holder, at $6.70 per share
into Class A common stock. The Series B Preferred
Stock are entitled to receive a dividend which shall be payable
in cash when, as and if declared by the Board of Directors of
the Company at the rate of 15% per annum on each share of
Series B Preferred Stock outstanding, compounding
quarterly. To the extent not paid, dividends shall accumulate.
Upon liquidation and certain transactions treated as
liquidations, including a qualified public offering, as defined
in the Companys Certificate of Incorporation, the Series B
Preferred Stock has liquidation preferences over the
Companys Class A common stock. The number of issued
and outstanding shares of Series B Preferred Stock, the
$6.70 per share conversion price and the cash dividends are all
subject to equitable adjustment whenever there is a stock split,
stock dividend, combination, recapitalization, reclassification
or other similar event. As long as there is Series B
Preferred Stock outstanding, no dividends may be declared or
paid on Class A common stock of the Company. The holders of
Series B Preferred Stock are entitled to one vote per share
for all matters subject to vote equal to the number of shares of
Class A common stock into which the shares of Series B
Preferred Stock is convertible at the time of the vote.
|
|
10.
|
Stock-Based
Compensation
|
The Companys Key Employee Equity Plan (Equity
Plan), a stock-based compensation plan, permits the grant
of stock options to Company employees, consultants and directors
for up to 1,894,795 shares of Class A common stock.
Stock options are generally granted with an exercise price equal
to or in excess of the estimated fair value of the
Companys stock on the date of grant. Options vest ratably
over a four year service period and are exercisable ten years
from the date of grant, but only to the extent vested as
specified in each option agreement.
As of December 31, 2009, 352,530 shares of
Class A common stock remained available for future issuance
under the Equity Plan. Any shares issued in connection with the
exercise of options are expected to be newly issued shares.
During the year ended December 31, 2009, 3,733 options were
granted under the Equity Plan at a per share exercise price of
$6.70. Stock-based compensation expense was $0.5 million
for the year ended December 31, 2009 and $0.7 million
for the years ended December 31, 2008 and 2007,
respectively. The related estimated income tax benefit
recognized in the accompanying consolidated statements of
operations, net of estimated forfeitures, was $0.2 million,
$0.3 million and $0.2 million, respectively.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes valuation model. The fair values
of the Companys common stock for options granted were
determined through the contemporaneous application of a
discounted cash flow method. Because the Companys stock is
privately held, it is not practical to determine the
Companys share price volatility. Accordingly, the Company
uses the historical share price volatility of publicly traded
companies within the transportation and logistics sector as a
surrogate for the expected volatility of the Companys
stock. The Companys credit facility prevents payment of
dividends to Class A common stockholders; as a result, a
zero dividend yield has been assumed in the Companys
Black-Scholes valuation model. The expected life of the options
represents the expected time that the options granted will
remain outstanding. The risk-free rate used to calculate each
F-16
option valuation is based on the U.S. Treasury rate at the
time of option grants for a note with a similar lifespan. The
specific assumptions used to determine the weighted average fair
value of stock options granted were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Risk free interest rate
|
|
|
3.1
|
%
|
|
|
N/A
|
|
|
|
4.5% - 4.9%
|
|
Dividend yield
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
Expected volatility
|
|
|
42.2
|
%
|
|
|
N/A
|
|
|
|
32.5% - 33.4%
|
|
Expected life (years)
|
|
|
6
|
|
|
|
N/A
|
|
|
|
6
|
|
Weighted average fair value of stock options granted
|
|
$
|
450
|
|
|
|
N/A
|
|
|
$
|
245
|
|
A summary of the option activity under the Equity Plan for the
years ended December 31, 2009, 2008 and 2007, respectively,
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (Years)
|
|
|
Value
|
|
|
Outstanding at January 1, 2007
|
|
|
1,401,163
|
|
|
$
|
10.72
|
|
|
|
8.6
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
498,859
|
|
|
|
12,72
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(286,832
|
)
|
|
|
12.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
1,613,188
|
|
|
$
|
11.39
|
|
|
|
8.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(67,191
|
)
|
|
|
6.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
1,545,997
|
|
|
$
|
11.37
|
|
|
|
7.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,733
|
|
|
|
6.70
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(7,466
|
)
|
|
|
6.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
1,542,264
|
|
|
$
|
11.37
|
|
|
|
6.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 1,346,066 and 1,036,090 options exercisable at
December 31, 2009 and 2008, respectively. At
December 31, 2009, for exercisable options, the
weighted-average exercise price was $11.22, the weighted average
remaining contractual term was 5.9 years and the estimated
aggregate intrinsic value was $0. All granted options are
non-qualified options. The amount of options vested or expected
to vest as of December 31, 2009 does not differ
significantly from the amount outstanding.
As of December 31, 2009, there was $0.3 million of
total unrecognized compensation cost related to non-vested
options granted under the Equity Plan. This cost is expected to
be recognized over a period extending four years from each grant
date.
|
|
11.
|
Earnings (Loss)
Per Share
|
Basic earnings (loss) per common share is calculated by dividing
net income (loss) available to common stockholders by the
weighted average number of common stock outstanding during the
period. In 2007, diluted earnings per share is calculated by
dividing net income by the weighted average common stock
outstanding plus stock equivalents that would arise from the
assumed exercise of stock options using the treasury stock
method. Diluted earnings per share in 2008 and 2009 did not
assume this same exercise of stock options and conversion of
warrants as they were deemed anti-dilutive due to the net loss
available to common stockholders. There is no difference, for
any of the periods presented, in the amount of net income (loss)
available to common stockholders used in the computation of
basic and diluted earnings per share.
F-17
The following table reconciles basic weighted average stock
outstanding to diluted weighted average stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Basic weighted average stock outstanding
|
|
|
15,109,830
|
|
|
|
15,112,667
|
|
|
|
15,113,563
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
|
|
|
|
|
|
|
|
20,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average stock outstanding
|
|
|
15,109,830
|
|
|
|
15,112,667
|
|
|
|
15,133,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had additional stock options and warrants
outstanding of 5,558,512, 3,815,271 and 3,037,644 as of
December 31, 2009, 2008 and 2007, respectively. These
shares were not included in the computation of diluted earnings
per share because they were not assumed to be exercised under
the treasury stock method or were anti-dilutive. Common stock
equivalents related to the conversion of outstanding
Series B Preferred Stock have been excluded from the
computation of diluted earnings (loss) per share as the
conversion of these shares into Class A common stock is
contingent upon the effectiveness of a qualified public offering
of the Companys stock.
The components of the Companys provision (benefit) for
income taxes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(61
|
)
|
|
$
|
(23
|
)
|
|
$
|
|
|
Foreign, state and local
|
|
|
478
|
|
|
|
306
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
22
|
|
|
|
(1,663
|
)
|
|
|
780
|
|
Foreign, state and local
|
|
|
(135
|
)
|
|
|
(58
|
)
|
|
|
16
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
304
|
|
|
$
|
(1,438
|
)
|
|
$
|
1,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys income tax provision (benefit) varied from
the amounts calculated by applying the U.S. statutory
income tax rate to the pretax income (loss) as shown in the
following reconciliations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory federal rate
|
|
$
|
161
|
|
|
$
|
(1,793
|
)
|
|
$
|
780
|
|
Meals and entertainment
|
|
|
64
|
|
|
|
125
|
|
|
|
173
|
|
State income taxes-net of federal benefit
|
|
|
184
|
|
|
|
(138
|
)
|
|
|
127
|
|
Alternative fuel tax credit
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
Canadian income taxes
|
|
|
2
|
|
|
|
5
|
|
|
|
76
|
|
Preferred dividend
|
|
|
68
|
|
|
|
68
|
|
|
|
56
|
|
Other
|
|
|
20
|
|
|
|
295
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
304
|
|
|
$
|
(1,438
|
)
|
|
$
|
1,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
The tax rate effects of temporary differences that give rise to
significant elements of deferred tax assets and deferred tax
liabilities at December 31, 2009 and 2008 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Current deferred income tax assets
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
426
|
|
|
$
|
349
|
|
Accounts payable and accrued expenses
|
|
|
1,152
|
|
|
|
1,706
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,578
|
|
|
$
|
2,055
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred income tax assets (liabilities)
|
|
|
|
|
|
|
|
|
Net operating losses/credits
|
|
$
|
13,951
|
|
|
$
|
10,775
|
|
Amortization of intangible assets
|
|
|
(11,492
|
)
|
|
|
(8,967
|
)
|
Other, net
|
|
|
73
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,532
|
|
|
$
|
1,942
|
|
|
|
|
|
|
|
|
|
|
The net noncurrent deferred income tax asset of
$2.5 million and $1.9 million is classified in the
consolidated balance sheets as a component of other noncurrent
assets at December 31, 2009 and 2008, respectively.
At December 31, 2009, the Company had $37.1 million of
gross federal net operating losses which are available to reduce
federal income taxes in future years and expire in the years
2025 through 2029.
There were no unrecognized tax benefits recorded as of
December 31, 2009 and 2008. It is the Companys policy
to recognize interest and penalties related to unrecognized tax
benefits within the income tax expense line in the accompanying
consolidated statements of operations. No income tax related
interest or penalties were included in accrued income taxes as
of December 31, 2009 or 2008. The Company is subject to
federal and state tax examinations for all tax years subsequent
to December 31, 2005. Although the pre-2006 years are
no longer subject to examinations by the Internal Revenue
Service and various state taxing authorities, NOL carryforwards
generated in those years may still be adjusted upon examination
by the IRS or state taxing authorities if they have been or will
be used in a future period.
|
|
13.
|
Commitments and
Contingencies
|
Employee Benefit
Plans
The Company sponsors a defined contribution profit sharing plan
in which substantially all employees of the Company are eligible
to participate. The plan calls for the Company to match 100% of
employee contributions up to 4% of an employees
compensation and allows the Company to make a discretionary
match as determined by the board of directors up to an
additional 50% of contribution up to 4% of an employees
compensation. Total expense under this plan was
$0.8 million, and $0.9 million and $0.9 million
for the years ended December 31, 2009, 2008 and 2007,
respectively.
The Company sponsors a defined contribution profit sharing plan
for substantially all full-time employees of Sargent. The plan
calls for the Company to match 100% of employee contributions up
to 3% of an employees compensation and 50% of
contributions on the next 2% of an employees compensation.
Total expense under this plan was $0.1 million for each of
the years ended December 31, 2009, 2008 and 2007.
Operating
Leases
The Company leases terminals and office space under
noncancelable operating leases expiring on various dates through
2020. The Company incurred rent expense from operating leases of
$8.2 million, $9.7 million and $9.3 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
Aggregate future minimum lease payments under noncancelable
operating leases with an initial term in excess of one year were
as follows as of December 31, 2009 (in thousands):
|
|
|
|
|
Year Ending
|
|
Amount
|
|
|
2010
|
|
$
|
6,274
|
|
2011
|
|
|
5,660
|
|
2012
|
|
|
4,207
|
|
2013
|
|
|
3,618
|
|
2014
|
|
|
3,607
|
|
Thereafter
|
|
|
6,614
|
|
F-19
Contingencies
In the ordinary course of business, the Company is a defendant
in several property and other claims. In the aggregate, the
Company does not believe any of these claims will have a
material impact on its consolidated financial statements. The
Company maintains liability insurance coverage for claims in
excess of $500,000 per occurrence and cargo coverage for claims
in excess of $100,000 per occurrence. Management believes it has
adequate insurance to cover losses in excess of the deductible
amount. As of December 31, 2009 and 2008, the Company had
reserves for estimated uninsured losses of $2.3 million.
|
|
14.
|
Related Party
Transactions
|
In each of 2008 and 2007, Thayer Capital Management, L.P.
(Thayer), the management company for Thayer V
and an affiliate of THCP, and Eos Management, Inc., an affiliate
of Eos, earned $0.4 million in management fees, all of
which remained unpaid as of December 31, 2008. In 2009,
this amount was forgiven by Thayer and Eos Management, Inc., and
is reflected as a capital contribution within the Companys
statement of stockholders investment for the year ended
December 31, 2009. The 2009 management fee was terminated
effective in January 2009. Sargent expensed and paid a
$0.1 million management fee to Thayer in 2007.
As part of the Sargent acquisition, the Company was required to
pay an earnout to the former Sargent owners and now
Series A Preferred Stock holders. At December 31, 2009
and 2008, $0.8 million and $0.8 million, respectively,
related to amounts earned in 2006 and 2007 was classified as a
long-term liability. The Companys obligation to make
further contingent payments to the former Sargent owners
terminated as of December 31, 2009.
Also as part of the Sargent acquisition, a $3.5 million
guarantee was issued by Thayer V. The Sargent earnout payment
was guaranteed by Thayer V in the event that a payment was
sought to be made and the Company was unable to make the payment
because certain coverage ratios required by the senior lenders
had not been met. The guarantee terminated upon the issuance of
the Series B Preferred Stock.
As part of the Bullet acquisition discussed in Note 2, the
Company issued $3.0 million face amount of junior
subordinated notes plus eight-year warrants exercisable for an
aggregate 268,765 shares of Class A common stock
payable to the former Bullet owners. Also, as part of the Bullet
acquisition, the Company issued $15.5 million face amount
of junior subordinated notes plus eight-year warrants
exercisable for an aggregate 1,388,620 shares of Class A
common stock payable to existing stockholders and their
affiliates. The junior subordinated notes are included in the
table below.
The Company entered into a consulting and non-compete agreement
in 2006 with a former employee and current stockholder. The
consulting fee is $0.1 million per year through 2016.
Certain holders of the Companys subordinated notes are
also stockholders of the Company.
The following is a summary of the Companys transactions
with related parties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal owed as
|
|
|
Interest expense
|
|
|
Fees paid for the
|
|
|
|
of December 31,
|
|
|
for the year ended
|
|
|
year ended
|
|
|
|
2009
|
|
|
December 31, 2009
|
|
|
December 31, 2009
|
|
|
Subordinated Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
American Capital
|
|
$
|
20,509
|
|
|
$
|
3,609
|
|
|
$
|
0
|
|
Sankaty
|
|
|
20,418
|
|
|
|
3,637
|
|
|
|
0
|
|
RGIP
|
|
|
207
|
|
|
|
36
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Subordinated Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sankaty
|
|
$
|
5,320
|
|
|
$
|
84
|
|
|
$
|
0
|
|
RGIP
|
|
|
54
|
|
|
|
1
|
|
|
|
0
|
|
Thayer affiliates
|
|
|
2,579
|
|
|
|
41
|
|
|
|
0
|
|
Eos affiliates
|
|
|
5,374
|
|
|
|
85
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal owed as
|
|
|
Interest expense
|
|
|
Fees paid for the
|
|
|
|
of December 31,
|
|
|
for the year ended
|
|
|
year ended
|
|
|
|
2008
|
|
|
December 31, 2008
|
|
|
December 31, 2008
|
|
|
Subordinated Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
American Capital
|
|
$
|
19,263
|
|
|
$
|
2,857
|
|
|
$
|
0
|
|
Sankaty
|
|
|
19,147
|
|
|
|
2,875
|
|
|
|
0
|
|
RGIP
|
|
|
195
|
|
|
|
29
|
|
|
|
0
|
|
F-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal owed as
|
|
|
Interest expense
|
|
|
Fees paid for the
|
|
|
|
of December 31,
|
|
|
for the year ended
|
|
|
year ended
|
|
|
|
2007
|
|
|
December 31, 2007
|
|
|
December 31, 2007
|
|
|
Subordinated Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
American Capital
|
|
$
|
18,684
|
|
|
$
|
2,830
|
|
|
$
|
0
|
|
Sankaty
|
|
|
18,547
|
|
|
|
2,843
|
|
|
|
0
|
|
RGIP
|
|
|
189
|
|
|
|
29
|
|
|
|
0
|
|
The Company determines its operating segments based on the
information utilized by the chief operating decision maker, the
Companys Chief Executive Officer, to allocate resources
and assess performance. Based on this information, the Company
has determined that it operates in two operating segments which
are also reportable segments: LTL and TL.
Within the LTL business, the Company operates 17 service centers
throughout the United States complemented by relationships with
over 200 delivery agents. The LTL model allows for more direct
transportation of freight from shipper to end user than does the
traditional hub and spoke model. The TL business, across all
transportation modes from pickup to delivery, leverages
relationships with a diverse group of third-party carriers to
provide scalable capacity and reliable, customized service to
customers in North America. The majority of both businesses
operate in the United States.
These reportable segments are strategic business units through
which we offer different services. The Company evaluates the
performance of the segments primarily based on their respective
revenues and operating income. Accordingly, interest expense and
other non-operating items are not reported in segment results.
In addition, the Company has disclosed a corporate segment which
includes stock-based compensation expense, management advisory
services expense and IPO expenses.
The following table reflects certain financial data of the
Companys reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
316,119
|
|
|
$
|
366,528
|
|
|
$
|
361,821
|
|
TL
|
|
|
134,815
|
|
|
|
171,419
|
|
|
|
176,315
|
|
Eliminations
|
|
|
(583
|
)
|
|
|
(569
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
450,351
|
|
|
$
|
537,378
|
|
|
$
|
538,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
9,381
|
|
|
$
|
5,360
|
|
|
$
|
11,239
|
|
TL
|
|
|
4,337
|
|
|
|
5,625
|
|
|
|
7,813
|
|
Corporate
|
|
|
(516
|
)
|
|
|
(3,705
|
)
|
|
|
(1,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
13,202
|
|
|
$
|
7,280
|
|
|
$
|
17,934
|
|
Interest expense
|
|
|
12,731
|
|
|
|
12,552
|
|
|
|
14,097
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income (loss) before provision for income taxes:
|
|
$
|
471
|
|
|
$
|
(5,272
|
)
|
|
$
|
2,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
1,716
|
|
|
$
|
1,410
|
|
|
$
|
1,201
|
|
TL
|
|
|
656
|
|
|
|
594
|
|
|
|
639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,372
|
|
|
$
|
2,004
|
|
|
$
|
1,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
1,840
|
|
|
$
|
812
|
|
|
$
|
1,592
|
|
TL
|
|
|
406
|
|
|
|
286
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,246
|
|
|
$
|
1,098
|
|
|
$
|
1,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
245,508
|
|
|
$
|
214,645
|
|
|
$
|
219,720
|
|
TL
|
|
|
45,967
|
|
|
|
46,138
|
|
|
|
49,823
|
|
Eliminations
|
|
|
(640
|
)
|
|
|
(4,902
|
)
|
|
|
(13,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
290,835
|
|
|
$
|
255,881
|
|
|
$
|
255,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent events were evaluated through May 7, 2010.
GTS
Merger
On February 29, 2008, Thayer | Hidden Creek
Partners II, L.P. (THCP II), through an indirect
majority-owned subsidiary, GTS Acquisition Sub, Inc.
(GTS), acquired all of the outstanding capital stock
of Group Transportation Services, Inc. and all of the
outstanding member units of GTS Direct, LLC. THCP II is an
affiliate of Thayer V, the controlling stockholder of the
Company. The Company intends to file a
Form S-1
to affect an initial public offering. Simultaneous with the
consummation of the offering, the parent company of GTS will
merge with a wholly owned subsidiary of the Company (GTS
Merger). Consistent with the provisions of ASC
805-10,
transfers of net assets or exchanges of equity interests between
entities under common control do not constitute business
combinations. Because the Company and GTS will have the same
control group immediately before and after the GTS Merger, the
GTS Merger, if consummated, will be accounted for as a
combination of entities under common control on a historical
cost basis in a manner similar to a pooling of interests.
Pro Forma Balance
Sheet and Earnings Per Share (unaudited)
The pro forma balance sheet presented as of December 31,
2009 reflects the conversion of all outstanding shares of
Series B Preferred Stock into 2,082,766 shares of
Class A common stock (290,998 of which are attributable to
the conversion of accrued but unpaid dividends as of
December 31, 2009), which will occur immediately prior to
closing of the proposed initial public offering as if the
conversion had occurred on December 31, 2009. The pro forma
basic and diluted earnings per share available to common
stockholders has been computed to give effect to the conversion
of the Series B Preferred Stock (using the as-if-converted
method) into Class A common stock as though the conversion
had occurred on the original date of issuance. In addition, in
connection with the offering, all shares of Class A common stock
and Class B common stock will be converted into a single class
of newly authorized common stock.
Company Name
Change
On March 25, 2010, the Company (formerly known as
Roadrunner Transportation Services Holdings, Inc.) changed its
name to Roadrunner Transportation Systems, Inc. The consolidated
financial statements have been updated to reflect this change.
Stock
Split
On May 7, 2010, the Company effected a 149.314-for-one
stock split of all outstanding shares of its Class A common
stock, Class B common stock, and Series B preferred
stock. The consolidated financial statements have been
retrospectively restated to reflect this stock split. The
Companys preferred stock subject to mandatory redemption
was not included in the stock split.
F-22
Roadrunner Transportation
Systems, Inc.
10,600,644 Shares of
Common Stock
BB&T Capital
Markets
Stifel Nicolaus
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other Expenses
of Issuance and Distribution.
|
The following table sets forth the expenses in connection with
the offering described in the registration statement (other than
underwriting discounts and commissions). All such expenses are
estimates except for the SEC registration fee, the FINRA filing
fee, and the New York Stock Exchange listing fee. These expenses
will be borne by our company.
|
|
|
|
|
SEC registration fee
|
|
$
|
9,175
|
|
FINRA filing fee
|
|
|
20,100
|
|
Blue Sky fees and expenses
|
|
|
5,000
|
|
New York Stock Exchange listing fee
|
|
|
145,000
|
|
Transfer agent and registrar fees
|
|
|
5,000
|
|
Accountants fees and expenses
|
|
|
400,000
|
|
Legal fees and expenses
|
|
|
500,000
|
|
Printing and engraving expenses
|
|
|
350,000
|
|
Roadshow Expenses
|
|
|
500,000
|
|
Miscellaneous fees
|
|
|
165,725
|
|
|
|
|
|
|
Total
|
|
$
|
2,100,000
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
Section 145 of the Delaware General Corporation Law, or
DGCL, permits, in general, a Delaware corporation to indemnify
any person who was or is a party to any proceeding (other than
an action by, or in the right of, the corporation) by reason of
the fact that he or she is or was a director or officer of the
corporation, or served another entity in any capacity at the
request of the corporation, against liability incurred in
connection with such proceeding, including the estimated
expenses of litigating the proceeding to conclusion and the
expenses actually and reasonably incurred in connection with the
defense or settlement of such proceeding, including any appeal
thereof, if such person acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, in criminal actions or
proceedings, additionally had no reasonable cause to believe
that his or her conduct was unlawful. Section 145(e) of the
DGCL permits the corporation to pay such costs or expenses in
advance of a final disposition of such action or proceeding upon
receipt of an undertaking by or on behalf of the director or
officer to repay such amount if he or she is ultimately found
not to be entitled to indemnification under the DGCL.
Section 145(f) of the DGCL provides that the
indemnification and advancement of expense provisions contained
in the DGCL shall not be deemed exclusive of any rights to which
a director or officer seeking indemnification or advancement of
expenses may be entitled.
Our certificate of incorporation and bylaws provide, in general,
that we shall indemnify, to the fullest extent permitted by law,
any and all persons whom we shall have the power to indemnify
under those provisions from and against any and all of the
expenses, liabilities, or other matters referred to in or
covered by those provisions. Our certificate of incorporation
and bylaws also provide that the indemnification provided for
therein shall not be deemed exclusive of any other rights to
which those indemnified may be entitled as a matter of law or
which they may be lawfully granted.
The above discussion of our certificate of incorporation,
bylaws, and Section 145 of the DGCL is only a summary and
is qualified in its entirety by the full text of each of the
foregoing.
In connection with this offering, we are entering into
indemnification agreements with each of our current directors
and officers to give these directors and officers additional
contractual assurances regarding the scope of the
indemnification set forth in our certificate of incorporation
and bylaws and to provide additional procedural protections. We
expect to enter into a similar agreement with any new directors
or executive officers.
Pursuant to the form of Underwriting Agreement filed as
Exhibit 1 to this registration statement, the underwriters
have agreed to indemnify our directors, officers, and
controlling persons against certain civil liabilities that may
be incurred in connection with this offering, including certain
liabilities under the Securities Act. The underwriters severally
and not jointly will indemnify and hold harmless our company and
each of our directors, officers, and controlling persons from
and against any liability caused by any statement or omission in
the registration statement, prospectus, any preliminary
prospectus, or any amendment or supplement thereto, in each case
to the extent that the statement or omission was made in
reliance upon and in conformity with written information
furnished to us by the underwriters expressly for use therein.
II-1
|
|
Item 15.
|
Recent Sales
of Unregistered Securities.
|
During the three years preceding the filing of the registration
statement, we sold the following securities, which were not
registered under the Securities Act of 1933. The information
below does not reflect the conversion of our Class A common
stock, our Class B common stock, or our Series B preferred
stock (including accrued but unpaid dividends) into a single
class of newly authorized common stock on a 149.314-for-one
basis.
In March 2007, we issued 16,572 shares of our common stock
to our largest existing stockholder, 157.5 shares to an
affiliate of our largest existing stockholder, and
175 shares to an accredited investment fund in exchange for
Sargent common stock in connection with the merger of Sargent
into us. In addition, we issued an aggregate of 15,197.9
warrants, with exercise prices of $2,000 per share, to these
entities in connection with the Sargent merger. No additional
consideration was paid for the warrants. We issued these
securities to these accredited investors in reliance upon
Section 4(2) of the Securities Act of 1933 and
Rule 506 promulgated thereunder as a transaction by an
issuer not involving a public offering. Each entity had adequate
access to information about our company through its relationship
with our company or through information provided to them.
In March 2007, we issued an aggregate of 5,000 shares of
our Series A preferred stock to the two former stockholders
of Sargent upon conversion of $5,000,000 in aggregate principal
amount of Sargent subordinated promissory notes held by those
stockholders in connection with the merger of Sargent into us.
We issued these shares of Series A preferred stock to these
stockholders in reliance upon Section 4(2) of the
Securities Act of 1933 and Rule 506 promulgated thereunder
as a transaction by an issuer not involving a public offering.
Each holder had adequate access to information about our company
through his relationship with our company or through information
provided to him in connection with such merger.
In December 2008, we issued an aggregate of 12,000 shares
of our Series B convertible preferred stock to an aggregate
of nine of our existing stockholders in exchange for aggregate
consideration of $12,000,000, or $1,000 per share. We issued
these shares of Series B convertible preferred stock to
these stockholders in reliance upon Section 4(2) of the
Securities Act of 1933 as a transaction by an issuer not
involving a public offering. Each holder was at the time, and is
currently, a stockholder of our company and party to a
stockholders agreement with us providing for certain
information rights. As a result, each had adequate access to
information about our company through its relationship with our
company.
In December 2009, we issued Series 1 warrants, exercisable
for an aggregate of 9,900 shares of our Class A voting
common stock, to an aggregate of 13 warrantholders in connection
with the financing of the acquisition of Bullet Freight Systems,
Inc. and the related sale to such warrantholders of our junior
subordinated notes due February 28, 2013 in the aggregate
original face amount of $19,500,000. We issued these
Series 1 warrants to these warrantholders in reliance upon
Section 4(2) of the Securities Act of 1933 and
Rule 506 promulgated thereunder as a transaction by an
issuer not involving a public offering. Each holder had adequate
access to information about our company through its relationship
with our company or through information provided to it in
connection with such acquisition and financing.
In December 2009, we issued a Series 2 warrant, exercisable
for an aggregate of 1,800 shares of our Class A voting
common stock, to Bullet Freight Systems, Inc. in connection with
the acquisition of Bullet Freight Systems, Inc. We issued this
Series 2 warrant to this warrantholder in reliance upon
Section 4(2) of the Securities Act of 1933 and
Rule 506 promulgated thereunder as a transaction by an
issuer not involving a public offering. The holder had adequate
access to information about our company through information
provided to it in connection with the acquisition.
In connection with the GTS merger, which will occur
simultaneously with this offering, we will issue an aggregate of
21,635 shares of our common stock to two entities
affiliated with our largest stockholder, five GTS employees, and
one additional accredited investor, in exchange for all of the
issued and outstanding common stock of GTS. In addition, upon
consummation of the GTS merger, we will assume options to
purchase an aggregate of 3,459 shares of our common stock
(post-split),
which are held by 15 current GTS employees, in connection
with the conversion of all outstanding options to purchase GTS
common stock issued by GTS to its employees. These shares and
options will be issued in reliance upon Section 4(2) of the
Securities Act of 1933 promulgated thereunder as a transaction
by an issuer not involving a public offering. Each holder has or
will have adequate access to information about our company
through its or his relationship with our company or through
information provided to it or him.
We did not, nor do we plan to, pay or give, directly or
indirectly, any commission or other remuneration, including
underwriting discounts or commissions, in connection with any of
the issuances of securities listed above. In addition, each of
the certificates issued or to be issued representing the
securities in the transactions listed above bears or will bear a
restrictive legend permitting the transfer thereof only in
compliance with applicable securities laws. The recipients of
securities in each of the transactions listed above represented
to us or will be required to represent to us their intention to
acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof. All
recipients had or have adequate access, through their employment
or other relationship with our company or through other access
to information provided by our company, to information about our
company.
II-2
|
|
Item 16.
|
Exhibits and
Financial Statement Schedules.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
*1
|
|
|
Form of Underwriting Agreement
|
|
*3
|
.1
|
|
Amended and Restated Certificate of Incorporation
|
|
*3
|
.2
|
|
Second Amended and Restated Bylaws
|
|
*4
|
|
|
Second Amended and Restated Stockholders Agreement, dated
as of March 14, 2007, by and among the Registrant and the
stockholders named therein
|
|
*5
|
|
|
Opinion of Greenberg Traurig, LLP
|
|
*10
|
.1
|
|
Second Amended and Restated Credit Agreement, dated as of March
14, 2007, by and among the Registrant; the Lenders (as defined
therein); LaSalle Bank National Association, as Administrative
Agent; and U.S. Bank National Association, as Syndication Agent
|
|
*10
|
.2
|
|
Amended and Restated Notes Purchase Agreement, dated as of March
14, 2007, by and among the Registrant; the Guarantors (as
defined therein); and the Purchasers (as defined therein)
|
|
*10
|
.3
|
|
Stock Purchase Agreement, dated as of October 4, 2006, by and
among Sargent Transportation Group, Inc.; the Acquired Entities
(as defined therein); and the Sellers (as defined therein)
|
|
*10
|
.4
|
|
First Amendment to Second Amended and Restated Credit Agreement,
dated as of February 29, 2008, among the Registrant; the
Borrowers and the Lenders named therein; and Bank of America,
N.A., as Administrative Agent
|
|
*10
|
.5
|
|
Second Amendment to Second Amended and Restated Credit
Agreement, dated as of December 28, 2009, among the
Registrant; the Lenders (as defined therein); and Bank of
America, N.A., as Administrative Agent
|
|
*10
|
.6
|
|
Third Amendment to Second Amended and Restated Credit Agreement,
dated as of December 11, 2009, among the Registrant; the
Lenders (as defined therein); and Bank of America, N.A., as
Administrative Agent
|
|
*10
|
.7
|
|
First Amendment to Amended and Restated Notes Purchase
Agreement, dated as of December 23, 2008, among the
Registrant; the Issuers named therein; and the Purchasers named
therein
|
|
*10
|
.8
|
|
Second Amendment to Amended and Restated Notes Purchase
Agreement, dated as of December 11, 2009, among the
Registrant; the Issuers named therein; and the Purchasers named
therein
|
|
*10
|
.9
|
|
Securities Purchase Agreement, dated as of December 11,
2009, by and among the Registrant, the Roadrunner Companies (as
defined therein), and the Purchasers named therein
|
|
*10
|
.10
|
|
Employment Letter Agreement, by and between the Registrant and
Mark A. DiBlasi
|
|
*10
|
.11
|
|
Employment Letter Agreement, by and between the Registrant and
Peter R. Armbruster
|
|
*10
|
.12
|
|
Employment Letter Agreement, by and between the Registrant and
Brian J. van Helden
|
|
*10
|
.13
|
|
Employment Letter Agreement, by and between the Registrant and
Scott L. Dobak
|
|
*10
|
.14
|
|
2010 Incentive Compensation Plan
|
|
*10
|
.15
|
|
Form of Indemnification Agreement
|
|
*10
|
.16
|
|
Agreement and Plan of Merger, dated as of May 7, 2010, by
and among the Registrant; GTS Transportation Logistics, Inc.;
and Group Transportation Services Holdings, Inc.
|
|
*10
|
.17
|
|
Advisory Agreement, by and between the Registrant and
Thayer | Hidden Creek Management, L.P.
|
|
*10
|
.18
|
|
Commitment letter, dated April 19, 2010, from
U.S. Bank National Association to the Registrant
|
|
*21
|
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Deloitte & Touche LLP relating to the
consolidated financial statements of Roadrunner Transportation
Systems, Inc. and subsidiaries
|
|
*23
|
.2
|
|
Consent of Armstong & Associates, Inc.
|
|
*23
|
.3
|
|
Consent of American Trucking Associations, Inc.
|
|
*23
|
.4
|
|
Consent of Greenberg Traurig, LLP (included in Exhibit 5)
|
|
*24
|
|
|
Power of Attorney of Directors and Executive Officers (included
on the signature page of this registration statement)
|
|
*99
|
.1
|
|
Consent of Director Nominee - William S. Urkiel
|
|
*99
|
.2
|
|
Consent of Director Nominee - Chad M. Utrup
|
|
*99
|
.3
|
|
Consent of Director Nominee - James L. Welch
|
II-3
(b) Financial Statement Schedules
The registrant has not provided any financial statement
schedules because the information called for is not required or
is shown either in the financial statements or the notes thereto.
The undersigned registrant hereby undertakes to provide to the
underwriter, at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers, and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment no. 8 to the
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cudahy,
State of Wisconsin, on May 10, 2010.
ROADRUNNER TRANSPORTATION SYSTEMS, INC.
Mark A. DiBlasi
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment no. 8 to the registration statement has been
signed by the following persons in the capacities and on the
dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Mark
A. DiBlasi
Mark
A. DiBlasi
|
|
President, Chief Executive Officer, and Director (Principal
Executive Officer)
|
|
May 10, 2010
|
|
|
|
|
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/s/ Peter
R. Armbruster
Peter
R. Armbruster
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|
Vice President, Chief Financial Officer, Secretary, and
Treasurer (Principal Accounting and Financial Officer)
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|
May 10, 2010
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/s/ Scott
D. Rued*
Scott
D. Rued
|
|
Chairman of the Board
|
|
May 10, 2010
|
|
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/s/ Judith
A. Vijums*
Judith
A. Vijums
|
|
Vice President and Director
|
|
May 10, 2010
|
|
|
|
|
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/s/ Ivor
J. Evans*
Ivor
J. Evans
|
|
Director
|
|
May 10, 2010
|
|
|
|
|
|
/s/ James
J. Forese*
James
J. Forese
|
|
Director
|
|
May 10, 2010
|
|
|
|
|
|
/s/ Samuel
B. Levine*
Samuel
B. Levine
|
|
Director
|
|
May 10, 2010
|
|
|
|
|
|
/s/ Brian
D. Young*
Brian
D. Young
|
|
Director
|
|
May 10, 2010
|
|
|
|
|
|
/s/ Pankaj
Gupta*
Pankaj
Gupta
|
|
Director
|
|
May 10, 2010
|
|
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*By:
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/s/ Peter
R. Armbruster
|
|
Peter R. Armbruster
Attorney - in - Fact
II-5