SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 4, 2003, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO
_______________
Commission File Number 0-19791
USF CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3790696
(State of Incorporation) (IRS Employer Identification No.)
8550 W. Bryn Mawr Avenue, Suite 700
Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (773) 824-1000
Not applicable
(Former name or former address, if changed since the last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 5, 2003, 27,425,314 shares of common stock were outstanding.
<page>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
USF Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in Thousands)
As of
-----------------------------------
October 4, December 31,
2003 2002
- -------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 83,385 $ 54,158
Accounts receivable, net 288,355 269,583
Operating supplies and prepaid expenses 33,304 33,180
Deferred income taxes 41,322 53,086
------------ ------------
Total current assets 446,366 410,007
------------ ------------
Property and equipment, net 779,931 760,153
Goodwill 100,808 100,504
Other assets 27,890 24,607
------------ ------------
Total assets $ 1,354,995 $ 1,295,271
============ ============
Liabilities and stockholders' equity
Current liabilities:
Current debt $ 59 $ 367
Accounts payable 55,214 59,691
Accrued salaries, wages and benefits 102,690 89,765
Accrued claims and other 104,923 90,245
------------ -----------
Total current liabilities 262,886 240,068
------------ -----------
Long-term liabilities:
Notes payable and long-term debt 250,103 252,129
Accrued claims and other 93,963 84,079
Deferred income taxes 101,558 99,864
------------ -----------
Total long-term liabilities 445,624 436,072
------------ -----------
Total stockholders' equity 646,485 619,131
------------ -----------
Total liabilities and stockholders' equity $ 1,354,995 $ 1,295,271
============ ===========
See accompanying Notes to Condensed Consolidated Financial Statements.
<page>
USF Corporation
Condensed Consolidated Statements of Operations
Unaudited (Dollars in Thousands, Except Per-Share Amounts)
Quarter Ended Year-to-Date
------------------------ ------------------------
October 4, September 28, October 4, September 28,
2003 2002 2003 2002
- --------------------------------------------------------------------------------
Revenue:
LTL Trucking $ 486,449 $ 483,318 $1,447,784 $1,388,709
TL Trucking 33,669 29,649 96,663 83,484
Logistics 67,734 67,707 209,147 203,852
Intercompany eliminations (3,147) (2,189) (8,102) (6,208)
-------- -------- --------- ---------
Total revenue 584,705 578,485 1,745,492 1,669,837
Operating expenses:
LTL Trucking 456,136 452,729 1,375,359 1,312,742
TL Trucking 31,893 28,075 93,402 79,492
Logistics 64,807 64,823 203,882 196,602
Freight Forwarding-
Asia exit costs - - - 12,760
Corporate and other 6,630 7,262 20,548 20,395
Intercompany eliminations (3,147) (2,189) (8,102) (6,208)
-------- -------- --------- ---------
Total operating expenses 556,319 550,700 1,685,089 1,615,783
Income from operations 28,386 27,785 60,403 54,054
-------- -------- --------- ---------
Non-operating income/(expense):
Interest expense (5,175) (5,110) (15,658) (15,340)
Interest income 221 373 639 1,771
Other, net (506) (419) (932) (800)
-------- -------- --------- ---------
Net non-operating expense (5,460) (5,156) (15,951) (14,369)
-------- -------- --------- ---------
Income from continuing operations
before income taxes and
cumulative effects of
accounting changes 22,926 22,629 44,452 39,685
Income tax expense (9,835) (9,183) (19,007) (20,059)
-------- -------- --------- ---------
Income from continuing operations
before cumulative effects of
accounting changes 13,091 13,446 25,445 19,626
Loss from discontinued operations,
net of tax benefits of $96,
$1,928, $130 and $6,373,
respectively (130) (8,127) (175) (16,030)
-------- -------- --------- ---------
Income before cumulative effects
of accounting changes 12,961 5,319 25,270 ( 3,596)
Cumulative effect of change in
accounting for revenue
recognition, net of tax
benefits of $1,064 - - (1,467) -
Cumulative effect of change in
accounting for goodwill - - - (70,022)
-------- -------- --------- ---------
Net income/(loss) $ 12,961 $ 5,319 $ 23,803 $ (66,426)
======== ======== ========= =========
Income per share from
continuing operations:
Basic $ 0.48 $ 0.50 $ 0.94 $ 0.73
Diluted 0.48 0.49 0.93 0.72
Loss per share from discontinued
operations:
Basic (0.01) (0.30) (0.01) (0.60)
Diluted (0.01) (0.30) (0.01) (0.59)
Loss per share - cumulative
effects of changes in
accounting:
Basic - - (0.05) (2.60)
Diluted - - (0.05) (2.56)
Income/(loss) per share:
Basic 0.47 0.20 0.88 (2.47)
Diluted 0.47 0.19 0.87 (2.43)
Weighted-average shares
outstanding:
Basic 27,300,493 26,924,123 27,135,187 26,872,059
Diluted 27,444,809 27,338,300 27,260,348 27,344,357
See accompanying Notes to Condensed Consolidated Financial Statements.
<page>
USF Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in Thousands)
Year-to-Date
---------------------------
October 4, September 28,
2003 2002
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income/(loss) $ 23,803 $ (66,426)
Loss from discontinued operations 175 16,030
-------- --------
Income/(loss) from continuing operations after
cumulative effects of accounting changes 23,978 (50,396)
Adjustments to reconcile net income/(loss) from
continuing operations after accounting changes
to net cash provided by operating activities:
Depreciation of property and equipment 76,658 73,729
Cumulative effects of accounting changes 1,467 70,022
Amortization of intangible assets 1,568 934
Deferred taxes 13,458 (838)
Gains on sale of property and equipment (3,284) (2,273)
Increase/(decrease) in other items affecting
cash from operating activities 14,365 (5,652)
-------- --------
Net cash provided by operating activities 128,210 85,526
-------- --------
Cash flows from investing activities:
Acquisitions (4,883) -
Capital expenditures (98,929) (89,835)
Proceeds from sale of property and equipment 8,925 5,791
Disposition of USF Asia - (6,000)
-------- --------
Net cash used in investing activities (94,887) (90,044)
-------- --------
Cash flows from financing activities:
Dividends paid (10,135) (7,497)
Employee and director stock transactions 11,503 7,011
Repurchase of common stock (336) -
Payments on long-term bank debt (3,217) (323)
Net change in short-term bank debt (1,911) (608)
-------- --------
Net cash used in financing activities (4,096) (1,417)
-------- --------
Net cash provided by discontinued operations - 3,837
-------- --------
Net increase/(decrease) in cash 29,227 (2,098)
-------- --------
Cash at beginning of period 54,158 72,105
-------- --------
Cash at end of period $ 83,385 $ 70,007
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 9,940 $ 9,813
Income taxes $ 5,291 $ 10,792
Non-cash transactions: debt assumed in connection
with acquisition $ 2,794 $ -
See accompanying Notes to Condensed Consolidated Financial Statements.
<page>
USF Corporation
Condensed Consolidated Statements of Changes in Stockholders' Equity
Unaudited (Dollars in Thousands)
Year-to-Date
-------------------------
October 4, September 28,
2003 2002
-------- --------
Balance as of December 31, 2002 and 2001 $ 619,131 $ 687,652
-------- --------
Net income/(loss) 23,803 (66,426)
Foreign currency translation adjustments - 67
-------- --------
Comprehensive income/(loss) 23,803 (66,359)
Employee and director stock transactions 11,503 7,011
Repurchase of common stock (336) -
Dividends declared (7,616) (7,532)
-------- --------
Balance as of October 4, 2003 and
September 28, 2002 $ 646,485 $ 620,772
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
<page>
Notes to Condensed Consolidated Financial Statements
Unaudited (Dollars in Thousands, Except Share and Per Share Amounts,
unless otherwise indicated)
1. Summary of Significant Accounting Policies
Basis of Presentation
These interim financial statements of USF Corporation have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and the instructions to Quarterly Report on
Form 10-Q and Rule 10-01 of Regulation S-X, and should be read in conjunction
with our Annual Report on Form 10-K for the year ended December 31, 2002.
Accordingly, significant accounting policies and other disclosures normally
provided have been omitted since such items are disclosed therein.
In our opinion, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments (including normal recurring adjustments)
necessary to present fairly our consolidated financial position as of October 4,
2003, the consolidated results of our operations for both the quarters and
year-to-date periods ended October 4, 2003 and September 28, 2002, and our
consolidated cash flows for the year-to-date periods ended October 4, 2003 and
September 28, 2002. Operating results for the year-to-date period ended October
4, 2003 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2003.
We report on a calendar year basis. Our quarters consist of thirteen weeks
that end on a Saturday either before or after the end of March, June and
September.
Revenue Recognition
Effective January 1, 2003, we changed our method of accounting for revenue
and expense recognition for our less-than-truckload ("LTL") and truckload ("TL")
segments. Under the new accounting method, we recognize revenue for LTL and TL
operations by the allocation of revenue between reporting periods based on the
relative transit time in each reporting period with expenses recognized as
incurred. This change in the method of accounting was made to recognize the
increase in our length of haul of freight, which resulted from implementation of
our new marketing strategies. We believe that the new method of recognizing
revenue and expense is preferable. The cumulative effect of change in accounting
principle on prior years resulted in an after-tax charge to income of $1,467
(net of income taxes of $1,064) in the first quarter of 2003.
<page>
Pro forma income from continuing operations and net income for both the
quarter and year-to-date periods ended October 4, 2003 and September 28, 2002
were as follows:
Quarter Ended Year-to-Date
---------------------------------------------------
October 4, September 28, October 4, September 28,
2003 2002 2003 2002
---------------------------------------------------
Income from continuing
operations before cumulative
effects of accounting changes:
As reported $ 13,091 $ 13,446 $ 25,445 $ 19,626
Pro forma 13,091 13,399 25,445 18,876
Net income/(loss):
As reported 12,961 5,319 23,803 (66,426)
Pro forma 12,961 5,272 25,270 (67,176)
Income per share from
continuing operations
before cumulative effects
of accounting changes:
As reported, basic $ 0.48 $ 0.50 $ 0.94 $ 0.73
Pro forma, basic 0.48 0.50 0.94 0.70
As reported, diluted 0.48 0.49 0.93 0.72
Pro forma, diluted 0.48 0.49 0.93 0.69
Net income/(loss) per share:
As reported, basic 0.47 0.20 0.88 (2.47)
Pro forma, basic 0.47 0.20 0.93 (2.50)
As reported, diluted 0.47 0.19 0.87 (2.43)
Pro forma, diluted 0.47 0.19 0.93 (2.46)
Logistics revenue from warehousing is recognized upon the performance of
services. Revenue from dedicated fleet shipments is recognized upon delivery,
which is generally the same day as the day of pickup. Domestic ocean freight
forwarding transportation revenue is recognized at the time freight is tendered
to an ocean going vessel at origin.
We periodically engage owner-operator drivers to deliver freight in our LTL
business as well as our TL and logistics businesses. In all cases, we remain the
primary obligor with our customers and act as the principal in the transaction.
In addition, we select the owner-operators to provide these services. We also
maintain the risks associated with freight delivery such as losses for damaged
or lost freight. As a result, revenue in our LTL, TL, and logistics segments
that is related to freight and other transportation services provided on our
behalf by other carriers is reported on a gross basis.
Allowance for Doubtful Accounts
Our operating segments have credit and collection procedures that are
followed to determine which customers are extended credit for services provided.
Services provided to customers where we are not able to determine their
creditworthiness are done on a cash on delivery basis. We have developed a
methodology based on write-off history that we apply to our open accounts
receivable to assess the adequacy of our allowance for debts. Our analysis
provides for allowance needs that we may have for large customers that may be
experiencing financial difficulty as well as the overall conditions in the
economy.
Casualty Claims
Casualty claim reserves represent management's estimates of claims for
property damage, public liability and workers compensation. We manage casualty
claims with the assistance of a third-party administrator ("TPA") along with its
insurers. Currently, we have a retention/deductible of $5,000 for public
liability and $2,500 for workers' compensation. We promote prevention as a key
component in minimizing exposure to casualty claim losses. We have developed
comprehensive programs that emphasize and encourage employee safety and accident
prevention. When collisions or injuries occur, their outcomes are managed
closely to bring them to conclusion efficiently, fairly, and quickly by us, our
TPA, and insurers. Processes are in place to identify, evaluate, and develop
individual cases as soon as possible, to facilitate recovery and return to work,
or to mitigate damages. We have developed an extensive program to aid the
employee's recovery from injury, return to work, and allow resumption of the
individual's normal lifestyle. We closely monitor the casualty accruals and
methodologies for accuracy. Extensive analysis enables us to estimate casualty
reserves, provide for incurred but not reported cases, and develop patterns of
cases consistently and adequately.
Cargo Claims
Our operating procedures are designed to minimize freight from being lost
or damaged while in our care. Although our goal is to pick-up and deliver all
freight on time and without damage, given the large volume of freight movements
there are situations where freight is lost or damaged while in our control. We
do not accept freight that has an excessively high value, is extremely volatile,
is unusually hazardous or exhibits other unnecessary risks. We have developed
reporting procedures to monitor the claims activity at each of our terminals. We
have developed a methodology to assess our accrual needs for cargo claims. This
methodology is based on historical payment activity and lag times for reported
claims. Our accrual includes an estimation of payments to be made for claims
reported, claims incurred but not reported and specific estimations for any
unusually large claims.
2. Earnings Per Share
Basic earnings per share are calculated on net income divided by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share are calculated by dividing net income by the weighted-average
number of common shares outstanding plus the shares that would have been
outstanding assuming the issuance of common shares for all dilutive potential
common shares for the period. Unexercised stock options are the only reconciling
items between our basic and diluted earnings per share.
The following table presents information necessary to calculate basic and
diluted earnings per share:
Quarter Ended Year-to-Date
----------------------------------------------------
October 4, September 28, October 4, September 28,
2003 2002 2003 2002
----------------------------------------------------
Weighted-average shares
Outstanding - basic 27,300,493 26,924,123 27,135,187 26,872,059
Common stock equivalents 144,316 414,177 125,161 472,298
---------- ---------- ---------- ----------
Weighted-average shares
Equivalent - diluted 27,444,809 27,338,300 27,260,348 27,344,357
========== ========== ========== ==========
Anti-dilutive unexercised
options excluded
from calculations 1,424,800 987,000 1,424,800 987,000
========== ========== ========== ==========
<page>
3. Debt
Our debt includes $100,000 of unsecured guaranteed notes due May 1, 2009
and $150,000 of unsecured guaranteed notes due April 15, 2010.
Our guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, and on an unsecured senior basis, by substantially all of our
direct and indirect domestic subsidiaries (the "Subsidiary Guarantors"). All of
the assets are owned by the Subsidiary Guarantors and substantially all of our
operations are conducted by the Subsidiary Guarantors. Accordingly, the
aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors
are substantially equivalent to the assets, liabilities, earnings and equity
shown in our consolidated financial statements. Our subsidiaries, other than the
Subsidiary Guarantors, are minor. There are no restrictions on our ability to
obtain funds from our subsidiaries by dividend or loan. We, therefore, are not
required to present separate financial statements of our Subsidiary Guarantors,
and other disclosures relating to them.
We have a $200,000 credit facility with a group of banks that will expire
in October 2005. This facility is for working capital, general corporate funding
needs, and up to $125,000 for letters of credit under our self-insurance
program. As of October 4, 2003 we had no borrowings drawn under the facility and
approximately $88,000 in issued letters of credit.
4. Stock Repurchases
On July 24, 2000, we announced the authorized buyback of up to 1,000,000
shares of our common stock. This repurchase program is not yet completed. In
February 2003, we repurchased 14,000 common shares in the public market at $24
per share. There were no shares repurchased in the year-to-date period ended
September 28, 2002. From July 24, 2000 through October 4, 2003, we repurchased
468,200 shares.
5. Goodwill and Other Intangible Assets
Under Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", which became effective January 1, 2002,
goodwill and other intangible assets with indefinite lives are no longer
amortized but are subject to impairment tests annually.
In connection with the transitional goodwill impairment evaluation, SFAS
No. 142 required us, by June 30, 2002, to perform an assessment of whether there
was an indication that goodwill was impaired as of the date of adoption. To
accomplish this, we determined the carrying value of each of our reporting units
as of January 1, 2002 and compared such values with the fair value estimates of
those reporting units. The fair values of the reporting units were estimated
using the present value of expected future cash flows. To the extent a reporting
unit's carrying value exceeded its fair value estimate, which was the case for
USF Worldwide, an indication existed that the reporting unit's goodwill was
impaired and we then had to perform the second step of the transitional
impairment test. The second step of the impairment test required us to compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to its individual assets and
liabilities, to its carrying amount, both of which were measured as of the date
of adoption. SFAS No. 142 required any transitional impairment loss to be
recognized as a cumulative effect of a change in accounting principle in the
consolidated statement of operations.
As a result of USF Worldwide's continued losses through the first quarter
of 2002, and its forecasted results thereafter, we determined that the total
carrying amount of goodwill at January 1, 2002 was impaired.
We recorded an impairment charge of $70,022 at USF Worldwide, our
discontinued freight forwarding segment, which was shown as a cumulative effect
of change in accounting for goodwill in the first quarter of 2002.
The changes in carrying amounts of goodwill by segment for the year-to-date
period ended October 4, 2003 were as follows:
Corporate
LTL TL Logistics and Other Total
------- ------- ------- ------- -------
Balance as of December 31, 2002 $ 57,273 $ 10,574 $ 32,657 $ - $100,504
Additions - 304 - - 304
------- ------- ------- ------- -------
Balance as of October 4, 2003 $ 57,273 $ 10,878 $ 32,657 $ - $100,808
======= ======= ======= ======= =======
Intangible assets subject to amortization consist of the following:
As of As of
October 4, 2003 December 31, 2002
---------------------- ----------------------
Gross Gross
Average Carrying Accumulated Carrying Accumulated
Life (Yrs) Amount Amortization Amount Amortization
---------- -------- ------------ -------- ------------
Customer lists 5 $ 9,444 $ (6,624) $ 6,073 $ (5,078)
Non-competes 5 5,347 (5,178) 5,156 (5,156)
-------- ------------ -------- ------------
Total $ 14,791 $(11,802) $ 11,229 $ (10,234)
======== ============ ======== ============
Aggregate amortization expense for the quarters ended October 4, 2003 and
September 28, 2002 was $673 and $309, respectively. Aggregate amortization
expense for the year-to-date periods ended October 4, 2003 and September 28,
2003 was $1,568 and $934, respectively.
Estimated amortization expense for each of the years ending December 31 is
as follows:
Year
------
2003 $ 2,242
2004 769
2005 569
2006 537
2007 and beyond 440
-------
Total $ 4,557
=======
<page>
6. Recent Accounting Pronouncements
On November 25, 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees", Including Indirect Guarantees of Indebtedness to
Others), which elaborates on the disclosures to be made by a guarantor about its
obligations under certain guarantees issued. The Interpretation also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The Interpretation expands on the accounting guidance of
Interpretation No. 5, Accounting for Contingencies, SFAS No. 57 Related Party
Disclosures, and SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The Interpretaion also incorporates, without change, the provisions
of Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of
Others, which it supersedes. The Interpretation does identify several situations
where the recognition of a liability at inception for a guarantor's obligation
is not required. The initial recognition and measurement provisions of this
Interpretation apply on a prospective basis to guarantees issued or modified
after December 31, 2002, regardless of the guarantor's fiscal year-end. The
disclosures are effective for financial statements of interim or annual periods
ending after December 15, 2002. Adoption of this Interpretation did not have an
impact on financial statements and related disclosures.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of SFAS No.123". This
Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation" to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Finally, this Statement amends
Accounting Principles Board ("APB") Opinion No. 28, "Interim Financial
Reporting", to require disclosure about those effects in interim financial
information. The amendments to SFAS No. 123 in paragraphs 2(a) - 2(e) of this
Statement are effective for financial statements for fiscal years ending after
December 15, 2002. The amendment to SFAS No. 123 in paragraph 2(f) of this
Statement and the amendment to Opinion No. 28 in paragraph 3 of this statement
were effective for financial reports containing condensed financial statements
for interim periods beginning after December 15, 2002. As is allowed, we have
adopted the disclosure requirements under SFAS No. 148.
In March 2003, the FASB issued Interpretation No. 46. This Interpretation
of Accounting Research Bulletin No. 5, Consolidated Financial Statements,
addresses consolidation by business enterprises of variable interest entities.
This Interpretation applies to variable interest entities created after January
1, 2002, and to variable interest entities in which an enterprise obtains an
interest after that date. We have no investments in or known contractual
arrangements with variable interest entities and therefore, this Interpretation
has no impact on our financial statements and related disclosures.
In May 2003, the FASB issued SFAS No. 150 - "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement provides guidance as to the appropriate classification of certain
financial statement instruments that have characteristics of both liabilities
and equity. This statement is effective at the beginning of the first interim
period after June 15, 2003. Adoption of this Statement did not have an impact on
our financial statements and related disclosures.
<page>
7. Acquisitions
In February 2003, USF Glen Moore acquired the stock of System 81 Express,
Inc., a truckload carrier based in Tennessee that owned or operated
approximately 140 tractors and 260 trailers, for approximately $4,700 in cash
and assumed debt. In addition, contingent payments totaling $314 were
subsequently made to the former owners of System 81 Express. Goodwill and other
intangible assets of $304 and $461, respectively, were recorded under the
acquisition. The acquisition contributed approximately $5,800 to USF Glen
Moore's revenue for the year-to-date period ended October 4, 2003.
On April 14, 2003, USF Red Star paid $3,000 in cash for certain assets and
the business of Plymouth Rock Transportation Corporation, a Massachusetts based
LTL carrier that provided overnight freight service to 11 Northeastern states.
Contingent purchase price payments may be made to the former owners of Plymouth
Rock Transportation Corporation if certain retained revenue goals are achieved.
The earliest contingent purchase price payment would be made in the third
quarter of 2004. The acquisition contributed approximately $10,300 to USF Red
Star's revenue during the second and third quarters of 2003.
8. Joint Venture
On September 12, 2003 we announced that we will begin offering
transportation and logistics services in Mexico and across the United
States/Mexico border through a joint venture with Autolineas Mexicanas S.A. de
C.V. ("ALMEX"). ALMEX, a nationwide LTL carrier in Mexico, has a network of 52
terminals providing service to virtually the entire country. We intend to invest
$10,000 in the joint venture in the form of a loan, which in time can be
converted into equity. We have the option to eventually own a majority equity
position.
<page>
9. Segment Reporting Quarter Ended Year-to-Date
------------------------ ----------------------
Oct. 4, Sept. 28, Oct. 4, Sept. 28,
2003 2002 2003 2002
- ------------------------------------------------------ ----------------------
Revenue
LTL Group:
USF Holland $ 249,225 $ 245,765 $ 751,575 $ 715,165
USF Reddaway 78,075 72,065 223,250 202,648
USF Dugan 60,470 57,011 178,039 160,606
USF Red Star 57,693 68,877 175,890 198,608
USF Bestway 40,986 39,600 119,030 111,682
- --------------------------------------------------------------------------------
Subtotal LTL Group 486,449 483,318 1,447,784 1,388,709
Truckload - USF Glen Moore 33,669 29,649 96,663 83,484
Logistics 67,734 67,707 209,147 203,852
Corporate and other - - - -
Intercompany eliminations (3,147) (2,189) (8,102) (6,208)
- --------------------------------------------------------------------------------
Total revenue $ 584,705 $ 578,485 $1,745,492 $1,669,837
Income/(loss) from operations
LTL Group:
USF Holland $ 16,615 $ 18,820 $ 48,015 $ 51,664
USF Reddaway 10,275 9,537 24,870 20,513
USF Dugan 1,632 451 2,052 1,923
USF Red Star (1,017) (1,017) (8,390) (4,680)
USF Bestway 2,808 2,798 5,878 6,547
- --------------------------------------------------------------------------------
Subtotal LTL Group 30,313 30,589 72,425 75,967
Truckload - USF Glen Moore 1,776 1,574 3,261 3,992
Logistics 2,927 2,884 5,265 7,250
Freight forwarding
- Asia exit costs - - - (12,760)
Corporate and other (5,957) (6,953) (18,980) (19,461)
Amortization of intangibles (673) (309) (1,568) (934)
- ---------------------------------------------------------------------- ---------
Income from operations $ 28,386 $ 27,785 $ 60,403 $ 54,054
Net non-operating expense (5,460) (5,156) (15,951) (14,369)
- --------------------------------------------------------------------------------
Income from continuing
operations before income
taxes and cumulative
effects of accounting
changes $ 22,926 $ 22,629 $ 44,452 $ 39,685
================================================================================
<page>
10. Stock Based Compensation
SFAS No. 123, "Accounting for Stock Based Compensation", establishes a fair
value based method of accounting for stock options. We have elected to continue
using the intrinsic value method prescribed under APB Opinion No. 25 as
permitted by SFAS No. 123. For all stock options that have been granted the
exercise prices of the stock options were equal to the market prices of the
underlying stock on the grant dates, therefore no compensation expense was
recognized. If we had elected to recognize compensation expense based on the
fair value of the options at grant date, as prescribed by SFAS No. 123, our net
income and earnings per share would have been reduced to the proforma amounts
indicated in the table below:
Quarter Ended Year-to-Date
------------------- ---------------------
October 4, September 28, October 4, September 28,
2003 2002 2003 2002
-------- --------- --------- ----------
Net income/(loss),
as reported $ 12,961 $ 5,319 $ 23,803 $(66,426)
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax benefits (1,351) (1,320) (3,771) (3,899)
-------- --------- --------- ---------
Pro forma net income/(loss) $ 11,610 $ 3,999 $ 20,032 $(70,325)
Earnings/(loss) per share:
Basic - as reported $ 0.47 $ 0.20 $ 0.88 $ (2.47)
Basic - pro forma 0.43 0.15 0.74 (2.61)
Diluted - as reported 0.47 0.19 0.87 (2.43)
Diluted - pro forma 0.42 0.15 0.73 (2.57)
11. Asia Exit Costs
During the first quarter of 2002, we relinquished our 50% interest in our
consolidated subsidiary, USF Asia. We recorded a $12,760 charge, which included
a $10,000 negotiated payment to our former partner. The remaining $2,760
represented the relinquishment of our net assets to our former partner. We
initiated our commitment to dispose of our Asia operation in the fourth quarter
of 2001. Accordingly, as required by SFAS No. 144, we applied the provisions of
APB No. 30. The Asia operation was a component of our freight forwarding
segment. APB No. 30 required presentation of a business disposal in discontinued
operations only when a company disposed of an entire segment. We therefore did
not present the Asia operation in discontinued operations.
12. Discontinued Freight Forwarding Segment (Presented in these Financial
Statements in Discontinued Operations)
On October 30, 2002, we sold our freight forwarding businesses, USF
Worldwide, Inc. and USF Worldwide Logistics (UK), to GPS Logistics, Inc. and
Seko Worldwide Acquisitions LLC (collectively "the Transferees"). As part of the
agreement, the Transferees returned their interest in certain assets (now
operating as our domestic ocean freight forwarding division within our Logistics
segment) to us late in December 2002. The results of the freight forwarding
businesses that were sold are presented in our financial statements in
discontinued operations.
<page>
13. Management Changes
On May 26, 2003, our Chairman, President and Chief Executive Officer
retired. Under the terms of his retirement agreement of April 22, 2003, he is
entitled to certain retirement benefits that resulted in a $1,200 after-tax
charge to income from operations in the second quarter of 2003. On September 3,
2003, Neil A. Springer was elected Non-Executive Chairman of the Board and on
September 15, 2003, Richard P. DiStasio became President and Chief Executive
Officer.
<page>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
We reported net income of $13.0 million for the current year's third
quarter ended October 4, 2003, which compared to $5.3 million for the same
quarter of the prior year. Net income for the current year-to-date period ended
October 4, 2003 was $23.8 million, which compared to a net loss of $66.4 million
for the same period of the prior year.
Net income per share for the current year's quarter was equivalent to $0.47
diluted earnings per share, which compared to $0.19 for the same quarter of the
prior year. Income from continuing operations was equivalent to $0.48 diluted
earnings per share, which compared to $0.49 for the same quarter of the prior
year. Net income for the prior year's quarter included an after tax loss of $8.1
million (equivalent to a loss of $0.30 per diluted share) from our freight
forwarding segment, which is included in discontinued operations.
Net income for the current year-to-date period was $23.8 million,
equivalent to $0.87 diluted earnings per share, which compared to a net loss of
$66.4 million for the same period of the prior year. On January 1, 2003, we
changed our method of accounting for revenue recognition in our
less-than-truckload ("LTL") and truckload ("TL") segments, which resulted in an
after tax charge of $1.5 million (equivalent to a loss of $0.05 per diluted
share) that was treated as a cumulative effect of change in accounting. Included
in the net loss for the year-to-date period of the prior year was: a $12.8
million charge (equivalent to a loss of $0.47 per diluted share) to relinquish
our interest in a non-core Asian joint venture, a $70.0 million goodwill
impairment charge (equivalent to a loss of $2.56 per diluted share) that was
treated as a cumulative effect of change in accounting, and an after tax loss of
$16.0 million (equivalent to a loss of $0.59 per diluted share) from
discontinued operations. Of these $105.2 million in pre-tax charges recorded,
$88.8 million were non-cash.
Revenue for the current year's quarter increased 1.1% to $584.7 million,
compared to $578.5 million for the same quarter of the prior year. The current
year's quarter included 64 working days, which compared to 63 working days in
the same quarter of the prior year. On a daily basis, revenue in the current
year's quarter decreased 0.5% compared to the same quarter of the prior year.
Revenue for the current year-to-date period was $1.75 billion, which was a 4.5%
increase as compared to $1.67 billion in the same period of the prior year.
LTL Segment - Third Quarter 2003 compared to Third Quarter 2002
Our LTL segment includes our LTL operating companies, each of which
generates revenue from LTL and TL shipments. Revenue from LTL shipments
represents substantially all of the revenue in the LTL segment. Total revenue in
the LTL segment for the current year's quarter increased 0.6% to $486.4 million,
from $483.3 million in same quarter of the prior year. Revenue from our USF
PremierPlus (SM) ("PremierPlus") product (revenue from shipments moving between
our LTL operating companies) increased to 12.5% of total revenue in the LTL
segment, as compared to 11.6% in the same quarter of the prior year.
On a comparable working day basis, total revenue in the current year's
quarter decreased by 0.9%, as compared to the same quarter of the prior year.
Revenue from fuel surcharges, which are included in LTL revenue, increased 47.3%
to $15.6 million, from $10.6 million in the same quarter of the prior year. In
the current year's quarter, revenue per working day before fuel surcharges
decreased 2.0%.
In the current year's quarter, LTL shipments decreased 3.1% and LTL tonnage
decreased 2.7%, as compared to the same quarter of the prior year. Including
fuel surcharges, billed LTL revenue per shipment increased 4.8%, from $123.33 to
$129.26. Billed LTL revenue per hundredweight increased 4.4%, from $10.93 to
$11.42. Average weight per LTL shipment increased to 1,132 pounds, from 1,128
pounds in the same quarter of the prior year.
On a comparable working day basis, in the current year's quarter LTL
shipments decreased 4.6% and LTL tons decreased 4.3%, as compared to the same
quarter of the prior year, but the overall average LTL length of haul increased
3.4% to 492 miles from 476 miles in same quarter of the prior year.
Income from operations for the LTL segment in the current year's quarter
was $30.3 million, which compared to $30.6 million for the same quarter of the
prior year. The operating ratio ("OR" or direct operating expenses as a
percentage of revenue) for the LTL segment increased to 93.8%, from 93.7% in the
same quarter of the prior year.
USF Reddaway's revenue increased 8.3% (6.6% on a daily basis) in the
current year's quarter, as compared to the same quarter of the prior year, and
its OR of 86.8% was the same as in the same quarter of the prior year. The
current year's quarter included a positive adjustment related to a reduction in
estimated refunds to customers.
USF Holland's revenue increased 1.4% (decreased 0.2% on a daily basis) and
its OR increased to 93.3% from 92.3%. USF Holland continues to feel the effects
of the soft economy in the Midwest along with pricing pressures. Intense efforts
are underway to fine tune pricing strategies to ensure that USF Holland
increases its growth rate and improves market penetration.
USF Bestway's revenue increased 3.5% (1.9% on a daily basis) and its OR
increased to 93.1% from 92.9%. Included in the current year's quarter was a gain
on the sale of a terminal. USF Bestway continues to feel the effects of
aggressive pricing pressures in the intra California/Texas markets.
USF Dugan's revenue increased 6.1% (4.4% on a daily basis) and its OR
improved to 97.3% from 99.2%. USF Dugan's OR improvement was the result of
reduced maintenance expenses in the current year's quarter and a one time
terminal expense in the same quarter of the prior year.
USF Red Star's revenue decreased 16.2% (17.5% on a daily basis) and its OR
increased to 101.8% from 101.5%. The decrease in revenue was primarily
attributable to the elimination of low yield revenue from its largest customer,
the closure of terminals in Atlanta and North and South Carolina, and the
consolidation of two terminals in the Boston area.
LTL Segment - Year-to-Date 2003 compared to Year-to-Date 2002
Total revenue from the LTL segment for the current year-to-date period
ended October 4, 2003 increased 4.3% to $1,447.8 million from $1,388.7 million
in the same period of the prior year. LTL shipments and LTL tonnage each
decreased 1.0% in the current year-to-date period, compared with the same period
of the prior year. LTL revenue per shipment increased 6.3% to $128.25, from
$120.66. Weight per shipment increased 0.4% to 1,132 pounds, from 1,128 pounds.
Fuel surcharges increased 121.1% to $51.4 million, from $23.3 million, as fuel
prices increased during the current year.
Income from operations for the current year-to-date period was $72.4
million, a decrease of 4.7% compared to $76.0 million for the same period of the
prior year. The decrease was mainly the result of the soft economy. The OR of
the LTL segment for the current year-to-date period was 95.0%, which compared
with an OR of 94.5% for the same period of the prior year.
USF Reddaway's revenue for the current year-to-date period increased 10.2%,
compared with the same period of the prior year, and its OR improved to 88.9%
from 89.9%. The increase in revenue resulted primarily from an increase in LTL
shipments of 5.6%. The improved OR was principally the result of cost control
measures undertaken in 2003 and the gain on the sale of a terminal.
USF Red Star's OR increased to 104.8% from 102.4% in the same period of the
prior year. However, USF Red Star's OR of 101.8% in the third quarter of 2003
was significantly improved from the OR's of 108.8% and 103.6% in the first and
second quarters of 2003, respectively. USF Red Star continues to make
operational changes to reduce costs as well as restructure to its core business
markets in the Northeast.
USF Bestway's OR increased to 95.1% from 94.1%. The increase in the OR was
primarily a result of increased employee benefits and insurance claims.
USF Holland's OR increased to 93.6% from 92.8%. The increase in the OR
primarily resulted from the soft economy in the Midwest and increased labor
costs.
USF Dugan's OR was 98.8%, the same as in the same period of the prior year.
Continuing from the current year's first quarter, we are reporting on our
Web site (www.ir.usfc.com) LTL operating statistics in a new format, which we
believe more accurately reflect shipment and pricing details. In prior years,
the operating statistics included PremierPlus shipments in each of our LTL
operating companies that handled the shipment and allocated to each company its
portion of the revenue. While this prior treatment was consistent throughout all
reporting periods, the total shipment count for our overall LTL segment was
greater than the actual shipments handled. This revised presentation eliminates
the double counting of PremierPlus shipments. Additionally, these statistics are
presented on an as-billed basis and not as presented in the financial
statements. Differences between the operating statistics data and reported
revenue in the financial statements result from, among other items, revenue
recognition between accounting periods, adjustments for volume discounts that
are not attributable to specific invoices and other adjustments to invoices that
occur during later periods.
Truckload
USF Glen Moore's revenue increased 13.6% (11.3% before revenue from fuel
surcharges) to $33.7 million in the current year's quarter, which compared to
$29.6 million in the same quarter of the prior year. Approximately 51% of the
increase in revenue was attributable to the acquisition of System 81 Express in
late February 2003. USF Glen Moore's income from operations was $1.8 million and
its OR was 94.7% in the current year's quarter, which compared to income from
operations of $1.6 million and an OR of 94.7% in the same quarter of the prior
year.
USF Glen Moore's revenue increased 15.8% to $96.7 million in the current
year-to-date period ended October 4, 2003, which compared to $83.5 million in
the same year-to-date period of the prior year. Income from operations decreased
18.3% to $3.3 million in the current year-to-date period, which compared to $4.0
million in the same period of the prior year. USF Glen Moore's OR increased to
96.6% from 95.2%, which was mainly due to increases in fuel costs. The
acquisition of System 81 Express in late February 2003 contributed approximately
$5.8 million to revenue in the current year-to-date period. At the beginning of
the first quarter of 2003, USF Glen Moore increased the estimated depreciable
lives of a portion of its tractor fleet to match service life experience.
Tractor lives were extended from five to seven years and, as a result, USF Glen
Moore's depreciation expense in the current year-to-date period was
approximately $1.8 million less than it would have been utilizing the previous
depreciable lives.
Logistics
Revenue for the Logistics segment in the current year's quarter was $67.7
million, which was the same as in the same quarter of the prior year. Included
in revenue for the current year's quarter was $6.8 million from the ocean
freight forwarding business, which was acquired late in 2002 (see Footnote 12 -
Discontinued Freight Forwarding Segment) and that was slightly profitable.
Offsetting this increase in revenue was a decrease in business with major
customers, including Fleming Companies, who filed for bankruptcy in April 2003.
Income from operations for the Logistics segment in the current year's quarter
was $2.9 million, which was the same as in the same quarter of the prior year.
Included in the Logistics segment is USF Processors, which contributed $8.8
million in revenue to the current year's quarter, compared to $10.2 million in
the same quarter of the prior year. Income from operations of USF Processors was
$0.2 million in the current year's quarter, compared to $0.3 million in the same
quarter of the prior year.
Revenue for the Logistics segment in the year-to-date period ended October
4, 2003 increased 2.6% to $209.1 million, which compared to $203.8 million in
the same year-to-date period of the prior year. USF Logistics increased its
revenue as new distribution centers and new contracts started up, while USF
Processors reported a decrease in revenue to $26.8 million from $30.6 million in
the same period of the prior year. Income from operations for the Logistics
segment in the current year-to-date period decreased 27.4% to $5.3 million, from
$7.2 million in the same period of the prior year. Income from operations of USF
Processors was $0.5 million in the current year-to-date period, compared to a
loss of $1.3 million in the same period of the prior year. Included in income
from operations for USF Logistics in the current year-to-date period was a $2.0
million charge related to the bankruptcy of Fleming Companies.
Freight Forwarding - Asia Exit Costs
During the first quarter of 2002 we relinquished our 50% interest in our
consolidated subsidiary, USF Asia. We recorded a $12.8 million charge, which
included a $10.0 million negotiated payment to our former partner. The remaining
$2.8 million represented the relinquishment of our net assets to our former
partner. We initiated our commitment to dispose of our Asia operation in the
fourth quarter of 2001. Accordingly, as required by Statement of Financial
Accounting Standard ("SFAS") No. 144, we applied the provisions of Accounting
Principles Board ("APB") Opinion No. 30. The Asia operation was a component of
our freight forwarding segment. APB No. 30 required presentation of a business
disposal in discontinued operations only when a company disposed of an entire
segment. We therefore did not present the Asia operation in discontinued
operations.
Corporate and Other
Corporate and other expenses decreased $1.1 million to $5.9 million in the
current year's quarter, compared to $7.0 million in the same quarter of the
prior year. Net expenses in our information technology ("IT") group in the
current year's quarter decreased $0.4 million, compared with the same quarter of
the prior year. Several major software development projects that were begun in
2002, and were in the non-capitalizable initial phases in 2002, have moved into
phases where these development costs are being capitalized in accordance with
Statement of Position No. 98-1.
Corporate and other expenses for the year-to-date period ended October 4,
2003 were $20.5 million, which compared to $20.4 million in the same
year-to-date period of the prior year. Corporate expenses decreased to $19.0
million in the current year-to-date period from $19.5 million in the same period
of the prior year. Net expenses for IT decreased $1.3 million in the current
year-to-date period, compared to the same period of the prior year, as several
major software development projects that were begun in 2002 are now being
capitalized
Amortization of non-goodwill intangible assets was $0.7 million in the
current year's quarter, which compared to $0.3 million in the same quarter of
the prior year. Amortization expense for the current year-to-date period was
$1.6 million, which compared to $0.9 million in the same year-to-date period of
the prior year. The increase in amortization expense was due to the intangible
assets acquired by USF Glen Moore and USF Red Star in February and April 2003,
respectively (see Footnote 7 - Acquisitions).
Discontinued Operations
On October 30, 2002, we sold our non-core freight forwarding businesses,
USF Worldwide, Inc. and USF Worldwide Logistics (UK). Results of its operations
for the year-to-date period ended September 28, 2002 are reported in
discontinued operations in our statements of operations and cash flows (See
Footnote 12 - Discontinued Freight Forwarding Segment).
Income Taxes
Income tax expense is calculated on income from continuing operations
before income taxes and cumulative effects of accounting changes and before the
$12.8 million Asia exit costs (for the year-to-date period ended September 28,
2002, as there were no tax benefits recognized with this charge). There were
also no tax benefits associated with the $70.0 million cumulative effect of
change in accounting for goodwill that was recorded in 2002. State income tax
refunds lowered the effective tax rate for the year-to-date period ended
September 28, 2002. Additionally, the increase in the effective income tax rate
in the current year-to-date period resulted in part from the decrease in pre-tax
income.
The following table provides an analysis of the effective tax rates for the
year-to-date periods in 2003 and 2002:
Year-to-Date
--------------------------
October 4, September 28,
2003 2002
-------- --------
Reported income from continuing operations $ 44,452 $ 39,685
before income taxes and cumulative effects of
accounting changes
Add back Asia exit costs - 12,760
-------- --------
Income subject to income taxes $ 44,452 $ 52,445
Income tax expense (19,007) (20,059)
Effective tax rate - reported 42.8% 38.2%
Subtract from income taxes:
Net state tax refunds received - 636
-------- --------
Adjusted income tax expense $(19,007) $(20,695)
======== ========
Effective tax rate - adjusted 42.8% 39.5%
======== ========
Other Matters
A five-year National Master Freight Agreement ("NMFA") was negotiated and
ratified by the International Brotherhood of Teamsters replacing the agreement
that expired on March 31, 2003. This agreement primarily affects USF Holland and
USF Red Star.
Mr. Samuel K. Skinner, our Chairman, President and Chief Executive Officer,
retired on May 26, 2003. On September 2, 2003, Neil A. Springer was elected
Non-Executive Chairman of the Board and on September 15, 2003, Richard P.
DiStasio became President and Chief Executive Officer.
On September 12, 2003, we announced that we will begin offering
transportation and logistics services in Mexico and across the United
States/Mexico border through a joint venture with Autolineas Mexicanas S.A. de
C.V. ("ALMEX"). ALMEX, a nationwide LTL carrier in Mexico, has a network of 52
terminals providing service to virtually the entire country. We intend to invest
$10.0 million in the joint venture in the form of a loan, which in time can be
converted into equity. We have the option to eventually own a majority equity
position.
Liquidity and Capital Resources
Cash flows from operating activities contributed $128.2 million during the
year-to-date period ended October 4, 2003, which compared to $85.5 million
during the year-to-date period ended September 28, 2002. Our net loss of $66.4
million in the year-to-date period of the prior year included a non-cash charge
for a write-off of goodwill of $70.0 million in discontinued operations and a
$12.8 million charge (including a $10 million cash payment) to relinquish our
interest in our non-core Asian joint venture. Non-cash expenses in net income
for the current year-to-date period included depreciation of property and
equipment and amortization of non-goodwill intangible assets. We plan to fund
our ongoing operations through operating cash flows and existing credit
facilities.
Other items affecting cash from operating activities that resulted in a
$14.4 million net increase in the current year-to-date period included an
increase of $23.1 million in accounts payable and other current liabilities and
a $18.8 million increase in accounts receivable. In the year-to-date period of
the prior year other items affecting cash from operating activities resulted in
a $5.6 million net decrease, mainly due to increases in accounts receivable of
$36.9 million and accounts payable and other current liabilities of $39.4
million.
Capital expenditures in the current year-to-date period were approximately
$98.9 million, which included $29.6 million for revenue equipment, $30.3 million
for terminal facilities, $26.8 million for IT, and $12.2 million for other
capital items. In the year-to-date period of the prior year capital expenditures
were approximately $89.8 million, which included $49.3 million for revenue
equipment, $20.4 million for terminal facilities, $5.6 million for IT, and $14.5
million for other capital items.
USF Glen Moore acquired System 81 Express, a Tennessee based truckload
carrier, in February 2003 for $1.9 million in cash and assumed debt of $2.8
million.
On April 14, 2003, USF Red Star paid $3.0 million in cash for certain
assets and the business of Plymouth Rock Transportation Corporation, a
Massachusetts based LTL carrier that provided overnight freight service to 11
Northeastern states. Contingent purchase price payments may be made to the
former owners of Plymouth Rock Transportation Corporation if certain retained
revenue goals are achieved. The earliest contingent purchase price payment would
be made in the third quarter of 2004.
Total borrowings decreased by $2.3 million during the current year-to-date
period, and we had approximately $75.3 million invested in overnight money
market accounts at October 4, 2003. Our net debt to capital ratio (decreasing
debt by cash) was 20.5% at October 4, 2003, compared to 24.3% at December 31,
2002.
Our debt includes $150 million of unsecured guaranteed notes, which were
floated in late April, 2000, and that are due on April 15, 2010. We also have
$100 million of unsecured guaranteed notes due on May 1, 2009.
Our guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by substantially all of our
direct and indirect domestic subsidiaries (the "Subsidiary Guarantors"). All of
the assets were owned by the Subsidiary Guarantors and substantially all of our
operations were conducted by the Subsidiary Guarantors. Accordingly, the
aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors
were substantially equivalent to the assets, liabilities, earnings and equity
shown in our consolidated financial statements. Our subsidiaries, other than the
Subsidiary Guarantors, are minor. There are no restrictions on our ability to
obtain funds from our subsidiaries by dividend or loan. We, therefore, are not
required to present separate financial statements of our Subsidiary Guarantors,
and other disclosures relating to them.
We have a $200 million credit facility with a group of banks that will
expire in October 2005. This facility is for working capital, general corporate
funding needs, and up to $125 million for letters of credit under our
self-insurance program. As of October 4, 2003 we had no borrowings drawn under
the facility and approximately $88 million in issued letters of credit. The
facility bears interest at LIBOR, plus a margin depending on our debt rating. In
addition, there are other fees associated with the facility and certain
financial covenants including minimum net worth and maximum funded debt to
adjusted cash flow.
On July 24, 2000, we announced the authorized buyback of up to one million
shares of our common stock. This repurchase program is not yet completed. In
February 2003, we repurchased 14,000 common shares in the public market at $24
per share. There were no shares repurchased in the year-to-date period ended
September 28, 2002. From July 24, 2000 through October 4, 2003, we repurchased
468,200 shares.
A dividend of 9 1/3 cents per share, equivalent to $2.5 million, was paid
on October 6, 2003 to shareholders of record on September 22, 2003.
Recent Accounting Pronouncements
On November 25, 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees", Including Indirect Guarantees of Indebtedness to
Others), which elaborates on the disclosures to be made by a guarantor about its
obligations under certain guarantees issued. The Interpretation also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The Interpretation expands on the accounting guidance of
Interpretation No. 5, Accounting for Contingencies, SFAS No. 57 Related Party
Disclosures, and SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The Interpretaion also incorporates, without change, the provisions
of Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of
Others, which it supersedes. The Interpretation does identify several situations
where the recognition of a liability at inception for a guarantor's obligation
is not required. The initial recognition and measurement provisions of this
Interpretation apply on a prospective basis to guarantees issued or modified
after December 31, 2002, regardless of the guarantor's fiscal year-end. The
disclosures are effective for financial statements of interim or annual periods
ending after December 15, 2002. Adoption of this Interpretation did not have an
impact on financial statements and related disclosures.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of SFAS No.123". This
Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation" to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Finally, this Statement amends
APB Opinion No. 28, "Interim Financial Reporting", to require disclosure about
those effects in interim financial information. The amendments to SFAS No. 123
in paragraphs 2(a) - 2(e) of this Statement are effective for financial
statements for fiscal years ending after December 15, 2002. The amendment to
SFAS No. 123 in paragraph 2(f) of this Statement and the amendment to Opinion
No. 28 in paragraph 3 of this statement were effective for financial reports
containing condensed financial statements for interim periods beginning after
December 15, 2002. As is allowed, we have adopted the disclosure requirements
under SFAS No. 148.
In March 2003, the FASB issued Interpretation No. 46. This Interpretation
of Accounting Research Bulletin No. 5, Consolidated Financial Statements,
addresses consolidation by business enterprises of variable interest entities.
This Interpretation applies to variable interest entities created after January
1, 2002, and to variable interest entities in which an enterprise obtains an
interest after that date. We have no investments in or known contractual
arrangements with variable interest entities and therefore, this Interpretation
has no impact on our financial statements and related disclosures.
In May 2003, the FASB issued SFAS No. 150 - "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement provides guidance as to the appropriate classification of certain
financial statement instruments that have characteristics of both liabilities
and equity. This statement is effective at the beginning of the first interim
period after June 15, 2003. Adoption of this Statement did not have an impact on
our financial statements and related disclosures.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes. Our exposure to
changes in interest rates is limited to borrowings under a line of credit
agreement, which has variable interest rates tied to LIBOR. There have been no
borrowings under this agreement in the current year-to-date period nor during
2002. In addition, we have $150 million of unsecured notes with an 8 1/2% fixed
annual interest rate and $100 million of unsecured notes with a 6 1/2% fixed
annual interest rate. We have no hedging instruments. From time to time, we
invest excess cash in overnight money market accounts. At October 4, 2003, we
had approximately $75.3 million that was invested in overnight money market
accounts, which yielded approximately 1.1% per annum.
We have a $200 million credit facility with a group of banks that will
expire in October 2005. This facility is for working capital, general corporate
funding needs, and up to $125 million for letters of credit issued under our
self-insurance program. As of October 4, 2003 we had no borrowings drawn under
the facility and approximately $88 million in issued letters of credit.
The facility bears interest at LIBOR, plus a margin depending on our debt
rating. In addition, there are other fees associated with the facility and
certain financial covenants including minimum net worth and maximum funded debt
to adjusted cash flow.
Item 4. Controls and Procedures
In order to ensure that information for disclosure in our filings of
periodic reports with the Securities and Exchange Commission is identified,
recorded, processed, summarized, and reported on a timely basis, we have adopted
disclosure controls and procedures. Our Chief Executive Officer, Richard P.
DiStasio, and our Chief Financial Officer, Christopher L. Ellis, have reviewed
and evaluated our disclosure controls and procedures as of November 7, 2003 and
have concluded that our disclosure controls and procedures were adequate as of
that date.
There were no changes in our internal controls over financial reporting
identified in connection with the foregoing evaluation that occurred during the
current year's third quarter that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting.
<page>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
Our trucking subsidiaries are a party to a number of proceedings brought
under the Comprehensive Environmental Response, Compensation and Liability Act,
("CERCLA"). They have been made a party to these proceedings as an alleged
generator of waste disposed of at hazardous waste disposal sites. In each case,
the Government alleges that the parties are jointly and severally liable for the
cleanup costs. Although joint and several liability is alleged, these
proceedings are frequently resolved on the basis of the quantity of waste
disposed of at the site by the generator. Our potential liability varies greatly
from site to site. For some sites the potential liability is de minimis and for
others the costs of cleanup have not yet been determined. It is not feasible to
predict or determine the outcome of these or similar proceedings brought by
state agencies or private litigants. However, we believe the ultimate recovery
or liability, if any, resulting from such litigation, individually or in total,
would not materially adversely affect our financial condition or results of
operations. We believe such liability, if any, would represent less than 1% of
our annual revenue.
Our USF Dugan subsidiary is currently the subject of a criminal
investigation by the City of Houston and an administrative investigation by the
Texas Commission on Environmental Quality arising from inadvertent diesel
releases from USF Dugan's Northfield facility located in Houston, Texas. USF
Dugan has taken measures to respond to the environmental effects of these
releases and to curtail further releases. Dugan has also brought suit against
the environmental consultant who reviewed the Northfield facility prior to USF
Dugan's acquisition of the property in 1998.
Also, we are involved in other litigation arising in the ordinary course of
business, primarily involving claims for bodily injury, property damage, and
workers' compensation. We believe the ultimate recovery or liability, if any,
resulting from such litigation, individually or in total, would not materially
adversely affect our financial condition or results of operations.
<page>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
1. Exhibit 10.1-Employment Agreement of Richard P. DiStasio.
2. Exhibit 31.1-Section 302 Certification of Chief Executive
Officer.
3. Exhibit 31.2-Section 302 Certification of Chief Financial
Officer.
4. Exhibit 32.1-Statement of Chief Executive Officer Pursuant to
Section 1350(a) of Title 18, United States Code (furnished not
filed with this Quarterly Report on Form 10-Q)
5. Exhibit 32.2-Statement of Chief Financial Officer Pursuant to
Section 1350(a) of Title 18, United States Code (furnished not
filed with this Quarterly Report on Form 10-Q)
(b) Current Reports on Form 8-K were filed:
1. A Current Report on Form 8-K was filed on July 29, 2003
announcing the Company's Second Quarter earnings.
2. A Current Report on Form 8-K was filed on August 19, 2003
announcing Richard P. DiStasio as President and Chief
Executive Officer of USF Corporation.
<page>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized. Dated November 7,
2003.
USF CORPORATION
By: /s/ Christopher L. Ellis
------------------------
Christopher L. Ellis
Senior Vice President, Finance and
Chief Financial Officer
By: /s/ James T. Castro
------------------------
James T. Castro
Controller and Principal
Accounting Officer
<page>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into effective
as of August 21, 2003 by and between USF Corporation, a Delaware corporation
(the "Employer"), and Richard P. DiStasio (the "Executive").
RECITALS
A. The Employer desires that the Executive provide services for the
benefit of the Employer and its wholly-owned subsidiaries and the
Executive desires to accept such employment with the Employer.
B. The Employer and the Executive acknowledge that the Executive
will be a senior member of the management team of the Employer
and, as such, will participate in implementing the Employer's
business plan.
C. In the course of employment with the Employer, the Executive will
have access to certain confidential information that relates to
or will relate to the business of the Employer and its
wholly-owned subsidiaries.
D. The Employer desires that any such information not be disclosed
to other parties or otherwise used for unauthorized purposes.
NOW, THEREFORE, in consideration of the above premises and the following mutual
covenants and conditions, the parties agree as follows:
1. Employment. As of September 15, 2003, (the "Effective Date") the Employer
shall employ the Executive as its President and Chief Executive Officer and
shall appoint him as a member of the Board of Directors of the Employer (the
"Board"). If, prior to the first anniversary of the Effective Date, the Board
does not elect a non-executive member of the Board as Chairman of the Board, the
Executive will be elected as Chairman of the Board as soon as reasonably
practicable on or after such anniversary. As long as the Executive remains
employed as the President and Chief Executive Officer of the Employer, he will
continue to be slated as a nominee for a director of the Employer. The Executive
hereby accepts such employment on the following terms and conditions.
2. Duties. The Executive shall have the duties, responsibilities, powers, and
authority customarily associated with the position of President and Chief
Executive Officer. The Executive shall report to, and follow the direction of,
the Board. In addition to the foregoing, the Executive also shall perform such
other and unrelated services and duties as may be assigned to him from time to
time by the Board consistent with his position as President and Chief Executive
Officer. The Executive shall diligently, competently, and faithfully perform all
duties, and shall devote his entire business time, energy, attention, and skill
to the performance of duties for the Employer or its wholly-owned subsidiaries
and will use his best efforts to promote the interests of the Employer. It shall
not be considered a violation of the foregoing for the Executive to serve on
corporate, industry, civic, religious or charitable boards or committees, so
long as such activities do not individually or in the aggregate significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Employer in accordance with this Agreement.
3. Executive Loyalty. Subject to the exceptions set forth in Paragraph 2, the
Executive shall devote all of his time, attention, knowledge, and skill solely
and exclusively to the business and interests of the Employer, and the Employer
shall be entitled to all benefits and profits arising from or incident to any
and all work, services, and advice of the Executive. The Executive expressly
agrees that during the term of this Agreement, he shall not engage, directly or
indirectly, as a partner, officer, director, member, manager, stockholder,
advisor, agent, employee, or in any other form or capacity, in any other
business similar to that of the Employer. The foregoing notwithstanding, and
except as otherwise set forth in Paragraph 8, nothing herein contained shall be
deemed to prevent the Executive from investing his money in the capital stock or
other securities of any corporation whose stock or securities are publicly-owned
or are regularly traded on any public exchange, nor shall anything herein
contained be deemed to prevent the Executive from investing his money in real
estate, or to otherwise manage his personal investments and financial affairs.
4. Compensation.
(a) Salary. The Employer shall pay the Executive an annual base salary of
$625,000 (the "Base Salary"), payable in substantially equal
installments in accordance with the Employer's payroll policy from
time to time in effect. The Executive's Base Salary shall be subject
to any payroll or other deductions as may be required to be made
pursuant to law, government order, or by agreement with, or consent
of, the Executive. Changes to the Base Salary, as adjusted, may be
made following an annual salary review, the first of which shall take
place in or around the end of 2004, and all subsequent reviews shall
occur thereafter at the same time as reviews are conducted generally
for executive officers of the Employer. The Base Salary shall not be
reduced, and the term Base Salary shall refer thereafter to the Base
Salary, as it may be increased from time to time.
(b) Performance Bonus. The Executive shall participate in a bonus program,
which program shall provide the Executive with an opportunity to
achieve a targeted calendar year bonus of up to one hundred percent
(100%) of the Base Salary, with a maximum calendar year bonus of one
hundred fifty percent (150%) of the Base Salary. For the calendar year
ending December 31, 2003, the Executive shall be guaranteed a bonus of
no less than two hundred thousand dollars ($200,000). For the calendar
year ending December 31, 2004, the Executive shall be guaranteed a
bonus of no less than four hundred thousand dollars ($400,000).
Beginning with 2004, the actual terms and conditions of the annual
bonus program shall be established by the Employer, with input from
the Executive, shall be memorialized in a written document to be
prepared by the Employer and which will be incorporated herein by
reference, and will provide for the payment of an annual bonus
hereunder if the Employer achieves specified company-wide objectives
and if the Executive achieves specified personal management
objectives. All such objectives shall be agreed upon by the Executive
and the Board prior to the beginning of each calendar year. Any bonus
earned hereunder shall be payable no later than ninety (90) days
following the end of the calendar year for which the bonus is earned.
(c) Stock Options. On the Effective Date, the Employer shall grant the
Executive a non-qualified option to purchase one hundred thousand
(100,000) shares of the common stock of the Employer. Such stock
option shall be granted in accordance with and pursuant to the terms
of the Employer's Long-Term Incentive Plan. The stock option shall be
granted at an exercise price equal to the "fair market value" of such
common stock of the Employer on the Effective Date. The grant of such
stock option, and the terms thereof, has been memorialized in the
Option Agreement attached hereto as Exhibit A.
(d) Stock Grant. On the Effective Date, the Executive shall be provided
with a grant of $600,000 worth of common stock of the Employer. The
number of shares of such grant (rounded up to the nearest whole share)
shall be based upon the "fair market value" of such common stock of
the Employer on the Effective Date. The grant of such stock, and the
terms thereof, has been memorialized in the Restricted Stock Grant
Agreement attached hereto as Exhibit B.
(e) Signing Bonus. Within five (5) business days of the Effective Date,
the Company shall pay to the Executive a signing bonus in the amount
of three hundred thousand dollars ($300,000). If, before the first
anniversary of the Effective Date, the Executive's employment is
terminated by the Company for Cause or by the Executive without Good
Reason, the Executive shall be required to repay 100% of such signing
bonus to the Company in full within thirty (30) days following such
termination date. If, on or after the first anniversary of the
Effective Date, but before the second anniversary of the Effective
Date, the Executive's employment is terminated by the Company for
Cause or by the Executive without Good Reason, the Executive shall be
required to repay 50% of such signing bonus to the Company in full
within thirty (30) days following such termination date.
(f) Other Benefits. During the term of this Agreement, the Employer shall:
(i) include the Executive in any life insurance, disability
insurance, medical, dental or health insurance, vacation (4 weeks
per calendar year, prorated for any partial calendar year),
savings, pension and retirement plans and other benefit plans or
programs (including, if applicable, any excess benefit or
supplemental executive retirement plans) maintained by the
Employer for the benefit of its executives; and
(ii) include the Executive in such perquisites as the Employer may
establish from time to time that are commensurate with his
position and at least comparable to those received by other
executives of the Employer (including, but not limited to, an
automobile allowance of $1,200 per month).
5. Expenses. The Employer shall reimburse the Executive for all reasonable and
approved business expenses, provided the Executive submits paid receipts or
other documentation acceptable to the Employer and as required by the Internal
Revenue Service to qualify as ordinary and necessary business expenses under the
Internal Revenue Code of 1986, as amended (the "Code"). In addition, the
Employer shall reimburse the Executive (up to $4,000 per calendar year) for
premiums on life insurance owned by the Executive.
6. Termination. The Executive's services shall terminate upon the first to occur
of the following events:
(a) Disability or Death. Upon the Executive's date of death or the date
the Executive is given written notice that he has been determined to
be disabled by the Employer. For purposes of this Agreement, the
Executive shall be deemed to be disabled if the Executive, as a result
of illness or incapacity, shall be unable to perform substantially his
required duties for a period of four (4) consecutive months or for any
aggregate period of six (6) months in any twelve (12) month period. A
termination of the Executive's employment by the Employer for
disability shall be communicated to the Executive by written notice
and shall be effective on the tenth (10th) business day after receipt
of such notice by the Executive, unless the Executive returns to
full-time performance of his duties before such tenth (10th) business
day.
(b) Cause. On the date the Board provides the Executive with written
notice that he is being terminated for "cause." For purposes of this
Agreement, the Executive shall be deemed terminated for cause if the
Employer terminates the Executive after the Executive:
(i) shall have been indicted (or the equivalent thereof) for any
felony or any other act involving fraud, theft, misappropriation,
dishonesty, or embezzlement; or
(ii) shall have committed intentional acts of misconduct that
materially impair the goodwill or business of the Employer or
cause material damage to its property, goodwill, or business; or
(iii)shall have refused to, or willfully failed to, perform his
material duties hereunder; provided, however, that no termination
under this subparagraph (iii) shall be effective unless the
Executive does not cure such refusal or failure to the Employer's
reasonable satisfaction as soon as practicable after the Employer
gives the Executive written notice identifying such refusal or
failure (and, in any event, within thirty (30) calendar days
after receipt of such written notice).
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that his action or omission was in the best
interests of the Employer. A termination of the Executive's employment for Cause
shall be effected in accordance with the following procedures. The Board shall
give the Executive written notice ("Notice of Termination for Cause") of its
intention to terminate the Executive's employment for Cause, setting forth in
reasonable detail the specific conduct of the Executive that it considers to
constitute Cause and the specific provision(s) of this Agreement on which it
relies, and stating the date, time and place of the Board Meeting for Cause. The
"Board Meeting for Cause" means a meeting of the Board at which the Executive's
termination for Cause will be considered, that takes place not less than ten
(10) and not more than twenty (20) business days after the Executive receives
the Notice of Termination for Cause. The Executive shall be given an
opportunity, together with counsel, to be heard at the Board Meeting for Cause.
The Executive's termination for Cause shall be effective when and if a
resolution is duly adopted at the Board Meeting for Cause by a two-thirds
majority vote of the entire membership of the Board, excluding the Executive
from the count of such membership, stating that in the good faith opinion of the
Board, the Executive is guilty of the conduct described in the Notice of
Termination for Cause, and that such conduct constitutes Cause under this
Agreement.
(c) On the date the Executive terminates his employment for "Good Reason."
For purposes of this Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties materially
inconsistent in any respect with Paragraph 2 of this Agreement,
or any other action by the Employer that results in a diminution
in the Executive's position, authority, duties or
responsibilities, other than an isolated, insubstantial and
inadvertent action that is not taken in bad faith and is remedied
by the Employer after receipt of notice thereof from the
Executive;
(ii) any requirement by the Employer that the Executive's services be
rendered primarily at a location or locations other than within
the greater Chicago metropolitan area and for other than a de
minimis period of time;
(iii)any voluntary termination by the Executive upon a Change in
Control, as such term is defined in the Executive's Severance
Protection Agreement; or
(iv) any breach of this Agreement by the Employer that is not remedied
by the Employer within five (5) business days after receipt of
notice thereof from the Executive, or as soon thereafter as may
be commercially practicable.
A termination of employment by the Executive for Good Reason shall be
effectuated by giving the Employer written notice ("Notice of Termination for
Good Reason") of the termination within three (3) months of the event
constituting Good Reason (six (6) months in the event of a Change in Control),
setting forth in reasonable detail the specific conduct of the Employer that
constitutes Good Reason and the specific provisions of this Agreement on which
Executive relies. A termination of employment by the Executive for Good Reason
shall be effective on the fifth (5th) business day following the date when the
Notice of Termination for Good Reason is given, unless the notice sets forth a
later date (which date shall in no event be later than thirty (30) business days
after the notice is given).
(d) Without Cause. On the date the Employer terminates the Executive's
employment for any reason, other than a reason otherwise set forth in
this Paragraph 6, provided that the Employer shall give the Executive
sixty (60) days written notice prior to such date of its intention to
terminate such employment.
(e) Resignation. On the date the Executive terminates his employment for
any reason, other than a reason otherwise set forth in this Paragraph
6, provided that the Executive shall give the Employer sixty (60) days
written notice prior to such date of his intention to terminate this
Agreement.
7. Compensation Upon Termination.
(a) Termination Payment. If the Executive's services are terminated
pursuant to Paragraph 6(a), 6(b) or 6(e), the Executive shall be
entitled to his Base Salary through his final date of active
employment plus any accrued but unused vacation pay. The Executive
also shall be entitled to any benefits mandated under the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA) or required under
the terms of any death, insurance, or retirement plan, or stock option
program or agreement, provided by the Employer and to which the
Executive is a party or in which the Executive is a participant,
including, but not limited to, any short-term or long-term disability
plan or program, if applicable.
(b) Severance Payment. Except as otherwise provided in this Paragraph
7(b), if the Executive's services are terminated pursuant to Paragraph
6(c) or 6(d), the Executive shall be entitled to his Base Salary
through his final date of active employment, plus any accrued but
unused vacation pay. The Executive also shall be entitled to a
severance amount equal to the sum of (i) two times the Base Salary,
plus (ii) one times the performance bonus, if any, paid to the
Executive for the most recently completed calendar year. Such
severance payment shall be payable to the Executive over twenty-four
(24) months following the date of termination, provided (a) the
Executive signs an agreement that waives any rights the Executive may
otherwise have against the Employer and releases the Employer from
actions, suits, claims, proceedings and demands related to the period
of employment and/or the termination of employment, and (b) the
Employer shall be permitted to offset from the severance payment
hereunder any salary paid to the Executive during the sixty (60) day
written notice period, if the Employer, in its discretion, directs the
Executive to perform no substantial services during such sixty (60)
day written notice period. Additionally, the Executive shall be
entitled to any benefits mandated under the Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA) or required under the terms
of any death, insurance, or retirement plan, or stock option program
or agreement, provided by the Employer and to which the Executive is a
party or in which the Executive is a participant. Any payments made to
the Executive under the foregoing provisions of this Paragraph 7(b)
shall, if employment is terminated within twelve (12) months of the
Effective Date, be reduced by any wages and/or compensation earned by
the Executive through his performance of substantially full-time
employment during the duration of such twenty-four (24) month period.
(c) Change In Control Payment. The Executive shall be a party to the
Employer's Severance Protection Agreement, which shall supersede the
provisions of Paragraph 7(b) and entitle the Executive to a severance
payment upon a Change in Control, as defined therein (except for a
severance payment under Paragraph 6(c)(iii), which shall be governed
solely by the provisions of Paragraph 7(b)). A copy of the Severance
Protection Agreement is attached hereto as Exhibit C.
8. Protective Covenants. The Executive acknowledges and agrees that solely by
virtue of his employment by, and relationship with, the Employer, he has
acquired and will acquire "Confidential Information", as hereinafter defined, as
well as special knowledge of the Employer's relationships with its customers and
suppliers, and that, but for his association with the Employer, the Executive
would not or will not have had access to said Confidential Information or
knowledge of said relationships. The Executive further acknowledges and agrees
(i) that the Employer has long term, near-permanent relationships with its
customers and suppliers, and that those relationships were developed at great
expense and difficulty to the Employer over several years of close and
continuing involvement; and (ii) that the Employer's relationships with its
customers and suppliers are and will continue to be valuable, special and unique
assets of the Employer and that the identity of its customers and suppliers is
kept under tight security with the Employer and cannot be readily ascertained
from publicly available materials or from materials available to the Employer's
competitors. In return for the consideration described in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and as a condition precedent to the Employer entering into
this Agreement, and as an inducement to the Employer to do so, the Executive
hereby represents, warrants, and covenants as follows:
(a) The Executive has executed and delivered this Agreement as his free
and voluntary act, after having determined that the provisions
contained herein are of a material benefit to him, and that the duties
and obligations imposed on him hereunder are fair and reasonable and
will not prevent him from earning a comparable livelihood following
the termination of his employment with the Employer.
(b) The Executive has read and fully understands the terms and conditions
set forth herein, has had time to reflect on and consider the benefits
and consequences of entering into this Agreement, and has had the
opportunity to review the terms hereof with an attorney or other
representative, if he so chooses.
(c) The execution and delivery of this Agreement by the Executive does not
conflict with, or result in a breach of or constitute a default under,
any agreement or contract, whether oral or written, to which the
Executive is a party or by which the Executive may be bound. In
addition, the Executive has informed the Employer of, and provided the
Employer with copies of, any non-competition, confidentiality,
work-for-hire or similar agreements to which the Executive is subject
or may be bound.
(d) The Executive agrees that, during the time of his employment with the
Employer and for a period of one (1) year following the later of (i)
the termination of the Executive's employment hereunder pursuant to
Paragraph 6(b) or 6(e), or (ii) one year following the date of the
last payment provided for under Paragraph 7(b), the Executive will
not, except on behalf of the Employer, anywhere in North America, or
in any other place or venue where the Employer or any affiliate,
subsidiary, or division thereof now conducts or operates, or may
conduct or operate, its business prior to the date of the Executive's
termination of employment:
(i) directly or indirectly, contact, solicit or direct any person,
firm, corporation, association or other entity to contact or
solicit, any of the Employer's customers, prospective customers,
or suppliers (as hereinafter defined) for the purpose of
providing any products and/or services that are the same as or
similar to the products and services provided by the Employer to
its customers during the term hereof. In addition, the Executive
will not disclose the identity of any such customers, prospective
customers, or suppliers, or any part thereof, to any person,
firm, corporation, association, or other entity for any reason or
purpose whatsoever; or
(ii) solicit or accept if offered to him, with or without
solicitation, on his own behalf or on behalf of any other person,
the services of any person who is a then current employee of the
Employer (or was an employee of the Employer during the year
preceding such solicitation), nor solicit any of the Employer's
then current employees (or an individual who was employed by or
engaged by the Employer during the year preceding such
solicitation) to terminate employment or an engagement with the
Employer, nor agree to hire any then current employee (or an
individual who was an employee of the Employer during the year
preceding such hire) of the Employer into employment with himself
or any company, individual or other entity; or
(iii)directly or indirectly, whether as an investor (excluding
investments representing less than one percent (1%) of the common
stock of a public company), lender, owner, stockholder, officer,
director, consultant, employee, agent, salesperson or in any
other capacity, whether part-time or full-time, become associated
with any business involved in a business similar to, or
comparable to, the business of the Employer or any affiliate of
the Employer; or
(iv) act as a consultant, advisor, officer, manager, agent, director,
partner, independent contractor, owner, or employee for or on
behalf of any of the Employer's customers, prospective customers,
or suppliers (as hereinafter defined), with respect to or in any
way with regard to any aspect of the Employer's business and/or
any other business activities in which the Employer engages
during the term hereof.
(e) The Executive acknowledges and agrees that the scope described above
is necessary and reasonable in order to protect the Employer in the
conduct of its business and that, if the Executive becomes employed by
another employer, he shall be required to disclose the existence of
this Paragraph 8 to such employer and the Executive hereby consents to
and the Employer is hereby given permission to disclose the existence
of this Paragraph 8 to such employer.
(f) For purposes of this Paragraph 8, "customer" shall be defined as any
person, firm, corporation, association, or entity that purchased any
type of product and/or service from the Employer or is or was doing
business with the Employer or the Executive within the twelve (12)
month period immediately preceding termination of the Executive's
employment. For purposes of this Paragraph 8, "prospective customer"
shall be defined as any person, firm, corporation, association, or
entity contacted or solicited by the Employer or the Executive
(whether directly or indirectly) or who contacted the Employer or the
Executive (whether directly or indirectly) within the twelve (12)
month period immediately preceding termination of the Executive's
employment for the purpose of having such persons, firms,
corporations, associations, or entities become a customer of the
Employer. For purposes of this Paragraph 8, "supplier" shall be
defined as any person, firm, corporation, association, or entity who
is or was doing business with the Employer or the Executive or who was
contacted or solicited by the Employer or the Executive (whether
directly or indirectly) or who contacted or solicited the Employer or
the Executive (whether directly or indirectly) within the twelve (12)
month period immediately preceding termination of the Executive's
employment.
(g) The Executive agrees that both during his employment and thereafter
the Executive will not, for any reason whatsoever, use for himself or
disclose to any person not employed by the Employer any "Confidential
Information" of the Employer acquired by the Executive during his
relationship with the Employer, both prior to and during the term of
this Agreement. The Executive further agrees to use Confidential
Information solely for the purpose of performing duties with, or for,
the Employer and further agrees not to use Confidential Information
for his own private use or commercial purposes or in any way
detrimental to the Employer. The Executive agrees that "Confidential
Information" includes but is not limited to: (1) any financial,
engineering, business, planning, operations, services, potential
services, products, potential products, technical information and/or
know-how, organization charts, formulas, business plans, production,
purchasing, marketing, pricing, sales, profit, personnel, customer,
broker, supplier, or other lists or information of the Employer; (2)
any papers, data, records, processes, methods, techniques, systems,
models, samples, devices, equipment, compilations, invoices, customer
lists, or documents of the Employer; (3) any confidential information
or trade secrets of any third party provided to the Employer in
confidence or subject to other use or disclosure restrictions or
limitations; and (4) any other information, written, oral, or
electronic, whether existing now or at some time in the future,
whether pertaining to current or future developments, and whether
previously accessed during the Executive's tenure with the Employer or
to be accessed during his future employment with the Employer, which
pertains to the Employer's affairs or interests or with whom or how
the Employer does business. The Employer acknowledges and agrees that
Confidential Information does not include (a) information properly in
the public domain, (b) information in the Executive's possession prior
to the date of his original association with the Employer, or (c)
information which is required to be disclosed by law or legal process
provided that the Executive notifies the Employer prior to or, if such
advance notification is not possible, promptly after such disclosure
and cooperates with the Employer in obtaining any protective order
regarding or other confidential treatment of such information.
(h) In the event that the Executive intends to communicate information to
any individual(s), entity or entities (other than the Employer), to
permit access by any individual(s), entity or entities (other than the
Employer), or to use information for the Executive's own account or
for the account of any individual(s), entity or entities (other than
the Employer) and such information would be Confidential Information
hereunder but for the exceptions set out at (a) and (b) of
Paragraph 8(g) of this Agreement, the Executive shall notify the
Employer of such intent in writing, including a description of such
information, no less than fifteen (15) days prior to such
communication, access or use.
(i) During and after the term of employment hereunder, the Executive will
not remove from the Employer's premises any documents, records, files,
notebooks, correspondence, reports, video or audio recordings,
computer printouts, computer programs, computer software, price lists,
microfilm, drawings or other similar documents containing Confidential
Information, including copies thereof, whether prepared by him or
others, except as his duty shall require, and in such cases, will
promptly return such items to the Employer. Upon termination of his
employment with the Employer, all such items including summaries or
copies thereof, then in the Executive's possession, shall be returned
to the Employer immediately.
(j) The Executive recognizes and agrees that all ideas, inventions,
patents, copyrights, copyright designs, trade secrets, trademarks,
processes, discoveries, enhancements, software, source code,
catalogues, prints, business applications, plans, writings, and other
developments or improvements and all other intellectual property and
proprietary rights and any derivative work based thereon (the
"Inventions") made, conceived or completed by the Executive, alone or
with others, during the term of his employment, whether or not during
working hours, that are within the scope of the Employer's business
operations or that relate to any of the Employer's work or projects
(including any and all inventions based wholly or in part upon ideas
conceived during the Executive's employment with the Employer), are
the sole and exclusive property of the Employer. The Executive further
agrees that (1) he will promptly disclose all Inventions to the
Employer and hereby assigns to the Employer all present and future
rights he has or may have in those Inventions, including without
limitation those relating to patent, copyright, trademark or trade
secrets; and (2) all of the Inventions eligible under the copyright
laws are "work made for hire." At the request of the Employer, the
Executive will do all things deemed by the Employer to be reasonably
necessary to perfect title to the Inventions in the Employer and to
assist in obtaining for the Employer such patents, copyrights or other
protection as may be provided under law and desired by the Employer,
including but not limited to executing and signing any and all
relevant applications, assignments or other instruments.
Notwithstanding the foregoing, pursuant to the Employee Patent Act,
Illinois Public Act 83-493, the Employer hereby notifies the Executive
that the provisions of this Paragraph 8 shall not apply to any
Inventions for which no equipment, supplies, facility or trade secret
information of the Employer was used and which were developed entirely
on the Executive's own time, unless (1) the Invention relates (i) to
the business of the Employer, or (ii) to actual or demonstrably
anticipated research or development of the Employer, or (2) the
Invention results from any work performed by the Executive for the
Employer.
(k) The Executive acknowledges and agrees that all customer lists,
supplier lists, and customer and supplier information, including,
without limitation, addresses and telephone numbers, are and shall
remain the exclusive property of the Employer, regardless of whether
such information was developed, purchased, acquired, or otherwise
obtained by the Employer or the Executive. The Executive also agrees
to furnish to the Employer on demand at any time during the term of
this Agreement, and upon the termination of this Agreement, any other
records, notes, computer printouts, computer programs, computer
software, price lists, microfilm, or any other documents related to
the Employer's business, including originals and copies thereof. The
Executive recognizes and agrees that he has no expectation of privacy
with respect to the Employer's telecommunications, networking or
information processing systems (including, without limitation, stored
computer files, email messages and voice messages) and that the
Executive's activity and any files or messages on or using any of
those systems may be monitored at any time without notice.
(l) The Executive acknowledges that he may become aware of "material"
nonpublic information relating to customers whose stock is publicly
traded. The Executive acknowledges that he is prohibited by law as
well as by Employer policy from trading in the shares of such
customers while in possession of such information or directly or
indirectly disclosing such information to any other persons so that
they may trade in these shares. For purposes of this Paragraph 8(l),
"material" information may include any information, positive or
negative, which might be of significance to an investor in determining
whether to purchase, sell or hold the stock of publicly traded
customers. Information may be significant for this purpose even if it
would not alone determine the investor's decision. Examples include a
potential business acquisition, internal financial information that
departs in any way from what the market would expect, the acquisition
or loss of a major contract, or an important financing transaction.
(m) The Employer does not wish to incorporate any unlicensed or
unauthorized material into its products or services or those of its
subsidiaries. Therefore, the Executive agrees that he will not
knowingly disclose to the Employer, use in the Employer's business, or
cause the Employer to use, any information or material which is
confidential or proprietary to any third party including, but not
limited to, any former employer, competitor or client, unless the
Employer has a right to receive and use such information. The
Executive will not incorporate into his work any material which is
subject to the copyrights of any third party unless the Employer has a
written agreement with such third party or otherwise has the right to
receive and use such information.
(n) It is agreed that any breach or anticipated or threatened breach of
any of the Executive's covenants contained in this Paragraph 8 will
result in irreparable harm and continuing damages to the Employer and
its business and that the Employer's remedy at law for any such breach
or anticipated or threatened breach will be inadequate and,
accordingly, in addition to any and all other remedies that may be
available to the Employer at law or in equity in such event, any court
of competent jurisdiction may issue a decree of specific performance
or issue a temporary and permanent injunction, without the necessity
of the Employer posting bond or furnishing other security and without
proving special damages or irreparable injury, enjoining and
restricting the breach, or threatened breach, of any such covenant,
including, but not limited to, any injunction restraining the
Executive from disclosing, in whole or part, any Confidential
Information. The Executive acknowledges the truthfulness of all
factual statements in this Agreement and agrees that he is estopped
from and will not make any factual statement in any proceeding that is
contrary to this Agreement or any part thereof.
9. Notices. Any and all notices required in connection with this Agreement shall
be deemed adequately given only if in writing and (a) personally delivered, or
sent by first class, registered or certified mail, postage prepaid, return
receipt requested, or by recognized overnight courier, (b) sent by facsimile,
provided a hard copy is mailed on that date to the party for whom such notices
are intended, or (c) sent by other means at least as fast and reliable as first
class mail. A written notice shall be deemed to have been given to the recipient
party on the earlier of (a) the date it shall be delivered to the address
required by this Agreement; (b) the date delivery shall have been refused at the
address required by this Agreement; (c) with respect to notices sent by mail or
overnight courier, the date as of which the Postal Service or overnight courier,
as the case may be, shall have indicated such notice to be undeliverable at the
address required by this Agreement; or (d) with respect to a facsimile, the date
on which the facsimile is sent and receipt of which is confirmed. Any and all
notices referred to in this Agreement, or which either party desires to give to
the other, shall be addressed to his residence in the case of the Executive, or
to its principal office in the case of the Employer.
10. Waiver of Breach. A waiver by the Employer of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a waiver or
estoppel of any subsequent breach by the Executive. No waiver shall be valid
unless in writing and signed by an authorized officer of the Employer.
11. Assignment. The Executive acknowledges that the services to be rendered by
him are unique and personal. Accordingly, the Executive may not assign any of
his rights or delegate any of his duties or obligations under this Agreement.
The rights and obligations of the Employer under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
Employer.
12. Entire Agreement. This Agreement sets forth the entire and final agreement
and understanding of the parties and contains all of the agreements made between
the parties with respect to the subject matter hereof. This Agreement supersedes
any and all other agreements, either oral or in writing, between the parties
hereto, with respect to the subject matter hereof. No change or modification of
this Agreement shall be valid unless in writing and signed by the Employer and
the Executive.
13. Severability. If any provision of this Agreement shall be found invalid or
unenforceable for any reason, in whole or in part, then such provision shall be
deemed modified, restricted, or reformulated to the extent and in the manner
necessary to render the same valid and enforceable, or shall be deemed excised
from this Agreement, as the case may require, and this Agreement shall be
construed and enforced to the maximum extent permitted by law, as if such
provision had been originally incorporated herein as so modified, restricted, or
reformulated or as if such provision had not been originally incorporated
herein, as the case may be. The parties further agree to seek a lawful
substitute for any provision found to be unlawful; provided, that, if the
parties are unable to agree upon a lawful substitute, the parties desire and
request that a court or other authority called upon to decide the enforceability
of this Agreement modify those restrictions in this Agreement that, once
modified, will result in an agreement that is enforceable to the maximum extent
permitted by the law in existence at the time of the requested enforcement.
14. Headings. The headings in this Agreement are inserted for convenience only
and are not to be considered a construction of the provisions hereof.
15. Execution of Agreement. This Agreement may be executed in several
counterparts, each of which shall be considered an original, but which when
taken together, shall constitute one agreement.
16. Recitals. The recitals to this Agreement are incorporated herein as an
integral part hereof and shall be considered as substantive and not precatory
language.
17. Arbitration. Any controversy, claim or dispute arising out of or relating to
the Executive's employment or termination of employment, whether or not the
controversy, claim or dispute arises under this Agreement (other than any
controversy , claim or dispute arising under Paragraph 8) shall be resolved by
arbitration in accordance with the National Rules for the Resolution of
Employment Disputes ("Rules") of the American Arbitration Association through a
single arbitrator selected in accordance with the Rules. The decision of the
arbitrator shall be rendered within thirty (30) days of the close of the
arbitration hearing and shall include written findings of fact and conclusions
of law reflecting the appropriate substantive law. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof in the State of Illinois. In reaching his or her decision, the
arbitrator shall have no authority (a) to authorize or require the parties to
engage in discovery (provided, however, that the arbitrator may schedule the
time by which the parties must exchange copies of the exhibits that, and the
names of the witnesses whom, the parties intend to present at the hearing), (b)
to interpret or enforce Paragraph 8 of the Agreement (for which Paragraph 19
shall provide the sole and exclusive venue), (c) to change or modify any
provision of this Agreement, (d) to base any part of his or her decision on the
common law principle of constructive termination, or (e) to award punitive
damages or any other damages not measured by the prevailing party's actual
damages and may not make any ruling, finding or award that does not conform to
this Agreement. Each party shall bear all of his or its own legal fees, costs
and expenses of arbitration and one-half (1/2) of the costs of the arbitrator.
18. Indemnification. To the fullest extent permitted by law, the Employer agrees
to indemnify the Executive against, and to hold the Executive harmless from any
and all claims, lawsuits, losses, damages, assessments, penalties, expenses,
costs and liabilities of any kind or nature, including without limitation, court
costs and attorneys' fees, which the Executive may sustain directly as a result
of, or in connection with, any act or omission by the Employer or its employees
or any suit or other proceeding brought by a third party (including but not
limited to governmental or regulatory agencies or bodies) in connection with the
foregoing or in connection with any act or omission of the Executive while he
was employed or served as an officer or director of the Employer or any
wholly-owned subsidiary thereof, unless such claim, lawsuit, loss, damage,
assessment, penalty, expense, cost or liability is the result of the Executive's
gross negligence or willful misconduct.
19. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois, without reference to its
conflict of law provisions. Furthermore, as to Paragraph 8, the Executive agrees
and consents to submit to personal jurisdiction in the state of Illinois in any
state or federal court of competent subject matter jurisdiction situated in Cook
County, Illinois. The Executive further agrees that the sole and exclusive venue
for any suit arising out of, or seeking to enforce, the terms of Paragraph 8 of
this Agreement shall be in a state or federal court of competent subject matter
jurisdiction situated in Cook County, Illinois. In addition, the Executive
waives any right to challenge in another court any judgment entered by such Cook
County court or to assert that any action instituted by the Employer in any such
court is in the improper venue or should be transferred to a more convenient
forum.
IN WITNESS WHEREOF, the parties have set their signatures on the date first
written above.
EMPLOYER: RICHARD P. DISTASIO:
USF CORPORATION,
A Delaware corporation
/s/ Neil A. Springer /s/ Richard P. DiStasio
- ----------------------- -------------------------
By: Neil A. Springer
Its: Lead Director
<page>
EXHIBIT A
USF CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made effective September 15, 2003 (the "Grant Date"),
between USF Corporation, a Delaware corporation (the "Company"), and Richard P.
DiStasio (the "Optionee").
WHEREAS, in accordance with the terms of that certain Employment Agreement
as executed by and between the Company and the Optionee effective August 21,
2003 (the "Employment Agreement"), the Company desires to grant to the Optionee
an option to purchase shares of its common capital stock (the "Shares") under
the Company's Long-Term Incentive Plan (the "Plan"); and
WHEREAS, the Company and the Optionee understand and agree that any terms
used herein have the same meanings as in the Plan (the Optionee being referred
to in the Plan as a "Participant").
NOW, THEREFORE, in consideration of the following mutual covenants and for
other good and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION
The Company grants to the Optionee the right and Option to purchase all or
any part of an aggregate of 100,000 Shares (the "Option") on the terms and
conditions and subject to all the limitations set forth herein and in the
Plan, which is incorporated herein by reference. The Optionee acknowledges
receipt of a copy of the Plan and acknowledges that the definitive records
pertaining to the grant of this Option, and exercises of rights hereunder,
shall be retained by the Company. The Option granted herein is intended to
be a Nonstatutory Option as defined in the Plan.
2. PURCHASE PRICE
The purchase price of the Shares subject to the Option shall be _____ per
Share, the fair market value of a Share as of the Grant Date.
3. EXERCISE OF OPTION
Subject to the Plan and this Agreement, the Option shall be exercisable as
follows:
EXERCISE PERIOD
No. of
Shares Commencement Date Expiration Date
------ ----------------------------- ------------------------------
20,000 1st Anniversary of Grant Date 10th Anniversary of Grant Date
20,000 2nd Anniversary of Grant Date 10th Anniversary of Grant Date
20,000 3rd Anniversary of Grant Date 10th Anniversary of Grant Date
20,000 4th Anniversary of Grant Date 10th Anniversary of Grant Date
20,000 5th Anniversary of Grant Date 10th Anniversary of Grant Date
Notwithstanding the foregoing, if the Optionee's services are terminated by
the Company (without "cause," as such term is defined in the Employment
Agreement) within six (6) months following a Change in Control, or the
Optionee voluntarily terminates his employment within six (6) months
following a Change in Control, all Shares, whether or not exercisable in
accordance with the Schedule set forth above, shall become immediately
exercisable. For purposes of this Agreement, a "Change in Control" shall be
as defined in Exhibit C of the Employment Agreement.
4. ISSUANCE OF STOCK
The Option may be exercised in whole or in part (to the extent that it is
exercisable in accordance with its terms) by giving written notice (or any
other approved form of notice) to the Company. Such written notice shall be
signed by the person exercising the Option, shall state the number of
Shares with respect to which the Option is being exercised, shall contain
the warranty, if any, required under the Plan and shall specify a date
(other than a Saturday, Sunday or legal holiday) not less than five (5) nor
more than ten (10) days after the date of such written notice, as the date
on which the Shares will be purchased, at the principal office of the
Company during ordinary business hours, or at such other hour and place
agreed upon by the Company and the person or persons exercising the Option,
and shall otherwise comply with the terms and conditions of this Agreement
and the Plan. On the date specified in such written notice (which date may
be extended by the Company if any law or regulation requires the Company to
take any action with respect to the Shares prior to the issuance thereof),
the Company shall accept payment for the Shares and shall deliver to the
Optionee an appropriate certificate or certificates for the Shares as to
which the Option was exercised.
The Option price of any Shares shall be payable at the time of exercise as
determined by the Company either:
(a) in cash, by certified check or bank check, or by wire transfer; or
(b) in whole shares of the Company's common stock, provided, however, that
(i) if such shares were acquired pursuant to an incentive stock option
plan (as defined in Code Section 422) of the Company or Affiliate,
then the applicable holding period requirements of said Section 422
have been met with respect to such shares, (ii) if the Optionee is
subject to the reporting requirements of Section 16 of the Securities
Exchange Act of 1934, as amended from time to time, and if such shares
were granted pursuant to an option, then such option must have been
granted at least six (6) months prior to the exercise of the Option
hereunder, and (iii) such shares were owned by the Optionee for six
(6) or more months prior to the exercise of the Option hereunder; or
(c) through the delivery of cash or the extension of credit by a
broker-dealer to whom the Optionee has submitted notice of exercise or
otherwise indicated an intent to exercise an Option (a so-called
"cashless" exercise), but only to the extent that the Company's
corporate counsel has determined that such a "cashless" exercise is a
permissible method of exercise for the Optionee under Section 13(k) of
the Securities Exchange Act of 1934, as amended; or
(d) in any combination of (a), (b), or (c) above.
The fair market value of the stock to be applied toward the purchase price
shall be determined as of the date of exercise of the Option in a manner
consistent with the determination of fair market value with respect to the
grant of an Option under the Plan. Any certificate for shares of
outstanding stock of the Company used to pay the purchase price shall be
accompanied by a stock power duly endorsed in blank by the registered
holder of the certificate, with signature guaranteed in the event the
certificate shall also be accompanied by instructions from the Optionee to
the Company's transfer agent with respect to disposition of the balance of
the shares covered thereby.
The Company shall pay all original issue taxes with respect to the issuance
of Shares pursuant hereto and all other fees and expenses necessarily
incurred by the Company in connection therewith. The holder of this Option
shall have the rights of a stockholder only with respect to those Shares
covered by the Option which have been registered in the holder's name in
the share register of the Company upon the due exercise of the Option.
5. NON-ASSIGNABILITY
This Option shall not be transferable by the Optionee and shall be
exercisable only by the Optionee, except as the Plan may otherwise provide.
6. NOTICES
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by registered or certified mail, return receipt
requested, addressed as follows:
To the Company: USF Corporation
8550 West Bryn Mawr Avenue
Suite 700
Chicago, Illinois 60631
Attn: Richard C. Pagano, Senior Vice President,
General Counsel & Secretary
To the Optionee: Richard P. DiStasio
715 North Prospect
Park Ridge, IL 60068
or to such other address or addresses of which notice in the same manner
has previously been given. Any such notice shall be deemed to have been
given when mailed in accordance with the foregoing provisions.
7. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws
of the State of Illinois.
8. BINDING EFFECT
This Agreement shall (subject to the provisions of Section 5 hereof) be
binding upon the heirs, executors, administrators, successors and assigns
of the parties hereto.
IN WITNESS WHEREOF, the Company and the Optionee have caused this Agreement
to be executed on their behalf, by their duly authorized representatives, all on
the day and year first above written.
COMPANY: OPTIONEE:
USF CORPORATION
By:
----------------------------- -------------------------
Its:
-----------------------------
<page>
EXHIBIT B
USF CORPORATION
restricted STOCK GRANT AGREEMENT
THIS AGREEMENT is made effective September 15, 2003 (the "Grant Date")
between USF Corporation, a Delaware corporation (the "Company"), and Richard P.
DiStasio (the "Recipient').
WHEREAS, in accordance with the terms of that certain Employment Agreement
as executed by and between the Company and the Recipient effective of even date
herewith (the "Employment Agreement"), the Company desires to grant to the
Recipient certain shares (the "Shares") of its common capital stock (the
"Stock"); and
WHEREAS, such Shares are not being issued under the Company's Long-Term
Incentive Plan (the "Plan") but the Company and the Recipient understand and
agree that any terms used herein have the same meanings as if such Shares were
granted as restricted stock under the Plan (the Recipient being referred to in
the Plan as a "Participant").
NOW, THEREFORE, in consideration of the following mutual covenants and for
other good and valuable consideration, the parties agree as follows:
1. GRANT OF RESTRICTED STOCK
The Company hereby grants to the Recipient _____ Shares of Stock on the
terms and conditions and subject to all the limitations set forth herein
and in the Plan, which is incorporated herein by reference. The Recipient
acknowledges receipt of a copy of the Plan. The Company and the Recipient
acknowledge that the number of Shares of Stock granted hereunder equals
$600,000 of Stock (rounded up to the nearest whole Share) on the Grant
Date.
2. PURCHASE PRICE
The purchase price of the Stock shall be deemed to be zero Dollars per
Share. The foregoing notwithstanding, the Recipient shall not, without the
consent of the Company, make any election under Section 83(b) of the Code
to recognize income at the date of grant.
3. CERTIFICATES AND SHAREHOLDER RIGHTS
The Company's Transfer Agent and Registrar shall prepare and issue a stock
certificate in the Recipient's name representing the Shares of Stock that
the Recipient has been granted. From and after the issuance of the
certificate, the Recipient shall be the holder of record with respect to
the Stock. The Company shall take such actions as are necessary to register
the Shares under the applicable securities laws on or before the date such
Shares cease to be subject to the restrictions described in Paragraph 4.
4. RESTRICTIONS AND VESTING
(a) Until the passage of the time periods or the occurrence of the events
specified in Paragraph 4(b) below, the Recipient shall not sell,
transfer, convey, pledge, encumber, or otherwise dispose of all or a
portion of any interest in the Stock.
(b) Subject to this Agreement, the restrictions hereunder shall lapse on
the first to occur of the following dates or events, whichever is
applicable:
(i) Total Number of Shares Date Restrictions Lapse
________ Second anniversary of the Grant Date
(ii) Total Number of Shares Event on Which Restrictions Lapse
________ Recipient's Death or Disability as
defined in the Plan
Termination by the Company without
"Cause" or by the Executive for "Good
Reason," as each is defined in the
Employment Agreement
Occurrence of a Change in Control,
as defined in Exhibit C to the
Employment Agreement
Except as provided above, any Stock the restrictions on which have not
lapsed upon the Recipient's termination of employment shall be forfeited
immediately and this statement shall constitute the written notice required
under the Plan of such forfeiture.
5. DIVIDENDS
From and after the date the Recipient acquires the Shares, and is issued a
certificate or certificates, the Recipient shall be entitled, with respect
to the Recipient's Shares of Stock, to any dividends declared by the
Company on its Shares of Common Stock and paid in the form of cash or other
property.
6. RELEASE OF RESTRICTIONS
Cash dividends paid with respect to Shares of Stock shall be paid to the
Recipient. In the case of dividends declared by the Company and payable in
the form of Common Stock or other securities of the Company, then such
securities shall be subject to the terms and conditions of the Plan and
this Agreement, shall be represented by certificates issued in the name of
the Recipient but shall be subject to the restrictions and vesting
schedules specified in Paragraph 4, provided that the restrictions
applicable to securities issued as a dividend on certain Shares shall lapse
concurrently with the restrictions on the underlying Shares.
7. RELEASE OF RESTRICTIONS
At such time as the restrictions on the Shares of Stock lapse, or as soon
thereafter as may be practicable, the restrictive legend shall be removed
from the certificate or certificates.
8. WITHHOLDING
The Company shall have the power and right to deduct or withhold, or
require the Recipient to remit to the Company, an amount sufficient to
satisfy federal, state, and local taxes required by law to be withheld with
respect to any grant made under or as a result of this Agreement. In the
alternative, the Recipient may elect, subject to Company approval, to
satisfy the withholding requirement in whole or in part, by having the
Company withhold Shares that would otherwise be transferred to the
Recipient having a fair market value, on the date the tax is to be
determined, equal to the minimum marginal tax that could be imposed on the
transaction. All elections shall be made in writing and signed by the
Recipient.
9. NOTICES
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by registered or certified mail, return receipt
requested, addressed as follows:
To the Company: USF Corporation
8550 West Bryn Mawr Avenue
Suite 700
Chicago, Illinois 60631
Attn: Richard C. Pagano, Senior Vice President,
General Counsel & Secretary
To the Recipient: Richard P. DiStasio
715 North Prospect
Park Ridge, IL 60068
or to such other address or addresses of which notice in the same manner
has previously been given. Any such notice shall be deemed to have been
given when mailed in accordance with the foregoing provisions.
10. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws
of the State of Illinois.
11. BINDING EFFECT
This Agreement shall be binding upon the heirs, executors, administrators,
successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the Company and the Recipient have caused this
Agreement to be executed on its and his behalf effective the day and year first
above written.
COMPANY: RECIPIENT:
USF CORPORATION
By:
----------------------------- -------------------------
Its:
-----------------------------
<page>
EXHIBIT C
USF CORPORATION
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of September 15, 2003 by and
between USF Corporation, a Delaware corporation (the "Company"), and Richard P.
DiStasio (the "Executive").
RECITALS
A. The Board recognizes that the possibility of a Change in Control exists and
that the threat or the occurrence of a Change in Control can distract its key
management personnel because of the uncertainties inherent in such a situation.
B The Board has determined that it is essential and in the best interest of the
Company and its stockholders to retain the services of the Executive in the
event of a threat or occurrence of a Change in Control and to ensure his
continued dedication and efforts in such event.
C. In order to induce the Executive to remain in the employ of the Company, the
Company desires to enter into this Agreement with the Executive to provide the
Executive with certain benefits in the event his employment is terminated as a
result of, or in connection with, a Change in Control.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, the parties agree as follows:
1. Term of Agreement. This Agreement shall commence as of September 15, 2003 and
shall continue in effect until December 31, 2004; provided, however, that
commencing on January 1, 2005 and on each January 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) year unless either the
Company or the Executive shall have given written notice to the other at least
ninety (90) days prior thereto that the term of this Agreement shall not be so
extended; and provided, further, that notwithstanding any such notice by the
Company not to extend, if a Change in Control shall occur during the term
hereof, the term of this Agreement shall not expire prior to the expiration of
twenty-four (24) months after the occurrence of a Change in Control.
Notwithstanding anything in this Paragraph 1 to the contrary, this Agreement
shall terminate prior to any date set forth above, and shall be considered null
and void, if termination is necessary for a business combination involving the
Company to be accounted for as a pooling-of-interests under APB Opinion No. 16.
2. Definitions.
2.1. "Accrued Compensation" shall mean all amounts earned or accrued through the
Termination Date, but not paid as of the Termination Date, including (a) base
salary, (b) reimbursement for reasonable and necessary expenses incurred by the
Executive on behalf of the Company during the period ending on the Termination
Date, (c) vacation pay, and (d) bonuses and other incentive compensation (other
than the Pro Rata Bonus).
2.2. "Act" shall mean the Securities Exchange Act of 1934, as amended.
2.3. "Base Amount" shall mean the greater of the Executive's annual base salary
(a) at the rate in effect on the Termination Date or (b) at the highest rate in
effect at any time during the ninety (90) day period prior to the Change in
Control, and shall include all amounts of his base salary that are deferred
under any qualified or non-qualified employee benefit plan of the Company or any
other agreement or arrangement.
2.4. "Board" shall mean the Board of Directors of the Company.
2.5. "Bonus Amount" shall mean the Executive's target bonus as established by
the Company for the fiscal year in which the Change of Control occurs.
2.6. Termination of employment is for "Cause" if the Executive has been
convicted of a felony or the termination is evidenced by a resolution adopted in
good faith by two-thirds of the Board that the Executive (a) failed to perform
his reasonably assigned duties with the Company (other than a failure resulting
from the Executive's incapacity due to physical or mental illness or from the
Executive's assignment of duties that would constitute Good Reason), which
failure continued for a period of at least thirty (30) days after a written
notice of demand for performance had been delivered to the Executive specifying
the manner in which the Executive had failed to perform, or (b) intentionally
engaged in conduct that is demonstrably and materially injurious to the Company;
provided, however, that no termination of the Executive's employment shall be
for Cause as set forth in clause (b) above until (i) there shall have been
delivered to the Executive a written notice setting forth that the Executive
committed the conduct set forth in clause (b) and specifying the particulars
thereof in detail, and (ii) the Executive shall have been provided an
opportunity to be heard in person by the Board (with the assistance of the
Executive's counsel if the Executive so desires).
2.7. "Change in Control" shall mean the occurrence of any of the following
events:
(a) any person (as such term is defined in Section 3 of the Act and used in
Rule 13d-5 of the SEC under the Act) or group (as such term is defined in
Section 13(d) of the Act), other than a Subsidiary or any employee benefit
plan (or any related trust) of the Company or a Subsidiary, becomes the
beneficial owner of twenty-five percent (25%) or more of the common stock
of the Company or of Voting Securities representing twenty-five percent
(25%) or more of the combined voting power of all Voting Securities of the
Company;
(b) individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least a
majority of the Board; provided that any individual who becomes a director
after the Effective Date whose election, or nomination for election by the
Company's stockholders, was approved by a vote or written consent of at
least two-thirds of the directors then comprising the Incumbent Directors
shall be considered an Incumbent Director, but excluding, for this purpose,
any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of
the directors of the Company (as such terms are used in Rule 14a-11 of the
SEC under the Act); or
(c) approval by the stockholders of the Company of any of the following:
(i) a merger, reorganization or consolidation ("Merger") with respect to
which the individuals and entities who were the respective beneficial
owners of the Voting Securities of the Company immediately before such
Merger do not, after such Merger, beneficially own, directly or
indirectly, more than seventy-five percent (75%) of the Voting
Securities of the corporation resulting from such Merger, or
(ii) the sale or other disposition of all or substantially all of the
assets of the Company.
Clauses (a), (b) and (c) of this definition notwithstanding, a Change in Control
shall not occur if the Executive is, by written agreement executed before such
Change in Control, a participant on such Executive's own behalf in a transaction
in which, pursuant to the written agreement, the Executive has an equity
interest in the resulting entity or a right to acquire such an equity interest.
2.8. "Disability" shall mean a physical or mental condition that impairs the
Executive's ability to substantially perform his duties with the Company for a
period of one hundred eighty (180) consecutive days and, as a result of which,
the Executive has not returned to employment prior to the Termination Date as
stated in the Notice of Termination.
2.9. "Effective Date" shall mean the date on which this Agreement is executed.
2.10. "Good Reason" shall mean the occurrence after a Change in Control of any
of the events or conditions described in paragraphs (a) through (h) hereof:
(a) a change in the Executive's status, title, position or responsibilities
(including reporting responsibilities) which, in the Executive's reasonable
judgment, represents an adverse change from his status, title, position or
responsibilities as in effect at any time within ninety (90) days preceding
the date of a Change in Control or at any time thereafter; the assignment
to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his status, title,
position or responsibilities as in effect at any time within ninety (90)
days preceding the date of a Change in Control or at any time thereafter;
or any removal of the Executive from or failure to reappoint or reelect him
to any of such positions, except in connection with the termination of his
employment for Disability, Cause, as a result of his death, or by the
Executive other than for Good Reason;
(b) a reduction in the Executive's base salary or any failure to pay the
Executive any compensation or benefits to which he is entitled within five
(5) days of the date due;
(c) the Company's requiring the Executive to be based at any place outside a
40-mile radius of the location of the Company's corporate headquarters
immediately prior to the Change of Control, except for reasonably required
travel that is not materially greater than such travel requirements prior
to the Change in Control;
(d) the failure by the Company to (1) continue in effect (without reduction in
benefit levels and/or reward opportunities) any material compensation or
employee benefit plan in which the Executive was participating at any time
within ninety (90) days preceding the date of a Change in Control or at any
time thereafter, unless such plan is replaced with a plan that provides
substantially equivalent compensation or benefits to the Executive or
(2) provide the Executive with compensation and benefits, in the aggregate,
at least equal (in terms of benefit levels and/or reward opportunities) to
those provided for under each other employee benefit plan, program and
practice in which the Executive was participating at any time within ninety
(90) days preceding the date of a Change in Control or at any time
thereafter;
(e) the insolvency or the filing (by any party, including the Company) of a
petition for bankruptcy of the Company, which petition is not dismissed
within sixty (60) days;
(f) any material breach by the Company of any provision of this Agreement;
(g) any purported termination of the Executive's employment for Cause by the
Company which does not comply with the terms of Section 2.6; or
(h) the failure of the Company to obtain an agreement, satisfactory to the
Executive, from any Successors and Assigns to assume and agree to perform
this Agreement.
Any event or condition described in this Section 2.10(a) through (h) that occurs
prior to a Change in Control, but which the Executive reasonably demonstrates
(1) was at the request of a third party, or (2) otherwise arose in connection
with, or in anticipation of, a Change in Control that actually occurs, shall
constitute Good Reason for purposes of this Agreement notwithstanding that it
occurred prior to the Change in Control. 2.11. "Notice of Termination" shall
mean, following a Change in Control, a written notice of termination of the
Executive's employment from the Company that indicates, if applicable, the
specific termination provision in this Agreement relied upon and that sets forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provisions so indicated.
2.12. "Pro Rata Bonus" shall mean an amount equal to the Bonus Amount multiplied
by a fraction the numerator of which is the number of days in the fiscal year
through the Termination Date and the denominator of which is three hundred
sixty-five (365).
2.13. "SEC" shall mean the Securities and Exchange Commission.
2.14. "Subsidiary" shall mean a corporation in which greater than fifty percent
(50%) of the shares are owned, directly or indirectly, by the Company or a
subsidiary of the Company.
2.15. "Successors and Assigns" shall mean a corporation or other entity
acquiring all or substantially all the stock, assets and/or business of the
Company whether by operation of law or otherwise.
2.16. "Termination Date" shall mean in the case of the Executive's death, his
date of death; in the case of Good Reason, the last day of his employment; and
in all other cases, the date specified in the Notice of Termination, provided,
however, that if the Executive's employment is terminated by the Company for
Cause or due to Disability, the date specified in the Notice of Termination
shall be at least thirty (30) days from the date the Notice of Termination is
given to the Executive, and provided further, that in the case of Disability,
the Executive shall not have returned to the full-time performance of his duties
during such period of at least thirty (30) days.
2.17. "Voting Securities" shall mean those securities of a corporation that are
entitled to vote generally in the election of directors of such corporation.
3. Termination of Employment.
3.1. If, during the term of this Agreement, the Executive's employment with the
Company shall be terminated within twenty-four (24) months following a Change in
Control, the Executive shall be entitled to the following compensation and
benefits:
(a) If the Executive's employment with the Company shall be terminated (1) by
the Company for Cause or Disability, (2) by reason of the Executive's
death, or (3) by the Executive other than for Good Reason, the Company
shall pay to the Executive the Accrued Compensation and, if such
termination is other than by the Company for Cause, the Pro Rata Bonus.
(b) If the Executive's employment with the Company shall be terminated for any
reason other than as specified in Section 3.1(a), the Executive shall be
entitled to the following:
(i) The Company shall pay the Executive his Accrued Compensation and the
Pro Rata Bonus;
(ii) The Company shall pay the Executive as severance pay and, in lieu of
any further compensation for periods subsequent to the Termination
Date, a payment equal to three (3) times the sum of (A) the Base
Amount and (B) the Bonus Amount.
(iii)For eighteen (18) months (the "Continuation Period") following such
termination, the Company shall continue to provide, at its expense,
life insurance coverage to the Executive on the same terms as provided
to the Executive by the Company under any life insurance plan or
program as in existence at any time during the 90-day period prior to
the Change in Control or at any time thereafter or, if such coverage,
in whole or in part, is no longer provided to similarly situated
executives who continue in the employ of the Company during the
Continuation Period, such life insurance coverage as is provided to
those similarly situated executives during the Continuation Period, in
either case to the extent such insurance coverage is permissible under
the terms of the Company s life insurance plans or programs. The
Company agrees that it shall, if necessary for the continuation of
such insurance coverage, take any steps that are reasonably necessary
to amend its life insurance plans or programs in order to permit the
Executive to continue to receive coverage under such plans, provided
the cost to the Company of taking such actions is not commercially
unreasonable. The Company's obligation hereunder with respect to the
foregoing life insurance benefits shall be limited to the extent that
the Executive obtains any such benefits pursuant to a subsequent
employer's employee benefit plans, in which case the Company may
reduce the coverage of any life insurance benefits it is required to
provide the Executive hereunder as long as the aggregate insurance
coverage of the combined plans is no less favorable to the Executive
than the life insurance coverage required to be provided hereunder. In
addition to the foregoing, if the Executive elects any benefits
mandated under the Consolidated Omnibus Budget Reconciliation Act of
1985 (COBRA), the Company agrees that it shall pay the full cost of
such coverage during the Continuation Period, or if shorter, until the
Executive is no longer eligible for COBRA continuation coverage. This
subsection (iii) shall not be interpreted so as to limit benefits to
which the Executive or his dependents or beneficiaries may otherwise
be entitled under any of the Company's employee benefit plans,
programs or practices following the Executive's termination of
employment, including without limitation, their entitlement to retiree
medical and life insurance benefits.
(iv) (A) The restrictions on any outstanding incentive awards granted to
the Executive under the USFreightways Corporation Long-Tem Incentive
Plan (the "Stock Plan") or under any other incentive plan or
arrangement (including any restricted stock plan) shall lapse and such
incentive awards shall become one hundred percent (100%) vested, all
stock options and stock appreciation rights granted to the Executive
shall become immediately exercisable and shall become one hundred
percent (100%) vested, and all performance units granted to the
Executive shall become one hundred percent (100%) vested and (B) the
Executive shall have the right to require the Company to purchase, for
cash, any shares of unrestricted stock or shares purchased upon
exercise of any options, at a price equal to the fair market value of
such shares on the date of purchase by the Company. For purposes of
this Agreement, if the shares are listed on any national securities
exchange, the fair market value shall be the mean average of the high
and low sales prices, if any, on the largest such exchange on the date
of purchase by the Company or, if there are no sales on such date, on
the most recent trade date thirty (30) days or less prior to the date
of purchase by the Company. If the shares are not listed on any
national securities exchange, the fair market value of such shares
shall be determined by a nationally recognized investment banking firm
mutually agreed upon by the Company and the Executive. If the parties
shall be unable to mutually agree upon an investment banking firm,
then each of the Company and the Executive shall designate an
investment banking firm within ten (10) days of the date on which it
is determined that the parties are unable to mutually agree upon an
investment banking firm. The two (2) independent firms shall, within
ten (10) days, jointly select a third nationally recognized investment
banking firm, whose determination of the fair market value shall be
final, binding and conclusive on the Company and the Executive. All
costs associated with the determination of fair market value shall be
borne by the Company. Notwithstanding anything in this paragraph (iv)
to the contrary, if there exists an inconsistency between the terms of
the Stock Plan and this paragraph (iv), such that the terms of this
paragraph (iv) cannot be applied in a manner that is consistent with
the Stock Plan, then the terms of the Stock Plan shall govern,
provided, however, that the Company shall pay the Executive in one
single sum the difference between (1) the amount that the Executive
would receive by applying this paragraph most favorably to the
Executive, without regard to the Stock Plan, and (2) the amount that
the Executive would receive under this paragraph after applying any
limitations imposed by the Stock Plan.
(v) The Company shall pay the full cost of outplacement services for the
Executive for a period of six (6) months following such termination
or, if earlier, until the Executive obtains full-time employment, to
be provided by an outplacement services firm selected by the
Executive.
(c) The amounts provided for in Sections 3.1(a) and 3.1(b)(i) and (ii) shall be
paid in a single lump sum cash payment within thirty (30) days after the
Executive's Termination Date (or earlier if required by applicable law).
(d) The Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment and no such
payment shall be offset or reduced by the amount of any compensation or
benefits provided to the Executive in any subsequent employment, except as
provided in Section 3.1(b)(iii).
(e) The Company and the Executive acknowledge and agree that any termination of
the Executive's employment that occurs outside of the scope of this
Agreement shall continue to be governed by the terms of Sections 6 and 7 of
that certain Employment Agreement as previously executed by and between the
Executive and the Company, dated as of ___________ (the "Employment
Agreement"), for so long as such agreement continues in effect. The Company
and the Executive further acknowledge and agree that the terms of this
Section 3.1 shall supercede the terms of Section 7(b) of the Employment
Agreement.
3.2. The severance pay and benefits provided for in this Section 3 shall also be
in lieu of any other severance or termination pay to which the Executive may be
entitled under any Company severance or termination plan, program, practice or
arrangement.
3.3. Other than as set forth in Section 3.2, the Executive's entitlement to any
other compensation or benefits shall be determined in accordance with the
Company's employee benefit plans and other applicable programs, policies and
practices then in effect.
4. Notice of Termination. Following a Change in Control, any purported
termination of the Executive's employment by the Company shall be communicated
by Notice of Termination to the Executive.
5. Excise Tax Payments.
5.1. If any payment (within the meaning of Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the "Code")) to the Executive pursuant to the
terms of this Agreement or otherwise in connection with, or arising out of, his
employment with the Company or a change in ownership or effective control of the
Company (a "Payment" or "Payments") would be subject to an excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that, after payment by the
Executive of all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Executive's failure to file timely a tax
return or pay taxes shown due on his return, imposed with respect to such taxes
and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment,
the Executive will receive an amount as a Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
5.2. An initial determination as to whether a Gross-Up Payment is required
pursuant to this Agreement and the amount of such Gross-Up Payment shall be made
at the Company's expense by an accounting firm selected by the Company and
reasonably acceptable to the Executive (the "Accounting Firm"). If the Company
and the Executive shall be unable to mutually agree upon an accounting firm,
then each of the Company and the Executive shall designate an independent
accounting firm within ten (10) days of the date on which it is determined that
the parties are unable to mutually agree upon an accounting firm. The two (2)
independent accounting firms shall, within ten (10) days, jointly select a third
independent accounting firm, which third firm shall be the Accounting Firm for
purposes of this Section 5.2. The Accounting Firm shall provide its
determination (the "Determination"), together with detailed supporting
calculations and documentation to the Company and the Executive within five (5)
days of the Termination Date, or such other time as requested by the Company or
by the Executive (provided the Executive reasonably believes that any of the
Payments may be subject to the Excise Tax), and if the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to a
Payment or Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payment or Payments. Within ten (10) days of the delivery of the
Determination to the Executive, the Executive shall have the right to dispute
the Determination (the "Dispute"). The Gross-Up Payment, if any, as determined
pursuant to this Section 5.2 shall be paid by the Company to the Executive
within fifteen (15) days of the receipt of the Determination. The existence of
the Dispute shall not in any way affect the Executive's right to receive the
Gross-Up Payment in accordance with the Determination. If there is no Dispute,
the Determination shall be binding, final and conclusive upon the Company and
the Executive subject to the application of Section 5.3 below.
5.3. As a result of the uncertainty in the application of Sections 4999 and 280G
of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will
be paid which should not have been paid (an "Excess Payment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will not have been
paid (an "Underpayment"). An Underpayment shall be deemed to have occurred
(a) upon notice (formal or informal) to the Executive from any governmental
taxing authority that the Executive's tax liability (whether in respect of the
Executive's current taxable year or in respect of any prior taxable year) may be
increased by reason of the imposition of the Excise Tax on a Payment or Payments
with respect to which the Company has failed to make a sufficient Gross-Up
Payment, (b) upon a determination by a court, (c) by reason of a determination
by the Company, or (d) upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall promptly notify the
Company and the Company shall promptly, but in any event, at least five (5) days
prior to the date on which the applicable government taxing authority has
requested payment, pay to the Executive an additional Gross-Up Payment equal to
the amount of the Underpayment plus any interest and penalties (other than
interest and penalties imposed by reason of the Executive's failure to file
timely a tax return or pay taxes shown due on the Executive's return) imposed on
the Underpayment. An Excess Payment shall be deemed to have occurred upon a
"Final Determination" (as hereinafter defined) that the Excise Tax shall not be
imposed upon a Payment or Payments (or portion thereof) with respect to which
the Executive had previously received a Gross-Up Payment. A "Final
Determination" shall be deemed to have occurred when the Executive has received
from the applicable government taxing authority a refund of taxes or other
reduction in the Executive's tax liability and upon either (a) the date a
determination is made by, or an agreement is entered into with, the applicable
governmental taxing authority which finally and conclusively binds the Executive
and such taxing authority, or in the event that a claim is brought before a
court of competent jurisdiction, the date upon which a final determination has
been made by such court and either all appeals have been taken and finally
resolved or the time for all appeals has expired or (b) the statute of
limitations with respect to the Executive's applicable tax return has expired.
If an Excess Payment is determined to have been made, the amount of the Excess
Payment shall be treated as a loan by the Company to the Executive and the
Executive shall pay to the Company on demand (but not less than ten (10) days
after the determination of such Excess Payment and written notice has been
delivered to the Executive) the amount of the Excess Payment plus interest at an
annual rate equal to the Applicable Federal Rate provided for in Section 1274(d)
of the Code from the date the Gross-Up Payment (to which the Excess Payment
relates) was paid to the Executive until the rate of repayment to the Company.
6. Successors; Binding Agreement.
6.1. This Agreement shall be binding upon and shall inure to the benefit of the
Company and its Successors and Assigns, and the Company shall require any
Successors and Assigns to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place.
6.2. Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive or his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution, and
this Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
7. Fees and Expenses. The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred by the Executive
as they become due as a result of (a) the Executive seeking to obtain or enforce
any right or benefit provided by this Agreement (including, but not limited to,
any such fees and expenses incurred in connection with (i) the Dispute, and
(ii) the Gross-Up Payment whether as a result of any applicable government
taxing authority proceeding, audit or otherwise) or by any other plan or
arrangement maintained by the Company under which the Executive may be entitled
to receive benefits, and (b) the Executive's hearing before the Board as
contemplated in Section 2.6 of this Agreement.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of a change of address shall be effective only upon receipt.
9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company (except as otherwise
expressly provided herein) and for which the Executive may qualify, nor shall
anything herein limit or reduce such rights as the Executive may have under any
other agreements with the Company (except as otherwise expressly provided
herein). Amounts that are vested benefits or that the Executive is otherwise
entitled to receive under any plan or program of the Company shall be payable in
accordance with such plan or program, except as expressly modified by this
Agreement.
10. Settlement of Claims. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which the Company may
have against the Executive or others.
11. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
12. Payments to Beneficiary. If the Executive dies before receiving amounts to
which the Executive is entitled under this Agreement, such amounts shall be paid
in a lump sum to the beneficiary designated in writing by the Executive, or if
none is so designated, to the Executive's estate.
13. Non-alienation of Benefits. Benefits payable under this Agreement shall not
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, before actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
under this Agreement shall be void.
14. Severability. If any one or more articles, sections or other portions of
this Agreement are declared by any court or governmental authority to be
unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any article, section or other portion not so declared to be unlawful
or invalid. Any article, section or other portion so declared to be unlawful or
invalid shall be construed so as to effectuate the terms of such article,
section or other portion to the fullest extent possible while remaining lawful
and valid.
15. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together constitute
one and the same instrument.
16. Tax Withholding. The Company may withhold from any amounts payable under
this Agreement any federal, state or local taxes that are required to be
withheld pursuant to any applicable law or regulation.
17. Obligations Unfunded. The obligations of the Company under this Agreement
shall be unfunded and unsecured. The Company is not required to segregate any
assets that may at any time be required to provide benefits under this
Agreement.
18. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Illinois, to the extent
that such laws are not preempted by the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
19. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto and supersedes all prior agreements, understandings and
arrangements, oral or written, between the parties hereto with respect to the
subject matter hereof.
20. Application of ERISA. This Agreement constitutes part of a welfare plan for
certain selected employees, as set forth in Department of Labor Regulation
2520.104-24. Accordingly, nothing herein shall be deemed to limit or restrict
any rights or entitlements to which the Executive is entitled under ERISA, and
any such rights or entitlements are expressly incorporated herein by reference.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has executed this Agreement as of
the day and year first above written.
USF CORPORATION
By: By:
------------------------------ -----------------------------
Executive
Name:
----------------------------
Title:
----------------------------
<page>
EXHIBIT 31.1
CERTIFICATION
I, Richard P. DiStasio, certify that:
1. I have reviewed this quarterly report on Form 10-Q of USF Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record process,
summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 7, 2003
/s/ Richard P. DiStasio
---------------------------------
Richard P. DiStasio
President & Chief Executive Officer
<page>
EXHIBIT 31.2
CERTIFICATION
I, Christopher L. Ellis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of USF Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record process,
summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 7, 2003
/s/ Christopher L. Ellis
---------------------------
Christopher L. Ellis
Senior Vice President, Finance, Chief
Financial Officer
<page>
EXHIBIT 32.1
CERTIFICATION OF PRESIDENT & CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350(a)
In connection with the accompanying Quarterly Report on Form 10-Q of USF
Corporation for the quarter ended October 4, 2003, I, Richard P. DiStasio,
President & Chief Executive Officer of USF Corporation, hereby certify pursuant
to 18 U.S.C. Section 1350(a), as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
(1) such Quarterly Report on Form l0-Q for the quarter ended October 4,
2003, fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) the information contained in such Quarterly Report on Form 10-Q for the
quarter ended October 4, 2003, fairly presents, in all material respects,
the financial condition and results of operations of USF Corporation.
A signed original of this written statement required by Section 906 has been
provided to USF Corporation and will be retained by USF Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Richard P. DiStasio
----------------------------------------
Richard P. DiStasio
President & Chief Executive Officer
Date: November 7, 2003
<page>
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350(a)
In connection with the accompanying Quarterly Report on Form 10-Q of USF
Corporation for the quarter ended October 4, 2003, I, Christopher L. Ellis,
Senior Vice President, Finance and Chief Financial Officer of USF Corporation,
hereby certify pursuant to 18 U.S.C. Section 1350(a), as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and
belief, that:
(1) such Quarterly Report on Form l0-Q for the quarter ended October 4,
2003, fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) the information contained in such Quarterly Report on Form 10-Q for the
quarter ended October 4, 2003, fairly presents, in all material respects,
the financial condition and results of operations of USF Corporation.
A signed original of this written statement required by Section 906 has been
provided to USF Corporation and will be retained by USF Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Christopher L. Ellis
----------------------------------------
Christopher L. Ellis
Senior Vice President, Finance and
Chief Financial Officer
Date: November 7, 2003