-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DWawlvSrIPfG1jNIAD3jKTa44kt4A/ul3gMCoRmfiCnfhkxCEkw14ixPVUQurUw+ HP88VdhK3CB37iSGF7uzZQ== 0000745379-98-000010.txt : 19980331 0000745379-98-000010.hdr.sgml : 19980331 ACCESSION NUMBER: 0000745379-98-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENAN TRANSPORT CO CENTRAL INDEX KEY: 0000745379 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 560516485 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12058 FILM NUMBER: 98578010 BUSINESS ADDRESS: STREET 1: 143 W FRANKLIN ST STREET 2: UNIVERSITY SQ WEST POST OFFICE BOX 2729 CITY: CHAPEL HILL STATE: NC ZIP: 27516-3910 BUSINESS PHONE: 9199678221 MAIL ADDRESS: STREET 1: UNIVERSITY SQUARE WEST STREET 2: 143 W FRANKLIN ST P O BOX 2729 CITY: CHAPEL HILL STATE: NC ZIP: 27515-2729 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1997 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File Number 0-12058 ------- KENAN TRANSPORT COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) North Carolina 56-0516485 - ------------------------------------ --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) University Square - West, 143 W. Franklin Street Chapel Hill, North Carolina, 27516-3910 ------------------------------------------------------------ (Address of principal executive offices, including Zip Code) Registrant's telephone number, including Area Code: (919) 967-8221 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value -------------------------- (Title of Class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Based on the closing sales price of March 6, 1998, the aggregate market value of the voting stock held by persons other than those who may be deemed affiliates of the registrant was $33,128,021. ------------ The number of shares outstanding of the registrant's common stock was 2,394,780 at March 6, 1998. DOCUMENTS INCORPORATED BY REFERENCE Location in Form 10-K Incorporated Document - --------------------------- ------------------------------------- Part III Items 10, 11, 12 and 13 Portions of the Company's Proxy Statement dated March 30, 1998 in connection with its Annual Meeting to be held on May 4, 1998. Page 2 PART I Item 1. Business - ------------------------------------------------------------------------- Kenan Transport Company (the Company), a North Carolina corporation, was incorporated in 1949. The Company is engaged in the transportation of bulk commodities in intrastate and interstate commerce. The Company primarily serves the petroleum, propane gas and chemical industries. Two recent business acquisitions by the Company have had a significant impact on the geographic scope and size of its business operations. On December 1, 1997, Kenan purchased the majority of transportation assets of Transport South, Inc. ("TSI"), an affiliate of RaceTrac Petroleum. On February 28, 1998, the Company acquired from CITGO Petroleum Corporation, 100% of the outstanding stock of its wholly owned subsidiary, Petro-Chemical Transport, Inc. ("PCT"). The following disclosures reflect the Company as it existed in 1997. During 1997, the Company's operations were concentrated in the Southeast in seven states; Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee and Virginia. The purchase of TSI expands the Company's customer base within its existing markets and adds Kentucky, Louisiana and Texas to its core service area. The Company provides intrastate transportation services to customers within these states and interstate transportation services from these states to points throughout the United States. One customer accounted for 11% of the Company's revenue in 1997. At December 31, 1997, the Company operated a network of terminals and a fleet of 630 tractors and 910 specialized trailers. The Company's terminals are strategically located near the major pipeline terminals, chemical production centers and major ports. The Company's terminals operate as "profit centers" staffed with experienced terminal managers, trained dispatchers, maintenance personnel and professional drivers. At December 31, 1997, the Company had 1,240 employees. Approximately 350 employees were added as a result of the Company's acquisition of TSI. With the acquisition of PCT in 1998, the Company's operations expanded to include Arizona, California, Colorado, Illinois, Indiana, Maryland, Massachusetts, Missouri, Nevada, Oklahoma, Pennsylvania, Utah and Wisconsin. In addition, through its purchase of PCT, the Company will operate an inventory control and logistics management system that enables it to manage gasoline inventories at retail locations for current and prospective customers. The acquisition of PCT places Kenan Transport Company among the ten largest tank truck carriers in the country. The Company has a large number of competitors with no single competitor being dominant in the industry. The Company competes with the trucking operations of the major oil and chemical companies as well as with independent carriers. Competition is primarily based on price and customer service. The Company considers its business to be somewhat seasonal with the winter heating season providing the highest demand levels. Page 3 The Company operations include storage of fuel in underground storage tanks for use in its operations. Management is committed to the protection of the environment and has procedures in place to ensure compliance with federal and state regulations and to provide appropriate response to spills and leaks that occur. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company is involved in various claims and legal actions arising in the normal course of business. It is the opinion of management that these matters will have no significant impact on the financial statements of the Company. Item 2. Properties - ------------------------------------------------------------------------- The Company owns twenty-one real properties located in five states; Florida, Georgia, North Carolina, South Carolina and Virginia. At December 31, 1997, these properties had a net book value of $12,186,000. Additionally, the Company leases sixteen real properties located in the Southeast and Texas, under lease terms from one to five years. The properties are used for offices, terminals and vehicle maintenance facilities in the operations of the Company. The Company transports freight using over-the-road tractors and trailers. At December 31, 1997, the net book value of the Company's owned revenue equipment, consisting of 490 tractors and 850 trailers, was $37,614,000. The balance of the Company's fleet, 140 tractors and 60 trailers, consists of leased equipment with lease terms of one to three years. The assets acquired from TSI on December 1, 1997 included 130 tractors and 210 tank trailers. The tractors and 40 trailers are leased. With the acquisition of Petro-Chemical Transport, Inc. on February 28, 1998, the Company added 125 tractors and 175 tank trailers to its fleet. This equipment consists of leased tractors and owned trailers. PCT also leases its central administrative offices that are located in Dallas, Texas. Page 4 Item 3. Legal Proceedings - ------------------------------------------------------------------------- There are no material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------------------- No matters were submitted during the fourth quarter of 1997 to a vote of security holders, through the solicitation of proxies or otherwise. Item 4(a). Executive Officers of the Registrant - ------------------------------------------------------------------------- Information concerning the executive officers of the Company follows: Name Age Position - -------------------- ---- --------------------------------------- Lee P. Shaffer 59 Director, Chief Executive Officer of the Company beginning in 1996; President of the Company since 1975; Chief Operating Officer of the Company (1975-1996). William L. Boone 58 Vice President-Finance and Secretary of the Company since 1974. Treasurer of the Company beginning in 1996; Assistant Treasurer of the Company (1981-1996). L. Avery Corning 40 Vice President-Operations and Sales beginning in 1994; President (1990- 1994), Redwing Carriers, Inc., Tampa, Florida. Gary J. Knutson 47 Vice President-Marketing of the Company beginning in 1994. Vice President-Sales of the Company (1990-1993). John E. Krovic 42 Vice President-Human Resources and Safety of the Company since 1993. Lee P. Shaffer, III (1) 38 Vice President-Operations Services of the Company beginning in 1994. Director of Operations Services of the Company (1992-1993). Director of Operations of the Company (1988-1992). (1) Lee P. Shaffer, III is the son of Lee P. Shaffer, President and Chief Executive Officer of the Company. Page 5 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters - ------------------------------------------------------------------------- On October 21, 1986, the Registrant's stock began trading on the Nasdaq stock market under the symbol KTCO. The Company had approximately 453 shareholders, including holders whose shares are held in street names, on December 31, 1997. The high and low sale prices and the cash dividends paid per share for each quarter in the last two fiscal years are shown below: 1997 1996 --------------------------- --------------------------- Quarter High Low Dividend High Low Dividend - -------- -------- ------- -------- -------- ------- -------- First $20.5 $18.5 $.0675 $22 $19 $.065 Second 21 19 .0675 21 18.75 .065 Third 22.75 19.75 .07 21.5 20 .0675 Fourth 41 22.25 .07 21.5 19 .0675 Page 6 Item 6. Selected Financial Data - ------------------------------------------------------------------------- Selected financial data for the past five years is presented below:
1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------ Operations (in thousands) - --------------------------------- Operating revenue $73,308 $68,795 $61,717 $59,100 $57,063 Operating income 6,462 6,244 5,124 5,787 5,421 Net income (1) 4,090 3,805 3,323 3,682 3,435 Per Share Data - --------------------------------- Basic and Diluted Earnings (1)(2) $ 1.71 $ 1.59 $ 1.39 $ 1.55 $ 1.45 Dividends declared .2775 .2675 .2575 .2475 .2375 Book value 20.61 19.19 17.86 16.72 15.76 Market value 36.63 19.00 20.75 17.50 17.38 Financial Position (in thousands) - --------------------------------- Cash, cash equivalents and short-term investments $ 3,422 $11,181 $10,106 $13,759 $11,996 Working capital 1,753 10,034 9,568 12,260 10,766 Net operating property 52,239 44,133 41,265 35,015 32,747 Total assets 77,115 65,044 61,188 57,625 54,727 Total debt, including capital lease obligations 5,570 -- -- -- -- Stockholders' equity 49,368 45,843 42,677 39,771 37,363 Ratios and Statistics - --------------------------------- Operating ratio 91.2% 90.9% 91.7% 90.2% 90.5% Return on equity (1) 9% 9% 8% 9% 10% Current ratio 1.12 2.00 1.98 2.24 2.07 Debt equity ratio .11 -- -- -- -- Shares outstanding (in thousands) 2,395 2,389 2,389 2,378 2,370 (1) Before the effect of an extraordinary charge in 1994 of $823,000 ($.35 per share). (2) All periods restated in accordance with SFAS No. 128.
Page 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------- Results of Operations - 1997 Compared to 1996 - --------------------------------------------- Revenue increased 7% in 1997 to $73,308,000. The $4,513,000 increase in revenue was generated by approximately $2,300,000 of additional business resulting from the Transport South, Inc. acquisition on December 1, 1997 and approximately $2,213,000 due to growth in demand for transportation services. Miles operated increased 7% to 47,252,000 in 1997. Operating expenses increased 7% in 1997 to $66,846,000. The $4,295,000 increase was due in large part to the 7% increase in miles operated, an increase in driver wage expense, higher claims experience in 1997 and a 6% increase in depreciation and amortization expense. Wages and employee benefits decreased to 50.2% of revenue from 50.3% in 1996. A 10% increase in driver wages was offset by lower workers' compensation premiums and claims. Fuel, parts, tires and other operating expenses increased to 19.6% from 19.1% of revenue in 1996. Although fuel prices decreased 6% in 1997, equipment maintenance and other operating expenses increased 18%. Accident claims and insurance costs increased to 3.7% of revenue in 1997 from 3.6%. Communications, utilities and rent expense remained flat at 2.1% of revenue. Depreciation and amortization expense decreased slightly to 9.5% of revenue in 1997 compared to 9.6% in 1996. Net interest income and other expenses increased $144,000 in 1997. Higher average cash balances and interest rates in 1997 contributed to the increase. Results of Operations - 1996 Compared to 1995 - --------------------------------------------- Revenue increased 11% from 1995 to $68,795,000. The $7,078,000 increase in revenue reflects growth in demand for transportation services and the effect of higher prices to our customers to cover increased operating costs. The addition of transportation services to Cary Oil Company, Inc. in July of 1995 and the expansion into Alabama and Tennessee markets in 1995 also contributed to revenue growth for the year. Miles operated increased 8% to 44,177,000 in 1996. Operating expenses increased 11% in 1996 to $62,551,000. The $5,958,000 increase was due in large part to the 8% increase in miles operated, a 23% increase in diesel fuel prices and an 18% increase in depreciation and amortization expense. Wages and employee benefits decreased to 50.3% of revenue from 50.9% in 1995. Fuel, parts, tires and other operating expenses increased from 18.7% to 19.1% of revenue in 1996 due primarily to fuel price increases that were substantially offset by fuel surcharges that are included in revenue. Accident claims and insurance costs fell to 3.6% of revenue in 1996 from 4.2% due to lower insurance premiums and claims cost control. Recently completed terminal facilities in Atlanta and Fort Lauderdale resulted in lower communications, utilities and rent expense which decreased to 2.1% of revenue from 2.5% in 1995. The depreciation and amortization expense increase to 9.6% of revenue compared to 9.0% in 1995 reflects the impact of new equipment purchased for the Alabama and Tennessee expansion markets, and new terminal facilities in Atlanta and Fort Lauderdale placed in service in 1996. Page 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued - ------------------------------------------------------------------------- Net interest income and other expenses decreased $413,000 from 1995. The reduction stems from lower interest rates and invested cash balances in 1996 from 1995 levels as well as losses recorded from the early retirement of high-mileage tractors. Liquidity and Capital Resources - --------------------------------------------- At the end of 1997, cash and cash equivalents totaled $3,422,000, a decrease of $7,759,000 from the end of 1996. Working capital of $1,753,000 was down $8,281,000 from year-end 1996 and the current ratios were 1.12 and 2.00, respectively. The decline in cash and working capital balances during 1997 was due to the Company's purchase of the majority of the transportation assets of Transport South, Inc. on December 1, 1997. This investment required a total cash outlay of $11,446,000 and the assumption of net current liabilities of $944,000 which reduced working capital by $12,390,000 in 1997. Outstanding debt under the Company's line of credit agreement was $2,500,000 at the end of 1997, of which $500,000 was classified as current. On February 13, 1998, the Company entered into a new unsecured credit agreement that provides a $20,000,000 line of credit. The new agreement replaces the Company's existing line of credit. Amounts borrowed in excess of $10,000,000 are subject to certain repayment provisions. The agreement matures March 2003. Capital lease obligations, assumed in the Transport South acquisition, totaled $3,070,000 at December 31, 1997. At the end of 1997, $995,000 was classified as current. The outstanding balance is payable over the next four years. On February 28, 1998, the Company acquired 100% of the outstanding stock of Petro-Chemical Transport, Inc., a wholly owned subsidiary of CITGO Petroleum Corporation, for $7,500,000. The Company financed the acquisition through its new line of credit. Net capital expenditures for replacement of tractors and tank trailers are projected to be $8,300,000 in 1998. Management believes cash flows from operations and the Company's new bank line of credit will be sufficient to fund these planned expenditures as well as 1998 working capital requirements, expansion opportunities and other corporate needs. The Company has evaluated its Year 2000 issues and has implemented a plan to address and correct all significant issues that involve the Year 2000. These issues are not expected to be material to the Company's business operations or financial condition. The Company's operations require the storage of fuel for use in its tractors in both underground and aboveground tanks. The Company has a program to maintain its fuel storage facilities in compliance with environmental regulation. Under the program, the Company incurs costs to replace tanks, remediate soil contamination resulting from overfills, spills and leaks and monitor facilities on an ongoing basis. These costs are recorded when it is probable that a liability has been incurred and the related amount can be reasonably estimated. Such costs have not been and are not expected to be material to the Company's operations or liquidity. Page 9 Item 8. Financial Statements and Supplementary Data - ------------------------------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Kenan Transport Company: We have audited the accompanying consolidated balance sheets of Kenan Transport Company (a North Carolina corporation) and subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kenan Transport Company and subsidiary as of December 31, 1997 and 1996, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Arthur Andersen LLP Raleigh, North Carolina, February 19, 1998. Page 10 KENAN TRANSPORT COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31 ------------------------- 1997 1996 - ------------------------------------------------------------------------- ASSETS - --------------------------------------------- Current Assets Cash and cash equivalents $ 3,422 $11,181 Accounts receivable, net 8,020 4,988 Operating supplies and parts 521 413 Prepaid tires 1,471 1,033 Prepaid insurance, licenses and other 886 698 Deferred income taxes 1,747 1,741 ----------------------- Total Current Assets 16,067 20,054 Operating Property Land 3,464 3,531 Buildings and leasehold improvements 10,968 9,279 Revenue equipment 65,974 56,015 Other equipment 4,755 3,923 ----------------------- 85,161 72,748 Accumulated depreciation and amortization (32,922) (28,615) ----------------------- Net Operating Property 52,239 44,133 Intangible Assets 7,559 -- Other Assets 1,250 857 ----------------------- $77,115 $65,044 ======================= LIABILITIES AND STOCKHOLDERS' EQUITY - --------------------------------------------- Current Liabilities Current maturities of long-term debt $ 500 $ -- Capital lease obligations 995 -- Accounts payable 2,517 1,423 Wages and employee benefits payable 6,641 5,136 Claims payable 3,553 3,409 Income taxes currently payable 108 52 ----------------------- Total Current Liabilities 14,314 10,020 Long-term Debt 2,000 -- Capital Lease Obligations 2,075 -- Deferred Income Taxes 9,358 9,181 Stockholders' Equity Common stock; no par; 20,000,000 shares authorized; 2,394,780 and 2,389,497 shares issued and outstanding 3,096 2,996 Retained earnings 46,272 42,847 ----------------------- 49,368 45,843 ----------------------- $77,115 $65,044 ======================= The Notes to Consolidated Financial Statements are an integral part of these balance sheets. Page 11 KENAN TRANSPORT COMPANY CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Dollars in thousands except per share amounts)
Years Ended December 31 --------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------ Operating Revenue $73,308 $68,795 $61,717 Operating Expenses Wages and employee benefits 36,804 34,580 31,412 Fuel, parts, tires and other 14,344 13,138 11,566 Taxes and licenses 4,482 4,261 3,926 Claims and insurance 2,692 2,502 2,567 Communications, utilities and rent 1,562 1,472 1,544 Depreciation and amortization 6,962 6,598 5,578 --------------------------------- 66,846 62,551 56,593 --------------------------------- Operating Income 6,462 6,244 5,124 Interest expense (40) (20) (28) Interest income and other expenses, net 174 30 443 --------------------------------- Income before Provision for Income Taxes 6,596 6,254 5,539 Provision for income taxes 2,506 2,449 2,216 --------------------------------- Net Income 4,090 3,805 3,323 Retained earnings, beginning of the year 42,847 39,681 36,973 Cash dividends (665) (639) (615) --------------------------------- Retained earnings, end of the year $46,272 $42,847 $39,681 ================================= Basic and Diluted Earnings Per Share $ 1.71 $ 1.59 $ 1.39 ================================= The Notes to Consolidated Financial Statements are an integral part of these statements.
Page 12 KENAN TRANSPORT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Years Ended December 31 --------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income $ 4,090 $ 3,805 $ 3,323 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,962 6,598 5,578 Deferred income taxes 171 551 574 Common stock issued under incentive plan 100 -- 198 Other, net (393) (246) (140) Changes in operating assets and liabilities net of effects from business acquisition: Accounts receivable (3,032) (43) (696) Operating supplies and parts (108) 93 68 Prepayments (152) 146 20 Accounts payable 796 288 (275) Wages and employee benefits payable 1,380 988 (455) Claims payable 144 (744) 287 Income taxes currently payable 56 (256) 308 --------------------------------- Net cash provided by operating activities 10,014 11,180 8,790 Cash Flows from Investing Activities: Purchases of operating property, net (8,037) (9,466) (11,828) Business acquisition (11,446) -- -- Sales (purchases) of short-term investments, net -- 6,886 (5,886) --------------------------------- Net cash used by investing activities (19,483) (2,580) (17,714) Cash Flows from Financing Activities: Borrowings under line of credit agreement 2,500 -- -- Principal payments on capital lease obligations (125) -- -- Dividends (665) (639) (615) --------------------------------- Net cash provided by (used for) financing activities 1,710 (639) (615) --------------------------------- Net Increase (Decrease) In Cash And Cash Equivalents (7,759) 7,961 (9,539) Cash and Cash Equivalents at Beginning of Year 11,181 3,220 12,759 --------------------------------- Cash and Cash Equivalents at End of Year $ 3,422 $11,181 $ 3,220 ================================= Noncash Investing and Financing Activities: Liabilities assumed in business acquisition $ 3,619 -- -- Supplemental Cash Flow Disclosures: Interest paid $ 38 $ 21 $ 18 Income taxes paid $ 2,279 $ 2,154 $ 1,334 The Notes to Consolidated Financial Statements are an integral part of these statements.
Page 13 KENAN TRANSPORT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Significant Accounting Policies - --------------------------------------------------------------- Preparation of Financial Statements The consolidated financial statements are prepared in conformity with generally accepted accounting principles and include the accounts of Kenan Transport Company and its wholly-owned subsidiary which was merged into Kenan Transport Company effective December 31, 1996. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash Equivalents and Short-Term Investments The Company classifies investments maturing within three months from the date of purchase as cash equivalents. All investments at December 31, 1997 and 1996 were cash equivalents. Tires The cost of replacement tires is included in operating supplies and parts in the accompanying Consolidated Balance Sheets. When installed on revenue equipment, tire costs are included in prepayments and amortized over their useful life based on mileage. Operating Property Operating property, including operating property under capital leases, is recorded at cost, net of tires and is depreciated or amortized over the estimated useful life of the related assets. Maintenance and repairs are charged to operating expenses as incurred; renewals and improvements are capitalized. Depreciation is computed on the straight-line method using lives of 3 to 15 years for revenue equipment, 15 to 40 years for buildings, remaining life of leases for leasehold improvements, and 2 to 10 years for other equipment. Claims Payable Claims payable represents the estimated cost of open claims that is retained and paid by the Company under its insurance programs for workers' compensation, group medical, bodily injury and property damage. These estimates are based on historical information along with certain assumptions about future cash flows. Changes in assumptions for such things as medical costs, environmental hazards, and legal actions, as well as changes in actual experience could cause these estimates to change. In the accompanying Consolidated Statements of Income and Retained Earnings, workers' compensation costs are included in wages and employee benefits expenses, and other claims costs are included in claims and insurance expenses. Page 14 Environmental Expenditures The Company's operations require the storage of fuel for use in its tractors in both underground and aboveground tanks. The Company incurs costs to replace tanks, remediate soil contamination resulting from overfills, spills and leaks and monitor facilities on an ongoing basis. These costs are recorded when it is probable that a liability has been incurred and the related amount can be reasonably estimated. Income Taxes The provision for income taxes includes federal and state income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. Note 2 - Earnings Per Share - --------------------------------------------------------------- In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share" which requires all prior years presented to be restated. A reconciliation of net income and the weighted average number of shares outstanding used in calculating basic and diluted earnings per share for the years ended December 31, 1997, 1996 and 1995 is summarized in the table below (dollars and shares in thousands except per share amounts): 1997 1996 1995 -------------------------------- Net income $4,090 $3,805 $3,323 ================================ Beginning shares outstanding 2,389 2,389 2,378 Shares issued under executive incentive plan 6 -- 11 ------ ------ ------ Basic shares outstanding 2,395 2,389 2,389 Shares earned under executive incentive plan 1 1 -- ------ ------ ------ Diluted shares outstanding 2,396 2,390 2,389 ================================ Basic and diluted earnings per share $ 1.71 $ 1.59 $ 1.39 ================================ Note 3 - Purchase of Assets - --------------------------------------------------------------- On December 1, 1997, the Company purchased the majority of the transportation assets of Transport South, Inc. for cash and entered into a long-term contract to provide transportation services to its parent, RaceTrac Petroleum, Inc. in the southeastern United States and Texas. The acquisition has been accounted for using the purchase method of accounting. Accordingly, the accompanying consolidated statements of income include results of operations from December 1, 1997. The purchased assets and liabilities assumed have been recorded in the Company's Page 15 financial statements at their estimated fair market values. The excess of the purchase cost over the fair value of net assets acquired in the acquisition (goodwill) is included in intangible assets in the accompanying consolidated balance sheets and is being amortized over 20 years on a straight-line basis. Amortization expense in 1997 was $32,000 and accumulated amortization at December 31, 1997 was $32,000. The following unaudited pro forma summary presents the consolidated results of operations of the Company for 1997 and 1996, as if the acquisition had occurred as of January 1, 1996. The pro forma information does not purport to be indicative of what would have occurred had the acquisition been made as of those dates or of results which may occur in the future (dollars in thousands except per share amounts). Pro-Forma Information (unaudited) -------------------------------------------------------------------- 1997 1996 ---------------------- Revenue $101,308 $96,795 Operating income 7,802 7,178 Net income 4,631 4,332 Basic and diluted earnings per share 1.93 1.81 Note 4 - Subsequent Events - --------------------------------------------------------------- On February 18, 1998, the Company entered into a definitive agreement to acquire 100% of the outstanding stock of Petro-Chemical Transport, Inc., a wholly owned subsidiary of CITGO Petroleum Corporation for $7,500,000. Petro-Chemical Transport is a tank truck carrier serving the petroleum industry in the Southeast, Midwest and on the West Coast. The Company will finance the acquisition through its new line of credit facility (see Note 5). The closing is expected during the first quarter of 1998. Note 5 - Bank Line of Credit - --------------------------------------------------------------- At December 31, 1997, the Company's borrowings under a Bank Credit Agreement totaled $2,500,000 of which $500,000 was classified as currently payable based on management's intent to pay down such amount in 1998. The fair value of debt approximates carrying value at December 31, 1997. On February 13, 1998, the Company negotiated a new unsecured $20,000,000 Reducing Line of Credit Facility with the bank. The agreement replaces the Company's previous $7,000,000 line of credit. The line reduces $500,000 per quarter beginning July 1, 1998 and matures in March 2003. Interest under the agreement is at variable rates based, at the Company's option, on the Bank's Prime Rate or LIBOR. The credit agreement contains various covenants, none of which negatively impact the Company's liquidity or capital resources at this time. Page 16 Note 6 - Income Taxes - --------------------------------------------------------------- Deferred income taxes reflect the net tax effect of temporary differences between the financial statement and tax bases of assets and liabilities. The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and assets at December 31, 1997 and 1996 were as follows (dollars in thousands): 1997 1996 --------------------- Liabilities Depreciation $10,012 $8,715 Prepaid tires 558 392 Other 429 525 --------------------- Deferred tax liabilities 10,999 9,632 Assets Claims payable 1,349 1,294 Capital lease obligations 1,165 -- Employee benefits 701 610 Other 173 288 --------------------- Deferred tax assets 3,388 2,192 --------------------- Net deferred tax liability $ 7,611 $7,440 ===================== The provisions for income taxes consist of the following (dollars in thousands): 1997 1996 1995 -------------------------------- Currently payable Federal $1,949 $1,568 $1,387 State 386 330 255 -------------------------------- 2,335 1,898 1,642 Deferred 171 551 574 -------------------------------- $2,506 $2,449 $2,216 ================================ The statutory federal income tax rates differ from the effective income tax rates as follows: 1997 1996 1995 ------------------------------- Statutory federal income tax rate 34.0% 34.0% 34.0% Increase in tax rate resulting from: State income taxes, net of federal tax benefit 4.1 4.0 4.0 Other items, net (.1) 1.2 2.0 ------------------------------- Effective income tax rate 38.0% 39.2% 40.0% =============================== Page 17 Note 7 - Lease and Other Commitments - --------------------------------------------------------------- Certain terminal facilities, office space and equipment, and revenue equipment are rented under operating leases expiring at various dates through 2002. Rent expense charged against income for years ended December 31, 1997, 1996 and 1995 was $439,000, $440,000 and $604,000, respectively. At December 31, 1997, total future minimum rental payments required under leases having initial or remaining noncancellable lease terms in excess of one year are (dollars in thousands): 1998 $1,246 1999 1,010 2000 177 2001 47 2002 16 The Company acquired capital leases in connection with its purchase of Transport South, Inc. on December 1, 1997. Capital leases included in operating property at December 31, 1997 were $2,576,000. Future minimum lease payments for capitalized lease obligations at December 31, 1997 are as follows (dollars in thousands): 1998 $1,162 1999 1,514 2000 360 2001 318 ------ Total minimum lease payments 3,354 Less amount representing interest at 5% to 7% and taxes 284 ------ Present value of net minimum lease payments 3,070 Less current portion 995 ------ Long-term obligations $2,075 ====== A bank letter of credit of $2,666,000 is outstanding on the Company's behalf in connection with its insurance program. The Company is involved in various claims and legal actions arising in the normal course of business. It is the opinion of management that these matters will have no significant impact on the financial statements of the Company. Note 8 - Retirement Plans - --------------------------------------------------------------- The Company has a Profit-Sharing Retirement Plan covering all employees. Contributions are determined annually by the Board of Directors. The Plan is funded currently and contributions expensed were $1,349,000 (1997), $1,173,000 (1996) and $980,000 (1995). Page 18 The Company has a Supplemental Executive Retirement Plan (SERP) to replace retirement benefits lost by certain officers under the Tax Reform Act of 1986. The SERP is an unfunded deferred compensation plan with benefits payable upon retirement, death or other termination of employment under provisions similar to those of the Profit-Sharing Retirement Plan. Net amounts expensed under the SERP were $143,000 (1997), $127,000 (1996) and $109,000 (1995). Note 9 - Incentive Plans - --------------------------------------------------------------- The Company has a stock incentive plan for key employees that became effective January 1, 1994. The Plan enables the Company to provide long-term incentives for key employees while encouraging optimum growth in Company profits. Over a ten-year period, up to 56,600 shares of common stock may be earned if targeted increases in net income are attained. Employees may elect to receive up to half of the value of their incentive bonuses in cash. No shares were earned in 1995. There were 5,283 shares of stock earned in 1996 and issued in March of 1997 increasing common stock by $100,000 in 1997. Approximately 5,400 shares of stock were earned in 1997 that will be issued in 1998. The actual number of shares will be based upon the market value of a share on the day preceding issuance. There would be no impact on reported net income from applying the disclosure requirements of SFAS 123 "Accounting for Stock-Based Compensation." Compensation expense related to the Plan is recognized in the year earned. Note 10 - Nature of Business - --------------------------------------------------------------- The Company transports commodities in bulk for the petroleum and chemical industries in the southeastern United States and Texas, and its customers include international corporations in these industries. One customer accounted for 11% of the Company's revenue in 1997 and 1996, and 12% in 1995. Concentration of credit risks to the Company consists primarily of trade receivables from petroleum and chemical companies. The Company maintains an allowance for doubtful accounts which totaled $313,000 and $290,000 at December 31, 1997 and 1996, respectively, to cover estimated credit losses. Page 19 Note 11 - Summary of Quarterly Financial Information (Unaudited) - --------------------------------------------------------------- (Dollars in thousands) --------------------------------- Diluted Operating Operating Net Earnings Quarter Revenue Income Income Per Share - ------------------------------------------------------------------------- 1997 First $17,746 $1,541 $ 976 $.41 Second 17,233 1,230 810 .34 Third 17,450 1,314 834 .35 Fourth 20,879 2,377 1,470 .61 1996 First $17,587 $1,648 $1,040 $.44 Second 16,637 1,221 763 .32 Third 16,638 1,271 716 .30 Fourth 17,933 2,104 1,286 .54 Page 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures - ------------------------------------------------------------------------- None Page 21 PART III Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------------------- Information with respect to directors required by Item 401 of Regulation S-K, appearing under the heading "Election of Directors" in the Registrant's proxy statement dated March 30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998, is incorporated herein by reference. Information with respect to executive officers required by Item 401 of Regulation S-K is included as Item 4(a) in Part I. Information with respect to directors and executive officers required by Item 405 of Regulation S-K, appearing under the heading "Section 16(a) Beneficial Ownership Compliance" in the Registrant's proxy statement dated March 30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998, is incorporated herein by reference. Item 11. Executive Compensation - ------------------------------------------------------------------------- Information with respect to executive compensation required by Item 402 of Regulation S-K, appearing under the heading "Compensation and Related Matters" in the Registrant's proxy statement dated March 30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998, is incorporated herein by reference. Item 12. Securities Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------- Information with respect to securities ownership of certain beneficial owners and management required by Item 403 of Regulation S-K, appearing under the headings "Principal Shareholders" and "Security Ownership of Management" in the Registrant's proxy statement dated March 30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998, is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------------------------- Information with respect to certain relationships and related transactions required by Item 404 of Regulation S-K, appearing under the heading "Compensation Committee Interlocks and Insider Participation" in the Registrant's proxy statement dated March 30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998, is incorporated herein by reference. Page 22 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K --------------------------------------------------------------- (a)(1) Financial Statements -------------------- The financial statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report on Consolidated Form 10-K. (2) Schedules --------- None (3) Exhibits -------- Exhibits to this report are listed in the accompanying Index to Exhibits. (b) Reports on Form 8-K ------------------- A Current Report on Form 8-K was filed on December 12, 1997, announcing the Registrant's purchase of the majority of transportation assets of Transport South, Inc. The financial statement schedules and pro forma financial information relating to the purchase was filed on Form 8-K/A, February 13, 1998. Page 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KENAN TRANSPORT COMPANY ----------------------- (Registrant) By: /s/ Lee P. Shaffer ------------------------------------------------------ Lee P. Shaffer, President and Chief Executive Officer Date: March 16, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date - ------------------------ --------------------------- -------------- Principal Financial Officer: /s/ William L. Boone Vice President-Finance; March 16, 1998 - ------------------------ Secretary; Treasurer William L. Boone Controller or Principal Accounting Officer: /s/ J. Earl Cowan Controller March 16, 1998 - ------------------------ J. Earl Cowan Page 24 Signature Title Date - ------------------------ -------------------------- --------------- Directors: /S/ Thomas S. Kenan, III Chairman of the Board March 16, 1998 - ------------------------ of Directors Thomas S. Kenan, III /S/ Owen G. Kenan Vice Chairman of the March 16, 1998 - ------------------------ Board of Directors Owen G. Kenan /S/ William O. McCoy Director March 16, 1998 - ------------------------ William O. McCoy /S/ Paul J. Rizzo Director March 16, 1998 - ------------------------ Paul J. Rizzo /S/ William C. Friday Director March 16, 1998 - ------------------------ William C. Friday /S/ Braxton Schell Director March 16, 1998 - ------------------------ Braxton Schell /S/ Kenneth G. Younger Director March 16, 1998 - ------------------------ Kenneth G. Younger Page 25 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Financial Statements in Form 10-K - --------------------------------------------------------- ------------ Report of Independent Public Accountants relating to the Consolidated Financial Statements and Notes thereto 10 Consolidated Balance Sheets - December 31, 1997 and 1996 11 Consolidated Statements of Income and Retained Earnings - For the Years Ended December 31, 1997, 1996 and 1995 12 Consolidated Statements of Cash Flows - For the Years Ended December 31, 1997, 1996 and 1995 13 Notes to Consolidated Financial Statements 14-20 Page 26 INDEX TO EXHIBITS Exhibit No. Description - ----------- --------------------------------------------------------- 2(a) Asset Purchase Agreement between Transport South, Inc. and the Registrant, dated October 31, 1997, filed as Exhibit 2 to the Registrant's Form 10-Q Quarterly Report for the quarter ended September 30, 1997, which is incorporated herein by reference to such Form 10-Q. 2(b) Amendment to Asset Purchase Agreement between Transport South, Inc. and the Registrant, dated December 1, 1997, filed as Exhibit 2.A to the Registrant's Current Report on Form 8-K, filed December 12, 1997, which is incorporated herein by reference to such Form 8-K. 2(c) Stock Purchase and Sale Agreement between CITGO Petroleum Corporation, Petro-Chemical Transport, Inc. and the Registrant, dated February 18, 1998, filed as Exhibit 2 to the Registrant's Current Report on Form 8-K, filed March 13, 1998, which is incorporated herein by reference to such Form 8-K. 3(a) Charter Documents filed as Exhibit 3(a) to the Registrant's Form 10 Registration of Securities, filed April 27, 1984, which is incorporated herein by reference to such Form 10. 3(b) Articles of Amendment dated May 1987, filed as Exhibit 4(b) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1987, which is incorporated herein by reference to such Form 10-Q. 3(c) Articles of Amendment dated May 1988, filed as Exhibit 4(f) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1988, which is incorporated herein by reference to such Form 10-Q. 3(d) Bylaws filed as Exhibit 3(b) to the Registrant's Form 10 Registration of Securities, filed April 27, 1984, which is incorporated herein by reference to such Form 10. 3(e) Amendments to the Bylaws of the Registrant adopted March 15, 1985, March 2, 1987 and March 1, 1990, filed as Exhibit 4(e) to the Registrant's Form 10-K for the year ended December 31, 1989, which is incorporated herein by reference to such Form 10-K. 3(f) Amended and Restated Bylaws of the Registrant adopted September 26, 1990, filed as Exhibit 4(d) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1991, which is incorporated herein by reference to such Form 10-Q. Page 27 INDEX TO EXHIBITS - continued Exhibit No. Description - ----------- --------------------------------------------------------- 3(g) Amendment to the Bylaws of the Registrant adopted May 6, 1991, filed as Exhibit 4(e) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1991, which is incorporated herein by reference to such Form 10-Q. 3(h) Amendment to the Bylaws of the Registrant adopted October 7, 1991, filed as Exhibit 4(f) to the Registrant's Form 10-Q Quarterly Report for the quarter ended September 30, 1991, which is incorporated herein by reference to such Form 10-Q. 3(i) Amendment to the Bylaws of the Registrant as adopted October 21, 1996 by the Registrant's Board of Directors. 4(a) Specimen Stock Certificate filed as Exhibit 4(a) to the Registrant's Form 10 Registration of Securities, filed April 27, 1984, which is incorporated herein by reference to such Form 10. Management contracts or compensatory plans or arrangements Exhibits 10(a) - 10(f) 10(a) Employee Stock Bonus Plan effective January 1, 1985, filed as Exhibit 10(c) to the Registrant's Form 10-K for the year ended December 31, 1984, which is incorporated herein by reference to such Form 10-K. 10(b) Amendment to Employee Stock Bonus Plan dated January 6, 1987, filed as Exhibit 10(d) to the Registrant's Form 10-K for the year ended December 31, 1986, which is incorporated herein by reference to such Form 10-K. 10(c) Supplemental Executive Retirement Plan, effective January 1, 1990, filed as Exhibit 10(e) to the Registrant's Form 10-K for the year ended December 31, 1990, which is incorporated herein by reference to such Form 10-K. 10(d) 1994 Stock Bonus Plan effective January 1, 1994, filed as Exhibit 10(b) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1994, which is incorporated herein by reference to such Form 10-Q. 10(e) Senior Managers' Life Insurance Plan, effective April 1, 1996, filed as Exhibit 10.A to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1997, which is incorporated herein by reference to such Form 10-Q. Page 28 INDEX TO EXHIBITS - continued Exhibit No. Description - ----------- --------------------------------------------------------- 10(f) Senior Management Severance Plan, effective May 5, 1997, filed as Exhibit 10.A to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1997, which is incorporated herein by reference to such Form 10-Q. Material contracts Exhibits 10(g) - 10(i) 10(g) Credit Agreement between First Union National Bank and the Registrant dated May 22, 1984, filed as Exhibit 4(b) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1984, which is incorporated herein by reference to such Form 10-Q. 10(h) Loan Agreement between First Union National Bank and the Registrant dated February 13, 1998. 10(i) Promissory Note between First Union National Bank and the Registrant dated February 13, 1998. 23 Consent of Independent Public Accountants. 27 Financial Data Schedule for the year ended December 31, 1997. Page 29 EX-10.H 2 EXHIBIT 10.H LOAN AGREEMENT First Union National Bank 301 South Tryon Street Charlotte, North Carolina 28202 (Hereinafter referred to as the "Bank") Kenan Transport Company 143 West Franklin Street Chapel Hill, North Carolina 27516-3910 (Hereinafter referred to as the "Borrower") This Loan Agreement ("Agreement") is entered into February 13, 1998, by and between Bank and Borrower, a Corporation (For profit) organized under the laws of North Carolina. Borrower has applied to Bank for a loan or loans (individually and collectively, the "Loan") evidenced by one or more promissory notes (whether one or more, the "Note") as follows: Line of Credit - in the principal amount of $20,000,000.00 which is evidenced by the Promissory Note executed of even date herewith ("Line of Credit Note"), under which Borrower may borrow, repay, and reborrow, from time to time, so long as the total indebtedness outstanding at any one time does not exceed the principal amount as reduced on a quarterly basis according to the availability reduction schedule specified in the Note. The Loan proceeds are to be used by Borrower for refinancing outstanding obligations, if any, pursuant to Borrower's existing $7,000,000.00 line of credit with Bank, financing acquisitions and related capital expenses, working capital and general corporate purposes. Bank's obligation to advance or readvance under the Line of Credit Note shall terminate if Borrower is in Default under the Line of Credit Note. This Agreement applies to the Loan and all Loan Documents. The terms "Loan Documents" and "Obligations," as used in this Agreement, are defined in the Note. The term "Borrower" shall include its Subsidiaries. As used in this Agreement as to Borrower, "Subsidiary" shall mean any corporation of which more than 80% of the issued and outstanding voting stock is owned directly or indirectly by Borrower. Each Subsidiary of the Bank, now existing or hereafter acquired, will execute an unconditional guaranty of the Note identical in form to that attached hereto as Exhibit A. Relying upon the covenants, agreements, representations and warranties contained in this Agreement, Bank is willing to extend credit to Borrower upon the terms and subject to the conditions set forth herein, and Bank and Borrower agree as follows: REPRESENTATIONS. Borrower represents that from the date of this Agreement and until final payment in full of the Obligations: Accurate Information. All information now and hereafter furnished to Bank is and will be as of the date of any future advance true, correct and complete provided however that any projections on Borrower's future performance provided to Bank by Borrower while made in good faith, were intended to be predictions and are not warranted as to ultimate accuracy. Any such information relating to Borrower's financial condition will accurately reflect Borrower's financial condition as of the date(s) thereof, (including guarantys and contingent liabilities of a type required by generally accepted accounting principles to be reflected therein), and Borrower further represents that its financial condition has not changed materially or adversely since the date(s) of such documents. Page 1 Authorization; Non-Contravention. The execution, delivery and performance by Borrower and any guarantor, as applicable, of this Agreement and other Loan Documents to which it is a party are within its power, have been duly authorized by all necessary action taken by the duly authorized officers of Borrower and any guarantors and, if necessary, by making appropriate filings with any governmental agency or unit and are the legal, binding, valid and enforceable obligations of Borrower and any guarantors (subject to bankruptcy and other equitable principles); and do not (i) contravene, or constitute (with or without the giving of notice or lapse of time or both) a violation of any provision of applicable law, a violation of the organizational documents of Borrower or any guarantor, or a default under any agreement, judgment, injunction, order, decree or other instrument binding upon or affecting Borrower or any guarantor, (ii) result in the creation or imposition of any lien (other than the lien(s) created by the Loan Documents) on any of Borrower's or guarantor's assets, or (iii) give cause for the acceleration of any obligations of Borrower or any guarantor to any other creditor. Asset Ownership. Borrower has good and marketable title to all of the properties and assets reflected on the balance sheets and financial statements supplied Bank by Borrower, and all such properties and assets are free and clear of mortgages, security deeds, pledges, liens, charges, and all other encumbrances, except as otherwise disclosed to Bank by Borrower in writing ("Permitted Liens") and listed on the Schedule of Permitted Liens attached hereto as Exhibit B. To Borrower's knowledge, no default has occurred under any Permitted Liens and no claims or interests adverse to Borrower's present rights in its properties and assets have arisen. Discharge of Liens and Taxes. Borrower has duly filed, paid and/or discharged all taxes or other claims which may become a lien on any of its property or assets, except to the extent that such items are being appropriately contested in good faith and an adequate reserve for the payment thereof is being maintained. Sufficiency of Capital. Borrower is not, and after consummation of this Agreement and after giving effect to all indebtedness incurred and liens created by Borrower in connection with the Loan, will not be, insolvent within the meaning of 11 U.S.C. Section 101(32). Compliance with Laws. Borrower is in compliance in all material respects with all federal, state and local laws, rules and regulations applicable to its properties, operations, business, and finances, including, without limitation, any federal or state laws relating to liquor (including 18 U.S.C. Section 3617, et seq.) or narcotics (including 21 U.S.C. Section 801, et seq.) and/or any commercial crimes; all applicable federal, state and local laws and regulations intended to protect the environment; and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), if applicable. Organization and Authority. Each corporate or limited liability company Borrower and any guarantor, as applicable, is duly created, validly existing and in good standing under the laws of the state of its organization, and has all powers, governmental licenses, authorizations, consents and approvals required to operate its business as now conducted. Each corporate or limited liability company Borrower and any guarantor, if any, is duly qualified, licensed and in good standing in each jurisdiction where qualification or licensing is required by the nature of its business or the character and location of its property, business or customers, and in which the failure to so qualify or be licensed, as the case may be, in the aggregate, could have a material adverse effect on the business, financial position, results of operations, properties or prospects of Borrower or any such guarantor. No Litigation. There are no pending or threatened suits, claims or demands against Borrower or any guarantor the potential aggregate liability to Borrower for which in the reasonable estimation of Borrower, exceeds $2,000,000.00. Page 2 Regulation U. None of the proceeds of the Loan made pursuant to this Agreement shall be used directly or indirectly for the purpose of purchasing or carrying any margin stock in violation of any of the provisions of Regulation U of the Board of Governors of the Federal Reserve System ("Regulation U"), or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry margin stock or for any other purchase which might render the Loan a "Purpose Credit" within the meaning of Regulation U. ERISA. Each employee pension benefit plan, as defined in ERISA, maintained by Borrower meets, as of the date hereof, the minimum funding standards of ERISA and all applicable regulations thereto and requirements thereof, and of the Internal Revenue Code of 1954, as amended. No "Prohibited Transaction" or "Reportable Event" (as both terms are defined by ERISA) has occurred with respect to any such plan. AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and until final payment in full of the Obligations, unless Bank shall otherwise consent in writing, Borrower will: Business Continuity. Conduct its business in substantially the same manner as such business is now and has previously been conducted. Maintain Properties. Maintain, preserve and keep its property in good repair, working order and condition, making all needed replacements, additions and improvements thereto, to the extent allowed by this Agreement. Access to Books & Records. Allow Bank, or its agents, during normal business hours, access to the books, records and such other documents of Borrower as Bank shall reasonably require, and allow Bank to make copies thereof at Bank's expense. Insurance. Maintain adequate insurance coverage with respect to its properties and business against loss or damage of the kinds and in the amounts customarily insured against by companies of established reputation engaged in the same or similar businesses including, without limitation, commercial general liability insurance, workers compensation insurance, and business interruption insurance; and provide such proof of insurance coverage as the Bank may from time to time reasonably request. Notice of Default and Other Notices. (a) Notice of Default. Furnish to Bank immediately upon becoming aware of the existence of any condition or event which constitutes a Default (as defined in the Loan Documents) or any event which, upon the giving of notice or lapse of time or both, may become a Default, written notice specifying the nature and period of existence thereof and the action which Borrower is taking or proposes to take with respect thereto. (b) Other Notices. Promptly notify Bank in writing of (i) any material adverse change in its financial condition or its business; (ii) any default under any material agreement, contract or other instrument to which it is a party or by which any of its properties are bound, or any acceleration of the maturity of any indebtedness owing by Borrower; (iii) any material adverse claim against or affecting Borrower or any part of its properties; (iv) the commencement of, and any material determination in, any litigation with any third party or any proceeding before any governmental agency or unit affecting Borrower; and (v) at least 30 days prior thereto, any change in Borrower's name or address as shown above, and/or any change in Borrower's corporate structure. Compliance with Other Agreements. Comply with all terms and conditions contained in this Agreement and any other Loan Documents as defined in the Note, including but not limited to the ISDA Master Swap Agreement between Borrower and Bank effective December 10, 1997. Page 3 Payment of Debts. Pay and discharge when due or reasonably promptly thereafter, and before subject to penalty or further charge, and otherwise satisfy before maturity or delinquency, all obligations, debts, taxes, and liabilities of whatever nature or amount, except those which Borrower in good faith disputes. Reports and Proxies. Deliver to Bank, promptly, a copy of all financial statements, reports, notices, and proxy statements, sent by Borrower to stockholders all 10-K's and 10-Q's, and such reports required to be filed by Borrower with any governmental agencies or authorities as the Bank may from time to time reasonably request. Other Financial Information. Deliver promptly such other information regarding the operation, business affairs, and financial condition of Borrower which Bank may reasonably request. Non-Default Certificate From Borrower. Deliver to Bank, with the Financial Statements required herein, a certificate signed by Borrower, if Borrower is an individual, or by a principal financial officer of Borrower warranting that no "Default" as specified in the Loan Documents nor any event which, upon the giving of notice or lapse of time or both, would constitute such a Default, has occurred. Estoppel Certificate. Furnish, within 15 days after request by Bank, a written statement duly acknowledged of the amount due under the Loan and whether offsets or defenses exist against the Obligations. NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and until final payment in full of the Obligations, unless Bank shall otherwise consent in writing, Borrower and Subsidiaries will not: Default on Other Contracts or Obligations. Default (and failure to cure within any applicable cure period) on any material contract with or obligation when due to a third party or default in the performance of any obligation to a third party incurred for money borrowed in an amount in excess of $2,000,000.00, in each case, the effect of which default is to permit acceleration or termination of a contract, the acceleration or termination of which would be materially adverse to Borrower. Material Capital Structure or Business Alteration. (i) suffer a material alteration in the kind or type of Borrower's business or that of Borrower's Subsidiaries, if any; (ii) sell all or substantially all of the business or assets of Borrower, or any of Borrower's Subsidiaries, or; (iii) sell a material portion (25% or more in aggregate) of such business or assets if such a sale is outside the ordinary course of business of Borrower, or any of Borrower's Subsidiaries. Judgment Entered. Permit the entry of any monetary judgment or the assessment against, the filing of any tax lien against, or the issuance of any writ of garnishment or attachment against any property of or debts due Borrower in an amount in excess of $2,000,000.00 and that is not discharged or execution is not stayed within Thirty (30) days of entry. Government Intervention. Permit the assertion or making of any seizure, vesting or intervention by or under authority of any government by which the management of Borrower or any guarantor is displaced of its authority in the conduct of its respective business or such business is curtailed or materially impaired. Prepayment of Other Debt. Retire any long-term debt entered into prior to the date of this Agreement at a date in advance of its legal obligation to do so. Page 4 Change in Fiscal Year. Borrower or guarantor shall not change its fiscal year without the consent of Bank. Guarantees. Guarantee or otherwise become responsible for obligations of any unaffiliated person or entity in an aggregate amount in excess of $2,000,000.00 per fiscal year, other than the endorsement of checks and drafts for collection in the ordinary course of business. Encumbrances. Create, assume, or permit to exist any mortgage, security deed, deed of trust, pledge, lien, charge or other encumbrance on any of its assets, whether now owned or hereafter acquired, other than: (i) security interests required by the Loan Documents; (ii) liens for taxes contested in good faith; (iii) liens accruing by law for employee benefits; (iv) ordinary course liens such as carriers', warehousemen, mechanics' and lessors liens, not to exceed $2,000,000.00 in aggregate at any time; (v) capital leases not exceeding $7,000,000.00 in the aggregate at any time, or (vi) Permitted Liens. Mergers. Enter into any merger or consolidation unless Borrower is the surviving entity in such merger or consolidation. FINANCIAL COVENANTS. Borrower agrees to the following provisions from the date hereof until final payment in full of the Obligations, unless Bank shall otherwise consent in writing, and all financial covenants shall be calculated quarterly on a consolidated trailing twelve month basis, using the consolidated financial information for Borrower, its Subsidiaries, and its holding or parent company, as applicable: FUNDS FROM OPERATIONS TO FUNDED DEBT RATIO. Borrower shall at all times maintain a ratio of Funds from Operations to Funded Debt as determined in accordance with generally accepted accounting principles in effect on the date hereof of not less than 40%. "Funds from Operations" is defined as net after tax income of Borrower and its Subsidiaries before extraordinary non-recurring gains or losses plus depreciation and amortization minus dividends for the four fiscal quarters of Borrower most recently ended for which financial statements are due to be provided to Bank pursuant hereto. "Funded Debt" is defined as all indebtedness of Borrower and its Subsidiaries for borrowed money, including, but not limited to, obligations evidenced by notes, debentures, bonds, capital leases, and other similar instruments and shall be determined according to same financial statements used to determine funds from operations. FUNDED DEBT TO CAPITALIZATION. Borrower shall at all times maintain a Funded Debt to Capitalization Ratio as determined in accordance with generally accepted accounting principles in effect on the date hereof, of not more than 45%. "Capitalization" is defined as the sum of Funded Debt plus Consolidated Stockholder's Equity, determined by reference to the balance sheet from the period most recently ended for which financial statements are due to be provided to Bank pursuant hereto. ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days after the close of each fiscal year, audited financial statements reflecting its operations during such fiscal year, including, without limitation, a balance sheet, profit and loss statement and statement of cash flows, all on a consolidated basis and in reasonable detail, prepared in conformity with generally accepted accounting principles, as from time to time in effect. Supporting schedules to such statements will be supplied upon reasonable request of Bank. All such statements shall be examined by an independent certified public accountant acceptable to Bank. The opinion of such independent certified public accountant shall not be acceptable to Bank if qualified due to any limitations in scope imposed by Borrower or its Page 5 Subsidiaries, if any. Any other material qualification of the opinion by the accountant shall render the acceptability of the financial statements subject to Bank's approval. PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank quarterly financial statements, including, without limitation, a balance sheet, quarterly compliance certificate in form attached hereto as Exhibit C, profit and loss statement and statement of cash flows, as soon as available and in any event within 30 days after the close of each such period; all in reasonable detail and prepared in conformity with generally accepted accounting principles, as from time to time in effect. Supporting schedules to such statements will be supplied upon reasonable request of Bank. Such statements shall be certified as to their correctness by a principal financial officer of Borrower and in each case, if audited statements are required, subject to audit and year-end adjustments. FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information as Bank may reasonably request from time to time, including without limitation, financial statements and information pertaining to Borrower's or any subsidiary's financial condition. Such information shall be true, complete, and accurate. CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances pursuant to this Agreement are subject to the following conditions precedent: Additional Documents. Receipt by Bank of such additional supporting documents as Bank or its counsel may reasonably request. IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above, have caused this Agreement to be executed under seal. Kenan Transport Company Taxpayer Identification Number: 56-0516485 CORPORATE By: /s/ Lee P. Shaffer ----------------------------------- SEAL President & Chief Executive Officer Attest: /s/ William L. Boone --------------------- Secretary First Union National Bank CORPORATE By: /s/ William D. Alfano --------------------------------- SEAL President Page 6 EXHIBIT A UNCONDITIONAL GUARANTY Kenan Transport Company 143 West Franklin Street Chapel Hill, North Carolina 27514-3910 (Individually and collectively "Borrower") ________________________ ________________________ ______________, North Carolina _________ (Individually and collectively "Guarantor") First Union National Bank 301 South Tryon Street Charlotte, North Carolina 28202 (Hereinafter referred to as "Bank") To induce Bank to make, extend or renew loans, advances, credit, or other financial accommodations to or for the benefit of Borrower, and in consideration of loans, advances, credit, or other financial accommodations made, extended or renewed to or for the benefit of Borrower, Guarantor hereby absolutely, irrevocably and unconditionally guarantees to Bank and its successors, and assigns the timely payment and performance of all liabilities and obligations of Borrower to Bank under that certain Promissory Note dated February 13, 1998 and the Loan Documents as defined therein, and all extensions, modifications and renewals thereof, including without limitation all principal, interest, charges, and costs and expenses incurred thereunder (including attorneys' fees and other costs of collection incurred, regardless of whether suit is commenced) (collectively, the "Guaranteed Obligations"). Guarantor further covenants and agrees: GUARANTOR'S LIABILITY. This Guaranty is a continuing and unconditional guaranty of payment and performance and not of collection. The parties to this Guaranty are jointly and severally obligated hereunder. This Guaranty does not impose any obligation on Bank to extend or continue to extend credit or otherwise deal with Borrower at any subsequent time. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of the Guaranteed Obligations is rescinded, avoided or for any other reason must be returned by Bank, and the returned payment shall remain payable as part of the Guaranteed Obligations, all as though such payment had not been made. Except to the extent the provisions of this Guaranty give the Bank additional rights, this Guaranty shall not be deemed to supersede or replace any other guaranties given to Bank by Guarantor; and the obligations guaranteed hereby shall be in addition to any other obligations guaranteed by Guarantor pursuant to any other agreement of guaranty given to Bank and other guaranties of the Guaranteed Obligations. TERMINATION OF GUARANTY. Guarantor may terminate this Guaranty by written notice, delivered personally to or received by certified or registered United States Mail or by overnight courier by an authorized officer of the Bank at the address for notices provided herein. Such termination shall be effective with respect to Guaranteed Obligations arising more than 15 days after the date such written notice is received by said Bank officer. Guarantor may not terminate this Guaranty as to Page 1 Guaranteed Obligations (including any subsequent extensions, modifications or compromises of the Guaranteed Obligations) then existing, or to Guaranteed Obligations arising subsequent to receipt by Bank of said notice if such Guaranteed Obligations are a result of Bank's obligation to make advances pursuant to a commitment entered into prior to expiration of the 15 day notice period, or are a result of advances which are necessary for Bank to protect its collateral or otherwise preserve its interests. Termination of this Guaranty by any single Guarantor will not affect the existing and continuing obligations of any other guarantor hereunder. APPLICATION OF PAYMENTS, BANK LIEN AND SET-OFF. Monies received from any source by Bank for application toward payment of the Guaranteed Obligations may be applied to such Guaranteed Obligations in any manner or order deemed appropriate by Bank. Except as prohibited by law, Guarantor grants Bank a security interest in all of Guarantor's accounts maintained with Bank and any of its affiliates (collectively, the "Accounts"). If a Default occurs, Bank is authorized to exercise its right of set-off or to foreclose its lien against any obligation of Bank to Guarantor including, without limitation, all Accounts or any other debt of any maturity, without notice. CONSENT TO MODIFICATIONS. Guarantor consents and agrees that Bank may from time to time, in its sole discretion, without affecting, impairing, lessening or releasing the obligations of the Guarantor hereunder: (a) extend or modify the time, manner, place or terms of payment or performance and/or otherwise change or modify the credit terms of the Guaranteed Obligations; (b) increase, renew, or enter into a novation of the Guaranteed Obligations; (c) waive or consent to the departure from terms of the Guaranteed Obligations; (d) permit any change in the business or other dealings and relations of Borrower or any other guarantor with Bank; (e) proceed against, exchange, release, realize upon, or otherwise deal with in any manner any collateral that is or may be held by Bank in connection with the Guaranteed Obligations or any liabilities or obligations of Guarantor; and (f) proceed against, settle, release, or compromise with Borrower, any insurance carrier, or any other person or entity liable as to any part of the Guaranteed Obligations, and/or subordinate the payment of any part of the Guaranteed Obligations to the payment of any other obligations, which may at any time be due or owing to Bank; all in such manner and upon such terms as Bank may deem appropriate, and without notice to or further consent from Guarantor. No invalidity, irregularity, discharge or unenforceability of, or action or omission by Bank relating to any part of, the Guaranteed Obligations or any security therefor shall affect or impair this Guaranty. WAIVERS AND ACKNOWLEDGMENTS. Guarantor waives and releases the following rights, demands, and defenses Guarantor may have with respect to Bank and collection of the Guaranteed Obligations: (a) promptness and diligence in collection of any of the Guaranteed Obligations from Borrower or any other person liable thereon, and in foreclosure of any security interest and sale of any property serving as collateral for the Guaranteed Obligations; (b) any law or statute that requires that Bank make demand upon, assert claims against, or collect from Borrower or other persons or entities, foreclose any security interest, sell collateral, exhaust any remedies, or take any other action against Borrower or other persons or entities prior to making demand upon, collecting from or taking action against Guarantor with respect to the Guaranteed Obligations, including any such rights Guarantor might otherwise have had under Va. Code Subsection 49-25 and 49-26, et seq., N.C.G.S. Subsection 26-7, et seq., Tenn. Code Ann. Section 47-12-101, O.C.G.A. Section 10-7-24 (and any successor statute) and any other applicable law; (c) any law or statute that requires that Borrower or any other person be joined in, notified of or made part of any action against Guarantor; (d) that Bank preserve, insure or perfect any security interest in collateral or sell or dispose of collateral in a particular manner or at a particular time; (e) notice of extensions, modifications, renewals, or novations of the Guaranteed Obligations, of any new transactions or other relationships between Bank, Borrower and/or any guarantor, and of changes in the financial condition of, ownership of, or business structure of Borrower or any other guarantor; (f) presentment, protest, notice of dishonor, notice of default, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale, and all other notices of any kind whatsoever; (g) the right to assert against Bank any defense (legal or equitable), set-off, counterclaim, Page 2 or claim that Guarantor may have at any time against Borrower or any other party liable to Bank; (h) all defenses relating to invalidity, insufficiency, unenforceability, enforcement, release or impairment of Bank's lien on any collateral, of the Loan Documents, or of any other guaranties held by Bank; (i) any claim or defense that acceleration of maturity of the Guaranteed Obligations is stayed against Guarantor because of the stay of assertion or of acceleration of claims against any other person or entity for any reason including the bankruptcy or insolvency of that person or entity; and (j) the benefit of any exemption claimed by Guarantor. Guarantor acknowledges and represents that it has relied upon its own due diligence in making its own independent appraisal of Borrower, Borrower's business affairs and financial condition, and any collateral; Guarantor will continue to be responsible for making its own independent appraisal of such matters; and Guarantor has not relied upon and will not hereafter rely upon Bank for information regarding Borrower or any collateral. FINANCIAL CONDITION. Guarantor warrants, represents and covenants to Bank that on and after the date hereof: (a) the fair saleable value of Guarantor's assets exceeds its liabilities, Guarantor is meeting its current liabilities as they mature, and Guarantor is and shall remain solvent; (b) all financial statements of Guarantor furnished to Bank are correct and accurately reflect the financial condition of Guarantor as of the respective dates thereof; (c) since the date of such financial statements, there has not occurred a material adverse change in the financial condition of Guarantor; (d) there are not now pending any court or administrative proceedings or undischarged judgments against Guarantor, no federal or state tax liens have been filed or threatened against Guarantor, and Guarantor is not in default or claimed default under any agreement; and (e) at such reasonable times as Bank requests, Guarantor will furnish Bank with such other financial information as Bank may reasonably request; provided however that if Guarantor is a wholly- owned subsidiary of Borrower the submission of consolidated financial statements by Borrower as required by the Loan Agreement shall be adequate financial information. INTEREST. Regardless of any other provision of this Guaranty or other Loan Documents, if for any reason the effective interest on any of the Guaranteed Obligations should exceed the maximum lawful interest, the effective interest shall be deemed reduced to and shall be such maximum lawful interest, and any sums of interest which have been collected in excess of such maximum lawful interest shall be applied as a credit against the unpaid principal balance of the Guaranteed Obligations. DEFAULT. If any of the following events occur, a default ("Default") under this Guaranty shall exist: (a) Failure of timely payment or performance of the Guaranteed Obligations or a default under any Loan Document; (b) A breach of any agreement or representation contained or referred to in the Guaranty, or any of the Loan Documents, or contained in any other contract or agreement of Guarantor with Bank or its affiliates, whether now existing or hereafter arising; (c) The death of, appointment of a guardian for, dissolution of, termination of existence of, loss of good standing status by, appointment of a receiver for, assignment for the benefit of creditors of, or the commencement of any insolvency or bankruptcy proceeding by or against, Guarantor or any general partner of or the holder(s) of the majority ownership interests of Guarantor; and/or (d) The entry of any monetary judgment or the assessment against, the filing of any tax lien against, or the issuance of any writ of garnishment or attachment against any property of or debts due Guarantor in an amount which may have a materially adverse impact on the financial condition of Guarantor. If a Default occurs, the Guaranteed Obligations shall be due immediately and payable without notice. Guarantor shall pay interest on the Guaranteed Obligations from such Default at the highest rate of interest charged on any of the Guaranteed Obligations. ATTORNEY'S FEES AND OTHER COSTS OF COLLECTION. Guarantor shall pay all of Bank's reasonable expenses incurred to enforce or collect any of the Guaranteed Obligations, including, without limitation, reasonable arbitration, paralegals', attorneys' and experts' fees and expenses, Page 3 whether incurred without the commencement of a suit, in any suit, arbitration, or administrative proceeding, or in any appellate or bankruptcy proceeding. SUBORDINATION OF OTHER DEBTS. Guarantor agrees: (a) to subordinate the obligations now or hereafter owed by Borrower to Guarantor ("Subordinated Debt") to any and all obligations of Borrower to Bank now or hereafter existing while this Guaranty is in effect, provided however that Guarantor may receive regularly scheduled principal and interest payments on the Subordinated Debt so long as (i) all sums due and payable by Borrower to Bank have been paid in full on or prior to such date, and (ii) no event or condition which constitutes or which with notice or the lapse or time would constitute an event of default with respect to the Guaranteed Obligations, shall be continuing on or as of the payment date; (b) Guarantor will place a legend indicating such subordination on every note, ledger page or other document evidencing any part of the Subordinated Debt; and (c) except as permitted by this paragraph, Guarantor will not request or accept payment of or any security for any part of the Subordinated Debt, and any proceeds of the Subordinated Debt paid to Guarantor, through error or otherwise, shall immediately be forwarded to Bank by Guarantor, properly endorsed to the order of Bank, to apply to the Guaranteed Obligations. MISCELLANEOUS. (a) Assignment. This Guaranty and other Loan Documents shall inure to the benefit of and be binding upon the parties and their respective heirs, legal representatives, successors and assigns. Bank's interests in and rights under this Guaranty and other Loan Documents are freely assignable, in whole or in part, by Bank. Any assignment shall not release Guarantor from the Guaranteed Obligations. (b) Applicable Law; Conflict Between Documents. This Guaranty and other Loan Documents shall be governed by and construed under the laws of the state named in Bank's address shown above without regard to that state's conflict of laws principles. If the terms of this Guaranty should conflict with the terms of any commitment letter that survives closing, the terms of this Guaranty shall control. (c) Jurisdiction. Guarantor irrevocably agrees to non-exclusive personal jurisdiction in the state named in Bank's address shown above. (d) Severability. If any provision of this Guaranty or of the other Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty or other document. (e) Notices. Any notices to Guarantor shall be sufficiently given, if in writing and mailed or delivered to the Guarantor's address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Bank's office address shown above or such other address as Bank may specify in writing from time to time. In the event that Guarantor changes Guarantor's address at any time prior to the date the Guaranteed Obligations are paid in full, Guarantor agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, all charges prepaid. (f) Plural; Captions. All references in the Loan Documents to borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term "person" shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. (g) Binding Contract. Guarantor by execution of and Bank by acceptance of this Guaranty agree that each party is bound to all terms and provisions of this Guaranty and, in the case of amendments or modifications, by Guarantor. (h) Amendments, Waivers and Remedies. No waivers, amendments or modifications of this Guaranty and other Loan Documents shall be valid unless in writing and signed by an officer of Bank. No waiver by Bank of any Default shall operate as a waiver of any other Default or the same Default on a future occasion. Neither the failure nor any delay on the part of Bank in exercising any right, power, or privilege granted pursuant to this Guaranty and other Loan Documents shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege. All remedies available to Bank with respect to this Guaranty and other Loan Documents and remedies available at law or in equity shall be cumulative and may be pursued concurrently or successively. (i) Partnerships. If Guarantor is a partnership, the obligations, liabilities and agreements on the part of Guarantor shall remain in full force and Page 4 effect and fully applicable notwithstanding any changes in the individuals comprising the partnership. The term "Guarantor" includes any altered or successive partnerships, and predecessor partnership(s) and the partners shall not be released from any obligations or liabilities hereunder. (j) Loan Documents. The term "Loan Documents" refers to all documents executed in connection with the Guaranteed Obligations and may include, without limitation, commitment letters that survive closing, loan agreements, other guaranty agreements, security agreements, instruments, financing statements, mortgages, deeds of trust, deeds to secure debt, letters of credit and any amendments or supplements (excluding swap agreements as defined in 11 U.S. Code Section 101). FINANCIAL AND OTHER INFORMATION. Annual Financial Statements. Guarantor shall deliver to Bank, within 90 days after the close of each fiscal year, financial statements reflecting its operations during such fiscal year, including, without limitation, a balance sheet, profit and loss statement and statement of cash flows, all on a consolidated basis and in reasonable detail, prepared in conformity with generally accepted accounting principles, as from time to time in effect. Supporting schedules to such statements will be supplied upon reasonable request of Bank. Such statements shall be certified as to their correctness by a principal financial officer of Guarantor. Additional Information. Guarantor shall deliver to Bank such information as Bank may reasonably request from time to time, including without limitation, financial statements and information pertaining to Guarantor's financial condition. Such information shall be true, complete, and accurate. Arbitration. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to this Guaranty and other Loan Documents ("Disputes") between or among parties to this Guaranty shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaims, disputes as to whether a matter is subject to arbitration, claims brought as class actions, claims arising from Loan Documents executed in the future, or claims arising out of or connected with the transaction reflected by this Guaranty. Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in the city in which the office of Bank first stated above is located. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000.00. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys. The single arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of the state where the hearing will be conducted or if such person is not available to serve, the single arbitrator may be a licensed attorney. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. Preservation and Limitation of Remedies. Notwithstanding the preceding binding arbitration provisions, Bank and Guarantor agree to preserve, without diminution, certain remedies that any party hereto may employ or exercise freely, independently or in connection with an arbitration proceeding or after an arbitration action is brought. Bank and Guarantor shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted under Loan Documents or under applicable law or by judicial foreclosure and sale, including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by Page 5 confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute. Guarantor and Bank agree that they shall not have a remedy of punitive or exemplary damages against the other in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute whether the Dispute is resolved by arbitration or judicially. IN WITNESS WHEREOF, Guarantor, on the day and year first written above, has caused this Unconditional Guaranty to be executed under seal. 56-0516485 ------------------------------ Taxpayer Identification Number CORPORATE By: /s/ Lee P. Shaffer ----------------------------------- SEAL President & Chief Executive Officer ATTEST: /s/ William L. Boone - --------------------------- Secretary Page 6 EXHIBIT B KENAN TRANSPORT COMPANY SCHEDULE OF PERMITTED LIENS As a result of asset purchase of Transport South, Inc. on December 1, 1997, the December 31, 1997 financial statements to be submitted to First Union National Bank will include $3,070,260 in capital lease obligations. EXHIBIT C BORROWERS' COMPLIANCE CERTIFICATE The undersigned officer of Kenan Transport Co. ("KTC") hereby certifies, pursuant to Section 5.01(d) of the Loan Agreement (the "Loan Agreement") dated as of February 13, 1998, among KTC and First Union National Bank (the "Bank"), that: 1. I have reviewed the terms of the Loan Agreement and have made, or caused to be made under my supervision, a review of the activities and condition of KTC and its Subsidiaries during the accounting period set forth below and that as of the date of this Certificate to the best of the undersigned's knowledge after diligent inquiry the undersigned (on behalf of the Borrowers and not in his individual capacity) certifies: (a) the representations and warranties contained in the Loan Agreement and as set forth in the other Loan Documents are in all material respects true and correct (except (i) such representations and warranties which relate specifically to an earlier date or which refer to financial statements that are not the most recent financial statements of KTC and its Subsidiaries furnished to the Bank pursuant to the Loan Agreement, and (ii) those representations which are no longer true due to an action or event specifically permitted by the provisions of the Loan Documents); (b) no Default or Event of Default has occurred and is continuing that has not been waived by the Bank in writing (or if a Default or Event of Default has occurred, attached is a description in reasonable detail as to the proposed action to be taken by the Borrowers with respect thereto); and (c) no change has occurred in the operations or condition, financial or otherwise, of the Borrowers since the Closing Date which could have a Material Adverse Effect. 2. (a) Quarterly Statements. The accompanying financial statements of KTC and its Subsidiaries as of December 31, 1997 for the quarterly accounting period ending December 31, 1997 present fairly, in accordance with GAAP, the financial position of KTC and its Subsidiaries as of the end of such period, and the results of operations for such period then ended, and for the elapsed portion of the fiscal year ended with the last day of such period, in each case prepared in accordance with GAAP (except for the absence of footnotes and normal year-end adjustments under GAAP). (b) Annual Statements. The accompanying audited financial statements of KTC and its Subsidiaries as of December 31, 1997 for the annual accounting period ending December 31, 1997 present fairly, in accordance with GAAP, the financial position of KTC and its Subsidiaries as of the end of such period, and the results of operations for such period then ended, on the basis presented. 3. To the best of the undersigned's knowledge after diligent inquiry, the undersigned (on behalf of the Borrowers and not in his individual capacity) certifies that the Borrowers have observed, performed and fulfilled in all material respects each and every obligation and covenant contained in the Loan Agreement. Attached hereto as Schedule I are calculations performed by me or under my Page 1 supervision demonstrating for the accounting period set forth above the Borrowers' compliance with each of the following Sections of the Loan Agreement: (a) Financial Covenants - Funds from Operations to Funded Debt Ratio (b) Financial Covenants - Funded Debt to Capitalization Capitalized terms used herein and not otherwise defined are used as defined in the Loan Agreement. IN WITNESS WHEREOF, I have signed this Certificate as of February 13, 1998. By: /s/ William L. Boone ------------------------ Name: William L. Boone ------------------------ Title: Vice President - Finance ------------------------ Page 2 EX-10.I 3 EXHIBIT 10.I PROMISSORY NOTE $20,000,000.00 February 13, 1998 Kenan Transport Company 143 West Franklin Street Chapel Hill, North Carolina 27516-3910 (Hereinafter referred to as the "Borrower") First Union National Bank 301 South Tryon Street Charlotte, North Carolina 28202 (Hereinafter referred to as the "Bank") Borrower promises to pay to the order of Bank, in lawful money of the United States of America, at its office indicated above or wherever else Bank may specify, on March 31, 2003 or upon any accelerated maturity of the Obligations hereunder, the sum of Twenty Million Dollars ($20,000,000.00) or such sum as may be advanced and outstanding from time to time with interest on the unpaid principal balance at the rate and on the terms provided in this Promissory Note (including all renewals, extensions or modifications hereof, this "Note"). AVAILABILITY REDUCTION. The total credit available to Borrower pursuant to this Note "Maximum Loan Availability" shall decline $500,000 each quarter in accordance with the Availability Reduction Schedule attached hereto as Exhibit A and incorporated by reference. The Availability Reduction Schedule, is based on a five-year level principal amortization of Ten Million Dollars ($10,000,000.00). INTEREST RATE DEFINITIONS. Prime Rate. The rate of Bank's Prime Rate minus 1.0% as that rate may change from time to time with changes to occur on the date Bank's Prime Rate changes ("Prime-Based Rate"). "Bank's Prime Rate" shall be that rate announced by Bank from time to time as its prime rate and is one of several interest rate bases used by Bank. Bank lends at rates both above and below Bank's Prime Rate, and Borrower acknowledges that Bank's Prime Rate is not represented or intended to be the lowest or most favorable rate of interest offered by Bank. LIBOR Market Index. Libor Market Index as that rate may change from day-to-day in accordance with changes in the Libor Market Rate Index, plus a margin based upon the ratio of Borrower's funds from operations to funded debt ("LIBOR Market Index-Based Rate"), tested on a trailing four quarter basis as shown below, and adjusted five days after receipt by Bank of Borrower's quarterly financial statements. Funds from Operations to Funded Debt Applicable Margin Less than 0.60 0.625% Greater than or equal to 0.60 but less than 1.05 0.500% Greater than or equal to 1.05 0.375% Page 1 "LIBOR Market Index", for any day, is the rate (rounded to the next higher 1/100 of 1%) for 1 month U.S. dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London time, on such day, or if such day is not a London business day, then the immediately preceding London business day (or if not so reported, then as determined by Bank from another recognized source or interbank quotation). "Funded Debt" is defined as all indebtedness of Borrower and its subsidiaries for borrowed money, including but not limited to obligations evidenced by notes, debentures, bonds, capital leases and other similar instruments. "Funds From Operations" is defined as net after tax income of Borrower and its subsidiaries plus depreciation and amortization minus dividends. All terms not specifically defined herein shall be interpreted according to generally accepted accounting principles. INTEREST RATE SELECTION AND ADJUSTMENT. Interest Rate Options. Subject to the provisions hereof, at the election of Borrower, the unpaid principal balance of an Advance (defined herein) under this Note shall bear interest from the date such Advance is made available to the Borrower at the LIBOR Market Index-Based Rate or Prime-Based Rate selected by Borrower in accordance herewith (each, an "Interest Rate"). Borrower shall select the Interest Rate pursuant to the subparagraph entitled "Notice and Manner of Borrowing and Rate Conversion" below. There shall be no more than one Interest Rate for an Advance in effect at any time. When the Prime-Based Rate is selected for an Advance, it shall be adjusted daily as applicable to reflect Bank's Prime Rate and the Prime-Based Rate shall continue to apply until another Interest Rate option for an Advance is selected pursuant to the subparagraph entitled "Notice and Manner of Borrowing and Rate Conversion." When the LIBOR Market Index-Based Rate is selected for an Advance, it shall be adjusted daily as applicable to reflect LIBOR Market Index and the LIBOR Market Index-Based Rate shall continue to apply until another Interest Rate option for an Advance is selected pursuant to the subparagraph entitled "Notice and Manner of Borrowing and Rate Conversion." Until the Borrower selects an initial Interest Rate as provided herein, the Advance shall bear interest at the Prime-Based Rate. The initial Applicable Margin, for purposes of determining the LIBOR Market Index shall be calculated according to the ratio of Borrowers Funds from Operations to Funded Debt reflected in Borrower's Initial Compliance Certificate based upon financial information from Borrower's most recently ended quarter. Default Rate. In addition to all other rights contained in this Note, if a Default (defined herein) occurs and as long as a Default continues, all outstanding Obligations shall bear interest at the Interest Rate plus 3% ("Default Rate"), except if the Note is governed by the laws of the State of North Carolina and the original principal amount is under or equal to $300,000.00, the Default Rate shall be the Prime-Based Rate. The Default Rate shall also apply from acceleration until the Obligations or any judgment thereon is paid in full. Notice and Manner of Borrowing and Rate Conversion. Borrower shall give Bank irrevocable telephonic notice (confirmed in writing) of each proposed Advance or rate conversion not later than 11:00 a.m. local time at the office of Bank first shown above (a) on the same business day as each proposed Advance or rate conversion to a Prime-Based Rate or LIBOR Market Index-Based Rate. Each Page 2 such notice shall specify (i) the date of such Advance or rate conversion, which shall be a business day, (ii) the amount of each Advance or the amount to be converted, and (iii) the Interest Rate selected by Borrower. Notices received after 11:00 a.m. local time at the office of Bank first shown above shall be deemed received on the next business day. INTEREST AND FEE(S) COMPUTATION. (Actual/360). Interest and fees, if any, shall be computed on the basis of a 360-day year for the actual number of days in the applicable period ("Actual/360 Computation"). The Actual/360 Computation determines the annual effective yield by taking the stated (nominal) rate for a year's period and then dividing said rate by 360 to determine the daily periodic rate to be applied for each day in the applicable period. Application of the Actual/360 Computation produces an annualized effective rate exceeding that of the nominal rate. REPAYMENT TERMS. This Note shall be due and payable in consecutive quarterly payments of accrued interest only commencing on March 31, 1998, and on each quarterly anniversary thereafter until fully paid. If at any time the outstanding principal balance on the Note exceeds the Maximum Loan Availability, whether as a result of an availability reduction or otherwise, the amount of such excess will be paid immediately to the Bank. In any event, all principal and accrued interest shall be due and payable on March 31, 2003. PREPAYMENT. This Note and the Obligations may be prepaid in part or in full at any time and from time to time without premium or penalty, provided however any prepayment in whole or in part will not affect the Borrower's obligation to continue making payments in connection with any swap agreement (as defined in 11 U.S.C. 101), which will remain in full force and effect notwithstanding that prepayment. AVAILABILITY FEE. Borrower shall pay to Bank quarterly an availability fee equal to .10% per annum on the average daily unused available principal under the Note for the preceding calendar quarter or portion thereof. FACILITY FEE. Borrower shall pay a facility fee of .10% of the initial principal loan amount at closing. APPLICATION OF PAYMENTS. Monies received by Bank from any source for application toward payment of the Obligations shall be applied to accrued interest and then to principal. If a Default occurs, monies may be applied to the Obligations in any manner or order deemed appropriate by Bank. If any payment received by Bank under this Note or other Loan Documents is rescinded, avoided or for any reason returned by Bank because of any adverse claim or threatened action, the returned payment shall remain payable as an obligation of all persons liable under this Note or other Loan Documents as though such payment had not been made. LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and other Loan Documents refers to all documents executed in connection with the loan evidenced by this Note, and may include, without limitation, a commitment letter that survives closing, a loan agreement, this Note, guaranty agreements, security agreements, security instruments, financing statements, mortgage instruments, letters of credit and any renewals or modifications, whenever any of the foregoing are executed, but does not include swap agreements (as defined in 11 U.S.C. Section 101). The term "Obligations" used in this Note refers to any and all indebtedness and other obligations under this Note, all other obligations and covenants under any other Loan Document(s), and all obligations under any swap agreements as defined in 11 U.S.C. Section 101 between Borrower and Bank whenever executed. Page 3 LATE CHARGE. If any payments are not timely made, Borrower shall also pay to Bank a late charge equal to 4% of each payment past due for 15 or more days. Acceptance by Bank of any late payment without an accompanying late charge shall not be deemed a waiver of Bank's right to collect such late charge or to collect a late charge for any subsequent late payment received. ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's reasonable expenses incurred to enforce or collect any of the Obligations, including, without limitation, reasonable arbitration, paralegals', attorneys' and experts' fees and expenses, whether incurred without the commencement of a suit, in any trial, arbitration, or administrative proceeding, or in any appellate or bankruptcy proceeding. USURY. Regardless of any other provision of this Note or other Loan Documents, if for any reason the effective interest should exceed the maximum lawful interest, the effective interest shall be deemed reduced to, and shall be, such maximum lawful interest, and (i) the amount which would be excessive interest shall be deemed applied to the reduction of the principal balance of this Note and not to the payment of interest, and (ii) if the loan evidenced by this Note has been or is thereby paid in full, the excess shall be returned to the party paying same, such application to the principal balance of this Note or the refunding of excess to be a complete settlement and acquittance thereof. DEFAULT. If any of the following occurs, a default ("Default") under this Note shall exist: Nonpayment; Nonperformance. The failure to make any payment of principal or interest within five days of due date, or of performance of the Obligations or Default under this Note or any other Loan Documents, which is not cured within fifteen days of notice thereof, provided however that the Bank shall not be required to give notice in the event of a violation by Borrower of the Negative Covenants or the Financial Covenants in the Loan Agreement and Borrower shall not be entitled to a cure period with respect to such violations, nor shall the Bank be required to give the Borrower the opportunity to cure any inaccuracy in a representation that is required by the Loan Documents to have been true when stated. False Warranty. A warranty or representation made in the Loan Documents or furnished Bank in connection with the loan evidenced by this Note proves to have been materially false when made, or if of a continuing nature, becomes materially false. Projections regarding future performance of the Borrower provided by Borrower to Bank in connection with the loan evidenced by this Note are not deemed to be representations the ultimate inaccuracy of which can be deemed grounds for default by Bank. Cross Default. At Bank's option, any default in payment or performance of any obligation under any other loans, contracts or agreements of Borrower or any Subsidiary of Borrower, with Bank or its affiliates. "Subsidiary" shall mean any corporation of which more than 80% of the issued and outstanding voting stock is owned directly or indirectly by Borrower. Cessation; Bankruptcy. The death of, appointment of guardian for, dissolution of, termination of existence of, loss of good standing status by, appointment of a receiver for, assignment for the benefit of creditors of, or commencement of any bankruptcy or insolvency proceeding by or against the Borrower or its Subsidiaries, if any, or any general partner of or the holder(s) of the majority ownership interests of Borrower, or any party to the Loan Documents. REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan Documents, Bank may at any time thereafter, take the following actions: Page 4 Bank Lien. Foreclose its lien against Borrower's accounts without notice. Acceleration Upon Default. Accelerate the maturity of this Note and all other Obligations, and all of the Obligations shall be immediately due and payable. Cumulative. Exercise any rights and remedies as provided under the Note and other Loan Documents, or as provided by law or equity. LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and, pursuant to the terms hereof, may prepay and Bank may advance and readvance under this Note respectively from time to time until the maturity hereof (each an "Advance" and together the "Advances"), so long as the total indebtedness outstanding at any one time does not exceed the principal amount stated on the face of this Note minus the applicable Availability Reduction. Bank's obligation to make Advances under this Note shall terminate if Borrower is in Default or a representation in any of the Loan Documents is false or has become false. As of the date of each proposed Advance, Borrower shall be deemed to represent that each representation made in the Loan Documents is true as of such date. WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and other Loan Documents shall be valid unless in writing and signed by an officer of Bank and, in the case of amendments or modifications, the other parties hereto. No waiver by Bank of any Default shall operate as a waiver of any other Default or the same Default on a future occasion. Neither the failure nor any delay on the part of Bank in exercising any right, power, or remedy under this Note and other Loan Documents shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Each Borrower or any person liable under this Note waives presentment, protest, notice of dishonor, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other notices of any kind. Further, each agrees that Bank may extend, modify or renew this Note or make a novation of the loan evidenced by this Note for any period and grant any releases, compromises or indulgences with respect to any collateral securing this Note, or with respect to any other Borrower or any other person liable under this Note or other Loan Documents, all without notice to or consent of each Borrower or each person who may be liable under this Note or other Loan Documents and without affecting the liability of Borrower or any person who may be liable under this Note or other Loan Documents. MISCELLANEOUS PROVISIONS. Assignment. This Note and other Loan Documents shall inure to the benefit of and be binding upon the parties and their respective heirs, legal representatives, successors and assigns. Bank's interests in and rights under this Note and other Loan Documents are freely assignable, in whole or in part, by Bank. In addition, nothing in this Note or any of the Loan Documents shall prohibit Bank from pledging or assigning this Note or any of the Loan Documents or any interest therein to any Federal Reserve Bank. Borrower shall not assign its rights and interest hereunder without the prior written consent of Bank, and any attempt by Borrower to assign without Bank's prior written consent is null and void. Any assignment shall not release Borrower from the Obligations. Applicable Law; Conflict Between Documents. This Note and other Loan Documents shall be governed by and construed under the laws of the state named in Bank's address shown above without regard to that state's conflict of laws principles. If the terms of this Note should conflict with the terms of the loan agreement or any commitment letter that survives closing, the terms of this Note shall control. Page 5 Borrower's Accounts. Except as prohibited by law, Borrower grants Bank a security interest in all of Borrower's accounts with Bank and any of its affiliates. Jurisdiction. Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state named in Bank's address shown above. Severability. If any provision of this Note or of the other Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note or other such document. Notices. Any notices to Borrower shall be sufficiently given, if in writing and mailed or delivered to the Borrower's address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Bank's office address shown above or such other address as Bank may specify in writing from time to time. In the event that Borrower changes Borrower's address at any time prior to the date the Obligations are paid in full, Borrower agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, or overnight courier, all charges prepaid. Plural; Captions. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term "person" shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. Binding Contract. Borrower by execution of and Bank by acceptance of this Note agree that each party is bound to all terms and provisions of this Note. Advances. Bank in its sole discretion may make other Advances under this Note pursuant hereto. Posting of Payments. All payments received during normal banking hours after 2:00 p.m. local time at the office of Bank first shown above shall be deemed received at the opening of the next banking day. Fees and Taxes. Borrower shall promptly pay all documentary, intangible recordation and/or similar taxes on this transaction whether assessed at closing or arising from time to time. Arbitration. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to this Note and other Loan Documents ("Disputes") between or among parties to this Note shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaims, disputes as to whether a matter is subject to arbitration, claims brought as class actions, claims arising from Loan Documents executed in the future, or claims arising out of or connected with the transaction reflected by this Note. Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in the city in which the office of Bank first stated above is located. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000.00. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys. The single Page 6 arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of the state where the hearing will be conducted or if such person is not available to serve, the single arbitrator may be a licensed attorney. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. Preservation and Limitation of Remedies. Notwithstanding the preceding binding arbitration provisions, Bank and Borrower agree to preserve, without diminution, certain remedies that any party hereto may employ or exercise freely, independently or in connection with an arbitration proceeding or after an arbitration action is brought. Bank and Borrower shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted under Loan Documents or under applicable law or by judicial foreclosure and sale, including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute. Borrower and Bank agree that they shall not have a remedy of punitive or exemplary damages against the other in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute whether the Dispute is resolved by arbitration or judicially. IN WITNESS WHEREOF, Borrower, on the day and year first above written, has caused this Note to be executed under seal. Kenan Transport Company Taxpayer Identification Number: 56-0516485 CORPORATE By: /s/ Lee Shaffer ---------------------------- SEAL President & CEO ATTEST: /s/ William L. Boone ----------------------------- Secretary Page 7 EXHIBIT A AVAILABILITY REDUCTION SCHEDULE Date Availability ------------------ ----------------- Closing - 6-30-98 $20,000,000 07/1/98 - 09/30/98 $19,500,000 10/1/98 - 12/31/98 $19,000,000 01/1/99 - 03/31/99 $18,500,000 04/1/99 - 06/30/99 $18,000,000 07/1/99 - 09/30/99 $17,500,000 10/1/99 - 12/31/99 $17,000,000 01/1/00 - 03/31/00 $16,500,000 04/1/00 - 06/30/00 $16,000,000 07/1/00 - 09/30/00 $15,500,000 10/1/00 - 12/31/00 $15,000,000 01/1/01 - 03/31/01 $14,500,000 04/1/01 - 06/30/01 $14,000,000 07/1/01 - 09/30/01 $13,500,000 10/1/01 - 12/31/01 $13,000,000 01/1/02 - 03/31/02 $12,500,000 04/1/02 - 06/30/02 $12,000,000 07/1/02 - 09/30/02 $11,500,000 10/1/02 - 12/31/02 $11,000,000 01/1/03 - 03/31/03 $10,500,000 Page 8 EX-23 4 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Kenan Transport Company: As Independent Public Accountants, we hereby consent to the incorporation of our report, dated February 19, 1998, included in this Form 10-K, into the Company's previously filed Registration Statement No. 33-2494 on Form S-8, dated January 23, 1986. Arthur Andersen LLP Raleigh, North Carolina, March 30, 1998. EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000745379 KENAN TRANSPORT COMPANY 1,000 YEAR DEC-31-1997 DEC-31-1997 3,422 0 8,020 0 521 16,067 85,161 32,922 77,115 14,314 0 0 0 3,096 49,368 77,115 0 73,308 0 66,846 (174) 0 40 6,596 2,506 4,090 0 0 0 4,090 1.71 1.71
-----END PRIVACY-ENHANCED MESSAGE-----