Download CELADON GROUP INC

UNITED STATES
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 December 31, 2016
or
[
]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-34533
CELADON GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
13-3361050
(IRS Employer
Identification No.)
9503 East 33 rd Street
One Celadon Drive
Indianapolis, IN
(Address of principal executive offices)
46235-4207
(Zip Code)
(Registrant's telephone number, including area code): (317) 972-7000
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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Accelerated filer [X]
Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Exchange Act).
Yes [ ] No [X]
As of February 9, 2017, 28,299,404 shares of the registrant's common stock, par value $0.033 per share, were outstanding.
CELADON GROUP, INC.
Index to
December 31, 2016 Form 10-Q
Part I.
Financial Information
Item 1.
Part II.
Financial Statements
Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2016 and
2015 (Unaudited)
3
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended December 31,
2016 and 2015 (Unaudited)
4
Condensed Consolidated Balance Sheets at December 31, 2016 (Unaudited) and June 30, 2016
5
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2016 and 2015
(Unaudited)
6
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
26
Item 4.
Controls and Procedures
26
Other Information
Item 1.
Legal Proceedings
28
Item 1A. Risk Factors
28
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30
Item 3.
Defaults Upon Senior Securities
30
Item 4
Mine Safety Disclosures
30
Item 5.
Other Information
30
Item 6.
Exhibits
32
2
Table of Contents
PART I.
FINANCIAL INFORMATION
Item I.
Financial Statements
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands except per share amounts)
(Unaudited)
Three months ended
December 31,
2016
2015
OPERATING REVENUE:
Freight revenue
Fuel surcharge revenue
Total revenue
$
OPERATING EXPENSES:
Salaries, wages, and employee benefits
Fuel
Purchased transportation
Revenue equipment rentals
Operations and maintenance
Insurance and claims
Depreciation and amortization
Communications and utilities
Operating taxes and licenses
General and other operating
Gain on disposition of equipment
Total operating expenses
242,349
23,376
265,725
$
79,484
27,311
85,614
9,184
22,108
13,691
16,976
2,578
4,731
6,289
(507 )
267,459
Operating income (loss)
249,311
26,088
275,399
$
85,877
26,688
93,948
2,201
18,243
7,709
19,187
2,611
5,532
4,803
(5,479 )
261,320
483,818
46,947
530,765
162,291
53,608
175,906
18,652
41,258
21,947
36,308
4,998
9,180
11,429
(1,768 )
533,809
487,123
54,397
541,520
167,354
54,416
182,978
4,423
35,849
14,637
40,788
4,955
10,504
9,085
(18,721 )
506,268
14,079
(3,044 )
35,252
$
3,758
--21
10,300
3,685
6,615
$
6,291
13
(1,955 )
(7,393 )
(3,015 )
(4,378 )
$
6,910
--121
28,221
10,239
17,982
$
$
0.24
0.24
$
$
(0.16 )
(0.16 )
$
$
0.64
0.65
$
2,988
(40 )
(1,824 )
(2,858 )
(1,333 )
(1,525 )
Income (loss) per common share:
Diluted
Basic
$
$
(0.06 )
(0.06 )
27,639
27,639
27,940
27,480
27,627
27,627
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
$
(1,734 )
Interest expense
Other (income) expense, net
Loss (income) from equity method investment
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Diluted weighted average shares outstanding
Basic weighted average shares outstanding
Six months ended
December 31,
2016
2015
27,953
27,467
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CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
Three months ended
December 31,
2016
2015
Net income (loss)
Other comprehensive income (loss):
Unrealized gain (loss) on fuel derivative instruments, net of tax
Foreign currency translation adjustments, net of tax
Total other comprehensive loss
Comprehensive income (loss)
$
(1,525 )
$
199
(4,044 )
(3,845 )
(5,370 )
$
6,615
$
(875 )
(4,829 )
(5,704 )
911
Six months ended
December 31,
2016
2015
$
(4,378 )
$
314
(8,947 )
(8,633 )
(13,011 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
$
17,982
$
(1,351 )
(14,260 )
(15,611 )
2,371
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CELADON GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands except par value)
(unaudited)
December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents
$
Trade receivables, net of allowance for doubtful accounts of $1,716 and $1,588 at December 31,
2016 and June 30, 2016, respectively
Prepaid expenses and other current assets
Tires in service
Leased revenue equipment held for sale
Revenue equipment held for sale
Income tax receivable
Total current assets
Property and equipment, net of accumulated depreciation and amortization of $161,537 and $142,423 at
December 31, 2016 and June 30, 2016, respectively
Leased Assets, net of accumulated depreciation and amortization of $0 and $9,717 at December 31, 2016
and June 30, 2016, respectively
Tires in service
Goodwill
Investment in unconsolidated companies
Investment in joint venture
Other assets
Total assets
$
6,138
June 30,
2016
$
9,077
133,784
50,305
4,201
----201
194,629
134,572
38,498
3,175
24,937
44,876
473
255,608
610,777
636,733
--4,167
62,451
--100,000
9,698
981,722
99,300
3,603
62,451
2,253
--43,342
1,103,290
$
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
Accrued salaries and benefits
Accrued insurance and claims
Accrued fuel expense
Accrued purchased transportation
Leasing servicing liabilities
Other accrued expenses
Current maturities of capital lease obligations
Total current liabilities
Long-term debt, net of current maturities
Capital lease obligations, net of current maturities
Other long term liabilities
Deferred income taxes
Stockholders' equity:
Common stock, $0.033 par value, authorized 40,000 shares; issued and outstanding 28,729 and
28,715 shares at December 31, 2016 and June 30, 2016, respectively
Treasury stock at cost; 500 shares at December 31, 2016 and June 30, 2016
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
$
22,852
14,612
21,863
6,451
17,335
11,526
33,511
84,351
212,501
114,507
181,608
--104,887
948
(3,453 )
199,896
212,573
(41,745 )
368,219
981,722
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
$
$
26,499
17,090
20,727
8,258
22,046
15,918
29,560
51,397
191,495
152,032
247,383
22,227
109,138
948
(3,453 )
198,576
218,056
(33,112 )
381,015
1,103,290
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CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six months ended
December 31,
2016
2015
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Gain on sale of equipment
Earnings from unconsolidated entity
Distributions received on earnings from unconsolidated entity
Deferred income taxes
Provision for doubtful accounts
Stock based compensation
Changes in operating assets and liabilities:
Trade receivables
Income tax receivable and payable
Tires in service
Prepaid expenses and other current assets
Other assets
Leased revenue equipment held for sale
Accounts payable and accrued expenses
Net cash provided by operating activities
$
(4,378 )
$
17,982
36,313
(1,768 )
(1,803 )
2,588
(3,981 )
323
1,321
40,929
(18,721 )
----13,715
441
1,458
(37 )
365
(1,614 )
(15,622 )
33,693
16,915
(3,840 )
58,475
(635 )
2,229
(1,373 )
(10,238 )
(6,744 )
(11,948 )
(4,201 )
22,894
Cash flows from investing activities:
Purchase of property and equipment
Proceeds on sale of property and equipment
Investment in joint venture
Proceeds from unconsolidated entity
Purchase of businesses, net of cash acquired
Net cash provided by (used in) investing activities
(43,111 )
75,624
(35,300 )
2,000
--(787 )
(67,093 )
107,871
----(17,733 )
23,045
Cash flows from financing activities:
Proceeds from issuance of stock
Proceeds from borrowings on long-term debt
Payments on long-term debt
Proceeds from borrowings on other long-term liabilities
Payments on other long-term liabilities
Dividends paid
Principal payments under capital lease obligations
Net cash used in financing activities
Effect of exchange rates on cash and cash equivalents
Increase/Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
-266,400
(303,926 )
15,039
(4,025 )
(1,105 )
(32,822 )
(60,439 )
(188 )
(2,939 )
9,077
6,138
169
499,970
(506,867 )
----(1,098 )
(56,299 )
(64,125 )
1,215
(16,971 )
24,699
7,728
$
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
Lease obligation incurred in the purchase of equipment
Conversion of capital leases to operating leases
Contribution of tractors and trailers net of deferred
$
$
$
8,074
132
----63,600
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
$
$
$
$
$
6,910
118
90,406
61,248
---
Table of Contents
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Unaudited)
1.
Basis of Presentation
References in this Report on Form 10-Q to “we,” “us,” “our,” “Celadon,” the “Company” or similar terms refer to Celadon Group,
Inc. and its consolidated subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements of Celadon Group, Inc. and its subsidiaries have been
prepared in accordance with accounting principles generally accepted in the United States of America and Regulation S-X, instructions to Form
10-Q, and other relevant rules and regulations of the Securities and Exchange Commission (the “SEC”), as applicable to the preparation and
presentation of interim financial information. Certain information and footnote disclosures have been omitted or condensed pursuant to such
rules and regulations. We believe all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have
been included. Results of operations in interim periods are not necessarily indicative of results for a full year. These condensed consolidated
unaudited financial statements and notes thereto should be read in conjunction with our consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016.
The preparation of the financial statements in conformity with United States generally accepted accounting principles (“GAAP”)
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2.
Earnings (Loss) Per Share
A reconciliation of the basic and diluted earnings per share is as follows (in thousands, except per share amounts):
Three months ended
December 31,
2016
2015
Weighted average common shares outstanding – basic
Dilutive effect of stock options and unvested restricted stock units
Weighted average common shares outstanding – diluted
Net income (loss)
Earnings (loss) per common share:
Basic
Diluted
27,639
--27,639
Six months ended
December 31,
2016
2015
27,480
460
27,940
27,627
--27,627
27,467
486
27,953
$
(1,525 )
$
6,615
$
(4,378 )
$
17,982
$
$
(0.06 )
(0.06 )
$
$
0.24
0.24
$
$
(0.16 )
(0.16 )
$
$
0.65
0.64
There were 854,974 shares that were considered anti-dilutive for the three and six month periods ended December 31, 2016. There
were zero shares that were considered anti-dilutive for the three and six month periods ended December 31, 2015.
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Unaudited)
3.
Stock Based Compensation
The following table summarizes the components of our stock based compensation program expense (in thousands):
Three months ended
December 31,
2016
2015
Stock compensation expense for options, net of forfeitures
Stock compensation expense for restricted stock, net of forfeitures
Total stock compensation expense
$
$
0
640
640
Six months ended
December 31,
2016
2015
$
0
715
715
$
$
$
0
1,320
1,320
$
$
0
1,462
1,462
As of December 31, 2016, we had no unrecognized compensation cost related to unvested options granted under our 2006 Omnibus
Incentive Plan, as amended (the "2006 Plan").
A summary of the award activity of our stock option plans as of December 31, 2016, and changes during the six-month period then
ended is presented below:
Options
Outstanding at July 1, 2016
Granted
Vested and Issued
Forfeited or expired
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Weighted-Average
Exercise
Price per Share
Option
Totals
275,169
------275,169
275,169
$
9.30
------9.30
9.30
$
$
As of December 31, 2016, w e had approximately $4.8 million of unrecognized compensation expense related to restricted stock
awards, which is anticipated to be recognized over a weighted-average period of 2.6 years and a total period of 3.1 years. A summary of the
restricted stock award activity under the 2006 Plan as of December 31, 2016, and changes during the six-month period then ended is presented
below:
Number of
Restricted
Stock Awards
Unvested at July 1, 2016
Granted
Vested and Issued
Forfeited
Unvested at December 31, 2016
601,794
23,780
(35,481 )
(10,288 )
579,805
Weighted-Average
Grant Date Fair Value
$
$
$
$
$
11.92
9.39
12.82
8.17
11.83
The fair value of each restricted stock award is based on the closing market price on the date of grant. During fiscal 2016, the
Company gave certain 2014 and 2015 Restricted Stock Grant (“RSG”) grantees the opportunity to enter into an alternative fixed cash
compensation arrangement whereby the grantee would forfeit all rights to unvested RSG awards in exchange for a guaranteed quarterly
payment for the remainder of the underlying RSG term. This alternative arrangement is subject to continued service to the Company or one of
its subsidiaries. These fixed payments will be accrued quarterly through January 2019. Unearned compensation was not affected by this
arrangement and forfeitures include 72,327 shares related to this arrangement. The Company offered this alternative arrangement to mitigate
the volatility to earnings from stock price variance on the RSGs.
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4.
Segment Information and Significant Customers
We have three reportable segments comprised of an asset-based segment, an asset-light based segment, and an equipment leasing and
services segment. Our asset-based segment includes our asset-based dry van carrier and rail services, which are geographically diversified but
have similar economic and other relevant characteristics, as they all provide truckload carrier services of general commodities to a similar class
of customers. Our asset-light based segment consists of our warehousing, brokerage, and less-than-truckload ("LTL") operations. Our
equipment leasing and services segment consists of tractor and trailer sales and leasing. This segment also includes revenues from insurance,
maintenance, and other ancillary services that we provide for independent contractors. After the closing of our joint venture in December 2016,
we expect ancillary services to be the primary focus of this segment. We have determined that these segments qualify as reportable segments
under ASC 280-10, Segment Reporting . Information regarding our reportable segments is summarized below (in thousands):
Operating Revenue
Three Months Ended
Six Months Ended
December 31,
December 31,
2016
2015
2016
2015
Asset-based
Asset-light based
Equipment leasing and services
Total
$ 218,617
30,954
16,154
$ 265,725
$ 236,324
32,943
6,132
$ 275,399
$ 441,859
62,608
26,298
$ 530,765
$ 467,087
63,539
10,894
$ 541,520
Operating Income (Loss)
Three Months Ended
Six Months Ended
December 31,
December 31,
2016
2015
2016
2015
Asset-based
Asset-light based
Equipment leasing and services
Total
$
$
(6,790 )
1,876
3,180
(1,734 )
$
$
11,471
3,280
(672 )
14,079
$
$
(8,799 )
3,890
1,865
(3,044 )
$
$
18,953
7,111
9,188
35,252
Information as to our operating revenue by geographic area is summarized below (in thousands). We allocate operating revenue based
on the country of origin of the tractor hauling the freight:
Operating Revenue
Three Months Ended
Six Months Ended
December 31,
December 31,
2016
2015
2016
2015
United States
Canada
Mexico
Consolidated
$ 234,394
20,697
10,634
$ 265,725
$ 241,843
21,193
12,363
$ 275,399
$ 468,218
41,400
21,147
$ 530,765
$ 474,552
43,138
23,830
$ 541,520
No customer accounted for more than 10% of the Company's total revenue during the three and six months ended December 31, 2016
or December 31, 2015.
5.
Income Taxes
During the three months ended December 31, 2016 and 2015, our effective tax rates were 46.6% and 35.8%, respectively. During the
six months ended December 31, 2016 and 2015, our effective tax rates were 40.8% and 36.3%, respectively. In determining our quarterly
provision for income taxes, we use an estimated annual effective tax rate, which is based on our expected annual income, statutory tax rates,
nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits. The change in the proportion of income
from domestic and foreign sources affects our effective tax rate. Income tax expense also varies from the amount computed by applying the
statutory federal tax rate to income before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for
permanent differences, the most significant of which is the effect of the per diem pay structure for drivers. Under this pay structure, drivers
who meet the requirements and elect to receive per diem pay are generally required to receive non-taxable per diem pay in lieu of a portion of
their taxable wages. This per diem program increases our drivers’ net pay per mile, after taxes, while decreasing gross pay, before taxes. As a
result, salaries, wages, and employee benefits are slightly lower, and our effective income tax rate is higher than the statutory rate. Generally,
as pre-tax income increases, the impact of the driver per diem program on our effective tax rate decreases because aggregate per diem pay
becomes smaller in relation to pre-tax income. Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future
periods based on fluctuations in earnings and in the number of drivers who elect to be paid under this pay structure.
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We follow ASC Topic 740-10-25 in accounting for uncertainty in income taxes ("Topic 740"). Topic 740 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. We account for any uncertainty in income taxes by determining whether it is more likely than not that a tax position taken or
expected to be taken in a tax return will be sustained upon examination by the appropriate taxing authority based on the technical merits of the
position. In that regard, we have analyzed filing positions in our federal and applicable state tax returns as well as in all open tax years. The
only periods subject to examination for our federal returns are the 2012 through 2014 tax years. We believe that our income tax filing
positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our
consolidated financial position, results of operations, or cash flows. As of December 31, 2016, we recorded a $0.5 million liability for
unrecognized tax benefits, a portion of which represents penalties and interest.
6.
Commitments and Contingencies
The Company is party to certain lawsuits in the ordinary course of business. We are not currently party to any proceedings which we
believe will have a material adverse effect on our consolidated financial position or operations. A Company subsidiary was named as the
defendant in Wilmoth et al. v. Celadon Trucking Services, Inc., a class action proceeding. A summary judgment was granted in favor of the
plaintiffs and upheld by the Indiana Court of Appeals in February 2017. We plan on appealing this judgment to the Indiana Supreme Court. We
believe that we would be successful if the Indiana Supreme Court hears the appeal. However, we believe there is only a modest possibility that
the court will hear the appeal. Accordingly, we have determined that it is probable that the summary judgment in favor of the plaintiffs will
stand.
We had also been named as the defendant in Day et al. v. Celadon Trucking Services, Inc., a second class action proceeding. A
judgment was granted in favor of the plaintiffs. We appealed this judgment, but the judgment was subsequently upheld. The estimated damages
of $2.4 million were fully reserved in the June 30, 2016 fiscal quarter, and are still accrued for in other accrued expenses as of December 31,
2016. Subsequent to the quarter ended December 31, 2016, we have made payment on this judgement.
We have planned commitments to add $7.4 million of tractor operating leases over the next twelve months as of December 31,
2016. Generally, our purchase orders do not become firm commitment orders for which we are irrevocably obligated until shortly before
purchase. We may also choose to adjust the timing of our purchases based on performance of existing equipment throughout the year. Our
plans to purchase equipment are reevaluated on a quarter-by-quarter basis. As of December 31, 2016, the Company had outstanding planned
purchase commitments of approximately $13 million for facilities and land. Factors such as costs and opportunities for future terminal
expansions may change the amount of such expenditures.
Standby letters of credit, not reflected in the accompanying condensed consolidated financial statements, aggregated approximately
$5.5 million at December 31, 2016. In addition, at December 31, 2016, 500,000 treasury shares were held in a trust as collateral for
self-insurance reserves.
7.
Lease Obligations and
Long-Term Debt
Lease Obligations
We lease certain revenue, service equipment, and real estate locations under long-term lease agreements, payable in monthly
installments.
Equipment obtained under capital leases is reflected on our condensed consolidated balance sheet as owned and the related leases bear
interest rates ranging from 1.6% to 3.6% per annum maturing at various dates through 2022.
Assets held under operating leases are not recorded on our condensed consolidated balance sheet. We lease revenue, service
equipment and real estate locations under non-cancellable operating leases expiring at various dates through 2023.
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Future minimum lease payments relating to capital leases and operating leases as of December 31, 2016 (in thousands):
2017
2018
2019
2020
2021
Thereafter
Total minimum lease payments
Less amounts representing interest
Present value of minimum lease payments
Less current maturities
Non-current portion
Capital
Leases
90,171
96,411
13,164
12,853
9,273
61,110
$ 282,982
17,023
265,959
84,351
$ 181,608
Operating
Leases
29,696
19,551
14,025
11,471
7,386
9,306
$
91,435
During the quarter ended December 31, 2016, we completed a sale-leaseback of several terminals which reduced our property and
equipment $11.1 million, net of accumulated depreciation of $4.5 million, and created a deferred gain of $0.5 million. The purpose of the
sale-leaseback was to give us flexibility at the end of each lease term. The base lease terms range from three to five years and our future
minimum lease payments of $4.5 million are included in the table above.
Long-Term Debt
We had long-term debt, excluding capital leases, of $114.5 million at December 31, 2016, of which $113.9 million relates to our credit
facility.
On December 30, 2016, the Company entered into an amendment with the Agent, Wells Fargo Bank, N.A., and Citizens Bank, N.A.,
both as lenders, which amends that certain Amended and Restated Credit Agreement, dated December 12, 2014, by and among the Company,
the Agent, and the other lenders party thereto (the “Credit Agreement”). The Amendment consented to the Transactions as described in Note
12 and reduced the Aggregate Commitments under the Credit Agreement by $50.0 million on a pro rata basis among the lenders from $300.0
million to $250.0 million.
8.
Fair Value Measurements
ASC 820-10 Fair Value Measurements and Disclosure defines fair value, establishes a framework for measuring fair value under
GAAP, and expands disclosures about fair value measurements. This standard establishes a three-level hierarchy for fair value measurements
based upon the significant inputs used to determine fair value. Observable inputs are those which are obtained from market participants
external to us, while unobservable inputs are generally developed internally, utilizing management’s estimates assumptions, and specific
knowledge of the nature of the assets or liabilities and related markets. The three levels are defined as follows:
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the
measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
Level 2 – Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or
liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data
correlation or other means (market corroborated inputs).
Level 3 – Unobservable inputs, only used to the extent that observable inputs are not available, reflect our assumptions about the pricing of an
asset or liability.
In accordance with the fair value hierarchy described above, the following table shows the fair value of our financial assets and
liabilities that are required to be measured at fair value as of December 31, 2016 and June 30, 2016 (in thousands).
Balance
at
Balance
at
Level 1
Balance
Balance
at
at
Level 2
Balance
Balance
at
at
Level 3
Balance
Balance
at
at
Fuel derivatives
December
31,
2016
464
June
30,
2016
(95 )
December
31,
2016
---
June
30,
2016
---
December
31,
2016
464
June
30,
2016
(95 )
December
31,
2016
---
June
30,
2016
---
Our other financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, long-term debt,
and capital lease obligations. At December 31, 2016 the fair value of these instruments were approximated by their carrying values.
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9.
Fuel Derivatives
In our day-to-day business activities, we are exposed to certain market risks, including the effects of changes in fuel prices. We review
ways to reduce the potentially adverse effects that the volatility of fuel markets may have on operating results. In an effort to reduce the
variability of the ultimate cash flows associated with fluctuations in diesel fuel prices, we may enter into futures contracts. These instruments
will be Gulf Coast Diesel futures contracts as the related index, New York Mercantile Exchange (“NYMEX”), generally exhibits high
correlation with the changes in the dollars of the forecasted purchase of diesel fuel. We do not engage in speculative transactions, nor do we
hold or issue financial instruments for trading purposes.
We have entered into futures contracts relating to 1,134,000 total gallons of diesel fuel, or an average of 162,000 gallons per month for
January 2017 through July 2017, which is approximately 4.8% of our monthly projected fuel requirements through July 2017. Under these
contracts, we pay a fixed rate per gallon of Gulf Coast Diesel and receive the monthly average price of Gulf Coast Diesel per the NYMEX.
We perform both a prospective and retrospective assessment of the effectiveness of our hedge contracts at inception and quarterly. If
our analysis shows that the derivatives are not highly effective as hedges, we will discontinue hedge accounting for the period and
prospectively recognize changes in the fair value of the derivative being recognized through earnings. As a result of our effectiveness
assessment at inception and at December 31, 2016, we believe our hedge contracts have been and will continue to be highly effective in
offsetting changes in cash flows attributable to the hedged risk. Accordingly, we have designated the respective hedges as cash flow hedges.
We recognize all derivative instruments at fair value on our condensed consolidated balance sheets in other assets or other accrued
expenses. Our derivative instruments are designated as cash flow hedges, thus the effective portion of the gain or loss on the derivative is
reported as a component of accumulated other comprehensive income and will be reclassified into earnings in the same period during which the
hedged transactions affect earnings. The effective portion of the derivative represents the change in fair value of the hedge that offsets the
change in fair value of the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair
value of the hedged item, the ineffective portion of the hedge is immediately recognized in other income or expense on our condensed
consolidated statements of income.
The amount recorded in accumulated other comprehensive income as of December 31, 2016 is $0.5 million of gain. The accumulated
other comprehensive income will fluctuate with changes in fuel prices. Amounts ultimately recognized in the condensed consolidated
statements of income as fuel expense, due to the actual diesel fuel purchases, will depend on the fair value as of the date of settlement.
Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties with which
we have these agreements. Our credit exposure related to these financial instruments is represented by the fair value of contracts reported as
assets. To evaluate credit risk, we review each counterparty's audited financial statements and credit ratings and obtain references. Any credit
valuation adjustments deemed necessary would be reflected in the fair value of the instrument. As of December 31, 2016, we had not made
any such adjustments.
10.
Dividend
On October 25, 2016, we declared a cash dividend of $0.02 per share of common stock. The dividend was payable to shareholders of
record on January 6, 2017, and was paid on January 20, 2017. Future payment of cash dividends, and the amount of any such dividends, will
depend on our financial condition, results of operations, cash requirements, tax treatment, restrictions under our primary credit agreement, and
certain corporate law requirements, as well as other factors deemed relevant by our Board of Directors.
11.
Goodwill and Other Intangible Assets
The acquired intangible assets, included in the condensed consolidated balance sheet within other assets, relate to customer relations
acquired through acquisition in fiscal 2015. There have been no additions to intangible assets in fiscal 2017. All previously acquired
intangibles relate to our asset-based business. The intangible assets are being amortized on a straight-line basis through 2041.
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The following table summarizes intangible assets, included as a component of other assets in the accompanying condensed
consolidated financial statements (in thousands):
June 30, 2016
Gross carrying amount
Accumulated amortization
$
8,096
1,210
6,886
$
Intangible assets
Current year
changes
--$
304
$
304
December 31,
2016
$
8,096
1,514
$
6,582
The following table summarizes goodwill (in thousands):
June 30, 2016
Asset-based
Asset-light based
Total Goodwill
12.
$
$
$
61,083
1,368
62,451
Goodwill
Current year
changes
-------
December 31,
2016
$
61,083
$
1,368
$
62,451
Non-Controlling Investment
In December 2016, the Company, Quality Companies LLC, a wholly-owned subsidiary of the Company (“Quality”), Quality
Equipment Leasing, LLC, a wholly-owned subsidiary of the Company (“Leasing”), 19th Capital Group, LLC, a non-controlling investment of
the Company before and after the transactions described below (“19th Capital”), Element Transportation LLC (“Element”), and certain other
parties entered into a series of simultaneous agreements and related transactions (collectively, the “Transactions”), pursuant to which
substantially all tractors under management by Quality and owned by Element, 19th Capital, Quality, and Leasing have been combined into
19th Capital as a joint venture primarily between the Company and Element. After the Transactions, the Company and Element each own a
non-controlling approximately 49.99% interest in 19th Capital, which at December 31, 2016, held the rights to over 10,000 tractors for use in
leasing operations. The Company recorded $100.0 million as a minority investment and will record operating results of the joint venture using
the equity method of accounting. The Transactions included the following:

Redemption of Existing Members : 19 th Capital redeemed all of its issued and outstanding membership interests, including
those owned by the Company, for $15.7 million in cash. The Company's proceeds from the redemption were approximately
$4.6 million in cash. The proceeds received relate primarily to the original $2.0 million that had been invested by the
Company in 2015 and its proportionate share of undistributed earnings from inception. The Company recorded a net gain on
the redemption of approximately $0.3 million, reflecting the excess of redemption proceeds over the initial investment plus
equity income profits previously recognized. In addition to the redemption amount, the Company is entitled to receive
approximately $2.5 million in restricted cash when the restrictions lapse. The Company has evaluated this receivable under
ASC 450 – Contingencies and has not recorded a receivable within our financial statements at this time. If and when
collected, this amount would be recorded as income.

Deferred Sale with 19 th Capital : A s part of the Transactions the Company received proceeds of $6.7 million in payment of
deferred purchase price from a sale of equipment to 19 th Capital in the June 30, 2016 quarter. This collection triggered sales
accounting treatment for leased assets where recognition of the sale was deferred and leased assets remained on the Company’s
balance sheet. As a result, the Company removed $34.6 million of “Leased assets” and $26.0 million of liabilities recorded
within “Lease servicing liabilities” and “Other long term liabilities”. The Company did not recognize any gain or loss with
this transaction.

Sale to Element : The Company sold tractors and trailers and assigned the related leases to Element for approximately $50.0
million. There was no material gain or loss on the disposition of this equipment.
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
Receipt of Lease Servicing Advance (“Perfect Pay”) : The Company received $31.8 million in cash related to a receivable from
Element related to the Company’s Perfect Pay obligations under the prior service agreements with Element.

Contribution by the Company : The Company (i) contributed $35.3 million in cash to 19th Capital, (ii) conveyed to 19 th
Capital equipment (primarily tractors) categorized as equipment held for sale, leasing assets held for sale, or leasing assets
used, with a net book value of $56.0 million, (iii) received credit for $1.1 million of amounts owed to the Company by 19 th
Capital and (iv) contributed $7.6 million of the remaining consideration due from 19 th Capital related to a September 30, 2016
deferred sale transaction with 19 th Capital that was previously recorded as a financing transaction under GAAP . The
contribution of the $7.6 million resulted in the removal of “Leased assets” of $21.9 million and $14.3 million of liabilities
recorded within “Lease servicing liabilities” and “Other long term liabilities”. In consideration of the foregoing, 19th Capital
(i) issued to the Company membership units of 19th Capital, which, after the consummation of the Transactions, constituted
approximately 49.99% of the issued and outstanding units of 19th Capital.

Summary of Transactions :
thousands):
Contribution
56,000
7,600
35,300
1,100
$
100,000
$
The following table summarizes the Company’s total contribution to 19 th Capital at closing (in
Description
Equipment contributed to 19 th Capital at closing
Contribution of deferred sale receivable
Cash contributed to 19 th Capital
Receivable due from 19 th Capital
Total contribution to 19 th Capital at closing
Under our agreements with 19 th Capital, Quality will provide administrative and servicing support for 19th Capital’s lease and
financing portfolio, certain driver recruiting, lease payment remittance, maintenance, and insurance services. The Company receives a
monthly fee for each leased asset. While the transaction closed on December 30, 2016, the servicing agreements became effective December
1. The Company recorded lease servicing revenue of $1.0 million and maintenance revenue of $3.4 million during December 2016. Both
amounts are recorded as receivables on our condensed consolidated balance sheet. We have collected $11.1 million of lease payments as of
December 31, 2016 that we owe to 19th Capital which is recorded on our consolidated balance sheet as an accrual. Additionally, we have $5.9
million of receivables relating to previous maintenance and service agreements that were assumed by 19 th Capital.
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13.
Equipment Leasing and Services Segment
We have routinely entered into leases as lessors with independent contractors which we classify and record as operating leases. From
time to time we have assigned these leases and sold the underlying assets to third party financing companies. In addition, we have sold
unleased assets in the used markets. Total net proceeds and net gain as a result of these transactions during the three months ended December
31, 2016 were $82.0 million and $0.5 million, respectively, compared to $121.3 million and $7.2 million, respectively, during the three months
ended December 31, 2015. Total net proceeds and net gain as a result of these transactions during the six months ended December 31, 2016
were $134.6 million and $1.8 million, respectively, compared to $273.9 million and $21.9 million, respectively, during the six months ended
December 31, 2015. The sales figures noted for the three and six months ended December 31, 2016, include the assets sold to Element in
connection with the Transactions, but do not include the assets that were contributed to 19 th Capital. The $3.2 million of net operating income
reported under the equipment leasing and services segment for the three months ended December 31, 2016 includes $0.5 million in gains
recorded on a net basis for such period, less operating expenses associated with this segment. The $1.7 million of net operating income reported
under the equipment leasing and services segment for the six months ended December 31, 2016 includes $1.8 million in gains recorded on a net
basis for such period, less operating expenses associated with this segment.
As of December 31, 2016, we had completed a joint venture transaction involving 19 th Capital and Element, our major third party
financing providers, as disclosed in note 12. As part of this arrangement and the related agreements, assets that were previously recorded on our
balance sheet for the equipment leasing and services segment were sold or contributed to the entity in which we hold a non-controlling
investment, 19 th Capital. This segment will continue to provide administrative and servicing support for all assets owned by 19 th Capital and
will receive monthly servicing revenue. The new service agreement does not contain any payment remitting, “Perfect Pay” or similar obligation
on the part of the Company or its subsidiaries. We have no plans for our equipment leasing and services segment to engage in any significant
equipment leasing and sales at this time, other than equipment previously used in our trucking fleet.
14.
Recent Accounting Pronouncements
In August 2015, the Financial Accounting Standards Board ("FASB") issued ASU No. 2015-14 deferring the effective date of ASU
No. 2014-09, "Revenue from Contracts with Customers" (ASC Topic 606): ("ASU 2014-09"), which requires the recognition of revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. This guidance will affect any organization that either enters into contracts with customers to
transfer goods or services. This ASU is effective for fiscal years, and interim periods within those years, beginning on or after December 15,
2017, and early adoption is permitted. Our intention is to adopt this ASU on its effective date, which is our fiscal 2019 period. An entity can
apply the new revenue standard retrospectively to each prior reporting period presented or with the cumulative effect of initially applying the
standard recognized at the date of initial application. The Company is still evaluating which adoption method to apply for this ASU. The
Company is still in the early stages of reviewing and determining the impact to our consolidated financial statements. The Company has not
completed its analysis of the anticipated impact on our consolidated financial statements. The impact may potentially be material, but has not
yet been quantified.
In November 2015, the FASB issued ASU No. 2015-17 "Income Taxes"(ASC Topic 740), to simplify the presentation of deferred
income taxes. The guidance in this update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of
financial position. This guidance will affect any entity that presents a classified statement of financial position. This ASU is effective for fiscal
years, and interim periods within those years, beginning on or after December 15, 2016, and early adoption is permitted. The Company has
early adopted this update. Adoption of this update impacted our consolidated balance sheet by reclassifying current deferred tax assets of
approximately $5 million and $1 million to offset our long-term deferred tax liabilities for the June 30, 2016 and December 31, 2016 balances,
respectively.
In February 2016, the FASB issued ASU No. 2016-02 "Leases"(ASC Topic 842), to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
This guidance will affect any entity that enters into a lease. This ASU is effective for fiscal years, and interim periods within those years,
beginning on or after December 15, 2018, and early adoption is permitted. Our intention is to adopt this ASU on its effective date, which is our
fiscal 2020 period. The Company will be required to use the modified retrospective transition method for all existing leases. Accordingly, the
Company will apply the new accounting model for the earliest year presented in the consolidated financial statements. The Company is
currently in the early stages of the process of determining the approach to adopting the standard, as well as the anticipated impact to the
Company’s consolidated financial statements. The impact to the Company’s consolidated financial statements is expected to be material, but
has not yet been quantified and will depend on our mix of debt, capital leases, and operating leases to finance equipment and other capital
expenditures. The future implementation of the new ASU will likely not have an impact on our compliance with our current financial covenants
under our credit facility.
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In March 2016, the FASB issued ASU No. 2016-09 "Compensation - Stock Compensation"(ASC Topic 718), to simplify various
aspects of accounting for stock-based compensation, including income tax consequences, classification of awards as equity or liability, as well
as classification of activities within the statement of cash flows. This guidance will affect any entity that issues share-based payment awards to
their employees. This ASU is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016, and
early adoption will be permitted. The Company is currently evaluating the anticipated adoption date of this ASU. The adoption method will
vary based on the transaction type. The Company is still in the evaluation process of determining the impact of the implementation of this ASU
to our consolidated financial statements. The Company also cannot predict the impact on our consolidated financial statements in future
reporting periods following adoption of this ASU as this will be dependent on various factors, including the number of shares issued and
changes in the price of our stock between grant date and settlement date.
15.
Change in depreciable lives of property and equipment
In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an ongoing basis. This review
indicated that the actual lives of certain tractors and trailers were longer than the estimated useful lives used for depreciation purposes in the
Company’s financial statements. As a result, effective October 1, 2015, the Company changed its estimates of the useful lives and salvage
value of certain tractors and trailers to better reflect the estimated periods during which these assets will remain in service. The estimated useful
lives of the tractors and trailers that previously were 3 years for tractors and 7 years for trailers were increased to 4 years for tractors and 10
years for trailers. The effect of this change in estimate reduced depreciation expense for the three months ended December 31, 2016 by $0.6
million, increased net income by $0.4 million, and increased basic and diluted earnings per share by $0.01. The effect of this change in estimate
reduced depreciation expense for the three months ended December 31, 2015 by $2.9 million, increased net income by $1.7 million, and
increased basic and diluted earnings per share by $0.06. This change for the six months ended December 31, 2016, reduced depreciation by
$2.3 million, increased net income by $1.4 million, and increased basic and diluted earnings per share by $0.05. As the change went into effect
on October 1, 2015, the impact for the six months ended December 31, 2015 would be the same as the impact for the three months ended
December 31, 2015.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Disclosure Regarding Forward-Looking Statements
Except for certain historical information contained herein, this report contains certain statements that may be considered
"forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Section 27A of the Securities Act of 1933, as amended, and such statements are subject to the safe harbor created by those sections and the
Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical or current fact, are
statements that could be deemed forward-looking statements, including without limitation: any projections of revenues, earnings, cash flows,
dividends, capital expenditures, or other financial items; any statement of plans, strategies, and objectives of management for future
operations; any statements concerning proposed acquisition plans, new services, or developments; any statements regarding future economic
conditions or performance; and any statements of belief and any statement of assumptions underlying any of the foregoing. In this Form 10-Q,
statements regarding our ability to reduce future fuel consumption and increase fuel efficiency, future prices of fuel, future use and
effectiveness of fuel hedging contracts, future dispositions of equipment, future freight rates, future industry capacity, future purchased
transportation expenses, future costs of maintenance and operations, future driver market conditions, future driver recruiting and retention
costs, future costs of salaries, wages, and benefits, future depreciation and gains on sale of equipment, future income tax rates, credits, or
adjustments, future insurance and claims expenses, our ability to grow our independent contractor fleet, the potential outcome and materiality
of pending litigation, expected capital expenditures (including investments in revenue equipment), the likelihood and impact of future
acquisitions, our future ability to fund operating expenses, future used equipment values (including the value of equipment subject to operating
leases relative to our payment obligations under such operating leases), future impact of foreign currency exchange rates, future dividends,
future revenue and growth, future sources of liquidity, potential liquidity constraints, the impact of recent accounting pronouncements on
future periods, future accounting methods used to record investments, and future lease portfolio servicing arrangements, among others, are
forward-looking statements. Words such as "believe," "may," "could," "will," "expects," "hopes," "estimates," "projects," "intends,"
"anticipates," and "likely," and variations of these words, or similar expressions, terms, or phrases, are intended to identify such
forward-looking statements. Forward-looking statements are inherently subject to risks, assumptions, and uncertainties, some of which cannot
be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those
discussed in the section entitled "Item 1A. Risk Factors," set forth in our Form 10-K for the year ended June 30, 2016, along with any
supplements in Part II below. Readers should review and consider the factors discussed in "Item 1A. Risk Factors," set forth in our Form
10-K for the year ended June 30, 2016, along with any supplements in Part II below, in addition to various disclosures in our press releases,
stockholder reports, and other filings with the Securities and Exchange Commission.
All such forward-looking statements speak only as of the date of this Form 10-Q. You are cautioned not to place undue reliance on
such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in the events,
conditions, or circumstances on which any such statement is based.
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All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by this
cautionary statement.
References to the "Company," "we," "us," "our," and words of similar import refer to Celadon Group, Inc. and its consolidated
subsidiaries.
Business Overview
We are one of North America's twenty largest truckload carriers as measured by revenue, generating approximately $1.1 billion in
operating revenue during our fiscal year ended June 30, 2016. We provide asset-based dry-van truckload carrier and rail services, asset-based
temperature-controlled truckload carrier and rail services, asset-based flatbed truckload carrier services, and asset-light-based services
including brokerage services, LTL, temperature-controlled and warehousing services. Through our asset-based and asset-light-based services,
we are able to transport or arrange for transportation throughout the United States, Canada, and Mexico.
We generated approximately 34% of our revenue in fiscal 2016 from services provided internationally, and we believe the size of our
international operations, including the frequency of our annual border crossings, make us one of the largest providers of international truckload
movements in North America. We believe that our strategically located terminals and experience with the unique regulatory and logistical
requirements of each North American country provide a competitive advantage in the international trucking marketplace. We believe our
international operations offer an attractive business niche. We have increased our other business offerings in the recent past including
brokerage services, LTL, temperature-controlled, flatbed and dedicated services. We expect to continue to grow these offerings with our
customers in the future.
Recent Results of Operations
Our results of operations for the quarter ended December 31, 2016, compared to the same period in 2015 are:




Total revenue decreased 3.5% to $265.7 million from $275.4 million;
Freight revenue, which excludes fuel surcharges, decreased 2.8% to $242.3 million from $249.3 million;
Net income (loss) decreased 122.7% to ($1.5) million from $6.6 million; and
Net income (loss) per diluted share decreased 125.0% to ($0.06) from $0.24.
In the quarter ended December 31, 2016, average revenue per loaded mile decreased to $1.909 from $1.917 in the quarter ended
December 31, 2015. Average revenue per tractor per week increased 2.6%, which resulted primarily from a 10.4% decrease in average seated
tractor count offset by a lackluster freight environment.
Our average seated line haul tractors decreased to 4,764 tractors in the quarter ended December 31, 2016, compared to 5,314 tractors
for the same quarter a year ago. The net change of 550 units is comprised of a 258-unit decrease in company tractors and a 292-unit decrease in
independent contractor tractors. The number of tractors operated by independent contractors represented 33.2% of our total fleet as of
December 31, 2016.
At December 31, 2016, our total balance sheet debt, including our line of credit and capital leases, was $380.5 million and our total
stockholders' equity was $368.2 million, for a total debt to capitalization ratio of 50.8%. At December 31, 2016, we had $130.6 million of
available borrowing capacity under our revolving credit facility.
As previously announced, in December 2016, we and Element entered into a joint venture, 19 th Capital, which combined leasing
portfolios of leasing assets managed by our Quality subsidiaries, into one entity. As a result of the transaction, we sold or contributed assets
previously held on the balance sheet in revenue equipment held for sale, leased assets held for sale, and leased assets. Our investment into 19
th Capital was $100 million, which included $35.3 million in cash, $63.6 million in net equipment assets, and a credit of $1.1 million for
undistributed cash in the previous minority owned 19 th Capital. Celadon also received net cash of $57.8 million at closing. Shortly before
closing of the joint venture, the previous ownership structure of 19 th Capital was redeemed.
Going forward, we intend for our Quality subsidiaries to service the leasing portfolio of 19 th Capital in exchange for a monthly
servicing fee per tractor. We expect to record 49.999975% of the joint venture’s income or loss under "income (loss) from equity method
investment" on the income statement. We do not expect to have any material equipment sales and purchases related to the leasing business
going forward. However, our Quality subsidiaries will continue to dispose of equipment previously used within our trucking operation. The
trucking operation will continue to acquire assets separately for its operational needs.
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As with the first quarter of fiscal 2017, the second quarter was characterized by lackluster freight volumes, plentiful industry-wide
capacity in most markets, and significant rate pressure from customers during contractual negotiations. As we continue to face a challenging
rate environment, we remain focused on revenue improvement through four initiatives: growing our dedicated operations, creating more lane
density in core operating lanes, increasing team count to improve utilization, and increasing asset-light revenue.
Revenue and Expenses
We primarily generate revenue by transporting freight for our customers, by arranging for transportation of their freight, and through
ancillary services through our Quality division.
Generally, we are paid by the mile or by the load for our freight transportation services. We also derive revenue from fuel surcharges,
loading and unloading activities, equipment detention, other trucking related services, and warehousing services. The main factors that affect
our revenue are the revenue per mile we receive from our customers, the percentage of miles for which we are compensated, the number of
tractors operating, and the number of miles we generate with our equipment. These factors relate to, among other things, economic activity
and conditions in the United States, Canada, and Mexico, shipper inventory levels, the level of truck capacity in our markets, specific customer
demand, the percentage of team-driven tractors in our fleet, driver and independent contractor availability, and our average length of haul.
We remove fuel surcharges from revenue to obtain what we refer to as "freight revenue" when calculating operating ratios and some
of our operating data. We believe that evaluating our operations without considering the impact of fuel surcharges, which are sometimes a
volatile source of revenue, affords a more consistent basis for comparing our results of operations from period to period. Freight revenue is a
financial measure that is not in accordance with GAAP. This measure is a supplemental non-GAAP financial measure that is used by
management and external users of our financial statements, such as industry analysts, investors, and lenders. While we believe such measure is
useful for investors, it should not be used as a replacement for financial measures that are in accordance with GAAP.
The main expenses impacting our profitability are attributable to the variable costs of transporting freight for our customers. These
costs include fuel expense, driver-related expenses, such as wages, benefits, training, recruitment, and independent contractor costs, which we
record as purchased transportation. Expenses that have both fixed and variable components include maintenance and tire expense and our total
cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety,
fleet age, efficiency, and other factors. Our main fixed cost is the acquisition and financing of long-term assets, primarily revenue equipment.
We have other mostly fixed costs, such as our non-driver personnel and facilities expenses. In discussing our expenses as a percentage of
revenue, we sometimes discuss changes as a percentage of revenue before fuel surcharges, in addition to absolute dollar changes, because we
believe that evaluation of our operating performance can be done more accurately by excluding the highly variable impact of fuel surcharges on
our revenue.
The trucking industry has experienced significant increases in expenses over the past several years, in particular those relating to
equipment costs, driver compensation, insurance, and, until relatively recently, fuel. As the economy continues to grow and capacity in the
trucking industry begins to tighten, we believe that rates will continue to increase. Over the long-term, we expect the limited pool of qualified
drivers and intense competition to recruit and retain those drivers will constrain overall industry capacity, although we expect our recent efforts
related to our driving school and average fleet age will improve our driver recruiting and retention. Assuming continued economic growth
occurs in U.S. manufacturing, retail, and other high volume shipping industries, we expect to be able to raise freight rates in line with or faster
than expenses.
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Results of Operations
The following table sets forth the percentage relationship of expense items to operating and freight revenue for the periods indicated:
Three months ended
December 31,
2016
2015
Operating revenue
Six months ended
December 31,
2016
2015
100.0 %
100.0 %
100.0 %
100.0 %
29.9 %
10.3 %
32.2 %
3.5 %
8.3 %
5.2 %
6.4 %
1.0 %
1.8 %
2.3 %
%
(0.2 )
100.7 %
31.2 %
9.7 %
34.1 %
0.8 %
6.6 %
2.8 %
7.0 %
0.9 %
2.0 %
1.7 %
%
(2.0 )
94.8 %
30.6 %
10.1 %
33.1 %
3.5 %
7.8 %
4.2 %
6.8 %
0.9 %
1.7 %
2.2 %
%
(0.3 )
100.6 %
30.9 %
10.1 %
33.8 %
0.8 %
6.6 %
2.7 %
7.5 %
0.9 %
1.9 %
1.7 %
%
(3.4 )
93.5 %
Operating income (loss)
%
(0.7 )
5.2 %
%
(0.6 )
6.5 %
Other expense (income)
0.4 %
1.4 %
0.8 %
1.3 %
Operating expenses:
Salaries, wages, and employee benefits
Fuel
Purchased transportation
Revenue equipment rentals
Operations and maintenance
Insurance and claims
Depreciation and amortization
Communications and utilities
Operating taxes and licenses
General and other operating
Gain on disposition of equipment
Total operating expenses
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
%
(1.1 )
%
(0.5 )
1.3 %
%
(1.4 )
%
(0.6 )
2.5 %
%
(0.8 )
3.8 %
%
(0.6 )
Three months ended
December 31,
2016
2015
Freight revenue (1)
Operating expenses:
Salaries, wages, and employee benefits
Fuel (1)
Purchased transportation
Revenue equipment rentals
Operations and maintenance
Insurance and claims
Depreciation and amortization
Communications and utilities
Operating taxes and licenses
General and other operating
Gain on disposition of equipment
Total operating expenses
5.2 %
1.9 %
3.3 %
Six months ended
December 31,
2016
2015
100.0 %
100.0 %
100.0 %
100.0 %
32.8 %
1.6 %
35.3 %
3.8 %
9.1 %
5.7 %
7.0 %
1.1 %
2.0 %
2.5 %
%
(0.2 )
100.7 %
34.5 %
0.2 %
37.7 %
0.9 %
7.3 %
3.1 %
7.7 %
1.0 %
2.2 %
1.9 %
%
(2.2 )
94.3 %
33.5 %
1.4 %
36.4 %
3.9 %
8.5 %
4.5 %
7.5 %
1.0 %
1.9 %
2.4 %
%
(0.4 )
100.6 %
34.3 %
0.0 %
37.5 %
0.9 %
7.4 %
3.0 %
8.4 %
1.0 %
2.2 %
1.9 %
%
(3.8 )
92.8 %
Operating income (loss)
%
(0.7 )
5.7 %
%
(0.6 )
7.2 %
Other expense (income)
0.5 %
1.5 %
0.9 %
1.4 %
Income (loss) before income taxes
%
(1.2 )
%
(0.6 )
Income tax (benefit) expense
Net income (loss)
%
(0.6 )
1.5 %
%
(1.5 )
%
(0.6 )
2.7 %
%
(0.9 )
4.2 %
5.8 %
2.1 %
3.7 %
(1) Freight revenue is total revenue less fuel surcharges. In this table, fuel surcharges are eliminated from revenue and subtracted from fuel
expense. Fuel surcharges were $23.4 million and $26.1 million for the second quarter of fiscal 2017 and 2016, respectively, and $46.9
million and $54.4 million for the six months ended December 31, 2016 and 2015, respectively. Freight revenue is not a recognized
measure under GAAP and should not be considered an alternative to or superior to other measures derived in accordance with GAAP. We
believe our presentation of freight revenue and our discussion of various expenses as a percentage of freight revenue is a useful way to
evaluate our core operating performance.
19
Table of Contents
Comparison of Three Months Ended December 31, 2016 to Three Months Ended December 31, 2015
Total revenue decreased by $9.7 million, or 3.5%, to $265.7 million for the second quarter of fiscal 2017, from $275.4 million for the
second quarter of fiscal 2016. Freight revenue decreased by $7.0 million, or 2.8%, to $242.3 million for the second quarter of fiscal 2017,
from $249.3 million for the second quarter of fiscal 2016. These decreases were attributable to a decline in seated tractors, and a decrease in
loaded miles to 92.4 million for the second quarter of fiscal 2017 from 100.0 million in the second quarter of fiscal 2016. T he decrease in
loaded miles was also the result of a decrease in average seated line-haul tractors to 4,774 in the second quarter of fiscal 2017, from 5,314 in
the second quarter of fiscal 2016. Revenue per loaded mile decreased to $1.909 for the second quarter of fiscal 2017 from $1.917 for the
second quarter of fiscal 2016, primarily as a result of downward pressures in contractual and spot market rates and a higher than normal
number of loads with unpaid miles. Average m iles per seated tractor per week have increased by 57 miles in the fiscal 2017 quarter compared
to the fiscal 2016 quarter, to 1,761 from 1,704, partially as a result of the decline in our seated tractor counts. This combination of factors
resulted in a net increase in average revenue per seated tractor per week, which is our primary measure of asset productivity, to $2,847 in the
second quarter of fiscal 2017, from $2,775 for the second quarter of fiscal 2016. Going forward, our primary focus with respect to
revenue-based operating statistics is improving average revenue per seated tractor per week.
Revenue for our asset-light-based segment decreased to $31.0 million in the second quarter of fiscal 2017 from $32.9 million in the
second quarter of fiscal 2016. We expect our asset-light business to experience moderate revenue growth going forward as we continue to take
advantage of synergies created through our acquisitions and leverage specialized service capabilities of acquired businesses. In the third and
fourth quarters of fiscal 2017, we anticipate seeking to convert as many customer accounts as possible to allow brokerage capability with
respect to freight that moves outside our preferred lanes.
Revenue from our equipment leasing and services segment increased to $16.2 million in the second quarter of fiscal 2017 from $6.1
million in the second quarter of fiscal 2016. Our equipment leasing and services segment consists of tractor and trailer leasing. This segment
also includes revenues from insurance, maintenance, and other ancillary services that we provide for, or make available to, independent
contractors. This revenue line may be volatile in the near term due to our discontinuation of leasing operations and increase in maintenance and
contract revenue.
Fuel surcharge revenue decreased to $23.4 million in the second quarter of fiscal 2017 from $26.1 million for the second quarter of
fiscal 2016 due to a decrease in loaded miles from the second quarter of fiscal 2016.
Salaries, wages, and employee benefits were $79.5 million, or 29.9% of total revenue and 32.8% of freight revenue, for the second
quarter of fiscal 2017, compared to $85.9 million, or 31.2% of total revenue and 34.5% of freight revenue, for the second quarter of fiscal 2016.
These decreases were the result of a decline in driver payroll expense related to the decrease in the number of Company drivers. Decreased
administrative payroll also contributed to the overall decline in salaries, wages, and employee benefits. Although we expect the market for
drivers to remain competitive and place ongoing pressure on these types of expenses, we believe our increased focus on eliminating recruiting
redundancies and generating back office efficiencies will cause this category to remain flat as a percentage of revenue over the next several
quarters.
Fuel expenses, without reduction for fuel surcharge revenue, increased to $27.3 million, or 10.3% of total revenue, for the second
quarter of fiscal 2017, compared to $26.7 million, or 9.7% of total revenue, for the second quarter of fiscal 2016. Fuel expenses, net of fuel
surcharge revenue, increased to $3.9 million, or 1.6% of freight revenue, for the second quarter of fiscal 2017, compared to $0.6 million, or
0.2% of freight revenue, for the second quarter of fiscal 2016. These increases are attributable to an increase in the weekly on-highway diesel
prices of $0.005 per gallon, from $2.428 in the second quarter of fiscal 2016 to $2.433 in the second quarter of fiscal 2017, partially offset by a
decrease in total miles in the fiscal 2017 quarter compared to the fiscal 2016 quarter. Increased idling time has decreased the average miles per
gallon to 7.653 for the second quarter of fiscal 2017 period from 7.753 for the second quarter of fiscal 2016. We expect that our continued
efforts to reduce idling and operate more fuel-efficient tractors and aerodynamic trailers will have a positive impact on our miles per gallon
going forward.
20
Table of Contents
Revenue equipment rentals increased to $9.2 million, or 3.5% of total revenues and 3.8% of freight revenue, for the second quarter of
fiscal 2017, from $2.2 million, or 0.8% of total revenues and 0.9% of freight revenue, for the second quarter of fiscal 2016. Our rental expense
increased primarily due to additional trailer units held under operating leases. The increase included increased rental costs of approximately
$3.1 million attributable to our sale leaseback transaction on approximately 4,700 trailers in the fourth quarter of fiscal 2016. We believe that
rents related to this transaction are temporary as we seek to strategically remove a portion of these trailers from service while minimizing
operating disruption. Operating leases have become an increasingly important source of financing for our revenue equipment and certain real
estate, and we would expect this line item to remain higher than historical levels in the near term.
Purchased transportation decreased to $85.6 million, or 32.2% of total revenues and 35.3% of freight revenue, for the second quarter
of fiscal 2017, from $93.9 million, or 34.1% of total revenues and 37.7% of freight revenue, for the second quarter of fiscal 2016. These
decreases are primarily related to decreases in the total miles driven by independent contractors, partially offset by increases in LTL/brokerage
expenses. Purchased transportation will increase if we are successful in our efforts to increase our LTL/brokerage and intermodal transportation
businesses and reverse the decline in our average number of independent contractors when compared to the second quarter of fiscal 2016.
Operations and maintenance increased to $22.1 million, or 8.3% of total revenue and 9.1% of freight revenue, for the second quarter
of fiscal 2017, from $18.2 million, or 6.6% of total revenue and 7.3% of freight revenue, for the second quarter of fiscal 2016. Operations and
maintenance consist of direct operating expense, maintenance, and tire expense. These increases were primarily due to the newly signed service
agreements for Quality’s third party maintenance business and maintenance servicing for the leasing portfolio. Within our asset-based segment
we expect maintenance expenses to fluctuate with average equipment age, trade cycles, and mix of Company trucks or independent contractors.
Insurance and claims expense increased to $13.7 million, or 5.2% of total revenue and 5.7% of freight revenue, for the second quarter
of fiscal 2017, from $7.7 million, or 2.8% of total revenue and 3.1% of freight revenue, for the second quarter of fiscal 2016. Insurance
consists of premiums for liability, physical damage, cargo damage, and workers' compensation insurance, in addition to claims expense. Our
insurance program involves self-insurance at various risk retention levels. Claims in excess of these risk levels are covered by insurance in
amounts we consider to be adequate. We accrue for the uninsured portion of claims based on known claims and historical experience. We
periodically review and adjust our insurance program to maintain a balance between premium expense and the risk retention we are willing to
assume. Insurance and claims expense will vary based upon the frequency and severity of claims, the level of self-insurance, and premium
expense. During the second quarter of fiscal 2017 we accrued $4.6 million related to Wilmoth et al. v. Celadon Trucking Services, Inc., a class
action proceeding. A summary judgment was granted in favor of the plaintiffs in December 2014 and was upheld by the Indiana Court of
Appeals in February 2017.
Depreciation and amortization, consisting primarily of depreciation of revenue equipment, decreased to $17.0 million, or 6.4% of total
revenue and 7.0% of freight revenue, for the second quarter of fiscal 2017, from $19.2 million, or 7.0% of total revenue and 7.7% of freight
revenue, for the second quarter of fiscal 2016. The decrease in absolute dollars was primarily attributable to a decrease in owned tractors and
trailers as we downsized our fleet to better reflect freight demand and completed the sale-leaseback of trailers described above.
General and other operating expense increased to $6.3 million, or 2.3% of total revenue and 2.5% of freight revenue, for the second
quarter of fiscal 2017, from $4.8 million, or 1.7% of total revenue and 1.9% of freight revenue for the second quarter of fiscal 2016. General
and other operating expenses are mainly made up of computer software maintenance expenses, legal fees, and other administrative expenses.
Gain on sale of revenue equipment decreased from $5.5 million in second quarter of fiscal 2016 to $0.5 million in second quarter of
fiscal 2017. This decrease was due to decreased equipment sales to third parties and a weaker used tractor market. We expect gain (loss) on
sale with respect to revenue equipment to be relatively small for the balance of fiscal 2017. Gain (loss) on sale can vary significantly due to a
variety of factors, including availability of replacement equipment and conditions in the new and used equipment markets. Other than in
connection with equipment turnover in our trucking operations fleet, we have no plans for our equipment leasing and services segment to
acquire additional assets to lease or sell any significant additional leases and the underlying equipment at this time.
All of our other operating expenses are relatively minor in amount, and there were no significant changes in such expenses.
Accordingly, we have not provided a detailed discussion of such expenses.
21
Table of Contents
Our operating income (loss), which we believe is a useful measure of our operating performance because it is neutral with regard to
the method of revenue equipment financing that a company uses, decreased to (0.7%) of total revenue and decreased to (0.7%) of freight
revenue for second quarter of fiscal 2017, from 5.2% of total revenue and 5.7% of freight revenue for the second quarter of fiscal 2016.
Income taxes decreased to a benefit of $1.3 million, with an effective tax rate of 46.6%, for the second quarter of fiscal 2017, from an
expense of $3.7 million, with an effective tax rate of 35.8%, for the second quarter of fiscal 2016. The decrease is related primarily to the
decrease in income before income taxes. Going forward, we expect our effective tax rate will be approximately 35% to 38%. As pre-tax net
income increases, our non-deductible expenses, such as per diem expense, have a lesser impact on our effective rate. Furthermore, the
effective rate in foreign countries is lower than that in the United States. Therefore, as our percentage of income attributable to foreign income
changes, our total income tax effective rate will also change.
Comparison of Six Months Ended December 31, 2016 to Six Months Ended December 31, 2015
Total revenue decreased by $10.8 million, or 2.0%, to $530.8 million for the six months ended December 31, 2016, (“the fiscal 2017
period”), from $541.5 million for the six months ended December 31, 2015, (“the fiscal 2016 period”). Freight revenue decreased by $3.3
million, or 0.7%, to $483.8 million for the fiscal 2017 period, from $487.1 million for the fiscal 2016 period. These decreases were attributable
to a decline in loaded miles to 190.0 million for the fiscal 2017 period from 200.4 million for the fiscal 2016 period. Revenue per loaded mile
also declined to $1.885 for the fiscal 2017 period from $1.891 for the fiscal 2016 period. The decrease in loaded miles was the result of a
decrease in average seated line-haul tractors to 4,823 in the fiscal 2017 period, from 5,128 in the fiscal 2016 period. Slightly offsetting these
decreases was an increase in miles per seated truck of 2.5% versus the first six months of fiscal 2016. Going forward, our primary focus with
respect to revenue-based operating statistics is improving average revenue per seated tractor per week.
Revenue for our asset-light segment decreased to $62.6 million in the fiscal 2017 period from $63.5 million in the fiscal 2016 period
primarily based on decreases in our intermodal revenues. We expect our asset-light business to experience moderate revenue growth going
forward as we continue to take advantage of synergies created through our acquisitions and leverage specialized service capabilities of acquired
businesses. In the third and fourth quarters of fiscal 2017, we anticipate seeking to convert as many customer accounts as possible to allow
brokerage capability with respect to freight that moves outside our preferred lanes.
Revenue from our equipment leasing and services segment increased to $26.3 million in the fiscal 2017 period from $10.9 million in
the fiscal 2016 period. Our equipment leasing and services segment consists of tractor and trailer leasing. This segment also includes
revenues from insurance, maintenance, and other ancillary services that we provide for, or make available to, independent contractors. This
revenue line may be volatile in the near term due to the change in our leasing operations and increase in maintenance and contract revenue.
Fuel surcharge revenue decreased to $46.9 million for the fiscal 2017 period from $54.4 million for the fiscal 2016 period due to an
decrease in loaded miles.
Salaries, wages, and employee benefits were $162.3 million, or 30.6% of total revenue and 33.5% of freight revenue, for the fiscal
2017 period, compared to $167.4 million, or 30.9% of total revenue and 34.3% of freight revenue, for the fiscal 2016 period. These decreases
were the result of a decline in driver payroll expense related to the decrease in the number of Company drivers. Decreased administrative
payroll also contributed to the overall decline in salaries, wages, and employee benefits. Although we expect the market for drivers to remain
competitive and place ongoing pressure on these types of expenses, we believe our increased focus on eliminating recruiting redundancies and
generating back office efficiencies will cause this category to remain flat as a percentage of revenue over the next several quarters.
Fuel expenses, without reduction for fuel surcharge revenue, decreased to $53.6 million, or 10.1% of total revenue, for the fiscal 2017
period, compared to $54.4 million, or 10.1% of total revenue, for the fiscal 2016 period. Fuel expenses, net of fuel surcharge revenue,
increased to $6.7 million, or 1.4% of freight revenue, for the fiscal 2017 period, compared to $0.0 million, or 0% of freight revenue, for the
fiscal 2016 period. The decrease was mainly caused by a 5.0% decline in dispatch miles from the fiscal 2016 period. These decreases were
also caused by a decrease in the weekly on-highway diesel prices of $0.125 per gallon, from $2.522 to $2.397 in the fiscal 2017 period
compared to the fiscal 2016 period. These decreases were offset by a decrease in the average miles per gallon. Miles per gallon decreased to
7.661 for the fiscal 2017 period from 7.800 for the fiscal 2016 period. We expect that our continued efforts to reduce idling and operate more
fuel-efficient tractors and aerodynamic trailers will have a positive impact on our miles per gallon going forward.
22
Table of Contents
Revenue equipment rentals increased to $18.7 million, or 3.5% of total revenues and 3.8% of freight revenue, for fiscal 2017 period,
from $4.4 million, or 0.8% of total revenues and 0.9% of freight revenue, for the fiscal 2016 period. Our rental expense increased primarily
due to additional trailer units held under operating leases. The increase included increased rental costs of approximately $6.4 million
attributable to our sale leaseback transaction on approximately 4,700 trailers in the fourth quarter of fiscal 2016. We believe that rents related
to this transaction are temporary as we seek to strategically remove a portion of these trailers from service while minimizing operating
disruption. Operating leases have become an increasingly important source of financing for our revenue equipment and certain real estate, and
we would expect this line item to remain higher than historical levels in the near term.
Purchased transportation decreased to $175.9 million, or 33.1% of total revenues and 36.4% of freight revenue, for the fiscal 2017
period, from $183.0 million, or 33.8% of total revenues and 37.5% of freight revenue, for the fiscal 2016 period. These decreases are primarily
related to decreases in the total miles driven by independent contractors, partially offset by increases in LTL/brokerage expenses. Purchased
transportation will increase if we are successful in our efforts to increase our LTL/brokerage and intermodal transportation businesses and
reverse the decline in our average number of independent contractors when compared to the second quarter of fiscal 2016.
Operations and maintenance increased to $41.3 million, or 7.8% of total revenue and 8.5% of freight revenue, for the fiscal 2017
period, from $35.8 million, or 6.6% of total revenue and 7.4% of freight revenue, for the fiscal 2016 period. Operations and maintenance
consist of direct operating expense, maintenance, and tire expense. These increases were primarily due to the newly signed service agreements
for Quality’s third party maintenance business and maintenance servicing for the leasing portfolio. Within our asset-based segment we expect
maintenance expenses to fluctuate with average equipment age, trade cycles, and mix of Company trucks and independent contractors.
Insurance and claims expense increased to $21.9 million, or 4.2% of total revenue and 4.5% of freight revenue, for the fiscal 2017
period, from $14.6 million, or 2.7% of total revenue and 3.0% of freight revenue, for the fiscal 2016 period. Insurance consists of premiums
for liability, physical damage, cargo damage, and workers' compensation insurance, in addition to claims expense. Our insurance program
involves self-insurance at various risk retention levels. Claims in excess of these risk levels are covered by insurance in amounts we consider
to be adequate. We accrue for the uninsured portion of claims based on known claims and historical experience. We periodically review and
adjust our insurance program to maintain a balance between premium expense and the risk retention we are willing to assume. Insurance and
claims expense will vary based upon the frequency and severity of claims, the level of self-insurance, and premium expense. During the second
quarter of fiscal 2017 we accrued $4.6 million related to Wilmoth et al. v. Celadon Trucking Services, Inc., a class action proceeding. A
summary judgment was granted in favor of the plaintiffs in December 2014 and was upheld by the Indiana Court of Appeals in February 2017.
Depreciation and amortization, consisting primarily of depreciation of revenue equipment, decreased to $36.3 million, or 6.8% of total
revenue and 7.5% of freight revenue, for the fiscal 2017 period, compared to $40.8 million, or 7.5% of total revenue and 8.4% of freight
revenue, for the fiscal 2016 period. The decrease in absolute dollars was primarily attributable to a decrease in owned tractors and trailers as we
downsized our fleet to better reflect freight demand and completed the sale-leaseback of trailers described above.
General and other operating expense increased to $11.4 million, or 2.2% of total revenue and 2.4% of freight revenue, for the fiscal
2017 period, from $9.1 million, or 1.7% of total revenue and 1.9% of freight revenue for the fiscal 2016 period. General and other operating
expenses are mainly made up of computer software maintenance expenses, legal fees, and other administrative expenses.
Gain on sale of revenue equipment decreased from $18.7 million in the fiscal 2016 period to $1.8 million in the fiscal 2017 period.
This decrease was due to decreased equipment sales to third parties. We expect gain (loss) on sale with respect to revenue equipment to be
relatively small for the balance of fiscal 2017. Gain (loss) on sale can vary significantly due to a variety of factors, including availability of
replacement equipment and conditions in the new and used equipment markets. Other than in connection with equipment turnover in our
trucking operations fleet, we have no plans for our equipment leasing and services segment to acquire additional assets to lease or sell any
significant additional leases and the underlying equipment at this time.
All of our other operating expenses are relatively minor in amount, and there were no significant changes in such expenses.
Accordingly, we have not provided a detailed discussion of such expenses.
Our operating income (loss), which we believe is a useful measure of our operating performance because it is neutral with regard to
the method of revenue equipment financing that a company uses, decreased to (0.6%) of total revenue and decreased to (0.6%) of freight
revenue for the fiscal 2017 period, from 6.5% of total revenue and 7.2% of freight revenue for the fiscal 2016 period.
23
Table of Contents
Income taxes decreased to a credit of $3.0 million, with an effective tax rate of 40.8%, for the fiscal 2017 period, from $10.2 million,
with an effective tax rate of 36.3%, for the fiscal 2016 period. We expect our effective tax rate to be in the range of 35% to 38% going
forward. As pre-tax net income increases, our non-deductible expenses, such as per diem expense, have a lesser impact on our effective
rate. Furthermore, the effective rate in foreign countries is lower than that in the United States. Therefore, as our percentage of income
attributable to foreign income changes, our total income tax effective rate will also change.
Liquidity and Capital Resources
Trucking is a capital-intensive business. We require cash to fund our operating expenses (other than depreciation and amortization), to
make capital expenditures and acquisitions, and to repay debt, including principal and interest payments, and lease payments. Prior to the
consummation of our joint venture, we were required to make certain lease shortfall advance payments to our third party financing
provider. However, as part of the joint venture transaction, these obligations have been terminated or assigned to 19 th Capital. As result, we
do not anticipate that these payments will impose liquidity constraints going forward.
Other than ordinary operating expenses, we anticipate that capital expenditures for the acquisition of revenue equipment and the
construction of facilities will constitute our primary cash requirement over the next twelve months. We frequently consider potential
acquisitions. If we were to engage in additional acquisitions, our cash requirements would increase and we may have to modify our expected
financing sources for the purchase of equipment. S ubject to any required lender approval, we may make acquisitions in the future. Our
principal sources of liquidity are cash generated from operations, bank borrowings, capital and operating lease financing of revenue equipment,
and proceeds from the sale of used revenue equipment. At December 31, 2016, our total balance sheet debt, including capital lease obligations
and current maturities, was $380.5 million, compared to $450.8 million at June 30, 2016.
As of December 31, 2016, we had purchase commitments to add $7.4 million of tractor operating leases over the next twelve
months. Generally, our purchase orders do not become firm commitment orders for which we are irrevocably obligated until shortly before
purchase. We may also have to adjust the timing of our purchases based on performance of existing equipment throughout the year. Our plans
to purchase equipment are reevaluated on a quarter-by-quarter basis. These tractor orders represent capital commitments before considering the
proceeds of equipment dispositions. We expect capital expenditures for revenue equipment to be more limited in the near term. As of
December 31, 2016, we had outstanding planned purchase commitments of approximately $13 million for facilities and land. Factors such as
cost and opportunities for future terminal expansions may change the amount of such expenditures.
At December 31, 2016, we were authorized to borrow up to $250.0 million under our primary credit facility, which expires December
2019. The applicable interest rate under this agreement is based on either a base rate equal to Bank of America, N.A.'s prime rate or LIBOR
plus an applicable margin between 0.825% and 1.45% that is adjusted quarterly based on our lease adjusted total debt to EBITDAR ratio. At
December 31, 2016, we had $113.9 million in outstanding borrowings related to our credit facility and $5.5 million utilized for letters of credit,
leaving availability of $130.6 million. Our ability to draw down on this availability is subject to our compliance with certain financial
covenants under the facility, including covenants limiting to our level of debt. We were in compliance with these financial covenants at
December 31, 2016. The facility is collateralized by substantially all of the assets of our U.S. and Canadian subsidiaries, with the notable
exception of revenue equipment subject to third party financing or capital leases.
We believe we will be able to fund our operating expenses, as well as our current commitments for the acquisition of revenue
equipment over the next twelve months, with a combination of cash generated from operations, borrowings available under our primary credit
facility, and lease financing arrangements. We will continue to have significant capital requirements over the long term, and the availability of
the needed capital will depend upon our financial condition, operating results, and numerous other factors over which we have limited or no
control, including prevailing market conditions and the market price of our common stock. Based on our operating results, anticipated future
cash flows, current availability under our credit facility, expected capital expenditures, and sources of equipment lease financing that we expect
will be available to us, we do not expect to experience significant liquidity constraints in the foreseeable future.
Cash Flows
Net cash provided by operations for the six months ended December 31, 2016 was $58.5 million, compared to $22.9 million for the
six months ended December 31, 2015. The increase reflected several items related to the closing of our joint venture in December 2016 and
related equipment transactions during the period. These items include, $31.8 million in collection of cash payment recorded under other assets,
distributions received on earnings from an unconsolidated entity of $2.6 million, and a $16.9 million reduction in leased revenue equipment
held for sale. Excluding these amounts, net cash flow provided by operations was $7.2 million for the six months ended December 31, 2016.
Leased revenue equipment held for sale reflects $82.1 million of sales less $65.2 million of purchases for the six months ended December 31,
2016. These purchases relate solely to equipment for the benefit of our equipment leasing and services segment which activities will be
undertaken through 19 th Capital moving forward. Leased revenue equipment held for sale was zero at December 31, 2016. Purchases and sales
of used Celadon fleet equipment are included within our net cash provided by investing activities.
24
Table of Contents
Net cash used in investing activities was $0.8 million for the six months ended December 31, 2016, compared to net cash provided of
$23.0 million for the six months ended December 31, 2015. Cash used in investing activities includes the net cash effect of acquisitions,
investments in and proceeds from unconsolidated entities, and purchases and dispositions of revenue equipment during each period. Capital
expenditures for property and equipment totaled $43.1 million for the six months ended December 31, 2016, and $67.1 million for the six
months ended December 31, 2015. We generated proceeds from the sale of property and equipment of $75.6 million and $107.9 million for the
six months ended December 31, 2016, and December 31, 2015, respectively. Included in the $75.6 million is proceeds of $6.7 million in
payment of deferred purchase sales from a sale to 19 th Capital in the June 30, 2016 quarter. Net cash paid for acquisitions was $0 for the six
months ended December 31, 2016, and $17.7 million for the six months ended December 31, 2015. During the current fiscal year, we had a
cash expenditure of $35.3 million for the investment in joint venture. Also during the current fiscal year, we received $2.0 million related to the
redemption of our initial investment in 19 th Capital as part of the Transactions.
Net cash used in financing activities was $60.4 million for the six months ended December 31, 2016, compared to net cash used in
financing activities of $64.1 million for the six months ended December 31, 2015. Financing activity consists primarily of bank borrowings,
bank payments, and payment of the principal component of capital lease obligations.
Cash dividends paid for the six months ended December 31, 2016 and December 31, 2015, were approximately $1.1 million, or $0.02
per share. We currently expect to continue to pay quarterly cash dividends in the future. Future payment of cash dividends, and the amount of
any such dividends, will depend upon our financial condition, results of operations, cash requirements, tax treatment, and certain corporate law
requirements, as well as other factors deemed relevant by our Board of Directors.
Contractual Obligations
“Liquidity and Capital Resources,” above, and “Off Balance Sheet Arrangements,” below include details relating to changes in our
contractual obligations. Aside from these items, there were no material changes in our commitments or contractual liabilities during the six
months ended December 31, 2016.
Off-Balance Sheet Arrangements
Operating leases have been an important source of financing for our revenue equipment. Our operating leases include some under
which we do not guarantee the value of the asset at the end of the lease term ("walk-away leases") and some under which we do guarantee the
value of the asset at the end of the lease term ("residual value guarantees"). Therefore, we are subject to the risk that equipment values may
decline, in which case we would suffer a loss upon disposition and be required to make cash payments because of the residual value guarantees.
At December 31, 2016, we were obligated for residual value guarantees related to operating leases of $65.6 million, compared to $34.0 million
at December 31, 2015. We believe that any residual payment obligations will be satisfied by the value of the related equipment at the end of the
lease. To the extent the equipment's expected value at the lease termination date is lower than the residual value guarantee, we would accrue for
the difference over the remaining lease term. We anticipate that going forward we will primarily use a combination of cash generated from
operations and capital leases to finance tractor and trailer purchases.
Critical Accounting Policies
The preparation of financial statements in accordance with GAAP requires that management make a number of assumptions and
estimates that affect the reported amounts of assets, liabilities, revenue, and expenses in our consolidated financial statements and
accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. These
estimates are based on management’s knowledge of current events and actions that affect, or could affect, our financial statements materially,
and producing these estimates involves a significant level of judgment by management. The accounting policies we deem most critical include
revenue recognition, allowance for doubtful accounts, depreciation, claims accrual, and accounting for income taxes. There have been no
significant changes to our critical accounting policies and estimates during the six months ended December 31, 2016, compared to those
disclosed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” included in our Fiscal 2016
Annual Report on Form 10-K.
Seasonality
In the trucking industry, revenue generally increases during the holiday season and decreases as customers reduce shipments during
the post-holiday winter season and as inclement weather impedes operations. At the same time, operating expenses generally increase, with
fuel efficiency declining because of engine idling and inclement weather. We have substantial operations in the Midwestern and Eastern
United States and Canada. For the reasons stated, in those geographic regions in particular, third fiscal quarter net income historically has been
lower than net income in each of the other three quarters of the year, excluding one time or other extraordinary charges. Our equipment
utilization typically improves substantially between May and October of each year because of seasonal increased shipping and better
weather. Also, during September, October, and November business generally increases as a result of increased retail merchandise shipped in
anticipation of the holidays.
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Item 3.
Quantitative and Qualitative Disclosures about Market Risk
We experience various market risks, including fluctuations in interest rates, variability in currency exchange rates, and fuel and other
commodity prices. We have established policies, procedures and internal processes governing our management of market risks and the use of
financial instruments to manage our exposure to such risks. We do not enter into derivatives or other financial instruments for trading or
speculative purposes, or for which there are no underlying related exposures.
Interest Rate Risk. We are exposed to interest rate risk principally from our credit facility. The credit facility carries a maximum
variable interest rate based on either a base rate equal to the greater of either Bank of America, N.A.'s prime rate or LIBOR plus an applicable
margin between 0.825% and 1.45% that is adjusted quarterly based on our lease adjusted total debt to EBITDAR ratio. At December 31, 2016,
the interest rate for revolving borrowings under our credit facility was 2.2%. At December 31, 2016, we had $113.9 million variable rate term
loan borrowings outstanding under the credit facility. Assuming borrowing at historical levels, a hypothetical 0.25% increase in the bank's
prime rate or LIBOR would be immaterial to our net income.
Foreign Currency Exchange Rate Risk. We are subject to foreign currency exchange rate risk, specifically in connection with our
Canadian and Mexican operations. While virtually all of the expenses associated with our Canadian operations, such as independent contractor
costs, company driver compensation, and administrative costs, are paid in Canadian dollars, a significant portion of our revenue generated from
those operations is billed in U.S. dollars because many of our customers are U.S. shippers transporting goods to or from Canada. As a result,
increases in the value of the Canadian dollar relative to the U.S. dollar could adversely affect the profitability of our Canadian operations.
Assuming revenue and expenses for our Canadian operations identical to the quarter ended December 31, 2016 (both in terms of amount and
currency mix), we estimate that a $0.01 increase in the value of the Canadian dollar, relative to the U.S. dollar, would reduce our annual net
income by approximately $135,000. At December 31, 2016, we had no outstanding foreign exchange derivative contracts relating to the
Canadian dollar.
While virtually all of the expenses associated with our Mexican operations, such as independent contractor costs, company driver
compensation, and administrative costs, are paid in Mexican pesos, a significant portion of our revenue generated from those operations is
billed in U.S. dollars because many of our customers are U.S. shippers transporting goods to or from Mexico. As a result, an increase in the
value of the Mexican peso, relative to the U.S. dollar, could adversely affect our consolidated results of operations. Assuming revenue and
expenses for our Mexican operations identical to the quarter ended December 31, 2016 (both in terms of amount and currency mix), we
estimate that a $0.01 increase in the value of the Mexican peso, relative to the U.S. dollar, would reduce our annual net income by
approximately $190,000. At December 31, 2016, we had no outstanding foreign exchange derivative contracts relating to the Mexican peso.
Commodity Price Risk. Shortages of fuel, increases in prices, or rationing of petroleum products can have a materially adverse effect
on our operations and profitability. Fuel is subject to economic, political, and market factors that are outside of our control. Historically, we
have sought to recover a portion of short-term increases in fuel prices from customers through the collection of fuel surcharges. However, fuel
surcharges do not always fully offset increases in fuel prices. In fiscal 2016, we entered into contracts to hedge up to 0.3 million gallons per
month ending on July 31, 2017. This represents approximately 4.8% of our monthly projected fuel requirements through July 2017. At
December 31, 2016, we had outstanding contracts in place for a notional amount of $1.5 million with the fair value of these contracts,
approximately $0.5 million more than the original contract value. Derivative gains or losses, initially reported as a component of other
comprehensive income, are reclassified to earnings in the period when the forecasted transaction affects earnings. Based on our expected fuel
consumption for fiscal 2017, a 10.0% change in the related price of heating oil or diesel per gallon would not have a material impact on our net
income, assuming no further changes to our fuel hedging program or our fuel surcharge recovery.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports filed or submitted
to the SEC under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and
forms, and that information is accumulated and communicated to management, including the principal executive and financial officers (referred
to in this report as the "Certifying Officers"), as appropriate, to allow timely decisions regarding required disclosure based on the definition of
"disclosure controls and procedures" in Rule 13a-15(b) under the Exchange Act. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management is required to apply judgment in evaluating our controls and procedures.
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We have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the
end of the period covered by this report, as required by Rule 13a-15 and 15d-15 under the Exchange Act. This evaluation was carried out under
the supervision and with the participation of our management, including the Certifying Officers. Based upon that evaluation, our Certifying
Officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the most recently completed fiscal quarter
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II.
Other Information
Item 1.
Legal Proceedings
We are party to certain lawsuits in the ordinary course of business. We are currently not party to any proceedings which we expect to
have a material adverse effect or which we otherwise consider material. See discussion under Note 6 to our condensed consolidated financial
statements, "Commitments and Contingencies."
Item 1A.
Risk Factors
While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business, some level of risk and
uncertainty will always be present. Our Annual Report on Form 10-K for the year ended June 30, 2016, in the section entitled Item 1A. Risk
Factors , describes some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to
materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects.
We are updating the risk factor entitled “ If we cannot effectively manage the challenges associated with doing business
internationally, our revenues and profitability may suffer. ” with the following:
If we cannot effectively manage the challenges and risks associated with doing business internationally, our revenues and profitability
may suffer.
A significant portion of our revenue is derived from our international operations, and our success is dependent upon our operations in
Mexico and Canada. Our international operations are subject to a variety of risks, including fluctuations in foreign currencies, changes in the
economic strength of the foreign countries in which we do business, difficulties in enforcing contractual obligations and intellectual property
rights, compliance burdens associated with a wide variety of international and United States export and import laws, and social, political, and
economic instability. Our international business could be adversely affected by restrictions on travel to any of our three countries of operations
due to a health epidemic or outbreak, and any such epidemic or outbreak may adversely affect demand for freight. Additional risks associated
with our foreign operations include restrictive trade policies, imposition of duties, taxes, or government royalties by foreign governments, and
compliance with the Foreign Corrupt Practices Act and local anti-bribery law compliance. At present, cross-border movements for both United
States and Mexican-based carriers into the United States and Mexico are allowed, which presents a risk in the form of the potential for
increased competition in Mexico and the risk of increased congestion on our cross-border lanes. In addition, we could be subject to additional
regulatory risks related to the use of Mexican drivers through our Mexico subsidiary for shipments into the United States. Recently, President
Donald Trump, certain members of the U.S. House of Representatives, and key U.S. administrative officials and policy makers have suggested
the renegotiation of the North American Free Trade Agreement and the implementation of tariffs, border taxes, or other measures that could
impact the level of trade between the U.S. and Mexico. Any such proposal or measure could negatively impact certain of our customers and the
volume of shipments between the U.S. and Mexico, which could have a materially adverse effect on our business and operating results.
We are also updating the risk factors under the heading “ Risks Relating to Quality and its Financing Arrangements ” by replacing
them with the following:
Our non-controlling investment in 19 th Capital, a joint venture, poses unique financial, accounting, and governance risks.
In the first quarter of fiscal 2016, we acquired a minority interest in 19 th Capital, a newly formed equipment leasing company and
reseller. In the second quarter of fiscal 2017, old equity units were redeemed by 19 th Capital and 19 th Capital was then recapitalized as a
joint venture with Element. As part of this transaction, our existing minority interest was redeemed and we made a new investment in 19 th
Capital, such that we and Element each own approximately 49.99% of 19 th Capital’s outstanding equity interests. We account for our
investment in 19 th Capital using the equity method of accounting. Our participation in the joint venture through our ownership of 19 th
Capital poses several unique risks that could materially and adversely affect our results of operations and stock price.
As part of the joint venture transaction, our previous obligation to make lease shortfall advance payments to Element was terminated,
except with respect to lease shortfall advance payments owed to a particular third party who had been assigned approximately 2.9% of
Element’s portfolio. Lease shortfall advance payment obligations to this third party were assigned to and assumed by 19 th Capital. To the
extent we are required to make these payments to the third party, 19 th Capital would be obligated to indemnify us. However, any claim we
would have against 19 th Capital would be unsecured and in a bankruptcy or other insolvency event relating to 19 th Capital, our claim would
effectively be subordinate to the claims of 19 th Capital’s secured creditors. In addition, we do not have the ability to unilaterally control 19 th
Capital and any payment of an indemnity claim by 19 th Capital to us could be subject to approval by the board members of 19 th Capital
appointed by Element. Further, an indemnification claim against 19 th Capital could conflict with our interests as an equity holder of 19 th
Capital. Accordingly, there can be no assurance that 19 th Capital will be able to reimburse us for lease shortfall advance obligations if we are
required to pay them.
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Quality provides lease collection, insurance procurement, vehicle maintenance, and other services to 19 th Capital under a Service
Agreement. Quality receives certain fees for these services, the primary component of which is a fixed amount per tractor under Quality’s
management per month. Element is entitled to terminate the Service Agreement without cause upon not less than 90 days’ notice to
Quality. Moreover, the per-tractor fee is subject to renegotiation by us and Element after the first anniversary of the joint venture’s closing. If
Element terminates the Service Agreement or we are unable to renegotiate an attractive per-tractor fee, our cash flow, earnings, and other
results of operations could be materially and adversely affected.
In addition, while certain of our executive officers serve as two of the managers of 19 th Capital, we do not have the ability to
unilaterally control 19 th Capital's ownership or management. Certain significant decisions must be approved by 19 th Capital’s board, which
currently includes two managers appointed by us and two managers appointed by Element. Our investment in 19 th Capital is subject to the
risk that 19 th Capital's management and Element may seek to make business, financial, or management decisions with which we do not agree
or that the management or Element may seek to take risks or otherwise act in a manner that does not serve our interests. Moreover, because we
and Element each control 50% of 19 th Capital’s board, an inability to agree could lead to board deadlock. Element is also a lender to 19 th
Capital and its interests as a creditor of 19 th Capital may not align with ours as an equity holder. For example, in a liquidation of 19 th
Capital, as a secured creditor Element would generally have priority over us with respect to any assets or other liquidation proceeds, up to the
amount of the applicable debt. This difference in rights could cause Element to enforce its rights as creditor, to our detriment as an equity
holder. If any of the foregoing were to occur, the value of our investment in 19 th Capital could decrease, and our financial condition, results
of operations, and cash flow could suffer as a result.
We have recorded the value of our investment in 19 th Capital at $100.0 million, based on our net book value of the assets
contributed. We may, from time-to-time, be required to revalue our investment in 19 th Capital. If we are required to mark down the recorded
value of our investment, whether due to poor performance of 19 th Capital or otherwise, our results of operations, earnings, and stock price
could be materially and adversely affected.
If a change in accounting rules or other unforeseen circumstances prevents us from using our intended accounting treatment for 19 th
Capital, we may be required to include the related equipment debt on our consolidated balance sheet even though we are not primarily
obligated on and do not guarantee such debt. This could cause us to violate financial covenants under our primary credit facility or otherwise
materially and adversely affect our results of operations and stock price.
Finally, under the equity method of accounting, we anticipate that we will recognize our proportionate share of 19 th Capital’s income
or loss in any given period. As a result, poor performance of 19 th Capital would have a negative impact on our results of operations. See “19
th Capital faces certain additional risks particular to its operations, any one of which could adversely affect our operating results” for additional
information on risks faced by 19 th Capital that could have a material adverse impact on us.
19 th Capital faces certain additional risks particular to its operations, any one of which could adversely affect our operating results.
19 th Capital faces several risks similar to those we face and additional risks particular to its business and operations. At December
31, 2016, 19 th Capital held, directly or through beneficial ownership in titling trusts, approximately 10,000 tractors and trailers, a majority of
which are financed. The ability to secure financing and market fluctuations in interest rates could impact 19 th Capital's ability to grow its
leasing and financing business and its margins on leases and financing. Further, there is an overlap in providers of equipment financing to 19 th
Capital and our wholly owned operations and those providers may consider the combined exposure and limit the amount of credit available to
us or 19 th Capital. In addition, 19 th Capital requires significant cash flow to meet its debt service obligations, and a default on these
obligations could subject 19 th Capital to lender foreclosure on its assets, litigation, and bankruptcy. Adverse economic activity may restrict the
number of used equipment buyers, their ability to pay acceptable prices for used equipment, and create user financing defaults, bankruptcies,
and difficulties recovering equipment. In addition, 19 th Capital's customers are typically small trucking companies or independent contractors
without substantial financial resources, and 19 th Capital is subject to risk of loss should those customers be unable to make their lease
payments.
If a lessee or other counterparty fails to maintain the equipment in accordance with the terms of the financing agreements, 19 th
Capital may have unanticipated repair expenditures. As regulations change, the market for used equipment may be impacted as such
regulatory changes may make used equipment costly to upgrade to comply with such regulations or 19 th Capital may be forced to scrap
equipment if such regulations eliminate the market for particular used equipment. Any of the foregoing risks could materially and adversely
impact the value of and our return on our investment in 19 th Capital, as well as our recognition of income (loss) from a non-controlling
investment.
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19 th Capital leases equipment to independent contractor drivers who haul freight for us and other trucking companies. Companies
that utilize independent contractors to haul their freight have been regularly targeted by regulatory authorities and private plaintiffs based on
allegations that such contractors should be characterized as employees. We believe this has caused, and will likely continue to cause,
transportation companies to reconsider the use of independent contractors or even discontinue such use. If the market for drivers shifts away
from the use of independent contractors and toward the use of employee drivers, the market for services 19 th Capital provides would be
materially and adversely impacted. In addition, many trucking and other transportation companies independently provide or arrange for
financing or equipment lease arrangements for their independent contractor drivers, as do numerous equipment finance and leasing
companies. As the driver market remains tight, competition to attract drivers and provide them with additional accommodations, including
equipment financing or leasing, has become more prevalent. As a result, 19 th Capital faces significant competition for the services it provides
and market conditions may further intensify such competition. The occurrence of any of the foregoing could materially and adversely affect 19
th Capital’s results of operations.
Finally, we expect that, for federal income tax purposes, 19 th Capital will be treated as the owner and lessor of the equipment that it
leases to third parties. However, the IRS could instead assert that such leases are sales or financings. If it were determined that 19 th Capital
is not the owner of the leased equipment for income tax purposes, 19 th Capital would not be entitled to cost recovery, depreciation or
amortization deductions, and its leasing income might be deemed to be portfolio income instead of passive activity income. The denial of such
cost recovery or amortization deductions could cause its tax liabilities to increase, and therefore the amount of cash available for distribution to
us to decrease, in certain periods.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended December 31, 2016, we did not engage in unregistered sales of securities or any other transactions required
to be reported under this Item 2 of Part II on Form 10-Q.
We are obligated to comply with certain financial covenants under our credit facility. Our credit facility also places certain limitations
on our ability to pay dividends, including a $5.0 million cap on cash dividend payments during any fiscal year and a requirement that we be in
pro forma compliance with our financial covenants after giving effect to any such payments.
Item 3.
Defaults Upon Senior Securities
Not applicable.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
On February 2, 2017, we filed a Current Report on Form 8-K with a press release announcing our earnings for the three months ended
December 31, 2016. The press release contained typographical errors in the “Other Revenue” and “Total Revenue” amounts, for the six
months ended December 31, 2016, provided in the “Key Operating Statistics” table at the end of the press release. The original press release
provided “$51,302” for “Other Revenue” and “$537,334” for “Total Revenue” (in thousands). The correct figures are “$44,733” for “Other
Revenue” and “$530,765” for “Total Revenue” (in thousands). This corrected Total Revenue figure is consistent with the figure provided in
the income statement contained in the press release and the body of the press release.
The press release also contained two typographical errors in the “Diluted weighted average shares outstanding” figures for the three
and six months ended December 31, 2016, respectively, contained in the condensed consolidated statements of operations. The original press
release provides “28,219” (in thousands) for the three month period and “28,214” (in thousands) for the six month period. The correct figures
are “27,639” (in thousands) for the three month period and “27,627” (in thousands) for the six month period, as provided in the financial
statements included in this Form 10-Q.
On February 7, 2017, the Indiana Court of Appeals affirmed summary judgment in the matter of Wilmoth et al v. Celadon Trucking
Services, Inc., one of our subsidiaries, regarding a complaint that was originally filed in 2013. As previously disclosed in our filings with the
Securities and Exchange Commission, this matter was a contingency with no reserve accrued because an unfavorable result was not deemed
probable. As a result of the recent summary judgment affirmation, we have accrued a liability of $4.6 million for the quarter ended December
31, 2016. Because the ruling had not been issued at the time of our press release disclosing our results of operations for such quarter, the press
release did not reflect this accrual. However, the results of operations disclosed in this Form 10-Q have been updated to reflect this accrual.
See Note 6 – Commitments and Contingencies to the financial statements included herein for additional information.
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During our February 2, 2017, conference call, our representatives responded to equity research analyst questions and in such responses
referred to terms such as "free cash flow," "earnings," and "profits," including on a normalized basis. We have received inquiries as to how we
defined these terms as used in the conference call. In context, our comments referred to expected results of consolidated operations and did not
include income or loss from the equity method investment. More specifically:
 "Earnings," "profits" and similar terms referred to "net income (loss) excluding after-tax income (loss) from equity method
investment and changes in value of equity method investment." This is referred to herein as "normalized net income (loss)."
 "Free cash flow" and similar terms referred to normalized net income (loss), plus depreciation and amortization.
 The references to "$16 million to $18 million" in the conference call referred to expected quarterly depreciation and amortization
for the remaining quarters of fiscal 2017 and into fiscal 2018.
Based on the definitions above,
 We expect to generate normalized net income for fiscal 2018.
 We expect net capital expenditures (gross capital expenditures less proceeds from disposition of capital assets) to be in the range
of $10 million to $15 million for the remaining half of fiscal 2017 . This amount excludes any business acquisitions or
dispositions, none of which are currently planned. We have not finalized a capital expenditure budget for fiscal 2018.
 We expect to reduce our leverage ratio (as defined in our credit agreement) during fiscal 2018.
All references to profits, free cash flow, earnings, and similar terms in the conference call are updated to refer to the definitions above.
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Item 6.
3.1
3.2
3.3
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
*
Exhibits
Amended and Restated Certificate of Incorporation of the Company, effective January 12, 2006. (Incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ending December 31, 2005, filed with the
SEC on January 30, 2006.)
Certificate of Designation for Series A Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000, filed with the SEC on September 28, 2000.)
Amended and Restated By-Laws of the Company. (Incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on
Form 10-Q filed with the SEC on January 31, 2008.)
Amended and Restated Certificate of Incorporation of the Company, effective January 12, 2006. (Incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ending December 31, 2005, filed with the
SEC on January 30, 2006.)
Certificate of Designation for Series A Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000, filed with the SEC on September 28, 2000.)
Amended and Restated By-Laws of the Company. (Incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on
Form 10-Q filed with the SEC on January 31, 2008.)
Membership Interest Redemption Agreement dated December 30, 2016 by and between the Company, as seller, and 19 th Capital
Group, LLC.*
Subscription Agreement dated December 30, 2016 by and among the Company, 19 th Capital Group, LLC, and Element
Transportation LLC.*
Amended and Restated Limited Liability Company Agreement of 19 th Capital Group, LLC dated December 30, 2016 by and
among the Company, Element Transportation LLC, Harry Dugan, and Gregory Burke.*
Service Agreement dated December 30, 2016 by and between 19 th Capital Group, LLC and Quality Companies, LLC.*
Third Amendment to Amended and Restated Credit Agreement dated December 30, 2016 by and among the Company, Bank of
America, N.A., as Administrative Agent, Swing Line Lender, and L/C Issuer, Wells Fargo Bank, N.A., and Citizens Bank, N.A.,
both as lenders.*
Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, by Paul A. Will, the Company's Principal Executive Officer.*
Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, by Bobby L. Peavler, the Company's Principal Financial Officer.*
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002, by Paul
A. Will, the Company's Chief Executive Officer.*
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Bobby
L. Peavler, the Company's Chief Financial Officer.*
XBRL Instance Document.*
XBRL Taxonomy Extension Schema Document.*
XBRL Taxonomy Extension Calculation Linkbase Document.*
XBRL Taxonomy Extension Definition Linkbase Document.*
XBRL Taxonomy Extension Label Linkbase Document.*
XBRL Taxonomy Extension Presentation Linkbase Document.*
Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Celadon Group, Inc.
(Registrant)
Date:
February 10, 2017
/s/ Paul A. Will
Paul A. Will
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
Date:
February 10, 2017
/s/ Bobby L. Peavler
Bobby L. Peavler
Executive Vice President, Chief Financial Officer, and
Treasurer
(Principal Financial Officer and Principal Accounting
Officer)
33
Table of Contents
EXHIBIT INDEX
Exhibit
Number
3.1
3.2
3.3
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
*
Description
Amended and Restated Certificate of Incorporation of the Company, effective January 12, 2006. (Incorporated by reference
to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ending December 31, 2005, filed
with the SEC on January 30, 2006.)
Certificate of Designation for Series A Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000, filed with the SEC on September 28, 2000.)
Amended and Restated By-Laws of the Company. (Incorporated by reference to Exhibit 3.3 to the Company's Quarterly
Report on Form 10-Q filed with the SEC on January 31, 2008.)
Amended and Restated Certificate of Incorporation of the Company, effective January 12, 2006. (Incorporated by reference
to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ending December 31, 2005, filed
with the SEC on January 30, 2006.)
Certificate of Designation for Series A Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000, filed with the SEC on September 28, 2000.)
Amended and Restated By-Laws of the Company. (Incorporated by reference to Exhibit 3.3 to the Company's Quarterly
Report on Form 10-Q filed with the SEC on January 31, 2008.)
Membership Interest Redemption Agreement dated December 30, 2016 by and between the Company, as seller, and 19
th Capital Group, LLC*
Subscription Agreement dated December 30, 2016 by and among the Company, 19 th Capital Group, LLC, and Element
Transportation LLC.*
Amended and Restated Limited Liability Company Agreement of 19 th Capital Group, LLC dated December 30, 2016 by
and among the Company, Element Transportation LLC, Harry Dugan, and Gregory Burke.*
Service Agreement dated December 30, 2016 by and between 19 th Capital Group, LLC and Quality Companies, LLC.*
Third Amendment to Amended and Restated Credit Agreement dated December 30, 2016 by and among the Company, Bank
of America, N.A., as Administrative Agent, Swing Line Lender, and L/C Issuer, Wells Fargo Bank, N.A., and Citizens Bank,
N.A., both as lenders.*
Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, by Paul A. Will, the Company's Principal Executive Officer.*
Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, by Bobby L. Peavler, the Company's Principal Financial Officer.*
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002, by
Paul A. Will, the Company's Chief Executive Officer.*
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by
Bobby L. Peavler, the Company's Chief Financial Officer.*
XBRL Instance Document.*
XBRL Taxonomy Extension Schema Document.*
XBRL Taxonomy Extension Calculation Linkbase Document.*
XBRL Taxonomy Extension Definition Linkbase Document.*
XBRL Taxonomy Extension Label Linkbase Document.*
XBRL Taxonomy Extension Presentation Linkbase Document.*
Filed herewith
Exhibit 10.1
19 th CAPITAL GROUP, LLC
MEMBERSHIP INTEREST REDEMPTION AGREEMENT
THIS MEMBERSHIP INTEREST REDEMPTION AGREEMENT (this “ Agreement ”) is made and entered into as of the 30th day of
December, 2016, between Celadon Group, Inc., a Delaware corporation (“ Seller ”), and 19 th Capital Group, LLC, a Delaware limited liability
company (“ 19 th Capital ”).
WHEREAS, Seller owns a 33.33% Class A membership interest and a 23.75% Class B membership interest (collectively, the “
Membership Interests ”) in 19 th Capital; and
WHEREAS, Seller desires to sell to 19 th Capital, and 19 th Capital desires to redeem and purchase from Seller, all of the
Membership Interests, upon the terms and conditions hereinafter set forth, and such Membership Interests shall be deemed completely
liquidated in connection therewith.
NOW, THEREFORE, in consideration of the premises, covenants, agreements, terms and conditions herein contained and for other
good and valuable consideration, the receipt and legal sufficiency of all of which are hereby acknowledged, 19 th Capital and Seller, intending
to be legally bound, hereby agree as follows:
1.
Redemption and Sale of the Membership Interests . At the Closing (as defined below), Seller shall sell, transfer
and deliver to 19 th Capital, and 19 th Capital shall redeem and purchase from Seller, the Membership Interests, upon and subject to the terms
and conditions of this Agreement.
2.
Purchase Price . The aggregate purchase price (the “ Purchase Price ”) for the Membership Interests is Four
Million Five Hundred Eighty-Seven Thousand Eight Hundred Sixty and 42/100 Dollars ($4,587,860.42), which shall be paid at Closing by 19
th Capital to Seller by wire transfer of immediately available funds to an account designated by Seller.
3.
Contingency; Closing; Deliveries .
(a)
The closing of the transactions contemplated herein (the “ Closing ”) shall be contingent upon the
execution of a joint venture or similar transaction (the “ Joint Venture ”) between Seller and/or its affiliates and Element Transportation LLC
and/or its affiliates (“ Element ”).
(b)
Subject to the terms and conditions of this Agreement, the Closing shall take place on the date of the
closing of the Joint Venture (the “ Closing Date ”), and the transactions hereunder will be deemed to occur simultaneously with the closing of
the Joint Venture. At the Closing, the parties shall deliver to each other, the documents, instruments and other items described below. The
Closing shall take place on the Closing Date through an exchange of consideration and documents using electronic mail or facsimile.
(c)
At Closing, 19 th Capital shall deliver to Seller the following:
(i)
the Purchase Price in immediately available funds pursuant to Section 2 hereof;
(ii)
a counterpart to this Agreement, duly executed by 19 th Capital;
(iii)
copies of all required consents, notices or approvals required to be obtained by 19 th Capital
in connection with the transactions contemplated hereby, including, without limitation, all consents,
notices or approvals required to be obtained from 19 th Capital’s lenders or other financing sources; and
(iv)
such other documents and instruments as Seller may reasonably deem necessary relating to
transactions contemplated by this Agreement.
(d)
At Closing, Seller shall deliver to 19 th Capital the following:
(i)
Assignments of Membership Interests in form and substance satisfactory to the parties, duly
executed by Seller, and such other documents and instruments necessary to transfer the Membership
Interests to 19 th Capital from Seller;
(ii)
resignations of all Managers and Officers of 19 th Capital which have been designated by
Seller, duly executed by each such Manager and Officer;
(iii)
a counterpart to this Agreement, duly executed by Seller; and
(iv)
such other documents and instruments as 19 th Capital may reasonably deem necessary
relating to transactions contemplated by this Agreement.
4.
Representations and Warranties of Seller . Seller hereby represents and warrants to 19 th Capital as follows:
(a)
Seller is a corporation, which is duly incorporated, validly existing and in good standing under the laws
of the State of Delaware. Seller has full power and authority to carry on its business as now conducted.
(b)
Seller has good title to the Membership Interests, free and clear of all liens, claims, and encumbrances,
with full legal right and power to transfer and convey ownership of the Membership Interests to 19 th Capital.
(c)
Seller has full power, authority and legal right to enter into this Agreement and to consummate the
transactions provided for herein. All actions on the part of Seller necessary to approve the transactions contemplated by this Agreement have
been duly
2
taken. This Agreement has been, and the other agreements, documents and instruments required to be delivered by Seller in accordance with
this Agreement will be, duly executed and delivered by Seller and constitute, or will constitute when delivered, the valid and binding agreement
of Seller enforceable against Seller in accordance with their terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors’ rights generally and by general principles of equity.
(d)
The execution and delivery of this Agreement and the consummation of the transactions contemplated by
this Agreement by Seller do not and will not violate, conflict with or result in the breach of any material term, condition or provision of, or
require the consent of any other person under (i) any existing law, ordinance, or governmental rule or regulation to which Seller is subject, (ii)
any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority which is
applicable to Seller, or (iii) any instrument, document or agreement, oral or written, to which Seller is a party.
(e)
No broker or similar advisor acting on behalf or under the authority of Seller is or will be entitled to any
broker’s or finder’s fee or any other commission or similar fee from Seller in connection with the transactions contemplated herein.
(f)
Seller is not relying on any statement, representation or warranty, oral or written, express or implied,
made by 19 th Capital, any of 19 th Capital’s members/owners or any of their respective affiliates or representatives, except as expressly set
forth in this Agreement. Except for the representations and warranties of Seller expressly set forth in this Section 4 and not in limitation hereof,
neither Seller nor any of its officers, directors, members, managers, representatives or agents makes any express or implied representation or
warranty on behalf of Seller, 19 th Capital or otherwise, in each case in respect of Seller, 19 th Capital or 19 th Capital’s assets, liabilities,
prospects or otherwise. EXCEPT AS SET FORTH IN THIS SECTION 4, SELLER DOES NOT MAKE ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AND THE ASSETS, LIABILITIES AND BUSINESS OF 19 TH CAPITAL SHALL BE DEEMED
TO BE “AS IS / WHERE IS” AS OF THE CLOSING, AND IN THEIR THEN PRESENT CONDITION.
5.
Representations and Warranties of 19 th Capital . 19 th Capital represents and warrants to Seller as follows:
(a)
19 th Capital is a limited liability company, which is duly organized, validly existing and in good
standing under the laws of the State of Delaware. 19 th Capital has full power and authority to carry on its business as now conducted.
(b)
19 th Capital has full power, authority and legal right to enter into this Agreement and to consummate the
transactions provided for herein. All actions on the part of 19 th Capital necessary to approve the transactions contemplated by this Agreement
have been duly taken. This Agreement has been, and the other agreements, documents and instruments required to be delivered by 19 th
Capital in accordance with the provisions hereof will be, duly executed and delivered by 19 th Capital and constitute, or will constitute when
delivered, the valid
3
and binding agreement of 19 th Capital enforceable against 19 th Capital in accordance with their terms.
(c)
The execution and delivery of this Agreement and the consummation of the transactions contemplated by
this Agreement by 19 th Capital do not and will not violate, conflict with or result in the breach of any material term, condition or provision of,
or require the consent of any other person under (i) any existing law, ordinance, or governmental rule or regulation to which 19 th Capital is
subject, (ii) any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or
authority which is applicable to 19 th Capital, or (iii) any instrument, document or agreement, oral or written, to which 19 th Capital is a party.
(d)
After giving effect to the transactions contemplated by this Agreement and by the Joint Venture
(collectively, the “ Transactions ”), 19 th Capital is not insolvent as defined in any applicable state or federal statute or law, nor will 19 th
Capital be rendered insolvent by the execution and delivery of this Agreement and completion of the Transactions. After the completion of the
Transactions, 19 th Capital reasonably expects to (a) be able to pay its debts as they become due, (b) have funds and capital sufficient to carry
on its business and all businesses in which it is about to engage, and (c) own property having a value at both fair valuation and at fair salable
value in the ordinary course of its business greater than the amount required to pay its debts as they become due.
(e)
No broker or similar advisor acting on behalf or under the authority of 19 th Capital is or will be entitled
to any broker’s or finder’s fee or any other commission or similar fee from 19 th Capital in connection with the transactions contemplated
herein.
(f)
19 th Capital is not relying on any statement, representation or warranty, oral or written, express or
implied, made by Seller, any of Seller’s members/owners or any of their respective affiliates or representatives, except as expressly set forth in
this Agreement. 19 th Capital acknowledges that neither Seller, any of Seller’s member/owners, nor any of their respective affiliates or
representatives is making, directly or indirectly, any representation or warranty with respect to any estimates, projections or forecasts involving
19 th Capital or its business. 19 th Capital further agrees and acknowledges that 19 th Capital and its business, assets, liabilities and prospects
are “As-Is / Where-Is” without representation, warranty, liability or obligation to or by Seller.
6.
Acknowledgments . 19 th Capital and Seller acknowledge and agree that the consideration for the Membership
Interests reflects the parties’ arms-length agreement after full access to and disclosure of 19 th Capital’s business and financial records and
future prospects. Each of 19 th Capital and Seller acknowledge that it has had the opportunity to consult legal counsel concerning this
Agreement, that it has read and understands this Agreement, that it is fully aware of the legal effect of this Agreement, and that it has entered
into this Agreement freely based on its own judgment.
7.
Seller Release and Indemnity .
4
(a)
Seller, on behalf of itself and each of its members, shareholders, directors, officers, managers, agents,
employees and representatives, and any of its or their successors, assigns and affiliates (other than 19 th Capital) (collectively, the “ Seller
Releasing Parties ”), hereby absolutely, unconditionally and irrevocably releases and discharges 19 th Capital, and each of its current and future
members, shareholders, directors, officers, managers, agents, employees and representatives, and any of its or their successors, assigns and
affiliates (including Element, Element Fleet Management Corp. and ECN Capital Corp. and their respective members, shareholders, directors,
officers, managers, agents, employees and representatives, and any of its or their successors, assigns and affiliates) (collectively, the “ 19 th
Capital Released Parties ”) from all any and all claims, counterclaims, actions, causes of action, suits, defenses, debts, obligations, promises,
expenses, liabilities, setoffs, accounts, covenants, contracts, agreements, costs, judgments and demands whatsoever, whether at law, in equity,
contract, tort or otherwise (whether fixed or contingent, known or unknown, liquidated or unliquidated) (collectively, a “ Claim ”), which any
of the Seller Releasing Parties now has, or may hereafter have, against any of the 19 th Capital Released Parties, arising out of or relating to
events, actions, omissions, facts or circumstances occurring, arising or existing at or prior to Closing; provided, however, that foregoing release
shall not affect the rights and remedies of the Seller Releasing Parties (i) under the organizational documents of 19 th Capital (Limited Liability
Company Agreement, Certificate of Formation, etc.), the insurance policies of 19 th Capital (D&O and EPL policies, etc.) that are in place as
of the date hereof or other applicable statutory or contractual indemnification rights, and/or (ii) under this Agreement, and such rights and
remedies shall continue in effect. Each of the Seller Releasing Parties shall refrain from, directly or directly, asserting any claim or demand or
commencing, instituting or causing to be commenced, any action of any kind against the 19 th Capital Released Parties based upon any matter
released pursuant to this Section 7.
(b)
Seller hereby agrees to indemnify, defend and hold harmless each of the 19 th Released Parties from and
against any Claims, damages, losses, liabilities, obligations, costs and expenses of any kind or nature (including any attorneys’, consultants’,
and other professional fees, and disbursements of every kind or nature (collectively, “ Claims and Damages ”), incurred by any of the 19 th
Capital Released Parties, which are incurred or suffered by any of the 19 th Capital Released Parties arising from or related to any breach of
Seller’s representations and warranties set forth in Section 4 of this Agreement.
8.
19 th Capital Release and Indemnity .
(a)
19 th Capital, on behalf of itself and each of its members, shareholders, directors, officers, managers,
agents, employees and representatives, and any of its or their successors, assigns and affiliates, in each case, other than any Seller Released
Party (as defined below) (collectively, the “ 19 th Capital Releasing Parties ”), hereby absolutely, unconditionally and irrevocably releases and
discharges Seller, and each of its members, shareholders, directors, officers, managers, agents, employees and representatives, and any of its or
their successors, assigns and affiliates (other than 19 th Capital) (collectively, the “ Seller Released Parties ”) from all any and all Claims,
which any of the 19 th Capital Releasing Parties now has, or may hereafter have, against any of the Seller Released Parties, arising out of or
relating to events, actions, omissions, facts or circumstances occurring, arising or existing at or prior to Closing, including without limitation,
any Claim arising from or related to the business,
5
ownership, assets, liabilities or operations of 19 th Capital prior to the date hereof; provided, however, that the foregoing release shall not affect
the rights and remedies of the 19 th Capital Releasing Parties under 7(b) of this Agreement.
(b)
19 th Capital hereby agrees to indemnify, defend and hold harmless each of the Seller Released Parties
from and against any Claims and Damages, which are incurred or suffered by any of the Seller Released Parties arising from or related to any
breach of 19 th Capital’s representations and warranties set forth in Section 5 of this Agreement.
9.
Tax Matters; Etc .
(a)
The parties agree that, for purposes of Section 736 of the Internal Revenue Code of 1986, as amended,
(the “ Code ”) the Purchase Price and all other amounts paid or considered paid to Seller (including all deemed distributions pursuant to Section
752(b) of the Code, if any) shall be treated as distributions made in exchange for the interest of the Seller in the property of 19 th Capital
pursuant to Section 736(b) of the Code and the corresponding provisions of any applicable state or local tax laws. The parties further agree that,
for the purpose of Section 751 of the Code, the Purchase Price will be characterized based upon the assets of 19 th Capital in proportion to their
respective fair market values in accordance with the provisions of the Code as agreed upon by the parties and the parties agree to report in a
manner consistent with such characterization, unless otherwise required by law.
(b)
19 th Capital’s taxable year shall close with respect to Seller’s interest as contemplated by Sections
1.706-1(c)(2)(i) of the Treasury Regulations promulgated pursuant to the Code. Seller’s distributive share of 19 th Capital’s taxable income or
loss for the taxable year of the Closing shall be determined on the basis of an interim closing of the books of 19 th Capital as of the close of
business on the Closing Date, and shall not be based upon a proration of the taxable income or loss for 19 th Capital for the entire taxable
year. A Schedule K-1 to Form 1065 for Seller based upon the allocation of the Seller’s distributive share set forth above shall be prepared as
soon as practicable after the close of the taxable year (but no later than 60 days after the close of the taxable year) and delivered to Seller for
purposes of facilitating the timely filing of any federal, state and local tax returns of Seller.
(c)
19 th Capital’s tax return for the taxable year ending on the Closing Date and Seller’s Schedule K-1 to
Form 1065 for such period shall be prepared by 19 th Capital in good faith and consistent with 19 th Capital’s past practices (except as
otherwise required by law).
(d)
Notwithstanding anything herein to the contrary, Seller shall be entitled to a distribution in an amount
equal to Seller’s distributive share of any income for the taxable year of the Closing as determined under Section 9(b) to be paid as soon as
practicable after the close of the taxable year (but no later than 60 days after the close of the taxable year) which shall be treated as an addition
to the Purchase Price set forth hereunder, except as otherwise required by law.
(e)
Each of the parties hereto shall cooperate, to the extent reasonably requested by the other parties, in
connection with (i) the preparation and filing of tax returns (including by providing tax work papers, schedules, analysis and any other
tax-related
6
documents), and (ii) any audit, litigation or other proceeding with respect to taxes, in each case with respect to any tax matters involving
periods prior to Closing. Such cooperation shall include reasonable efforts to obtain any certificate or other document from any governmental
authority or any other person as may be necessary to mitigate, reduce or eliminate any tax that is or otherwise would be imposed absent such
certificate or document (including with respect to the transactions contemplated hereby); provided that the costs and expenses of obtaining such
certificate or other documentation shall be borne by the party requesting such certificate or other documentation. Following Closing and
except as required by law, neither 19 th Capital nor any of its affiliates shall compromise or settle any material tax claim, or consent or agree to
any material tax liability, or modify, amend or restate any income or other material tax returns related to 19 th Capital with respect to any
taxable period ending on or before the Closing Date or relating to taxes for any partial period ending or before the Closing Date, in each case
without the prior written consent of Seller (such consent not to be unreasonably withheld or delayed).
10.
Further Actions . Each of the parties hereto shall use reasonable efforts to take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement. Following the Closing, the parties shall each deliver or cause to be delivered at
such times and places as shall be reasonably requested such additional instruments as the other party may reasonably request for the purpose of
carrying out the transactions contemplated by this Agreement.
11.
Assignment; Binding Effect . No party may assign this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other parties. This Agreement shall be binding upon and inure to the benefit of the
respective successors and permitted assigns of Seller and 19 th Capital.
12.
Notices . Any written notice to be given hereunder shall be given in writing and shall be deemed given: (a) when
received if given in person, (b) on the date of transmission (upon confirmation of receipt) if sent by electronic mail, (c) three days after being
deposited in the U.S. mail, certified or registered mail, postage prepaid, and (d) if sent by an nationally recognized overnight delivery service,
the day following the date given to such overnight delivery service (specified for overnight delivery). All notices shall be addressed as follows
(or at such other address for a party as shall be specified by like notice):
If to Seller:
Celadon Group, Inc.
9503 E. 33 rd Street
Indianapolis, IN 46235
Attention: Paul A. Will
Email: [email protected]
If to 19 th Capital:
19th Capital Group, LLC
9702 East 30th Street
Indianapolis, IN 46229
Attention: Harry Dugan, President
Email: [email protected]
7
13.
conflict of laws principles.
Applicable Law . This Agreement shall be governed by the laws of the State of Delaware, without regard to its
14.
Entire Agreement; Amendment . This Agreement represents the entire agreement between the parties covering
everything agreed upon or understood in this transaction and supersedes any prior understandings, agreements or representations, written or
oral, relating to the subject matter hereof. There are no oral promises, conditions, representations, understandings, interpretations or terms of
any kind as conditions or inducements to the execution hereof or in effect between the parties, except as may otherwise be provided
herein. This Agreement may be modified or amended only by a written instrument executed by all parties hereto.
15.
Fees and Expenses . Each party hereto will pay its own fees, expenses and disbursements incurred in connection
herewith and all other costs and expenses incurred in the performance and compliance with all conditions to be performed hereunder.
16.
Counterparts; Electronic Signatures . This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which taken together shall constitute one and the same agreement, and it shall not be necessary in
making proof of this Agreement or the terms of this Agree-ment to produce or account for more than one of such counterparts. This
Agreement may be signed and transmitted by facsimile machine or electronic mail and such faxed or electronically transmitted document
and/or signature page shall be treated as an original document.
17.
Severability . If any provision of this Agreement is held to be unenforceable, this Agreement shall be considered
divisible and such provision shall be deemed inoperative to the extent it is deemed unenforceable, and in all other respects this Agreement shall
remain in full force and effect; provided, however, that if any such provision may be made unenforceable by limitation thereof, then such
provision shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by applicable law.
18.
Waiver . No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
19.
Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. If
an ambiguity or question of intent arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
20.
Waiver of Jury Trial . NO PARTY TO THIS AGREEMENT OR ANY ASSIGNEE, SUCCESSOR, HEIR OR
PERSONAL REPRESENTATIVE OF A PARTY SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM
OR ANY OTHER LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER
AGREEMENTS OR THE DEALINGS OR THE RELATIONSHIP BETWEEN THE PARTIES. NO PARTY WILL SEEK TO
CONSOLIDATE
8
ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A JURY TRIAL
CANNOT OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS SECTION HAVE BEEN FULLY DISCUSSED BY THE
PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HERETO HAS IN ANY
WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY HERETO THAT THE PROVISIONS OF THIS SECTION WILL
NOT BE FULLY ENFORCED IN ALL INSTANCES.
[Signature Pages Follow]
9
IN WITNESS WHEREOF, this Membership Interest Redemption Agreement has been duly executed by each of the parties hereto as
of the date first above written.
SELLER:
CELADON GROUP, INC.
By:
/s/ Paul Will
Name: Paul Will
Title: CEO
19 th CAPITAL:
19 th CAPITAL GROUP, LLC
By:
/s/ Harry Dugan
Name: Harry Dugan
Title: President
Back to Form 10-Q
Exhibit 10.2
SUBSCRIPTION AGREEMENT
This Subscription Agreement (including all schedules and exhibits hereto, this “ Agreement ”) is entered into as of December 30, 2016
by and among Element Transportation LLC, a Delaware limited liability company (“ Element ”), 19 th Capital Group, LLC, a Delaware limited
liability company (the “ Company ”), and Celadon Group, Inc., a Delaware corporation (“ Celadon ”).
R
E
C
I
T
A
L
S:
WHEREAS, Celadon currently owns 33.33% of the Class A Membership Interests of the Company and 23.75% of the Class B
Membership Interests of the Company, with the remaining Membership Interests owned by certain other members of the Company, including
Tiger ELS, LLC (collectively, the “ Other Members ”);
WHEREAS, the Company desires to redeem all of its issued and outstanding membership interests from Celadon and the Other
Members and eliminate all of its management profits interests pursuant to one or more Membership Interest Redemption Agreements, each
dated as of the date hereof (the “ Redemption Agreements ”), and to issue units of common membership interests in the Company (the “ Units
”) to Element and Celadon as consideration for their respective contributions (as described herein), so that Element and Celadon will each own
49.999975% of the issued and outstanding Units;
WHEREAS, Element and Celadon desire to enter into a limited liability company agreement of the Company in the form attached
hereto as Exhibit A (the “ LLC Agreement ”), whereby Element and Celadon will co-manage the Company as members;
WHEREAS, Element desires to (i) transfer, convey and assign to the Company certain of Element’s beneficial interests in the fleet
described on Schedule 1(a) (i) , together with the associated lease agreements, held in the Element Transportation Asset Trust, a Delaware
statutory trust (the “ JV SUBI Interests ”), which has an aggregate value of $659,123,151.02 (ii) contribute an amount equivalent to
$100,000,000 in cash of equity to the Company (the “ Equity Contribution ”), which would be applied against the outstanding principal balance
of the Tranche A Term Loans as part of the Closing Date Prepayment (as defined in the Term Loan Agreement) and settled on a net basis, and
(iii) transfer, convey and assign to the Company certain of Element’s beneficial interests in the fleet described on Schedule 1(a) (ii) , together
with the associated lease agreements, held in the Element Transportation Asset Trust, a Delaware statutory trust (the “ Equipment SUBI
Interests ”) which has an aggregate value of $8,407,587.16;
WHEREAS, in consideration of the foregoing, the Company desires to (i) acquire the JV SUBI Interests from Element, (ii) accept a
secured loan from Element consisting of (A) $571,276,071.47 in Tranche A Term Loans, the outstanding principal balance of which will be
reduced on the Closing Day by the Closing Date Prepayment (as such term is defined in the Term Loan Agreement) in an amount of
$100,000,000, and (B) $87,847,079.55, in Tranche B Term Loans, each secured by the JV SUBI Interests, pursuant to that certain Loan
Agreement by and among the Company, the several banks or other financial institutions or other entities from time to time party thereto, and
Element, as agent, dated as of the date hereof (the “ Term Loan Agreement ”), (iii) accept from Element an equipment financing facility
established pursuant to that certain Equipment Loan Agreement by and among the Company, the several banks or other financial institutions or
other entities from time to time party thereto, and Element, as agent, dated as of the date hereof (the “ Equipment Loan Agreement ”); (iv)
accept from Element a $31,800,000 Element Daylight Loan, which will be reduced on the Closing Day by the Closing Date Prepayment (as
such term is defined in the Term Loan Agreement) in an amount of $31,800,000; and (v)
2
issue to Element nine million nine hundred ninety nine thousand and nine hundred ninety five (9,999,995) Units, which, after the
consummation of the transactions contemplated hereby, shall constitute 49.999975% of the issued and outstanding Units of the Company;
WHEREAS, Celadon desires to (i) contribute $31,800,000 in cash to the Company, (ii) transfer, convey, and assign to the Company
rolling stock used in the business of Quality Companies LLC, an Indiana limited liability company and a subsidiary of Celadon (“ Quality ”)
and Quality Equipment Leasing, LLC, a Delaware limited liability company and a subsidiary of Celadon, set forth on Schedule 2(a) (the “
Quality Assets ”), (iii) contribute $3,500,000 of Restricted Cash to the Company, and (iv) receive credit for the unencumbered cash in the bank
accounts of the Company immediately after the consummation of the Restructuring, which is the aggregate amount of $1,100,000 (“
Unencumbered Cash ”);
WHEREAS, in consideration of the foregoing, and in exchange for the Membership Interests in the Company currently held by
Celadon, the Company desires to (i) issue to Celadon nine million nine hundred ninety nine thousand and nine hundred ninety five (9,999,995)
Units, which, after the consummation of the transactions contemplated hereby and, shall constitute 49.999975% of the issued and outstanding
Units of the Company, (ii) pay to Celadon $31,800,000 in cash with respect to repairs performed on the Element Assets (the “ Payment ”), and
(iii) issue Celadon an obligation to distribute all restricted cash of the Company and its subsidiaries (including SPEs) at Closing of
approximately $2,545,825 at such time as such cash becomes unrestricted (the “ Restricted Cash Obligation ”);
WHEREAS, the Company desires to enter into that certain Service Agreement by and between the Company and Quality, dated as of
the date hereof (the “ Service Agreement ”), whereby Quality will provide certain management services to the Company;
WHEREAS, Element and Celadon desire to enter into that certain Termination Agreement and Mutual Waiver and Release, by and
among Celadon, Quality, Element, and the Company, dated as of the date hereof (the “ Termination Agreement ”), whereby certain existing
business arrangements among Element, Celadon and their respective Affiliates (as defined below) will be terminated;
WHEREAS, Celadon and the Company desire to enter into that certain Lease Agreement by and between Celadon and the Company,
dated as of the date hereof (the “ Lease Agreement ” and, together with the Redemption Agreements, the LLC Agreement, the Term Loan
Agreement, the Equipment Loan Agreement, the Service Agreement, the Termination Agreement and the Management Subscription
Agreement, the “ Transaction Documents ”), pursuant to which Celadon will lease certain office space to the Company;
WHEREAS, each of Harry Dugan and Gregory Burke (the “ Management Members ”) and the Company desire to enter into those
certain Management Subscription Agreements, each dated as of the date hereof (together, the “ Management Subscription Agreements ”),
pursuant to which each Management Member will acquire five (5) Units from the Company in exchange for $50 in cash, representing
0.000025% of the issued and outstanding Units of the Company; and
WHEREAS, following the Closing, Element may contribute additional beneficial interests in the fleet held in the Element
Transportation Asset Trust that, as of the date hereof, are held by one or more third parties in exchange for additional Tranche B Loans.
NOW, THEREFORE, in consideration of the mutual covenants and agreements as hereinafter set forth, the parties hereto do hereby
agree as follows:
3
1.
Element Investment .
(a)
Subscription . Subject to, conditioned only upon, the satisfaction or waiver of the conditions set forth in Section 1(c)
, at the Closing, Element hereby subscribes for nine million nine hundred ninety nine thousand and nine hundred ninety five (9,999,995)
Units. At the Closing, Element shall (i) transfer, convey and assign to the Company the JV SUBI Interests (it being understood that the title
interests of such fleet will remain in the Element Transportation Asset Trust), (ii) make the Equity Contribution and (iii) transfer, convey and
assign to the Company the Equipment SUBI Interests (it being understood that the title interests of such fleet will remain in the Element
Transportation Asset Trust) (collectively, the “ Element Assets ”). The Company shall, in exchange therefor, (A) accept a secured loan from
Element in the amount of $571,276,071.47 in Tranche A Term Loans (prior to the application of the Closing Date Prepayment, which would be
$471,276,071.47 after the Prepayment (as defined in the Term Loan Agreement)) and $87,847,079.55 in Tranche B Term Loans pursuant to the
Term Loan Agreement, (B) accept a secured loan from Element in the amount of $8,407,587.16 pursuant to the Equipment Loan Agreement
and (C) issue nine million nine hundred ninety nine thousand and nine hundred ninety five (9,999,995) Units in exchange for the Capital
Contribution (the “ Element Investment ”), which Units will constitute 49.999975% of all outstanding and issued Units of the Company
immediately after the Closing.
(b)
Certificates . Element and the Company acknowledge and agree that the Units will be certificated.
(c)
Conditions to Element’s Obligations . The obligations of Element to effect the closing of the Element Investment,
including the consummation of the transactions contemplated by Section 1(a) , are subject to:
(i)
the absence of any law or order (whether temporary, preliminary or permanent) that shall have been
promulgated, enacted or issued by any governmental entity of competent jurisdiction that prohibits or makes illegal the
consummation of the Element Investment;
(ii)
the representations and warranties set forth in Sections 6 , 7 and 8 (a) being true and correct as of the date
of this Agreement and as of the closing of the Element Investment;
(iii)
the Company and Celadon shall have performed or complied with all of their respective covenants and
agreements required by this Agreement to be performed or complied with by them respectively prior to the closing of the
Element Investment;
(iv)
the absence of any change, circumstance, fact, development or effect that is materially adverse to the
financial condition or results of operations of the Company and its subsidiaries, taken as a whole, since the date of this
Agreement;
(v)
the receipt by Element of a certificate signed by a senior executive officer of each of the Company and
Celadon certifying that the conditions set forth in Sections 1(c)(ii) , 1(c)(iii) , 1(c)(iv) have been satisfied;
(vi)
the receipt by Element of executed copies of the Redemption Agreements with respect to each of
Celadon and the Other Members in a form reasonably satisfactory to Element;
(vii)
the completion of the Restructuring (as defined below); and
4
(viii)
the simultaneous closing of the Celadon Investment.
(d)
Conditions to the Company’s Obligations . The obligations of the Company to effect the closing of the Element
Investment, including the consummation of the transactions contemplated by Section 1(a) , are subject to:
(i)
the absence of any law or order (whether temporary, preliminary or permanent) that shall have been
promulgated, enacted or issued by any governmental entity of competent jurisdiction that prohibits or makes illegal the
consummation of the Element Investment;
(ii)
the representations and warranties set forth in Section 5 being true and correct as of the date of this
Agreement and as of the closing of the Element Investment; and
(iii)
the receipt by the Company of a certificate signed by a senior executive officer of Element certifying
that the condition set forth in Section 1(d)(ii) has been satisfied.
2.
Celadon Investment .
(a)
Subscription . Subject to, conditioned only upon, the satisfaction or waiver of the conditions set forth in Section 2(c)
, at the Closing, Celadon hereby subscribes for nine million nine hundred ninety nine thousand and nine hundred ninety five (9,999,995)
Units. Celadon shall (i) contribute $31,800,000 in cash to the Company, (ii) transfer, convey, and assign to the Company the Quality Assets,
which had a book value of $63,600,000 as of the date hereof, (iii) contribute $3,500,000 of Restricted Cash to the Company, and (iv) receive
credit for the Unencumbered Cash in an aggregate amount of $1,100,000 (such contributions collectively and the issuance of Units in exchange
thereto, the “ Celadon Investment ”). In consideration of Celadon’s aggregate capital contribution, and in exchange for all of the Membership
Interests in the Company held by Celadon immediately prior to Closing (which shall be redeemed), the Company shall issue to Celadon (x)
nine million nine hundred ninety nine thousand and nine hundred ninety five (9,999,995) Units, which will constitute 49.999975% of all
outstanding and issued Units of the Company immediately after the Closing, (y) the Restricted Cash Obligation, and (z) the Payment.
(b)
Certificates . Celadon and the Company acknowledge and agree that the Units will be certificated.
(c)
Conditions to Celadon’s Obligations . The obligations of Celadon to effect the closing of the Celadon Investment,
including the consummation of the transactions contemplated by Section 2(a) , are subject to:
(i)
the absence of any law or order (whether temporary, preliminary or permanent) that shall have been
promulgated, enacted or issued by any governmental entity of competent jurisdiction that prohibits or makes illegal the
consummation of the Celadon Investment.
(ii)
the representations and warranties set forth in Sections 5 , 7 and 8 (b) being true and correct as of the date
of this Agreement and as of the closing of the Celadon Investment;
5
(iii)
the Company and Element shall have performed or complied with all of their respective covenants and
agreements required by this Agreement to be performed or complied with by them respectively prior to the closing of the
Celadon Investment;
(iv)
the absence of any change, circumstance, fact, development or effect that is materially adverse to the
financial condition or results of operations of the Company and the its subsidiaries, taken as a whole, since the date of this
Agreement;
(v)
the receipt by Celadon of a certificate signed by a senior executive officer of each of the Company and
Element certifying that the conditions set forth in Sections 2(c)(ii) , 2(c)(iii) , 2(c)(iv) have been satisfied;
(vi)
Other Members;
the receipt by Celadon of executed copies of the Redemption Agreements with respect to each of the
(vii)
the completion of the Restructuring (as defined below); and
(viii)
the simultaneous closing of the Element Investment.
(d)
Conditions to the Company’s Obligations . The obligation of the Company to effect the closing of the Celadon
Investment, including the consummation of the transactions contemplated by Section 2 , is subject to:
(i)
the absence of any law or order (whether temporary, preliminary or permanent) that shall have been
promulgated, enacted or issued by any governmental entity of competent jurisdiction that prohibits or makes illegal the
consummation of the Celadon Investment;
(ii)
the representations and warranties set forth in Section 6 being true and correct as of the date of this
Agreement and as of the closing of the Celadon Investment; and
(iii)
the receipt by the Company of a certificate signed by a senior executive officer of Celadon certifying
that the condition set forth in Section 2(d)(ii) has been satisfied.
3.
Closing .
(a)
At the closing of the Element Investment,
(i)
Element shall transfer, convey, and assign to the Company the Element Assets;
(ii)
Element shall make a loan to the Company in the principal amount of $31,800,000 (the “ Element
Daylight Loan ”), which shall be evidenced by this Agreement, and the Company shall pay $31,800,000 to Celadon in
respect of the Payment;
(iii)
the Company shall issue and deliver to Element nine million nine hundred ninety nine thousand and nine
hundred ninety five (9,999,995) Units, representing 49.999975% of all of the outstanding Units; and
6
(iv)
(b)
Element and the Company shall execute and deliver the Transaction Documents to which it is a party.
At the closing of the Celadon Investment,
(i)
Celadon shall transfer, sell, and assign all of its interests in the Quality Assets to the Company;
(ii)
Celadon shall transfer $31,800,000 in cash to an account designated by the Company, and the Company
shall repay the Element Daylight Loan in full;
(iii)
the Company shall redeem all of the Membership Interests in the Company held by Celadon
immediately prior to the Closing and, in exchange therefor, issue and deliver to Celadon nine million nine hundred ninety
nine thousand and nine hundred ninety five (9,999,995) Units, representing 49.999975% of all outstanding Units; and
(iv)
each of the Company and Celadon shall execute and deliver the Transaction Documents to which it is a
party.
(c)
The closing of the Element Investment and the closing of the Celadon Investment (together, the “ Closing ”) shall occur
simultaneously. Contemporaneously with the Closing, (i) the Company shall enter into the Redemption Agreements; (ii) Celadon and Element
shall enter into the LLC Agreement in the form attached hereto as Exhibit A; (iii) Element and the Company shall enter into the Term Loan
Agreement; (v) Element and the Company shall enter into the Equipment Loan Agreement; (vi) Celadon and the Company shall enter into the
Service Agreement; (vii) Element and Celadon shall enter into the Termination Agreement; (viii) Celadon and the Company shall enter into the
Lease Agreement; and (ix) the Company and each Management Member shall enter into the Management Subscription Agreements.
(d)
Celadon and the Company agree that, notwithstanding the actual date on which the Closing occurs, the terms of each of the
Service Agreement, the Term Loan Agreement and the Equipment Loan Agreement shall be deemed effective as of December 1, 2016.
4.
and Celadon.
Effectiveness . This Agreement will become effective immediately upon execution and delivery by Element, the Company
5.
Representations and Warranties of Element . Element hereby represents and warrants to the Company, as of the date of
this Agreement and as of the Closing, that:
(a)
Capacity . Element has all requisite power and authority to, in each case, execute and deliver this Agreement and
the Transaction Documents to which it is or will be a party and to perform its obligations hereunder and thereunder.
(b)
Authorization; Enforceability . This Agreement and the Transaction Documents to which Element is or will be a
party have been or will be, as applicable, duly and validly executed and delivered by Element and, assuming the due authorization, execution
and delivery of this Agreement and the Transaction Documents to which Element is or will be a party by the other parties thereto, this
Agreement and the Transaction Documents to which Element is or will be a party constitute or will constitute, as applicable, the valid and
binding obligations of Element, enforceable against Element in accordance with their terms, except as enforceability may be limited by any
bankruptcy, insolvency,
7
reorganization, moratorium and similar laws affecting or relating to the enforcement of creditors’ rights generally and subject to general
principles of equity, whether considered in a proceeding at law, in equity, in contract, in tort or otherwise.
(c)
No Conflicts . The execution, delivery and performance by Element of this Agreement and the Transaction
Documents to which Element is or will be a party and the consummation by Element of the transactions contemplated hereby and thereby do
not and will not, with or without the giving of notice or the passage of time or both, (i) violate the provisions of any law applicable to Element
or any of its properties or assets; (ii) violate any judgment, decree, order or award (collectively, the “ Order ”) of any governmental entity
having jurisdiction over Element or arbitrator applicable to Element or any of its properties or assets; or (iii) result in any breach of or conflict
with any terms or conditions, or constitute a default under, any contract, agreement or instrument to which Element is a party or by which
Element or its properties or assets are bound.
(d)
No Proceedings . There is no action, litigation, arbitration, audit, hearing, investigation or suit (whether civil,
criminal, administrative, judicial or investigative, whether public or private (collectively, the “ Proceedings”) pending or, to the knowledge of
Element, threatened against either of Element or any of its assets, and Element is not the subject of any Order of any governmental entity, other
than any such Proceeding or Order that would not prevent, materially delay or materially impede the consummation of the transactions
contemplated hereby.
(e)
Unregistered Units . Element has been advised by the Company that (i) the Units have not been registered under
the Securities Act or under state securities law and may not be resold or transferred unless registered or exempted from registration under the
Securities Act and applicable state securities laws; (ii) the Company is under no obligation to effect any such registration with respect to the
Units or to file for or comply with any exemption from registration (except as otherwise provided in the LLC Agreement or determined from
time to time by the board of managers of the Company); (iii) Element must continue to bear the economic risk of its investment in the Units
unless such Units are subsequently registered under the Securities Act and all applicable state securities laws or an exemption from such
registration is available; and (iv) there is no established market for the Units and it is not anticipated that there will be any public market for the
Units in the foreseeable future.
(f)
Investment .
(i)
Element’s financial situation is such that Element can afford to bear the economic risk of holding the
Units for an indefinite period of time, has adequate means for providing for Element’s needs and contingencies, and can
afford to suffer a complete loss of Element’s investment in the Units.
(ii)
Element’s knowledge, sophistication and experience in financial and business matters are such that
Element is capable of evaluating the merits and risks of the investment in the Units.
(iii)
Element understands that an investment in the Units is a speculative investment that involves a high
degree of risk of loss of Element’s investment therein, there will be substantial restrictions on the transferability of the Units
under applicable securities laws and as set forth in the LLC Agreement and, on the date of the Closing and for an indefinite
period following such date, there may be no public market for the Units and, accordingly, it may not be possible for Element
to liquidate Element’s investment in case of emergency, if at all.
8
(iv)
Element has been given the opportunity to examine all documents contemplated hereby, including the
LLC Agreement, and to ask questions of, and to receive answers from, the Company and its respective representatives
concerning the Company and its subsidiaries, and the terms and conditions of the Units. Element has independently and
based on such documents and information as Element has deemed appropriate, performed its own due diligence and business
investigations with respect to the Company and its subsidiaries and made its own investment decision with respect to the
investment represented by the Units. Element is fully familiar with the nature of the businesses of the Company and its
subsidiaries. Element has consulted, to the extent deemed reasonably appropriate by Element, with Element’s own advisers
as to the financial, tax, legal and related matters concerning an investment in the Units and on that basis understands the
financial, tax, legal and related consequences of an investment in the Units, and believes that an investment in the Units is
suitable and appropriate for Element.
(v)
Element is acquiring the Units for its own account, not as nominee or agent, and not with a view to the
resale or distribution thereof.
(vi)
Element acknowledges and agrees that Element is responsible for its own taxes relating to the
transactions contemplated by this Agreement and the transactions contemplated by the Transaction Documents to which
Element is a party.
(vii)
Element understands that after consummation of the Closing and the consummation of the transactions
contemplated by the Term Loan Agreement, the consolidated total indebtedness of the Company and its subsidiaries will be
significantly greater than the consolidated total funded debt of the Company and its subsidiaries prior to the Closing.
(viii)
Element is, and will be at the time of issuance of the Units pursuant to its investment, an “accredited
investor” within the meaning of Rule 501(a) under the Securities Act. No events described in Rule 506(d)(1)(i)-(viii) of
Regulation D under the Securities Act have occurred with respect to Element.
(ix)
Element has not incurred any obligation for any finder’s or broker’s or agent’s fees or commission or
similar compensation in connection with the transactions contemplated hereby for which the Company, or any individual or
entity directly or indirectly, controls, is controlled by or is under common control with, the Company (the “ Affiliates ”) may
be liable.
(x)
Element understands and acknowledges the risk factors related to the Units that Element will acquire
pursuant to is investment and, other than as set forth in this Agreement, no representation or warranties have been made to
Element concerning the Units, the Company and its subsidiaries or their prospects or other matters.
6.
Representations and Warranties of Celadon . Celadon hereby represents and warrants to the Company, as of the date of
this Agreement and as of the Closing, that:
(a)
Capacity . Celadon has all requisite power and authority to, in each case, execute and deliver this Agreement and
the Transaction Documents to which it is or will be a party and to perform its obligations hereunder and thereunder.
9
(b)
Authorization; Enforceability . This Agreement and the Transaction Documents to which Celadon is or will be a
party have been or will be, as applicable, duly and validly executed and delivered by Celadon and, assuming the due authorization, execution
and delivery of this Agreement and the Transaction Documents to which Celadon is or will be a party by the other parties thereto, this
Agreement and the Transaction Documents to which Celadon is or will be a party constitute or will constitute, as applicable, the valid and
binding obligations of Celadon, enforceable against Celadon in accordance with their terms, except as enforceability may be limited by any
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting or relating to the enforcement of creditors’ rights generally and
subject to general principles of equity, whether considered in a proceeding at law, in equity, in contract, in tort or otherwise.
(c)
No Conflicts . The execution, delivery and performance by Celadon of this Agreement and the Transaction
Documents to which Celadon is a party and the consummation by Celadon of the transactions contemplated hereby and thereby do not and will
not, with or without the giving of notice or the passage of time or both, (i) violate the provisions of any law applicable to Celadon or any of its
properties or assets; (ii) violate any Order of any governmental entity having jurisdiction over Celadon or arbitrator applicable to Celadon or
any of its properties or assets; or (iii) result in any breach of or conflict with any terms or conditions, or constitute a default under, any contract,
agreement or instrument to which Celadon is a party or by which Celadon or its properties or assets are bound.
(d)
No Proceedings . There are no action, litigation, arbitration, audit, hearing, investigation or suit (whether civil,
criminal, administrative, judicial or investigative, whether public or private (collectively, the “ Proceedings”) pending or, to the knowledge of
Celadon, threatened against either of Celadon or any of its assets, and Celadon is not the subject of any Order of any governmental entity, other
than any such Proceeding or Order that would not prevent, materially delay or materially impede the consummation of the transactions
contemplated hereby.
(e)
Unregistered Units . Celadon has been advised by the Company that (i) the Units have not been registered under
the Securities Act or under state securities law and may not be resold or transferred unless registered or exempted from registration under the
Securities Act and applicable state securities laws; (ii) the Company is under no obligation to effect any such registration with respect to the
Units or to file for or comply with any exemption from registration (except as otherwise provided in the LLC Agreement or determined from
time to time by the board of managers of the Company); (iii) Celadon must continue to bear the economic risk of its investment in the Units
unless such Units are subsequently registered under the Securities Act and all applicable state securities laws or an exemption from such
registration is available; and (iv) there is no established market for the Units and it is not anticipated that there will be any public market for the
Units in the foreseeable future.
(f)
Investment .
(i)
Celadon’s financial situation is such that Celadon can afford to bear the economic risk of holding the
Units for an indefinite period of time, has adequate means for providing for Celadon’s needs and contingencies, and can
afford to suffer a complete loss of Celadon’s investment in the Units.
(ii)
Celadon’s knowledge, sophistication and experience in financial and business matters are such that
Celadon is capable of evaluating the merits and risks of the investment in the Units.
(iii)
Celadon understands that an investment in the Units is a speculative investment that involves a high
degree of risk of loss of Celadon’s investment therein,
10
there will be substantial restrictions on the transferability of the Units under applicable securities laws and as set forth in the
LLC Agreement and, on the date of the Closing and for an indefinite period following such date, there may be no public
market for the Units and, accordingly, it may not be possible for Celadon to liquidate Celadon’s investment in case of
emergency, if at all.
(iv)
Celadon has been given the opportunity to examine all documents contemplated hereby, including the
LLC Agreement, and to ask questions of, and to receive answers from, the Company and its respective representatives
concerning the Company and its subsidiaries, and the terms and conditions of the Units. Celadon has independently and
based on such documents and information as Celadon has deemed appropriate, performed its own due diligence and business
investigations with respect to the Company and its subsidiaries and made its own investment decision with respect to the
investment represented by the Units. Celadon is fully familiar with the nature of the businesses of the Company and its
subsidiaries. Celadon has consulted, to the extent deemed reasonably appropriate by Celadon, with Celadon’s own advisers
as to the financial, tax, legal and related matters concerning an investment in the Units and on that basis understands the
financial, tax, legal and related consequences of an investment in the Units, and believes that an investment in the Units is
suitable and appropriate for Celadon.
(v)
Celadon is acquiring the Units for its own account, not as nominee or agent, and not with a view to the
resale or distribution thereof.
(vi)
Celadon acknowledges and agrees that Celadon is responsible for its own taxes relating to the
transactions contemplated by this Agreement and the transactions contemplated by the Transaction Documents to which
Celadon is a party.
(vii)
Celadon understands that after consummation of the Closing and the consummation of the transactions
contemplated by the Term Loan Agreement, the consolidated total indebtedness of the Company and its subsidiaries will be
significantly greater than the consolidated total funded debt of the Company and its subsidiaries prior to the Closing.
(viii)
Celadon is, and will be at the time of issuance of the Units pursuant to its investment, an “accredited
investor” within the meaning of Rule 501(a) under the Securities Act. No events described in Rule 506(d)(1)(i)-(viii) of
Regulation D under the Securities Act have occurred with respect to Celadon.
(ix)
Celadon has not incurred any obligation for any finder’s or broker’s or agent’s fees or commission or
similar compensation in connection with the transactions contemplated hereby for which the Company or its Affiliates may
be liable.
(x)
Celadon understands and acknowledges the risk factors related to the Units that Celadon will acquire
pursuant to is investment and, other than as set forth in this Agreement, no representation or warranties have been made to
Celadon concerning the Units, the Company and its subsidiaries or their prospects or other matters.
7.
Representations and Warranties of the Company . The Company represents and warrants to Element and Celadon, as of
the date of this Agreement and as of the Closing, that:
11
(a)
Organization . The Company is a limited liability company validly existing and in good standing under the laws
of the State of Delaware and has all requisite limited liability company power and authority to execute and deliver this Agreement and the
Transaction Documents to which it is or will be a party and to perform its obligations hereunder and thereunder.
(b)
Authorization; Enforceability . This Agreement and the Transaction Documents to which the Company is or will
be a party have been or will be, as applicable, duly executed and delivered by the Company and, assuming the due authorization, execution and
delivery of this Agreement and the Transaction Documents to which the Company is or will be a party by the other parties thereto, this
Agreement and the Transaction Documents to which the Company is or will be a party constitute or will constitute, as applicable, the valid and
binding obligations of the Company enforceable against the Company in accordance with their terms, except as enforceability may be limited
by any bankruptcy, insolvency, reorganization, moratorium and similar laws affecting or relating to the enforcement of creditors’ rights
generally and subject to general principles of equity, whether considered in a proceeding at law, in equity, in contract, in tort or otherwise.
(c)
No Conflicts . The execution, delivery and performance by the Company of this Agreement and the Transaction
Documents to which the Company is or will be a party and the consummation by the Company of the transactions contemplated hereby and
thereby does not and will not, with or without the giving of notice or the passage of time or both, (i) violate the provisions of any law, rule or
regulation applicable to the Company or any of its properties or assets; (ii) violate any Order of any governmental entity having jurisdiction
over the Company or arbitrator applicable to the Company or any of its properties or assets; or (iii) except as set forth in Schedule 7(c), result in
any breach of or conflict with any terms or conditions, or constitute a default under, any Material Contract (as defined below).
(d)
Title and Validity of Issued Interests . Immediately after giving effect to the Closing, the Company’s issued and
outstanding membership interests will consist of twenty million (20,000,000) Units. Except as expressly provided or referred to herein, there
are no existing options, calls, claims, warrants, preemptive rights, registration rights or commitments of any character relating to the issued or
unissued common membership interests or other securities of the Company. Units of the Company to be issued in connection with each of the
Element Investment and the Celadon Investment, when issued and delivered in accordance with the terms of this Agreement and the LLC
Agreement, will be duly authorized, validly issued, fully paid and nonassessable with no personal liability attached to the ownership thereof,
and each of Element and Celadon will receive valid and good title to the Units issued to it, free and clear of any liens except as may be
otherwise set forth in this Agreement or the LLC Agreement or under the U.S. Securities Act of 1933, as amended (the “ Securities Act ”) and
applicable state securities laws.
(e)
No Proceedings . There are no Proceedings pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries, assets, operations or executive officers, and none of the Company or any of its Subsidiaries is the
subject of any Order of any governmental entity, other than any such Proceeding or Order that would not have any material adverse effect on
the Company or its subsidiaries, or prevent, materially delay or materially impede the consummation of the transactions contemplated hereby.
(f)
Real Property . Neither the Company nor any of its subsidiaries owns or leases any real property, except under the
Lease.
(g)
Material Contracts . Schedule 7(g) sets forth a list of each contract of the Company that exists as of the date
hereof and falls within any of the following categories: (i) contracts
12
that require performance of services or delivery of consideration by the Company or any of its subsidiaries in an amount or value in excess of
$50,000 in any one calendar year, (ii) agreements establishing joint ventures or partnerships, (iii) agreements containing covenants that will
limit the freedom of the Company to operate its business; (iv) real property leases material to the operation of the Company’s business, (v)
contracts related to any services provided by any third parties that are material to the operation of the Company’s business, and (vi) each loan
and credit agreement, note, debenture, bond, indenture, mortgage, security agreement, pledge, or other similar agreement pursuant to which any
indebtedness of the Company or any of the Company’s subsidiaries is outstanding or may be incurred (collectively, the “ Material Contracts
”). The Company has provided Element an opportunity to review true and complete copies of all the Material Contracts (to the extent in
writing or if not in writing, an accurate summary thereof), together with any and all amendments thereto. Each of the Material Contracts is in
full force and effect in all material respects, except as the enforceability of such contracts may be affected by bankruptcy, insolvency, or similar
laws affecting creditors’ rights generally and by judicial discretion in the enforcement of equitable remedies. Except as set forth in Schedule
7(c), neither the Company nor any of its subsidiaries is, and to the knowledge of the Company any other party thereto is not, in material default
under any Material Contract and no circumstance exists that (with or without notice or the lapse of time) would give any counterparty
thereunder or other third party the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to
cancel, terminate or modify, any Material Contract. To the knowledge of the Company, no party to a Material Contract has given notice of
termination under any Material Contract (nor indicated any intent not to renew or extend such Material Contract), nor does any such party
intend to terminate or abrogate or fail to comply with such party’s obligations under such Material Contract.
(h)
Employees . Schedule 7(h) sets forth a listing of the names and positions of each employee of the Company and
the Company’s subsidiaries as of the date hereof. The Company has made available information regarding all salary and other material
compensation paid to each such employee. To the knowledge of the Company, no key employee or group of employees has any plans to
terminate employment with the Company or its subsidiaries. Neither the Company nor any of its subsidiaries is a party to or bound by any
collective bargaining or similar agreement, nor has it experienced any strikes, claims of unfair labor practices or other collective bargaining
disputes related to its business. The Company has no Knowledge of any organizational effort presently being made or threatened by or on
behalf of any labor union with respect to the employees of the Company or its subsidiaries.
(i)
Benefit Plans . Schedule 7(i) sets forth a list of each material “employee benefit plan” (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), and all severance, change in control or
employment plan, program or agreement, and vacation, incentive, bonus, stock option, stock purchase, and restricted stock plan, program or
policy sponsored or maintained by the Company, or any of its subsidiaries, in which the employees of the Company and its subsidiaries
participate (collectively, the “Company Plans”). The Company has provided to Element and Celadon a current, accurate description of each
Company Plan. Each Company Plan has been established and administered in accordance with its terms, and in compliance in all material
respects with the applicable provisions of ERISA, the Code and other applicable laws, rules and regulations. Each Company Plan that is
intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service to the
effect that such Plan is qualified under the Code and nothing has occurred that could reasonably be expected to cause the loss of such
qualification. No event has occurred and no condition exists that would subject the Company or its subsidiaries, either directly or by reason of
their affiliation with any member of their “Controlled Group” (defined as any organization which is a member of a controlled group of
organizations within the meaning of Code sections 414(b), (c), (m) or (o)), to any tax, fine, lien, penalty or other liability imposed by ERISA,
the Code or other applicable laws, rules and regulations. No Company Plan is subject to Title IV of ERISA, and neither Company, its
subsidiaries nor any member of their Controlled Group has at any
13
time sponsored or contributed to, or has or had any liability or obligation in respect of any “multiemployer plan” (as defined in Section
4001(a)(3) of ERISA). Except as set forth on Schedule 7(i), no Company Plan exists that could result in the payment to any such employee of
any money or other property (including any severance payments, bonus or other compensation) or in the acceleration of any other rights or
benefits to any such employee as a result of the transactions contemplated herein.
(j)
Insurance . The Company maintains insurance coverage for the Company and its subsidiaries as set forth on
Schedule 7(j).
(k)
Affiliated Transaction . Except as set forth on Schedule 7(k), and other than the transactions contemplated by this
Agreement and the other Transaction Documents, there are no contracts or arrangements between the Company or any of the Company’s
subsidiaries, on the one hand, and, on the other hand, any (i) current officer or director of the Company or any of the Company’s subsidiaries,
(ii) individual or entity that owns, directly or indirectly, equity interests in the Company or any of the Company’s subsidiaries, or (iii) any
directors or officers of any entity that owns equity interests in the Company or any of the Company’s subsidiaries.
(l)
Tax . The Company and its subsidiaries do not have any liability (A) for any federal or state income taxes with
respect to any tax period or portion thereof ending on or prior to the Closing, (B) for any taxes (other than covered in clause (A)) with respect
to any tax period or portion thereof ending on or prior to the Closing (other than any such taxes for which adequate provision has been made
under GAAP), or (C) arising out of or relating to the Restructuring, in each case that has not been satisfied at or prior to the Closing. The
Company is, and has been at all times since its formation, classified as a partnership for U.S. federal income tax purposes, and each subsidiary
of the Company is, and has been at all times since formation, classified as a disregarded entity for U.S. federal income tax purposes.
(m)
Restructuring . The Company and its subsidiaries do not have any liability arising out of or relating to the
Restructuring (as defined in Section 8(a)(i)) that has not been satisfied at or prior to the Closing. Neither the Company, nor Element, nor
Celadon (nor any of their respective Affiliates) shall have any liabilities arising out of or relating to the Restructuring after the Closing.
8.
Additional Representations and Warranties of Celadon and Element .
(a)
Celadon further represents and warrants to Element that:
(i)
Restructuring . Simultaneously with the Closing, the Company will have consummated the redemption
of all of its issued and outstanding membership interests from the Other Members (including all of its management profits
interests) without any obligation of the Company or any of its subsidiaries in connection therewith at any point following the
Closing (collectively, the “ Restructuring ”).
(ii)
Existing Agreements . Other than those set forth in Schedule 8(a)(ii) attached hereto, there are no
agreements, contracts and arrangements among Celadon or any of its Affiliates and the Company, and any of its subsidiaries,
as of the date of this Agreement and immediately prior to the Closing.
(iii)
Quality or Quality Equipment Leasing, LLC has good and marketable title to the Quality Assets, free
and clear of all liens and rights of others.
14
(b)
Element further represents and warrants to Celadon that:
(i)
Element has good and marketable title to the Element Assets, free and clear of all liens and rights of
others, provided that in the case of any Element Assets purchased by Element from Quality or Quality Equipment Leasing,
LLC, this representation is based solely upon the representations and warranties of Quality or Quality Equipment Leasing,
LLC, as applicable, in the applicable purchase documentation.
9.
Covenants .
(a)
Conduct of Business Prior to the Closing . Except as expressly contemplated or permitted by this Agreement
(including the Restructuring), the Term Loan Agreement and the Service Agreement, during the period from the date of this Agreement to the
Closing, unless Element otherwise agrees in writing, the Company shall, and shall cause its subsidiaries to, conduct its and their respective
businesses in the ordinary course consistent with past practice, use commercially reasonable efforts to preserve its present business
organization, maintain in effect all its and their current permits or licenses as necessary to operate their businesses, keep available the services
of its and their executive officers and key employees on commercially reasonable terms and maintain its and their relationships with its and
their customers, suppliers and others having material business relationships with it or any of them, in each case consistent with past practice.
(b)
Cooperation . Subject to the terms and conditions of this Agreement, each of Element and Celadon shall use its
respective commercially reasonable efforts (i) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly
with all legal requirements which may be imposed on such party with respect to the Element Investment or the Celadon Investment, as
applicable, and, subject to the conditions set forth in Sections 1(c) and 2(c) hereof, to consummate the Element Investment or the Celadon
Investment, as applicable and the other transactions contemplated by this Agreement, as promptly as practicable and (ii) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order, decision or approval of, or any exemption by, any governmental
entity and any other third party which is required to be obtained by Element or Celadon in connection with the transactions contemplated by
this Agreement, and to comply with the terms and conditions of any such consent, authorization, order or approval.
(c)
Element, Celadon and the Company hereby agree as to the matters set forth on Schedule 9(c).
(d)
Following the Closing, Celadon and the Company shall take any further action and execute and deliver any further
documents as may be reasonably required in order to accomplish the Restructuring.
(e)
Each of Element and Celadon shall, during the period of the first one hundred and twenty (120) days after the
Closing, work diligently and cooperatively with each other to establish a “best-in-class operating business” for the Company and shall cause
the Company to retain such advisors, consultants and/or senior employees to achieve such result.
(f)
After the date that is one hundred and twenty (120) days following the Closing, Element shall, upon request by the
Board (as defined in the LLC Agreement) of the Company, provide to the Company, at Element’s then current market fee rates, services
relating to sourcing, negotiating, and arranging for any capital raising initiatives (including any private placement) of the Company as its
preferred capital advisor.
15
(g)
After the Closing and for so long as Celadon holds any Units, Celadon agrees that it shall not and shall cause its
controlled Affiliates not to, directly or indirectly, carry on, engage in or hold any equity interest in, the business of leasing transportation
equipment or the financing thereof other than through the Company. Notwithstanding anything contrary in this clause (g), in the event that
Celadon desires to sell any vehicle within Celadon’s then-existing operating fleet but is unable to find a buyer for such vehicle for at least the
book value of such vehicle, Celadon shall have the right to (i) lease such vehicle to any Person for a period of not more than twelve (12)
months; provided that the aggregate net book value of vehicles subject to all such leases shall not at any time exceed $20,000,000; provided,
further, that before Celadon enters into any such lease, Celadon shall first offer to sell such vehicle to the Company and the Company shall
have a priority right but not obligation to purchase such vehicle at a mutually agreed price, or (ii) liquidate such vehicle through the Company’s
trade-in program for at least net book value.
(h)
Element and Celadon hereby agree that the Company shall use its commercially reasonable efforts to distribute to
Celadon all the cash that remains in the maintenance and reserve accounts of 19 th Capital SPE I, LLC and 19 th Capital SPE II, LLC (account
numbers ending in 9765, 9963, 5249, and 5363) (including any accrued interest), which was in an amount of approximately $2,545,825
immediately after the effective time of the Restructuring.
(i)
The Company shall not allocate any income to Element in respect of (i) the transactions occurring on the Closing
Date or (ii) any period or portion thereof ending on and including the Closing Date, as determined on the basis of an interim closing of the
books of the Company as of the close of business on the Closing Date.
(j)
10.
Element and the Company hereby agree as to the matters set forth on Schedule 9(j).
Indemnification .
(a)
General . Celadon hereby agrees to indemnify and hold harmless Element and its Affiliates, directors, officers,
managers, employees, agents, consultants, advisors, accountants, legal counsel or other representatives (the “ Representatives ”) (collectively,
the “ Indemnified Persons ”) from and against all losses, liabilities, damages, injuries, costs and expenses (including reasonable attorney fees
actually incurred) (“ Damages ”) arising from (i) a breach by Celadon or the Company of any of its applicable representations and warranties in
Sections 6, 7 or 8 hereof or (ii) a breach by Celadon of any of its covenants or other obligations under this Agreement. Element agrees to
indemnify and hold harmless Celadon and its Indemnified Persons from and against all Damages arising from (A) a breach by Element of any
of its representations and warranties in Section 5 or 8 hereof, or (B) a breach by Element of any of its covenants or other obligations under this
Agreement.
(b)
Survival . Any claim for indemnification under clauses (i) (other than with respect to any breach of Section 7(l)
or 7(m)) or (A) of Section 10(a) may be brought until the day that is forty-five (45) days after the date upon which one full audit cycle of the
Company has been completed (with the signed auditor’s report delivered to the board of managers of the Company) following the
Closing. Any claim for indemnification under clauses (i) with respect to any breach of Section 7(l) or 7(m) may be brought until the expiration
of applicable statute of limitation. Any claim for indemnification under clauses (ii), (iii), (iv) or (B) of Section 10(a) shall survive until the
third anniversary of the Closing. If Element or Celadon provides notice of a claim in accordance with the terms of this Agreement prior to the
end of the period of survival set forth in this Section 10(b), then the indemnification obligations of the other party for such claim will continue
until the claim is fully resolved. In order to be timely given, any such claim must specify in reasonable detail the factual basis of
16
such claim to the extent then known by the party claiming for indemnification. The waiver of any condition based upon the accuracy of any
representation or warranty will not affect the right to indemnification, reimbursement or other remedy based upon such representations and
warranties.
11.
Governing Law; Consent to Jurisdiction . This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware. In any judicial proceeding involving any dispute, controversy or claim arising out of or relating to this
Agreement or the transactions contemplated hereby, the parties hereto unconditionally accepts the non-exclusive jurisdiction and venue of the
Court of Chancery of the State of Delaware (or if such jurisdiction or venue is declined by the Court of Chancery of the State of Delaware, any
federal court located in the State of Delaware), and the appellate courts to which orders and judgments thereof may be appealed. In any such
judicial proceeding, the parties hereto agree that in addition to any method for the service of process permitted or required by such courts, to the
fullest extent permitted by law, service of process may be made by delivery provided pursuant to the directions in Section 18. EACH OF THE
PARTIES HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY DISPUTE,
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, AND AGREES TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT
SUCH WAIVER.
12.
Entire Agreement . This Agreement and the Transaction Documents constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede any prior understandings, agreements or representations by or among the parties hereto,
written or oral, with respect to such subject matter.
13.
Waivers and Amendment . This Agreement may be amended or modified only by a written instrument executed by all
of the parties to this Agreement. Any failure of the parties to this Agreement to comply with any obligation, covenant, agreement or condition
in this Agreement may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such
waiver. No delay on the part of any party to this Agreement in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party to this Agreement of any right, power or privilege hereunder operate as a waiver of any
other right, power or privilege hereunder, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or privilege hereunder. Unless otherwise provided, the rights and remedies
provided for in this Agreement are cumulative and are not exclusive of any rights or remedies which the parties to this Agreement may
otherwise have at law or in equity. Whenever this Agreement requires or permits consent by or on behalf of a party, such consent shall be
given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 13 .
14.
Assignment . Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of
the parties to this Agreement (whether by operation of law or otherwise) without the prior written consent of the other parties to this
Agreement, and any purported assignment or other transfer without such consent shall be void and unenforceable; provided , however , that (a)
a change of control of any party hereto (whether by a purchase of equity interests or all or substantially all assets, merger, consolidation or
other reorganization of such party) shall not be considered an assignment and (b) each of Element and Celadon may assign this Agreement,
including its rights, interests and obligations hereunder, to one or more of its Permitted Transferees (as defined in the LLC Agreement) without
the consent of the other parties to this Agreement; provided , further , that no such assignment shall reduce any liabilities hereunder of Element
or Celadon, as applicable.
17
15.
Specific Performance . The parties hereto agree that irreparable damage would occur to the Company in the event any
provision of this Agreement was not performed by Element or Celadon in accordance with the terms hereof and that the parties hereto shall be
entitled to an injunction or injunctions (without posting a bond or other security) to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in addition to any other remedy to which the Company is entitled at law or in equity.
16.
Binding Effect; No Third Party Beneficiaries . This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and each of their respective successors and permitted assigns. Except as otherwise provided in Section 10, nothing in this
Agreement, express or implied, is intended to or will confer upon any other Person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
17.
Further Assurances . Each party hereto shall cooperate and shall take such further action and shall execute and deliver
such further documents as may be reasonably requested by the other parties hereto in order to carry out the provisions and purposes of this
Agreement.
18.
Notices . Any notices or other communications required or permitted under, or otherwise given in connection with, this
Agreement shall be in writing and shall be deemed to have been duly given (a) when delivered or sent if delivered in person or sent by
facsimile transmission (provided confirmation of facsimile transmission is obtained), (b) on the fifth Business Day after dispatch by registered
or certified mail, (c) on the next Business Day if transmitted by national overnight courier or (d) on the date delivered if sent by email
(provided confirmation of email receipt is obtained), in each case, as follows (or to such other persons or addressees as may be designated in
writing by the party to receive such notice):
If to the Company, at:
19 th Capital Group, LLC
9702 East 30 th Street
Indianapolis, IN 46229
Attention: President
with copies to:
Element Transportation LLC
c/o Element Fleet Management Corp.
161 Bay Street, 36th Floor
Toronto, Ontario M5J 2S1
Canada
Attention: General Counsel
E-mail: [email protected]
Facsimile: (888) 772-8129
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Patrick J. Naughton
E-mail: [email protected]
Celadon Group, Inc.
9503 E. 33rd Street
18
Indianapolis, IN 46235
Attention: Paul A. Will
E-mail: [email protected]
Facsimile: (317) 890-8099
and
Scudder Law Firm, P.C., L.L.O.
411 South 13th Street, 2nd Floor
Lincoln, NE 68508
Attention: Mark A. Scudder
E-mail: [email protected]
If to Element, at:
Element Transportation LLC
c/o Element Fleet Management Corp.
161 Bay Street, 36th Floor
Toronto, Ontario M5J 2S1
Canada
Attention: General Counsel
E-mail: [email protected]
Facsimile: (888) 772-8129
with a copy to (which shall not constitute notice):
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Patrick J. Naughton
E-mail: [email protected]
If to Celadon, at:
Celadon Group Inc.
9503 E. 33rd Street
Indianapolis, IN 46235
Attention: Paul A. Will
E-mail: [email protected]
Facsimile: (317) 890-8099
with a copy to (which shall not constitute notice):
Scudder Law Firm, P.C., L.L.O.
411 South 13th Street, 2nd Floor
Lincoln, NE 68508
Attention: Mark A. Scudder
E-mail: [email protected]
19.
Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon
19
such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
20.
Counterparts . This Agreement may be signed in any number of counterparts, including by facsimile or other electronic
transmission each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by all of the other
parties hereto. Until and unless each party has received a counterpart hereof signed by the other parties hereto, this Agreement shall have no
effect and no party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other
communication). The exchange of a fully executed Agreement (in counterparts or otherwise) by electronic transmission in .PDF format or by
facsimile shall be sufficient to bind the parties to the terms and conditions of this Agreement.
21.
Legal Representation . Each of Celadon and Element acknowledges and represents that it has had the opportunity to
consult with an independent legal advisor in connection with this Agreement.
22.
Interpretation . Unless the context otherwise requires, (a) all references to Sections shall mean and refer to Sections in
this Agreement; (b) words in the singular or plural include the singular and plural, and pronouns stated in either the masculine, feminine or
neuter gender shall include the masculine, feminine and neuter; (c) the term “including” shall mean “including without limitation” (i.e., by way
of example and not by way of limitation); (d) all references to statutes and related regulations shall include all amendments of the same and any
successor or replacement statutes and regulations; (e) references to “hereof”, “herein”, “hereby” and similar terms shall refer to this entire
Agreement (including the Schedules and Exhibits hereto); (f) the sign “$” shall mean “U.S. dollars.”
[Remainder of page intentionally left blank]
Very truly yours,
ELEMENT TRANSPORTATION LLC
By:
/s/ James Halliday
Name: James Halliday
Title: Authorized Signatory
CELADON GROUP, INC.
By:
Acknowledged and agreed as of the date first written above:
19 TH CAPITAL GROUP, LLC
By:
/s/ Harry Dugan
Name: Harry Dugan
Title: President
/s/ Paul Will
Name: Paul Will
Title: CEO
Exhibit A
LLC AGREEMENT
_______________________________________________________________________
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
19 TH CAPITAL GROUP, LLC
Dated as of December 30, 2016
_______________________________________________________________________
THE LIMITED LIABILITY COMPANY UNITS EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE OR
FOREIGN JURISDICTION. SUCH LIMITED LIABILITY COMPANY UNITS ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE, AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT IN COMPLIANCE WITH THE
SECURITIES ACT AND THE APPLICABLE STATE OR FOREIGN SECURITIES LAWS, PURSUANT TO REGISTRATION
THEREUNDER OR EXEMPTION THEREFROM. IN ADDITION, TRANSFER OR OTHER DISPOSITION OF SUCH LIMITED
LIABILITY COMPANY UNITS IS FURTHER RESTRICTED AS PROVIDED IN THIS AGREEMENT. PURCHASERS OF LIMITED
LIABILITY COMPANY UNITS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF
THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
Table of Contents
Page
1
Article I Definitions
SECTION 1.1
SECTION 1.2
Definitions
Construction
1
9
9
Article II Formation and Term
SECTION 2.1
SECTION 2.2
SECTION 2.3
SECTION 2.4
SECTION 2.5
SECTION 2.6
Formation
Name
Term
Principal Place of Business
Registered Agent and Office
Qualification in Other Jurisdictions; Conduct of Business
9
10
10
10
10
10
Article III Purpose and Powers
10
SECTION 3.1
10
Purpose and Powers
Article IV Members; Additional Interests; Conversion
10
SECTION 4.1
SECTION 4.2
SECTION 4.3
SECTION 4.4
SECTION 4.5
SECTION 4.6
10
11
11
11
11
11
General
Powers of Members
Nature of a Member's Interest
No Other Persons Deemed Members
No Cessation of Membership Upon Bankruptcy, etc.
Admission of Additional Members and Creation of Additional Units
Article V Capital Contributions; Default; Liability of Members
12
SECTION 5.1
SECTION 5.2
SECTION 5.3
12
12
12
Capital Contributions
Liability of Members
Units Certificated
i
Article VI Distribution; Allocation of Profits and Losses
12
SECTION 6.1
SECTION 6.2
SECTION 6.3
12
13
13
Distributions
Allocations
Tax Allocations
Article VII Management
13
SECTION 7.1
SECTION 7.2
SECTION 7.3
SECTION 7.4
SECTION 7.5
SECTION 7.6
SECTION 7.7
SECTION 7.8
13
15
15
17
17
17
18
19
Management Under Direction of the Board
Meetings of the Board
Quorum and Acts of the Board
Telephonic or Video Communications
Action by Written Consent
Transactions with Members and their Affiliates
Outside Businesses and Corporate Opportunities
Committees of the Board
Article VIII Duties, Liability, Exculpation, Indemnification and Insurance
19
SECTION 8.1
SECTION 8.2
19
19
Duties
Liability
SECTION 8.3
SECTION 8.4
SECTION 8.5
SECTION 8.6
SECTION 8.7
SECTION 8.8
Exculpation
Indemnification
Advancement of Expenses
Notice of Proceedings
Insurance
Service Agreement
19
20
20
20
21
21
Article IX Transferability of Units
22
SECTION 9.1
SECTION 9.2
SECTION 9.3
SECTION 9.4
SECTION 9.5
SECTION 9.6
SECTION 9.7
22
22
23
25
26
27
28
General Transfer Restrictions
Right of First Offer
Tag-Along Rights
Other Permitted Transfers
Other Transfer Restrictions
Substituted Members
Transfer of Management Equity
ii
Article X Records and Reports; Fiscal Affairs
28
SECTION 10.1
SECTION 10.2
28
28
Records and Accounting
Financial Statements and Reports
Article XI Tax Matters
29
SECTION 11.1
SECTION 11.2
SECTION 11.3
SECTION 11.4
SECTION 11.5
SECTION 11.6
29
30
30
30
31
31
Preparation of Tax Returns
Tax Mattes Member
Organizational Expenses
Withholding
Classification
Listed and Reportable Transactions
Article XII Dissolution, Liquidation and Termination
31
SECTION 12.1
SECTION 12.2
SECTION 12.3
SECTION 12.4
SECTION 12.5
31
31
32
32
33
Dissolution
Liquidation of the Company's Assets Upon Dissolution
Termination
Claims of the Members
Survival
Article XIII Consents, Voting and Meetings of Members
33
SECTION 13.1
SECTION 13.2
SECTION 13.3
SECTION 13.4
SECTION 13.5
33
33
33
33
34
Management Member
Meetings
Record Dates
Consent Rights
Voting and Other Rights
Article XIV Representations and Warranties of Each Member
34
SECTION 14.1
34
Representations and Warranties of each Member
iii
Article XV General Provisions
35
SECTION 15.1
SECTION 15.2
SECTION 15.3
SECTION 15.4
SECTION 15.5
SECTION 15.6
SECTION 15.7
SECTION 15.8
SECTION 15.9
SECTION 15.10
SECTION 15.11
SECTION 15.12
SECTION 15.13
SECTION 15.14
35
38
38
38
38
39
39
39
39
39
40
40
40
40
Notices
Amendments
Confidentiality
Entire Agreement
Successors and Assigns; Binding Effect
Severability
No Waiver
Dispute Resolution and Arbitration
Governing Law
Judicial Proceedings
Aggregation of Units
Equitable Relief
Table of Contents, Headings and Captions
Counterparts
SCHEDULE A
MEMBERS’ COMMITMENT AND CONTRIBUTION
SCHEDULE B
FORM CERTIFICATE OF UNITS
SCHEDULE C
MANAGERS
SCHEDULE D
OFFICERS
SCHEDULE E
PROHIBITED TRANSFEREE
iv
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
19 th CAPITAL GROUP, LLC
THE UNDERSIGNED are executing this Amended and Restated Limited Liability Company Agreement of 19 th Capital
Group, LLC (the “ Company ”) as of December 30, 2016 (the “ Effective Date ”).
R
E
C
I
T
A
L
S:
WHEREAS, the Certificate (as defined below) was executed and filed with the Office of the Secretary of State of the State of
Delaware on July 9, 2015, thereby forming the Company as a limited liability company under and pursuant to the Delaware Limited Liability
Company Act (as amended from time to time, the “ Act ”);
WHEREAS, on the date hereof, the Company redeemed its former Members;
WHEREAS, simultaneously therewith and in accordance with the terms of the Subscription Agreement, Celadon Group, Inc.
(“ Celadon ”), directly or through one or more subsidiaries, and Element contributed certain assets to the Company in exchange for Units;
WHEREAS, simultaneously therewith and in accordance with the terms of the Management Subscription Agreements, each
of Harry Dugan and Gregory Burke contributed certain assets to the Company in exchange for Units; and
WHEREAS, the current Members wish to amend and restate in its entirety the Limited Liability Company Agreement of the
Company, dated August 27, 2015;
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1
Definitions . i) Capitalized terms used herein shall have the following meanings:
“ Affiliate ” means, with respect to any Person, an “affiliate” of, or any Person affiliated with, a specified Person, is a Person that
directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified;
provided that notwithstanding the foregoing, an Affiliate shall not include any “portfolio company” (as such term is customarily used among
institutional investors) of any Person. For the purpose of this definition, “control” (including the terms controlling, controlled
1
by and under common control with) shall mean the possession, direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
“ Agreement ” means this Amended and Restated Limited Liability Company Agreement as it may be amended, modified, restated or
supplemented from time to time.
“ Assumed Tax Rate ” means the highest effective combined marginal federal, state and local income tax rate applicable at such time
to a corporation resident in the jurisdiction with the highest such effective rate applicable to any Member (taking into account the deductibility
of state and local income taxes for U.S. federal income tax purposes); provided that the Board shall be permitted to modify the Assumed Tax
Rate in its discretion.
“ Business Day ” means any day except a Saturday, a Sunday or any other day on which commercial banks are required or authorized
to close in New York, New York.
“ Capital Account ” means, with respect to any Member, the Capital Account maintained for such Member in accordance with the
following provisions:
(a)
To each Member’s Capital Account there shall be credited such Member’s Capital Contributions on the date
contributed to the Company, such Member’s allocable share of Net Income of the Company pursuant to Section 6.2, and the amount
of any liabilities of the Company assumed by such Member or which are secured by any property distributed to such Member.
(b)
From each Member’s Capital Account there shall be debited the amount of cash and the Gross Asset Value of any
property distributed to such Member pursuant to any provision of this Agreement, such Member’s allocable share of Net Losses of the
Company pursuant to Section 6.2, the amount of any liabilities of such Member assumed by the Company or which are secured by any
property contributed by such Member to the Company.
(c)
In the event any Units in the Company are transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Units.
(d)
In determining the amount of any liability for purposes of subsections (a) and (b) hereof, there shall be taken into
account Code section 752(c) and any other applicable provisions of the Code and Regulations.
(e)
The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulations Sections 1.704‑1(b) and 1.704‑2, and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Board shall reasonably determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto (including debits or credits relating to liabilities which are secured by contributed
or distributed property or which are assumed by the Company or the Members) are
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computed in order to comply with such Regulations, the Board may direct any Member to make such modification. The Board also
shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members
and the amount of the Company capital reflected on the Company balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704‑1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section 1.704‑1(b) or Section 1.704‑2.
(f)
Except as otherwise agreed in writing or required by the Act, no Member shall have any liability to restore all or
any portion of a deficit balance in such Member’s Capital Account.
“ Capital Contributions ” means, with respect to any Member, the aggregate amount contributed from time to time by such Member in
cash (or property having a mutually agreed value) in respect of any Units.
“ Cause ” means, with respect to a Manager, (i) conviction of, or plea of guilty or nolo contendere in respect of a felony or (ii) fraud or
dishonesty that causes or reasonably could be expected to cause actual harm to the Company.
“ Certificate ” means the Certificate of Formation of the Company, as it may be amended, modified, restated or supplemented from
time to time, filed on behalf of the Company with the Office of the Secretary of State of the State of Delaware pursuant to the Act.
“ Certificate of Cancellation ” means a Certificate of Cancellation of the Certificate filed on behalf of the Company with the Office of
the Secretary of State of the State of Delaware pursuant to the Act.
“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor federal income tax code.
“ Covered Person ” means: (a) each Manager, each Member, the Tax Matters Member or a liquidating trustee, in each case in his or
its capacity as such, (b) any Affiliate of each Manager, each Member, the Tax Matters Member or a liquidating trustee and (c) any Person of
which a Manager is an officer, director, shareholder, partner, member, employee, trustee, executor, representative or agent, or any Affiliate,
officer, director, shareholder, partner, member, manager, employee, representative or agent of any of the foregoing, in each case in clauses (a),
(b) and (c), whether or not such Person continues to have the applicable status referred to in such clauses.
“ Disabling Conduct ” means, (i) in respect of any Person, an act or omission that constitutes fraud or willful misconduct by such
Person or (ii) a material breach by such Person of any material provision of this Agreement.
“ Element ” means Element Transportation LLC.
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“ Equipment Loan Agreement ” means the Equipment Loan Agreement, dated as of the date hereof, by and between the Company, as
borrower, Element, as lender, and lenders thereto.
“ Element Equipment Purchase Agreement ” means the Equipment Bill of Sale and the Assignment and Assumption Agreement, each
dated as of the date hereof, by and between Quality Equipment Leasing, LLC and Element.
“ Element Parent ” means Element Fleet Management Corp. (formerly known as Element Financial Corporation).
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations
promulgated pursuant thereto.
“ Fiscal Year ” means January 1 through December 31.
“ GAAP ” means generally accepted accounting principles, as applied in the United States.
“ Gross Asset Value ” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value
of such asset at the time of such contribution, as reasonably determined by the Board.
(b) The Gross Asset Value of any of the Company’s assets distributed to a Member shall be the gross fair market value of
such asset on the date of distribution, as reasonably determined by the Board.
(c) The Gross Asset Values of all of the Company’s assets shall be adjusted to equal their respective gross fair market
values, as reasonably determined by the Board using such reasonable method of valuation as it may adopt, as of the times listed below:
(i)
immediately prior to the acquisition of an additional interest in the Company by a new or existing
Member in exchange for more than a de minimis Capital Contribution, if it is determined by the Board that such adjustment
is necessary or appropriate to reflect the relative economic interests of the Members in the Company;
(ii)
immediately prior to the distribution by the Company to a Member of more than a de minimis amount of
the Company’s property as consideration for an interest in the Company, if it is determined by the Board that such adjustment
is necessary or appropriate to reflect the relative economic interests of the Members in the Company;
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(iii)
immediately prior to the liquidation of the Company within the meaning of Regulations Section 1.704‑1(b)(2)(ii)(g) (other
than by operation of Section 708(b)(1)(B) of the Code); and
(iv)
such other times as the Board shall reasonably determine necessary or advisable, in order to comply with
Regulations Sections 1.704‑1(b) and 1.704‑2.
(d) The Gross Asset Values of the Company assets shall be increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are
taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided , however , that
Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to the extent that the Board determines that an adjustment
pursuant to subparagraph (b) or (c) is necessary or appropriate in connection with a transaction that would otherwise result in an
adjustment pursuant to this subparagraph (d).
(e) If the Gross Asset Value of any of the Company’s assets has been determined or adjusted pursuant to subparagraph (a),
(c) or (d), such Gross Asset Value shall thereafter be adjusted by the depreciation taken into account with respect to such asset for
purposes of computing Net Income and Net Losses.
“ Guarantee ” means the Guarantee and Collateral Agreement in respect to the Term Loan Agreement and the Guarantee and
Collateral Agreement in respect to the Equipment Loan Agreement, each dated as of the date hereof, by the Company, in favor of Element.
“ Interest ” means the entire limited liability company interest of a Member in the Company at any particular time, including the right
of such Member to any and all benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of such
Member to comply with all the terms and provisions of this Agreement. Interests shall be expressed as a number of Units.
“ IPO ” means an initial public offering of equity securities in the Company (or any successor thereto) or any other subsidiary of the
Company pursuant to a registration statement effective under the Securities Act.
“ Lease Agreement ” means the Lease Agreement, dated as of the date hereof, by and between the Company, as tenant, and Celadon,
as landlord.
“ Management Equity ” means all of the Units held by Harry Dugan and Gregory Burke as of the date of this Agreement or by any
Person to whom the Management Equity is transferred in accordance with Section 9.7 or designated by the Board thereafter, in each case, other
than Element or Celadon or their respective Affiliates or Permitted Transferees.
“ Management Equity Purchase Option ” has the meaning set forth in Section 9.7(b).
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“ Management Member ” means any Member holding the Management Equity.
“ Management Subscription Agreements ” means the Management Subscription Agreement, dated as of the date hereof, by and
between Harry Dugan and the Company, and the Management Subscription Agreement, dated as of the date hereof, by and between Gregory
Burke and the Company.
“ Member ” means each Person that executes a counterpart of this Agreement as a Member and becomes a Member as provided
herein, so long as such Person continues as a Member and is reflected as such in the records of the Company, in each case in such Person’s
capacity as a member of the Company, and “ Members ” means all such Persons.
“ Net Income ” or “ Net Loss ” means, for each Fiscal Year or other period of the Company, an amount equal to the Company’s
taxable income or loss for such Fiscal Year of the Company or other period, as applicable, determined in accordance with Code Section 703(a)
(for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be
included in taxable income or loss), with the following adjustments:
(a)
Any income of the Company that is exempt from federal income tax and not otherwise taken into account in
computing Net Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be added to such taxable income or
loss;
(b)
Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net
Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be subtracted from such taxable income or loss;
(c)
In the event the Gross Asset Value of any of the Company’s asset is adjusted pursuant to subparagraph (b) or
subparagraph (c) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Income or Net Loss;
(d)
Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the
adjusted tax basis of such property differs from its Gross Asset Value;
(e)
Depreciation, amortization, and other cost recovery deductions shall be computed by reference to the Gross Asset
Value of the property if the Gross Asset Value differs from its adjusted tax basis; and
(f)
To the extent an adjustment to the adjusted tax basis of any of the Company’s assets pursuant to Code Section
734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704‑1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as a result of a distribution other than in liquidation of a
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Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into
account for purposes of computing Net Income or Net Loss.
“ Permitted Transferee ” means (i) with respect to Element, Element Parent, ECN Capital Corp. or any of their respective controlled
Affiliates; (ii) with respect to Celadon, any wholly-owned subsidiary of Celadon or (iii) with respect to any Member, any successor entity of
such Member. For the purpose of this definition, “Affiliate” shall not mean any individual.
“ Person ” means any individual, corporation, partnership, limited liability company, trust, joint stock company, business trust,
unincorporated association, joint venture or other entity of any nature whatsoever.
“ Plan Asset Regulations ” means the regulations issued by the U.S. Department of Labor at Section 2510.3-101 of Part 2510 of
Chapter XXV, Title 29 of the Code of Federal Regulations, or any successor regulations.
“ Profits Interest ” means an interest in the profits of the Company satisfying the requirements for a partnership interest transferred in
connection with the performance of services, as set forth in IRS Revenue Procedure 93-27, 1993-2 C.B. 343 (June 6, 1993) and IRS Revenue
Procedure 2001-43, 2001-2 C.B. 191 (Aug. 3, 2001), unless superseded by IRS Notice 2005-43, 2005-24 I.R.B. 1221 (May 20, 2005), in which
case, as set forth in Proposed Treasury Regulations Section 1.83-3(l), Notice 2005-43 and any similar or related authority.
“ Quality ” means Quality Companies LLC, an Indiana limited liability company and a wholly owned subsidiary of Celadon.
“ Redemption Agreements ” means the Membership Interest Redemption Agreement, dated as of the date hereof, by and between the
Company and Celadon; the Membership Interest Redemption Agreements, dated as of the date hereof, by and among certain members of
management signatories thereto and the Company; and the Membership Interest Redemption Agreement, dated as of the date hereof, by and
between Tiger ELS, LLC and the Company.
“ Regulations ” means the Federal income tax regulations promulgated under the Code, as such Regulations may be amended from
time to time (it being understood that all reference herein to specific sections of the Regulations shall be deemed also to refer to any
corresponding provisions of succeeding Regulations).
“ Securities ” means capital stock, limited partnership interests, limited liability company interests, beneficial interests, warrants,
options, notes, bonds, debentures, loans, evidence of indebtedness and other securities, equity interests, ownership interests and similar
obligations of every kind and nature of any Person.
“ Service Agreement ” means the Service Agreement, dated as of the date hereof, by and between the Company and Quality, as may
be extended, amended and supplemented from time to time.
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“ Securities Act ” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated pursuant
thereto.
“ Sharing Percentage ” means, as of any date of determination, with respect to any Member, a percentage calculated by dividing (x)
the aggregate number of Units held by such Member by (y) the aggregate number of Units of the Company issued and outstanding on such
date.
“ Subscription Agreement ” means the Subscription Agreement, dated as of the date hereof, by and among Element, Celadon and the
Company.
“ Substituted Member ” means any Person admitted to the Company as a Member pursuant to the provisions of Section 9.6.
“ Taxable Year ” means the taxable year of the Company determined under Section 706 of the Code.
“ Tax Distributions ” shall have the meaning set forth in Section 6.1(b).
“ Term Loan Agreement ” means the Loan Agreement, dated as of the date hereof, by and among the Company, as borrower, other
parties thereto, as lenders, and Element, as agent.
“ Termination Agreement ” means the Termination Agreement And Mutual Waiver and Release, dated as of the date hereof, by and
among the Company, Celadon, Element, Quality Equipment Leasing, LLC and Element Fleet Management Corp.
“ Transfer ” or “ Transferred ” means any direct or indirect transfer, sale, assignment, exchange, mortgage, pledge, hypothecation or
other disposition of any Units. For the avoidance of doubt, it shall constitute a “Transfer” subject to the restrictions on Transfer contained or
referenced herein (a) if a transferee is not an individual, a trust or an estate, and the transferor or an Affiliate thereof ceases to control such
transferee or (b) with respect to a holder of Units which was formed for the purpose of holding Units, there is a Transfer of the equity interests
of such holder other than to a Permitted Transferee of such holder or of the party transferring the equity of such holder. A change in ownership
of Celadon or Element Parent shall not be considered a Transfer of any Units.
“ Units ” shall mean the units of common membership interests in the Company issued to each Member in exchange for its Capital
Contributions. The number of Units outstanding and the holders thereof are set forth on Schedule A, as Schedule A may be amended from
time to time pursuant hereto.
(b)
As used in this Agreement, each of the following capitalized terms shall have the meaning ascribed to them in the
Section set forth opposite to such term:
Term
Act
Board
Section
Recitals
7.1(a)
8
Capital Contributions
Claims and Expenses
Company
Competitor
Effective Date
KCMH
Manager
Offer Notice
Offered Price
Offeree
Offeror
Pro Rata Share
Proposed Sale
Proposed Transferee
Selling Member
Services Agreement
Subject Units
Tag Along Notice
Tag Along Offer
Tag Along Sale Percentage
Tag Along Sellers
Tagging Members
Tax Items
Tax Matters Member
5.1(a)
8.4
Preamble
9.1(b)
Preamble
Preamble
7.1(a)
9.2(a)
9.2(b)(i)
9.2(a)
9.2(a)
9.3(e)(i)
9.3(a)
9.3(b)(i)
9.3(a)
Preamble
9.2(b)(i)
9.3(a)
9.3(c)
9.3(b)(i)
9.3(b)(ii)
9.3(b)(ii)
6.3
11.2(a)
SECTION 1.2
Construction . Whenever the context requires, the gender of all words used in this Agreement includes
the masculine, feminine and neuter forms and the singular form of words shall include the plural and vice versa. All references to Articles and
Sections refer to articles and sections of this Agreement, and all references to Schedules are to Schedules attached hereto, each of which is
made a part hereof for all purposes. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation.” This Agreement shall be construed without regard to any presumption or rule
requiring construction or interpretation against the party drafting or causing any instrument to be drafted.
ARTICLE II
FORMATION AND TERM
SECTION 2.1
Formation . The Company was formed as a limited liability company under and pursuant to the
provisions of the Act upon the filing of the Certificate. The rights, duties and liabilities of the Members shall be as provided in the Act, except
as otherwise provided in this Agreement.
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SECTION 2.2
Name . The name of the limited liability company is “19 th Capital Group, LLC”. The business of
the Company may be conducted upon compliance with all applicable laws under any other name designated by the Board.
SECTION 2.3
Term . The term of the Company shall be perpetual; provided that the Company may be dissolved in
accordance with the provisions of this Agreement or by operation of law. The existence of the Company as a separate legal entity will
continue until filing of the Certificate of Cancellation.
SECTION 2.4
Principal Place of Business . The principal place of business of the Company shall be located at, and
the Company’s business shall be conducted from, Indianapolis or its surrounding area in Indiana, U.S., or such other place or places as the
Board may determine in accordance with Article VII hereof.
SECTION 2.5
Registered Agent and Office . The Company’s registered agent and office in the State of Delaware
shall be c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, New Castle County, Wilmington, Delaware
19801. The Board may at any time designate another registered agent and/or registered office.
SECTION 2.6
Qualification in Other Jurisdictions; Conduct of Business . The Company shall be qualified or
registered under foreign limited liability company statutes or assumed or fictitious name statutes or similar laws in any jurisdiction in which the
Company owns property or transacts business to the extent, in the judgment of the Board, such qualification or registration is necessary or
advisable in order to protect the limited liability of the Members or to permit the Company lawfully to own property or transact business.
ARTICLE III
PURPOSE AND POWERS
SECTION 3.1
Purpose and Powers . The Company is formed for the purpose of, and the nature of the business to be
conducted by the Company is, engaging in any lawful act or activity for which limited liability companies may be formed under the Act and
engaging in any activities necessary, convenient or incidental thereto.
ARTICLE IV
MEMBERS; ADDITIONAL INTERESTS; CONVERSION
SECTION 4.1
General . The names of, Capital Contributions of, and the number of Units held by the Members are
set forth on Schedule A hereto, effective immediately following the execution of this Agreement. A Member (other than any Management
Member) will cease to be a Member only in the manner described in Section 9.6 and Article XII. A Management Member will cease to be a
Management Member (a) when all of the Management Equity held by such Management Member is sold pursuant to the exercise of the
respective Management Equity Purchase Options pursuant to Section 9.7(b) or (b) upon liquidation of the Company. The Board shall amend
and revise Schedule A from time to time to properly reflect
10
any changes to the information included therein, including to reflect the admission or withdrawal of Members or the making of additional
Capital Contributions, in each case in accordance with this Agreement. Any amendment or revision to Schedule A hereto or to the Company’s
records that is made solely to reflect information regarding Members shall not require Member approval.
SECTION 4.2
Powers of Members . The Members shall have the power to exercise only those rights or powers
granted to the Members pursuant to the express terms of this Agreement. Except as specifically provided herein or by the Board, the Members
shall have no power or authority to act for or on behalf of, or to bind, the Company.
SECTION 4.3
Nature of a Member’s Interest . A Member’s Interest (including a Member’s Units) shall for all
purposes be personal property. A Member has no interest in any specific Company property.
SECTION 4.4
No Other Persons Deemed Members . Unless admitted to the Company as a Member as provided in
this Agreement, no Person shall be, or shall be considered, a Member. In respect of matters pertaining to Members, the Company shall deal
only with Persons so admitted as Members (including their duly authorized representatives). Notwithstanding any notification to the contrary,
any distribution by the Company to the Person shown on the Company’s records as a Member or to its legal representatives shall relieve the
Company of all liability to any other Person who may be interested in such distribution by reason of any other Transfer by the Member, or for
any other reason.
SECTION 4.5
No Cessation of Membership Upon Bankruptcy, etc. A Person shall not cease to be a Member of the
Company upon the happening, with respect to such Person, of any of the events specified in §18-304 of the Act. Upon the occurrence of any
event specified in §18‑304 of the Act, the business of the Company shall be continued pursuant to the terms hereof without dissolution.
SECTION 4.6
Admission of Additional Members and Creation of Additional Units .
(a)
Subject to limitations set forth in this Article IV, Article VII, Article IX and in Section 13.4 and Section 15.2, the
Company may admit additional Members to the Company, issue additional Units or create and issue such additional classes or series of Units,
having such designations, preferences and relative, participating or other special rights, powers and duties as the Board shall determine, from
time to time.
(b)
Upon the issuance pursuant to and in accordance with this Agreement of any class or series of Units, the Board
may, in accordance with, and subject to, Sections 4.1 and 15.2, as applicable, amend any provision of this Agreement, and authorize any Person
to execute, acknowledge, deliver, file and record, if required, such documents, to the extent necessary or desirable to reflect the admission of
any additional Member to the Company or the authorization and issuance of such class or series of Unit, and the related rights and preferences
thereof.
(c)
No additional Member shall be admitted to the Company (i) in connection with newly issued Units, unless and
until such prospective additional Member has executed a
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signature page counterpart to this Agreement and an acceptance of all of the terms and conditions of this Agreement, and such other documents
or instruments, in each case, as may be required to effect the admission in the Board’s reasonable judgment or (ii) in connection with a Transfer
of a Unit, unless and until all the conditions of Article IX are satisfied, and such prospective additional member executes and delivers to the
Company the documentation contemplated by Section 9.6.
ARTICLE V
CAPITAL CONTRIBUTIONS; DEFAULT; LIABILITY OF MEMBERS
SECTION 5.1
Capital Contributions . To the extent determined by the Board, the Members shall make cash (or
non-cash) contributions pro rata to the Company in such amounts as are determined by the Board (collectively, the “ Capital Contributions ”).
SECTION 5.2
Liability of Members .
(a)
General . Except as may otherwise be expressly agreed by such Member in writing, in no event shall any Member
or former Member be obligated to guarantee any indebtedness or other obligations of the Company at any time outstanding or have any liability
for the repayment or discharge of the debts and obligations of the Company or for the repayment of any Capital Contribution of any other
Member.
(b)
Liability for Amounts Distributed . The Members hereby agree that, except as otherwise expressly provided
herein or required by applicable law, no Member shall have an obligation to return money or other property paid or distributed to such Member
whether or not such distribution was in violation of the Act, except to the extent arising from Disabling Conduct of such Member. The
agreement set forth in the immediately preceding sentence shall be deemed to be a compromise for purposes of §18-502(b) of the
Act. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to
make any such return, such obligation shall be the obligation of such Member and not of any other Person.
SECTION 5.3
Units Certificated . Unless and until the Board shall determine otherwise, Units shall be certificated
with such legends as the Board shall reasonably determine are necessary or advisable and recorded in the books and records of the Company
(including Schedule A). The form of the Units certificate is attached hereto as Schedule B.
ARTICLE VI
DISTRIBUTIONS; ALLOCATION OF PROFITS AND LOSSES
SECTION 6.1
Distributions .
(a)
Subject in each case to restrictions imposed by law, from time to time the Board may make distributions of cash or
other property available for distribution, to the Members on a pro rata basis based on each Member’s Sharing Percentage. All distributions
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made under this Section 6.1 shall be made to the Members of record as of the date of the distribution unless a different record date for Members
entitled to receive the distribution shall have been established by the Board. The Board shall have sole discretion to determine the timing of
distributions and the aggregate amount available for distribution.
(b)
Subject in each case to restrictions imposed by law and to the extent of distributable assets of the Company in the
form of cash as reasonably determined by the Board, the Company shall, at such times reasonably determined by the Board, make cash
distributions (“ Tax Distributions ”) to the Members to the extent that distributions actually received by such Member during a Fiscal Year are
not sufficient for such Member or any of its beneficial owners to pay when due any income tax (including estimated income tax) imposed on it
or them, calculated using the Assumed Tax Rate that is attributable to income allocated to such Member for such Fiscal Year (or portion
thereof) hereunder. Amounts otherwise to be distributed to a Member pursuant to Section 6.1(a) shall be reduced by the amount of any prior
Tax Distributions made to such Member pursuant to this Section 6.1(b) until all such Tax Distributions are restored to the Company in full.
Notwithstanding the foregoing, the Board shall have the authority to modify the Company’s policy with respect to Tax Distributions in its sole
discretion.
SECTION 6.2
Allocations . Net Income and Net Loss of the Company shall be determined and allocated with
respect to each Taxable Year by the Board as of the end of each such year and at such other times as the Board shall determine, provided that
such time will allow the Company to meet its obligations under Section 11.1. Net Income and Net Loss shall be allocated among the Members
pro rata in accordance with their Sharing Percentages. Notwithstanding the foregoing, the Company may make such allocations as the Board
deems reasonably necessary to give economic effect to the provisions of this Agreement taking into account such facts and circumstances as
the Board deems reasonably necessary for this purpose.
SECTION 6.3
Tax Allocations . For income tax purposes each item of income, gain, loss and deduction
(collectively, “ Tax Items ”) shall be allocated in the same manner as its correlative item of “book” income, gain, loss or deduction is allocated
pursuant to Section 6.2; provided that in the case of any Company asset the Gross Asset Value of which differs from its adjusted tax basis for
U.S. federal income tax purposes, Tax Items with respect to such asset shall be allocated solely for income tax purposes in accordance with the
principles of Sections 704(b) and 704(c) of the Code. Notwithstanding the foregoing, the Company may make such allocations as the Board
deems reasonably necessary to give economic effect to the provisions of this Agreement taking into account such facts and circumstances as
the Board deems reasonably necessary for this purpose.
ARTICLE VII
MANAGEMENT
SECTION 7.1
(a)
otherwise specified.
Management Under Direction of the Board .
Solely for the purpose of this Article VII, the term of “Member” shall exclude any Management Member, unless
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(b)
Subject to the consent rights of the Members provided in Section 13.4, the business and affairs of the Company
shall be managed and controlled by a board of managers (the “ Board ”, and each member of the Board, a “ Manager ”) that shall meet the
requirements of the Act. The Board shall initially consist of four (4) individuals and each Member will have the right to designate half of the
Managers on the Board. The initial Managers are set forth on Schedule C hereto. The Board may be increased by action by the Board;
provided that any such increase will equally increase the number of designees each Member will have the right to designate.
(c)
A Member shall notify the other Member and the Company of any proposed designee to the Board. Each
Member shall vote its Units in favor of the election of all such designees proposed by the other Member as Managers.
(d)
Any Manager designated by a Member may be removed (with or without cause) from time to time and at any time
by such Member, upon notice to the Company and the other Member, if any, and may be removed by the other Member only for Cause. Any
vacancy on the Board in respect of a Manager designated by a Member shall be filled by the Member entitled to designate such Manager, in
accordance with Section 7.1(c).
(e)
The members of the Board shall be “managers” within the meaning of the Act. Subject to the consent rights of
the Members provided in Section 13.4, the Board shall have full and complete discretion to manage and control the business and affairs of the
Company, to make all decisions affecting the business and affairs of the Company and to take all such actions as it deems necessary or
appropriate to accomplish the purposes of the Company as set forth herein, including to exercise all powers of the Company set forth in
Section 3.1 of this Agreement. Notwithstanding anything to the contrary in this Agreement, no Manager, acting solely in its capacity as such,
shall have the right, power or authority to act as an agent of the Company, to bind the Company or to execute any documents to be signed by
the Company unless expressly authorized in writing by the Board.
(f)
Officers. The Board shall appoint a chief executive officer (the “ CEO ”), a chief financial officer (the “ CFO ”)
and a chief operating officer (the “ COO ”) of the Company. The CEO and the COO shall, subject to Section 7.3, be responsible for the
day-to-day operation of the Company and manage the business of the Company in accordance with the Business Principles and the Annual
Budget as approved by the Board from time to time (it being understood that the CEO and COO shall not have authority to take any of the
actions covered in clauses (a) through (t) of Section 7.3 unless such action has been approved by the Board in accordance with Section
7.3). Each of the CEO, the CFO and the COO shall hold such office at the discretion of the Board and until his or her successor shall have
been duly appointed and qualified, or until he or she shall resign or shall have been removed in the manner provided herein. The CEO may
appoint additional officers of the Company which may include, but shall not be limited to, one or more vice presidents, secretary, or treasurer,
and such other officers as deemed necessary or appropriate by the CEO. The CEO, the CFO and the COO shall have the authority to contract
for, negotiate on behalf of and otherwise represent the interests of the Company as and to the extent authorized in writing by the Board. Each
officer that is appointed by the CEO shall perform such duties and have such powers as the CEO shall designate from time to time. Each
officer that is appointed by the CEO shall hold office at the discretion of the
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CEO and until his or her successor shall have been duly appointed and qualified, or until he or she shall resign or shall have been removed in
the manner provided herein. Any individual may hold any number of offices. No officer need be an affiliate of a Member or a resident of the
State of Delaware. Any officer, including the CEO, the CFO and the COO, may resign as such at any time. Such resignation shall be made in
writing and shall take effect at the time specified therein or, if no time be specified, at the time of its receipt by the CEO or, if such resignation
is of the CEO, the CFO or the COO, the Board. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation. Subject to the terms of any applicable employment agreement, any officer may be removed as such, either with or
without cause, at any time by the CEO or the Board, as applicable. Upon the execution and delivery of this Agreement, the officers of the
Company shall consist of the individuals set forth on Schedule D.
SECTION 7.2
Meetings of the Board . Regular meetings of the Board will be held at least quarterly and will be
called on at least five (5) Business Days’ notice to each Manager, either personally, by telephone, by mail, by facsimile, by electronic mail or
by any other means of communication reasonably calculated to give notice, at such times and at such places as shall from time to time be
determined by the Board. Special meetings of the Board may be called on at least three (3) Business Days’ notice to each Manager in
accordance with the foregoing sentence. Any Manager may call a special meeting of the Board on not less than three (3) Business Days’
notice to each other Manager, either personally, by telephone, by mail, by facsimile, by electronic mail or by any other means of
communication reasonably calculated to give notice. Notice of a special meeting need not be given to any Manager if a written waiver of
notice, executed by such Manager before or after the meeting, is filed with the records of the meeting, or to any Manager who attends the
meeting without protesting the lack of notice prior thereto or at its commencement. The notice shall state briefly the purpose, time and place of
the meeting.
SECTION 7.3
Quorum and Acts of the Board . At all duly called meetings of the Board, two Managers (which must
include one designee of each Member) shall constitute a quorum for the transaction of business. If a quorum shall not be present at any
meeting of the Board, the Board members present thereat may adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present; provided, however, that for any such reconvened meeting, a quorum, as determined in the
preceding sentence, shall be required for the transaction of business; provided further, however, that notice for any reconvened meeting shall
have been given in accordance with Section 7.2. Each Manager shall be entitled to one vote; provided, that, except to the extent prohibited by
law, any Manager shall be entitled to vote on behalf of another Manager appointed by the same Member if such other Manager is not present at
a meeting of the Board. Any instrument or writing executed on behalf of the Company by any one or more of the Managers shall be valid and
binding upon the Company when authorized by the Board in accordance with this Section 7.3. No action may be taken by the Board under this
Agreement or the Act without the consent of a majority of the Managers, which shall include consent of at least one designee of each Member;
except that with respect to the following matters of the Company, the unanimous consent of all the Managers shall be required for any action
by the Board:
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(a)
approving the annual budget of the Company (the “ Annual Budget ”);
(b)
amending the business principles of the Company (the “Business Principles”) or consummating any transactions
inconsistent with the Business Principles;
(c)
approving any distributions (other than Tax Distributions) to the Members (including any Management Member);
(d)
changing the size of the Board or a Member’s right to designate Managers as set forth in Section 7.1(a);
(e)
hiring or terminating the CEO, the CFO or the COO;
(f)
engaging in any business activity outside the ordinary course of business of the Company;
(g)
acquiring assets or making capital expenditures or other financial commitments in an amount greater than
$250,000 in excess of the capital budget contained in the Annual Budget for any single transaction or any series of related transactions;
(h)
disposing of assets in an amount greater than $250,000 not specifically provided for in the Annual Budget for any
single transaction or any series of related transactions, provided that the Company may make ordinary course dispositions of tractors in an
amount of up to $5,000,000 in the aggregate during any Fiscal Year without consent of the Managers under this Section 7.3;
(i)
liquidating, dissolving or winding-up the Company;
(j)
entering into any amalgamation, consolidation, merger or arrangement or other similar entity reorganization;
(k)
adopting, amending or repealing the certificate of formation of the Company or this Agreement pursuant to
Section 15.2;
(l)
issuing additional Units, any other class of membership interests in the Company, or any securities convertible into
or exchangeable for the membership interests in the Company or repurchasing any membership interests in the Company;
(m)
entering into, terminating or amending any agreements with any Member (or any permitted assignee thereof) and
their respective Affiliates; provided that neither Member shall be required to recuse itself in any decisions regarding any such agreement with
itself);
(n)
any borrowing or the pledging of any of the Company’s assets or the giving of any other financial assistance in the
form or a guarantee or otherwise with respect to an amount in excess of $250,000 in any single or series of related transactions not specifically
provided for in the Annual Budget;
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(o)
retaining investment bankers in connection with any proposed public offering by the Company and approving the
filing of any prospectus or stock exchange listing application or the taking of other action to become a reporting company under Canadian or
United States securities laws or the equivalent under the securities laws of any other jurisdiction;
(p)
appointing any committee of Managers or delegating any authority of the Managers to a committee;
(q)
commencing or settling any litigation (i) involving an amount greater than $250,000; (ii) which could reasonably
be expected to have a material effect on the Company or its business; (iii) which imposes non-monetary obligations on the Company; or (iv)
pursuant to which the Company makes an admission of guilt in any criminal case;
(r)
approving or changing the auditor of the Company, or changing material tax elections of the Company;
(s)
approving any other matter which the Managers or Members are required to approve under the Act; and
(t)
agreeing to do or permitting any subsidiary of the Company to do any of the foregoing.
Notwithstanding anything contrary in this Section 7.3, any termination of the Service Agreement shall be effective solely upon the
approval by the Managers appointed by Element.
SECTION 7.4
Telephonic or Video Communications . Managers may participate in a meeting of the Board by
means of conference telephone, video conference or similar communications equipment by means of which all persons participating in the
meeting can hear and speak to each other, and such participation in a meeting shall constitute presence in person at the meeting.
SECTION 7.5
Action by Written Consent . Any action required or permitted to be taken at any meeting of the Board
may be taken without a meeting and without a vote, if, upon not less than two (2) Business Days’ notice, a consent or consents in writing
(including by email), setting forth the action so taken, shall be signed by such number and type of the Managers required by Section 7.3 if a
meeting were held (provided, that for such purposes an electronic signature shall be valid). Notice of a consent need not be given to any
Manager if a written waiver of notice, executed before or after the consent is executed, is filed with the consent.
SECTION 7.6
Transactions with Members and their Affiliates . Notwithstanding anything to the contrary in this
Agreement, without the prior written consent of the Board (it being understood that none of the Members (including any Management
Member) shall be required to recuse itself in any decisions regarding any such affiliated transaction with itself), the Company shall not enter
into, effect, consummate (or enter into any agreement providing for) any transaction with (or modify any transaction with, or amend any
agreement with, to the extent such transaction or agreement was initially entered into in compliance with
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this Section 7.6) or make payments to a Member (including any Management Member) or any of its Affiliates, except for:
(a)
entry into the Service Agreement, the Subscription Agreement, the Management Subscription Agreements, the
Term Loan Agreement, the Guarantee, the Equipment Loan Agreement, the Lease Agreement, the Termination Agreement, the Redemption
Agreements (for the avoidance of doubts, the parties to the Redemption Agreements, other than the Company or Celadon, shall not be deemed
as Affiliates of any Member) and any other ancillary documents, transactions or payments contemplated thereby (all of which have been
approved and authorized by the Company and the applicable Member); and
(b)
distributions in compliance with Section 6.1.
SECTION 7.7
Outside Businesses and Corporate Opportunities .
(a)
(i) Any Member, any Manager or any Affiliate of the foregoing may engage in or possess an interest in other
investments, business ventures or Persons of any nature or description, independently or with others, similar or dissimilar to, or that compete
with, the investments or business of the Company or its subsidiaries, and may provide advice and other assistance regarding any such
investment, business venture or Person, (ii) the Company and the Members shall have no rights by virtue of this Agreement in and to such
investments, business ventures or Persons or the income or profits derived therefrom, and (iii) the pursuit of any such investment or venture,
even if competitive with the business of the Company, shall not be deemed wrongful or improper.
(b)
None of the Members, the Managers or any Affiliate thereof shall be obligated to present any particular
investment or business opportunity to the Company even if such opportunity is of a character that, if presented to the Company, could be
pursued by the Company, and any Member, any Manager or any Affiliate thereof shall have the right to pursue for its own account
(individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity.
(c)
Nothing in this Section 7.7 as it relates to (i) any employee or former employee shall limit the obligations of such
Person under any other agreements with the Company or its subsidiaries or under any policy of the Company or its subsidiaries to which such
Person may be subject from time to time, or (ii) any Member or Manager shall limit the obligations of any such Member which is, or has an
Affiliate which is, subject to confidentiality or non-competition or similar obligations to the Company or its subsidiaries under any other
agreement (including Section 15.3 hereof).
(d)
No amendment or repeal of this Section 7.7 shall apply to or have any effect on the liability or alleged liability of
any officer or any Manager for or with respect to any opportunities of which any such officer or Manager becomes aware prior to such
amendment or repeal.
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(e)
The Company shall cause the organizational documents of its material subsidiaries (as determined by the Board)
to include provisions substantially similar to this Section 7.7.
SECTION 7.8
Committees of the Board . The Board may establish any committee of the Board upon the approval of
the Board, the authority of each committee to be determined from time to time by the Board (it being understood that any such committee the
shall not have authority to take any of the actions covered in clauses (a) through (t) of Section 7.3 unless such action has been approved by the
Board in accordance with Section 7.3). Each Member shall be entitled to appoint an equal number of members to each committee of the
Board. Additional members of each committee, if any, shall be as appointed by the Board. Any action taken by a committee of the Board
may only be taken by a majority of its members, which shall include one member designated by each Member.
ARTICLE VIII
DUTIES, LIABILITY, EXCULPATION, INDEMNIFICATION AND INSURANCE
SECTION 8.1
Duties . This Agreement is not intended to, and does not, create or impose any fiduciary duty on any
of the Members or Managers or on their respective Affiliates. Notwithstanding any other provision of this Agreement or any duty otherwise
existing at law or in equity, the Members and Managers of the Company shall, to the maximum extent permitted by law, including Section
18-1101(c) of the Act, owe only such duties and obligations as are expressly set forth in this Agreement, and no other duties (including
fiduciary duties), to the Company, the Members, the Managers or any other Person otherwise bound by this Agreement.
SECTION 8.2
Liability . To the fullest extent permitted by law, the debts, obligations and liabilities of the Company,
whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Covered Person shall
be obligated personally for the repayment, satisfaction or discharge of any such debt, obligation or liability of the Company solely by reason of
being a Covered Person. All Persons dealing with the Company shall have recourse solely to the assets of the Company for the payment of
debts, obligations or liabilities of the Company.
SECTION 8.3
Exculpation .
(a)
Notwithstanding any other provision of this Agreement, whether express or implied, to the fullest extent permitted
by law, no Covered Person shall be liable to the Company or any other Member for any losses, claims, demands, damages, liabilities (joint or
several), expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising as a result of
any act or omission (in relation to the Company, this Agreement, any related document or any transaction or investment contemplated hereby
or thereby) of a Covered Person, or for any breach of contract (including breach of this Agreement) or any breach of duties (including breach of
fiduciary duties) whether arising hereunder, at law, in equity or otherwise, unless there has been a final and non-appealable judgment entered
by a court of competent jurisdiction determining that such loss was a result of
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such Covered Person’s Disabling Conduct; provided that a Person shall not be a Covered Person by reason of providing, on a fee-for-services
basis or similar arm’s-length compensatory basis, agency, advisory, consulting, trustee, fiduciary or custodial services.
(b)
To the fullest extent permitted by applicable law, each Covered Person shall be entitled to rely in good faith on the
advice of legal counsel to the Company, accountants, other experts and financial or professional advisors, and each Covered Person will be
fully protected in acting or omitting to act in good faith on behalf of the Company or in furtherance of the interests of the Company in reliance
upon and in accordance with the advice of such counsel, accountants, other experts and financial or professional advisors.
SECTION 8.4
Indemnification . To the fullest extent permitted by applicable law, the Company shall, and shall
cause its controlled Affiliates to, indemnify and hold harmless each of the Covered Persons from and against any and all liabilities, obligations,
losses, damages, fines, taxes and interest and penalties thereon (other than taxes based on fees or other compensation received by such Covered
Person from the Company), claims, demands, actions, suits, proceedings (whether civil, criminal, administrative, investigative or otherwise),
costs, expenses and disbursements (including reasonable and documented legal and accounting fees and expenses, costs of investigation and
sums paid in settlement) of any kind or nature whatsoever (collectively, “ Claims and Expenses ”) which may be imposed on, incurred by or
asserted at any time against such Covered Person in connection with the business or affairs of the Company or its controlled Affiliates or the
activities of such Covered Person on behalf of the Company; provided, that a Covered Person shall not be entitled to indemnification hereunder
against Claims and Expenses that are finally determined by a court of competent jurisdiction to have resulted from such Covered Person’s
Disabling Conduct; provided, further, that indemnification hereunder and the advancement of expenses under Section 8.4 shall be recoverable
only from the assets of the Company and its subsidiaries or proceeds of insurance, if any, and not from assets of the Members. The Company
shall cause its material subsidiaries (as reasonably determined by the Board) to execute a joinder agreeing to assume responsibility for their
respective obligations pursuant to this Section 8.4 and Section 8.5.
SECTION 8.5
Advancement of Expenses . To the fullest extent permitted by applicable law, the Company shall, and
shall cause its subsidiaries to, pay the expenses (including reasonable legal fees and expenses and costs of investigation) incurred by a Covered
Person in defending any claim, demand, action, suit or proceeding contemplated in Section 8.4 (other than a claim, demand, action, suit or
proceeding brought by the Company against a Member for such Member’s material breach or violation of this Agreement) as such expenses are
incurred by such Covered Person and in advance of the final disposition of such matter, provided that such Covered Person undertakes to repay
such expenses if it is determined by agreement between such Covered Person and the Company or, in the absence of such an agreement, by a
final judgment of a court of competent jurisdiction that such Covered Person is not entitled to be indemnified pursuant to Section 8.4.
SECTION 8.6
Notice of Proceedings . Promptly after receipt by a Covered Person of notice of the commencement of
any proceeding against such Covered Person, such Covered Person shall, if a claim for indemnification in respect thereof is to be made against
the Company, give written notice to the Board of the commencement of such proceeding, provided
20
that the failure of a Covered Person to give notice as provided herein shall not relieve the Company of its obligations under Sections 8.4 and
8.5, except to the extent that the Company is materially prejudiced by such failure to give notice. In case any such proceeding is brought
against a Covered Person (other than a proceeding by or in the right of the Company) the Company will be entitled to assume the defense of
such proceeding; provided, that (i) the Covered Person shall be entitled to participate in such proceeding and to retain its own counsel at its
own expense and (ii) in the event of a proceeding by or in the right of the Company, or if the Covered Person shall give notice to the Company
that in its good faith judgment, based on written advice of outside counsel, (A) a conflict of interest exists that reasonably could be expected to
prejudice the Company's ability to conduct such defense, or (B) certain claims made against it in such proceeding could have a material adverse
effect on the Covered Person or its Affiliates other than as a result of monetary damages, the Covered Person shall have the right to control (at
its own expense and with counsel reasonably satisfactory to the Company) the defense of such specific claims with respect to the Covered
Person (but not with respect to the Company or any other Member); and provided, further, that if a Covered Person elects to control the defense
of a specific claim with respect to such Covered Person, such Covered Person shall not consent to the entry of a judgment or enter into a
settlement that would require the Company to pay any amounts under Section 8.4 without the prior written consent of the Company, such
consent not to be unreasonably withheld, delayed or conditioned. Except in relation to claims covered by clauses (A) or (B) above, after notice
from the Company to such Covered Person acknowledging the Company’s obligation to indemnify and hold harmless the Covered Person and
electing to assume the defense of such proceeding, the Company will not be liable for expenses subsequently incurred by such Covered Person
in connection with the defense thereof. Without the consent of such Covered Person, the Company will not consent to the entry of any
judgment or enter into any settlement that (i) does not include as an unconditional term thereof the giving by the claimant or plaintiff to such
Covered Person of a release from all liability arising out of the proceeding and claims asserted therein, (ii) requires or involves any admission
on the part of the Covered Person or (iii) requires the Covered Person to take any action or to forego taking any action. Any decision that is
required to be made by the Company pursuant to Section 8.4 or 8.5 or this Section 8.6 shall be made on behalf of the Company by the Board in
accordance with Section 7.3.
SECTION 8.7
Insurance . The Company may purchase and maintain directors and officers insurance policies, to the
extent and in such amounts as the Board may, in its discretion, deem reasonable.
SECTION 8.8
Service Agreement . Notwithstanding anything to the contrary in Article VII and this Article VIII of
this Agreement, nothing therein or herein shall limit the duties of Quality under the Service Agreement.
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ARTICLE IX
TRANSFERABILITY OF UNITS
SECTION 9.1
(a)
Management Member.
General Transfer Restrictions .
Solely for the purpose of this Article IX and unless otherwise specified, the term of “Member” shall exclude any
(b)
Without the prior written consent of the other Member, no Member (including any Management Member) shall
Transfer all or any part of its Units except in accordance with applicable law and this Article IX.
(c)
Commencing on the date that is eighteen (18) months after the date of this Agreement, a Member may Transfer
any or all of its Units to a third party which is not a Prohibited Transferee in exchange for cash consideration, subject to compliance with the
requirements set forth in Section 9.2.
(d)
Notwithstanding anything to the contrary in this Agreement, no Units shall be Transferred to a Prohibited
Transferee without the approval of the Board. A “ Prohibited Transferee ” shall mean (i) any Person listed on Schedule E or (ii) any Affiliate
of such Person specified in clause (i). In the event any proposed Transfer to a Prohibited Transferee is approved by the Board, (i) such
approval shall also apply to Transfers made to such prospective transferee by any Tag Along Sellers and (ii) such Transfer must nevertheless
comply with Sections 9.2, 9.3 and 9.5.
(e)
Any purported Transfer in violation of this Agreement shall be null and void, and the Company shall not in any
way give effect to any such impermissible Transfer.
SECTION 9.2
Right of First Offer .
(a)
If any Member (the “ Offeror ”) proposes to Transfer any or all of such Member’s Units in accordance with
Section 9.1 (other than pursuant to a Permitted Transfer, a Permitted Pledge or any Transfer by a Tagging Member pursuant to Section 9.3),
then the Offeror shall furnish to the other Member who is not an Offeror (the “ Offeree ”), a written notice of such proposed Transfer (an “
Offer Notice ”).
(b)
The Offer Notice will include:
(i)
(A) the number of Units proposed by the Offeror to be Transferred (the “ Subject Units ”), (B) the amount
of cash consideration for which the Offeror is proposing to Transfer such Units (the “ Offered Price ”), (C) the proposed Transfer date,
if known and (D) all other material terms and conditions, if any, proposed by the Offeror; and
(ii)
an irrevocable offer to the Offeree to purchase the Subject Units at the Offered Price and on the other
material terms and conditions specified therein.
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(c)
The Offeree, if it wishes to purchase Subject Units pursuant to the right of first offer provided by this Section 9.2,
shall have the right, within thirty (30) days following the date of delivery of the Offer Notice, to negotiate and enter into a definitive agreement
with the Offeror for the purchase of the Subject Units at the Offered Price and on the other material terms in the Offer Notice. If the Offeree
does not exercise its right to purchase the Subject Units in compliance with the above requirements, including the time period, or if the Offeree
and the Offeror fail to enter into a definitive agreement within the thirty (30) day period, the Offeror shall have the right, subject to the other
provisions of this Article IX, not later than one hundred and eighty (180) days after the date of the Offer Notice (as such period may be
extended to obtain any required regulatory approvals), to Transfer to a third party that is not a Prohibited Transferee, all of the Subject Units, at
a purchase price equal to or greater than the Offered Price, and if any other material terms and conditions are identified in the Offer Notice, on
those terms and conditions (or those terms and conditions modified in a manner which are not materially more favorable in the aggregate to the
transferee), without any further obligation to the Offeree pursuant to this Section 9.2 (but subject to compliance with Section 9.3). If, at the
end of such one hundred and eighty (180) day period (as such period may be extended to obtain any required regulatory approvals) (and subject
to the preceding sentence), the Offeror has not completed the Transfer of the Subject Units to a third party as aforesaid, the restrictions on
transfer contained herein shall again be in effect with respect to such Units and the Offeror shall comply with this Section 9.2 again if it
proposes to Transfer any or all of its Units.
SECTION 9.3
Tag-Along Rights .
(a)
Subject to prior compliance with Section 9.2, if any Member (a “ Selling Member ”) proposes to Transfer any or
all of such Member’s Units for cash consideration to any third party that is not a Permitted Transferee or a Prohibited Transferee (a “ Proposed
Sale ”), then the Selling Member shall furnish to the other Member a written notice of such Proposed Sale (the “ Tag Along Notice ”).
(b)
The Tag Along Notice will include:
(i)
the material terms and conditions of the Proposed Sale, including (A) the number of Units proposed to be
so Transferred, (B) the name and address of the Proposed Transferee (the “ Proposed Transferee ”), (C) the Offered Price, (D) the
fraction, expressed as a percentage, determined by dividing the number of Units to be purchased from the Selling Member by the total
number of Units held by the Selling Member (the “ Tag Along Sale Percentage ”) and (E) the proposed Transfer date, if known; and
(ii)
an invitation to the other Member to make an offer (such other Member, if elects to make such an offer
being the “ Tagging Member ”, and, together with the Selling Member, the “ Tag Along Sellers ”) to include in the Proposed Sale to
the applicable Proposed Transferee the Units held by such Tagging Members (not in any event to exceed the Tag Along Sale
Percentage of the total number of Units held by such Tagging Member). The Selling Member will deliver or cause to be delivered to
the Tagging Member copies of all transaction documents relating to the Proposed Sale promptly as the same become available.
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(c)
The Tagging Member shall have the right to exercise the tag-along rights provided by this Section 9.3 within ten
(10) Business Days following delivery of the Tag Along Notice by delivering a notice (the “ Tag Along Offer ”) to the Selling Member
indicating its desire to exercise its rights and specifying the number of Units it desires to Transfer (not in any event to exceed the Tag Along
Sale Percentage of the total number of Units held by the Tagging Member). If the Tagging Member does not make a Tag Along Offer in
compliance with the above requirements, including the time period, it shall be deemed to have waived all of its rights with respect to such
Proposed Sale, and the Tag Along Sellers shall thereafter be free to Transfer the Units to the Proposed Transferee, for cash consideration, at a
per Unit price no greater than the per Unit price set forth in the Tag Along Notice and on other terms and conditions which are not materially
more favorable in the aggregate to the Selling Members than those set forth in the Tag Along Notice. In order to be entitled to exercise its
right to sell Units to the Proposed Transferee pursuant to this Section 9.3, the Tagging Member must agree to make to the Proposed Transferee
the same representations, warranties, covenants, indemnities and agreements as the Selling Member agrees to make in connection with the
Proposed Sale and to take or cause to be taken all other actions as may be reasonably necessary to consummate the Proposed Sale; provided
that (x) unless otherwise agreed, a Tagging Member shall not be required to make representations and warranties or covenants or provide
indemnities as to any other Member (other than Permitted Transferees of the Tagging Member) and (y) any liability relating to representations
and warranties (and related indemnities), covenants or other indemnification obligations regarding the business of the Company in connection
with the Proposed Sale shall be shared by the Tagging Member and the Selling Member pro rata in proportion to the number of Units actually
being Transferred by each of those Members and in any event shall not exceed the proceeds received by the Tagging Member in the Proposed
Sale. Each Tag Along Seller will be responsible for its proportionate share of the costs of the Proposed Sale to the extent not paid or
reimbursed by the Proposed Transferee.
(d)
The offer of the Tagging Member contained in the Tagging Member’s Tag Along Offer shall be irrevocable, and,
to the extent such offer is accepted, the Tagging Member shall be bound and obligated to Transfer in the Proposed Sale on the same terms and
conditions, with respect to each Unit Transferred, as the Selling Member, up to such number of Units as the Tagging Member shall have
specified in its Tag Along Offer; provided , however , that if the material terms of the Proposed Sale change with the result that the per Unit
price shall be less than the per Unit price set forth in the Tag Along Notice, the form of consideration shall be different or the other terms and
conditions shall be materially less favorable in the aggregate to the Tag Along Sellers than those set forth in the Tag Along Notice, the Tagging
Member shall be permitted to withdraw the offer contained in its Tag Along Offer by written notice to the Selling Member and upon such
withdrawal shall be released from its obligations. If there is a Tagging Member, the Selling Member shall not Transfer any Units except at a
per Unit price and on other terms and conditions as are not materially more favorable in the aggregate to the Selling Member and its Affiliates
than to the Tagging Member and its Affiliates.
(e)
The Selling Member shall attempt to obtain the inclusion in the Proposed Sale of the entire number of Units which
the Tag Along Sellers requested to have included in the Proposed Sale. However, to the extent the Selling Member is unable to do so, each
Tag Along Seller shall be entitled to sell in the Proposed Sale a number of Units that equals to the lesser of
24
(a) the number of Units such Tag Along Seller has offered to sell in the Tag Along Offer (or specified in the Tag Along Notice in the case of
the Selling Member) and (b) the number of Units determined by multiplying (A) the number of Units subject to the Proposed Sale by (B) a
fraction the numerator of which is the number of Units owned by such Tag Along Seller and the denominator of which is the total Units owned
by all Tag Along Sellers (the “ Pro Rata Share ”). The Selling Member shall notify the Tagging Members of the results of this calculation
within two (2) Business Days following receipt by the Tagging Member of the Tag Along Notice.
(f)
If the Tagging Member exercises its rights under this Section 9.3, the closing of the purchase of the Units with
respect to which such rights have been exercised will take place concurrently with the closing of the sale of the Selling Member’s Units to the
Proposed Transferee and the Selling Member shall provide the Tagging Member with at least five (5) Business Days’ prior notice thereof. If
the closing to the Proposed Transferee (whether or not a Tagging Member has exercised its rights under this Section 9.3) shall not have
occurred by the date that is one hundred and eighty (180) days after the date of the Offer Notice provided in accordance with Section 9.2 (as
such period may be extended to obtain any required regulatory approvals), the Tagging Member shall be released from its obligation under its
irrevocable offer (unless such failure to complete the Transfer was due to the failure of such Tagging Member to perform its obligations under
this Section 9.3) and all the restrictions on Transfer contained herein shall again be in effect with respect to such Units and the Selling Member
shall comply with Section 9.2 and this Section 9.3 again if it proposes to Transfer any or all of its Units to a third party that is not a Permitted
Transferee or a Prohibited Transferee.
(g)
The Selling Member shall, in its sole discretion, decide whether or not to pursue, consummate, postpone or
abandon any Proposed Sale and the terms and conditions thereof. No holder of Units nor any Affiliate of any such holder shall have any
liability to any other holder of Units or the Company arising from, relating to or in connection with the pursuit, consummation, postponement,
abandonment or terms and conditions of any Proposed Sale except to the extent such holder shall have failed to comply with the provisions of
this Section 9.3.
SECTION 9.4
Other Permitted Transfers .
(a)
Transfers to Permitted Transferees . Any Member may at any time, without complying with the restrictions
contained in Section 9.2 or 9.3, Transfer all or a portion of its Units to one or more Permitted Transferees (a “ Permitted Transfer ”). The
transferee of Units in a Permitted Transfer shall automatically be admitted as a Substituted Member upon (i) its compliance with this
Section 9.4(a) , (ii) its execution and delivery to the Company a signature page counterpart to this Agreement and an acceptance of all of the
terms and conditions of this Agreement (including such other documents or instruments as may be required to effect the admission in the
Company’s reasonable judgment) and (iii) its execution and delivery of an undertaking that if such subsidiary ceases to be wholly owned by
such Member, it shall immediately Transfer its Units back to the Member who initially transferred such Units to such subsidiary or another
wholly owned subsidiary of such Member. Following any such Permitted Transfer, all rights of the Member provided for herein shall be
collectively exercised by the Member and such transferee.
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(b)
Permitted Pledge . Any Member may at any time, without complying with Section 9.2 or 9.3, pledge all or part of
its Units as security to a bona fide debt obligation of such Member, provided that the transferee is not a Prohibited Transferee (a “ Permitted
Pledge ”).
SECTION 9.5
Other Transfer Restrictions .
(a)
In addition to any other restrictions on Transfer herein contained, in no event may any Transfer of any Units or
Interest by any Member be made:
(i)
to any Person who lacks the legal right, power or capacity to own an Interest or Units;
(ii)
if such Transfer would cause the assets of the Company to become “plan assets” of any benefit plan
investor within the meaning of DOL Regulation Section 2510.3-101 or to be regulated under ERISA;
(iii)
for as long as the Company is a partnership for U.S. federal income tax purposes, if such Transfer would,
in the opinion of counsel to the Company, cause any portion of the assets of the Company to constitute assets of any employee benefit
plan pursuant to the Plan Asset Regulations;
(iv)
if such Transfer, in the opinion of counsel to the Company, requires the registration of such Units
pursuant to any applicable U.S. federal or state or Canadian securities laws;
(v)
for so long as the Company is a partnership for U.S. federal income tax purposes, unless such transfer will
not result in the Company being treated as a “publicly traded partnership,” as such term is defined in Sections 469(k)(2) or 7704(b) of
the Code and the regulations promulgated thereunder that is taxable as a corporation as determined by counsel to the Company;
(vi)
unless the transferee makes the representations and warranties set forth in Section 14.1;
(vii)
if such Transfer subjects the Company to be regulated under the Investment Company Act or the
Investment Advisors Act of 1940;
(viii)
if such Transfer would result, either directly or indirectly, in the transferor being deemed an affiliate (as
defined in 12 C.F.R. § 225.2(a)) of a bank holding company, savings and loan holding company or U.S. depository institution the
deposits of which are insured by the Federal Deposit Insurance Corporation, or otherwise cause the Company to become subject to
supervision and regulation by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency,
the Federal Deposit Insurance Corporation or any other U.S. federal banking agency; or
(ix)
if such Transfer would require the consent of any federal or state regulatory agency or self-regulatory
organization or any foreign equivalent of the foregoing and such consent has not been obtained.
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(b)
Unless admitted as a Substituted Member, no transferee, whether by a voluntary Transfer, by operation of law or
otherwise, shall have rights hereunder.
(c)
The Members effecting any Transfer permitted hereunder shall pay all reasonable costs and expenses, including
reasonable attorneys’ fees and disbursements, incurred by the Company in connection with the Transfer.
(d)
No Transfer may be made or recorded in the books and records of the Company unless the transferee shall deliver
to the Company notice of such Transfer, including a fully executed copy of all documentation and agreements relating to the Transfer and any
agreements or other documents required by Section 9.6, including the written agreement (as required pursuant to Section 9.6) of the transferee
to be bound by the terms of this Agreement and to assume all obligations of the transferring Member under this Agreement in respect of the
Units that are the subject of the Transfer.
(e)
Unless approved by the Board, no Member may withdraw from this Agreement except (i) as a result of a permitted
Transfer of all of such Member’s Units in accordance with this Article IX and the transferee(s) of such Units being admitted to the Company as
a Substituted Member or (ii) upon the dissolution and winding up of the Company. Following withdrawal, a Member shall have no rights or
obligations under this Agreement (other than Sections 8.4 and 15.3).
(f)
Any Member who shall Transfer all of such Member’s Units in a Transfer permitted pursuant to this Article IX
shall cease to be a Member.
(g)
If any Units are Transferred in compliance with the provisions of this Article IX, on any day other than the first
day of a Fiscal Year of the Company, then Net Income, Net Losses, each item thereof and all other items attributable to such interest for such
Company Fiscal Year shall be divided and allocated between the transferor Member and the transferee Member using any method permitted
under Section 706 of the Code or determined by the Board. All distributions with respect to which the record date is before the date of such
Transfer or redemption shall be made to the transferor Member, and all distributions with respect to which the record date is after the date of
such Transfer, in the case of a Transfer other than a redemption, shall be made to the transferee Member.
SECTION 9.6
Substituted Members .
(a)
No Member shall have the right to substitute a transferee as a Member in its place with respect to any Units so
Transferred unless (i) such Transfer is made in compliance with the terms of this Agreement and (ii) the transferee executes and delivers to the
Company a signature page counterpart to this Agreement and an acceptance of all of the terms and conditions of this Agreement (including
such other documents or instruments as may be required to effect the admission in the Board’s reasonable judgment).
(b)
A transferee who has been admitted as a Substituted Member in accordance with this Section 9.6 shall have all the
rights and powers (except as provided in Section 7.1) and be subject to all the restrictions and liabilities of a Member under this
27
Agreement holding Units.
(c)
Admission of a Substituted Member shall become effective on the date such Person’s name is recorded on the
books and records of the Company. Upon the admission of a Substituted Member, (i) the Company shall amend Schedule A to reflect the
name and address of, and number and class of Units held by, such Substituted Member and to eliminate or adjust, if necessary, the name,
address and interest of the predecessor of such Substituted Member (such revisions to be presented to the Board no later than at the next regular
meeting of the Board) and (ii) to the extent of the Transfer to such Substituted Member, the transferor Member shall be relieved of its
obligations under this Agreement, provided that a Transfer to a wholly owned subsidiary shall not relieve the parent entity of its obligations
under this Agreement.
SECTION 9.7
Transfer of the Management Equity .
(a)
No Management Member shall not have any right to transfer the Management Equity, except as specifically
provided in this Section 9.7.
(b)
At any time, each of Element and Celadon (or their respective successors or Permitted Transferees) shall have an
option to purchase, or permit any other Person employed by the Company to purchase, fifty percent (50%) of the aggregate Management
Equity from any Management Member at the price at which such Management Member acquired the Management Equity (the “ Management
Equity Purchase Option ”), provided that any such purchaser shall comply with any regulatory requirements (including any required
competition approval) in connection with such purchase of the Management Equity.
(c)
The Company shall make a final Tax Distribution to the Management Members within a reasonable time after
transfer of the Management Equity in accordance with this Section 9.7.
ARTICLE X
RECORDS AND REPORTS; FISCAL AFFAIRS
SECTION 10.1
Records and Accounting.
(a)
Appropriate records and books of account of the business of the Company, including a list of the names,
addresses, Units and Capital Contributions of all Members, shall be maintained at the Company’s principal place of business.
(b)
The books and records of the Company shall be kept in accordance with GAAP. The Board shall determine the
accounting methods and conventions to be used by the Company.
SECTION 10.2
Financial Statements and Reports . The Company shall promptly and simultaneously provide to each
of the Members (or the Managers appointed by such Member) the following information:
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(a)
as soon as available, but not later than thirty (30) days after the end of each calendar month commencing January
31, 2017 (for avoidance of doubt, including months that are the end of each fiscal quarter and year), the Company will provide the Members
monthly financial statements that will include, for such monthly period and the year-to-date, a summary unaudited balance sheet and the related
unaudited statements of income, retained earnings and cash flows of the Company and its consolidated subsidiaries for such periods;
(b)
as soon as available, but not later than thirty (30) days after the end of each calendar quarter commencing with the
quarter ending March 31, 2017, the Company will provide the Members with an unaudited balance sheet and the related unaudited statements
of income, retained earnings and cash flows of the Company and its consolidated Subsidiaries as of the end of such immediately preceding
calendar quarter, in each case, prepared in accordance with the GAAP;
(c)
as soon as available, but not later than ninety (90) days after (i) the end of each Fiscal Year ending December
(commencing with the Fiscal Year ending December 31, 2017) and (ii) June 30, 2017, the Company will provide the Members with an audited
consolidated balance sheet of the Company and its consolidated Subsidiaries as of December 31 of each Fiscal Year (or as of June 30, 2017
with respect clause (ii) of this section) and the related audited consolidated statements of income, retained earnings and cash flows of the
Company and its consolidated Subsidiaries for the Fiscal Year (or twelve month period with respect clause (ii) of this section) then ended, such
annual financial reports to be in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion of an independent
public accounting firm of nationally recognized standing;
(d)
as soon as available, but not later than ten (10) days after the end of each calendar month commencing January
2017 (for avoidance of doubt, including months that are the end of each fiscal quarter and year), the Company will provide the Members
preliminary financial results of the Company and its consolidated subsidiaries for such periods;
(e)
notification of (i) any material litigation that involves the Company and (ii) any criminal, quasi-criminal or
regulatory inquiries, investigations or proceedings by any governmental entity having jurisdiction over the Company, in each case, that, if
decided adversely against the Company, is reasonably expected to have a material adverse effect on the Company or the Company’s business;
and
(f)
any other information that a Member may reasonably require.
ARTICLE XI
TAX MATTERS
SECTION 11.1
Preparation of Tax Returns . The Company shall arrange for the preparation and timely filing of all
returns of the Company’s income, gains, deductions, losses and other items required of the Company for federal, state and local income tax
purposes. The Company shall use commercially reasonable efforts to supply each Member (or any Person that was a Member in the
immediately preceding taxable year) with the Company information
29
(including Schedule K-1) necessary, by the earlier of (x) the date which is 30 days prior to the date on which such Member’s income tax returns
are due for such year and (y) July 15 of each year, to enable such Member (or former Member) to prepare in a timely manner its federal, state
and local income tax returns and such other financial or other statements and reports. If such information has not already been provided by
such date, the Company shall use commercially reasonable efforts to provide each such Member (or former Member) with an estimate of such
information by August 1 of the following Fiscal Year. The Company will use commercially reasonable efforts to provide each current or
former Member with any information reasonably requested by such Member in connection with the filing of any tax return by such Member or
its direct or indirect owners, any tax audit or proceeding relating to such Member or its direct or indirect owners or any tax planning of such
Member or its direct or indirect owners, in each case, to the extent that such information is reasonably available to the Company. In each case,
the Company’s obligations under this Section 11.1 shall be subject to reasonable delays in the event of the late receipt of any necessary
financial statements or other information necessary to prepare the tax returns or other required information that relate to the Company and its
business.
SECTION 11.2
Tax Matters Member .
(a)
Element (or its designee that is a Member) shall be the “tax matters partner” or the “partnership representative,” as
applicable, of the Company for United States federal income tax purposes (the “ Tax Matters Member ”). The Tax Matters Member shall have
the rights and obligations provided for under Sections 6221 through 6232 of the Code and United States Treasury regulations thereunder (as
amended by the Bipartisan Budget Act of 2015 where applicable). The Tax Matters Member shall not take any action that could reasonably be
expected to materially affect the Company or a Member without the consent of the Board.
(b)
The Tax Matters Member shall at the reasonable request of any Member cause the Company to elect, pursuant to
Section 754 of the Code, to adjust the basis of the Company’s property.
For the avoidance of doubt, the provisions relating to indemnification of a Member set forth in Article VIII of this Agreement shall be fully
applicable to the Tax Matters Member in its capacity as such. The Tax Matters Member shall receive no compensation for its services. The
Tax Matters Member may retain legal, accounting and other advisors to assist in performing its duties hereunder and all reasonable third party
costs and expenses incurred by the Tax Matters Member in performing its duties as such (including reasonable legal and accounting fees and
any reasonable and documented out-of-pocket expenses) shall be borne by the Company.
SECTION 11.3
Organizational Expenses . The Company shall elect to deduct expenses, if any, incurred by it in
organizing the Company ratably as provided in Section 709 of the Code and the regulations promulgated thereunder.
SECTION 11.4
Withholding . Each Member hereby authorizes the Company to withhold from or pay on behalf of or
with respect to such Member any amount of federal, state, local, or foreign taxes that the Board determines (provided, however, that the Board
may delegate such determination to the Tax Matters Member) that the Company is required to withhold or pay with respect to any amount
distributable or allocable to such Member pursuant
30
to this Agreement, and any amount so withheld shall reduce the amounts otherwise to be distributed to a Member pursuant to Section 6.1(a)
until all such amounts are restored to the Company in full. The cost of any amount of federal, state, local, or foreign taxes that the Board
determines is imposed on the Company as a result of the status of any Member shall be borne by such Member. Each Member hereby agrees
to indemnify and hold harmless the Company and the other Members from and against any liability (including any liability for taxes, penalties,
additions to tax or interest) with respect to income attributable to or distributions or other payments to such Member. Each Member’s
obligations under this Section 11.4 shall survive the dissolution, liquidation and winding up of the Company, the Transfer of a Member’s Units
or Interest and the withdrawal of any Member.
SECTION 11.5
Classification . The Company will file information returns and any other applicable tax returns in a
manner consistent with treatment of the Company as a partnership for United States federal income tax purposes and will not elect to be treated
as a corporation for United States federal income tax purposes without the unanimous consent of all Members.
SECTION 11.6
Listed and Reportable Transactions . The Company will not enter into any transaction that is, at the
time such transaction is entered into, a “listed transaction” within the meaning of the Regulations promulgated under section 6011 of the Code
without the consent of all Members. If the Company participates in a reportable transaction described in the Regulations promulgated under
Section 6011 of the Code, the Company will provide the Members with information sufficient for them to comply with any resulting U.S. tax
reporting obligations .
ARTICLE XII
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 12.1
of the following events:
(a)
Dissolution . The Company shall be dissolved and its affairs wound up upon the occurrence of any
subject to Section 13.4(a)(ii), an election by the Board; or
(b)
except as provided in Section 4.5, any other event that would cause the dissolution of a limited liability company
under the Act, unless the Company is continued to the extent permitted by, and in accordance with, the Act.
Dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company will not
terminate until the assets of the Company have been liquidated and the assets distributed as provided in Section 12.2(b) and the Certificate has
been canceled.
SECTION 12.2
Liquidation of the Company’s Assets Upon Dissolution .
(a)
On dissolution, the Company shall be liquidated and wound up in an orderly manner in accordance with the
provisions of this Section 12.2. The Board may wind up
31
the affairs of the Company or may appoint one or more liquidating trustees (who may be Member(s)) to wind up the affairs of the
Company. Subject to Section 13.4, the Board is authorized to sell, exchange or otherwise dispose of the assets of the Company, or to distribute
the Company’s assets in kind, as the Board shall determine to be in the best interests of the Members. The Board shall complete the
liquidation of the Company within a reasonable period of time after the dissolution of the Company; provided that such period may be extended
for up to two additional one-year periods by the Board. The reasonable out-of-pocket expenses incurred by the Board in connection with
winding up the Company (including legal and accounting fees and expenses), all other liabilities or losses of the Company or the Board
incurred in accordance with the terms of this Agreement and reasonable compensation for the services of the liquidating trustee shall be borne
by the Company. Except as otherwise required by applicable law or for Disabling Conduct, Managers shall not be liable to any Member or the
Company for any loss attributable to any act or omission taken in good faith in connection with the winding up of the Company and the
distribution of the Company’s assets. The Board or the liquidating trustee, as applicable, may consult with counsel and accountants with
respect to winding up the Company and distributing its assets and shall be justified in acting or omitting to act, in accordance with the advice or
opinion of such counsel or accountants.
(b)
Upon dissolution of the Company, the expenses of liquidation (including compensation for the services of the
liquidating trustee and legal and accounting fees and expenses) and the Company’s liabilities and obligations to creditors (including obligations
to Members, if any, other than liabilities for distributions) shall first be paid, or reasonable provisions shall be made for payment thereof, from
cash on hand or from the liquidation of the Company properties. The Board also is authorized to hold any funds required to be held in escrow
pursuant to the provisions of any agreement for the sale of investments that require such an escrow. If any of the Company’s liability is
contingent, conditional or unmatured in amount, a reserve equal to the maximum amount to which the Company could reasonably be held
liable shall be established. Upon payment or other discharge of such liability, the amount remaining in such reserve not needed, if any, will be
distributed in accordance with the following sentence. After payment or provision for payment of all expenses of liquidation and liabilities and
obligations of the Company, the remaining assets of the Company (whether cash or securities) shall be distributed to the Members in
accordance with Section 6.1(a).
(c)
When the Board has complied with the foregoing liquidation plan, the Board, on behalf of all Members, shall
execute, acknowledge and cause to be filed a Certificate of Cancellation.
SECTION 12.3
Termination . The Company shall terminate when all of the assets of the Company, after payment of
or due provision for all debts, liabilities and obligations of the Company, shall have been distributed in the manner provided for in this Article
XII and the filing of a Certificate of Cancellation.
SECTION 12.4
Claims of the Members . The Members shall look solely to the Company’s assets for the return of
their Capital Contributions, and if the assets of the Company remaining after payment of or due provision for the payment of all debts,
liabilities and obligations of the Company are insufficient to return such Capital Contributions, the Members
32
and former Members shall have no recourse against the Company, any other Member or Manager or the Board.
SECTION 12.5
Survival . Notwithstanding anything in this Agreement to the contrary, Article VIII and Section 15.3
shall survive the termination or expiration of this Agreement and the dissolution, winding up and termination of the Company.
ARTICLE XIII
CONSENTS, VOTING AND MEETINGS OF MEMBERS
SECTION 13.1
Management Member (a) . No Management Member shall have any voting or consent rights with
respect to any matters of the Company, except that for any amendment of the economic rights attached to the Management Equity or the rights
of the Management Members as the Covered Persons under Article VIII, consent of each affected Management Member is required. Solely for
the purpose of this Article XIII, the term of “Member” shall exclude any Management Member, unless otherwise specified.
SECTION 13.2
Meetings . Any matter requiring the consent of any of the Members pursuant to this Agreement may
be considered at a meeting of the Members attended by all of the Members, or the Members may take such action without a meeting, without
prior notice and without a vote, if a consent or consents in writing (including by email), setting forth the action so taken, shall be signed by all
the Members. Meetings of Members may be called, and notices of meetings may be given, at any time and for any reason by the Board, in its
discretion. Notice of meetings of Members shall be given not less than five (5) nor more than sixty (60) days prior to the meeting. Notice may
be waived by the Members. Any such notice shall state briefly the purpose, time and place of the meeting. All such meetings shall be held in
the United States, within or outside the State of Delaware, at such reasonable place as the Board shall designate and during normal business
hours. Members may participate in a meeting of the Members by means of conference telephone, video conference or similar communications
equipment by means of which all persons participating in the meeting can hear and speak to each other, and such participation in a meeting
shall constitute presence in person at the meeting.
SECTION 13.3
Record Dates . The Board may set in advance a date for determining the Members entitled to notice
of and to vote at any meeting. All record dates shall not be more than sixty (60) days prior to the date of the meeting to which such record date
relates.
SECTION 13.4
Consent Rights .
(a)
Notwithstanding anything in this Agreement to the contrary and subject to Section 13.4(b), the following actions
by the Company shall require the approval of a majority in Interest of the Members in addition to Board approval.
(i)
the Company entering into any merger, consolidation, recapitalization, liquidation, or sale of such entity
or all or substantially all of the assets of the Company or consummation of a similar transaction involving the Company (other
33
than a merger, consolidation or similar transaction between or among the Company and one or more direct or indirect wholly owned
subsidiaries of the Company which transaction would not adversely impact the rights of any holder of Units) or entering into any
agreement providing therefor;
(ii)
voluntarily initiating any liquidation, dissolution or winding up of the Company or permitting the
commencement of a proceeding for bankruptcy, insolvency, receivership or similar action with respect to the Company or any of its
subsidiaries;
(iii)
an IPO of the Company; and
(iv)
changing the corporate or organizational structure of the Company (other than through the admission of
new Members or withdrawal of Members in accordance with this Agreement) or any of its subsidiaries, except in connection with an
IPO that has already been approved by the Members.
(b)
The Company and the Members will not impose additional limitations on each Member’s contractual rights to
Transfer Units as in effect on the Effective Date.
SECTION 13.5
Voting and Other Rights . Except as otherwise expressly provided in this Agreement, the Units shall
have no voting rights or rights of approval, veto or consent or similar rights over any actions of the Company.
ARTICLE XIV
REPRESENTATIONS AND WARRANTIES OF EACH MEMBER
SECTION 14.1
Representations and Warranties of each Member . Each Member hereby represents and warrants to,
and agrees with, the Company and the other Members that the following statements are true:
(a)
Such Member is fully aware that the offering and sale of Units in the Company have not been and will not be
registered under the Securities Act and are being made in reliance upon federal and state exemptions for transactions not involving a public
offering. In furtherance thereof, except as set forth in such Member’s subscription agreement, pursuant to which such Member acquired the
Units, such Member represents and warrants that it is or he is an “accredited investor” (as defined in Regulation D under the Securities Act).
(b)
Such Member’s Units in the Company are being acquired for its or his own account solely for investment and not
with a view to resale or distribution thereof.
(c)
(i) Such Member’s financial condition is such that such Member can afford to bear the economic risk of holding
its Units for an indefinite period of time, (ii) such Member can afford to suffer a complete loss of such Member’s investment in its or his Units,
(iii) such Member understands and has taken cognizance of all risk factors related to the purchase of its or his Units and (iv) such Member’s
knowledge and experience in financial and
34
business matters are such that such Member is capable of evaluating the merits and risks of purchasing its or his Units.
(d)
Such Member has been given the opportunity to (i) ask questions of, and receive answers from, the Company
concerning the terms and conditions of the offering of Units and other matters pertaining to an investment in the Company and (ii) obtain any
additional information which the Company can acquire without unreasonable effort or expense that is necessary to evaluate the merits and risks
of an investment in the Company. In considering its or his investment in the Company, such Member has not relied upon any representations
made by, or other information (whether oral or written) furnished by or on behalf of, the Company or any Manager, officer, employee, agent or
Affiliate of such Persons, other than as set forth in this Agreement or the applicable subscription agreement, pursuant to which such Member
acquired the Units. Such Member has carefully considered and has, to the extent it or he believes such discussion necessary, discussed with
legal, tax, accounting and financial advisers the suitability of an investment in the Company in light of its or his particular tax and financial
situation, and has determined that an investment in the Company is a suitable investment for it.
(e)
With respect to any Member that is an entity, such Member is duly organized or formed, validly existing and in
good standing under the laws of its jurisdiction of organization or formation and the execution, delivery and performance by it of this
Agreement is within its powers, has been duly authorized by all necessary corporate or other action on its behalf, requires no action by or in
respect of, or filing with, any governmental body, agency or official, and does not and will not contravene, or constitute a default under, any
provision of applicable law or regulation or of its certificate of incorporation or other comparable organizational documents or any agreement,
judgment, injunction, order, decree or other instrument to which such Member is a party or by which such Member or any of its properties is
bound. This Agreement constitutes a valid and binding agreement of such Member, enforceable against such Member in accordance with its
terms.
(f)
The foregoing representations, warranties and agreements shall continue to survive after the date of such
Member’s admission to the Company.
ARTICLE XV
GENERAL PROVISIONS
SECTION 15.1
Notices .
(a)
Except as specifically provided elsewhere in this Agreement, all notices, requests, consents or other
communications to the Company or to any Member hereunder shall be in writing and shall be given,
(i)
if to the Company:
35
19 th Capital Group, LLC
9702 East 30 th Street
Indianapolis, IN 46229
Attention: President
with copies to:
Element Transportation LLC
c/o Element Fleet Management Corp.
161 Bay Street, 36th Floor
Toronto, Ontario M5J 2S1
Canada
Attention: General Counsel
E-mail: [email protected]
Facsimile: (888) 772-8129
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Patrick J. Naughton
E-mail: [email protected]
Facsimile: (212) 455-2502
Celadon Group, Inc.
9503 E. 33rd Street
Indianapolis, IN 46235
Attention: Paul A. Will
E-mail: [email protected]
Facsimile: (317) 890-8099
and
Scudder Law Firm, P.C., L.L.O.
411 South 13th Street, 2nd Floor
Lincoln, NE 68508
Attention: Mark A. Scudder
E-mail: [email protected]
Facsimile: (402) 435-4239
(ii)
if to Element Transportation LLC:
c/o Element Fleet Management Corp.
161 Bay Street, 36th Floor
Toronto, Ontario M5J 2S1
Canada
36
Attention: General Counsel
E-mail: [email protected]
Facsimile: (888) 772-8129
with a copy to (which shall not constitute notice):
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Patrick J. Naughton
E-mail: [email protected]
Facsimile: (212) 455-2502
(iii)
if to Celadon Group, Inc.:
9503 East 33rd Street
Indianapolis, IN 46235
Attention: Paul A. Will
E-mail: [email protected]
Facsimile: (317) 890-8099
with a copy to (which shall not constitute notice):
Scudder Law Firm, P.C., L.L.O.
411 South 13th Street, 2nd Floor
Lincoln, NE 68508
Attention: Mark A. Scudder
E-mail: [email protected]
Facsimile: (402) 435-4239
(iv)
if to a Management Member:
Address and contact information set forth in Schedule A with respect to such Management Member
(b)
Each such notice, request, consent or other communication shall be given (i) by hand delivery, (ii) by nationally
recognized overnight courier service, (iii) by facsimile or (iv) by electronic mail.
(c)
Each such notice, request, consent or other communication shall be deemed to be delivered (i) if delivered by
hand, when delivered at the address specified in this Section 15.1, (ii) if delivered by nationally recognized overnight courier service, on the
day of receipt by the Company or such Member and if such date is not a Business Day, on the immediately following Business Day after
delivery to such service or such mailing, and (iii) if given by facsimile or electronic mail, when such facsimile or electronic mail is transmitted
to the facsimile number or e-mail address specified in this Section 15.1 and the appropriate answer back or confirmation is received.
37
SECTION 15.2
Amendments . Amendments to this Agreement may be made only by a written instrument signed by
all Members (other than any Management Member except as required by Section 13.1). The Company shall send to each Member a copy of
any amendment to this Agreement. Notwithstanding the foregoing, the Company may amend Schedule A from time to time as contemplated
by Section 4.1 and the Board may amend Section 6.1, Section 6.2 and Section 6.3 and any other relevant provision of this Agreement as
necessary to reflect the issuance of Profits Interests to Company service providers as approved by the Board.
SECTION 15.3
Confidentiality . Each Member agrees that such Member shall keep confidential, and shall not
disclose to any third Person or use for its own benefit, without the consent of the Board, any non-public information with respect to the
Company (including any Person in which the Company holds, or contemplates acquiring, an investment) that is in such Member’s possession
on the date hereof or disclosed to such Member by or on behalf of the Company, provided that a Member may disclose any such information
(i) as has become generally available to the public other than by virtue of a breach of this provision by such Member or its Affiliates, (ii) to its
Affiliates and their respective directors, managers, officers, employees and authorized representatives (including attorneys, accountants,
consultants, bankers and financial advisors of such Member) and each Member that is a limited partnership or limited liability company may
disclose such information to any former partners or members who retained an economic interest in such Member, and to any current or
prospective partner, limited partner, member, general partner or management company of such Member (or any employee, attorney,
accountant, consultant, banker or financial advisor or representative of any of the foregoing) (collectively, for purposes of this Section 15.3, “
Representatives ”) who need to be provided such information to assist such Member in evaluating or reviewing its investment, each of which
Representatives shall be deemed to be bound by the provisions of this Section 15.3 and such Member shall be responsible for any breach of this
provision by any such Representative, (iii) to the extent necessary (as reasonably determined by such Member) in order to comply with any
law, order, regulatory examination, regulation or ruling, including stock exchange rules and U.S. Securities and Exchange Commission rules,
applicable to such Member or any of its parent entities, (iv) to actual or proposed Permitted Transferees that agree to keep such information
confidential in connection with a Transfer and (v) as may be required in response to any summons or subpoena or in connection with any
litigation or enforcement proceeding or a discovery request in connection with a litigation or enforcement proceeding.
SECTION 15.4
Entire Agreement . This Agreement (including the Schedules attached hereto), the Subscription
Agreement, the Management Subscription Agreements, the Term Loan Agreement, the Guarantee, the Equipment Loan Agreement, the Lease
Agreement, the Termination Agreement, the Element Equipment Purchase Agreement, and the Service Agreement shall constitute the entire
agreement and understanding among the parties hereto with respect to the subject matter hereof and shall supersede any prior understanding or
agreement, oral or written with respect thereto. There are no representations, agreements, arrangements or understandings, oral or written,
between or among the Members relating only to the subject matter of this Agreement that are not fully expressed herein or therein.
SECTION 15.5
Successors and Assigns; Binding Effect . No Member shall assign all or any part of its or his rights
or obligations under this Agreement to any Person,
38
except to a transferee of Units to the extent expressly provided herein. This Agreement and all of the terms and provisions hereof shall be
binding upon, and shall inure to the benefit of, the parties hereto and their respective legal representatives, heirs, successors and permitted
assigns. Each Covered Person shall be entitled to rely upon, shall be a third party beneficiary of, and shall be entitled to enforce, the provisions
of this Agreement applicable to such Person.
SECTION 15.6
Severability . If any provision of this Agreement, or the application of such provision to any Person
or circumstance or in any jurisdiction, shall be held to be invalid or unenforceable to any extent, (i) the remainder of this Agreement shall not
be affected thereby, and each other provision hereof shall be valid and enforceable to the fullest extent permitted by law, (ii) as to such Person
or circumstance or in such jurisdiction such provision shall be reformed to be valid and enforceable to the fullest extent permitted by law and
(iii) the application of such provision to other Persons or circumstances or in other jurisdictions shall not be affected thereby. Any default
hereunder by a Member shall not excuse a default by any other Member.
SECTION 15.7
No Waiver . Neither the failure nor delay on the part of any party hereto to exercise any right,
remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy,
power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with
respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such
waiver.
SECTION 15.8
Dispute Resolution and Arbitration .
(a)
In the event that the Members (other than any Management Member) cannot agree on an action that a Member
(other than any Management Member) believes needs to be taken or any matter that needs to be decided by the Board (a “ Deadlock ”), and any
Member (other than any Management Member) reasonably believes that such Deadlock cannot be adequately or efficiently resolved by the
Managers, such Member may initiate the resolution process set forth in this Section 15.8.
(b)
A Member (other than any Management Member) may refer such a Deadlock to the CEO of Element Fleet
Management Corp. and the CEO of Celadon for discussion and resolution for a period of five (5) calendar days beginning no later than three
(3) calendar days after written receipt of the request to initiate this resolution process. The identified representatives will meet either in person
or via telephone in good faith to attempt to resolve the Deadlock within each applicable time period.
SECTION 15.9
the State of Delaware.
Governing Law . This Agreement shall be governed by and construed in accordance with the laws of
SECTION 15.10
Judicial Proceedings . In any judicial proceeding involving any dispute, controversy or claim
arising out of or relating to this Agreement or the Company or its operations, each of the Members and the Company unconditionally accepts
the non-exclusive
39
jurisdiction and venue of the Court of Chancery of the State of Delaware (or if such jurisdiction or venue is declined by the Court of Chancery
of the State of Delaware, any federal court located in the State of Delaware), and the appellate courts to which orders and judgments thereof
may be appealed. In any such judicial proceeding, the Members agree that in addition to any method for the service of process permitted or
required by such courts, to the fullest extent permitted by law, service of process may be made by delivery provided pursuant to the directions
in Section 15.1. EACH OF THE MEMBERS HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING
ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR RELATING TO THE
COMPANY OR ITS OPERATIONS, AND AGREES TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT
SUCH WAIVER.
SECTION 15.11
Aggregation of Units . All Units held or acquired by a Member and its Affiliates shall be
aggregated together for purposes of determining the rights or obligations of a Member, or application of any restrictions to a Member, under
this Agreement, in each instance in which such right, obligation or restriction is determined by any ownership threshold.
SECTION 15.12
Equitable Relief . The Members hereby confirm that damages at law would be an inadequate
remedy for a breach or threatened breach of this Agreement and agree that, in the event of a breach or threatened breach of any provision
hereof, the respective rights and obligations hereunder shall be enforceable by specific performance, injunction or other equitable remedy, but,
nothing herein contained is intended to, nor shall it, limit or affect any right or rights at law or by statute or otherwise of a Member aggrieved as
against another Member for a breach or threatened breach of any provision hereof, it being the intention by this Section to make clear the
agreement of the Members that the respective rights and obligations of the Members hereunder shall be enforceable in equity as well as at law
or otherwise and that the mention herein of any particular remedy shall not preclude a Member from any other remedy it or he might have,
either in law or in equity.
SECTION 15.13
Table of Contents, Headings and Captions . The table of contents, headings, subheadings and
captions contained in this Agreement are included for convenience of reference only, and in no way define, limit or describe the scope of this
Agreement or the intent of any provision hereof.
SECTION 15.14
Counterparts . This Agreement and any amendment hereto may be signed in any number of
separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one Agreement (or
amendment, as applicable).
SECTION 15.15
Judgment Creditor Liability . Except as otherwise expressly provided herein, none of the provisions
of this Agreement will be for the benefit of or enforceable by any creditors of the Company or by other third parties. The Members’ liability to
judgment creditors will be limited to the maximum extent permitted by applicable law. Judicial foreclosure and any other remedy that might
adversely impact any Interest or any property, assets, or interests now or hereafter owned or held by the Company and any additional property
contributed to or acquired by the Company, whether real or personal, as well as improvements developed thereon, are expressly prohibited and
are unenforceable in all respects. Any judgment
40
creditor who obtains a charging order with respect to an Interest will be regarded as an assignee of such Interest under the Act; and as such,
during the period for which an Interest is so charged, the judgment creditor will be liable for all taxes, if any, on the income allocable to the
charged Interest, and similarly, will enjoy the benefit of any losses allocable to such charged Interest. The Board will issue to the judgment
creditor a Schedule K-1 corresponding to the charged Interest until such time as the charging order is removed.
[ Signature page follows ]
41
ELEMENT TRANSPORTATION LLC
By:
Name:
Title:
CELADON GROUP, INC.
By:
Name:
Title:
Name: Gregory Burke
Name: Harry Dugan
Back to Form 10-Q
Exhibit 10.3
_______________________________________________________________________
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
19 TH CAPITAL GROUP, LLC
Dated as of December 30, 2016
_______________________________________________________________________
THE LIMITED LIABILITY COMPANY UNITS EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE OR
FOREIGN JURISDICTION. SUCH LIMITED LIABILITY COMPANY UNITS ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE, AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT IN COMPLIANCE WITH THE
SECURITIES ACT AND THE APPLICABLE STATE OR FOREIGN SECURITIES LAWS, PURSUANT TO REGISTRATION
THEREUNDER OR EXEMPTION THEREFROM. IN ADDITION, TRANSFER OR OTHER DISPOSITION OF SUCH LIMITED
LIABILITY COMPANY UNITS IS FURTHER RESTRICTED AS PROVIDED IN THIS AGREEMENT. PURCHASERS OF LIMITED
LIABILITY COMPANY UNITS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF
THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
Table of Contents
Page
1
Article I Definitions
SECTION 1.1
SECTION 1.2
Definitions
Construction
1
9
9
Article II Formation and Term
SECTION 2.1
SECTION 2.2
SECTION 2.3
SECTION 2.4
SECTION 2.5
SECTION 2.6
Formation
Name
Term
Principal Place of Business
Registered Agent and Office
Qualification in Other Jurisdictions; Conduct of Business
9
10
10
10
10
10
Article III Purpose and Powers
10
SECTION 3.1
10
Purpose and Powers
Article IV Members; Additional Interests; Conversion
10
SECTION 4.1
SECTION 4.2
SECTION 4.3
SECTION 4.4
SECTION 4.5
SECTION 4.6
10
11
11
11
11
11
General
Powers of Members
Nature of a Member's Interest
No Other Persons Deemed Members
No Cessation of Membership Upon Bankruptcy, etc.
Admission of Additional Members and Creation of Additional Units
Article V Capital Contributions; Default; Liability of Members
12
SECTION 5.1
SECTION 5.2
SECTION 5.3
12
12
12
Capital Contributions
Liability of Members
Units Certificated
i
Article VI Distribution; Allocation of Profits and Losses
12
SECTION 6.1
SECTION 6.2
SECTION 6.3
12
13
13
Distributions
Allocations
Tax Allocations
Article VII Management
13
SECTION 7.1
SECTION 7.2
SECTION 7.3
SECTION 7.4
SECTION 7.5
SECTION 7.6
SECTION 7.7
SECTION 7.8
13
15
15
17
17
17
18
19
Management Under Direction of the Board
Meetings of the Board
Quorum and Acts of the Board
Telephonic or Video Communications
Action by Written Consent
Transactions with Members and their Affiliates
Outside Businesses and Corporate Opportunities
Committees of the Board
Article VIII Duties, Liability, Exculpation, Indemnification and Insurance
19
SECTION 8.1
SECTION 8.2
SECTION 8.3
SECTION 8.4
SECTION 8.5
SECTION 8.6
SECTION 8.7
SECTION 8.8
19
19
19
20
20
20
21
21
Duties
Liability
Exculpation
Indemnification
Advancement of Expenses
Notice of Proceedings
Insurance
Service Agreement
Article IX Transferability of Units
22
SECTION 9.1
SECTION 9.2
SECTION 9.3
SECTION 9.4
SECTION 9.5
SECTION 9.6
SECTION 9.7
22
22
23
25
26
27
28
General Transfer Restrictions
Right of First Offer
Tag-Along Rights
Other Permitted Transfers
Other Transfer Restrictions
Substituted Members
Transfer of Management Equity
ii
Article X Records and Reports; Fiscal Affairs
28
SECTION 10.1
SECTION 10.2
28
28
Records and Accounting
Financial Statements and Reports
Article XI Tax Matters
29
SECTION 11.1
SECTION 11.2
SECTION 11.3
SECTION 11.4
SECTION 11.5
SECTION 11.6
29
30
30
30
31
31
Preparation of Tax Returns
Tax Mattes Member
Organizational Expenses
Withholding
Classification
Listed and Reportable Transactions
Article XII Dissolution, Liquidation and Termination
31
SECTION 12.1
SECTION 12.2
SECTION 12.3
SECTION 12.4
SECTION 12.5
31
31
32
32
33
Dissolution
Liquidation of the Company's Assets Upon Dissolution
Termination
Claims of the Members
Survival
Article XIII Consents, Voting and Meetings of Members
33
SECTION 13.1
SECTION 13.2
SECTION 13.3
SECTION 13.4
SECTION 13.5
33
33
33
33
34
Management Member
Meetings
Record Dates
Consent Rights
Voting and Other Rights
Article XIV Representations and Warranties of Each Member
34
SECTION 14.1
34
Representations and Warranties of each Member
iii
Article XV General Provisions
35
SECTION 15.1
SECTION 15.2
SECTION 15.3
SECTION 15.4
SECTION 15.5
SECTION 15.6
SECTION 15.7
SECTION 15.8
SECTION 15.9
SECTION 15.10
SECTION 15.11
SECTION 15.12
SECTION 15.13
SECTION 15.14
35
38
38
38
38
39
39
39
39
39
40
40
40
40
Notices
Amendments
Confidentiality
Entire Agreement
Successors and Assigns; Binding Effect
Severability
No Waiver
Dispute Resolution and Arbitration
Governing Law
Judicial Proceedings
Aggregation of Units
Equitable Relief
Table of Contents, Headings and Captions
Counterparts
SCHEDULE A
MEMBERS’ COMMITMENT AND CONTRIBUTION
SCHEDULE B
FORM CERTIFICATE OF UNITS
SCHEDULE C
MANAGERS
SCHEDULE D
OFFICERS
SCHEDULE E
PROHIBITED TRANSFEREE
iv
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
19 th CAPITAL GROUP, LLC
THE UNDERSIGNED are executing this Amended and Restated Limited Liability Company Agreement of 19 th Capital
Group, LLC (the “ Company ”) as of December 30, 2016 (the “ Effective Date ”).
R
E
C
I
T
A
L
S:
WHEREAS, the Certificate (as defined below) was executed and filed with the Office of the Secretary of State of the State of
Delaware on July 9, 2015, thereby forming the Company as a limited liability company under and pursuant to the Delaware Limited Liability
Company Act (as amended from time to time, the “ Act ”);
WHEREAS, on the date hereof, the Company redeemed its former Members;
WHEREAS, simultaneously therewith and in accordance with the terms of the Subscription Agreement, Celadon Group, Inc.
(“ Celadon ”), directly or through one or more subsidiaries, and Element contributed certain assets to the Company in exchange for Units;
WHEREAS, simultaneously therewith and in accordance with the terms of the Management Subscription Agreements, each
of Harry Dugan and Gregory Burke contributed certain assets to the Company in exchange for Units; and
WHEREAS, the current Members wish to amend and restate in its entirety the Limited Liability Company Agreement of the
Company, dated August 27, 2015;
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1
Definitions . i) Capitalized terms used herein shall have the following meanings:
“ Affiliate ” means, with respect to any Person, an “affiliate” of, or any Person affiliated with, a specified Person, is a Person that
directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified;
provided that notwithstanding the foregoing, an Affiliate shall not include any “portfolio company” (as such term is customarily used among
institutional investors) of any Person. For the purpose of this definition, “control” (including the terms controlling, controlled
1
by and under common control with) shall mean the possession, direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
“ Agreement ” means this Amended and Restated Limited Liability Company Agreement as it may be amended, modified, restated or
supplemented from time to time.
“ Assumed Tax Rate ” means the highest effective combined marginal federal, state and local income tax rate applicable at such time
to a corporation resident in the jurisdiction with the highest such effective rate applicable to any Member (taking into account the deductibility
of state and local income taxes for U.S. federal income tax purposes); provided that the Board shall be permitted to modify the Assumed Tax
Rate in its discretion.
“ Business Day ” means any day except a Saturday, a Sunday or any other day on which commercial banks are required or authorized
to close in New York, New York.
“ Capital Account ” means, with respect to any Member, the Capital Account maintained for such Member in accordance with the
following provisions:
(a)
To each Member’s Capital Account there shall be credited such Member’s Capital Contributions on the date
contributed to the Company, such Member’s allocable share of Net Income of the Company pursuant to Section 6.2, and the amount
of any liabilities of the Company assumed by such Member or which are secured by any property distributed to such Member.
(b)
From each Member’s Capital Account there shall be debited the amount of cash and the Gross Asset Value of any
property distributed to such Member pursuant to any provision of this Agreement, such Member’s allocable share of Net Losses of the
Company pursuant to Section 6.2, the amount of any liabilities of such Member assumed by the Company or which are secured by any
property contributed by such Member to the Company.
(c)
In the event any Units in the Company are transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Units.
(d)
In determining the amount of any liability for purposes of subsections (a) and (b) hereof, there shall be taken into
account Code section 752(c) and any other applicable provisions of the Code and Regulations.
(e)
The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulations Sections 1.704‑1(b) and 1.704‑2, and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Board shall reasonably determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto (including debits or credits relating to liabilities which are secured by contributed
or distributed property or which are assumed by the Company or the Members) are
2
computed in order to comply with such Regulations, the Board may direct any Member to make such modification. The Board also
shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members
and the amount of the Company capital reflected on the Company balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704‑1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section 1.704‑1(b) or Section 1.704‑2.
(f)
Except as otherwise agreed in writing or required by the Act, no Member shall have any liability to restore all or
any portion of a deficit balance in such Member’s Capital Account.
“ Capital Contributions ” means, with respect to any Member, the aggregate amount contributed from time to time by such Member in
cash (or property having a mutually agreed value) in respect of any Units.
“ Cause ” means, with respect to a Manager, (i) conviction of, or plea of guilty or nolo contendere in respect of a felony or (ii) fraud or
dishonesty that causes or reasonably could be expected to cause actual harm to the Company.
“ Certificate ” means the Certificate of Formation of the Company, as it may be amended, modified, restated or supplemented from
time to time, filed on behalf of the Company with the Office of the Secretary of State of the State of Delaware pursuant to the Act.
“ Certificate of Cancellation ” means a Certificate of Cancellation of the Certificate filed on behalf of the Company with the Office of
the Secretary of State of the State of Delaware pursuant to the Act.
“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor federal income tax code.
“ Covered Person ” means: (a) each Manager, each Member, the Tax Matters Member or a liquidating trustee, in each case in his or
its capacity as such, (b) any Affiliate of each Manager, each Member, the Tax Matters Member or a liquidating trustee and (c) any Person of
which a Manager is an officer, director, shareholder, partner, member, employee, trustee, executor, representative or agent, or any Affiliate,
officer, director, shareholder, partner, member, manager, employee, representative or agent of any of the foregoing, in each case in clauses (a),
(b) and (c), whether or not such Person continues to have the applicable status referred to in such clauses.
“ Disabling Conduct ” means, (i) in respect of any Person, an act or omission that constitutes fraud or willful misconduct by such
Person or (ii) a material breach by such Person of any material provision of this Agreement.
“ Element ” means Element Transportation LLC.
3
“ Equipment Loan Agreement ” means the Equipment Loan Agreement, dated as of the date hereof, by and between the Company, as
borrower, Element, as lender, and lenders thereto.
“ Element Equipment Purchase Agreement ” means the Equipment Bill of Sale and the Assignment and Assumption Agreement, each
dated as of the date hereof, by and between Quality Equipment Leasing, LLC and Element.
“ Element Parent ” means Element Fleet Management Corp. (formerly known as Element Financial Corporation).
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations
promulgated pursuant thereto.
“ Fiscal Year ” means January 1 through December 31.
“ GAAP ” means generally accepted accounting principles, as applied in the United States.
“ Gross Asset Value ” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value
of such asset at the time of such contribution, as reasonably determined by the Board.
(b) The Gross Asset Value of any of the Company’s assets distributed to a Member shall be the gross fair market value of
such asset on the date of distribution, as reasonably determined by the Board.
(c) The Gross Asset Values of all of the Company’s assets shall be adjusted to equal their respective gross fair market
values, as reasonably determined by the Board using such reasonable method of valuation as it may adopt, as of the times listed below:
(i)
immediately prior to the acquisition of an additional interest in the Company by a new or existing
Member in exchange for more than a de minimis Capital Contribution, if it is determined by the Board that such adjustment
is necessary or appropriate to reflect the relative economic interests of the Members in the Company;
(ii)
immediately prior to the distribution by the Company to a Member of more than a de minimis amount of
the Company’s property as consideration for an interest in the Company, if it is determined by the Board that such adjustment
is necessary or appropriate to reflect the relative economic interests of the Members in the Company;
4
(iii)
immediately prior to the liquidation of the Company within the meaning of Regulations Section 1.704‑1(b)(2)(ii)(g) (other
than by operation of Section 708(b)(1)(B) of the Code); and
(iv)
such other times as the Board shall reasonably determine necessary or advisable, in order to comply with
Regulations Sections 1.704‑1(b) and 1.704‑2.
(d) The Gross Asset Values of the Company assets shall be increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are
taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided , however , that
Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to the extent that the Board determines that an adjustment
pursuant to subparagraph (b) or (c) is necessary or appropriate in connection with a transaction that would otherwise result in an
adjustment pursuant to this subparagraph (d).
(e) If the Gross Asset Value of any of the Company’s assets has been determined or adjusted pursuant to subparagraph (a),
(c) or (d), such Gross Asset Value shall thereafter be adjusted by the depreciation taken into account with respect to such asset for
purposes of computing Net Income and Net Losses.
“ Guarantee ” means the Guarantee and Collateral Agreement in respect to the Term Loan Agreement and the Guarantee and
Collateral Agreement in respect to the Equipment Loan Agreement, each dated as of the date hereof, by the Company, in favor of Element.
“ Interest ” means the entire limited liability company interest of a Member in the Company at any particular time, including the right
of such Member to any and all benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of such
Member to comply with all the terms and provisions of this Agreement. Interests shall be expressed as a number of Units.
“ IPO ” means an initial public offering of equity securities in the Company (or any successor thereto) or any other subsidiary of the
Company pursuant to a registration statement effective under the Securities Act.
“ Lease Agreement ” means the Lease Agreement, dated as of the date hereof, by and between the Company, as tenant, and Celadon,
as landlord.
“ Management Equity ” means all of the Units held by Harry Dugan and Gregory Burke as of the date of this Agreement or by any
Person to whom the Management Equity is transferred in accordance with Section 9.7 or designated by the Board thereafter, in each case, other
than Element or Celadon or their respective Affiliates or Permitted Transferees.
“ Management Equity Purchase Option ” has the meaning set forth in Section 9.7(b).
5
“ Management Member ” means any Member holding the Management Equity.
“ Management Subscription Agreements ” means the Management Subscription Agreement, dated as of the date hereof, by and
between Harry Dugan and the Company, and the Management Subscription Agreement, dated as of the date hereof, by and between Gregory
Burke and the Company.
“ Member ” means each Person that executes a counterpart of this Agreement as a Member and becomes a Member as provided
herein, so long as such Person continues as a Member and is reflected as such in the records of the Company, in each case in such Person’s
capacity as a member of the Company, and “ Members ” means all such Persons.
“ Net Income ” or “ Net Loss ” means, for each Fiscal Year or other period of the Company, an amount equal to the Company’s
taxable income or loss for such Fiscal Year of the Company or other period, as applicable, determined in accordance with Code Section 703(a)
(for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be
included in taxable income or loss), with the following adjustments:
(a)
Any income of the Company that is exempt from federal income tax and not otherwise taken into account in
computing Net Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be added to such taxable income or
loss;
(b)
Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net
Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be subtracted from such taxable income or loss;
(c)
In the event the Gross Asset Value of any of the Company’s asset is adjusted pursuant to subparagraph (b) or
subparagraph (c) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Income or Net Loss;
(d)
Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the
adjusted tax basis of such property differs from its Gross Asset Value;
(e)
Depreciation, amortization, and other cost recovery deductions shall be computed by reference to the Gross Asset
Value of the property if the Gross Asset Value differs from its adjusted tax basis; and
(f)
To the extent an adjustment to the adjusted tax basis of any of the Company’s assets pursuant to Code Section
734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704‑1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as a result of a distribution other than in liquidation of a
6
Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into
account for purposes of computing Net Income or Net Loss.
“ Permitted Transferee ” means (i) with respect to Element, Element Parent, ECN Capital Corp. or any of their respective controlled
Affiliates; (ii) with respect to Celadon, any wholly-owned subsidiary of Celadon or (iii) with respect to any Member, any successor entity of
such Member. For the purpose of this definition, “Affiliate” shall not mean any individual.
“ Person ” means any individual, corporation, partnership, limited liability company, trust, joint stock company, business trust,
unincorporated association, joint venture or other entity of any nature whatsoever.
“ Plan Asset Regulations ” means the regulations issued by the U.S. Department of Labor at Section 2510.3-101 of Part 2510 of
Chapter XXV, Title 29 of the Code of Federal Regulations, or any successor regulations.
“ Profits Interest ” means an interest in the profits of the Company satisfying the requirements for a partnership interest transferred in
connection with the performance of services, as set forth in IRS Revenue Procedure 93-27, 1993-2 C.B. 343 (June 6, 1993) and IRS Revenue
Procedure 2001-43, 2001-2 C.B. 191 (Aug. 3, 2001), unless superseded by IRS Notice 2005-43, 2005-24 I.R.B. 1221 (May 20, 2005), in which
case, as set forth in Proposed Treasury Regulations Section 1.83-3(l), Notice 2005-43 and any similar or related authority.
“ Quality ” means Quality Companies LLC, an Indiana limited liability company and a wholly owned subsidiary of Celadon.
“ Redemption Agreements ” means the Membership Interest Redemption Agreement, dated as of the date hereof, by and between the
Company and Celadon; the Membership Interest Redemption Agreements, dated as of the date hereof, by and among certain members of
management signatories thereto and the Company; and the Membership Interest Redemption Agreement, dated as of the date hereof, by and
between Tiger ELS, LLC and the Company.
“ Regulations ” means the Federal income tax regulations promulgated under the Code, as such Regulations may be amended from
time to time (it being understood that all reference herein to specific sections of the Regulations shall be deemed also to refer to any
corresponding provisions of succeeding Regulations).
“ Securities ” means capital stock, limited partnership interests, limited liability company interests, beneficial interests, warrants,
options, notes, bonds, debentures, loans, evidence of indebtedness and other securities, equity interests, ownership interests and similar
obligations of every kind and nature of any Person.
“ Service Agreement ” means the Service Agreement, dated as of the date hereof, by and between the Company and Quality, as may
be extended, amended and supplemented from time to time.
7
“ Securities Act ” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated pursuant
thereto.
“ Sharing Percentage ” means, as of any date of determination, with respect to any Member, a percentage calculated by dividing (x)
the aggregate number of Units held by such Member by (y) the aggregate number of Units of the Company issued and outstanding on such
date.
“ Subscription Agreement ” means the Subscription Agreement, dated as of the date hereof, by and among Element, Celadon and the
Company.
“ Substituted Member ” means any Person admitted to the Company as a Member pursuant to the provisions of Section 9.6.
“ Taxable Year ” means the taxable year of the Company determined under Section 706 of the Code.
“ Tax Distributions ” shall have the meaning set forth in Section 6.1(b).
“ Term Loan Agreement ” means the Loan Agreement, dated as of the date hereof, by and among the Company, as borrower, other
parties thereto, as lenders, and Element, as agent.
“ Termination Agreement ” means the Termination Agreement And Mutual Waiver and Release, dated as of the date hereof, by and
among the Company, Celadon, Element, Quality Equipment Leasing, LLC and Element Fleet Management Corp.
“ Transfer ” or “ Transferred ” means any direct or indirect transfer, sale, assignment, exchange, mortgage, pledge, hypothecation or
other disposition of any Units. For the avoidance of doubt, it shall constitute a “Transfer” subject to the restrictions on Transfer contained or
referenced herein (a) if a transferee is not an individual, a trust or an estate, and the transferor or an Affiliate thereof ceases to control such
transferee or (b) with respect to a holder of Units which was formed for the purpose of holding Units, there is a Transfer of the equity interests
of such holder other than to a Permitted Transferee of such holder or of the party transferring the equity of such holder. A change in ownership
of Celadon or Element Parent shall not be considered a Transfer of any Units.
“ Units ” shall mean the units of common membership interests in the Company issued to each Member in exchange for its Capital
Contributions. The number of Units outstanding and the holders thereof are set forth on Schedule A, as Schedule A may be amended from
time to time pursuant hereto.
(b)
As used in this Agreement, each of the following capitalized terms shall have the meaning ascribed to them in the
Section set forth opposite to such term:
Term
Act
Board
Section
Recitals
7.1(a)
8
Capital Contributions
Claims and Expenses
Company
Competitor
Effective Date
KCMH
Manager
Offer Notice
Offered Price
Offeree
Offeror
Pro Rata Share
Proposed Sale
Proposed Transferee
Selling Member
Services Agreement
Subject Units
Tag Along Notice
Tag Along Offer
Tag Along Sale Percentage
Tag Along Sellers
Tagging Members
Tax Items
Tax Matters Member
5.1(a)
8.4
Preamble
9.1(b)
Preamble
Preamble
7.1(a)
9.2(a)
9.2(b)(i)
9.2(a)
9.2(a)
9.3(e)(i)
9.3(a)
9.3(b)(i)
9.3(a)
Preamble
9.2(b)(i)
9.3(a)
9.3(c)
9.3(b)(i)
9.3(b)(ii)
9.3(b)(ii)
6.3
11.2(a)
SECTION 1.2
Construction . Whenever the context requires, the gender of all words used in this Agreement includes
the masculine, feminine and neuter forms and the singular form of words shall include the plural and vice versa. All references to Articles and
Sections refer to articles and sections of this Agreement, and all references to Schedules are to Schedules attached hereto, each of which is
made a part hereof for all purposes. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation.” This Agreement shall be construed without regard to any presumption or rule
requiring construction or interpretation against the party drafting or causing any instrument to be drafted.
ARTICLE II
FORMATION AND TERM
SECTION 2.1
Formation . The Company was formed as a limited liability company under and pursuant to the
provisions of the Act upon the filing of the Certificate. The rights, duties and liabilities of the Members shall be as provided in the Act, except
as otherwise provided in this Agreement.
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SECTION 2.2
Name . The name of the limited liability company is “19 th Capital Group, LLC”. The business of
the Company may be conducted upon compliance with all applicable laws under any other name designated by the Board.
SECTION 2.3
Term . The term of the Company shall be perpetual; provided that the Company may be dissolved in
accordance with the provisions of this Agreement or by operation of law. The existence of the Company as a separate legal entity will
continue until filing of the Certificate of Cancellation.
SECTION 2.4
Principal Place of Business . The principal place of business of the Company shall be located at, and
the Company’s business shall be conducted from, Indianapolis or its surrounding area in Indiana, U.S., or such other place or places as the
Board may determine in accordance with Article VII hereof.
SECTION 2.5
Registered Agent and Office . The Company’s registered agent and office in the State of Delaware
shall be c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, New Castle County, Wilmington, Delaware
19801. The Board may at any time designate another registered agent and/or registered office.
SECTION 2.6
Qualification in Other Jurisdictions; Conduct of Business . The Company shall be qualified or
registered under foreign limited liability company statutes or assumed or fictitious name statutes or similar laws in any jurisdiction in which the
Company owns property or transacts business to the extent, in the judgment of the Board, such qualification or registration is necessary or
advisable in order to protect the limited liability of the Members or to permit the Company lawfully to own property or transact business.
ARTICLE III
PURPOSE AND POWERS
SECTION 3.1
Purpose and Powers . The Company is formed for the purpose of, and the nature of the business to be
conducted by the Company is, engaging in any lawful act or activity for which limited liability companies may be formed under the Act and
engaging in any activities necessary, convenient or incidental thereto.
ARTICLE IV
MEMBERS; ADDITIONAL INTERESTS; CONVERSION
SECTION 4.1
General . The names of, Capital Contributions of, and the number of Units held by the Members are
set forth on Schedule A hereto, effective immediately following the execution of this Agreement. A Member (other than any Management
Member) will cease to be a Member only in the manner described in Section 9.6 and Article XII. A Management Member will cease to be a
Management Member (a) when all of the Management Equity held by such Management Member is sold pursuant to the exercise of the
respective Management Equity Purchase Options pursuant to Section 9.7(b) or (b) upon liquidation of the Company. The Board shall amend
and revise Schedule A from time to time to properly reflect
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any changes to the information included therein, including to reflect the admission or withdrawal of Members or the making of additional
Capital Contributions, in each case in accordance with this Agreement. Any amendment or revision to Schedule A hereto or to the Company’s
records that is made solely to reflect information regarding Members shall not require Member approval.
SECTION 4.2
Powers of Members . The Members shall have the power to exercise only those rights or powers
granted to the Members pursuant to the express terms of this Agreement. Except as specifically provided herein or by the Board, the Members
shall have no power or authority to act for or on behalf of, or to bind, the Company.
SECTION 4.3
Nature of a Member’s Interest . A Member’s Interest (including a Member’s Units) shall for all
purposes be personal property. A Member has no interest in any specific Company property.
SECTION 4.4
No Other Persons Deemed Members . Unless admitted to the Company as a Member as provided in
this Agreement, no Person shall be, or shall be considered, a Member. In respect of matters pertaining to Members, the Company shall deal
only with Persons so admitted as Members (including their duly authorized representatives). Notwithstanding any notification to the contrary,
any distribution by the Company to the Person shown on the Company’s records as a Member or to its legal representatives shall relieve the
Company of all liability to any other Person who may be interested in such distribution by reason of any other Transfer by the Member, or for
any other reason.
SECTION 4.5
No Cessation of Membership Upon Bankruptcy, etc. A Person shall not cease to be a Member of the
Company upon the happening, with respect to such Person, of any of the events specified in §18-304 of the Act. Upon the occurrence of any
event specified in §18‑304 of the Act, the business of the Company shall be continued pursuant to the terms hereof without dissolution.
SECTION 4.6
Admission of Additional Members and Creation of Additional Units .
(a)
Subject to limitations set forth in this Article IV, Article VII, Article IX and in Section 13.4 and Section 15.2, the
Company may admit additional Members to the Company, issue additional Units or create and issue such additional classes or series of Units,
having such designations, preferences and relative, participating or other special rights, powers and duties as the Board shall determine, from
time to time.
(b)
Upon the issuance pursuant to and in accordance with this Agreement of any class or series of Units, the Board
may, in accordance with, and subject to, Sections 4.1 and 15.2, as applicable, amend any provision of this Agreement, and authorize any Person
to execute, acknowledge, deliver, file and record, if required, such documents, to the extent necessary or desirable to reflect the admission of
any additional Member to the Company or the authorization and issuance of such class or series of Unit, and the related rights and preferences
thereof.
(c)
No additional Member shall be admitted to the Company (i) in connection with newly issued Units, unless and
until such prospective additional Member has executed a
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signature page counterpart to this Agreement and an acceptance of all of the terms and conditions of this Agreement, and such other documents
or instruments, in each case, as may be required to effect the admission in the Board’s reasonable judgment or (ii) in connection with a Transfer
of a Unit, unless and until all the conditions of Article IX are satisfied, and such prospective additional member executes and delivers to the
Company the documentation contemplated by Section 9.6.
ARTICLE V
CAPITAL CONTRIBUTIONS; DEFAULT; LIABILITY OF MEMBERS
SECTION 5.1
Capital Contributions . To the extent determined by the Board, the Members shall make cash (or
non-cash) contributions pro rata to the Company in such amounts as are determined by the Board (collectively, the “ Capital Contributions ”).
SECTION 5.2
Liability of Members .
(a)
General . Except as may otherwise be expressly agreed by such Member in writing, in no event shall any Member
or former Member be obligated to guarantee any indebtedness or other obligations of the Company at any time outstanding or have any liability
for the repayment or discharge of the debts and obligations of the Company or for the repayment of any Capital Contribution of any other
Member.
(b)
Liability for Amounts Distributed . The Members hereby agree that, except as otherwise expressly provided
herein or required by applicable law, no Member shall have an obligation to return money or other property paid or distributed to such Member
whether or not such distribution was in violation of the Act, except to the extent arising from Disabling Conduct of such Member. The
agreement set forth in the immediately preceding sentence shall be deemed to be a compromise for purposes of §18-502(b) of the
Act. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to
make any such return, such obligation shall be the obligation of such Member and not of any other Person.
SECTION 5.3
Units Certificated . Unless and until the Board shall determine otherwise, Units shall be certificated
with such legends as the Board shall reasonably determine are necessary or advisable and recorded in the books and records of the Company
(including Schedule A). The form of the Units certificate is attached hereto as Schedule B.
ARTICLE VI
DISTRIBUTIONS; ALLOCATION OF PROFITS AND LOSSES
SECTION 6.1
Distributions .
(a)
Subject in each case to restrictions imposed by law, from time to time the Board may make distributions of cash or
other property available for distribution, to the Members on a pro rata basis based on each Member’s Sharing Percentage. All distributions
12
made under this Section 6.1 shall be made to the Members of record as of the date of the distribution unless a different record date for Members
entitled to receive the distribution shall have been established by the Board. The Board shall have sole discretion to determine the timing of
distributions and the aggregate amount available for distribution.
(b)
Subject in each case to restrictions imposed by law and to the extent of distributable assets of the Company in the
form of cash as reasonably determined by the Board, the Company shall, at such times reasonably determined by the Board, make cash
distributions (“ Tax Distributions ”) to the Members to the extent that distributions actually received by such Member during a Fiscal Year are
not sufficient for such Member or any of its beneficial owners to pay when due any income tax (including estimated income tax) imposed on it
or them, calculated using the Assumed Tax Rate that is attributable to income allocated to such Member for such Fiscal Year (or portion
thereof) hereunder. Amounts otherwise to be distributed to a Member pursuant to Section 6.1(a) shall be reduced by the amount of any prior
Tax Distributions made to such Member pursuant to this Section 6.1(b) until all such Tax Distributions are restored to the Company in full.
Notwithstanding the foregoing, the Board shall have the authority to modify the Company’s policy with respect to Tax Distributions in its sole
discretion.
SECTION 6.2
Allocations . Net Income and Net Loss of the Company shall be determined and allocated with
respect to each Taxable Year by the Board as of the end of each such year and at such other times as the Board shall determine, provided that
such time will allow the Company to meet its obligations under Section 11.1. Net Income and Net Loss shall be allocated among the Members
pro rata in accordance with their Sharing Percentages. Notwithstanding the foregoing, the Company may make such allocations as the Board
deems reasonably necessary to give economic effect to the provisions of this Agreement taking into account such facts and circumstances as
the Board deems reasonably necessary for this purpose.
SECTION 6.3
Tax Allocations . For income tax purposes each item of income, gain, loss and deduction
(collectively, “ Tax Items ”) shall be allocated in the same manner as its correlative item of “book” income, gain, loss or deduction is allocated
pursuant to Section 6.2; provided that in the case of any Company asset the Gross Asset Value of which differs from its adjusted tax basis for
U.S. federal income tax purposes, Tax Items with respect to such asset shall be allocated solely for income tax purposes in accordance with the
principles of Sections 704(b) and 704(c) of the Code. Notwithstanding the foregoing, the Company may make such allocations as the Board
deems reasonably necessary to give economic effect to the provisions of this Agreement taking into account such facts and circumstances as
the Board deems reasonably necessary for this purpose.
ARTICLE VII
MANAGEMENT
SECTION 7.1
(a)
otherwise specified.
Management Under Direction of the Board .
Solely for the purpose of this Article VII, the term of “Member” shall exclude any Management Member, unless
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(b)
Subject to the consent rights of the Members provided in Section 13.4, the business and affairs of the Company
shall be managed and controlled by a board of managers (the “ Board ”, and each member of the Board, a “ Manager ”) that shall meet the
requirements of the Act. The Board shall initially consist of four (4) individuals and each Member will have the right to designate half of the
Managers on the Board. The initial Managers are set forth on Schedule C hereto. The Board may be increased by action by the Board;
provided that any such increase will equally increase the number of designees each Member will have the right to designate.
(c)
A Member shall notify the other Member and the Company of any proposed designee to the Board. Each
Member shall vote its Units in favor of the election of all such designees proposed by the other Member as Managers.
(d)
Any Manager designated by a Member may be removed (with or without cause) from time to time and at any time
by such Member, upon notice to the Company and the other Member, if any, and may be removed by the other Member only for Cause. Any
vacancy on the Board in respect of a Manager designated by a Member shall be filled by the Member entitled to designate such Manager, in
accordance with Section 7.1(c).
(e)
The members of the Board shall be “managers” within the meaning of the Act. Subject to the consent rights of
the Members provided in Section 13.4, the Board shall have full and complete discretion to manage and control the business and affairs of the
Company, to make all decisions affecting the business and affairs of the Company and to take all such actions as it deems necessary or
appropriate to accomplish the purposes of the Company as set forth herein, including to exercise all powers of the Company set forth in
Section 3.1 of this Agreement. Notwithstanding anything to the contrary in this Agreement, no Manager, acting solely in its capacity as such,
shall have the right, power or authority to act as an agent of the Company, to bind the Company or to execute any documents to be signed by
the Company unless expressly authorized in writing by the Board.
(f)
Officers. The Board shall appoint a chief executive officer (the “ CEO ”), a chief financial officer (the “ CFO ”)
and a chief operating officer (the “ COO ”) of the Company. The CEO and the COO shall, subject to Section 7.3, be responsible for the
day-to-day operation of the Company and manage the business of the Company in accordance with the Business Principles and the Annual
Budget as approved by the Board from time to time (it being understood that the CEO and COO shall not have authority to take any of the
actions covered in clauses (a) through (t) of Section 7.3 unless such action has been approved by the Board in accordance with Section
7.3). Each of the CEO, the CFO and the COO shall hold such office at the discretion of the Board and until his or her successor shall have
been duly appointed and qualified, or until he or she shall resign or shall have been removed in the manner provided herein. The CEO may
appoint additional officers of the Company which may include, but shall not be limited to, one or more vice presidents, secretary, or treasurer,
and such other officers as deemed necessary or appropriate by the CEO. The CEO, the CFO and the COO shall have the authority to contract
for, negotiate on behalf of and otherwise represent the interests of the Company as and to the extent authorized in writing by the Board. Each
officer that is appointed by the CEO shall perform such duties and have such powers as the CEO shall designate from time to time. Each
officer that is appointed by the CEO shall hold office at the discretion of the
14
CEO and until his or her successor shall have been duly appointed and qualified, or until he or she shall resign or shall have been removed in
the manner provided herein. Any individual may hold any number of offices. No officer need be an affiliate of a Member or a resident of the
State of Delaware. Any officer, including the CEO, the CFO and the COO, may resign as such at any time. Such resignation shall be made in
writing and shall take effect at the time specified therein or, if no time be specified, at the time of its receipt by the CEO or, if such resignation
is of the CEO, the CFO or the COO, the Board. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation. Subject to the terms of any applicable employment agreement, any officer may be removed as such, either with or
without cause, at any time by the CEO or the Board, as applicable. Upon the execution and delivery of this Agreement, the officers of the
Company shall consist of the individuals set forth on Schedule D.
SECTION 7.2
Meetings of the Board . Regular meetings of the Board will be held at least quarterly and will be
called on at least five (5) Business Days’ notice to each Manager, either personally, by telephone, by mail, by facsimile, by electronic mail or
by any other means of communication reasonably calculated to give notice, at such times and at such places as shall from time to time be
determined by the Board. Special meetings of the Board may be called on at least three (3) Business Days’ notice to each Manager in
accordance with the foregoing sentence. Any Manager may call a special meeting of the Board on not less than three (3) Business Days’
notice to each other Manager, either personally, by telephone, by mail, by facsimile, by electronic mail or by any other means of
communication reasonably calculated to give notice. Notice of a special meeting need not be given to any Manager if a written waiver of
notice, executed by such Manager before or after the meeting, is filed with the records of the meeting, or to any Manager who attends the
meeting without protesting the lack of notice prior thereto or at its commencement. The notice shall state briefly the purpose, time and place of
the meeting.
SECTION 7.3
Quorum and Acts of the Board . At all duly called meetings of the Board, two Managers (which must
include one designee of each Member) shall constitute a quorum for the transaction of business. If a quorum shall not be present at any
meeting of the Board, the Board members present thereat may adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present; provided, however, that for any such reconvened meeting, a quorum, as determined in the
preceding sentence, shall be required for the transaction of business; provided further, however, that notice for any reconvened meeting shall
have been given in accordance with Section 7.2. Each Manager shall be entitled to one vote; provided, that, except to the extent prohibited by
law, any Manager shall be entitled to vote on behalf of another Manager appointed by the same Member if such other Manager is not present at
a meeting of the Board. Any instrument or writing executed on behalf of the Company by any one or more of the Managers shall be valid and
binding upon the Company when authorized by the Board in accordance with this Section 7.3. No action may be taken by the Board under this
Agreement or the Act without the consent of a majority of the Managers, which shall include consent of at least one designee of each Member;
except that with respect to the following matters of the Company, the unanimous consent of all the Managers shall be required for any action
by the Board:
15
(a)
approving the annual budget of the Company (the “ Annual Budget ”);
(b)
amending the business principles of the Company (the “Business Principles”) or consummating any transactions
inconsistent with the Business Principles;
(c)
approving any distributions (other than Tax Distributions) to the Members (including any Management Member);
(d)
changing the size of the Board or a Member’s right to designate Managers as set forth in Section 7.1(a);
(e)
hiring or terminating the CEO, the CFO or the COO;
(f)
engaging in any business activity outside the ordinary course of business of the Company;
(g)
acquiring assets or making capital expenditures or other financial commitments in an amount greater than
$250,000 in excess of the capital budget contained in the Annual Budget for any single transaction or any series of related transactions;
(h)
disposing of assets in an amount greater than $250,000 not specifically provided for in the Annual Budget for any
single transaction or any series of related transactions, provided that the Company may make ordinary course dispositions of tractors in an
amount of up to $5,000,000 in the aggregate during any Fiscal Year without consent of the Managers under this Section 7.3;
(i)
liquidating, dissolving or winding-up the Company;
(j)
entering into any amalgamation, consolidation, merger or arrangement or other similar entity reorganization;
(k)
adopting, amending or repealing the certificate of formation of the Company or this Agreement pursuant to
Section 15.2;
(l)
issuing additional Units, any other class of membership interests in the Company, or any securities convertible into
or exchangeable for the membership interests in the Company or repurchasing any membership interests in the Company;
(m)
entering into, terminating or amending any agreements with any Member (or any permitted assignee thereof) and
their respective Affiliates; provided that neither Member shall be required to recuse itself in any decisions regarding any such agreement with
itself);
(n)
any borrowing or the pledging of any of the Company’s assets or the giving of any other financial assistance in the
form or a guarantee or otherwise with respect to an amount in excess of $250,000 in any single or series of related transactions not specifically
provided for in the Annual Budget;
16
(o)
retaining investment bankers in connection with any proposed public offering by the Company and approving the
filing of any prospectus or stock exchange listing application or the taking of other action to become a reporting company under Canadian or
United States securities laws or the equivalent under the securities laws of any other jurisdiction;
(p)
appointing any committee of Managers or delegating any authority of the Managers to a committee;
(q)
commencing or settling any litigation (i) involving an amount greater than $250,000; (ii) which could reasonably
be expected to have a material effect on the Company or its business; (iii) which imposes non-monetary obligations on the Company; or (iv)
pursuant to which the Company makes an admission of guilt in any criminal case;
(r)
approving or changing the auditor of the Company, or changing material tax elections of the Company;
(s)
approving any other matter which the Managers or Members are required to approve under the Act; and
(t)
agreeing to do or permitting any subsidiary of the Company to do any of the foregoing.
Notwithstanding anything contrary in this Section 7.3, any termination of the Service Agreement shall be effective solely upon the
approval by the Managers appointed by Element.
SECTION 7.4
Telephonic or Video Communications . Managers may participate in a meeting of the Board by
means of conference telephone, video conference or similar communications equipment by means of which all persons participating in the
meeting can hear and speak to each other, and such participation in a meeting shall constitute presence in person at the meeting.
SECTION 7.5
Action by Written Consent . Any action required or permitted to be taken at any meeting of the Board
may be taken without a meeting and without a vote, if, upon not less than two (2) Business Days’ notice, a consent or consents in writing
(including by email), setting forth the action so taken, shall be signed by such number and type of the Managers required by Section 7.3 if a
meeting were held (provided, that for such purposes an electronic signature shall be valid). Notice of a consent need not be given to any
Manager if a written waiver of notice, executed before or after the consent is executed, is filed with the consent.
SECTION 7.6
Transactions with Members and their Affiliates . Notwithstanding anything to the contrary in this
Agreement, without the prior written consent of the Board (it being understood that none of the Members (including any Management
Member) shall be required to recuse itself in any decisions regarding any such affiliated transaction with itself), the Company shall not enter
into, effect, consummate (or enter into any agreement providing for) any transaction with (or modify any transaction with, or amend any
agreement with, to the extent such transaction or agreement was initially entered into in compliance with
17
this Section 7.6) or make payments to a Member (including any Management Member) or any of its Affiliates, except for:
(a)
entry into the Service Agreement, the Subscription Agreement, the Management Subscription Agreements, the
Term Loan Agreement, the Guarantee, the Equipment Loan Agreement, the Lease Agreement, the Termination Agreement, the Redemption
Agreements (for the avoidance of doubts, the parties to the Redemption Agreements, other than the Company or Celadon, shall not be deemed
as Affiliates of any Member) and any other ancillary documents, transactions or payments contemplated thereby (all of which have been
approved and authorized by the Company and the applicable Member); and
(b)
distributions in compliance with Section 6.1.
SECTION 7.7
Outside Businesses and Corporate Opportunities .
(a)
(i) Any Member, any Manager or any Affiliate of the foregoing may engage in or possess an interest in other
investments, business ventures or Persons of any nature or description, independently or with others, similar or dissimilar to, or that compete
with, the investments or business of the Company or its subsidiaries, and may provide advice and other assistance regarding any such
investment, business venture or Person, (ii) the Company and the Members shall have no rights by virtue of this Agreement in and to such
investments, business ventures or Persons or the income or profits derived therefrom, and (iii) the pursuit of any such investment or venture,
even if competitive with the business of the Company, shall not be deemed wrongful or improper.
(b)
None of the Members, the Managers or any Affiliate thereof shall be obligated to present any particular
investment or business opportunity to the Company even if such opportunity is of a character that, if presented to the Company, could be
pursued by the Company, and any Member, any Manager or any Affiliate thereof shall have the right to pursue for its own account
(individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity.
(c)
Nothing in this Section 7.7 as it relates to (i) any employee or former employee shall limit the obligations of such
Person under any other agreements with the Company or its subsidiaries or under any policy of the Company or its subsidiaries to which such
Person may be subject from time to time, or (ii) any Member or Manager shall limit the obligations of any such Member which is, or has an
Affiliate which is, subject to confidentiality or non-competition or similar obligations to the Company or its subsidiaries under any other
agreement (including Section 15.3 hereof).
(d)
No amendment or repeal of this Section 7.7 shall apply to or have any effect on the liability or alleged liability of
any officer or any Manager for or with respect to any opportunities of which any such officer or Manager becomes aware prior to such
amendment or repeal.
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(e)
The Company shall cause the organizational documents of its material subsidiaries (as determined by the Board)
to include provisions substantially similar to this Section 7.7.
SECTION 7.8
Committees of the Board . The Board may establish any committee of the Board upon the approval of
the Board, the authority of each committee to be determined from time to time by the Board (it being understood that any such committee the
shall not have authority to take any of the actions covered in clauses (a) through (t) of Section 7.3 unless such action has been approved by the
Board in accordance with Section 7.3). Each Member shall be entitled to appoint an equal number of members to each committee of the
Board. Additional members of each committee, if any, shall be as appointed by the Board. Any action taken by a committee of the Board
may only be taken by a majority of its members, which shall include one member designated by each Member.
ARTICLE VIII
DUTIES, LIABILITY, EXCULPATION, INDEMNIFICATION AND INSURANCE
SECTION 8.1
Duties . This Agreement is not intended to, and does not, create or impose any fiduciary duty on any
of the Members or Managers or on their respective Affiliates. Notwithstanding any other provision of this Agreement or any duty otherwise
existing at law or in equity, the Members and Managers of the Company shall, to the maximum extent permitted by law, including Section
18-1101(c) of the Act, owe only such duties and obligations as are expressly set forth in this Agreement, and no other duties (including
fiduciary duties), to the Company, the Members, the Managers or any other Person otherwise bound by this Agreement.
SECTION 8.2
Liability . To the fullest extent permitted by law, the debts, obligations and liabilities of the Company,
whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Covered Person shall
be obligated personally for the repayment, satisfaction or discharge of any such debt, obligation or liability of the Company solely by reason of
being a Covered Person. All Persons dealing with the Company shall have recourse solely to the assets of the Company for the payment of
debts, obligations or liabilities of the Company.
SECTION 8.3
Exculpation .
(a)
Notwithstanding any other provision of this Agreement, whether express or implied, to the fullest extent permitted
by law, no Covered Person shall be liable to the Company or any other Member for any losses, claims, demands, damages, liabilities (joint or
several), expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising as a result of
any act or omission (in relation to the Company, this Agreement, any related document or any transaction or investment contemplated hereby
or thereby) of a Covered Person, or for any breach of contract (including breach of this Agreement) or any breach of duties (including breach of
fiduciary duties) whether arising hereunder, at law, in equity or otherwise, unless there has been a final and non-appealable judgment entered
by a court of competent jurisdiction determining that such loss was a result of
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such Covered Person’s Disabling Conduct; provided that a Person shall not be a Covered Person by reason of providing, on a fee-for-services
basis or similar arm’s-length compensatory basis, agency, advisory, consulting, trustee, fiduciary or custodial services.
(b)
To the fullest extent permitted by applicable law, each Covered Person shall be entitled to rely in good faith on the
advice of legal counsel to the Company, accountants, other experts and financial or professional advisors, and each Covered Person will be
fully protected in acting or omitting to act in good faith on behalf of the Company or in furtherance of the interests of the Company in reliance
upon and in accordance with the advice of such counsel, accountants, other experts and financial or professional advisors.
SECTION 8.4
Indemnification . To the fullest extent permitted by applicable law, the Company shall, and shall
cause its controlled Affiliates to, indemnify and hold harmless each of the Covered Persons from and against any and all liabilities, obligations,
losses, damages, fines, taxes and interest and penalties thereon (other than taxes based on fees or other compensation received by such Covered
Person from the Company), claims, demands, actions, suits, proceedings (whether civil, criminal, administrative, investigative or otherwise),
costs, expenses and disbursements (including reasonable and documented legal and accounting fees and expenses, costs of investigation and
sums paid in settlement) of any kind or nature whatsoever (collectively, “ Claims and Expenses ”) which may be imposed on, incurred by or
asserted at any time against such Covered Person in connection with the business or affairs of the Company or its controlled Affiliates or the
activities of such Covered Person on behalf of the Company; provided, that a Covered Person shall not be entitled to indemnification hereunder
against Claims and Expenses that are finally determined by a court of competent jurisdiction to have resulted from such Covered Person’s
Disabling Conduct; provided, further, that indemnification hereunder and the advancement of expenses under Section 8.4 shall be recoverable
only from the assets of the Company and its subsidiaries or proceeds of insurance, if any, and not from assets of the Members. The Company
shall cause its material subsidiaries (as reasonably determined by the Board) to execute a joinder agreeing to assume responsibility for their
respective obligations pursuant to this Section 8.4 and Section 8.5.
SECTION 8.5
Advancement of Expenses . To the fullest extent permitted by applicable law, the Company shall, and
shall cause its subsidiaries to, pay the expenses (including reasonable legal fees and expenses and costs of investigation) incurred by a Covered
Person in defending any claim, demand, action, suit or proceeding contemplated in Section 8.4 (other than a claim, demand, action, suit or
proceeding brought by the Company against a Member for such Member’s material breach or violation of this Agreement) as such expenses are
incurred by such Covered Person and in advance of the final disposition of such matter, provided that such Covered Person undertakes to repay
such expenses if it is determined by agreement between such Covered Person and the Company or, in the absence of such an agreement, by a
final judgment of a court of competent jurisdiction that such Covered Person is not entitled to be indemnified pursuant to Section 8.4.
SECTION 8.6
Notice of Proceedings . Promptly after receipt by a Covered Person of notice of the commencement of
any proceeding against such Covered Person, such Covered Person shall, if a claim for indemnification in respect thereof is to be made against
the Company, give written notice to the Board of the commencement of such proceeding, provided
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that the failure of a Covered Person to give notice as provided herein shall not relieve the Company of its obligations under Sections 8.4 and
8.5, except to the extent that the Company is materially prejudiced by such failure to give notice. In case any such proceeding is brought
against a Covered Person (other than a proceeding by or in the right of the Company) the Company will be entitled to assume the defense of
such proceeding; provided, that (i) the Covered Person shall be entitled to participate in such proceeding and to retain its own counsel at its
own expense and (ii) in the event of a proceeding by or in the right of the Company, or if the Covered Person shall give notice to the Company
that in its good faith judgment, based on written advice of outside counsel, (A) a conflict of interest exists that reasonably could be expected to
prejudice the Company's ability to conduct such defense, or (B) certain claims made against it in such proceeding could have a material adverse
effect on the Covered Person or its Affiliates other than as a result of monetary damages, the Covered Person shall have the right to control (at
its own expense and with counsel reasonably satisfactory to the Company) the defense of such specific claims with respect to the Covered
Person (but not with respect to the Company or any other Member); and provided, further, that if a Covered Person elects to control the defense
of a specific claim with respect to such Covered Person, such Covered Person shall not consent to the entry of a judgment or enter into a
settlement that would require the Company to pay any amounts under Section 8.4 without the prior written consent of the Company, such
consent not to be unreasonably withheld, delayed or conditioned. Except in relation to claims covered by clauses (A) or (B) above, after notice
from the Company to such Covered Person acknowledging the Company’s obligation to indemnify and hold harmless the Covered Person and
electing to assume the defense of such proceeding, the Company will not be liable for expenses subsequently incurred by such Covered Person
in connection with the defense thereof. Without the consent of such Covered Person, the Company will not consent to the entry of any
judgment or enter into any settlement that (i) does not include as an unconditional term thereof the giving by the claimant or plaintiff to such
Covered Person of a release from all liability arising out of the proceeding and claims asserted therein, (ii) requires or involves any admission
on the part of the Covered Person or (iii) requires the Covered Person to take any action or to forego taking any action. Any decision that is
required to be made by the Company pursuant to Section 8.4 or 8.5 or this Section 8.6 shall be made on behalf of the Company by the Board in
accordance with Section 7.3.
SECTION 8.7
Insurance . The Company may purchase and maintain directors and officers insurance policies, to the
extent and in such amounts as the Board may, in its discretion, deem reasonable.
SECTION 8.8
Service Agreement . Notwithstanding anything to the contrary in Article VII and this Article VIII of
this Agreement, nothing therein or herein shall limit the duties of Quality under the Service Agreement.
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ARTICLE IX
TRANSFERABILITY OF UNITS
SECTION 9.1
(a)
Management Member.
General Transfer Restrictions .
Solely for the purpose of this Article IX and unless otherwise specified, the term of “Member” shall exclude any
(b)
Without the prior written consent of the other Member, no Member (including any Management Member) shall
Transfer all or any part of its Units except in accordance with applicable law and this Article IX.
(c)
Commencing on the date that is eighteen (18) months after the date of this Agreement, a Member may Transfer
any or all of its Units to a third party which is not a Prohibited Transferee in exchange for cash consideration, subject to compliance with the
requirements set forth in Section 9.2.
(d)
Notwithstanding anything to the contrary in this Agreement, no Units shall be Transferred to a Prohibited
Transferee without the approval of the Board. A “ Prohibited Transferee ” shall mean (i) any Person listed on Schedule E or (ii) any Affiliate
of such Person specified in clause (i). In the event any proposed Transfer to a Prohibited Transferee is approved by the Board, (i) such
approval shall also apply to Transfers made to such prospective transferee by any Tag Along Sellers and (ii) such Transfer must nevertheless
comply with Sections 9.2, 9.3 and 9.5.
(e)
Any purported Transfer in violation of this Agreement shall be null and void, and the Company shall not in any
way give effect to any such impermissible Transfer.
SECTION 9.2
Right of First Offer .
(a)
If any Member (the “ Offeror ”) proposes to Transfer any or all of such Member’s Units in accordance with
Section 9.1 (other than pursuant to a Permitted Transfer, a Permitted Pledge or any Transfer by a Tagging Member pursuant to Section 9.3),
then the Offeror shall furnish to the other Member who is not an Offeror (the “ Offeree ”), a written notice of such proposed Transfer (an “
Offer Notice ”).
(b)
The Offer Notice will include:
(i)
(A) the number of Units proposed by the Offeror to be Transferred (the “ Subject Units ”), (B) the amount
of cash consideration for which the Offeror is proposing to Transfer such Units (the “ Offered Price ”), (C) the proposed Transfer date,
if known and (D) all other material terms and conditions, if any, proposed by the Offeror; and
(ii)
an irrevocable offer to the Offeree to purchase the Subject Units at the Offered Price and on the other
material terms and conditions specified therein.
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(c)
The Offeree, if it wishes to purchase Subject Units pursuant to the right of first offer provided by this Section 9.2,
shall have the right, within thirty (30) days following the date of delivery of the Offer Notice, to negotiate and enter into a definitive agreement
with the Offeror for the purchase of the Subject Units at the Offered Price and on the other material terms in the Offer Notice. If the Offeree
does not exercise its right to purchase the Subject Units in compliance with the above requirements, including the time period, or if the Offeree
and the Offeror fail to enter into a definitive agreement within the thirty (30) day period, the Offeror shall have the right, subject to the other
provisions of this Article IX, not later than one hundred and eighty (180) days after the date of the Offer Notice (as such period may be
extended to obtain any required regulatory approvals), to Transfer to a third party that is not a Prohibited Transferee, all of the Subject Units, at
a purchase price equal to or greater than the Offered Price, and if any other material terms and conditions are identified in the Offer Notice, on
those terms and conditions (or those terms and conditions modified in a manner which are not materially more favorable in the aggregate to the
transferee), without any further obligation to the Offeree pursuant to this Section 9.2 (but subject to compliance with Section 9.3). If, at the
end of such one hundred and eighty (180) day period (as such period may be extended to obtain any required regulatory approvals) (and subject
to the preceding sentence), the Offeror has not completed the Transfer of the Subject Units to a third party as aforesaid, the restrictions on
transfer contained herein shall again be in effect with respect to such Units and the Offeror shall comply with this Section 9.2 again if it
proposes to Transfer any or all of its Units.
SECTION 9.3
Tag-Along Rights .
(a)
Subject to prior compliance with Section 9.2, if any Member (a “ Selling Member ”) proposes to Transfer any or
all of such Member’s Units for cash consideration to any third party that is not a Permitted Transferee or a Prohibited Transferee (a “ Proposed
Sale ”), then the Selling Member shall furnish to the other Member a written notice of such Proposed Sale (the “ Tag Along Notice ”).
(b)
The Tag Along Notice will include:
(i)
the material terms and conditions of the Proposed Sale, including (A) the number of Units proposed to be
so Transferred, (B) the name and address of the Proposed Transferee (the “ Proposed Transferee ”), (C) the Offered Price, (D) the
fraction, expressed as a percentage, determined by dividing the number of Units to be purchased from the Selling Member by the total
number of Units held by the Selling Member (the “ Tag Along Sale Percentage ”) and (E) the proposed Transfer date, if known; and
(ii)
an invitation to the other Member to make an offer (such other Member, if elects to make such an offer
being the “ Tagging Member ”, and, together with the Selling Member, the “ Tag Along Sellers ”) to include in the Proposed Sale to
the applicable Proposed Transferee the Units held by such Tagging Members (not in any event to exceed the Tag Along Sale
Percentage of the total number of Units held by such Tagging Member). The Selling Member will deliver or cause to be delivered to
the Tagging Member copies of all transaction documents relating to the Proposed Sale promptly as the same become available.
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(c)
The Tagging Member shall have the right to exercise the tag-along rights provided by this Section 9.3 within ten
(10) Business Days following delivery of the Tag Along Notice by delivering a notice (the “ Tag Along Offer ”) to the Selling Member
indicating its desire to exercise its rights and specifying the number of Units it desires to Transfer (not in any event to exceed the Tag Along
Sale Percentage of the total number of Units held by the Tagging Member). If the Tagging Member does not make a Tag Along Offer in
compliance with the above requirements, including the time period, it shall be deemed to have waived all of its rights with respect to such
Proposed Sale, and the Tag Along Sellers shall thereafter be free to Transfer the Units to the Proposed Transferee, for cash consideration, at a
per Unit price no greater than the per Unit price set forth in the Tag Along Notice and on other terms and conditions which are not materially
more favorable in the aggregate to the Selling Members than those set forth in the Tag Along Notice. In order to be entitled to exercise its
right to sell Units to the Proposed Transferee pursuant to this Section 9.3, the Tagging Member must agree to make to the Proposed Transferee
the same representations, warranties, covenants, indemnities and agreements as the Selling Member agrees to make in connection with the
Proposed Sale and to take or cause to be taken all other actions as may be reasonably necessary to consummate the Proposed Sale; provided
that (x) unless otherwise agreed, a Tagging Member shall not be required to make representations and warranties or covenants or provide
indemnities as to any other Member (other than Permitted Transferees of the Tagging Member) and (y) any liability relating to representations
and warranties (and related indemnities), covenants or other indemnification obligations regarding the business of the Company in connection
with the Proposed Sale shall be shared by the Tagging Member and the Selling Member pro rata in proportion to the number of Units actually
being Transferred by each of those Members and in any event shall not exceed the proceeds received by the Tagging Member in the Proposed
Sale. Each Tag Along Seller will be responsible for its proportionate share of the costs of the Proposed Sale to the extent not paid or
reimbursed by the Proposed Transferee.
(d)
The offer of the Tagging Member contained in the Tagging Member’s Tag Along Offer shall be irrevocable, and,
to the extent such offer is accepted, the Tagging Member shall be bound and obligated to Transfer in the Proposed Sale on the same terms and
conditions, with respect to each Unit Transferred, as the Selling Member, up to such number of Units as the Tagging Member shall have
specified in its Tag Along Offer; provided , however , that if the material terms of the Proposed Sale change with the result that the per Unit
price shall be less than the per Unit price set forth in the Tag Along Notice, the form of consideration shall be different or the other terms and
conditions shall be materially less favorable in the aggregate to the Tag Along Sellers than those set forth in the Tag Along Notice, the Tagging
Member shall be permitted to withdraw the offer contained in its Tag Along Offer by written notice to the Selling Member and upon such
withdrawal shall be released from its obligations. If there is a Tagging Member, the Selling Member shall not Transfer any Units except at a
per Unit price and on other terms and conditions as are not materially more favorable in the aggregate to the Selling Member and its Affiliates
than to the Tagging Member and its Affiliates.
(e)
The Selling Member shall attempt to obtain the inclusion in the Proposed Sale of the entire number of Units which
the Tag Along Sellers requested to have included in the Proposed Sale. However, to the extent the Selling Member is unable to do so, each
Tag Along Seller shall be entitled to sell in the Proposed Sale a number of Units that equals to the lesser of
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(a) the number of Units such Tag Along Seller has offered to sell in the Tag Along Offer (or specified in the Tag Along Notice in the case of
the Selling Member) and (b) the number of Units determined by multiplying (A) the number of Units subject to the Proposed Sale by (B) a
fraction the numerator of which is the number of Units owned by such Tag Along Seller and the denominator of which is the total Units owned
by all Tag Along Sellers (the “ Pro Rata Share ”). The Selling Member shall notify the Tagging Members of the results of this calculation
within two (2) Business Days following receipt by the Tagging Member of the Tag Along Notice.
(f)
If the Tagging Member exercises its rights under this Section 9.3, the closing of the purchase of the Units with
respect to which such rights have been exercised will take place concurrently with the closing of the sale of the Selling Member’s Units to the
Proposed Transferee and the Selling Member shall provide the Tagging Member with at least five (5) Business Days’ prior notice thereof. If
the closing to the Proposed Transferee (whether or not a Tagging Member has exercised its rights under this Section 9.3) shall not have
occurred by the date that is one hundred and eighty (180) days after the date of the Offer Notice provided in accordance with Section 9.2 (as
such period may be extended to obtain any required regulatory approvals), the Tagging Member shall be released from its obligation under its
irrevocable offer (unless such failure to complete the Transfer was due to the failure of such Tagging Member to perform its obligations under
this Section 9.3) and all the restrictions on Transfer contained herein shall again be in effect with respect to such Units and the Selling Member
shall comply with Section 9.2 and this Section 9.3 again if it proposes to Transfer any or all of its Units to a third party that is not a Permitted
Transferee or a Prohibited Transferee.
(g)
The Selling Member shall, in its sole discretion, decide whether or not to pursue, consummate, postpone or
abandon any Proposed Sale and the terms and conditions thereof. No holder of Units nor any Affiliate of any such holder shall have any
liability to any other holder of Units or the Company arising from, relating to or in connection with the pursuit, consummation, postponement,
abandonment or terms and conditions of any Proposed Sale except to the extent such holder shall have failed to comply with the provisions of
this Section 9.3.
SECTION 9.4
Other Permitted Transfers .
(a)
Transfers to Permitted Transferees . Any Member may at any time, without complying with the restrictions
contained in Section 9.2 or 9.3, Transfer all or a portion of its Units to one or more Permitted Transferees (a “ Permitted Transfer ”). The
transferee of Units in a Permitted Transfer shall automatically be admitted as a Substituted Member upon (i) its compliance with this
Section 9.4(a) , (ii) its execution and delivery to the Company a signature page counterpart to this Agreement and an acceptance of all of the
terms and conditions of this Agreement (including such other documents or instruments as may be required to effect the admission in the
Company’s reasonable judgment) and (iii) its execution and delivery of an undertaking that if such subsidiary ceases to be wholly owned by
such Member, it shall immediately Transfer its Units back to the Member who initially transferred such Units to such subsidiary or another
wholly owned subsidiary of such Member. Following any such Permitted Transfer, all rights of the Member provided for herein shall be
collectively exercised by the Member and such transferee.
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(b)
Permitted Pledge . Any Member may at any time, without complying with Section 9.2 or 9.3, pledge all or part of
its Units as security to a bona fide debt obligation of such Member, provided that the transferee is not a Prohibited Transferee (a “ Permitted
Pledge ”).
SECTION 9.5
Other Transfer Restrictions .
(a)
In addition to any other restrictions on Transfer herein contained, in no event may any Transfer of any Units or
Interest by any Member be made:
(i)
to any Person who lacks the legal right, power or capacity to own an Interest or Units;
(ii)
if such Transfer would cause the assets of the Company to become “plan assets” of any benefit plan
investor within the meaning of DOL Regulation Section 2510.3-101 or to be regulated under ERISA;
(iii)
for as long as the Company is a partnership for U.S. federal income tax purposes, if such Transfer would,
in the opinion of counsel to the Company, cause any portion of the assets of the Company to constitute assets of any employee benefit
plan pursuant to the Plan Asset Regulations;
(iv)
if such Transfer, in the opinion of counsel to the Company, requires the registration of such Units
pursuant to any applicable U.S. federal or state or Canadian securities laws;
(v)
for so long as the Company is a partnership for U.S. federal income tax purposes, unless such transfer will
not result in the Company being treated as a “publicly traded partnership,” as such term is defined in Sections 469(k)(2) or 7704(b) of
the Code and the regulations promulgated thereunder that is taxable as a corporation as determined by counsel to the Company;
(vi)
unless the transferee makes the representations and warranties set forth in Section 14.1;
(vii)
if such Transfer subjects the Company to be regulated under the Investment Company Act or the
Investment Advisors Act of 1940;
(viii)
if such Transfer would result, either directly or indirectly, in the transferor being deemed an affiliate (as
defined in 12 C.F.R. § 225.2(a)) of a bank holding company, savings and loan holding company or U.S. depository institution the
deposits of which are insured by the Federal Deposit Insurance Corporation, or otherwise cause the Company to become subject to
supervision and regulation by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency,
the Federal Deposit Insurance Corporation or any other U.S. federal banking agency; or
(ix)
if such Transfer would require the consent of any federal or state regulatory agency or self-regulatory
organization or any foreign equivalent of the foregoing and such consent has not been obtained.
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(b)
Unless admitted as a Substituted Member, no transferee, whether by a voluntary Transfer, by operation of law or
otherwise, shall have rights hereunder.
(c)
The Members effecting any Transfer permitted hereunder shall pay all reasonable costs and expenses, including
reasonable attorneys’ fees and disbursements, incurred by the Company in connection with the Transfer.
(d)
No Transfer may be made or recorded in the books and records of the Company unless the transferee shall deliver
to the Company notice of such Transfer, including a fully executed copy of all documentation and agreements relating to the Transfer and any
agreements or other documents required by Section 9.6, including the written agreement (as required pursuant to Section 9.6) of the transferee
to be bound by the terms of this Agreement and to assume all obligations of the transferring Member under this Agreement in respect of the
Units that are the subject of the Transfer.
(e)
Unless approved by the Board, no Member may withdraw from this Agreement except (i) as a result of a permitted
Transfer of all of such Member’s Units in accordance with this Article IX and the transferee(s) of such Units being admitted to the Company as
a Substituted Member or (ii) upon the dissolution and winding up of the Company. Following withdrawal, a Member shall have no rights or
obligations under this Agreement (other than Sections 8.4 and 15.3).
(f)
Any Member who shall Transfer all of such Member’s Units in a Transfer permitted pursuant to this Article IX
shall cease to be a Member.
(g)
If any Units are Transferred in compliance with the provisions of this Article IX, on any day other than the first
day of a Fiscal Year of the Company, then Net Income, Net Losses, each item thereof and all other items attributable to such interest for such
Company Fiscal Year shall be divided and allocated between the transferor Member and the transferee Member using any method permitted
under Section 706 of the Code or determined by the Board. All distributions with respect to which the record date is before the date of such
Transfer or redemption shall be made to the transferor Member, and all distributions with respect to which the record date is after the date of
such Transfer, in the case of a Transfer other than a redemption, shall be made to the transferee Member.
SECTION 9.6
Substituted Members .
(a)
No Member shall have the right to substitute a transferee as a Member in its place with respect to any Units so
Transferred unless (i) such Transfer is made in compliance with the terms of this Agreement and (ii) the transferee executes and delivers to the
Company a signature page counterpart to this Agreement and an acceptance of all of the terms and conditions of this Agreement (including
such other documents or instruments as may be required to effect the admission in the Board’s reasonable judgment).
(b)
A transferee who has been admitted as a Substituted Member in accordance with this Section 9.6 shall have all the
rights and powers (except as provided in Section 7.1) and be subject to all the restrictions and liabilities of a Member under this
27
Agreement holding Units.
(c)
Admission of a Substituted Member shall become effective on the date such Person’s name is recorded on the
books and records of the Company. Upon the admission of a Substituted Member, (i) the Company shall amend Schedule A to reflect the
name and address of, and number and class of Units held by, such Substituted Member and to eliminate or adjust, if necessary, the name,
address and interest of the predecessor of such Substituted Member (such revisions to be presented to the Board no later than at the next regular
meeting of the Board) and (ii) to the extent of the Transfer to such Substituted Member, the transferor Member shall be relieved of its
obligations under this Agreement, provided that a Transfer to a wholly owned subsidiary shall not relieve the parent entity of its obligations
under this Agreement.
SECTION 9.7
Transfer of the Management Equity .
(a)
No Management Member shall not have any right to transfer the Management Equity, except as specifically
provided in this Section 9.7.
(b)
At any time, each of Element and Celadon (or their respective successors or Permitted Transferees) shall have an
option to purchase, or permit any other Person employed by the Company to purchase, fifty percent (50%) of the aggregate Management
Equity from any Management Member at the price at which such Management Member acquired the Management Equity (the “ Management
Equity Purchase Option ”), provided that any such purchaser shall comply with any regulatory requirements (including any required
competition approval) in connection with such purchase of the Management Equity.
(c)
The Company shall make a final Tax Distribution to the Management Members within a reasonable time after
transfer of the Management Equity in accordance with this Section 9.7.
ARTICLE X
RECORDS AND REPORTS; FISCAL AFFAIRS
SECTION 10.1
Records and Accounting.
(a)
Appropriate records and books of account of the business of the Company, including a list of the names,
addresses, Units and Capital Contributions of all Members, shall be maintained at the Company’s principal place of business.
(b)
The books and records of the Company shall be kept in accordance with GAAP. The Board shall determine the
accounting methods and conventions to be used by the Company.
SECTION 10.2
Financial Statements and Reports . The Company shall promptly and simultaneously provide to each
of the Members (or the Managers appointed by such Member) the following information:
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(a)
as soon as available, but not later than thirty (30) days after the end of each calendar month commencing January
31, 2017 (for avoidance of doubt, including months that are the end of each fiscal quarter and year), the Company will provide the Members
monthly financial statements that will include, for such monthly period and the year-to-date, a summary unaudited balance sheet and the related
unaudited statements of income, retained earnings and cash flows of the Company and its consolidated subsidiaries for such periods;
(b)
as soon as available, but not later than thirty (30) days after the end of each calendar quarter commencing with the
quarter ending March 31, 2017, the Company will provide the Members with an unaudited balance sheet and the related unaudited statements
of income, retained earnings and cash flows of the Company and its consolidated Subsidiaries as of the end of such immediately preceding
calendar quarter, in each case, prepared in accordance with the GAAP;
(c)
as soon as available, but not later than ninety (90) days after (i) the end of each Fiscal Year ending December
(commencing with the Fiscal Year ending December 31, 2017) and (ii) June 30, 2017, the Company will provide the Members with an audited
consolidated balance sheet of the Company and its consolidated Subsidiaries as of December 31 of each Fiscal Year (or as of June 30, 2017
with respect clause (ii) of this section) and the related audited consolidated statements of income, retained earnings and cash flows of the
Company and its consolidated Subsidiaries for the Fiscal Year (or twelve month period with respect clause (ii) of this section) then ended, such
annual financial reports to be in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion of an independent
public accounting firm of nationally recognized standing;
(d)
as soon as available, but not later than ten (10) days after the end of each calendar month commencing January
2017 (for avoidance of doubt, including months that are the end of each fiscal quarter and year), the Company will provide the Members
preliminary financial results of the Company and its consolidated subsidiaries for such periods;
(e)
notification of (i) any material litigation that involves the Company and (ii) any criminal, quasi-criminal or
regulatory inquiries, investigations or proceedings by any governmental entity having jurisdiction over the Company, in each case, that, if
decided adversely against the Company, is reasonably expected to have a material adverse effect on the Company or the Company’s business;
and
(f)
any other information that a Member may reasonably require.
ARTICLE XI
TAX MATTERS
SECTION 11.1
Preparation of Tax Returns . The Company shall arrange for the preparation and timely filing of all
returns of the Company’s income, gains, deductions, losses and other items required of the Company for federal, state and local income tax
purposes. The Company shall use commercially reasonable efforts to supply each Member (or any Person that was a Member in the
immediately preceding taxable year) with the Company information
29
(including Schedule K-1) necessary, by the earlier of (x) the date which is 30 days prior to the date on which such Member’s income tax returns
are due for such year and (y) July 15 of each year, to enable such Member (or former Member) to prepare in a timely manner its federal, state
and local income tax returns and such other financial or other statements and reports. If such information has not already been provided by
such date, the Company shall use commercially reasonable efforts to provide each such Member (or former Member) with an estimate of such
information by August 1 of the following Fiscal Year. The Company will use commercially reasonable efforts to provide each current or
former Member with any information reasonably requested by such Member in connection with the filing of any tax return by such Member or
its direct or indirect owners, any tax audit or proceeding relating to such Member or its direct or indirect owners or any tax planning of such
Member or its direct or indirect owners, in each case, to the extent that such information is reasonably available to the Company. In each case,
the Company’s obligations under this Section 11.1 shall be subject to reasonable delays in the event of the late receipt of any necessary
financial statements or other information necessary to prepare the tax returns or other required information that relate to the Company and its
business.
SECTION 11.2
Tax Matters Member .
(a)
Element (or its designee that is a Member) shall be the “tax matters partner” or the “partnership representative,” as
applicable, of the Company for United States federal income tax purposes (the “ Tax Matters Member ”). The Tax Matters Member shall have
the rights and obligations provided for under Sections 6221 through 6232 of the Code and United States Treasury regulations thereunder (as
amended by the Bipartisan Budget Act of 2015 where applicable). The Tax Matters Member shall not take any action that could reasonably be
expected to materially affect the Company or a Member without the consent of the Board.
(b)
The Tax Matters Member shall at the reasonable request of any Member cause the Company to elect, pursuant to
Section 754 of the Code, to adjust the basis of the Company’s property.
For the avoidance of doubt, the provisions relating to indemnification of a Member set forth in Article VIII of this Agreement shall be fully
applicable to the Tax Matters Member in its capacity as such. The Tax Matters Member shall receive no compensation for its services. The
Tax Matters Member may retain legal, accounting and other advisors to assist in performing its duties hereunder and all reasonable third party
costs and expenses incurred by the Tax Matters Member in performing its duties as such (including reasonable legal and accounting fees and
any reasonable and documented out-of-pocket expenses) shall be borne by the Company.
SECTION 11.3
Organizational Expenses . The Company shall elect to deduct expenses, if any, incurred by it in
organizing the Company ratably as provided in Section 709 of the Code and the regulations promulgated thereunder.
SECTION 11.4
Withholding . Each Member hereby authorizes the Company to withhold from or pay on behalf of or
with respect to such Member any amount of federal, state, local, or foreign taxes that the Board determines (provided, however, that the Board
may delegate such determination to the Tax Matters Member) that the Company is required to withhold or pay with respect to any amount
distributable or allocable to such Member pursuant
30
to this Agreement, and any amount so withheld shall reduce the amounts otherwise to be distributed to a Member pursuant to Section 6.1(a)
until all such amounts are restored to the Company in full. The cost of any amount of federal, state, local, or foreign taxes that the Board
determines is imposed on the Company as a result of the status of any Member shall be borne by such Member. Each Member hereby agrees
to indemnify and hold harmless the Company and the other Members from and against any liability (including any liability for taxes, penalties,
additions to tax or interest) with respect to income attributable to or distributions or other payments to such Member. Each Member’s
obligations under this Section 11.4 shall survive the dissolution, liquidation and winding up of the Company, the Transfer of a Member’s Units
or Interest and the withdrawal of any Member.
SECTION 11.5
Classification . The Company will file information returns and any other applicable tax returns in a
manner consistent with treatment of the Company as a partnership for United States federal income tax purposes and will not elect to be treated
as a corporation for United States federal income tax purposes without the unanimous consent of all Members.
SECTION 11.6
Listed and Reportable Transactions . The Company will not enter into any transaction that is, at the
time such transaction is entered into, a “listed transaction” within the meaning of the Regulations promulgated under section 6011 of the Code
without the consent of all Members. If the Company participates in a reportable transaction described in the Regulations promulgated under
Section 6011 of the Code, the Company will provide the Members with information sufficient for them to comply with any resulting U.S. tax
reporting obligations .
ARTICLE XII
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 12.1
of the following events:
(a)
Dissolution . The Company shall be dissolved and its affairs wound up upon the occurrence of any
subject to Section 13.4(a)(ii), an election by the Board; or
(b)
except as provided in Section 4.5, any other event that would cause the dissolution of a limited liability company
under the Act, unless the Company is continued to the extent permitted by, and in accordance with, the Act.
Dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company will not
terminate until the assets of the Company have been liquidated and the assets distributed as provided in Section 12.2(b) and the Certificate has
been canceled.
SECTION 12.2
Liquidation of the Company’s Assets Upon Dissolution .
(a)
On dissolution, the Company shall be liquidated and wound up in an orderly manner in accordance with the
provisions of this Section 12.2. The Board may wind up
31
the affairs of the Company or may appoint one or more liquidating trustees (who may be Member(s)) to wind up the affairs of the
Company. Subject to Section 13.4, the Board is authorized to sell, exchange or otherwise dispose of the assets of the Company, or to distribute
the Company’s assets in kind, as the Board shall determine to be in the best interests of the Members. The Board shall complete the
liquidation of the Company within a reasonable period of time after the dissolution of the Company; provided that such period may be extended
for up to two additional one-year periods by the Board. The reasonable out-of-pocket expenses incurred by the Board in connection with
winding up the Company (including legal and accounting fees and expenses), all other liabilities or losses of the Company or the Board
incurred in accordance with the terms of this Agreement and reasonable compensation for the services of the liquidating trustee shall be borne
by the Company. Except as otherwise required by applicable law or for Disabling Conduct, Managers shall not be liable to any Member or the
Company for any loss attributable to any act or omission taken in good faith in connection with the winding up of the Company and the
distribution of the Company’s assets. The Board or the liquidating trustee, as applicable, may consult with counsel and accountants with
respect to winding up the Company and distributing its assets and shall be justified in acting or omitting to act, in accordance with the advice or
opinion of such counsel or accountants.
(b)
Upon dissolution of the Company, the expenses of liquidation (including compensation for the services of the
liquidating trustee and legal and accounting fees and expenses) and the Company’s liabilities and obligations to creditors (including obligations
to Members, if any, other than liabilities for distributions) shall first be paid, or reasonable provisions shall be made for payment thereof, from
cash on hand or from the liquidation of the Company properties. The Board also is authorized to hold any funds required to be held in escrow
pursuant to the provisions of any agreement for the sale of investments that require such an escrow. If any of the Company’s liability is
contingent, conditional or unmatured in amount, a reserve equal to the maximum amount to which the Company could reasonably be held
liable shall be established. Upon payment or other discharge of such liability, the amount remaining in such reserve not needed, if any, will be
distributed in accordance with the following sentence. After payment or provision for payment of all expenses of liquidation and liabilities and
obligations of the Company, the remaining assets of the Company (whether cash or securities) shall be distributed to the Members in
accordance with Section 6.1(a).
(c)
When the Board has complied with the foregoing liquidation plan, the Board, on behalf of all Members, shall
execute, acknowledge and cause to be filed a Certificate of Cancellation.
SECTION 12.3
Termination . The Company shall terminate when all of the assets of the Company, after payment of
or due provision for all debts, liabilities and obligations of the Company, shall have been distributed in the manner provided for in this Article
XII and the filing of a Certificate of Cancellation.
SECTION 12.4
Claims of the Members . The Members shall look solely to the Company’s assets for the return of
their Capital Contributions, and if the assets of the Company remaining after payment of or due provision for the payment of all debts,
liabilities and obligations of the Company are insufficient to return such Capital Contributions, the Members
32
and former Members shall have no recourse against the Company, any other Member or Manager or the Board.
SECTION 12.5
Survival . Notwithstanding anything in this Agreement to the contrary, Article VIII and Section 15.3
shall survive the termination or expiration of this Agreement and the dissolution, winding up and termination of the Company.
ARTICLE XIII
CONSENTS, VOTING AND MEETINGS OF MEMBERS
SECTION 13.1
Management Member (a) . No Management Member shall have any voting or consent rights with
respect to any matters of the Company, except that for any amendment of the economic rights attached to the Management Equity or the rights
of the Management Members as the Covered Persons under Article VIII, consent of each affected Management Member is required. Solely for
the purpose of this Article XIII, the term of “Member” shall exclude any Management Member, unless otherwise specified.
SECTION 13.2
Meetings . Any matter requiring the consent of any of the Members pursuant to this Agreement may
be considered at a meeting of the Members attended by all of the Members, or the Members may take such action without a meeting, without
prior notice and without a vote, if a consent or consents in writing (including by email), setting forth the action so taken, shall be signed by all
the Members. Meetings of Members may be called, and notices of meetings may be given, at any time and for any reason by the Board, in its
discretion. Notice of meetings of Members shall be given not less than five (5) nor more than sixty (60) days prior to the meeting. Notice may
be waived by the Members. Any such notice shall state briefly the purpose, time and place of the meeting. All such meetings shall be held in
the United States, within or outside the State of Delaware, at such reasonable place as the Board shall designate and during normal business
hours. Members may participate in a meeting of the Members by means of conference telephone, video conference or similar communications
equipment by means of which all persons participating in the meeting can hear and speak to each other, and such participation in a meeting
shall constitute presence in person at the meeting.
SECTION 13.3
Record Dates . The Board may set in advance a date for determining the Members entitled to notice
of and to vote at any meeting. All record dates shall not be more than sixty (60) days prior to the date of the meeting to which such record date
relates.
SECTION 13.4
Consent Rights .
(a)
Notwithstanding anything in this Agreement to the contrary and subject to Section 13.4(b), the following actions
by the Company shall require the approval of a majority in Interest of the Members in addition to Board approval.
(i)
the Company entering into any merger, consolidation, recapitalization, liquidation, or sale of such entity
or all or substantially all of the assets of the Company or consummation of a similar transaction involving the Company (other
33
than a merger, consolidation or similar transaction between or among the Company and one or more direct or indirect wholly owned
subsidiaries of the Company which transaction would not adversely impact the rights of any holder of Units) or entering into any
agreement providing therefor;
(ii)
voluntarily initiating any liquidation, dissolution or winding up of the Company or permitting the
commencement of a proceeding for bankruptcy, insolvency, receivership or similar action with respect to the Company or any of its
subsidiaries;
(iii)
an IPO of the Company; and
(iv)
changing the corporate or organizational structure of the Company (other than through the admission of
new Members or withdrawal of Members in accordance with this Agreement) or any of its subsidiaries, except in connection with an
IPO that has already been approved by the Members.
(b)
The Company and the Members will not impose additional limitations on each Member’s contractual rights to
Transfer Units as in effect on the Effective Date.
SECTION 13.5
Voting and Other Rights . Except as otherwise expressly provided in this Agreement, the Units shall
have no voting rights or rights of approval, veto or consent or similar rights over any actions of the Company.
ARTICLE XIV
REPRESENTATIONS AND WARRANTIES OF EACH MEMBER
SECTION 14.1
Representations and Warranties of each Member . Each Member hereby represents and warrants to,
and agrees with, the Company and the other Members that the following statements are true:
(a)
Such Member is fully aware that the offering and sale of Units in the Company have not been and will not be
registered under the Securities Act and are being made in reliance upon federal and state exemptions for transactions not involving a public
offering. In furtherance thereof, except as set forth in such Member’s subscription agreement, pursuant to which such Member acquired the
Units, such Member represents and warrants that it is or he is an “accredited investor” (as defined in Regulation D under the Securities Act).
(b)
Such Member’s Units in the Company are being acquired for its or his own account solely for investment and not
with a view to resale or distribution thereof.
(c)
(i) Such Member’s financial condition is such that such Member can afford to bear the economic risk of holding
its Units for an indefinite period of time, (ii) such Member can afford to suffer a complete loss of such Member’s investment in its or his Units,
(iii) such Member understands and has taken cognizance of all risk factors related to the purchase of its or his Units and (iv) such Member’s
knowledge and experience in financial and
34
business matters are such that such Member is capable of evaluating the merits and risks of purchasing its or his Units.
(d)
Such Member has been given the opportunity to (i) ask questions of, and receive answers from, the Company
concerning the terms and conditions of the offering of Units and other matters pertaining to an investment in the Company and (ii) obtain any
additional information which the Company can acquire without unreasonable effort or expense that is necessary to evaluate the merits and risks
of an investment in the Company. In considering its or his investment in the Company, such Member has not relied upon any representations
made by, or other information (whether oral or written) furnished by or on behalf of, the Company or any Manager, officer, employee, agent or
Affiliate of such Persons, other than as set forth in this Agreement or the applicable subscription agreement, pursuant to which such Member
acquired the Units. Such Member has carefully considered and has, to the extent it or he believes such discussion necessary, discussed with
legal, tax, accounting and financial advisers the suitability of an investment in the Company in light of its or his particular tax and financial
situation, and has determined that an investment in the Company is a suitable investment for it.
(e)
With respect to any Member that is an entity, such Member is duly organized or formed, validly existing and in
good standing under the laws of its jurisdiction of organization or formation and the execution, delivery and performance by it of this
Agreement is within its powers, has been duly authorized by all necessary corporate or other action on its behalf, requires no action by or in
respect of, or filing with, any governmental body, agency or official, and does not and will not contravene, or constitute a default under, any
provision of applicable law or regulation or of its certificate of incorporation or other comparable organizational documents or any agreement,
judgment, injunction, order, decree or other instrument to which such Member is a party or by which such Member or any of its properties is
bound. This Agreement constitutes a valid and binding agreement of such Member, enforceable against such Member in accordance with its
terms.
(f)
The foregoing representations, warranties and agreements shall continue to survive after the date of such
Member’s admission to the Company.
ARTICLE XV
GENERAL PROVISIONS
SECTION 15.1
Notices .
(a)
Except as specifically provided elsewhere in this Agreement, all notices, requests, consents or other
communications to the Company or to any Member hereunder shall be in writing and shall be given,
(i)
if to the Company:
35
19 th Capital Group, LLC
9702 East 30 th Street
Indianapolis, IN 46229
Attention: President
with copies to:
Element Transportation LLC
c/o Element Fleet Management Corp.
161 Bay Street, 36th Floor
Toronto, Ontario M5J 2S1
Canada
Attention: General Counsel
E-mail: [email protected]
Facsimile: (888) 772-8129
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Patrick J. Naughton
E-mail: [email protected]
Facsimile: (212) 455-2502
Celadon Group, Inc.
9503 E. 33rd Street
Indianapolis, IN 46235
Attention: Paul A. Will
E-mail: [email protected]
Facsimile: (317) 890-8099
and
Scudder Law Firm, P.C., L.L.O.
411 South 13th Street, 2nd Floor
Lincoln, NE 68508
Attention: Mark A. Scudder
E-mail: [email protected]
Facsimile: (402) 435-4239
(ii)
if to Element Transportation LLC:
c/o Element Fleet Management Corp.
161 Bay Street, 36th Floor
Toronto, Ontario M5J 2S1
Canada
36
Attention: General Counsel
E-mail: [email protected]
Facsimile: (888) 772-8129
with a copy to (which shall not constitute notice):
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Patrick J. Naughton
E-mail: [email protected]
Facsimile: (212) 455-2502
(iii)
if to Celadon Group, Inc.:
9503 East 33rd Street
Indianapolis, IN 46235
Attention: Paul A. Will
E-mail: [email protected]
Facsimile: (317) 890-8099
with a copy to (which shall not constitute notice):
Scudder Law Firm, P.C., L.L.O.
411 South 13th Street, 2nd Floor
Lincoln, NE 68508
Attention: Mark A. Scudder
E-mail: [email protected]
Facsimile: (402) 435-4239
(iv)
if to a Management Member:
Address and contact information set forth in Schedule A with respect to such Management Member
(b)
Each such notice, request, consent or other communication shall be given (i) by hand delivery, (ii) by nationally
recognized overnight courier service, (iii) by facsimile or (iv) by electronic mail.
(c)
Each such notice, request, consent or other communication shall be deemed to be delivered (i) if delivered by
hand, when delivered at the address specified in this Section 15.1, (ii) if delivered by nationally recognized overnight courier service, on the
day of receipt by the Company or such Member and if such date is not a Business Day, on the immediately following Business Day after
delivery to such service or such mailing, and (iii) if given by facsimile or electronic mail, when such facsimile or electronic mail is transmitted
to the facsimile number or e-mail address specified in this Section 15.1 and the appropriate answer back or confirmation is received.
37
SECTION 15.2
Amendments . Amendments to this Agreement may be made only by a written instrument signed by
all Members (other than any Management Member except as required by Section 13.1). The Company shall send to each Member a copy of
any amendment to this Agreement. Notwithstanding the foregoing, the Company may amend Schedule A from time to time as contemplated
by Section 4.1 and the Board may amend Section 6.1, Section 6.2 and Section 6.3 and any other relevant provision of this Agreement as
necessary to reflect the issuance of Profits Interests to Company service providers as approved by the Board.
SECTION 15.3
Confidentiality . Each Member agrees that such Member shall keep confidential, and shall not
disclose to any third Person or use for its own benefit, without the consent of the Board, any non-public information with respect to the
Company (including any Person in which the Company holds, or contemplates acquiring, an investment) that is in such Member’s possession
on the date hereof or disclosed to such Member by or on behalf of the Company, provided that a Member may disclose any such information
(i) as has become generally available to the public other than by virtue of a breach of this provision by such Member or its Affiliates, (ii) to its
Affiliates and their respective directors, managers, officers, employees and authorized representatives (including attorneys, accountants,
consultants, bankers and financial advisors of such Member) and each Member that is a limited partnership or limited liability company may
disclose such information to any former partners or members who retained an economic interest in such Member, and to any current or
prospective partner, limited partner, member, general partner or management company of such Member (or any employee, attorney,
accountant, consultant, banker or financial advisor or representative of any of the foregoing) (collectively, for purposes of this Section 15.3, “
Representatives ”) who need to be provided such information to assist such Member in evaluating or reviewing its investment, each of which
Representatives shall be deemed to be bound by the provisions of this Section 15.3 and such Member shall be responsible for any breach of this
provision by any such Representative, (iii) to the extent necessary (as reasonably determined by such Member) in order to comply with any
law, order, regulatory examination, regulation or ruling, including stock exchange rules and U.S. Securities and Exchange Commission rules,
applicable to such Member or any of its parent entities, (iv) to actual or proposed Permitted Transferees that agree to keep such information
confidential in connection with a Transfer and (v) as may be required in response to any summons or subpoena or in connection with any
litigation or enforcement proceeding or a discovery request in connection with a litigation or enforcement proceeding.
SECTION 15.4
Entire Agreement . This Agreement (including the Schedules attached hereto), the Subscription
Agreement, the Management Subscription Agreements, the Term Loan Agreement, the Guarantee, the Equipment Loan Agreement, the Lease
Agreement, the Termination Agreement, the Element Equipment Purchase Agreement, and the Service Agreement shall constitute the entire
agreement and understanding among the parties hereto with respect to the subject matter hereof and shall supersede any prior understanding or
agreement, oral or written with respect thereto. There are no representations, agreements, arrangements or understandings, oral or written,
between or among the Members relating only to the subject matter of this Agreement that are not fully expressed herein or therein.
SECTION 15.5
Successors and Assigns; Binding Effect . No Member shall assign all or any part of its or his rights
or obligations under this Agreement to any Person,
38
except to a transferee of Units to the extent expressly provided herein. This Agreement and all of the terms and provisions hereof shall be
binding upon, and shall inure to the benefit of, the parties hereto and their respective legal representatives, heirs, successors and permitted
assigns. Each Covered Person shall be entitled to rely upon, shall be a third party beneficiary of, and shall be entitled to enforce, the provisions
of this Agreement applicable to such Person.
SECTION 15.6
Severability . If any provision of this Agreement, or the application of such provision to any Person
or circumstance or in any jurisdiction, shall be held to be invalid or unenforceable to any extent, (i) the remainder of this Agreement shall not
be affected thereby, and each other provision hereof shall be valid and enforceable to the fullest extent permitted by law, (ii) as to such Person
or circumstance or in such jurisdiction such provision shall be reformed to be valid and enforceable to the fullest extent permitted by law and
(iii) the application of such provision to other Persons or circumstances or in other jurisdictions shall not be affected thereby. Any default
hereunder by a Member shall not excuse a default by any other Member.
SECTION 15.7
No Waiver . Neither the failure nor delay on the part of any party hereto to exercise any right,
remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy,
power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with
respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such
waiver.
SECTION 15.8
Dispute Resolution and Arbitration .
(a)
In the event that the Members (other than any Management Member) cannot agree on an action that a Member
(other than any Management Member) believes needs to be taken or any matter that needs to be decided by the Board (a “ Deadlock ”), and any
Member (other than any Management Member) reasonably believes that such Deadlock cannot be adequately or efficiently resolved by the
Managers, such Member may initiate the resolution process set forth in this Section 15.8.
(b)
A Member (other than any Management Member) may refer such a Deadlock to the CEO of Element Fleet
Management Corp. and the CEO of Celadon for discussion and resolution for a period of five (5) calendar days beginning no later than three
(3) calendar days after written receipt of the request to initiate this resolution process. The identified representatives will meet either in person
or via telephone in good faith to attempt to resolve the Deadlock within each applicable time period.
SECTION 15.9
the State of Delaware.
Governing Law . This Agreement shall be governed by and construed in accordance with the laws of
SECTION 15.10
Judicial Proceedings . In any judicial proceeding involving any dispute, controversy or claim
arising out of or relating to this Agreement or the Company or its operations, each of the Members and the Company unconditionally accepts
the non-exclusive
39
jurisdiction and venue of the Court of Chancery of the State of Delaware (or if such jurisdiction or venue is declined by the Court of Chancery
of the State of Delaware, any federal court located in the State of Delaware), and the appellate courts to which orders and judgments thereof
may be appealed. In any such judicial proceeding, the Members agree that in addition to any method for the service of process permitted or
required by such courts, to the fullest extent permitted by law, service of process may be made by delivery provided pursuant to the directions
in Section 15.1. EACH OF THE MEMBERS HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING
ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR RELATING TO THE
COMPANY OR ITS OPERATIONS, AND AGREES TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT
SUCH WAIVER.
SECTION 15.11
Aggregation of Units . All Units held or acquired by a Member and its Affiliates shall be
aggregated together for purposes of determining the rights or obligations of a Member, or application of any restrictions to a Member, under
this Agreement, in each instance in which such right, obligation or restriction is determined by any ownership threshold.
SECTION 15.12
Equitable Relief . The Members hereby confirm that damages at law would be an inadequate
remedy for a breach or threatened breach of this Agreement and agree that, in the event of a breach or threatened breach of any provision
hereof, the respective rights and obligations hereunder shall be enforceable by specific performance, injunction or other equitable remedy, but,
nothing herein contained is intended to, nor shall it, limit or affect any right or rights at law or by statute or otherwise of a Member aggrieved as
against another Member for a breach or threatened breach of any provision hereof, it being the intention by this Section to make clear the
agreement of the Members that the respective rights and obligations of the Members hereunder shall be enforceable in equity as well as at law
or otherwise and that the mention herein of any particular remedy shall not preclude a Member from any other remedy it or he might have,
either in law or in equity.
SECTION 15.13
Table of Contents, Headings and Captions . The table of contents, headings, subheadings and
captions contained in this Agreement are included for convenience of reference only, and in no way define, limit or describe the scope of this
Agreement or the intent of any provision hereof.
SECTION 15.14
Counterparts . This Agreement and any amendment hereto may be signed in any number of
separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one Agreement (or
amendment, as applicable).
SECTION 15.15
Judgment Creditor Liability . Except as otherwise expressly provided herein, none of the provisions
of this Agreement will be for the benefit of or enforceable by any creditors of the Company or by other third parties. The Members’ liability to
judgment creditors will be limited to the maximum extent permitted by applicable law. Judicial foreclosure and any other remedy that might
adversely impact any Interest or any property, assets, or interests now or hereafter owned or held by the Company and any additional property
contributed to or acquired by the Company, whether real or personal, as well as improvements developed thereon, are expressly prohibited and
are unenforceable in all respects. Any judgment
40
creditor who obtains a charging order with respect to an Interest will be regarded as an assignee of such Interest under the Act; and as such,
during the period for which an Interest is so charged, the judgment creditor will be liable for all taxes, if any, on the income allocable to the
charged Interest, and similarly, will enjoy the benefit of any losses allocable to such charged Interest. The Board will issue to the judgment
creditor a Schedule K-1 corresponding to the charged Interest until such time as the charging order is removed.
[ Signature page follows ]
41
ELEMENT TRANSPORTATION LLC
By:
/s/ James Halliday
Name: James Halliday
Title: Authorized Signatory
CELADON GROUP, INC.
By:
/s/ Paul Will
Name: Paul Will
Title: CEO
/s/ Gregory Burke
Name: Gregory Burke
/s/ Harry Dugan
Name: Harry Dugan
[Signature Page to the Limited Liability Company Agreement]
SCHEDULE A
MEMBERS’ CAPITAL CONTRIBUTIONS AND UNITS
(As of December 30, 2016)
Name and Address of Member
Element Transportation LLC
Capital Contributions
Number Of Units
As described in the Subscription Agreement
9,999,995
9503 E. 33rd Street
Indianapolis, IN 46235
Harry Dugan
As described in the Subscription Agreement
9,999,995
353 West Lancaster Avenue
Suite 300
Wayne, PA 19087
Gregory Burke
As described in the applicable Management
Subscription Agreement
5
As described in the applicable Management
Subscription Agreement
5
c/o Element Fleet Management Corp.
161 Bay Street, 36th Floor
Toronto, Ontario M5J 2S1
Canada
Celadon Group, Inc.
655 Business Center Drive
Suite 250
Horsham, PA 19044
SCHEDULE B
FORM CERTIFICATE OF UNITS
19 TH CAPITAL GROUP, LLC
CERTIFICATE
Certificate No. [
]
[
] Units ( [
] % of Membership Interests)
THIS CERTIFICATE (this “ Certificate ”) is issued by 19 TH CAPITAL GROUP, LLC , a Delaware limited liability company (the “
Company ”), certifying that [ ], a [ ], together with any permitted assignee of this Certificate, is entitled to receive this Certificate as
registered owner of [ ] ([ ]) units of common membership interests in the Company, representing [ ]% of the issued and outstanding
membership interests in the Company.
This Certificate evidences the membership interest in the Company (a “ Membership Interest ”) and the Membership Interest shall
be (A) a security governed by Article 8 of the UCC (including Section 8-102(a)(15) thereof) as in effect from time to time in the State of
Delaware and Article 8 of the Uniform Commercial Code of any other jurisdiction that now or hereafter substantially includes the 1994
revisions to Article 8 thereof as adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws
and approved by the American Bar Association on February 14, 1995, and (B) for purposes of Article 8 of the Delaware Uniform Commercial
Code, and, to the extent permitted by applicable law, Article 8 of the Uniform Commercial Code of each other applicable jurisdiction, a
certificated security. This Certificate shall be governed by and construed in accordance with the laws of the State of Delaware without regard
to principles of conflicts of laws.
This Certificate is transferable only on the books of the Company by the registered holder (“ Member ”) in person or by its duly
authorized attorney. The Member by receipt and acceptance of this Certificate, manifests its consent that the Company may treat the registered
holder of this Certificate as the true owner hereof for all purposes except as limited by the Company’s Amended and Restated Limited Liability
Company Agreement, dated December 30, 2016, as the same may be amended or restated from time to time (the “ Operating Agreement ”).
THE TRANSFER OF ANY OR ALL OF THE MEMBERSHIP INTEREST REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED BY AND SUBJECT TO THE TERMS OF THE OPERATING AGREEMENT.
THE COMPANY WILL FURNISH TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE
INFORMATION AS TO THE DESIGNATIONS, RELATIVE RIGHTS AND LIMITATIONS APPLICABLE TO THE MEMBERSHIP
INTEREST IN THE COMPANY.
THE MEMBERSHIP INTERESTS (THE “ SHARES ”) REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS
1
AMENDED (THE “ FEDERAL ACT ”), OR UNDER ANY OTHER STATE SECURITIES LAWS (COLLECTIVELY, THE “ STATE
LAWS ”). THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
PLEDGED, HYPOTHECATED, TRANSFERRED OR ASSIGNED, NOR WILL ANY ASSIGNEE OR TRANSFEREE OF ANY SHARES
BE RECOGNIZED BY THE COMPANY AS HAVING ANY INTEREST IN THE COMPANY, IN THE ABSENCE OF EITHER (1) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE FEDERAL ACT AND ANY STATE LAWS, OR (2) AN
OPINION OF COUNSEL PROVIDED TO THE COMPANY BY COUNSEL AND IN FORM, SUBSTANCE AND SCOPE ACCEPTABLE
TO THE COMPANY TO THE EFFECT THAT THE REGISTRATION IS NOT REQUIRED UNDER THE FEDERAL ACT AND THE
STATE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
FEDERAL ACT AND THE STATE LAWS.
[remainder of the page intentionally blank]
2
IN WITNESS WHEREOF, the Company has executed this Certificate as of [
].
The Company:
19TH CAPITAL GROUP, LLC,
a Delaware limited liability company
By:
Name:
Title:
Address:
9702 East 30 th Street
Indianapolis, IN 46229
Attention: President
with copies to:
[
]
and
[
Attachment: Endorsement
]
ENDORSEMENT
FOR VALUE RECEIVED, [
], a [
], the registered holder, hereby assigns, transfers, conveys, and delivers unto
___________________________________________ [ ] percent ([ ]%) of the membership interest in 19 TH CAPITAL GROUP, LLC , a
Delaware limited liability company, (the “ Company ”), standing in its name on the books of said Company represented by Certificate No.
[ ] herewith and does hereby irrevocably constitute and appoint _______________________ attorney to transfer the said member interest on
the books of the within named Company with full power of substitution in the property.
Dated: ____________, 20__
[
]
By:
Name:
Title:
Address:
[ ]
with copies to:
[
]
and
[
]
SCHEDULE C
MANAGERS
1.
2.
3.
4.
Bradley D. Nullmeyer
Robert M. Watters
Paul Will
William Meek
SCHEDULE D
OFFICERS
1. Harry Dugan, CEO and President
2. Gregory Burke, COO
3. Beau Zoeller, Vice President and Secretary
SCHEDULE E
PROHIBITED TRANSFEREE
Any third party transferee that is not a Permitted Transferee, where the Board has reasonably designated such third party as a Prohibited
Transferee before the time of the applicable transfer.
Back to Form 10-Q
Exhibit 10.4
SERVICE AGREEMENT
THIS SERVICE AGREEMENT, dated as of December 30, 2016 (this “ Agreement ”), is entered into by and between 19 th Capital
Group, LLC, a Delaware limited liability company (“ 19 th Capital ”), and Quality Companies, LLC, an Indiana limited liability company (“
Quality ”).
WHEREAS, 19 th Capital is engaged in the business of, among other matters, purchasing, financing, leasing and otherwise dealing
with tractors, trailers and other equipment used in the trucking and logistics industry (each a “ Vehicle ” and collectively, the “ Vehicles ”), and
in the course of its business, 19 th Capital from time to time purchases and finances Vehicles from original equipment manufacturers (“ OEMs
”) and enters into lease/finance arrangements with independent owners-operators (each an “ Independent Operator ” and collectively, “
Independent Operators ”), either directly or through partner carrier programs (“ PC Managed Fleets ”) and commercial trucking companies
(each a “ Fleet ” and collectively the “ Fleets ”), for the lease and/or financing of Vehicles for use in their commercial trucking businesses;
WHEREAS, Quality is engaged in the business of providing certain administrative, maintenance and other related services with
respect to Vehicles and related lease transactions;
WHEREAS, Quality has a network of Independent Operators, PC Managed Fleets, and Fleets which from time to time wish to
purchase, finance, and/or lease Vehicles for use in their commercial trucking businesses; and
WHEREAS, the parties desire to enter into this Agreement to set forth the terms and conditions under which Quality will provide
certain administrative, maintenance and other related services for 19 th Capital with respect to Vehicles acquired by 19 th Capital from OEMs,
and the related lease transactions entered into in connection therewith, on the terms and conditions further described in this Agreement.
NOW, THEREFORE, in consideration of the agreements and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1
Definitions . For purposes of this Agreement, the following words and phrases shall have the following meanings,
unless the context clearly requires otherwise:
(a)
“ Lease Documents ” means, with respect to any Lease Transaction, a lease and/or financing agreement for the
financing, acquisition, or lease of one or more Vehicles, as the case may be, by and between 19 th Capital, as lessor or lender, and Independent
Operators or Fleets, as Lessees/Borrowers, together with any financing statements, schedules, insurance certificates, and any and all
agreements, titles, instruments and other documents entered into and executed in connection therewith.
(b)
“ Lease Transaction ” means a lease or financing transaction arranged by Quality under this Agreement between
19 th Capital, as the lessor or lender, and the applicable Independent Operator, PC Managed Fleet, or Fleet, as the Lessee/Borrower, with
respect to one or more Vehicles.
(c)
“ Lessee/Borrower ” means, with respect to each Lease Transaction, the applicable Independent Operator either
directly or through PC Managed Fleets or Fleet.
ARTICLE II
LEASING SERVICES
Section 2.1
Vehicle Leasing Plans, Etc . From time to time during the term of this Agreement, Quality and 19 th Capital may
develop vehicle leasing or financing plans (each a “ Lease Plan ”) setting forth the terms for the placement of certain Vehicles under Lease
Transactions. Each Lease Plan shall set forth (i) the number Vehicles to be placed by Quality under such Lease Plan; (ii) the make, model,
year and VIN of each such Vehicle (the “ Vehicle Description ”); (iii) the anticipated timing needs for delivery of such Vehicles; (iv) the names
and other identifying information for the applicable Independent Operators, the PC Managed Fleets, and/or Fleets, if available; (v) the
financing or leasing terms for the applicable Vehicles, including the term(s) (in months), interest rate or implied interest rate, as applicable, and
the monthly payment streams to be derived from the applicable leases (collectively, the “ Material Terms ”); and (vi) any other material
information related to such Lease Plan. Each Lease Plan shall be subject to review and approval by 19 th Capital in its sole discretion. Each
Lease Plan shall be governed by and construed in accordance with the terms of this Agreement; provided, however, that a Lease Plan may
contain certain terms and conditions applicable specifically to such Lease Plan, and in the event of a conflict between this Agreement and any
applicable Lease Plan, the applicable Lease Plan shall control. For each approved Lease Plan, 19 th Capital may elect to procure the applicable
Vehicles from OEMs, on terms and conditions satisfactory to 19 th Capital in its sole discretion.
Section 2.2
Leasing Services and Related Matters . During the term of this Agreement, Quality shall cause the Vehicles
acquired by 19 th Capital in connection with each Lease Plan to be leased to qualified Lessees/Borrowers in a prudent and efficient manner, as
approved by 19 th Capital, and shall be responsible for setting up and administering the leasing or financing process, as applicable, through the
performance of the following services:
(a)
Credit Review . For each proposed Lease Transaction with a Lessee/Borrower, Quality will coordinate and
administer the credit review and application procedures. Quality shall obtain the following for each Lease Transaction originated by Quality
hereunder: (i) a full and complete Lease Transaction application (“ Application ”) from such prospective Lessee/Borrower, which shall be in
substantially the form approved by 19 th Capital; (ii) the Vehicle Description for each Vehicle subject to the proposed Lease Transaction; (iii)
the proposed Material Terms of the proposed Lease Transaction; (iv) upon request by 19 th Capital (and to the extent such information can be
reasonably obtained by Quality), such other credit and financial data as 19 th Capital may reasonably request (e.g., background check, driving
history, safety records, or criminal record investigation); and (v) the credit profile and such other credit and financial data as 19 th Capital may
require with respect to each proposed Fleet and/or any
2
owner/operator operating under such the PC Managed Fleet or Fleet. Without limiting the foregoing, 19 th Capital requires Quality to obtain
(x) a complete driving record and background check to be conducted on each prospective Independent Operator in accordance with all State
and Federal regulations for over-the-road delivery for each prospective Independent Operator in order to complete its credit review, and (y) an
inquiry on the name(s) of all Lessees/Borrowers (fictitious and otherwise), principals and guarantors as to their identification as a “specially
designated national” as defined by the United States Treasury’s Office of Foreign Assets Control (OFAC), utilizing the most recently published
OFAC list of Specially Designated Nationals.
(b)
Risk Acceptance Criteria . All prospective Lessees/Borrowers shall be required to meet 19 th Capital’s risk
acceptance criteria (“ RAC ”) as established by 19 th Capital from time to time and provided to Quality in writing. 19 th Capital may from
time to time modify the requirements for credit approval of prospective Lessees/Borrowers on such terms as may be determined by 19 th
Capital in its sole discretion and provide such modifications to Quality in writing.
(c)
Lease Documents . With respect to each qualified and approved Lessee/Borrower, Quality will coordinate and
administer the preparation, execution and delivery of all applicable Lease Documents, which shall incorporate the terms and conditions for
each Lease Transaction (including the Material Terms) in accordance with the applicable Lease Plan. 19 th Capital shall provide Quality with
forms of its standard Lease Documents to be used for all Lease Transactions. All qualified and approved Lessees/Borrowers shall be required to
execute 19 th Capital’s standard forms of Lease Documents and all other Lease Documents required by 19 th Capital in connection
therewith. 19 th Capital may from time to time modify its standard forms of Lease Documents as may be determined by 19 th Capital in its
sole discretion, and 19 th Capital shall provide the modified forms of Lease Documents to Quality. If a Lessee/Borrower requests any material
deviation from the standard Lease Documents, all such adjustments must be approved in writing by 19 th Capital. Lease Documents will be
signed by an authorized representative of 19 th Capital or an authorized representative of Quality, acting as agent of 19 th Capital pursuant to a
power of attorney which has been duly executed and approved by 19 th Capital. Quality shall provide 19 th Capital the originally executed
copies of all Lease Documents promptly following the execution thereof and shall maintain an electronic data base of such documents,
accessible by 19 th Capital at all times.
Section 2.3
Conditions Precedent to the Acceptance of a Lease Transaction. The agreement of 19 th Capital to accept any
Lease Transaction hereunder shall be subject to the satisfaction of the following conditions precedent, which conditions may change from time
to time in 19 th Capital’s sole discretion upon written notice to Quality:
(a)
19 th Capital’s receipt of all required credit information of each Lessee/Borrower, including, without limitation, a
full and complete Application, and Quality’s credit approval of each Lessee/Borrower;
(b)
19 th Capital’s receipt of all Lease Documents, which shall have been prepared in accordance with and properly
reflect the terms of the applicable Lease Plan, duly executed by the Lessee/Borrower; and
3
(c)
19 th Capital’s confirmation that the Lessee/Borrower has accepted the Vehicle(s) subject to the requested Lease
Transaction.
Section 2.4
Representations Regarding Lease Transactions. With respect to each finalized Lease Transaction and the related
Lease Documents, Quality represents, warrants and covenants that the following shall be true and correct:
(a)
Each Lease Transaction shall be originated by Quality in the ordinary course of Quality’s business in connection
with the lease and/or financing of one or more new or used Vehicles intended for commercial or other business use.
(b)
All credit information concerning the Lessee/Borrower given to Quality and relative to Quality’s evaluation of
each applicable Application, has been disclosed to 19 th Capital (including information of any fact or circumstance which would constitute a
default, or which, with the passage of time or giving of notice, or both, would constitute a default, under any Lease Transaction), and Quality
has not altered or withheld any credit information concerning the Lessee/Borrower given to 19 th Capital and relative to Quality’s evaluation of
such Application.
(c)
Quality’s conduct in soliciting or arranging each Lease Transaction has not violated in any material respect any
federal or state law, rule, or regulation.
(d)
Quality has made no representations or warranties to the applicable Lessee/Borrower with respect to any Vehicle,
Lease Transaction or Lease Documents, except as may be set forth in the applicable Lease Documents.
Section 2.5
Insurance Matters . Quality will obtain and provide to 19 th Capital, upon request, proof of insurance from each
Lessee/Borrower with respect to each Vehicle subject to an active Lease Transaction as required in the applicable Lease Documents .
ARTICLE III
ADMINISTRATIVE SERVICES; MAINTENANCE SERVICES;
REMARKETING AND SALES; REPORTING; ETC.
Section 3.1
Lease Administration . During the term of this Agreement, Quality shall be responsible for the administration and
performance of all Lease Transactions and Lease Documents through performance of the following services according to Quality’s
commercially reasonable business judgment:
(a)
administer and enforce all rights and remedies of 19 th Capital as the lessor, lender, secured party, payee,
beneficiary, seller or creditor under and in the Lease Transactions and Lease Documents, however designated; provided, however, that Quality
will not take any action or omit to take any action, which would cause a breach or default under the applicable Lease Documents by 19 th
Capital or which will cause the Lease Transaction or any related document to become invalid, cancelable, or unenforceable as a result
therefrom;
(b)
fulfill and perform all obligations, covenants, liabilities, warranties and duties of 19 th Capital in accordance with
the terms of the Lease Documents;
4
(c)
act as billing and collecting agent for the benefit of 19 th Capital, including, without limitation, using
commercially reasonable efforts to collect and receive all payments due and to become due under the Lease Documents and consistent with the
Material Terms of the applicable Lease Plan (including all lease payments, end of term payments or other remittances) on behalf of 19 th
Capital and remitting the same to 19 th Capital weekly each Friday (or, if such day is not a business day, the next business day), in each case by
depositing all such payments received into the specified bank accounts of 19 th Capital, provided, however, in no event will Quality be
responsible for remitting to 19 th Capital more than the amounts received by Quality from the Lessees/Borrowers;
(d)
at the direction of 19 th Capital, coordinate the payment, as and when due, of all taxes, levies, imposts, duties,
fees, or other charges or assessments levied, imposed or assessed against each Vehicle, Lease Transaction, and Lease Document, including any
interest, additions or penalties applicable thereto (collectively, “ Taxes ”), and the filing of all related tax returns, reports and filings required in
connection therewith (“ Tax Filings ”);
(e)
ensure that the Vehicles are properly titled at all times, including the coordination and administration of all titling
and retitling activities with respect to the applicable Vehicles and any applicable lien applications, releases, etc.;
(f)
assist in the delivery of the Vehicle(s) to the applicable Lessee/Borrower in connection with each Lease
Transaction (including providing transportation and lodging to owner/operators in connection with the pick-up and delivery of Vehicle(s),
consistent with Quality’s historical practices);
(g)
not agree to any material amendments, waivers or modifications of the Lease Documents or Material Terms of the
Lease Plan, without the prior written consent of 19 th Capital. A material amendment, waiver or modification includes, without limitation, any
amendment, waiver or modification that would (i) change the amount, due date, interest rate or rental rate or prepayment fee, (ii) waive any
provision of a Lease Transaction (including any change in any time period) prohibiting prepayment in whole or in part, or reduce the
outstanding principal amount or imputed principal balance, (iii) release, or agree to the substitution or exchange of any collateral for, any
portion of the Lease Transaction or release the liability of any person or entity liable for any payment on any Lease Transaction, (iv) release
any Lessee/Borrower from any of its obligations to make any payment with respect to any Lease Transaction, or (v) in any way extend or
otherwise restructure the payment terms or any other term or condition of any Lease Document;
(h)
not unreasonably impair the rights or breach the quiet enjoyment of any Lessee/Borrower under the Lease
Documents;
(i)
not create any lien, security interest or other encumbrance against any Vehicle or Lease Document except as may
be explicitly permitted by 19 th Capital in writing;
(j)
comply with its credit and collection policies with respect to the Lease Transactions, which policies shall be
commercially reasonable, agreed to by 19 th Capital, including updates from time to time, and in compliance in all material respects with
applicable
5
laws and consistent with customary policies of similar companies in the equipment finance and leasing industries;
(k)
pursue the interests of 19 th Capital in the same manner it would pursue its own interests in the exercise of any
remedies available under the Lease Documents, without discrimination; and
(l)
promptly provide to 19 th Capital copies of any notices and material information received by Quality in connection
with any Lease Transaction or Vehicle.
Section 3.2
Maintenance Services . During the term of this Agreement, 19 th Capital will be responsible for ensuring the
proper maintenance of Vehicles and for all costs and expenses relating thereto, with the method of carrying out such responsibility to be
covered in the Business Plan. It is agreed that 19 th Capital may engage Quality to manage the oversight of maintenance services on
commercially reasonable and mutually agreed terms, to the extent approved by the 19 th Capital Board of Managers or contained in the
Business Plan so approved.
Section 3.3
Remarketing and Sale Services . During the term of this Agreement, Quality shall be responsible for coordinating
the remarketing and eventual sale of the Vehicles through the performance of the following services according to Quality’s commercially
reasonable business judgment :
(a)
In the event of a default under or termination of a Lease Transaction, Quality shall promptly notify 19 th Capital
of such event and Quality’s proposed course of conduct with respect to such Lease Transaction and the related Vehicle(s). At the request of 19
th Capital, Quality shall provide all relevant information with respect to such Lease Transaction and the related Vehicle(s), including Quality’s
calculations of the current fair market value and the current Net Book Value (as hereinafter defined) of the applicable Vehicle(s). Following
consultation with Quality, 19 th Capital may instruct Quality in writing to (i) sell the applicable Vehicle(s), (ii) remarket and re-lease the
applicable Vehicle(s), or (iii) take such other action as 19 th Capital may reasonably direct. For purposes of this Agreement, the “ Net Book
Value ” of a Vehicle shall be the amount carried in the books and records of 19 th Capital.
(b)
If 19 th Capital determines that the applicable Vehicle(s) should be remarketed and re-leased, Quality shall use
commercially reasonable efforts on a basis no less favorable than used for other customers of Quality to remarket such Vehicle(s) and obtain a
new Lessee/Borrower to enter into a Lease Transaction for the applicable Vehicle(s) on the terms set forth in this Agreement. When a new
Lessee/Borrower is found with respect to a remarketed Vehicle, the Lessee/Borrower shall enter into a new Lease Transaction with 19 th
Capital, as lessor or lender thereunder, and Quality shall deliver all original Lease Documents evidencing said new Lease Transaction to 19 th
Capital.
(c)
If 19 th Capital determines that the applicable Vehicle(s) should be sold or otherwise disposed of, then Quality
shall cause such Vehicle(s) to be sold or otherwise disposed of on terms and conditions reasonably satisfactory to 19 th Capital. If the Vehicle
is sold, the proceeds from the sale of the Vehicle less any and all unreimbursed out-of-pocket costs and expenses incurred by Quality not to
exceed any limitation contained in the Business Plan without
6
19 th Capital’s prior written consent to prepare such Vehicle for sale shall be distributed to 19 th Capital within two business days following
Quality’s receipt of such proceeds.
Section 3.4
Reporting Requirements . During the term of this Agreement, Quality shall provide to 19 th Capital the following
reports each month, by the 10 th business day following the end of the preceding month (each to be in form and substance reasonably
acceptable to 19 th Capital):
(a)
a report showing, by Lease Transaction, the actual cash collected during the month from applicable
Lessee/Borrower;
(b)
a delinquency report sorted by Lessee/Borrower;
(c)
a report showing all gains and losses on sales of Vehicles for the previous month;
(d)
a data file in electronic form reflecting all gross balances due for each Lease Transaction;
(e)
an inactive report which reflects the Vehicles which are not subject to a Lease Transaction at the end of each
month ;
(f)
a maintenance report showing expenses related to repairs and other maintenance performed by Quality or any
other party in such month and year to date; the report shall also show any out-of-warranty and in-warranty repairs and any warranty remaining;
(g)
a re-seating report showing all Vehicles that were re-seated during such month, and all costs and expenses related
to such re-seating activities; and
(h)
Section 3.5
such other reports as may be reasonably requested by 19 th Capital from time to time.
Books and Records; Access; Etc.
(a)
Quality, at Quality’s expense, shall provide access to and furnish 19 th Capital with records of collections and
remittances in respect of the Lease Transactions to enable 19 th Capital to keep its books and records in accordance with United States
generally accepted accounting principles. The books of account and all other records relating to the Lease Transactions (including files,
correspondence, bank statements, accounting books and records, electronic data, insurance policies, lease documents, credit records, contact
information, payment histories, collection data and other documents and agreements related to Quality’s services under this Agreement and/or
the Lease Transactions contemplated hereby) (collectively, the “ Business Records and Information ”) shall be the property of 19 th Capital at
all times. Upon any termination of this Agreement for any reason, Quality shall promptly turn over all of such Business Records and
Information, in the form in which Quality possesses such Business Records and Information, to 19 th Capital, provided that nothing herein
shall require Quality to destroy, transfer, delete or modify any backup tapes or other media made pursuant to backup or archival processes in
the ordinary course of business, nor prohibit Quality from keeping an
7
archival copy of Business Records and Information for regulatory, legal and compliance purposes in accordance with its document retention
policies designed to achieve compliance with applicable law and regulation.
(b)
19 th Capital shall have the right at all times during normal business hours, and on reasonable advance notice to
Quality, to audit, examine, and make copies of or extracts from all business records, books, bank accounts, electronically or otherwise,
maintained by Quality with respect to the Lease Transactions and any other matters contemplated by this Agreement, and such right may be
exercised through any employee, representative, or agent of 19 th Capital, including any designee of Element approved by 19 th Capital. 19 th
Capital and all of its duly authorized employees, agents and representatives shall have authority to communicate with the senior management,
employees, accountants and other agents of Quality regarding the Lease Transactions and the services provided by Quality under this
Agreement.
Section 3.6
(a)
under this Agreement;
Other Covenants and Agreements . In connection with its services hereunder, Quality shall:
comply with all laws, rules and regulations applicable to Quality and or the services to be provided by Quality
(b)
preserve its existence as a limited liability company, duly organized, validly existing and in good standing, under
the laws of its state of formation; and
(c)
provide to 19 th Capital (i) copies of its audited yearly financial statements within ninety (90) days after the end of
each fiscal year, (ii) copies of its internally prepared quarterly financial statements within forty-five (45) days after the end of each fiscal
quarter, (iii) copies of its internally prepared monthly financial statements within thirty (30) days after the end of each month, and (iv) such
other financial statements and reports as may be reasonably requested by 19 th Capital from time to time, including any information or reports
that may be required by 19 th Capital’s lenders or other financing sources.
ARTICLE IV
COSTS AND EXPENSES TO BE PAID BY 19 TH CAPITAL
Section 4.1
During the term of this Agreement, 19 th Capital shall pay and/or reimburse Quality, not later than the 15 th day of
each month (or, if the 15 th day is not a business day, the next business day), for all reasonable and documented out-of-pocket expenses
incurred by Quality in connection with (a) the repair and maintenance of the Vehicles, which are not otherwise covered by warranty or paid by
the applicable Lessee/Borrower, (b) the repossession, recovery and relocation expenses of the Vehicles, (c) the refurbishment and re-seating of
any Vehicle, (d) the costs relating to Quality’s LeaseWave software, (e) any other direct costs relating to the Vehicles and (f) the performance
of obligations, covenants, liabilities, warranties or duties under this Agreement. Within 30 days of the date of this Agreement, 19 th Capital
shall reimburse Quality in the amount of $218,425 for costs relating to the LeaseWave software that were incurred by Quality on behalf of 19
th Capital before the date of this Agreement. Notwithstanding the foregoing, Quality shall obtain the prior approval of 19 th Capital prior to
8
incurring any such costs or expenses in excess of the amount set forth in the Business Plan per Vehicle per occurrence.
ARTICLE V
SERVICE FEES, ETC.
Section 5.1
Service Fees . As compensation for Quality’s services under this Agreement (including, without limitation,
services related to the servicing, remarketing, and re-leasing of Vehicles), 19 th Capital shall pay to Quality, (a) for the first twelve (12) months
following the date of this Agreement, not later than the 15 th day of each such month (or, if the 15 th day is not a business day, the next
business day), a monthly service fee equal to $150 for each Fleet Vehicle and for each Independent Operator or PC Managed Fleet Vehicle per
Vehicle per month, with such amount being due for any Vehicle that is owned, leased, or used in the business of 19th Capital in any such
month, without proration for any partial month; and (b) after the first twelve (12) months following the date of this Agreement, such amount
and at such time, as determined by the board of managers of the 19 th Capital (it being understood that the board of managers of the 19 th
Capital shall, at least semi-annually, review and make appropriate adjustment of the service fee, taking into consideration the time and efforts
spent by Quality with respect to each Vehicle).
ARTICLE VI
TERM AND TERMINATION;
Section 6.1
Term . The term of this Agreement shall commence on the date hereof and continue until terminated in
accordance with this Agreement.
Section 6.2
Termination . This Agreement may be terminated only upon 90 days’ written notice after the approval by the
Managers (as defined in the limited liability company agreement of 19 th Capital) of 19 th Capital who were appointed by Element
Transportation LLC (“ Element ”).
(a)
upon mutual agreement of the parties hereto;
(b)
by either party if the other party enters into or is placed in bankruptcy or receivership, becomes insolvent, or
makes as assignment for the benefit of its creditors; or
(c)
Section 6.3
by either party on ninety (90) days prior written notice.
Effects of Termination .
(a)
In the event of any termination of this Agreement in accordance with the terms hereof, the parties hereto shall
(except as may otherwise be expressly provided herein) be relieved of any obligations hereunder accruing on or after such termination;
provided, however, that (i) the indemnity obligations described in Section 8.1 hereof accruing before, on or after such termination and (ii) all
obligations with respect to compensation and expenses due to or from the parties for periods up to the date of termination, shall survive any
such termination; and any breaching party shall continue to remain liable for any damages resulting from such party’s breach.
9
(b)
Upon the termination of this Agreement, Quality shall:
(i)
promptly make available to 19 th Capital any and all properties and assets of 19 th Capital within the
possession of Quality, including all Business Records and Information, but excluding the Vehicles of the Lessees/Borrowers, and it will apprise
19 th Capital of the last known location of any inactive Vehicles;
(ii)
remit to 19 th Capital the balance (if any) of any funds of 19 th Capital held by Quality; and
(iii)
at 19 th Capital’s expense, do all other acts and execute and deliver all documents reasonably requested
by 19 th Capital in connection with the termination of this Agreement, and otherwise use commercially reasonable efforts to cooperate with 19
th Capital and any successor servicer to facilitate the orderly transition and continuation of the Lease Transactions and the servicing thereof.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.1
Representations and Warranties of Quality . Quality hereby makes the following representations, warranties and
covenants to 19 th Capital:
(a)
Quality is an Indiana limited liability company, duly organized, validly existing and in good standing under the
laws of the State of Indiana and is duly licensed and qualified to engage in its regular course of business in each jurisdiction in which the
character of its properties or the nature of its activities requires such qualifications.
(b)
Quality has full power and authority to enter into this Agreement and to take any action and execute any
documents required by the terms hereof and thereof. The execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary limited liability company proceedings of Quality. Assuming the due
authorization and execution of this Agreement by 19th Capital, this Agreement constitutes the legal, valid and binding obligations of Quality,
enforceable against Quality in accordance with the terms hereof.
(c)
No consent, approval, authorization, order, registration or qualification of, or with, any person, or of, or with, any
court or regulatory authority or other governmental body (collectively, “ Governmental Authorities ”) having jurisdiction over Quality, the
absence of which would adversely affect the legal and valid execution, delivery and performance by Quality of this Agreement or the
documents and instruments contemplated hereby or thereby, or the taking by Quality of any actions contemplated herein or therein, is
required. Notwithstanding the foregoing, Quality shall be solely responsible for the procurement, to the extent necessary, of all approvals and
consents with respect to Quality in connection with the transactions contemplated herein from Governmental Authorities and shall bear all
responsibility and/or liability resulting from any failure to procure any said approvals and/or consent.
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(d)
Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby
or thereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement by Quality, conflicts with or results in a breach
of or a default under any of the terms, conditions or provisions of any legal restriction (including, without limitation, any judgment, order,
injunction, decree or ruling of any court or governmental authority, or any federal, state, local or other law, statute, rule or regulation) or any
material covenant or agreement or instrument to which Quality is now a party, or by which Quality or any of Quality’s property is bound, nor
does such execution, delivery, consummation or compliance violate or result in the violation of the certificate of formation, limited liability
company agreement or any other organizational document or agreement of Quality.
(e)
No action, arbitration, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) is pending or, to the knowledge of Quality, threatened against Quality challenging the lawfulness of the transactions contemplated
herein and/or seeking to prevent or delay the transactions contemplated herein.
(f)
No person acting on behalf of Quality is or will be entitled to any brokers’ or finders’ fee or any other commission
or similar fee, directly or indirectly, for the transactions hereunder.
Section 7.2
Representations and Warranties of 19 th Capital . 19 th Capital hereby represents and warrants to Quality as
follows:
(a)
19 th Capital is a Delaware limited liability company in good standing in the State of Delaware and is duly
licensed and qualified to engage in the regular course of business in each jurisdiction in which the character of its properties or the nature of its
activities requires such qualification.
(b)
19 th Capital has full power and authority to enter into this Agreement and to take any action and execute any
documents required by the terms hereof and thereof. The execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary limited liability company proceedings of 19 th Capital. Assuming the due
authorization and execution of this Agreement by Quality, this Agreement constitutes the legal, valid and binding obligations of 19 th Capital,
enforceable against 19 th Capital in accordance with the terms hereof and thereof.
(c)
No consent, approval, authorization, order, registration or qualification of, or with, any person, or of, or with, any
Governmental Authorities having jurisdiction over 19 th Capital, the absence of which would adversely affect the legal and valid execution,
delivery and performance by 19 th Capital of this Agreement or the documents and instruments contemplated hereby or thereby, or the taking
by 19 th Capital of any actions contemplated herein or therein, is required. Notwithstanding the foregoing, 19 th Capital shall be solely
responsible for the procurement, to the extent necessary, of all approvals and consents with respect to 19 th Capital in connection with the
transactions contemplated herein from Governmental Authorities and shall bear all responsibility and/or liability resulting from any failure to
procure any said approvals and/or consent.
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(d)
Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby
or thereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement by 19 th Capital, conflicts with or results in a
breach of or a default under any of the terms, conditions or provisions of any legal restriction (including, without limitation, any judgment,
order, injunction, decree or ruling of any court or governmental authority, or any federal, state, local or other law, statute, rule or regulation) or
any material covenant or agreement or instrument to which 19 th Capital is now a party, or by which 19 th Capital or any of 19 th Capital’s
property is bound, nor does such execution, delivery, consummation or compliance violate or result in the violation of the certificate of
formation, limited liability company agreement or any other organizational document or agreement of 19 th Capital.
(e)
No action, arbitration, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) is pending or, to the knowledge of 19 th Capital, threatened against 19 th Capital challenging the lawfulness of the transactions
contemplated herein and/or seeking to prevent or delay the transactions contemplated herein.
(f)
No person acting on behalf of 19 th Capital is or will be entitled to any brokers’ or finders’ fee or any other
commission or similar fee, directly or indirectly, for the transactions hereunder.
ARTICLE VIII
INDEMNIFICATION OBLIGATIONS .
Section 8.1
General Indemnification . Each party hereto (the “ Indemnifying Party ”) hereby agrees to indemnify, defend and
hold harmless the other party (the “ Indemnified Party ”), its successors and assigns, from and against any and all suits, claims, liabilities,
counterclaims, actions, damages, penalties, losses, costs or expenses (including, without limitation, reasonable attorneys’ fees, expenses and
court costs) of any kind which the Indemnified Party shall suffer as a result of or arising out of (a) any material breach by the Indemnifying
Party of any warranty, representation, covenant or agreement contained in this Agreement, any other document executed by the parties in
connection herewith, or contained in any Lease Document, (b) any material misrepresentation in, or omission from, any statement, certificate,
exhibit, schedule or other agreement, instrument or document prepared and delivered or to be delivered by the Indemnifying Party pursuant to
this Agreement, (c) any gross negligence or intentional misconduct of the Indemnifying Party or of any agent or employee of the Indemnifying
Party in respect of the performance of its obligations under this Agreement. In no event will the Indemnifying Party’s duty to indemnify apply
to the extent that any claims are attributable to the Indemnified Party’s own gross negligence or intentional misconduct or breach of any Lease
Document by any Lessee/Borrower.
Section 8.2
Survival . The obligations under this Article VIII shall survive the execution of this Agreement and the
consummation of the transactions contemplated hereunder.
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ARTICLE IX
MISCELLANEOUS
Section 9.1
Further Assurances . Each party shall, and hereby agrees to, execute and deliver such further documents and
instruments and will take such other actions as the other party may reasonably request in order to effectuate the purposes and terms of this
Agreement.
Section 9.2
Independent Contractor . Nothing herein shall create any association, partnership, joint venture or the relation of
principal and agent between the parties hereto, it being understood that each party is acting as an independent contractor, and neither party shall
have the authority to bind the other or the other's representatives in any way, except as expressly set forth herein.
Section 9.3
Successor and Assigns . 19 th Capital shall have the absolute right, without requiring Quality’s consent, to assign
all or any of its rights or delegate all or any of its duties hereunder. Without limiting the foregoing, Quality agrees and acknowledges that (i)
19 th Capital has established 19 th Capital Titling Limited (the “ 19 th Trust ”) for the purpose of holding title to certain Vehicles and entering
into Lease Transactions with respect to such Vehicles, (ii) the 19 th Trust shall be a direct beneficiary of 19 th Capital’s rights and interests
under this Agreement with respect to any such Vehicles and Lease Documents held by the 19 th Trust, and (iii) 19 th Capital may assign any
and all of its rights and obligations under this Agreement to the 19 th Trust (or any other trust or entity established by 19 th Capital to hold any
Leases Documents and/or titles to Vehicles subject thereto), and/or to one or more parties providing financing for the Vehicles and/or Lease
Transactions. Without limiting the foregoing, Quality further agrees and acknowledges that (i) Element Transportation Asset Trust, a Delaware
statutory trust and an affiliate of Element (the “ Element Trust ”) holds the title to certain Vehicles as of the date of this Agreement, (ii) the
Element Trust shall be a direct beneficiary of Element’s rights and interests under this Agreement with respect to any such Vehicles and Lease
Documents held by the Element Trust, and (iii) Element may assign any and all of its rights and obligations under this Agreement to (A) the
Element Trust (or any other trust or entity wholly owned by Element and established by Element to hold any Leases Documents and/or titles to
Vehicles subject thereto), provided that Element shall remain responsible for all duties so delegated and no such assignment or delegation by
Element shall relieve Element of any of its obligations or liabilities hereunder and/or (B) one or more entities providing financing for such
Vehicles and/or Lease Transactions, with the prior written consent of 19 th Capital, which c onsent shall not be unreasonably withheld or
delayed, provided that Element shall remain responsible for all duties so delegated and no such assignment or delegation by Element shall
relieve Element of any of its obligations or liabilities hereunder. Quality may not assign all or any of its rights or delegate all or any of its duties
hereunder and thereunder without the prior written consent of 19 th Capital (except that Quality may assign any or all of its rights or
responsibilities it has in this agreement to a subsidiary or controlled Affiliate of Quality without 19 th Capital’s prior written consent), which c
onsent shall not be unreasonably withheld or delayed, provided that Quality shall remain responsible for all duties so delegated and no such
assignment or delegation by Quality shall relieve Quality of any of its obligations or liabilities hereunder.
Section 9.4
Payments In Immediately Available Funds; Right to Setoff . Each payment to be made hereunder shall be made
on the required payment date in lawful money of
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the United States and in immediately available funds. In addition to any other rights hereunder or otherwise, (a) to the extent Quality fails to
make timely payment of any amounts owed to 19 th Capital pursuant to this Agreement (“ Quality Late Payments ”), 19 th Capital shall be
entitled to set off the amount of Quality Late Payments against any amounts 19 th Capital would otherwise be required to pay to Quality
pursuant to this Agreement and (b) to the extent 19 th Capital fails to make timely payment of any amounts owed to Quality pursuant to this
Agreement (“ 19 th Capital Late Payments ”), Quality shall be entitled to set off the amount of 19 th Capital Late Payments against any
amounts otherwise required to be paid to 19 th Capital pursuant to this Agreement. In the case of any such setoff, Quality’s or 19 th Capital’s
obligation, as applicable, to make such Quality Late Payments or 19 th Capital Late Payments (or any portion thereof), as applicable, shall be
deemed satisfied and discharged to the extent of such setoff.
Section 9.5
Rights Cumulative . All rights, remedies and powers granted to 19 th Capital hereunder, under any Lease
Document and under any other agreement executed by the parties in connection herewith are irrevocable and cumulative, and not alternative or
exclusive, and shall be in addition to all other rights, remedies and powers given hereunder and thereunder, or in or by any other instrument, or
available in law or equity.
Section 9.6
Waivers . No failure or delay on the part of 19 th Capital or Quality in exercising any power, right or remedy
under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any
other or further exercise thereof or the exercise of any other power, right or remedy.
Section 9.7
Notices . Any notice to be given hereunder shall be given in writing and shall be deemed given: (a) when received
if given in person, (b) on the date of transmission (upon confirmation of receipt) if sent by electronic mail or facsimile, (c) three days after
being deposited in the U.S. mail, certified or registered mail, postage prepaid, and (d) if sent by an nationally recognized overnight delivery
service, the second day following the date given to such overnight delivery service (specified for overnight delivery). All notices shall be
addressed as follows (or at such other address for a party as shall be specified by like notice):
If to Quality:
Quality Companies LLC
9702 East 30th Street
Indianapolis, IN 46229
Attn: Danny Williams, COO
Email: [email protected]
If to 19 th Capital:
19 th Capital Group, LLC
9702 East 30th Street
Indianapolis, IN 46229
Attn: Harry Dugan, President
Email: [email protected]
with copies to:
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Element Transportation LLC
c/o Element Fleet Management Corp.
161 Bay Street, 36th Floor
Toronto, Ontario M5J 2S1
Canada
Attention: General Counsel
E-mail: [email protected]
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Patrick J. Naughton
E-mail: [email protected]
Scudder Law Firm, P.C., L.L.O.
411 S. 13 th Street, Suite 200
Lincoln, NE 68508
Attention: Mark A. Scudder
E-mail: [email protected]
Section 9.8
Merger and Integration; Amendments, Etc . This Agreement and the other agreements executed by the parties in
connection herewith set forth the entire understanding of the parties relating to the subject matter hereof and thereof, and all other and/or prior
understandings, written or oral, are hereby superseded, unless referenced and/or incorporated herein, provided that notwithstanding the
foregoing, the agreements listed on Schedule 9.8 shall remain in full force and effect. This Agreement may not be modified, amended, waived,
or terminated, except in accordance with its express terms and in writing executed by 19 th Capital and Quality, or by supplement hereto as
agreed to by the parties.
Section 9.9
Headings and Cross-References . The various headings in this Agreement are included for convenience only and
shall not affect the meaning or interpretation of any provision of this Agreement. References to any Section are to such Section of this
Agreement.
Section 9.10
Governing Law . This Agreement shall be governed by the internal substantive laws of the State of Delaware,
without regard to principles of conflicts of law or choice of law.
Section 9.11
Counterparts . This Agreement may be signed in one or more counterparts (and by different parties on separate
counterparts), each of which shall be an original and all of which shall be taken together as one and the same agreement. For purposes of this
Agreement, a document (or signature page thereto) signed and transmitted by facsimile machine or electronic mail is to be treated as an original
document. The signature of any party on such document, for purposes hereof, is to be considered as an original signature, and the document
transmitted is to be considered to have the same binding effect as an original signature on an original document. At the request of any party,
any facsimile or electronically transmitted document shall be re‑executed in original form by the parties who executed the facsimile or
electronically transmitted document.
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Section 9.12
Severability . If any provision hereof, or the application of such provision to any person or circumstance or in
any jurisdiction, shall be held to be invalid or unenforceable to any extent, (i) the remainder of this Agreement shall not be affected thereby,
and each other provision hereof shall be valid and enforceable to the fullest extent permitted by law, (ii) as to such person or circumstance or in
such jurisdiction such provision shall be reformed to be valid and enforceable to the fullest extent permitted by law and (iii) the application of
such provision to other persons or circumstances or in other jurisdictions shall not be affected thereby.
Section 9.13
Survival of Duties, Warranties and Representations . Each party hereto covenants that its respective duties,
warranties and representations set forth in this Agreement and in any document delivered or to be delivered in connection herewith or
therewith, shall survive the execution of this Agreement.
Section 9.14
Jurisdiction, Forum Selection Venue; Jury Trial Waivers . 19 TH CAPITAL AND QUALITY (a) AGREE TO
SUBMIT FOR THEMSELVES, IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY
SCHEDULE OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT HEREOF OR THEREOF, TO THE
EXCLUSIVE JURISDICTION OF THE COURT OF CHANCERY OF THE STATE OF DELAWARE (OR IF SUCH JURISDICTION IS
DECLINED BY THE COURT OF CHANCERY OF THE STATE OF DELAWARE, THE FEDERAL COURTS OF THE STATE OF
DELAWARE, AND APPELLATE COURTS FROM ANY THEREOF, (b) CONSENT THAT ANY ACTION OR PROCEEDING SHALL
BE BROUGHT IN SUCH COURTS, AND WAIVE ANY OBJECTION THAT EACH MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT, (c) AGREE THAT SERVICE OF PROCESS OF ANY
SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL), POSTAGE PREPAID, TO THE APPROPRIATE PARTY AT ITS ADDRESS AS SET FORTH HEREIN, AND SERVICE MADE
SHALL BE DEEMED TO BE COMPLETED UPON RECEIPT, AND (d) AGREE THAT NOTHING HEREIN OR IN ANY EXHIBIT OR
SCHEDULE SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. 19 TH CAPITAL AND QUALITY EACH HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY
SCHEDULE AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, ANY OF THE RELATED DOCUMENTS,
ANY DEALINGS BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF, AND/OR
THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN 19 TH CAPITAL AND QUALITY.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Service Agreement to be executed by their respective duly authorized
officers as of the day and year first above written.
QUALITY:
QUALITY COMPANIES, LLC
By:
/s/ Leslie Tarble
Name: Leslie Tarble
Title: CFO
19 th CAPITAL:
19 TH CAPITAL GROUP, LLC
By:
/s/ Harry Dugan
Name: Harry Dugan
Title: President
[Signature Page to the Service Agreement]
Schedule 9.8
Existing Agreements
1.
Fleet Program Agreement, dated September 28, 2015, by and among 19 th Capital Group, LLC, Quality Companies, LLC, formerly
dba Quality Equipment Sales, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
2.
Service Agreement, dated September 28, 2015, by and among 19 th Capital Group, LLC, Quality Companies, LLC, formerly dba
Quality Equipment Sales, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales, as amended by that First Amendment
to Service Agreement, dated March 30, 2016, by and among 19 th Capital Group, LLC, Quality Companies, LLC, formerly dba
Quality Equipment Sales, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
3.
Reserve Account Agreement, dated September 28, 2015, by and among 19 th Capital Group, LLC, Quality Companies, LLC,
formerly dba Quality Equipment Sales, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
4.
Supplement to Reserve Account Agreement, dated September 28, 2015, by and among 19 th Capital Group, LLC, Quality
Companies, LLC, formerly dba Quality Equipment Sales, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
5.
Program Agreement, dated September 28, 2015, by and among 19 th Capital Group, LLC, Quality Companies, LLC, formerly dba
Quality Equipment Sales, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
6.
Portfolio Purchase and Sale Agreement, dated September 28, 2015, by and among 19 th Capital Group, LLC, Quality Companies,
LLC, formerly dba Quality Equipment Sales, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
7.
Portfolio Purchase and Sale Agreement, dated October 27, 2015, by and among 19 th Capital Group, LLC, Quality Companies, LLC,
formerly dba Quality Equipment Sales, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
8.
Portfolio Purchase and Sale Agreement, dated June 8, 2016, by and among 19 th Capital Group, LLC, Quality Companies, LLC, and
Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
9.
Portfolio Purchase and Sale Agreement, dated October 20, 2015, by and among 19 th Capital Group, LLC, Quality Companies, LLC,
formerly dba Quality Equipment Sales, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
10. Portfolio Purchase and Sale Agreement, dated December 30, 2015, by and among 19 th Capital Group, LLC, Quality Companies,
LLC, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
11. Portfolio Purchase and Sale Agreement, dated October 29, 2015, by and among 19 th Capital Group, LLC, Quality Companies, LLC,
formerly dba Quality Equipment Sales, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
12. Portfolio Purchase and Sale Agreement, dated December 23, 2015, by and among 19 th Capital Group, LLC, Quality Companies,
LLC, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
13. Servicing Agreement, dated November 16, 2015, by and between 19 th Capital Titling Limited and 19 th Capital Group, LLC.
14. 2016-A SUBI Sale Agreement, dated June 8, 2016, by and between 19 th Capital Group, LLC and 19 th Capital SPE I, LLC.
15. 2016-A SUBI Servicing Agreement, dated June 8, 2016, by and among 19 th Capital Titling Limited, 19 th Capital SPE I, LLC,
Quality Companies, LLC, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
16. Portfolio Purchase and Sale Agreement, dated September 30, 2016, by and among 19 th Capital Group, LLC, Quality Companies,
LLC, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
17. 2016-B SUBI Sale Agreement, dated September 30, 2016, by and between 19 th Capital Group, LLC and 19 th Capital SPE II, LLC.
18. 2016-B SUBI Servicing Agreement, dated September 30, 2016, by and among 19 th Capital Titling Limited, 19 th Capital SPE II,
LLC, Quality Companies, LLC, and Quality Equipment Leasing, LLC, dba Quality Equipment Sales.
Back to Form 10-Q
Exhibit 10.5
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 30, 2016
among
CELADON GROUP, INC.,
as Borrower,
CERTAIN SUBSIDIARIES OF BORROWER ,
as Guarantor,
BANK OF AMERICA, N.A.,
as Administrative Agent, Swing Line Lender
and L/C Issuer,
and
The Other Lenders Party Hereto
__________________________
BANK OF AMERICA, N.A.
as Sole Bookrunner and Sole Lead Arranger
THIRD AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (“ Third Amendment ”) is made as of
the 30th day of December, 2016, among CELADON GROUP, INC . (“ Borrower ”), the guarantors party hereto (the “ Guarantors ”), the
lenders parties hereto (the “ Lenders ”) and BANK OF AMERICA, N.A . , as Administrative Agent, Swing Line Lender and L/C Issuer.
WITNESSETH:
WHEREAS, as of December 12, 2014, the parties hereto entered into a certain Amended and Restated Credit Agreement, as amended
(as amended, the “ Agreement ”);
WHEREAS, Borrower has given notice to permanently reduce the Aggregate Commitments by $50,000,000 on a pro rata basis and
has also requested certain amendments to the Agreement; and
WHEREAS, the parties desire to further amend the Agreement, all as herein provided;
NOW, THEREFORE, in consideration of the premises, and the mutual promises herein contained, the parties agree that the
Agreement shall be, and it hereby is, amended as provided herein and the parties further agree as follows:
PART I . AMENDATORY PROVISIONS
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.01
Defined Terms . Section 1.01 of the Agreement is hereby amended by substituting the following new definitions in lieu
of the like existing definitions:
“ Base Rate ” means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 1/2 of
1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” and
(c) the Eurodollar Rate plus 1.00% (subject to the interest rate floors set forth in the definition of Eurodollar Rate). The “prime rate”
is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such
announced rate. Any change in such prime rate announced by Bank of America shall take effect at the opening of business on the day
specified in the public announcement of such change.
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“ Defaulting Lender ” means, subject to Section 2.15(b), any Lender that (a) has failed to (i) fund all or any portion of its
Loans within two Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies
Administrative Agent and Borrower in writing that such failure is the result of such Lender’s determination that one or more
conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically
identified in such writing) has not been satisfied, or (ii) pay to Administrative Agent, the L/C Issuer, the Swing Line Lender or any
other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or
Swing Line Loans) within two Business Days of the date when due, (b) has notified Borrower, Administrative Agent, the L/C Issuer
or the Swing Line Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public
statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states
that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together
with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed,
within three Business Days after written request by Administrative Agent or Borrower, to confirm in writing to Administrative Agent
and Borrower that it will comply with its prospective funding obligations hereunder ( provided that such Lender shall cease to be a
Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by Administrative Agent and Borrower), or (d)
has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had
appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged
with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or
federal regulatory authority acting in such a capacity, or (iii) become the subject of a Bail-In Action; provided that a Lender shall not
be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect
parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender
with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on
its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or
agreements made with such Lender. Any determination by Administrative Agent that a Lender is a Defaulting Lender under any one
or more of clauses (a) through (d) above, and of the effective date of such status, shall be conclusive and binding absent manifest
error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.15(b)) as of the date established therefor by
Administrative Agent in a written notice of such determination, which shall be delivered by Administrative Agent to Borrower, the
L/C Issuer, the Swing Line Lender and each other Lender promptly following such determination.
“ EBITDAR ” means, for any period, Consolidated Net Income for such period, plus, to the extent deducted in determining
Consolidated Net Income, income taxes, interest expense, depreciation and amortization and Rent Expense for such Period, plus
(minus), to the extent deducted (included) in determining Consolidated Net Income,
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losses (gains) attributed from ownership in 19 th Capital Group LLC (provided that cash distributions and dividends paid to Borrower
from 19 th Capital Group LLC shall not be subtracted from Consolidated Net Income).
“ Restricted Subsidiaries ” means (a) as of any date of determination, a Subsidiary of Borrower which (i) has annual revenues
of less than $10,000 and has total assets of less than $10,000 as of such date, determined in accordance with GAAP, or (ii) is an
Exempt Foreign Subsidiary; provided , however , if any entity identified in clause (i) above hereafter has annual revenues of $10,000
or more or acquires total assets of $10,000 or more, such entity shall cease to be a Restricted Subsidiary, (b) Zipp Realty, LLC for so
long as it is a single asset purpose entity and (c) Transportation Insurance Services, RRG, Inc. for so long as it is restricted from being
a guarantor to meet the minimum surplus requirements imposed by the South Carolina Department of Insurance.
Section 1.01 of the Agreement is hereby amended by adding the following new definitions to the Agreement:
“ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution
Authority in respect of any liability of an EEA Financial Institution.
“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU
of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from
time to time which is described in the EU Bail-In Legislation Schedule.
“ EEA Financial Institution ” means (a) any credit institution or investment firm established in any EEA Member Country
which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a
parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country
which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with
its parent.
“ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“ EEA Resolution Authority ” means any public administrative authority or any person entrusted with public administrative
authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial
Institution.
“ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association
(or any successor person), as in effect from time to time.
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“ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and
conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member
Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
ARTICLE 2
THE COMMITMENTS AND CREDIT EXTENSIONS
2.15
Defaulting Lenders .
(a) Adjustments .
(iv) Reallocation of Applicable Percentages to Reduce Fronting Exposure . Section 2.15(a)(iv) of the
Agreement is hereby amended by substituting the following new Section 2.15(a)(iv) in lieu of the existing Section
2.15(a)(iv):
(iv) Reallocation of Applicable Percentages to Reduce Fronting Exposure . All or any part
of such Defaulting Lender’s participation in L/C Obligations and Swing Line Loans shall be
reallocated among the Non-Defaulting Lenders in accordance with their respective Applicable
Percentages (calculated without regard to such Defaulting Lender’s Commitment) but only to the
extent that such reallocation does not cause the aggregate Revolving Credit Exposure of any
Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Commitment. Subject to Section
11.21, no reallocation hereunder shall constitute a waiver or release of any claim of any party
hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender,
including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased
exposure following such reallocation.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Article 5 of the Agreement is hereby amended by adding the following new Section 5.21 at the end thereof:
5.21
EEA Financial Institution . Neither Borrower nor any Loan Party is an EEA Financial Institution.
Page 4
ARTICLE 7
NEGATIVE COVENANTS
7.02
as follows:
Investments . Section 7.02 of the Agreement is hereby amended by adding new paragraphs (g) and (h) at the end thereof
and (g) Borrower’s one-time contribution of capital in the maximum amount of $100,000,000, consisting of $25,000,000 to
$37,000,000 of cash and the balance of net book value of tractors, in exchange for 50% of the voting interest (49.95% of the
membership interest) in 19 th Capital Group LLC, a Delaware limited liability company; and
(h) Borrower’s existing and future Investment in Transport Insurance Services, RRG, Inc. in an aggregate amount not
exceeding $750,000.
7.05
Dispositions . Section 7.05 of the Agreement is hereby amended by substituting the following new Section 7.05 in lieu
of the existing Section 7.05:
7.05
Dispositions .
Make any Disposition or enter into any agreement to make any Disposition, except:
(a)
Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in the
ordinary course of business;
(b)
Dispositions of inventory in the ordinary course of business;
(c)
the one-time sale of up to $75,000,000 of net book value of tractors in November and December
2016, without, notwithstanding the provisions of Section 2.05(d), having to make a mandatory prepayment of the
Committed Loans of such proceeds up to $75,000,000, provided that any dispositions in excess of such limitation shall
be subject to the limitations of Section 7.05(e) and the requirements of Section 2.05(d) ;
(d)
Subject to the limitations of Section 7.05(e) , sales and dispositions of trucks, truck-tractors,
trailers and semi-trailers in the ordinary course of business while there exists no Event of Default;
(e)
in addition to sales and dispositions permitted in (a), (b) and (c) above, sales and dispositions of
assets (including the Capital Securities of Subsidiaries) (but excluding accounts receivable) for at least fair market
value (as determined by the Board of Directors of Borrower) so long as the net book value of all assets sold or
otherwise disposed of in any fiscal year does not exceed 15% of the net book value of the consolidated assets of the
Loan Parties as of the last day of the preceding fiscal year;
(f)
Dispositions permitted by Section 7.02 (g) and Section 7.04 .
provided , however , that any Disposition pursuant to clauses (a) through (f) shall be for fair market value.
Page 5
ARTICLE 11
MISCELLANEOUS
Article 11 is hereby amended by adding the following new Section 11.21 at the end thereof:
Section 11.21 Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the
contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto
acknowledges that any liability of any Lender that is an EEA Financial Institution arising under any Loan Document, to the extent
such liability is unsecured, may be subject to the Write-Down and Conversion Powers of an EEA Resolution Authority and agrees and
consents to, and acknowledges and agrees to be bound by:
(a)
the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such
liabilities arising hereunder which may be payable to it by any Lender that is an EEA Financial Institution; and
(b)
the effects of any Bail-In Action on any such liability, including, if applicable:
(i)
a reduction in full or in part or cancellation of any such liability;
(ii)
a conversion of all, or a portion of, such liability into shares or other instruments of ownership in
such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise
conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights
with respect to any such liability under this Agreement or any other Loan Document; or
(iii)
the variation of the terms of such liability in connection with the exercise of the Write-Down and
Conversion Powers of any EEA Resolution Authority.
PART II . SCHEDULES
The Agreement is hereby amended by substituting Schedules 2.01 and 5.13 to this Third Amendment to Amended and Restated Credit
Agreement in lieu of Schedules 2.01 and 5.13 , respectively, to the Agreement.
Page 6
PART III . CONTINUING EFFECT
Except as expressly modified herein:
(a)
All terms, conditions, representations, warranties and covenants contained in the Agreement shall remain the same and
shall continue in full force and effect, interpreted, wherever possible, in a manner consistent with this Third Amendment; provided , however ,
in the event of any irreconcilable inconsistency, this Third Amendment shall control;
(b)
The representations and warranties contained in the Agreement shall survive this Third Amendment in their original form as
continuing representations and warranties of Borrower; and
(c)
Capitalized terms used in this Third Amendment, and not specifically herein defined, shall have the meanings ascribed to
them in the Agreement.
In consideration hereof, Borrower represents, warrants, covenants and agrees that:
(aa)
Each representation and warranty set forth in the Agreement, as hereby amended, remains true and correct as of the date
hereof in all material respects, except to the extent that such representation and warranty is expressly intended to apply solely to an earlier date
and except changes reflecting transactions permitted by the Agreement;
(bb)
There currently exist no offsets, counterclaims or defenses to the performance of the Obligations (such offsets,
counterclaims or defenses, if any, being hereby expressly waived);
(cc)
Except as expressly waived in this Third Amendment, there does not exist any Event of Default or Default;
(dd)
After giving effect to this Third Amendment and any transactions contemplated hereby, no Event of Default or Default is or
will be occasioned hereby or thereby; and
(ee)
The release of Collateral to occur based on the Dispositions contemplated to occur in November and December 2016 as
contemplated by this Third Amendment together with any series of related transactions do not result in a release of substantially all of the
Collateral.
PART IV . CONDITIONS PRECEDENT
Notwithstanding anything contained in this Third Amendment to the contrary, the Lenders shall have no obligation under this Third
Amendment until each of the following conditions precedent have been fulfilled to the satisfaction of the Lenders:
(a)
Each of the conditions set forth in Section 4.02 of the Agreement shall have been satisfied;
Page 7
(b)
The Administrative Agent shall have received each of the following, in form and substance satisfactory to the
Administrative Agent:
(i)
T his Third Amendment, duly executed by Borrower, the Guarantors, the Administrative Agent and the
Required Lenders in the form approved by the Administrative Agent;
(ii)
Replacement Notes, duly executed by Borrower to each of the Lenders in the form approved by the
Administrative Agent;
(iii)
A duly executed certificate of the Secretary or any Assistant Secretary of Borrower (A) certifying as to
attached copies of resolutions of Borrower authorizing the execution, delivery and performance, respectively, of the
documents referenced in the immediately preceding subparagraph, and (B) certifying as complete and correct as to attached
copies of the Articles of Incorporation and By‑Laws, or certifying that such Articles of Incorporation or By‑Laws, have not
been amended (except as shown) since the previous delivery thereof to the Lenders;
(iv)
The executed documents governing Borrower’s investment in 19th Capital Group LLC in the form
approved by the Administrative Agent;
(c)
The Lenders and the Administrative Agent shall have received all fees required to be paid in connection with this
Third Amendment, and all expenses for which invoices have been presented (including the reasonable fees and expenses of legal
counsel) shall have been paid;
(d)
and its counsel.
All legal matters incident to this Third Amendment shall be reasonably satisfactory to the Administrative Agent
PART V . POST-CLOSING REQUIREMENTS
Borrower agrees to cause the following requirements to be completed not later than January 13, 2017:
(a)
Hyndman Transport Limited, as successor to Celadon Canada, Inc. and Hyndman Holdings, Inc., shall have
executed a Joinder Agreement, in the form prescribed by the Administrative Agent, and shall have delivered to the Administrative
Agent the documents of the types referred to in clauses (iii) and (iv) of Section 4.01(a) of the Agreement;
(b)
American Quality, LLC, Bee Line, Inc., Buckler Transport, Inc., Celadon Driving Academy, LLC, Celadon
Realty, LLC, Distribution, Inc. (FTL), Eagle Logistics Services, Inc., Home Management Pros, LLC, Prosair Technologies, LLC,
Quality Companies, LLC, Taylor Express, Inc., and The American Franchising Group, LLC shall
Page 8
each have executed a Joinder Agreement to the Agreement and to the Collateral Documents, in the forms prescribed by the
Administrative Agent, and shall have delivered to the Administrative Agent the documents of the types referred to in clauses (iii) and
(iv) of Section 4.01(a) of the Agreement;
(c)
Borrower and its Subsidiaries will execute and deliver such further instruments and documents and take such
further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this
Agreement and the Collateral Documents, including, without limitation, such certificates, instruments, and all other documents and
papers the Administrative Agent may reasonably request and as may be required by law to perfect and/or preserve a security interest
in any Collateral.
PART VI . INDEPENDENT CREDIT DECISION
Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender, based
on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Third
Amendment.
PART VII . EXPENSES
Borrower agrees to pay or reimburse the Administrative Agent for all reasonable expenses of the Administrative Agent (including,
without limitation, reasonable attorneys’ fees) incurred in connection with this Third Amendment.
PART VIII . COUNTERPARTS
This Third Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same agreement. Delivery of an executed counterpart of this Third Amendment by telefacsimile or other
electronic method of transmission shall have the same force and delivery of an original executed counterpart of this Third Amendment. Any
party delivering an executed counterpart of this Third Amendment by telefacsimile or other electronic method of transmission shall also deliver
an original executed counterpart of this Third Amendment, but the failure to do so shall not affect the validity, enforceability, and binding
effect of this Third Amendment.
[This Space Intentionally Left Blank]
Page 9
IN WITNESS WHEREOF , the parties hereto have caused this Third Amendment to be executed by their respective officers duly
authorized as of the date first above written.
"BORROWER"
CELADON GROUP, INC.
B/s/ Paul Will
y:
TCEO
itle:
CONSENT AND REAFFIRMATION
Each of the undersigned Guarantors hereby consents to the foregoing Third Amendment, and further agrees that the execution and
delivery of such Third Amendment shall in no way affect, impair, discharge, relieve or release the obligations of the undersigned under its
Guaranty, which obligations are hereby ratified, confirmed and reaffirmed in all respects and shall continue in full force and effect, until all
obligations of Borrower to the Lenders, the Swing Line Lender, the L/C Issuer and the Administrative Agent are fully, finally and irrevocably
paid and performed. Each Guarantor further acknowledges that the failure to consent to any subsequent amendment shall not affect the
liability of such Guarantor under its Guaranty.
"GUARANTORS"
CELADON TRUCKING SERVICES, INC.
B /s/ Paul Will
y:
T CEO
itle:
CELADON LOGISTICS SERVICES, INC.
By: /s/ Paul Will
Titl CEO
e:
QUALITY EQUIPMENT LEASING, LLC
By:
/s/ Paul Will
Title:
CEO
CELADON E-COMMERCE, INC.
By:
/s/ Paul Will
Title:
CEO
TRANSPORTATION SERVICES
INSURANCE COMPANY, INC.
By:
/s/ Paul Will
Title:
CEO
A&S SERVICES GROUP, LLC
By:
/s/ Paul Will
Title:
CEO
OSBORN TRANSPORTATION, INC,
By:
/s/ Paul Will
Title:
CEO
CELADON CANADIAN HOLDINGS, LIMITED
By:
/s/ Paul Will
Title:
CEO
“ ADMINISTRATIVE AGENT ”
BANK OF AMERICA, N.A. , as Administrative Agent
By:
/s/ Patrick Devitt
Title:
Vice President
“ SWING LINE LENDER”, “L/C ISSUER”, “LENDER ”
BANK OF AMERICA, N.A. , as Swing Line Lender, as L/C Issuer and as a Lender
By:
/s/ Jennifer Brown
Title:
Vice President
“LENDERS”
WELLS FARGO BANK, NA. , a Lender
By:
Title:
/s/ Candelario Martinez
Candelario Martinez
Senior Vice President
CITIZENS BANK, NA. , a Lender
By:
/s/ Scott Lankford
Title:
Vice President
SCHEDULE 2.01
COMMITMENTS
AND APPLICABLE PERCENTAGES
Lender
Commitment
Bank of America, N.A.
$104,166,666.68
Applicable
Percentage
41.6666667%
Wells Fargo Bank, N.A.
$104,166,666.67
41.6666667%
Citizens Bank, N.A.
$41,666,666.65
16.6666666%
Total
$250,000,000.00
100.00%
SCHEDULE 5.13
SUBSIDIARIES AND OTHER EQUITY INVESTMENTS
WHOLLY OWNED SUBSIDIARIES :
NAME OF COMPANY
STATUS
ORGANIZATION
STATE
A&S Services Group, LLC
Guarantor
DE
American Quality, LLC
Guarantor
IN
Bee Line, Inc.
Guarantor
OH
Buckler Transport, Inc.
Guarantor
PA
Celadon Canadian Holdings, Limited
Guarantor
Ontario, Canada
Celadon Driving Academy, LLC
Guarantor
IN
Celadon E-Commerce, Inc.
Guarantor
DE
Celadon Logistics Services, Inc.
Guarantor
DE
Celadon Realty, LLC
Guarantor
DE
Celadon Trucking Services, Inc.
Guarantor
NJ
Distribution, Inc. (FTL)
Guarantor
OR
Eagle Logistics Services, Inc.
Guarantor
IN
Home Management Pros, LLC
Guarantor
IN
Hyndman Transport Limited
Guarantor
Ontario, Canada
Osborn Transportation, Inc.
Guarantor
AL
Prosair Technologies, LLC
Guarantor
IN
Quality Companies, LLC
Guarantor
IN
Quality Equipment Leasing, LLC
Guarantor
DE
Taylor Express, Inc.
Guarantor
NC
The American Franchising Group, LLC
Guarantor
IN
Transportation Services Insurance Company, Inc.
Guarantor
VT
Transportation Insurance Services, RRG, Inc.
Restricted Subsidiary
SC
A&S Kinard Logistics LLC
Restricted Subsidiary
DE
A&S Real Estate Holdings, LLC
Restricted Subsidiary
DE
Buckler Distribution Center
Restricted Subsidiary
PA
Buckler Logistics, Inc.
Restricted Subsidiary
PA
Celadon International Corporation
Restricted Subsidiary
DE
Celadon Mexicana, S.A. de C. V.
Restricted Subsidiary
Mexico
Hunt Valley Equipment Co LLC
Restricted Subsidiary
DE
Jaguar Transportation, Inc.
Restricted Subsidiary
IN
Leasing Servicios, S.A. de C.V.
Restricted Subsidiary
DE
Quality Business Services, LLC
Restricted Subsidiary
IN
Quality Custom Sleepers, LLC
Restricted Subsidiary
IN
Quality Insurance, LLC
Restricted Subsidiary
IN
Quality Specialty Vehicles, LLC
Restricted Subsidiary
IN
Stinger Logistics, Inc.
Restricted Subsidiary
OH
Strategic Leasing, Inc.
Restricted Subsidiary
OH
TCI Logistics
Restricted Subsidiary
DE
Truck Inventory, LLC
Restricted Subsidiary
NC
Vorbas, LLC
Restricted Subsidiary
IN
Servicios de Transportacion Jaguar,
S. A. de C. V. (75% Interest)
Restricted Subsidiary
Mexico
GSM Transportation, LLC
(49% Interest in Minority
Business Enterprise)
Non Subsidiary MBE
IN
19 th Capital Group LLC
(49.95% Interest)
Non Subsidiary
DE
OTHER EQUITY INVESTMENTS :
Back to Form 10-Q
Exhibit 31.1
I, Paul A. Will, certify that:
1.
I have reviewed this Form 10-Q of Celadon Group, Inc.;
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)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5.
(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)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c)
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
(d)
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
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 10, 2017
/s/Paul A. Will
Paul A. Will
Chief Executive Officer
(Principal Executive Officer)
Back to Form 10-Q
Exhibit 31.2
I, Bobby L. Peavler, certify that:
1.
I have reviewed this Form 10-Q of Celadon Group, Inc.;
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)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5.
(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)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c)
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
(d)
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
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 10, 2017
/s/Bobby L. Peavler
Bobby L. Peavler
Executive Vice President, Chief Financial Officer, and
Treasurer
(Principal Financial Officer and Principal Accounting
Officer)
Back to Form 10-Q
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Celadon Group, Inc., a Delaware corporation (the "Company"), on Form 10-Q for the period ended
December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul A. Will, Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
1.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date:
February 10, 2017
/s/Paul A. Will
Paul A. Will
Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to Celadon Group, Inc. and will be retained by Celadon
Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Back to Form 10-Q
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Celadon Group, Inc., a Delaware corporation (the "Company"), on Form 10-Q for the period ended
December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bobby L. Peavler, Executive
Vice President, Chief Financial Officer, and Treasurer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of
the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date:
February 10, 2017
/s/Bobby L. Peavler
Bobby L. Peavler
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Celadon Group, Inc. and will be retained by Celadon
Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Back to Form 10-Q